Report for the first 6 months 1 January 1998 - 30 June 1998
RESULT AND CASH FLOW
The Group
The Lundin Oil AB Group (Lundin Oil) reports a loss after taxes of MSEK 27.2 (profit after taxes MSEK 63.3) corresponding to -0.34 (0.78) SEK per share
for the first 6 months of 1998. The profit before taxes was MSEK 7.5 (103.3).
Operating cash flow was MSEK 140.6 (130.6) corresponding to 1.7 (1.6) SEK/share. The operating cash flow has been positively impacted by the addition
of production from Malaysia and the Sedgwick Field in the UK North Sea acquired this period and negatively impacted by lower oil prices.
Lundin Oil received an average price on its crude oil sales of USD 13.73 (USD 19.61) per barrel for the first six months. The average price for 1997 was
USD 18.93 per barrel.
Oil and gas related income amounted to MSEK 316.7 (259.2) and relates to Lundin Oil's assets in the UK North Sea and Malaysia which generated operating
income of MSEK 236.2 (235.7) and MSEK 71.4 (nil) respectively. Depletion charge on oil and gas assets was MSEK 123.5 (69.1), the increase being
primarily due to start-up of production from Malaysia.
Net financial income and expenses were MSEK 13.5 (-17.6). Included were interest expenses amounting to MSEK 21.0 (22.1) and net currency exchange
gains of MSEK 24.3 (-1.6). The latter arose primarily as a result of translating loans from USD to GBP and SEK as well as a gain of MSEK 11.3 realised
from the closing out of various forward foreign exchange contracts.
Taxes were MSEK 32.4 (41.0). Corporation taxes reduced in line with lower oil prices to MSEK 13.5 (20.4). Petroleum Revenue Tax, PRT, decreased
slightly to MSEK 18.9 (20.6). The effect of lower oil prices on PRT in 1998 has been offset by an adjustment of MSEK 5.6 in the current year relating to
1997.
The net profit for the financial year ended 31 December 1997 was MSEK 62.1.
Parent Company
The net profit for the parent company for the first six months of 1998 amounted to MSEK 2.8 (-5.7).
PRODUCTION
Production for the first six months on a working interest basis amounted to 2,496,818 (1,451,486) barrels of oil equivalents of which 2,183,682 (1,234,212)
were barrels of oil. This corresponds to a production of 13,795 (8,019) barrels of oil equivalents per day (boepd) for the six months including production
from the UK North Sea and Malaysia of 9,101 (7,623) boepd and 4,694 (nil) boepd respectively. Production for the first six months from Malaysia on an
entitlement basis after government share amounted to 691,400 (nil) barrels.
Overall production from the UK is in line with forecast whilst in Malaysia production is below forecast primarily due to the delayed start-up from one of the
three Phase 1 Malaysia production wells which came on stream during the period.
FINANCING AND LIQUIDITY
Liquid assets at 30 June 1998 amounted to MSEK 433.3 (303.4). The increase in liquid assets is primarily due to the MSEK 220.3 cash assets of subsidiary
Sodra Petroleum AB.
INVESTMENTS
During the period, investments in oil and gas assets have been made in an amount of MSEK 410.9 (MSEK 204.8). These primarily relate to the purchase of a
20% interest in the Sedgwick Field in the UK North Sea, Malaysia development and exploration in Libya and offshore the Falkland Islands.
OPERATIONS
The period under review marks the first six months where Lundin Oil as the combined entity of Sands Petroleum AB and IPC has been operating. The
company changed its name frm Sands Petroleum AB to Lundin Oil AB by resolution on an extraordinary meeting of shareholders on 17 March 1998. The
organisation of the combined companies is being streamlined and slightly altered the main change being that the Company's operations and technical center
will move to London to centralise work and lower costs. The new London office is scheduled to be fully operational by year end.
Operational highlights were as follows:
Drilling and testing of the successful B1-NC177 well onshore Libya.
The completion in August of the appraisal well B2-NC177
The signing of Blocks A, 2 and 3 onshore Albania.
Seismic acquisition on Block 5A onshore southern Sudan commenced.
The mobilisation of the Borgny Dolphin, semi-submersible drilling rig to the Falkland Islands and the commencement of drilling operations in the
Falklands basin by Amerada Hess, Lasmo and Shell.
The successful flotation of 50% of the shares in Sodra Petroleum AB, the licence holder in Tranche "F" offshore Falkland Islands.
The purchase of a 20% interest in the Sedgwick Field in the UK North Sea from Texaco.
The completion of the MUSD 15 seismic acquisition campaign onshore Sudan
The drilling and testing of the Bunga Manggar well on Block PM3 CAA offshore Malaysia and Vietnam.
The discovery of the North Pakma field by the well North Bunga Pakma-1 on the same South East Asia Block.
The signing of the preunitisation agreement concerning the Kekwa field
Libya Exploration
The B1-NC177 well on Block NC177 onshore Libya was completed in January and tested more than 6,000 barrels of oil per day from three zones. This well
marks the discovery of the En Naga North oil field which is estimated to contain recoverable reserves of approximately 80 million barrels of oil.
The appraisal programme on the En Naga North Field commenced with the spudding of the B2-NC177 well on 5 July 1998. Following the completion of the
B2 well, the rig will move over and re-enter the J1-85 well prior to drilling the second appraisal well on the En Naga North structure., B3-NC177. The J1-85
well was originally drilled in 1968 and is located 3 km from the En Naga North discovery on a separate structure. Over 85 feet of gross pay has been
identified within the lower Gir/Facha formation which was not tested when the well was originally drilled.
The full appraisal of the remainder of Block NC177 is now underway with the commencement of the 1,600 kilometres regional 2D seismic programme
which is targeted at firming up the numerous other leads which have been identified. Exploration drilling will resume in 1999.
