| DECEMBER 2004 - STOCK EXCHANGE RELEASES |
| STOCK EXCHANGE RELEASE - ROC ACQUIRES OPTION OVER 26% OF PRODUCING OILFIELD IN UK NORTH SEA (30-12-2004) |
KEY POINTS
• ROC has entered into an agreement with a privately-owned British oil company, Acorn Oil & Gas Limited (“AOG”), whereby it will be entitled to acquire up to 26% direct equity in the Ardmore Oil Field and surrounding acreage in the UK North Sea (“the Assets”). The interest will be provided by AOG’s wholly-owned subsidiary, Acorn North Sea Limited (“ANSL”), which presently has a 35% interest in the Assets. Within the area of interest around Ardmore, which is currently producing about 8,000 BOPD, are two small abandoned oil fields with redevelopment potential; a small undeveloped oil discovery and several undrilled prospects and leads with a collective unrisked reserve potential in excess of 60 MMBO. • The consideration provided by ROC is threefold: payment of £750,000 to acquire 75% of the a £15MM senior secured debt facility provided to ANSL; an undertaking to provide senior secured debt to ANSL equivalent to 75% of that company's future Joint Venture cash calls and a payment of an effective option exercise fee up to £1.9MM if/when ROC converts the loan into direct equity in the Assets. If ROC exercises its option to convert its loan to equity according to the presently envisaged schedule, it will book its net share of Ardmore’s remaining recoverable reserves and associated production revenue during 2Q 2005. • In 1975, the Ardmore Oil Field, then known as the Argyll Field, was the first UK North Sea oil field to be brought onto production. After producing 73 MMBO and being abandoned in 1992 the field was redeveloped by ANSL and another privately-owned UK oil company in late-2003. Since then the field has produced about 4 MMBO. Currently, the field is subject to a continuous development drilling and workover programme designed to increase gross Joint Venture production to a high in excess of 12,000 BOPD during 2H2005. As at January 2004, the field's total initial in-place oil was independently calculated to approximate to 300 MMBO of which 77 MMBO (26%) has now been produced. • Remaining recoverable oil at the Ardmore Field has been independently estimated to be in the order of 23 MMBO. In ROC's opinion, exactly how much of this remaining oil will be produced economically will depend upon the results of the current continuous development drilling and workover programme which will unfold during 2005.
1. TRANSACTION ANSL holds a 35% working interest in UK North Sea Blocks 30/24a, b, c and d; 30/25b and 30/29b and c (collectively “the Blocks”) which contain the Ardmore Oil Field, two small abandoned oilfield, small undeveloped discoveries and several undrilled prospects and leads (the “Assets”) (Attachment 1). ROC and AOG have formed a Loan Syndicate (“the Syndicate”) to assist ANSL with its funding obligations in relation to the Assets including the Ardmore redevelopment. ROC, AOG and one of AOG's key shareholders, a boutique European investor specialising in the oil and gas sector, have also executed an agreement the essence of which is: • ROC and AOG have bought out, for £1.0MM, a £15MM, Senior Secured Debt Facility provided to ANSL by a previous lender. As part of this process, ROC has provided a secured loan to ANSL which has entitled it to 75% participation in the two-company Syndicate. For all practical purposes, this £750,000 loan is ROC's cost of entry to the deal. • ROC has also undertaken to provide ANSL secured loans equivalent to 75% of that company's share of future Joint Venture cash calls. • At its discretion, prior to the 14th day of continuous oil flow from the next well to be drilled on the Ardmore Field, ROC can choose to cease providing further secured loans to meet ANSL's share of future Joint Venture cash calls and either exit the project with no further obligation or exercise its entitlement to convert its share of the Syndicate's loan into direct equity in the Assets. • If ROC has not exercised its option to convert to direct equity prior to the 14th day of continuous oil flow from the next well to be drilled in the Ardmore Field, the option will lapse. It is currently expected that this 14th day will occur during May 2005. • If ROC decides to convert its share of the Syndicate's loan to direct equity ownership in the Blocks the level of that interest will be calculated according to the contribution ROC has made to the Syndicate at that point of time. If, at the time the option is exercised, ROC's contribution to the Syndicate's loan funds is less than 75% of total Syndicate loans to ANSL, ROC is entitled, but not obliged, to increase its contribution to the Syndicate's funds by up to £1.9MM, plus the value of the cash calls required at that time, to achieve the 75% level of contribution so that it has the ability to capture up to 26% equity interest in the Blocks. The practical effect of the transaction is: ROC has invested £0.75MM (equivalent to A$1.86 MM/US$1.44MM at current exchange rates) by way of a secured senior ranking loan; undertaken to pay 26% of future Joint Venture cash calls and to pay what is, in effect, an option exercise fee of up to £1.9MM, to purchase the right to acquire a direct interest, up to 26%, in a producing North Sea oil field and surrounding exploration, appraisal and potential development acreage.
