COMPANY NEWS: Top UK independents post record results for 2000

March 19, 2001
Top UK independent oil and gas firms are reporting record profits for 2000, citing higher oil and gas prices as the chief driver behind their increased earnings.

Top UK independent oil and gas firms are reporting record profits for 2000, citing higher oil and gas prices as the chief driver behind their increased earnings.

Premier Oil PLC said that it had pulled itself into the black after 3 years of losses. The company recorded net profits of £6.1 million, compared with a 1999 deficit of £27.7 million.

Enterprise Oil PLC said it had achieved record gains in turnover, profits, production, and reserves for 2000, despite revealing that its production forecast for 2001 was down 9% from original expectations.

Edinburgh-based independent Cairn Energy PLC reported record results as high oil and gas prices drove its post-tax profits for 2000 up to £41.6 million, more than 2.5 times its 1999 results.

Meanwhile, Thailand state-owned company PTT Exploration & Production PLC (PTTEP) reported 2000 net profits of $126.34 million, up 148% from 1999 due to sharp increases in gas prices and increased sales volumes.

In other company news, Shell Oil Co. said Mar. 12 that it would proceed with its proposed all-cash takeover of Barrett Resources Corp. (OGJ, Mar. 12, 2001, p. 33), after the Denver-based independent's board earlier turned down the supermajor's $2.2 billion bid in favor of opening its books to "all qualified parties."

Premier

Premier saw its operating profit swing from a loss of £6.3 million in 1999 to a gain of ££35.2 million last year, while its turnover increased to £115.7 million from £26.2 million during the same period, said Premier CEO Charles Jamieson.

At the end of last year, Premier had booked reserves totaling 488.4 million boe-up from 460.4 million boe in 1999-as well as 149 million boe of discovered reserves that, Jamieson said, the company is conservatively treating as "unbooked" but hopes to commercialize within the "next 12-14 months."

He stressed that his company had banished its "poor [exploration] reputation in the late 1980s and early 1990s" by having increased its reserves by an average 90 million boe/year since 1995 at a finding and development cost of $2.80/boe.

Despite Premier's production declining slightly to 27,300 boe/d in 2000, Jamieson stressed that its output was due to climb to 50,000-60,000 boe/d-a level that would be sustained over the next 15 years by the independent's long-term gas contracts in Southeast Asia.

"Premier has proven operationally now to be a very good explorer and [an] extremely good commercializer of gas, and we have given ourselves a very solid production base going forward," he said. "The challengeellipseis to turn that operating success into raw value to shareholders."

Jamieson highlighted that Premier's two major sources of new gas production in Southeast Asia-the Yetagun development off Myanmar and the West Natuna project off Indonesia-were progressing as planned.

Yetagun, a $650 million platform and pipeline development managed by Premier and brought on stream last May, saw first sales to Thailand's PTTEP PLC the same month and the contracted rate of 200 MMscfd come into effect in July. Engineering work on an upgrade at the field, designed to boost capacity in the first instance to 260 MMscfd, is under way, Jamieson said.

The Premier-operated Anoa gas export project on Natuna Block A is on schedule for completion by May, ahead of the main 22-year gas sales agreement with SembaCorp Gas set to start in July. Early gas deliveries from Anoa, begun in January, said Jamieson, are expected to build to 150 MMscfd over the coming months, before climbing to plateau production of 325 MMscfd.

The company ended the year with net debt "as planned," standing at £445 million as a result of ongoing investment in its major gas developments, but John van der Welle, Premier's finance director, stressed this was the "peak of the cycle in terms of indebtedness."

He said, "We have been investing very heavily over the last 3 years in developments, particularly in [Myanmar] and Indonesia, and those investments are reaching a conclusion, hence the very significant increase to production we are looking toward achieving this year."

Enterprise Oil

Enterprise, benefiting from high oil prices and record oil and gas output, chalked up a turnover of £1.8 billion in 2000, compared with £850 million the year prior. Post-tax profits were £529 million, nearly triple the 1999 result of £177.2 million, reported Chief Executive Pierre Jungels. Production climbed to 280,563 boe/d in 2000, up 31% from the year before, while the independent's reserves ended the year at 1.412 billion boe, thanks to additions from the Skarv area off Norway and the purchase of US Gulf of Mexico assets-including Boomvang-from R&B Falcon Corp.

"With production upellipseon 1999 and a realized oil price of £19.05/bbl, we strengthened the balance sheet significantly during 2000," said Jungels. "However, we continue to test our potential developments against oil price assumptions of $15-18/bbl."

Jungels acknowledged that production gains last year from four new UK and Norwegian North Sea fields-Cook, Bell, Bittern, and Sygna-along with higher-than-expected output from its UK Pierce and Norwegian Jotun developments would be more than offset this year, as output is expected to fall to 250,000-260,000 boe/d.

"Debottlenecking of the Pierce facilities and the outstanding performance of Jotun led to a degree of accelerated production in 2000, meaning that 2001 is likely to feel the effects of additional depletion," he admitted.

Jungels said that decline notwithstanding, along with delays to production build-up at Tempa Rossa field in Italy and "underperformance" at the UK North Sea Banff development, Enterprise aims to meet the 5%/year production growth target set last year "through organic growth, acquisitions, and portfolio management."

