| FEBRUARY 2000- RELEASES |
WEEKLY ACTIVITIES UPDATE (24-02-00) |
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1. PRODUCTION AND RELATED MATTERS 1.1 UK Production During the first seven weeks of the year (i.e. to 17 February) ROC's average daily production was 48 MMSCFD of gas, 2400 BOPD and an estimated 1000 barrels of condensate per day (BCPD). During this period the average Brent oil price was US$26/bbl, equivalent to almost A$41/bbl. As of the week ending 17 February, ROC's UK production was in the order of 12,000 BOEPD split 72% gas, 19% oil and approximately 9% condensate, assuming a condensate yield of 20 barrels per million cubic feet of produced gas. Gas production from the Saltfleetby Gas Field was in the order of 52 MMSCFD with an estimated 1040 BCPD. On 17 February the Saltfleetby Gas Field, which came onto production on 14 December 1999, produced its 3 billionth cubic foot of gas and was continuing to perform in accordance with Prospectus forecast. Because the Company's 2000 BOPD oil hedging program (at US$12.50/bbl) expired at end 1999, only 1000 BOPD of ROC's current oil production is hedged through a US$14.35/bbl arrangement, put in place by the previous owners of the assets. This hedging program expires at the end of the year. 1.2 UK North Sea The Kyle Joint Venture continues to move towards conducting a 130 day Extended Well Test, starting end May 2000. 1.3 Mongolia ROC continues to produce about 130 BOPD from three wells in Mongolia's Gobi Desert despite temperatures reaching down to -40ºC. As a result of its winter production activities ROC has approximately 21,500 barrels of oil in storage at its tank farm in Zuunbayan awaiting export to China later in the year. In January 2000 reports appeared in sections of the Mongolian media, to the effect that Yukos Oil Corporation, one of Russia's largest oil companies, had entered into an agreement to supply oil to China via a 2315 km pipeline, almost half of which will traverse Mongolia following the Trans-Mongolian railroad. This route would take the pipeline through the middle of ROC's acreage in the East Gobi Basin (Attachment 1). The media reports provide various other details of the proposed pipeline and the Russian and Chinese companies that are negotiating the construction contracts. ROC will adopt a wait-and-see attitude with regard to the pipeline although, obviously, if the pipeline does materialise as predicted, it will provide ROC with a tremendous infrastructure advantage should the company's exploration efforts in the East Gobi Basin meet with success. In late January, the Mongolian Cabinet approved an amendment to the Crude Oil Law, granting tax and VAT exemption to foreign investors in the country's crude oil sector. This amendment, which is expected to be ratified by the Mongolian Parliament as a matter of routine, represents a very positive development for ROC and its ongoing activities in Mongolia. 2. EXERCISE OF OFFSHORE PERTH BASIN FARMIN OPTION ROC has completed its interpretation of data obtained from the 586 km Michelle Seismic Survey conducted in the offshore Perth Basin permits WA-286-P and TP/15, in October 1999. ROC considers the results to be encouraging. On this basis ROC has notified the relevant parties that it wishes to exercise its option to acquire a 45% interest in WA-286-P by paying 60% of the cost of a well which is scheduled to be drilled in that permit during the second half of 2000. 3. SUCCESSFUL SYNDICATION OF THE BARCLAYS BANK CREDIT FACILITY Barclays Bank plc has advised the company that it has successfully syndicated ROC's US$50 million credit facility to a consortium of three banks: Bank of Scotland, Bayerische Landesbank and Christiania Bank. The terms of the facility, which is not fully drawn down, remain unchanged. 4. 2000 DRILLING PROGRAM ROC is preparing its drilling program for calendar 2000 and, although this is a continuing process, the following components are considered to be firm. · March
- ROC's first participation in a North Sea well. The first well in ROC's 2000 drilling program will be the 30/22b-B exploration well which is scheduled to start drilling in March, approximately 8 km south of the Janice Oil Field in the Central Graben of the UK North Sea (Attachment 2). At the moment ROC has a 1.125% interest in the well through its 50% ownership of Croft (UK) Limited but it is considering increasing its interest to a slightly more meaningful level. In any event, the well is significant to ROC because it is the company's first participation in a North Sea drilling program. Although the mean prospect reserve is a modest 25 MMBO the commercial cut-off for a development in this part of the North Sea is considerably less and the prospect's upside potential is considerably more. The well will be operated by Kerr-McGee Oil (UK) plc (Kerr-McGee), which is farming in by paying most of the well cost which is expected to be about £3 million/A$7.5 million. Kerr-McGee has other operated interests in the area, including the Janice Field. The well is designed as a low cost "finder" and, as such, it will be plugged and abandoned regardless of the drilling results with any exploration success being appraised by a separate well. · April:
Keddington drilling program to resume. During the last several months, production from Keddington-1 has been closely monitored following the pronounced increase in water production which occurred in August 1999, immediately after ROC's IPO. This was one of the reasons why ROC chose to defer its onshore UK drilling program pending a thorough re-evaluation of the data set. Fortunately, the most recent production information from Keddington-1 has been encouraging: the water cut has reached a plateau of about 38%, some 10% lower than the August 1999 water cut, while the average oil production for January 2000 was 82 BOPD with some daily measured rates in excess of 100 BOPD; a distinct improvement on the 58 BOPD production achieved in September 1999. In the light of the improved performance at Keddington-1, ROC will drill a second Keddington well starting in April 2000. This well will be designed to enhance the drainage from the northern part of the Keddington field. Unlike Keddington-1, which is a vertical well, Keddington-2 will include a 300 metre horizontal section, which is intended to provide higher production rates than can be achieved at Keddington-1. · Second
Half of 2000 During the second half of 2000 ROC expects to participate in the drilling of a number of other wells including the following. - Onshore UK Apart from Keddington-2, ROC expects to drill at least one or two other wells onshore UK including Saltfleetby-5 which will probably be designed to test the reservoir potential of the Namurian sequence which underlies the main Saltfleetby gas reservoir. - UK North Sea Subject to the receipt of Joint Venture and Government approvals ROC anticipates that a well will be drilled on the northeast side of the Kyle structure during, or immediately after, the 130 day Extended Well Test scheduled to start at the end of May 2000. - Offshore Perth Basin As a result of ROC exercising its farmin option in relation to WA-286-P (see above), the company expects to drill a well in the offshore Perth Basin, probably during September - October 2000 subject to rig availability. 5. PURCHASE OF SHARES BY ROC DIRECTOR On 21 February the Company advised ASX that Dr John Doran, the company's CEO, had purchased 8,250 ROC shares at A$1.20/share. The share purchase occurred on Monday 14 February 2000 in compliance with ROC's corporate policy that employees and Directors of the company are only allowed to buy or sell shares within two weeks of the company issuing its Quarterly Report to the ASX. 6. 1999 FINANCIAL RESULTS AND 2000 FORECAST ROC is currently finalising its financial results for 1999 and updating its Prospectus forecast for 2000. Relevant figures are expected to be released to ASX on/about 15 March 2000. Management's current expectation is that the figures will not contain any major surprises for anybody who has been following ROC's numerous, frequently weekly, releases to ASX. A well defined scenario has been established by those releases: the impact of lower than anticipated production, due to the well documented delay at the Kyle Field and the deferral of ROC's onshore UK drilling program, is partially offset by higher than anticipated oil prices. 7. APPOINTMENT OF MR EDGAR BAINES AS MANAGING DIRECTOR OF ROC'S UK SUBSIDIARY Following the successful completion of the Saltfleetby Gas Field Development, Mr. Paul Atkinson, currently ROC UK's Managing Director has advised the company that he plans to return to a senior management role in the Asian development project with which he was formerly associated prior to joining ROC UK twelve months ago. The Company has a very high regard for Mr. Atkinson and wishes him every success in his new venture. ROC UK is, however, very pleased and very fortunate to be able to advise that Mr. Edgar Baines will replace Mr. Atkinson, effective 1 March 2000. Mr. Baines, a dual Australian/British citizen, is a reservoir and petroleum engineer by background, with a M.Sc. from Imperial College in London and 24 years international oil industry experience. Following five years working out of London on North Sea and West African projects, Mr. Baines moved