2. THE ARDMORE REDEVELOPMENT In 1975, the Ardmore Oil Field, then known as the Argyll Field, was the first UK North Sea oil field to be brought on to production. After producing 73 MMB of 37° API oil over 17 years, Ardmore was abandoned in 1992 with a relatively modest water-cut of 70%, partly due to lack of gas lift facilities and other facilities' constraints. The field's original development was undertaken without the benefits of 3D seismic which has since been acquired and reprocessed. In early 2002, the Blocks were awarded to the current licensees. A Field Development Plan was approved in late 2002. First oil flowed from the redeveloped field in September 2003. The field is operated by Tuscan Energy (Scotland) Limited, a privately-owned UK oil company that holds 65% of the Assets. Oil production from the redeveloped field is via facilities on the dedicated jack-up drilling rig Rowan Gorilla VII. By September 2004 the redeveloped field had produced approximately 4 MMBO of oil. Currently the field is producing a total of about 8,000 BOPD from two wells. Original in-place oil reserves at Ardmore have been independently estimated to be approximately 300 MMBO of which a total of 77 MMBO (26%) has been produced during the field's two development phases. An independent estimate suggests that up to 23 MMBO may be recovered by the Joint Venture. However, at this point in time, ROC has chosen not to predict exactly how much of Ardmore's remaining oil in-place will ultimately be classified as recoverable proved and probable reserves. As the continuous development drilling and workover programme proceeds through 2005 the Company fully expects that the relevant reserve figures will become a lot clearer. In January 2005, the Joint Venture plans to workover a third well, which was drilled as part of the redevelopment programme, with the intention of bringing it back on to production at a rate in excess of 2,000 BOPD. The Joint Venture is also expected to drill a fourth redevelopment well which it is hoped will further increase the field's production by more than 7,000 BOPD by May 2005 to a high in excess of 12,000 BOPD. Two additional development wells are also being contemplated for back-to-back drilling from May 2005.
3. IMPACT ON ROC In total, ROC expects that by the time it is required to decide whether or not it should exercise its option to convert to direct equity, probably in May 2005, it will have provided ANSL with secured loans of approximately £4.5MM against Joint Venture cash calls. If ROC chooses to exercise its option in full, a further amount, up to a total of £1.9MM, will be loaned by ROC to AOG. The secured loans provided by ROC will be sourced from internal funds. Until ROC chooses to convert its loans to equity it will not book any reserves nor take into account any production from Ardmore. Over the next several months this will not disadvantage ROC because the active drilling and workover programme will require the equity participants to reinvest cash flow and to also invest additional capital to redevelop the field. It has been agreed that ROC will be an active participant in the Ardmore redevelopment, notwithstanding the fact that its current involvement is via a secured loan arrangement rather than equity. Through this arrangement ROC will be well positioned with respect to the wave of new independents entering the UK North Sea as that province matures and large multinationals struggle with the challenges of materiality as new field discoveries tend to be smaller and established field production rates decline.
