Maurel & Prom : Annual Results 2010

Mar 31, 2011, 14:06 ET from Maurel & Prom

    PARIS, March 31, 2011 /PRNewswire-FirstCall/ --
    Change of strategy: an improved risk profile
    - Sustained effort in known regions: Gabon, Tanzania and Colombia
    - Acquisition of assets in Nigeria

- Reinforcement of the Group's financial position: EUR70 million in OCEANE bonds taken up

    Impact on Company accounts: non-recurring exploration expenses
    - Group sales increase to EUR346 million (+80%)
    - Income from oil production and service activities: EUR111 million
    - Exploration write-offs EUR135 million
    - Provisions EUR76 million in Tanzania
    - Operating income: -EUR109 million
    - Net income -EUR139 million
    Impact on the valuation of the Group: reserves and production up sharply
    - Increase in Group production
    - Significant increase in P1+P2 reserves net of royalties: 288 Mboe
    - Major resources revealed in discoveries: 419 Mboe

- Major natural gas deposits in Tanzania, Nigeria and Sicily highlighted by the impact of recent events in Japan

2010 Activity: a change of strategy

Over the course of 2010 the Group developed and consolidated actions begun in 2009 (restructuring its assets and debt) aimed at balancing risk in its asset portfolio, and focusing on two major growth vectors, Gabon and Nigeria, while maintaining significant activity in Colombia.

Capital investment in Gabon and the acquisition of production assets in Nigeria illustrate the Group's strategic aim to offer its shareholders a more measured risk profile.

Renewed exploration in Colombia focuses on areas that the Group knows well and excludes drilling in too-risky prospects. The Group is actively looking for partners who would want to participate in financing future work.

Its technical and operational results validate the Group's development actions for:

i. ramping up production in Gabon and searching out satellite fields;

ii. increasing production in Nigeria, preparations to start producing from already-discovered fields and examining supplementary evacuation solutions;

iii. confirming the potential of the exploration permit in Colombia highlighted by the discovery at Sabanero and recently at CPO 17;

iv. East Africa is proving to be a promising new region in terms of natural gas. This interest has been stimulated by a series of recent discoveries which are now galvanising major players in the sector. The new gas production in this region will be able to find a natural outlet in Asia and particularly in Japan which, in light of recent events, is substantially revising its future gas needs.

                                 Key indicators

    in millions of euros                                 2010   2009*

    Sales                                                 346     192

    Income from oil production and service activities     111      47
    Provisions for depreciation of exploration assets     -76
    Exploration expenses                                 -135     -53
    Other                                                   -      -3
    Income from oil production, exploration and          -100      -9
    service activities

    Operating income                                     -109     -20

    Financial income                                       16     -25
    Pre-tax income                                        -93     -45
    Net income from continuing activities                -145     -46
    Net income from discontinued operations                 7      -5

    Net income, Group share                              -139     -51

    Cash at opening                                       428     189
    Net cash flow from operating activity                  77      53
    Investments                                           332     439
    Nigeria Acquisition                                   140       -

    Seplat guarantee deposit                              125
    Cash at closing                                        95     428
    (*) Restated for discontinued operations and
    change in accounting methods

Exploration and Production

In Gabon, the Group has been able to develop the Ombg and Omgw fields virtually immediately and at low cost, thanks to the size of the Onal production centre which was designed from the beginning to accept production from potential nearby fields. Accordingly, the OMGW-102, OMGW-201 and OMGW-103 have been drilled and connected to the production centre. In addition, on 17 December 2010 the Group obtained Exclusive Exploitation Authorisation for the Gwedidi (OMGW) and M'Bigou (OMBG) fields.

The Group undertook development work at the OMOC-North field, discovered in February 2010. Assessment drilling began in late July 2010. The development investment for this field relates to the drilling of wells and setting up collection facilities to link them to the Onal field. The predominantly Base Sandstone wells (OMOC-N-301 and OMOC-N-302) were connected to the evacuation pipeline from the Onal platforms on 15 December 2010. The predominantly Kissenda wells will be connected to the production centre via a new pipeline.

