Desire Petroleum PLC - Chairman's Statement
RNS, April 24
Dear Shareholder,
The year proved to be a busy one for the Group, with drilling in Portugal and
new seismic acquisition offshore Portugal and in the North Falkland Basin.
Much of the year was taken up with the analysis and interpretation of the new
data acquired, the preparation of farm-out documents and the initiation of the
farm-out programmes. Progress has been made on each of these fronts.
The Falkland Islands
As a result of the confirmation, by two, independent studies, of the presence
of a world-class source rock in the North Falkland Basin and the publication
of their results by the British Geological Survey and Shell Production and
Development Limited demonstrating that, potentially, up to sixty billion
barrels of oil appear to have been generated and expelled from the source
rock, Desire has concentrated studies on identifying where this oil may have
accumulated. To date, these studies have identified eight significant
structures together capable of containing more than two billion barrels of
recoverable oil. The additional seismic acquired, together with Lundin Oil AB,
was designed further to delineate prospects in Tranches F, C and D and this is
now being interpreted.
Farm-out documents have been prepared and discussions are continuing with
potential farm-inees. The prospectivety of the Basin is not in doubt and the
resumption of drilling is principally a matter of timing. The cost of bringing
a rig to the Falklands is high and several wells need to be drilled to justify
doing so. Accordingly, the Company intends to initiate discussions with other
Licence Holders, as well as potential partners, with a view to organizing a
cooperative approach to commissioning a rig. Should farm-out terms not prove
sufficiently attractive, your Board will also consider other methods of
financing drilling including corporate solutions.
Portugal
Following the failure of the Aljurbarrota No.3 well to flow gas from the
Brenha Limestone reservoir due to the lack of fracture development, it has
been decided that the next well should be a sidetrack from the Aljubarrota
No.2 well, which did flow gas. The sidetrack, which is planned to be spudded
in May 2001, will be directed to test the reservoir to the north-west of the
No.2 well. It is intended to drill the sidetrack with foam in order not to
damage the fractured reservoir and, if it is successful, to subject it to a
prolonged production test. Further drilling and development of the Aljubarrota
discovery will be based upon the results of the sidetrack.
The offshore seismic programme, carried out in 2000, has now been interpreted
and a number of major structures have been identified. Drilling of these will
require an offshore drilling rig, the cost of which will be significant.
Accordingly, the operator, Mohave Oil and Gas Corporation, is seeking farm-in
partners on behalf of both themselves and the Group. The prospects identified
are large and could contain substantial reserves of hydrocarbons. The
Lusitanian Basin is prospective for both oil and gas and, as Portugal is an
energy-poor country, there is a ready market for any production.
Results
The major cost over-run, caused by technical problems encountered during the
drilling of Aljubarrota No.3, was a significant factor in the Group's net cash
position being reduced to #871,000 at the end of 2000. Apart from the
Aljubarotta No.3 well, the other major expenditures have been on the new
seismic in the North Falkland Basin and offshore Portugal. The only major
expenditure currently envisaged for 2001 is the drilling of the Aljubarrota
No.2 sidetrack which could be paid for out of existing funds, always provided
it came in on budget. However, your Board considers it prudent to have cash in
reserve for any contingencies and, accordingly, #450,000 net of costs was
raised by way of a placing on 12th April 2001.
Future Activities
Your Board will continue to seek to create value for shareholders via
exploration success. Although this is undoubtedly the most difficult route for
an oil and gas company to take, it is also that which yields the greatest
benefits if successful. Because exploration success rates are never 100% there
will, inevitably, be disappointment, however, provided that the prospects are
of sufficiently high quality, and your Board believes that those within the
Group's portfolio meet this requirement, the chances of significant rewards to
shareholders remain good.
It is my pleasure to thank my colleagues on the Board for their efforts during
the year. Despite maintaining one of the lowest overhead costs in the sector,
much has, and is being, achieved.
Dr Colin B. Phipps
Chairman
24 April 2001 |
