CEO COMMENTS
ROC
posted a very strong operating performance for 4Q 2007. Another record
quarter on three key fronts: record oil production (1.08 MMBO); record
realised oil prices (A$100/BBL); and record sales revenue ($88 million).
Two other
important, albeit quite different, field development milestones were also
reached during the Quarter.
- Firstly, the Cliff Head
Oil Field paid out its gross capital investment of $327 million after
producing approximately 5 MMBO, about one third of its total original 2P
recoverable oil reserves, during the first 18 months of production. This
development presented many challenges across many disciplines and
required a high degree of lateral thinking together with a commitment to
early investment, well ahead of the recent high oil price environment;
therefore, it is good to see payout achieved with the majority of
reserves yet to be produced.
- Secondly, at the other end of the development
project time scale, CNOOC, the relevant Chinese state oil company,
approved a minimum reserve base for the potential development of the Wei
6-12-S and Wei 6-12 oilfields in the Beibu Gulf, offshore China as a
result of which this project is expected to move forward towards a Final
Investment Decision during 1H 2008.
The commencement of the Milho-1 exploration
well in November marked the start of the next phase of ROC's Angolan drilling
programme which will see four wells target the hydrocarbon potential of the
pre-salt section in the Cabinda South Block. This continuous drilling
programme will run through into mid-2008 and at various stages will overlap
with the Company's other drilling activities in China, Australia and
Mauritania to provide a record level of drilling activity which will see at
least 9 exploration/appraisal wells and more than a dozen development wells
drilled during the next 6 months.
These CEO comments would be delinquent if
they didn't also refer to events during the month immediately subsequent to
Quarter-end, when a combination of global equity market adjustments, a 2.1
MMBO revision to ROC's net 2P reserves at Zhao Dong, equivalent to 7.5% of
Company-wide 2P reserves, and the first well of the 2008 Beibu Gulf
exploration drilling programme coming in dry, caused ROC's share price to
drop to a two and a half year low. Given that when the share price was last
at this level the Company produced approximately 34 BOPD and generated
quarterly sales of $229,000, it is not unreasonable to suggest that there is
considerable potential for the share price to rebound strongly,
notwithstanding the current state of the equity markets.
KEY
ACTIVITIES
1. CONSOLIDATED REVENUE & PRODUCTION
1.1 Production hit a quarterly record of 1.08 MMBOE (11,771 BOEPD) 98%
oil; up 23% compared to 0.88 MMBOE (9,578 BOEPD) in the previous quarter. The
increase was largely due to the first full Quarter of production from the
Blane Oil Field and increased production from the C and D oil fields in Zhao
Dong.
1.2 Total sales revenue also set a new quarterly record: $88 million; up
45% compared to $60.8 million in the previous quarter.
1.3 Sales volumes of 0.89 MMBOE; up 17% compared to 0.76 MMBOE in the
previous quarter, due to increased production, partly offset by the timing of
cargo liftings which resulted in increased inventory at the end of the
Quarter.
1.4 The average realised oil price in the Quarter across all of ROC's
production assets was $100.13/BBL (US$86.39/BBL), up 23% from 3Q 2007,
another record.
2. PRODUCTION ASSETS
2.1 Cliff Head Oil Field, WA-31-L,
Offshore Western Australia (ROC: 37.5% & Operator)
Following successful workovers in 3Q 2007,
gross oil production averaged 9,460 BOPD (ROC: 3,548 BOPD); up 8% on the
previous quarter. During December 2007, field production moved into its
mature phase with the onset of a slow, natural decline which is scheduled to
last many years, during which time the focus will be on optimizing well
production performance and recovery. During November 2008, 18 months after
production commenced, the Cliff Head Oil Field produced its 5 millionth
barrel of oil and paid out its $327 million capital cost.