The company currently has over 150 people working in the field on both the drilling and seismic campaign.
Malaysia/Vietnam
In the first half of 1998 Lundin Oil and partners drilled two wells, Bunga Manggar-1 and North Bunga Pakma-1. Bunga Manggar-1 confirmed the
north-westerly extension of the H4 channel sand discovered by the Seroja-1 well in 1997. Although the H4 sand was water wet at the Bunga Manggar
location, it has proved up a total gas column of approximately 1,000 feet based on pressure data. The well, drilled 10 km from Seroja-1, encountered the H4
sand 670 feet downdip.
North Bunga Pakma-1, was drilled to a total depth of 10,781 feet and encountered 12 commercially significant hydrocarbon bearing reservoirs with a total
gross thickness of 400 feet. Production testing of four representative sands from the J,K and I sequences yielded a combined maximum flow rate of 111
million cubic feet per day and 2,036 barrels per day of condensate. Apart from proving up significant additional reserves, the well results have upgraded the
potential of the North West Pakma and North Orkid prospects which are adjacent to North Bunga Pakma.
Development studies will now be carried out to incorporate the North Bunga Pakma field into the Block's development plans. The full development of the
Block is based on the sales of 250 million standard cubic feet of gas per day to both Malaysia and Vietnam as well as the export of 40,000 barrels per day of
oil. Provided that the gas sales agreement is signed before the year end this production rate can be achieved by the end of the year 2000.
The remaining two wells planned on the Block this year will be drilled on the Kekwa field and will be tied into the existing production facilities as soon as they
are completed. The first of these, Bunga Kekwa A-5 was spudded in mid August 1998.
As of January 1998 the Lundin Oil AB 15% direct interest in the Malaysia PM-3 commercial arrangement area was transferred to a newly formed wholly
owned subsidiary of Lundin Oil AB named Sands Malaysia AB.
SODRA PETROLEUM AB
On 27 February the Board of Directors decided to offer 50% of the interest offshore the Falkland Islands, the Group's 100% share of Tranche F, to Lundin
Oil's shareholders through a share issue in the single purpose subsidiary holding the Falkland interest, Sodra Petroleum AB (Sodra). Shareholders were
offered one new share of Sodra for two shares held in Lundin Oil at a price of SEK 7.50 per Sodra share. An EGM in Lundin Oil on 17 March approved the
issue of a maximum of 3,400,000 warrants to be transferred to Sodra to allow Sodra shares to be converted back into shares of Lundin Oil in November
2001 at the ratio 12 Sodra shares for one new share of Lundin Oil.
The Sodra share issue was completed in May 1998 and all 40,506,476 convertible shares were placed including 3,000,000 shares taken up by Lundin Oil.
Through the new share issue Sodra raised MSEK 304 before issue costs. The total number of shares in Sodra amount to 81,012,976 divided into two classes
of shares, ordinary shares and convertible shares. There are 40,506,500 ordinary shares outstanding all of which are owned by Lundin Oil and 40,506,476
convertible shares outstanding.
In connection with a listing of the Sodra convertible shares on the Alternative Investment Market (AIM) in London Lundin Oil placed 3,000,000 convertible
shares in Sodra originally taken up by Lundin Oil. At the date of this report Lundin Oil owns just over 50% of Sodra. The convertible shares are traded on the
New Market of the Stockholm Stock Exchange and as of 17 July 1998 on AIM in London. Greig Middleton & Co. Ltd. acted as Nominated Broker and
Adviser to Sodra for the AIM-listing.
Sodra plans to drill an exploration well on Tranche F during the third quarter of 1998. A well was recently completed on Tranche A, located north of Tranche
F, by the American oil company Amerada Hess. This well encountered minor oil and gas shows although not of commercial significance. The fact that
hydrocarbons have been shown to be present in the basin is however very encouraging for the continuing exploration. In July the English oil company Lasmo
drilled a well on Tranche C, which was reported to penetrate potential reservoir formations, but did not encounter hydrocarbons. At the date of this report
Shell is drilling on Tranche B. Sodra will take over the rig after Shell completes its current well.
SHARES IN ARAKIS
On 17 August 1998 the Canadian oil company Talisman Energy announced a public offer for all the outstanding shares in Arakis, offering to exchange ten
shares of Arakis for one share of Talisman. Lundin Oil has agreed to accept Talisman's offer, which however is subject to various regulatory approvals.
Talisman closed at USD 20.75 on the New York Stock Exchange on 20 August 1998.
CHANGES IN THE BOARD OF DIRECTORS
At the Annual General Meeting of Shareholders on 8 May 1998 Ashley Heppenstall, Vincent Hamilton and Nigel McCue resigned. Lukas Lundin, John Craig
and William Rand were newly elected to the Board. The other directors were re-elected.
In addition Ian H. Lundin was appointed Managing Director and the former Managing Director, Magnus Nordin, was appointed Deputy Managing Director.
Ashley Heppenstall was appointed Finance Director and Alex Schneiter Exploration Director.
SHARE DATA
Lundin Oil has 81,012,953 shares outstanding. 678,200 are A shares representing 10 votes each and 80,334,753 are B shares representing one vote each.
Each share has a nominal value of SEK 0.50. The share capital amounts to SEK 40,506,476. At the Annual General Meeting of Shareholders approval was
received to issue 1,250,000 warrants to employees of the Company. In addition 3 375 540 warrants are outstanding linked to the convertible Sodra share in
order to enable 12 convertible shares of Sodra to be exchanged for one new share of Lundin Oil at SEK 0.50.
For further information, please contact:
Magnus Nordin
Deputy Managing Director
Tel: +46 705 766 555 |