At the same time, the Group is using the OMOC-101 well in southern Onal to assess the OMOC field discovered in March 2009.

Once these works are completed, the wells will be connected to the OMOC-North evacuation facilities from the second quarter of 2011.

Average production in Gabon over the full year 2010 was 14,618 b/d.

In Nigeria, the Group took a 45% stake in the Nigerian registered company Seplat. On 30 July 2010 this company acquired 45% of the mining rights in OML 4, 38 and 41, of which 55% are owned by the Nigerian National Petroleum Corporation (NNPC). Seplat's other shareholders are the Nigerian operators Platform Petroleum Limited (22%) and Shebah Petroleum Development Company Ltd (33%). Production was integrated progressively during the second half of 2010. Based on the 128 production days in 2010, the fields produced 17,632 b/d of which Maurel & Prom's share was 3,570 b/d.

Oil and gas production in Venezuela, after oil taxes in kind of 30%, came to 993 barrels of oil equivalent per day over the full year 2010. Oil accounted for 66% of gross production. This activity is consolidated by the equity method (as an equity associate) and is therefore not recognised in Group sales.

In Tanzania, the Kianika-1 exploration well, drilled under the Mandawa exploration permit (Maurel & Prom operator, 90%), was abandoned. The objectives of this well had been achieved, showing good reservoir characteristics and confirming the potential for this theme in this region, but no hydrocarbon indices were detected.

Note that the Group is in the process of farming out the interests it holds in Tanzania.

In Colombia, the Cascabel-1 (Tangara) and Bachue-1 (Muisca) exploration wells were abandoned. Three exploration wells had been drilled under the Sabanero exploration permit, showing evidence of oil. After analysing the results, in early 2011 the Group launched a stratigraphic drilling programme.

In the Congo, the NGoumba-1D and M'Bafou exploration wells, drilled under the Marine III permit (M&P operator, 75%), were plugged and abandoned. The Tié-Tié-NE-1 well drilled under the La Noumbi permit (M&P operator, 49%) encountered a silty sandstone zone that showed hydrocarbon indices. Measurements at the end of the drilling, however, indicated that production (mainly natural gas) would not be commercially viable because of the distance to any potential market. The well was therefore plugged and abandoned.

In Syria, the Al Asi permit area (M&P operator, 75%) is situated along the Mediterranean coast north of the Lebanon-Syria border and covers 8,427km2. Based on 890km of 2D seismic data acquired by the Group in 2007 and 2008, two zones of interest had been identified. The Draco prospect was identified in the eastern part. Two (Triassic) Kurrachine formations that had shown hydrocarbon indices during the drilling of the Draco-1 well were each tested in turn. The Kurrachine reservoir characteristics proved to be too degraded to allow hydrocarbon production. Based on the results from this well, the Group intends to focus its efforts on the second zone of interest in the western part of the permit area.

In France, the Group took a 25% stake in the Mios exploration permit. Note that the Group has a 25% stake in the adjacent Lavignolle exploration permit.

Oil services

During the period, Caroil extended its activity in Cameroon and the Democratic Republic of Congo. By redeploying part of its fleet to these new countries, the company has succeeded in keeping the usage rate of its commercial fleet high (88% in 2010 versus 85% in 2009). Its stock of rigs remained steady in 2010 with 15 rigs.

Financial summary 2010: Impact of change of strategy

Economic environment

The activity of the Group as well as the economic and financial environment, are reflected in the financial statements in the following items. The financial statements were approved by the Board of Directors on 30 March 2010.

Sales

Sales in 2010 increased sharply to EUR345.8 million, up 80% on 2009. This improvement reflects the ramping up of production from the Gabon fields and the entry into consolidation of OML 4, 38 and 41 in Nigeria with two extractions in the fourth quarter of 2010.

In early 2009, at the conclusion of the Reserve Based Loan (RBL), the Group put in place financial instruments to hedge operational cash flow based on the price of oil. The average hedge price in the 12 months of 2010 for 6,750 b/d was US$60.4/b, while the average price of Brent was US$79.4/b. This produced a negative adjustment of EUR37.9 million.