2.2 Zhao Dong C & D Oil Fields, Bohai
Bay, Offshore China (ROC: 24.5% & Operator)
Improved production performance was achieved
at Zhao Dong during the Quarter. Gross oil production averaged 19,447 BOPD
(ROC: 4,765 BOPD), 12% higher than the previous quarter. This increase
reflects the positive contribution from the four development wells drilled
during the Quarter together with a number of successful initiatives
implemented to improve well and field performance including geotechnical and
engineering support to augment drilling operations.
2.3 Enoch Oil and Gas Field, North Sea
(ROC: 12.0%)
Gross production averaged 7,760 BOPD and 6.6
MMSCFD (ROC: 931 BOPD and 0.8 MMSCFD); down 8% compared to the previous
quarter. Because the production data quoted is based on the Forties Pipeline
reporting system Enoch production volumes have not yet been finalised and, as
reported in 3Q 2007, may be subject to revision.
2.4 Blane Oil Field, North Sea (ROC:
12.5%)
The Quarter marked the first full quarter of
production for the Blane Oil Field. Gross oil production averaged 15,320 BOPD
(ROC: 1,915 BOPD). The gas compression upgrade project which will provide a
dedicated gas supply for gas lift for Blane's producing wells commenced.
Drilling of the planned water injection well is scheduled to commence in
February 2008.
2.5 Chinguetti Oil and Gas Field, PSC
Area B, Offshore Mauritania (ROC: 3.25%)
Gross oil production averaged 12,312 BOPD
(ROC: 400 BOPD); down 8% on the previous quarter due to continuing natural
field decline. A programme of two infill wells and three well interventions
is planned to commence in 2Q 2008 and this is expected to increase production
levels, enhance the current gas-lift capability and shut-off water producing
zones.
3. DEVELOPMENT ASSETS
3.1 Zhao Dong C & D Oil Fields, Bohai
Bay, Offshore China (ROC: 24.5% & Operator)
The 2007 development drilling programme was
successfully completed in early December 2007. Drilling activities have been
temporarily suspended for the winter and will recommence in March 2008.
Upgrade work on the offshore drilling and production platforms as part of the
Incremental Development Plan continued. During the Quarter, work commenced on
the rig upgrade, including the installation of a new mud tank, together with
new pipe work. A workover was also successfully completed on one of the
development wells and a new electrical submersible pump installed.
3.2 Zhao Dong C4 Oil Field, Bohai Bay,
Offshore China (ROC: 11.575% unitised & Operator)
Development of the C4 Oil Field progressed
with first oil scheduled for 4Q 2008. A major milestone for the development
was achieved on 30 November 2007, when installation of the piling for the
conductor template was completed.
4. EXPLORATION AND APPRAISAL ASSETS
4.1 WA-286-P, Perth Basin, Offshore
Western Australia (ROC: 37.5% & Operator)
Planning progressed for the 515 km2 Diana 3D
seismic survey to be acquired in 1Q 2008. The survey will further define the
recent Frankland and Dunsborough discoveries and nearby prospects and leads.
The Premium "Wilcraft" jack-up rig was contracted for an
exploration and appraisal drilling programme comprising two wells, Lilac-1
and Frankland-2, to be drilled in February-March 2008 (see section 7 -
Post Quarter Events).
4.2 WA-351-P, Carnarvon Basin, Offshore
Western Australia (ROC: 20%)
The Operator, BHP Billiton Petroleum Pty
Ltd, continued to review options for acquiring a 3D seismic programme in
2008, which will focus on Triassic gas potential.
4.3 Block 22/12, Beibu Gulf, Offshore
China (ROC: 40% & Operator - Subject to Government participation in
developments for up to 51%)
During the Quarter, a reserves report
defining a minimum commercial reserves base for the Wei 6-12 South and Wei
6-12 oil fields was submitted to and approved by CNOOC, the relevant Chinese
state oil company. Work on the feasibility study and the Development Plan
continues with a Final Investment Decision targeted for mid-2008. Pre-drill
preparations were also underway for a three well exploration/appraisal
programme starting in early 2008. At the end of the Quarter, the Premium
"Murmanskaya" jack-up rig was on location preparing to drill
the first exploration well (see section 7 - Post Quarter Events).