By 2005, he noted, Enterprise expects to shift its production spread from 40% outside of the UK and Norway to 60%, adding some 150,000 b/d to its total output from fields such as Brazil's Bijupira-Salema and the giant South Pars stages 6, 7, and 8 gas development off Iran.

"We will continue to rebalance our portfolio, and that means we will have no sacred cows," stressed Jungels. "Our asset base is not frozen."

Enterprise's exploration and appraisal budget for 2001 is £135 million, up from £102.9 million in 2000. Some £50 million will go for US Gulf of Mexico projects, while the UK-Ireland and Norway regions will split another £60 million in exploration and appraisal spending.

The company's production and development expenditure is expected to be £450 million, with the bulk going toward the Val D'Agri fields in Italy, the Enterprise-operated Corrib gas field off Ireland, the Bijupira-Salema development off Brazil, and Boomvang field in the Gulf of Mexico.

Jungels dismissed suggestions that the company-viewed as a prime candidate for takeover or merger during the last wave of industry consolidation-will be acquired. He said, "there have been stories about [Enterprise] being taken over for 18 years" but the company would remain independent.

"What we believe is we manage the asset base so effectively that there is little room for somebody to manage it better," said Jungels.

"We fully expect to be independent in a year's time," he added, "and in 5 years' time, we fully expect to be twice the size."

Cairn Energy

Despite its average production falling to 20,206 boe/d from 21,196 boe/d, Cairn saw its total turnover climb 51% to £116 million in 2000 from the year before.

The company's overall production costs remained steady, rising to $5.28/boe from $5.23/boe.

Cairn said it aimed to double its capital expenditure this year from £48.3 million in 2000, chiefly to build on its exploration programs in core areas, including the Indian subcontinent.

Bill Gammell, Cairn's chief executive, said, "Our continuing focus on exploration is materially increasing the value of our assets in the Indian subcontinent.

"Demand for energy in India remains unfulfilled, and Cairn's assets in India and Bangladesh are strategically placed to supply this growing market," he said.

Gammell said the future of the company's exploration portfolio was "solidly underpinned" by its stakes in Ravva oil and gas field in India and Sangu gas field in Bangladesh.

Ravva, which Cairn operates, flowed 48,800 b/d of oil and 24.5 MMcfd of gas last year, while Sangu, where Cairn holds a 37.5%, produced 123 MMcfd of gas.

The company made four hydrocarbon discoveries on Block CB-OS/2 off western India last year.

PTTEP

PTTEP said revenues surged last year, fueled largely by production from Pailin field in the Gulf of Thailand and Yadana field in Myanmar's Gulf of Martaban.

Chitrapongse Kwangsukstith, PTTEP president, reported sales rose to 80,316 boe/d in 2000 compared with 66,642 boe/d in 1999.

Industry analysts said PTTEP benefited from the higher crude prices and in- creased gas purchases by its parent firm, Petroleum Authority of Thailand, which supplied gas to domestic power plants operated by the Electricity Generating Authority of Thailand and private producers.

Chitrapongse said PTTEP will increase production from its own and joint-venture projects while seeking additional overseas exploration and production ventures in Viet Nam, Indonesia, Iran, Oman, Yemen, and Sudan.

Shell-Barrett deal

Walter van de Vijver, chief executive of Shell Oil's exploration and production arm, Shell E&P Co., said the company considers it a "positive sign" that Barrett's board of directors were "considering strategic alternatives" to Shell's proposal.

Van de Vijver noted, however, that it was "not clear" if the Barrett board and CEO Peter Dea were "committed" to selling the company.

This lack of certainty, said van de Vijver, had lead Shell to decide to take its offer-equivalent to $55/share in the smaller company-directly to Barrett's shareholders "rather than participate in the auction process proposed by [the company's] board.

"We note that Barrett's board has not said that our offer is inadequate, so we assume that they and their advisors have concluded that our offer is in an appropriate range," he said. "We have decided to make our tender offer available to shareholders, because we continue to believe that our fully funded cash offer represents a full and fair value for the company."

Van de Vijver said a protracted auction process, which he said could take 2 months, would have "an adverse impact on [Barrett's employees'] ability to effectively operate their business."

Shell made its initial offer on Mar. 1, claiming it represented a 24% premium on Barrett's market price on the last day of trading before the bid, when it closed at $44.24/share.

Early last week (Mar. 12), Barrett said it would consider Shell Oil's offer to purchase its outstanding stock.

"The board also announced that it will take all necessary steps to maximize shareholder value and that it had directed management to promptly pursue strategic alternatives, including seeking proposals from a number of qualified parties. That process has already commenced," the independent said. Barrett added, "In light of Shell's formal commencement of a tender offer at $55/share, the board of directors will meet to formally consider the Shell offer and make a recommendation to shareholders with respect to the offer within 10 business days. Until such time, the company urges shareholders to take no action with respect to their holdings of Barrett."

"We will continue to rebalance our portfolio, and that means we will have no sacred cows. Our asset base is not frozen."
Enterprise CEO
Pierre Jungels