Excluding the impact of hedges, 74% of sales in 2010 came from oil production in Gabon and in Nigeria and 26% from the drilling activity of the wholly owned M&P subsidiary Caroil.

Operating income

The contribution to operating income by production activities was up sharply as a result of growth in hydrocarbon sales.

The corresponding contribution of petroleum services was in line with the previous year.

Operating income from production and petroleum services takes into account depreciation for Caroil drilling rigs in the amount of EUR16.5 million, as well as EUR45 million impairment for asset depletion in Gabon fields and EUR4 million asset depletion in Nigerian fields.

Amortisation of asset depletion was up sharply (EUR49 million in 2010 versus EUR19 million in 2009) linked directly to increased production. Operating income from production and petroleum services was EUR111 million compared to EUR47 million in 2009, a rise of 135%.

Steady exploration activity in recent years is reflected in significant expenses and provisions of EUR211 million.

In Tanzania, Maurel & Prom is continuing its efforts to capitalise on the significant investments undertaken to date. With respect to the Bigwa-Rufiji and Mafia (BRM) permit, the contractual exploration phase ends in 2015. An as-yet unamortised EUR144 million, representing exploration investment undertaken in this BRM region, has been recognised in the Group's accounts. Studies in the amount of EUR19 million, as well as EUR21 million work that led to the M'Kuranga discovery will be recognised at their full value for the duration of the exploration phase. An amount in the region of EUR104 million corresponds essentially to work carried out on the Mafia-Deep well. The local volume of gas related to this well was evaluated by Schlumberger to be between 1.97 and 4.15 Tcf (1.0 and 2.2 Tcf as Group share net of royalties). Additional studies will need to be carried out to determine what proportion of these resources are commercially viable. Maurel & Prom has no plans to fund such studies and is looking for a partner to do so. The assessment costs will be lower if they can be carried out at the initially drilled well. The Group estimates that the value of re-using the Mafia-Deep drilling works is EUR26 million, which suggests a required provision of EUR76 million.

Operating income for fiscal 2010 was a negative -EUR109 million.

Financial income

The cost of net financial debt was EUR38 million, including:

- Interest expense on OCEANE 2014 and OCEANE 2015 in the amount of EUR28 million and on other borrowings in the amount of EUR7.7 million (including Reserve Based Loan);

- Income from cash in the amount of EUR4 million of which EUR3 million was payment of a deposit guaranteeing the EUR140 million loan to Seplat;

- Losses on derivative instruments in the amount of EUR6 million (unrealised profit).

Taking into account EUR59 million realised capital gains, EUR50 million of which arises from the revaluation upwards of the EUR/US$ exchange rate at fiscal year-end (EUR/US$ closing rate 1.44 at 31 December 2009 and 1.336 at 31 December 2010), net financial income was a positive EUR16 million.

Net consolidated income

Tax expense was EUR57 million. This includes EUR29 million for the fiscal year in review (Caroil EUR6 million, EUR17 million in Gabon as tax for cost oil and EUR6 million in Nigeria) and EUR27 million deferred tax.

The consolidation on an equity basis of the Group's stake in the joint venture Lagopetrol was essentially the main contributor to EUR4.5 million consolidated income, and the net proceeds from disposals of activities contributed a further EUR6.7 million (from earn-out clauses related to Colombian/Hocol assets).

The net consolidated income of the Maurel & Prom Group was -EUR139 million

Balance sheet

The balance sheet total at 31 December 2010 was EUR1,849 million. The Group's share of equity capital was EUR835 million versus EUR940 million at 31 December 2009, down EUR105 million due to its income underperformance.