4.4 Cabinda South Block, Onshore
Angola (ROC: 60% Working Interest & 75% Contributing Interest &
Operator)
Evaluation of the Massambala-1 heavy oil
discovery continued during the Quarter.
During the Quarter, ROC's second and third
exploration wells in the Block, Cevada-1 and Soja-1 were drilled. Although
both wells had good hydrocarbon shows neither was judged to be commercial.
The Simmons 80 Rig commenced drilling ROC's
fourth exploration well, Milho-1, on 24 November 2007. This is the first well
in the programme that will specifically target the hydrocarbon potential of
the pre-salt section. As of end January 2008, the well was yet to drill the
prognosed reservoir section and it is now expected to reach Total Depth by
late February 2008.
ROC and its co-venturers agreed to drill
three further exploration wells back-to-back after Milho-1, all of which will
target pre-salt prospects.
4.5 Offshore Mauritania (ROC: 2 - 5.49%)
Interpretation of the Tiof high resolution
3D seismic survey in PSC Area B continued during the Quarter. Planning
continued for the Atwood "Hunter" to drill the large, high
risk, Khop-1 exploration well which is scheduled to commence in February
2008. The well will test a dominant structural feature in PSC Area C Block 6.
Following the drilling of this prospect, a Banda NW appraisal well is planned
to be drilled in PSC Area B.
4.6 Block Belo Profond, Offshore
Madagascar (ROC: 75% & Operator)
Planning
continued for an aeromagnetic survey and a geological review is also
progressing. In parallel with this work an Environmental Impact Study is
underway.
4.7 Blocks H15 & H16 Equatorial
Guinea (ROC: 18.75% & Technical Manager)
The arbitration between Pioneer Natural
Resources (Equatorial Guinea) Limited and the other joint venturers,
including ROC, continued.
5. CORPORATE
Mr Ross Dobinson resigned as a Director of
ROC's Board, effective 31 December 2007.
On 17 December 2007, ROC received Government
approval of its farmin to exploration permits WA-381-P and WA-382-P in the
Vlaming Sub-Basin, offshore Perth.
Block 30/22b in the UK North Sea, operated
by Maersk Oil (UK) Limited, was relinquished effective 21 December 2007.
Redistribution of equity effective 23
December 2007, resulted in ROC's participating interest in PSC Area C, Block
2 offshore Mauritania, increasing from 3.2% to 5.49%.
On 24 December 2007, the Company was advised
by Sonangol E.P., the national concessionaire that it had successfully
pre-qualified as an operator in the current 2007/08 Angolan Licensing Round.
6. FINANCIAL
At Quarter-end ROC had approximately $47
million (US$41.4) in cash and debt of $151.2 million (US$133.3 million).
6.1 Change in Reporting Currency
The Company has undertaken a review of the
appropriate currency for preparation of its accounts and the provision of
financial reports to the market. This review considered, amongst other
things, the international nature of ROC's assets, that the majority of its
revenue, expenditures, assets and liabilities are incurred in US dollars and
the Company's listing on AIM in the United Kingdom where entities commonly
report in US dollars. As a result of the review, going forward the Company's
financial information, including the 2007 Financial Statements scheduled to
be released on 28 February 2008, will be presented in US dollars. For ease of
reference, in this Quarterly Report, the Company has provided year-to-date
revenue and expenditure in Australian dollars and US dollars
6.2 Production
|
4Q 2007
|
3Q 2007
|
YTD
|
% Change (4Q07 to 3Q07)
|
Oil Production (BBLS)
|
|
|
|
|
Cliff Head
|
326,383
|
303,130
|
1,184,104
|
8
|
Zhao Dong C&D Fields
|
438,340
|
390,455
|
1,710,206
|
12
|
Chinguetti
|
36,814
|
39,803
|
175,839
|
(8)
|
Blane
|
176,183
|
35,717
|
211,900
|
393
|
Enoch
|
85,679
|
93,002
|
201,070
|
(8)
|
Other
|
340
|
347
|
1,836
|
(2)
|
Total Oil Production
|
1,063,739
|
862,454
|
3,484,955
|
23
|
Gas Production (MSCF)
|
|
|
|
|
Enoch
|
73,655
|
102,149
|
212,429
|
(28)
|
NGL Production (BOE)
Blane
|
6,890
|
1,730
|
8,620
|
298
|
Total BOE
|
1,082,905
|
881,209
|
3,528,980
|
23
|
BOEPD
|
11,771
|
9,578
|
9,668
|
23
|
Note: Production quoted is ROC's working interest share
of total production. ROC's net entitlement production for the period was
1,015,719 (3Q 2007: 821,753; YTD: 3,334,594) after taking out governments'
share of profit oil.
