REG - Argos Resources Ltd - 2014 Financial Results <Origin Href="QuoteRef">ARGR.L</Origin>

Argos ResourcesAnnouncement

16/07/2015 10:52

RNS Number : 1011Q
Argos Resources Ltd
15 June 2015
15 June 2015
ARGOS RESOURCES LIMITED
("Argos" or "the Company")
2014 Financial Results
Argos Resources Ltd (AIM: ARG.L), the Falkland Islands based exploration company focused on the North Falkland Basin, is pleased to announce its financial results for the year ended 31 December 2014.
Highlights
 US$1.3 million loss from expensed overhead
 US$1.4 million cash reserves at 31 December 2014
 Farmout of Licence PL001 to Noble and Edison agreed
 An exploration well on the Rhea prospect to be drilled in 2015 at no cost to the Company
 The farmout agreement includes future cash payments sufficient to meet the Company's ongoing needs until first oil production
Post Balance Sheet Event
On 13 April 2015, the Company announced that its wholly-owned subsidiary, Argos Exploration Ltd, had entered into a farmout agreement with Noble Energy Falklands Ltd and Edison International S.p.A in respect of the Company's principal asset, a 100 percent interest in production licence PL001 covering an area of approximately 1,126 square kilometres in the North Falkland Basin.
Under the farmout agreement Noble will assume operatorship of Licence PL001 from the Company and Noble and Edison will earn a 75 percent and 25 percent working interest in the Licence respectively. Noble and Edison have committed to drill an exploration well in the Licence Area during the current 2015 drilling campaign at no cost to the Company. The initial exploration well will test the Rhea prospect and will fulfil the remaining work obligation on the Second Exploration Term of the Licence.
The Company will retain an overriding royalty interest of 5 percent of gross revenues from all hydrocarbon discoveries developed within the Licence (the ORRI) and will have no requirement to contribute to any future capital or operating expenditures incurred over the life of the Licence.
In addition, the Company will receive US$2.75 million in cash upon completion of the transaction and US$800,000 per annum from 1 January 2016 through to receipt of the first royalty payment pursuant to the ORRI as reimbursement for certain historic costs incurred by the Company in relation to the maintenance of the Licence and the acquisition of certain seismic and other data in respect of the Licence area. The proceeds are expected to be sufficient to meet all anticipated transaction costs and running costs through to receipt of the first such royalty payment pursuant to the terms of the ORRI.
Mr. Ian Thomson, Chairman of Argos Resources, said:
"We are delighted to have entered into a farm-out agreement with such highly-regarded and financially robust partners as Noble and Edison. The innovative nature of the transaction means that there is no material Shareholder dilution or further Shareholder funding required by the Company for any future investments in Licence PL001. In addition, with ongoing working capital requirements catered for by the terms of this agreement and the Second Exploration Term work obligation on our Three Exploration Term Licence now covered, the financial position and outlook for the Company is robust.
We are pleased to be participating in the 2015 drilling campaign in the North Falkland Basin, which is already underway, and look forward to the drilling of the first exploration well to test the Rhea Stack. Rhea has always been our top-ranked prospect in which we estimate a resource potential of 449 million barrels of recoverable oil. We are especially delighted that, following their own extensive technical work, Noble and Edison have selected this as their first exploration target on the Licence. We believe that success at Rhea will de-risk other prospects in the Licence."
The full Annual Report and Consolidated Financial Statements can be read and downloaded from the Company website: http://www.argosresources.com/news.php?page=regulatory-news
Argos Resources Limited (+500 22685)
www.argosresources.com
Ian Thomson, Chairman
John Hogan, Managing Director
Cenkos Securities plc (Nomad & Broker)
Derrick Lee (+44 131 220 9100)
Neil McDonald (+44 131 220 6939)
Citigate Dewe Rogerson (Communications Adviser) (+44 20 7638 9571)
Martin Jackson
Shabnam Bashir