to Sydney in the early 80s where he worked for Energy Resource Consultants and Hartogen Energy Limited, prior to joining Command Petroleum Limited (Command) in 1990. During the early and mid 90s, Mr. Baines was closely associated with all of Command's major projects including the discovery of the South East Gobi Oil Field in Papua New Guinea and the development of the Ravva Field in the Bay of Bengal, offshore India. Subsequent to the sale of Command to Cairn Energy plc, Mr. Baines was appointed to the position of General Manager, Ravva Project, in which capacity he was directly responsible for the continuing successful development of the Ravva Field. In late 1999, Mr. Baines relocated to the UK and started working as a consultant for ROC UK out of the company's Lincolnshire office. Commenting on Mr. Baines appointment, ROC's CEO, Mr. John Doran stated that: "We have always been very fortunate to be able to find the right people for the right job at the right time. Paul did a terrific job getting the Saltfleetby Gas Field onstream but the company fully understands the attractions offered by an expatriate posting in Asia. Edgar occupies a unique position in the industry being well known to many of us in ROC's Sydney office, and also very well acquainted with our staff in Lincolnshire. Edgar always provided sterling service during his time at Command, as evidenced by the fact that he ended up in charge of the Ravva Project, so we are now looking forward to accessing his management and technical skills in a UK context." 8. CEO'S COMMENTS ON ROC'S SHARE PRICE Our shareholders would be acutely aware that during the 21 weeks which elapsed between the company's initial public offering and the end of 1999, ROC's share price declined 26% broadly in line with general sector trends. Since 1 January 2000 the share price has declined 18%, which is also largely consistent with sector trends. However, a total shareprice decline of 39% over six months would seem to suggest a surprisingly sharp contrast between investor sentiment before and after ROC's IPO; a situation which might seem to be all the more puzzling because oil prices continued to strengthen through late 1999 and into 2000. When the circumstances are examined in greater detail a straightforward relationship can be seen between cause and effect. Specifically: · On 14 July 1999, two days before ROC's IPO closed, an unprecedented disconnection occurred between oil price trends and stock market sentiment: as the oil price continued to rise investor appetite for the upstream oil and gas sector declined. A similar phenomenon occurred in North America and the UK during 3Q1999. Industry and market watchers have offered a couple of explanations to account for this situation: general investors' concern that strong oil prices will not be sustained and speculative investors' preference for Internet/dot.com stocks. Regardless of the reasons, the end result is the same: the upstream oil and gas sector is generally soft with many stocks trading at levels normally only seen when oil prices are much lower than they are at the moment. As far as ROC is aware the few international oil companies which have markedly out-performed the index have generally done so as a result of spectacular exploration success, sometimes in high-risk frontier areas, although in the pricing of the IPO zero value was assigned to such areas within ROC's portfolio. · The well documented delay in bringing the Kyle Oil Field onto production in the North Sea and the deferral of ROC's onshore UK drilling program pending a thorough data review, have both sapped the strength of ROC's share price. This effect was compounded by the 2000 BOPD US$12.50/bbl hedging program, put in place by the previous owners of the UK assets, which did not expire until end 1999. · Finally, there is the plain fact that the bulk of ROC's current production is gas. This reduces the benefit which the company derives from an uptrending oil price, although, of course, it also reduces the angst that the company would feel if oil prices trend started heading down. ROC's Board and Management believe that all the factors referred to above have already been taken into account in ROC's share price performance since the IPO. In fact the company's view is that an over-reaction has occurred but it is quick to acknowledge that that is quite common in such circumstances and that shareholders have every right to regard ROC's performance to date as unsatisfactory and to expect their company to outperform the relevant index, regardless of the prevailing industry or market climate. During 2000 this is exactly what ROC intends to do. Dr John Doran |