3. THE POTENTIAL OF THE AREA AROUND THE ARDMORE FIELD The potential of the area immediately around the Ardmore Field is intriguing (Attachment 1). The presence of the Rowan Gorilla VII jack-up drilling rig with its dedicated production facilities servicing the Ardmore Field is potentially a very important part of the region's infrastructure. Not only does the rig offer potential access to production facilities but there are a number of likely drill targets can be reached from the rig. There are two abandoned oilfields within the Blocks. The Dalmore Field, formerly known as Duncan, and the Innes Field, which are, respectively, 5 km west and 15 km north of Ardmore. The former was abandoned in 1992 after producing 17 MMBO of 38° oil from the Jurassic Fulmar Sandstone while the latter was abandoned in 1991 after production had ceased two years earlier when a storm damaged the facilities after Innes had produced a total of 6 MMBO of 42° API oil from the Permian Rotliegend. There may be potential for undrained parts of the Dalmore Field to yield 5 to 10 MMBO. The potential of the Innes Field lies in the fact that it was producing oil without water when it was abandoned. There is also a single well oil discovery, Iris, about 10 km southwest of Ardmore which merits review. There are also several undrilled prospects and leads within the Blocks including Ida, Epsilon, Kryptonite and West Innes (Attachment 1). In total, the independent estimate of the unrisked exploration potential of the Blocks is in excess of 60 MMBO There may also be the possibility of third party business if other operators in the region wish to access the Ardmore facilities, which is within tie-back distance of most of the key prospects in the region. Interestingly, almost all the acreage around the Blocks has been licensed during the last two years as a result of a new wave of independent oil companies entering the North Sea.
CEO’s Comments Commenting on the Ardmore transaction, ROC’s Chief Executive Officer, Dr John Doran stated that: • “In different circumstances it would be tempting to present this deal in terms of dollars (or, in this case, cents) per barrel paid to acquire producing and partly developed reserves but, in the present context of Ardmore, it would be premature to present the transaction in that light. • This is an unusual deal that may initially seem to be a little complex. In reality, all that has happened is that, because of ROC's extensive industry network, flat management structure and strong balance sheet, it has been able to move quickly on a short-fused production acquisition deal which offered terms that are not often encountered in a world of US$40/BBL oil prices. Whether or not it turns out to be a good move will only become apparent as the development drilling and workover programme unfolds during 2005. • If the development drilling and workover results are positive, ROC will convert its loan to direct equity in the Blocks and book its share of Ardmore reserves and take the production revenue to account in 2Q 2005. Such an outcome would provide ROC with a well timed production and reserve “bridge” between the recent sale of the Saltfleetby Gas Field and the expected start-up of production in early 2006 from ROC's oilfields offshore Mauritania and Western Australia. Until it chooses to exercise its option, ROC is very comfortable with its involvement in the Ardmore Project as a Senior Secured Lender that is also an active project participant. • ROC first identified the opportunity, in early December 2004 and the binding agreement was executed earlier today. You can only achieve that type of progress in that type of timeframe when you are dealing with like-minded people with a joint ability to focus constructively on getting the transaction done. ROC looks forward to working with the people at AOG, both on Ardmore and also on any other appropriate transaction which may arise. • The transaction also illustrates the benefits of keeping a watching brief and an open mind with regard to parts of your portfolio which may, at one stage, have been considered peripheral but which, with a change of industry climate, can become more central to the Company's strategy. This change in perception is due to the UK North Sea becoming an arena of activity that is much more appealing to ROC now than it was five years ago when the Company first acquired interests in the region. Then the area was dominated by larger multinationals with high cost structures and, understandably, no real interest in developing small/modest fields within the timeframes that smaller independents require. Now, things are quite different following the influx of smaller companies with more urgent development agendas and, of necessity, a higher degree of cost consciousness.
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| STOCK EXCHANGE RELEASE - UK ONSHORE DRILLING UPDATE (29-12-2004) |
As at 6:00am on 28 December 2004 UK time, the Errington-1 exploration wildcat well was drilling ahead in 8½ inch hole at a depth of 1,353m in directional hole above the first objective horizon. Errington-1 is located in PEDL 028 approximately 35 km west of Newcastle in northern England.