6.3 Sales
|
4Q 2007
|
3Q 2007
|
YTD
|
Oil Sales (BBLS)
|
BOE
|
A$'000
|
BBLS
|
A$'000
|
BOE
|
A$'000
|
US$'000
|
Cliff Head
|
327,776
|
33,413
|
302,181
|
26,356
|
1,185,666
|
103,215
|
86,556
|
Zhao Dong C&D Fields
|
306,054
|
28,078
|
299,951
|
21,543
|
1,326,471
|
100,565
|
84,334
|
Chinguetti
|
27,356
|
2,791
|
32,394
|
2,835
|
120,519
|
10,357
|
8,685
|
Enoch
|
89,182
|
9,403
|
104,932
|
9,459
|
194,114
|
18,862
|
15,818
|
Blane
|
125,122
|
13,971
|
-
|
-
|
125,122
|
13,971
|
11,716
|
Other
|
340
|
42
|
347
|
21
|
1836
|
153
|
128
|
Total Oil Sales
|
875,830
|
87,698
|
739,805
|
60,214
|
2,953,728
|
247,123
|
207,237
|
Gas Sales (MSCF)
|
|
|
|
|
|
|
|
Enoch
|
73,655
|
282
|
102,149
|
566
|
212,429
|
974
|
817
|
Total Sales (BOE)
|
888,106
|
87,980
|
756,830
|
60,780
|
2,989,133
|
248,097
|
208,054
|
Note: ROC's net entitlement crude stock position
increased by 127,612 BBLS during the period so that at the end of 4Q 2007 ROC
was in an underlift position of 243,571 BBLS compared to a 115,959 BBLS
underlift position at the end of the previous quarter.
6.4 Expenditure Incurred
|
4Q 2007
A$'000
|
3Q 2007
A$'000
|
YTD
A$'000
|
YTD
US$'000
|
Exploration
|
|
|
|
|
Angola
|
23,045
|
31,795
|
80,892
|
67,836
|
China
|
4,318
|
1,283
|
6,535
|
5,480
|
Mauritania
|
301
|
86
|
992
|
832
|
Australia
|
(1,725)
|
389
|
19,943
|
16,724
|
UK
|
(93)
|
56
|
136
|
114
|
Equatorial Guinea
|
59
|
5
|
358
|
300
|
Madagascar
|
204
|
441
|
2,806
|
2,353
|
Other
|
296
|
198
|
1,307
|
1,096
|
Total Exploration
|
26,405
|
34,253
|
112,969
|
94,735
|
|
|
|
|
|
Development
|
|
|
|
|
Zhao Dong C&D Fields
|
9,550
|
8,746
|
25,727
|
21,575
|
Zhao Dong C4
|
2,120
|
1,900
|
4,169
|
3,496
|
Blane
|
2,029
|
5,051
|
23,736
|
19,905
|
Enoch
|
364
|
1,103
|
11,076
|
9,288
|
Chinguetti
|
191
|
412
|
3,766
|
3,158
|
Total Development
|
14,254
|
17,212
|
68,474
|
57,422
|
|
|
|
|
|
Total Exploration & Development
|
40,659
|
51,465
|
181,443
|
152,157
|
6.5 Hedging
The Company's hedge position for the period
from 31 December 2007 to December 2011 is summarised below. This hedge is
equivalent to 15% of ROC's Company-wide 2P reserves.
|
Brent Oil Price Swaps
|
|
Volume
|
Weighted Average Brent Price
USD/BBL
|
2008
|
1,177,987
|
71.40
|
2009
|
851,998
|
70.01
|
2010
|
686,994
|
68.46
|
2011
|
455,997
|
66.31
|
|
3,172,976
|
69.66
|
During 2007 1.6 MMBO of oil price derivative contracts were settled resulting
in a cash flow loss of $4.7 million (US$ 3.9 million).