Investments

The total amount of investments made in 2010 was EUR472 million, and breaks down as follows:

    in millions of euros COLOMBIA GABON CONGO TANZANIA SYRIA PERU

    EXPLORATION              52.8 110.8  27.5     40.8   9.4  2.8
    DEVELOPMENT               0.1  61.7   0.1      0.5     -  0.0
    DRILLING                  7.8   4.3   9.6      0.4     -    -

    TOTAL                    60.7 176.7  37.1     41.7   9.4  2.8

    (table continued)

    in millions of euros OTHER $  TOTAL      NIGERIA  GROUP
                                         ACQUISITION  TOTAL
    EXPLORATION              2.0  246.2         64.0  310.2
    DEVELOPMENT              0.2   62.5         76.0  138.5
    DRILLING                 1.4   23.4            -   23.4

    TOTAL                    3.6  332.0        140.0  472.0

Cash flow

At 31 December 2010, Maurel & Prom had treasury assets of EUR220 million, of which EUR95 million was in the form of cash or cash equivalents. The Group's cash position was impacted by the following factors:

- redemption on 1 January 2010 of OCEANE 2010 in the amount of EUR183 million of which EUR6.2 million was interest, and the payment of EUR22.6 million interest for OCEANE 2014 on 31 July 2010;

- a sustained investment effort for all Group operations: exploration in the amount of EUR246 million, including the assessment of the Omoc-North field and well as development, mainly in Gabon, in the amount of EUR63 million linked to the development of Caroil activity (EUR23 million);

- purchase of assets in Nigeria for EUR140 million;

- cash flow generated by operating activities (EUR77 million);

- transfer of the earn-out clause related to Colombian assets in the amount of EUR45 million;

- realised financing:

- Reserve Based Loan in the amount of EUR224 million;

- a new OCEANE bond issue in the amount of EUR70 million;

- EUR37 million facility agreed by Standard Bank, exercisable until 31 March 2011;

    - EUR71 million participation in a loan agreement in Nigeria;
    - foreign exchange impact (-EUR41 million);
    - EUR125 million paid to guarantee the acquisition of assets in Nigeria.
    P1+P2 reserves net of royalties 288 Mboe

As at 1 January 2011, the Group's reserves (oil + gas) came to 288 Mboe, up 74% compared with 1/1/2010 (see press release of 28 March 2011).

The size of the resources (419 Mboe, excluding Mafia Deep) allows the Group to envisage a significant rise in reserves over the next few years.

Book income for 2010 incorporates substantial exploration-related expenses that produced no discovery. Accounting standards require oil companies to immediately post to expenses the corresponding amount of exploration infrastructure works. Any increase in reserves is reflected in future cash flow.

None of these resources take into account the potential from future exploration activity, which the Group intends to pursue in these countries.

Outlook 2011

In 2011, the Group will focus its efforts on two distinct growth vectors: Gabon, where the Group's experience plays a strategic role, and Nigeria, which seems to have massive hydrocarbon resources. At the same time, it will be carrying out assessment work in Colombia where the Group has just teamed up with a strategic partner who has renowned experience in heavy-oil production.

In Gabon, the emphasis will be on developing the OMOC-North and OMOC fields in the south-west of Onal. A programme of works has been implemented with the drilling of at least three exploration wells and the acquisition of seismic lines.

Production levels should remain steady until the OMOC-North field starts production, scheduled to begin once work is completed to connect to the ONAL production centre.

In Nigeria, Seplat (M&P 45%) has begun operations to maximise production and delineate the resource. A programme is under way to ramp up drilling and assessment wells over the course of the year and achieve between 30,000 b/d and 35,000 b/d of production at 100% (6,000 to 7,000 b/d M&P share).

Seplat (M&P 45%) has entered into a US$200 million refinancing agreement allowing it to repay the $187 million bridge loan by BNP Paribas (first payment US$20 million at end 2010, final payment US$167 million on 31 March 2011). At the same time, the US$167 million residual guarantee was unblocked in favour of Maurel & Prom. In addition, Seplat (M&P 45%) will use the available component of some US$30 million to partially repay the shareholder advance agreed by Maurel & Prom when buying out OML 4, 38 and 41.

In Colombia, the Group's agreements with Pacific Rubiales Energy specify that it will finance all operations to delineate, develop and start production at the Sabanero discovery, as well as any voluntary exploration programme.

The Group announces the sale, to a subsidiary of the Argentinean group INTEGRA, of Maurel & Prom Venezuela, which holds 26.35% of Lagopetrol. The payment will be gradual and will recover the full book value of the asset.

The Board of Directors will propose to the General Meeting of 12 May 2011 a dividend of EUR0.25 per share (for payment 27 May 2011).