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| STOCK EXCHANGE RELEASE - MAURITANIA OFFSHORE DRILLING UPDATE (21-12-2004) |
ROC advises that the following release was made earlier today by Woodside Petroleum Limited:
Chinguetti Development wells All reported drilling depths are referenced to the rig rotary table and all times are Universal Time (UTC) (Mauritanian time). The locations of the Chinguetti Oil Field, the Tiof and Banda discoveries and exploration wells are shown on the attached map. Wells are expected to be drilled in two production sharing contract areas during the remainder of the 2004/5 campaign."
Participating Interests in the areas are: Company............................... . . . . . . .PSC-A..........PSC-B |
| STOCK EXCHANGE RELEASE - ROC AGREES TO SELL SUBSIDIARY WHICH OWNS SALTFLEETBY GAS FIELD FOR £44 MILLION/ A$111 MILLION THROUGH A TRANSACTION WHICH IS EXPECTED TO GENERATE A$72 MILLION AFTER TAX PROFIT FOR 2005 (21-12-2004) |
The Saltfleetby Gas Field is Britain’s largest onshore gas field. Since ROC brought the field on to production at the end of 1999 it has produced 54 billion cubic feet of gas (“BCF”), initially at a collective rate in excess of 50 million cubic feet per day (“MMSCFD”) from four wells. Currently, the field is producing approximately 15 MMSCFD from three wells. Since start-up the field has also produced almost a million barrels of condensate (“MMBC”) and current condensate production is about 240 BCPD. Prior to first production the field’s recoverable proved and probable (2P) gas reserves were independently estimated to be 43 BCF. During the last 5 years it has become increasingly apparent that this initial estimate was conservative and it is now independently calculated that the original 2P recoverable gas reserves were approximately 90 BCF of which 36 BCF are yet to be produced. Original condensate reserves were 1.26 MMBC of which about 0.33 MMBC are yet to be produced. The field is largely developed but in order to access all of the remaining recoverable reserves, ROC would be required to further invest in the development of the field by drilling and completing additional wells.
WINGAS is a joint venture of Wintershall AG (65%), the largest German producer of oil and gas, and the Russian company, OAO Gazprom (35%), one of the largest gas companies in the world. The joint venture company has been active in the gas supply industry since 1990 and supplies natural gas to public utilities, major industrial enterprises and regional gas distribution companies in Germany and other European countries. In addition, WINGAS markets transport and storage capacities, as well as optical fibre capacity and is also active in the procurement of natural gas and the operation of pipelines and storage facilities. The German-Russian joint venture has a modern infrastructure with a network of more than 2,000 kilometres of pipeline in Germany that connects the huge gas reserves in Siberia with the growing markets in Western Europe and which also provides WINGAS with access to the developing European spot markets. With its natural gas reservoir at Rehden, which has a working gas volume in excess of four billion cubic metres, WINGAS possesses about one-fifth of the total gas storage capacity available in Germany. WINGAS has used the opportunities arising from the liberalisation of the European natural gas market as the basis for further growth. The company has now secured a market share of more than 7% in Belgium. WINGAS has also started supplying initial customers in France and Austria. It has also stepped up its natural gas marketing activities in the United Kingdom by establishing the new joint venture HydroWingas with the Norwegian company Norsk Hydro.
ROC has entered into agreements for the sale to WINGAS of 100% of the share capital of one of ROC’s wholly-owned subsidiaries, the principal asset of which is the PEDL 005 licence which contains the Saltfleetby Gas Field. Subject to an effective date working capital adjustment, WINGAS will pay a £44 million cash consideration to ROC, equivalent to A$111 million. The transaction is subject to satisfaction of normal industry terms and conditions precedent including the approval of the UK Department of Trade and Industry and the German merger authorities. The effective date of the sale will be 31 December 2004. ROC’s expectation is that the conditions precedent will be fulfilled in a routine manner during early 2005.