As
advised during the year, because of the volatility in the differential
between the Brent oil price and the underlying realised price of ROC's crude
oil sales during 2007, it became inappropriate for ROC to hedge account the
majority of the Company's oil price derivative contracts under the technical
requirements of the Australian accounting standards.
Therefore,
ROC has decided to value all its oil price swap hedge book using the
mark-to-market value and to report the movement in this value in its income
statement rather than using hedge accounting to report the movement in value
for parts of the hedge book as changes to equity. As a result, ROC will
report a net derivative loss of $82 million (US$68.8 million) in its 2007
income statement, including a non cash component of $77.3 million (US$64.9
million) primarily because of the movement in the mark-to-market value of
these contracts caused by the high oil price environment prevailing at year
end.
7.
POST QUARTER EVENTS
On 1
January 2008, ROC commenced a three-well exploration and appraisal programme
in Block 22/12, Beibu Gulf, Offshore China. The first exploration well, Wei
6-12W-1 reached a Total Depth of 2,333 mBRT without finding hydrocarbons and
was plugged and abandoned on 28 January 2008. The Premium "Murmanskaya"
jack-up rig is currently preparing to jack down and move off the Wei 6-12W -1
location.
The
result for the Wei 6-12W-1 well does not have any adverse impact on the
potential development of the Wei 6-12S and Wei 6-12 oil fields.
On 15 January
2008, ROC commenced the 515km2 Diana 3D seismic survey in the
offshore north Perth Basin. As at the end of January, 345 km2 of
seismic had been acquired.
On 25
January 2008, RISC Pty Ltd completed its independent audit of ROC's reserves
excluding the Chinguetti Oil Field offshore Mauritania. When combined with
ROC's internal reserves review and as set out in ROC's Stock Exchange release
dated 25 January 2008, the status of ROC's reserves can be summarised as
follows:
- ROC's remaining company
wide proved and probable (2P) reserves at 31 December 2007 are 21.4
MMBOE, all of which are being produced or developed;
- There has been a
reduction of 2.1 MMBOE relating to ROC's 2P net reserves in the C and D
Oil Fields, in the Zhao Dong Block, offshore China, before any
adjustment for 2007 production. Compared to ROC's 2P reserves at 31
December 2006, this change in Zhao Dong reserves represents a reduction
of approximately 7.5% of ROC's company-wide 2P Reserves;
- The change in Zhao Dong
2P reserves will have an impact on ROC's 2007 financial results through
an increase in the non-cash amortisation expense. ROC's preliminary
assessment, subject to audit, indicates that the reserves change,
together with estimated future costs to develop the 2P reserves at Zhao
Dong, will result in an increase in the amortisation expense for Zhao
Dong of approximately A$12/BBL, totalling approximately A$21 million for
the year ending 31 December 2007;
- There are no other
material revisions to ROC's 2P reserves; and
- This review does not take
account of discovered resources of the Company not yet in production or
subject to development.
8. FURTHER
INFORMATION
For
further information please contact ROC's Chief Executive Officer, John Doran,
Chief Operating Officer, Bruce Clement, or General Manager, External Affairs
& Investor Relations, Damian Fisher, on:
Phone:
(02) 8356 2000 Email: jdoran@rocoil.com.au
Facsimile: (02) 9380 2066 Web Site: www.rocoil.com.au
Address: Level 14, 1 Market Street, Sydney, NSW 2000, Australia