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This release
is intended to udpate shareholders with regard to activities undertaken
by Roc Oil Company Limited ("ROC") and its recently acquired,
100% owned, subsidiary Morrison Middlefield Resources (UK) Limited, subsequent
to 21 June 1999 when the ROC Prospectus was registered with the Australian
Securities and Investments Commission.
During the
seven week period under review, a number of events have occurred which
reflect the pro-active nature of ROC and its UK subsidiaries. Although
no single event is regarded as being material, collectively, the activities
represent a data set which ROC believes should be in the public domain.
1.
UNITED KINGDOM ASSETS
1.1
ROC's acquisition of Morrison Middlefield Resources Limited's (MMRL) United
Kingdom (UK) Assets
The acquisition
was completed in Calgary, Canada, on 29 July 1999, in accordance with
the schedule laid out in the ROC Prospectus. As a result of the acquisition,
ROC now owns 100% of MMRL's UK assets through wholly owned subsidiaries
which have been renamed to reflect ROC's ownership, including:
• MMRL (UK) Limited is now known as Roc Oil (Europe) Limited
• Candecca Resources Limited is now known as Roc Oil (UK)
Limited
• Cambrian Exploration Limited is now known as Roc Oil (CEL)
Limited
1.2
The Saltfleetby Gas Development
This 100%
owned and operated development is currently ROC's core project. During
the period under review the project progressed on budget and on schedule.
The expectation remains that first gas will be produced in November 1999,
as stated in the ROC Prospectus. Specific Saltfleetby activities that
warrant special mention include:
• Excellent progress has been achieved with regard to the 6"
intrafield flowlines and the 8 km 10" pipeline, linking the Saltfleetby
Gas Field to the Conoco operated gas processing plant at Theddlethorpe.
This part of the development project is due to be completed on schedule
by end September 1999.
• Detail design is virtually complete on the field facilities
and fabrication activities have commenced. Work is on schedule and is
also due for completion at the end of September 1999.
• The project facilities being installed within the Theddlethorpe
site are being managed by Conoco, the gas plant operator. Work is proceeding
on schedule and the expectation is that first gas should be flowing by
November 1999, as indicated in ROC's Prospectus.
1.3
Drilling
On 4 July
1999 the Saltfleetby-3 well flowed on a short duration test at a rate
up to 16 mmscfd which was constrained by surface facilities. It has been
estimated that Saltfleetby-3 could be capable of initially flowing up
to 20 mmscfd when appropriate production facilities are installed. In
general terms, Saltfleetby-3 is regarded as the best well drilled thus
far in the Saltfleetby Gas Field.
The Saltfleetby-4
well, approximately 2 km to the west of Saltfleetby-3, is currently drilling
ahead and is expected to encounter the top of the gas reservoir later
this month. The well is on budget and on schedule.
The top of
the Brindlsey Abdy Formation, which unexpectedly contained oil in Saltfleetby-3,
was encountered by the Saltfleetby-4 well at a vertical depth 7 metres
high to the base of the oil bearing formation in Saltfleetby-3. In Saltfleetby-4
log information suggests that the uppermost part of the Brindsley Abdy
Formation may possibly be hydrocarbon bearing but the remainder of the
formation appears to be both water wet and tight compared to Saltfleetby-3.
The regional geological setting of the Brindsley Abdy Formation is known
to be complex and therefore, in the absence of additional data, it is
premature to assign any commercial significance to the oil accumulation
in the Brindsley Abdy Formation at Saltfleetby.
1.4
Production
July 1999
oil production was approximately 2,500 bopd. Total oil production during
the month was slightly affected by an increased water cut at Keddington-1
that may be due either to the encroachment of the water table or water
breakthrough following a previous reservoir-frac job.
As stated
in the Prospectus, MMRL had previously put in place an oil hedging programme
as a result of which 2,000 bopd have been effectively forward sold from
April 1999 at a Brent oil price of US$13.00/bbl, not including the US$0.35/bbl
premium which attaches to the production. This hedging arrangement terminates
on 31 December 1999. The price received for the balance of the oil produced
in July 1999 averaged US$19.30/bbl. The equivalent spot price received
by ROC in early August 1999 was US$19.70/bbl.