Subject to the completion of the sale, WINGAS has advised ROC that it intends to continue to produce gas at Saltfleetby through most of 2005 in accordance with the existing gas sales contract between ROC and RWE Npower plc. In this event, there will not be any near term operational changes at the Saltfleetby Gas Field. ROC has agreed to provide transitional services for the continuing operation and administration of the Saltfleetby Gas Field. ROC will retain its existing workforce to enable it to provide such services. Both WINGAS and ROC have also agreed that ROC will be able to continue to produce oil to its own account from the Keddington Field, located in PEDL 005, which produces approximately 50 barrels of oil per day from two wells. ROC will also retain all its other UK assets, including its interests in the UK North Sea where the Blane Field is being reviewed with the aim of establishing first production during the second half of 2006.
5. IMPACT ON ROC The sale is expected to generate a net after tax profit for ROC in the order of A$72 million which will be to be booked in Financial Year 2005 if as expected the conditions precedent for completion of the sale are satisfied in early 2005. Upon completion of the sale and receipt of the sale proceeds ROC will have cash and receivables in the order of A$180 million (equivalent to A$1.02/share) and no debt. The funds received from the sale will be used to finance ROC’s current and imminent activities which may include part of ROC’s share of the development of the Chinguetti Oil Field, offshore Mauritania and the Cliff Head Oil Field, offshore Western Australia, as well as carefully selected new venture activities. As a result of the sale, ROC’s 2P reserves will be reduced by approximately 6 million barrels of oil equivalent (“MMBOE”) representing almost one third of the Company’s currently booked 2P reserves. ROC expects, however, that the reduction in reserves will be more than offset by the 2P reserves that ROC will book if the Cliff Head Oil Field, offshore Western Australia, is subject to a Final Investment Decision at the end of January as presently scheduled. ROC’s production will reduce by about 2,750 BOED to 50 BOPD. This reduction in production is also expected to be more than offset in just over a year’s time if the Chinguetti Oil Field in Mauritania and the Cliff Head Oil Field are brought onto production as currently scheduled with ROC’s net initial production from these two fields expected to total more than 7,500 BOPD. ROC also has an active new venture programme which may, partially or completely, offset the reduction in reserves and production that will result from the sale of the Saltfleetby Gas Field. The proposed sale will not influence ROC’s current drilling programme in the UK which remains focused on testing large, high risk, gas prospects as illustrated by the well currently drilling at Errington in Northumberland and other wells which are scheduled for drilling and/or fraccing elsewhere in eastern England during 2005. Neither will the sale affect ROC’s participation in the Blane and Enoch fields in the UK North Sea where the company is continuing to work with the Operator and its co-venturers with a view to moving these fields towards first oil production during mid/late 2006. 6. CEO’S COMMENTS Commenting upon the transaction with WINGAS, ROC’s Chief Executive Officer, Dr John Doran, stated that: “The development and production of the Saltfleetby Gas Field has been a wonderful - and very profitable - experience for ROC. The proposed sale provides ROC with an opportunity to immediately realise, on a no risk basis, a value for the field that, on a forward price curve basis, would take a very long time to replicate in terms of net operating cash flow from pure gas and condensate production. As the Saltfleetby Gas Field moved into the mature phase of its productive life ROC has focused increasingly on how best to maximise the value of the field. During 2004, it became increasingly clear that any value maximisation exercise would be enhanced if it contained an element of gas storage. However, after reviewing gas storage in a UK context, ROC decided that it did not want to become a gas storage company because its upstream skill set and corporate strategy were inappropriate for life as an owner and operator of a gas storage facility. In the context of small independent oil companies, ROC’s balance sheet has been historically strong. With the proceeds of this sale it will now be quite exceptional. Fortunately, the Board and Senior Management Team at ROC have seen enough industry downturns to ensure that the money will not burn a hole in its corporate pocket but will rather be deployed judiciously on current and new ventures as and when appropriate. The sale is a good example of ROC’s sensibly contrary strategy and the Company’s approach of actively managing its portfolio of assets. It takes a certain amount of corporate confidence – and a very compelling offer – to sell virtually all of a company’s, albeit modest, production and one third of its equally modest reserves. If we thought we couldn’t replicate a Saltfleetby-type experience in the future we wouldn’t be selling it now. A number of ROC’s directors have been here before in previous corporate lives, including agreeing to sell the former Command Petroleum’s 20% stake in the South East Gobe discovery in the highlands of Papua New Guinea for A$20 million in the early ‘90s. That move effectively recapitalised that company and allowed it to invest approximately A$1 million into work that led to the acquisition of the Ravva Oil and Gas Field offshore India which went on to totally transform Command. Given the difference in size of the WINGAS co-venturers and ROC and the different positions they occupy within the oil and gas business it is a tribute to all parties that the documents have been finalised within a relatively short period.”