All the work completed in 2010 and undertaken in 2011 should allow the Group to significantly increase its production over the next few years while the alliance with Pacific Rubiales allows it to largely disengage from exploration risks while retaining a large part of the potential should it prove successful.

    Consolidated Financial Statements for fiscal year 2010
    Assets

    In thousands of euros                         31/12/2010  31/12/2009

    Intangible assets                                 520,625     457,731
    Property, plant and equipment                     722,845     547,432
    Non-current financial assets                       62,226      21,030
    Investments accounted under the equity method      39,991      32,508
    Non-current derivative instruments                      0      37,912
    Deferred tax assets                                12,505      10,647
    Non-current assets                              1,358,192   1,107,260

    Inventories                                        14,948       4,095
    Trade receivables and related accounts             71,084      33,434
    Other current financial assets                    260,422      31,671
    Other current assets                               44,169      39,432
    Income tax receivable                                 350       1,518
    Current derivative instruments                      3,931         162
    Cash and cash equivalents                          95,423     427,576
    Current assets                                    490,327     537,888

    Total Assets                                    1,848,519   1,645,148

    Liabilities

    In thousands of euros                             31/12/2010  31/12/2009

    Share capital                                         93,405      93,364
    Additional paid-in capital                           221,483     221,607
    Consolidated reserves                                740,179     753,972
    Treasury shares                                     (81,501)    (78,664)
    Net income, Group share                            (138,776)    (50,650)
    Equity, Group share                                  834,790     939,629
    Non-controlling interests                                  1           1
    Total net equity                                     834,791     939,630

    Non-current provisions                                 5,687      15,346
    Non-current bonds                                    329,586     260,770
    Other non-current borrowing and financial debt       210,574           0
    Other creditors and sundry non-current liabilities       271
    Non-current derivative instruments                    14,395      14,976
    Deferred tax liabilities                              58,986      27,339
    Non-current liabilities                              619,499     318,431

    Current bond borrowing                                13,346     195,682
    Other current borrowing and financial debt           125,307          53
    Trade payables and related accounts                   70,842      89,165
    Income tax payable                                    16,128       3,849
    Other creditors and miscellaneous liabilities        120,988      45,277
    Current derivative instruments                        30,031      40,395
    Current provisions                                    17,587      12,666
    Current liabilities                                  394,229     387,087

    Total Liabilities                                  1,848,519   1,645,148

    Consolidated Income Statement

    In thousands of euros                   31/12/2010    31/12/2009*

    Sales                                      345,805        191,851
    Other income                                   293            848
    Purchases and change in inventories       (33,147)       (26,439)
    Other operating purchases and             (82,975)       (56,801)
    expenses
    Tax expense                               (24,147)        (6,620)
    Personnel expense                         (26,870)       (20,297)
    Amortisation charges                      (67,870)       (35,258)
    Depreciation of exploration and          (211,478)       (56,472)
    production assets
    Provisions and impairment of               (6,432)        (7,738)
    current assets
    Reversals of operating provisions            2,933          3,913
    Gain (loss) on asset disposals                   1          3,068
    Other expenses                             (5,422)        (9,708)
    Operating income                         (109,309)       (19,653)
    Gross cost of debt                        (35,838)       (35,669)
    Income from cash                             4,048          1,922
    Net gains (loss) on derivative             (5,997)         36,200
    instruments
    Net cost of debt                          (37,787)          2,453
    Other financial income and                  53,749       (27,419)
    financial expenses
    Financial income                            15,962       (24,966)

    Income before tax                         (93,347)       (44,619)
    Income tax                                (56,569)       (11,508)
    Net income from consolidated             (149,916)       (56,127)
    companies
    Net income from equity associates            4,487         10,121
    Net income from continuing               (145,429)       (46,006)
    operations
    Net income from discontinued                 6,653        (4,644)
    operations
    Net consolidated income                  (138,776)       (50,650)
    Net income, Group share                  (138,776)       (50,650)
    Non-controlling interests                        0              0

    Earnings per share
    Basic                                        -1.21          -0.44
    Diluted                                      -0.91          -0.44