ROC's Prospectus
did not make any specific reference either to July oil production or to
the receipt of July production revenue because the transaction was not
expected to close until the end of July. However, both the spot price
and forward sale price received for oil produced in July are in excess
of the US$12.50/bbl August-December oil price forecast used in the ROC
Prospectus.
1.5
Seismic
The latest
seismic mapping of the Saltfleetby Gas Field indicates that the eastern
edge of the field may lie beyond the boundary of the existing 3D seismic
survey. Existing 2D seismic, located to the east of the field, suggests
that any extension of the field in that direction is unlikely to be very
large, although even a small field extension could be developed profitably
because of the associated field infrastructure. Because of this, ROC intends
to acquire 55 sq km of 3D seismic to the east of the Saltfleetby Field,
starting in late September 1999, for a total cost in the order of A$1.5
million, including processing.
1.6
U.K. North Sea
At
the moment, ROC's only active interest in the UK North Sea is its collective
12.5% interest in the Kyle Oil Field Development, which includes 1.25%
held through ROC's 50% ownership of Croft (UK) Limited ("Croft").
The Kyle Development is operated by Ranger Oil (UK) Limited ("Ranger")
and the other non-operators, apart from ROC, are Bow Valley Petroleum
(UK) Limited ("Bow Valley"), Premier Oil plc and Croft. Until
recently the development concept being pursued by the Kyle Joint Venture
required the tie-in of the Kyle Field to the Banff Ramform Floating Production
and Storage Facility (FPSO). The Banff Ramform FPSO is managed by Norwegian-owned
PGS Floating Production (UK) Limited while the Banff Field is operated
by the US-owned Conoco (UK) Limited.
Just
over a month ago, on 9 July 1999, the head offices of Ranger and Bow Valley
issued separate media releases which advised that, as a result of the
continuing delays at the Banff Ramform FPSO, the Kyle Joint Venture was
actively considering the use of alternate production facilities for the
Kyle Field with a view to preserving the early first oil production schedule.
During the last month progress has been made with regard to identifying
the preferred early production alternatives, one of which remains the
tie-in to the Banff Ramform FPSO. A final decision is likely to be made
within the next two or three months in consultation with the UK Department
of Trade and Industry.
While
a delay beyond the first Kyle oil date forecast in ROC's Prospectus (December
1999), cannot be ruled out at the moment that date continues
to be regarded
as a valid target.
1.7
Gas Storage Potential
ROC's
Prospectus makes only a passing reference to the gas storage potential
of the Saltfleetby Gas Field. However, since the Prospectus was finalised
ROC has given some further thought to this potential following informal
discussions with appropriate experts. As a result of these discussions
the company has decided to accelerate a Feasibility Study to determine
the commercial potential of gas storage at Saltfleetby.
2.
OTHER INTERNATIONAL ASSETS
2.1
Mongolia
ROC
continues to intermittently produce oil from its field facility in the
East Gobi Basin and to periodically sell it to China via rail car export.
The most recent series of export oil sales was completed on 9 July 1999,
bringing the total oil produced and exported this year to approximately
28,500 barrels. The sale price is calculated with regard to the prevailing
price of internationally traded crude oil. As a result, the price received
by ROC at the Mongolian-Chinese border for the July shipment was US$15.55/bbl.
Although the total revenue is relatively small within ROC's overall corporate
context, the fact that the company has established a successful sale and
export process characterised by virtually immediate invoice payment by
the Chinese buyers is significant and confirms that a commercial framework
exists which would allow larger volumes of oil to be sold if exploration
success is achieved.
Prior to the end of August, ROC intends to commence the 1,035 km Jochi
2D Seismic Survey in Mongolia's Gobi Desert using the same seismic contractor
as last year, APCO/CGG. The anticipated cost of the survey, including
processing, is expected to be about A$4.6 million. The main purpose of
the survey is to detail large leads identified by the 1998 seismic survey
with the intent that the more attractive prospects will be matured to
drilling status.