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| STOCK EXCHANGE RELEASE - UK ONSHORE DRILLING UPDATE (20-12-2004) |
The Errington-1 wildcat exploration well, which is targeting a potentially large gas prospect, is expected to reach the first objective horizon during late December 2004.
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| STOCK EXCHANGE RELEASE - MAURITANIA OFFSHORE DRILLING UPDATE (14-12-2004) |
ROC advises that the following release was made earlier today by Woodside Petroleum Limited:
Preliminary interpretation of logs acquired while drilling and wireline logging operations, including fluid sampling and downhole pressure measurements, indicate the well has intersected a gross oil column of approximately 23 metres in several individual sands of variable thickness. At midnight on 13 December wireline logging operations and the evaluation of well data was continuing. After completing operations on the Tiof-5 appraisal well, the ‘Stena Tay’ will move to the Chinguetti Field and join the West Navigator on the development drilling program.
Chinguetti Development wells All reported drilling depths are referenced to the rig rotary table and all times are Universal Time (UTC) (Mauritanian time). The locations of the Chinguetti Oil Field, the Tiof and Banda discoveries and exploration wells are shown on the attached map. Wells are expected to be drilled in two production sharing contract areas during the remainder of the 2004/5 campaign."
Participating Interests in the areas are: Company............................... . . . . . . .PSC-A..........PSC-B |
| STOCK EXCHANGE RELEASE - UK ONSHORE DRILLING UPDATE (13-12-2004) |
ERRINGTON-1: EXPLORATION WELL, PEDL 028, ONSHORE UK (ROC: 100% & Operator)
Errington-1 is located in PEDL 028 approximately 35 km west of Newcastle in northern England. The Errington-1 wildcat exploration well, which is targeting a potentially large gas prospect, is expected to reach the first objective horizon during late December 2004.
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| STOCK EXCHANGE RELEASE - PROGRESS REPORT ON FIDDICH 1, OFFSHORE PERTH BASIN, WESTERN AUSTRALIA (07-12-2004) |
ROC advises that the following release was made earlier today by Origin Energy Limited:
Apache Energy is managing the drilling of the Fiddich 1 well as agent on behalf of Origin Energy. < click here to view map >
* a wholly owned subsidiary of Origin Energy Limited
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| STOCK EXCHANGE RELEASE - MAURITANIA OFFSHORE DRILLING UPDATE (07-12-2004) |
ROC advises that the following release was made earlier today by Woodside Petroleum Limited:
Tiof-5 Appraisal well
All reported drilling depths are referenced to the rig rotary table and all times are Universal Time (UTC) (Mauritanian time). The locations of the Chinguetti Oil Field, the Tiof and Banda discoveries and exploration wells are shown on the attached map. Wells are expected to be drilled in two production sharing contract areas during the remainder of the 2004/5 campaign. Participating Interests in those areas are"
Company............................... . . . . . . .PSC-A..........PSC-B |
| STOCK EXCHANGE RELEASE - FIDDICH-1 COMMENCES, OFFSHORE PERTH BASIN, WESTERN AUSTRALIA (03-12-2004) |
ROC advises that the following release was made earlier today by Origin Energy Limited:
WA-226-P is located in the northern offshore Perth Basin, approximately 230km north west of Geraldton, Western Australia. The Fiddich-1 well will test a prospect interpreted to have the potential to contain up to 240 million barrels of oil in place. Permian sandstones below the Triassic regional seal provide the main reservoir objective. < click here to view map >
* a wholly owned subsidiary of Origin Energy Limited
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