    Earnings per share from
    discontinued operations
    Basic                                         0.06           0.04
    Diluted                                       0.05           0.04

    Earnings per share from continuing
    operations
    Basic                                        -1.27          -0.40
    Diluted                                      -0.96          -0.40
    (*) Restated for discontinued operations and change in
    accounting methods

    Cash Flow Statement

    In thousands of euros                            31/12/2010 31/12/2009*

    Consolidated net income from continuing
    operations                                        (145,429)    (46,006)
    Tax expense for continuing operations                56,569      11,508
    Consolidated income from continuing
    operations before tax                              (88,860)    (34,498)
    - Net increase (reversals) of amortisation,
    depreciation and provisions                          72,093      10,450
    - Unrealised gains (losses) due to changes
    in fair value                                        41,242       (471)
    - Past exploration charge and write-off charge      135,126      53,823
    - Calculated expenses and income related to
    stock options and similar benefits                    2,017       2,060
    - Other calculated income and expenses               17,151       (547)
    - Gains (losses) on asset disposals                     (1)         167
    - Income (loss) from equity associates              (4,487)    (10,121)
    - Other financial items                               7,124         778
    Cash flow before taxes                              181,405      21,641
    Payment of tax due                                 (15,866)    (13,264)
    Change in working capital requirements
    for operations                                     (88,122)      44,965
    - Customers                                        (33,754)    (19,318)
    - Suppliers                                        (24,251)      39,553
    - Inventories                                       (8,950)       (988)
    - Other                                            (21,167)      25,718
    NET CASH FLOW FROM OPERATING ACTIVITIES              77,417      53,343
    Disbursements for acquisitions of
    tangible and intangible assets                    (473,147)   (384,556)
    Proceeds from disposals of intangible
    and tangible assets                                   4,887      77,739
    Disbursements for acquisitions of financial
    assets (unconsolidated securities)                  (4,440)    (15,135)
    Proceeds from disposal of financial assets
    (unconsolidated securities)                          10,321       (399)
    Acquisition of subsidiaries                               0    (13,933)
    Increased interest in equity associates                   0       6,861
    Change in loans and advances granted              (137,269)         840
    Other cash flows from investing activities                0         573
    Net proceeds from operations sold                    44,565     457,240
    NET CASH FLOW FROM INVESTING ACTIVITIES           (555,083)     129,230
    Amounts received from shareholders as
    part of capital increases                           (2,910)       6,222
    Dividends paid                                     (11,532)    (40,045)
    Proceeds from new loans                             416,766     285,829
    Interest paid                                       (7,124)       (778)
    Borrowing repayments                              (205,711)   (211,176)
    Treasury share acquisitions                         (2,836)       7,352
    NET CASH FLOW FROM FINANCING ACTIVITIES             186,653      47,404
    Impact of exchange rate movements                  (41,158)       8,872
    CHANGE IN NET CASH                                (332,171)     238,849
    Cash and cash equivalents at start of period        427,544     188,695
    NET CASH AND CASH EQUIVALENTS AT END OF PERIOD       95,375     427,544
    (*) Restated for discontinued operations and change in accounting methods

The Group's consolidated financial statements have been duly audited. The auditor's report is being prepared. The pending financial statements are available on the Company's website:

This document may contain forward-looking statements regarding the financial position, results, business and industrial strategy of Maurel & Prom. By nature, forward-looking statements contain risks and uncertainties to the extent that they are based on events or circumstances that may or may not happen in the future. These projections are based on assumptions we believe to be reasonable, but which may prove to be incorrect and which depend on a number of risk factors such as, fluctuations in crude oil prices, changes in exchange rates, uncertainties related to the valuation of our oil reserves, actual rates of oil production and the related costs, operational problems, political stability, legislative or regulatory reforms, or even wars, terrorism and sabotage.

         Maurel & Prom is listed on Euronext Paris - Compartment A - CAC
                                mid 100 Index

              ISINFR0000051070 / Bloomberg MAU.FP / Reuters MAUP.PA

                                  Next meeting:

    1/4/2011 Analyst presentation (10 am)

    12/5/2011 General Meeting (10 am)

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