Chairman's statement
2014 was a challenging year for the oil industry with falling oil prices being the dominant event affecting the entire industry. Brent crude oil prices fell from a peak of US$115 per barrel in mid-2014 to US$53 per barrel at the end of the year, before recovering somewhat into the early part of 2015. This dramatic fall in prices has caused all companies in the sector to reassess capital expenditure plans, resulting in lower activity levels both in exploration and development, and to focus on cost reductions.
The lower oil price and the uncertain outlook for price recovery have adversely impacted sentiment towards the industry, with smaller listed companies affected the most. It was against this backdrop that the Company continued to seek farm-in partners to finance exploration drilling in Licence PL001. Attracting financially strong companies into the Licence and achieving a transaction which maintained shareholder value were key goals set by the Board.
Despite the difficult economic climate for the sector, a number of companies continued to express interest in our Licence during the year. We announced in April 2015 that the Company had entered into a farmout agreement with Noble Energy Falklands Ltd and Edison International S.p.A in which Noble and Edison will drill an exploration well during the 2015 drilling campaign to test the Rhea prospect at no cost to the Company. We expect the transaction to be completed later in 2015.
Upon completion, Noble will assume the operatorship of Licence PL001. Noble is an experienced international operator with a successful track record in exploration, development and production operations and we are delighted to have an operator of their calibre join the Licence. Both Noble and Edison are large and well financed companies with the capabilities of taking any commercial discoveries rapidly into production.
The Company has assigned its entire 100 percent working interest to Noble and Edison (75 percent and 25 percent respectively) in return for an assignment from them of a 5 percent overriding royalty interest in the Licence. This royalty interest entitles the Company to 5 percent of gross revenues from all oil and gas produced over the life of the Licence, free and clear of all costs. In addition, Noble and Edison will make a cash payment of US$2.75 million on completion and ongoing annual payments of US$0.8 million until first production to the Company, which should be sufficient to meet our ongoing running costs. Should Noble and Edison withdraw from the Licence the farmout agreement provides for the reassignment of the Licence to the Company, subject to government approval.
This innovative deal has removed any uncertainty over how the Company would finance its share of appraisal and development costs in the case of success. Future capital calls on shareholders or material shareholder dilution is now unlikely to occur. The Board believes this transaction places the Company and its shareholders in a strong financial position to deal with the current economic conditions.
I would like to take this opportunity to thank our employees, consultants and advisors for their hard work in securing a successful farmout in a challenging commercial environment.
Ian Thomson
Chairman

Managing Director's review
The principal effort during 2014 was engaging with the industry to attract good quality, strong farm-in partners to finance exploration drilling in the Company's Licence PL001.
3D seismic acquisition in 2011 and detailed interpretation of that data has identified a licence area rich in prospects. An independent Competent Persons Report prepared by Senergy and published in July 2013 describes 52 prospects with a Best Estimate prospective recoverable resource of 3.1 billion barrels of oil with an upside of 10.4 billion barrels. A further 40 leads have been identified which are not included in the resource figures as well as a possible extension of the Johnson gas discovery from the adjacent licence to the east. Having completed this work, the Company required significant additional capital for exploration drilling and so industry partners were sought.
In April 2015 the Company announced that it had entered into a farmout agreement with Noble Energy Falklands Ltd and Edison International S.p.A. Under the terms of the agreement Noble and Edison will drill an exploration well to test the Rhea prospect at no cost to the Company. The Rhea well is presently scheduled to be the sixth well in a drilling programme that is currently under way using the Eirik Raude drilling vessel. Drilling of the well on Rhea is expected to commence in the second half of 2015. Drilling this well will fulfil the work obligation on the Second Exploration Term of the Licence, which requires a well to be drilled by 25 November 2016. Fulfilling this obligation paves the way for the negotiation of a Third Exploration Term of ten years.
The Rhea prospect is amongst the Company's top ranked prospects. In addition to the Rhea sandstones, the drilling target comprises a series of stacked sands (the Rhea Stack) above and below Rhea itself, with a total Best Estimate prospective resource potential of 443 million barrels of recoverable oil. The High Case Estimate is 1,467 million barrels. Several of these sands can be tested with a single vertical well, although not all sands can be tested at their optimal locations. The sandstone targets are mapped in two principal depositional intervals. The deeper syn-rift interval contains a resource potential of 62 million barrels in two sandstone targets and the shallower, post-rift interval comprises four stacked prospects, including Rhea, with a combined resource potential of 381 million barrels of recoverable oil. The post-rift sandstones are the objective of the first well to be drilled.
The Company believes that success at Rhea will de-risk other prospects in the Licence.
Results and dividend
The results for the year and the Group's financial position as at the year-end are shown in the attached financial statements. The directors have not recommended a dividend for the year (2013: $nil).
Business review
The Group has incurred a loss for the year ended 31 December 2014 of $1.30 million (2013: $1.84 million) which equates to a loss per share of 0.60 cents (2013: 0.85 cents). The decreased loss over the comparative period was due principally to savings made.
Administration expenses decreased from $1.85 million to $1.22 million.
Shareholders' equity has decreased from $31.7 million to $30.5 million in the year since 31 December 2013, due to the administration expenses. Cash in the year reduced from $2.9 million to $1.4 million which mainly reflects the overhead spend.
Outlook for the next financial year
Following the farmout agreement with Noble Energy Falklands Ltd and Edison International S.p.A the Group's administrative expenditure is fully funded for the foreseeable future.
John Hogan
Managing Director