APCO/CGG
have agreed that the Jochi Seismic Survey will meet the obligations of
the Gulf Canada Resources Limited ROC Joint Venture under the Agreement
between APCO/CGG and the Joint Venture. Accordingly, no early termination
payment will be required to be made and the potential litigation referred
to in ROC's Prospectus will not arise.
2.2
Senegal
On
6 July 1999, ROC, on behalf of itself and its co-venturer Woodside Petroleum
Limited, signed a second Memorandum of Understanding ("MOU")
with the relevant government authorities in Senegal. As a result, ROC
will continue to review exploration opportunities in that country.
2.3
Morocco
Processing
of the 829 km 2D seismic, which ROC acquired offshore Morocco in April-May
1999, is continuing on schedule with completion expected by the end of
August 1999. The company continues to have a very positive view of the
hydrocarbon potential of its area offshore from Morocco.
2.4
Malta
A
seismic inversion study of the 3D data set is being undertaken in Denmark
by Odegaard A/S.
3.
CORPORATE
3.1
Capital
Structure
Following the company's successful completion of both the acquisition
of MMRL'''''s UK assets and its initial public offering ("IPO"),
in which it raised A$150 million through the issue of 75 million fully
paid, ordinary, shares, ROC's current capital structure is summarised
as follows:
Fully
paid ordinary shares 105,994,060
Shareholders'
Options on Issue (1) 7,698,830
Employee Options on Issue (2) 23,074,910
(1) As
detailed in ROC's Prospectus, shareholders' options have been issued at
an exercise price of $2.30 and are subject to escrow for periods of 1
or 2 years.
(2)
Consistent with intentions expressed in ROC's Prospectus to the effect
that the Employee Share Option Plan (ESOP) was to be used to attract new
staff and incentivise current staff, a further 970,000 employee options
at an exercise price of $2.00 have been issued to ROC's new UK and Australian
employees under the ESOP in addition to the number shown in ROC's Prospectus.
All options issued under the ESOP are not exercisable for two years. Approximately
42% (2.2 million options) of the ESOP remains unallocated and the company
has no intention of making any further significant allocation in the near
future.
3.2
Financials
Following
closing of the MMRL transaction and payment of costs associated with the
IPO, ROC currently has more than A$50 million in cash reserves and a net-debt
to equity ratio of approximately 10% based on the current net-debt of
A$17 million. ROC received subscriptions well in excess of the A$40 million
maximum oversubscription which the company was able to accept. The oversubscriptions
will be used to sensibly accelerate the company's exploration, appraisal
and development programmes, particularly onshore UK.
3.3
Appointment of Mr B C Hung as General Manager Legal & Administration
ROC
is pleased to advise that Mr Bun Hung has accepted a senior executive
position with the company. Mr Hung was heavily involved with the MMRL
acquisition process in his capacity as a consultant to ROC. Mr Hung was
most recently Managing Director of Cairn Energy (Asia) Ltd, prior to which
he held a number of senior executive positions with Command Petroleum
Limited and Nomeco Oil and Gas.
4.
COMMENTS
Commenting
on the activities referred to above ROC's CEO, Dr John Doran, stated that:
"Seven
weeks is a long time in the international oil business, particularly if
you are a pro-active company such as ROC. Two events stand head and shoulders
above all the other activities during the review period: the continuing
good progress being made at the Saltfleetby Development and the successful
raising of A$150 million via ROC's public listing on the Australian Stock
Exchange. These events, together with the company's current and anticipated
oil production in the UK, represent an excellent foundation upon which
to build a meaningful oil company over the next few years.
ROCıs
Board and Management would like to sincerely thank all of the company's
Sydney-based workforce for their extraordinary effort during the last
six months when the acquisition was being put together. ROC's Board and
Management would also like to welcome into the company all of MMRL's UK-based
employees who also exerted a huge effort in order to ensure that the acquisition
proceeded smoothly."
Dr
John Doran Chief Executive Officer
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