Today, ROC released its ASX Preliminary Final Report
(Appendix 4E), Directors' Report and Annual Financial Report for the
Financial Year ended 31 December 2007. As noted in ROC's 4Q 2007 Report to
Shareholders, ROC is now using US dollars as its functional and reporting
currency. The key highlights are:
FINANCIALS
- Record sales
revenue of US$208.5 million (2006: US$109.7 million); up 90% on the
previous year.
- Record oil
prices with an average sales price of US$70.16/BBL, (before hedging); a
3% discount to the Brent oil average price.
- Record net
cash flow from operations of US$138.1 million (2006: US$47.0 million);
up 193%, due to increased production and higher oil prices.
- Record
trading profit of US$87.4 million (2006: US$22.7 million); up 284%.
- Record
EBITDAX (excluding exploration expense) of US$108.7 million (2006:
$US64.1 million); up 70%.
- Net loss
after income tax of US$83.3 million (2006: loss of US$44.9 million)
after exploration expensed of US$88.9 million and a hedging and
derivative expense of US$68.8 million, partially offset by a tax benefit
of US$21.4 million relating to a change in the Chinese Corporate tax
rate.
- Amortisation
expense of US$98.7 million (2006: US$51.4 million) including accelerated
amortisation of US$17.3 million relating to a 2.1 MMBBL decrease in 2P
reserves and estimated future cost increases for the Zhao Dong C & D
Oil Fields, offshore China.
- New four year
revolving US$200 million debt facility.
- Year end debt
of US$133.3 million (2006: US$137.5 million), partially offset by cash
of US$41.4 million (2006: US$48.0 million).
OPERATIONS
- Record
production of 3.5 MMBOE from six producing fields in Australia, Africa,
China and UK compared to 2 MMBOE produced from four fields in 2006, an
increase of 77%.
- Exploration
drilling; a statistical success with four discoveries from the six
exploration wells completed during the year:
- the potentially significant Massambala-1 heavy oil
discovery, onshore Angola;
- three discoveries, two potentially commercial, in
the North Perth Basin, offshore Western Australia.
- Total
exploration and appraisal expenditure of US$94.7 million (2006: US$59.1
million).
- Development
expenditure of US$57.4 million (2006: US$93.6 million) relating to:
- the completion of two major field developments -
Enoch and Blane in the North Sea;
- significant progress on the Zhao Dong C & D
Oil Fields Incremental Development Project and the C4 Oil Field Development
Project, offshore China; and
- completion of the Chinguetti-18 development well,
offshore Mauritania.
- Progress was
made on the Wei 6-12 South and Wei 6-12 pre-development project in Block
22/12, Beibu Gulf, offshore China, which is expected to reach a
development decision in mid 2008, offering near term development upside
for shareholders.
Commenting on the 2007 Financial Results, ROC's
Chief Executive Officer, Dr John Doran, stated that:
"The 2007
Financial Results have been well flagged by ROC's previous stock exchange
releases, particularly the ones dated 25 and 31 January 2008. Therefore,
there are no surprises. In this context, the results could even be described
as 'boring' - in the very best sense of that word.
The
fundamental results speak for themselves. New records were established with
regard to those metrics which are most important to the running of the
Company's business: production; sales revenue; net cash flow from operations;
EBITDAX and trading profit. These are the measurements that best describe the
Company's 2007 financial results.
There are two
significant charges in the 2007 results which are, quite frankly, a source of
frustration, because, for some shareholders, their sound bite prominence and
their impact on the Profit and Loss line could obscure the underlying quality
of the results referred to above. In reality, these charges simply reflect
the accounting methodology which the Company applies to its hedge position
and its exploration drilling activities. 'Onerous' is one description that
comes to mind. 'Conservative' is another. Using such adjectives to describe
the accounting practices is not to criticise them in any way as much to
describe them in an attempt to ensure that all shareholders clearly
understand that they do not impact the Company's basic business operation.
Both issues were addressed in some detail in the CEO's Comments which
accompanied the Half Year Results that were released on 30 August 2007 and
therefore there is no need to delve too deeply into the accounting philosophy
other than to say that:
- There is a self evident irony about being
required to expense a total of US$22.6 million during 2007 in relation
to three exploration wells, each of which made a discovery that is
considered to be potentially commercial thereby meriting further
evaluation;
- Similarly, with only a minority of its proved
and probable reserves, about 15% hedged (at US$ 70/BBL), ROC's cash flow
benefits enormously from high oil prices. Yet, because of the
requirement that ROC mark-to-market its hedge position at the end of
each report period, the higher the oil price goes the bigger the
derivative loss ROC posts in its Profit and Loss line. For example,
because the Brent Oil Price forward curve on 31 December 2007 was an
average of US$88.46/BBL the Company recorded a non-cash loss of
approximately US$65 million. If Brent had been selling for US$ 50/BBL on
the same date, a non-cash profit of approximately US$ 50 million would
have been recorded. However, in the latter case, most of ROC's oil would
have been sold at the realised equivalent of US$50/BBL instead of the
almost US$90/BBL. There is no doubt which scenario benefits ROC
shareholders: a high oil price generating more cash and a bigger
non-cash derivative loss is a whole lot better than a low oil price that
provides a non-cash book profit and much less cash to the Company.
Perhaps, it is
a measure of the current financial market climate that the bulk of this CEO's
report has to focus on the least important - but most easily misunderstood -
part of the 2007 Financial Results, whereas the real financial meat of the
results can be addressed in one and a half lines as in the second paragraph
of these comments; or, even more succinctly, in just four words - an
excellent fundamental result.
So much for
the past. A forward glance into the balance of 2008 identifies the largest
exploration drilling programme ever undertaken by the Company, including four
pre-salt exploration wells in Angola; major developments in both the Bohai
Bay and, subject to a development decision, in the Beibu Gulf, offshore China
plus continuing production from six established fields in four countries. In
a nutshell: an outlook that is both well balanced and potentially very
exciting."