Consolidated statement of comprehensive income
Year ended 31 December 2014





Year
ended
31 December
2014
$'000
Year
ended
31 December
2013
$'000





Administrative expenses


(1,218)
(1,846)





Finance income


6
17
Foreign exchange (losses)/gains


(85)
(15)





Loss for the year attributable to owners of the parent


(1,297)
(1,844) 





Total comprehensive income for the period




attributable to owners of the parent 


(1,297)
(1,844)
Basic and diluted loss per share (cents)


(0.60)
(0.85)


Consolidated statement of financial position
As at 31 December 2014



2014
2013



$'000
$'000
Assets




Non-current assets




Capitalised exploration expenditure
29,044
28,956
Plant and equipment
16
36
29,060
28,992
Current assets




Other receivables


130
140
Cash and cash equivalents


1,363
2,892




Total current assets


1,493
3,032





Total assets


30,553
32,024





Liabilities




Current liabilities




Trade and other payables


92
314





Total liabilities


92
314





Total net assets


30,461
31,710










Capital and reserves attributable to 




equity holders of the Company




Share capital


6,643
6,595
Share premium


30,071
30,071
Retained losses


(6,253)
(4,956)





Total shareholders' equity


30,461
31,710


Consolidated statement of cash flows
Year ended 31 December 2014

Year
ended
31 December
2014
$'000
Year
ended
31 December
2013
$'000
Cash flows from operating activities



Loss for period before taxation

(1,297)
(1,844)
Adjustments for:



Finance income

(6)
(17)
Depreciation
20
20




Net cash outflow from operating activities



before changes in working capital

(1,283)
(1,841)




Decrease in other receivables

10
28
(Decrease)/increase in other payables

(127)
174




Net cash outflow from operating activities

(1,400)
(1,639)




Investing activities



Interest received

6
18
Exploration and development expenditure

(96)
(1,154)
Purchase of plant and equipment

-
(2)




Net cash used in investment activities 

(90)
(1,138)




Financing activities



Issue of ordinary shares (share options exercised)

48
-




Net cash from financing activities

48
-




Net decrease in cash and cash equivalents

(1,442)
(2,777)
Cash and cash equivalents at beginning of period

2,892
5,688
Exchange losses on cash and cash equivalents

(87)
(19)




Cash and cash equivalents at end of the year

1,363
2,892


Consolidated statement of changes in equity
Year ended 31 December 2014



Share
capital
$'000

Share premium
$'000
Retained
losses
$'000

Total
equity
$'000
At 1 January 2013

6,595
30,071
(3,112)
33,554
Total comprehensive income for the year

-
-
(1,844)
(1,844)






At 31 December 2013

6,595
30,071
(4,956)
31,710






At 1 January 2014

6,595
30,071
(4,956)
31,710
Total comprehensive income for the year

-
-
(1,297)
(1,297)
Shares issued (share options exercised)

48
-
-
48






At 31 December 2014

6,643
30,071
(6,253)
30,461

This information is provided by RNS
The company news service from the London Stock Exchange
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