TIDMRHEP
RNS Number : 9565B
Rheochem PLC
28 February 2011
28 February 2011
Rheochem Plc
("Rheochem" or the "Company")
Half-yearly financial report for the six months ended
31 December 2010
Rheochem Plc, the oil and gas business with oil services,
production, development and exploration assets today announces its
interim results for the period ended 31 December 2010.
Financial highlights
-- Group revenue of A$10.17m (2009 H1: A$11.80m)
-- Group EBITDA loss of A$0.66m (2009 H1: profit of A$0.42m)
Operational Highlights
-- Athena oilfield granted development approval
-- $14 million loan facility secured for the Athena
development
-- Santos contract renewals onshore and offshore Australia
-- Awarded a 90% interest in nine new North Sea Offshore
blocks
Commenting on the interim results Haydn Gardner, Chief
Executive, said:
"The oil and gas assets division has performed very well in the
first half with the addition of nine new North Sea blocks to its
portfolio. The Athena development was sanctioned and revenues from
first oil are expected in Q4 2011.
"Due to the severe flooding in Australia, the drilling fluids
division revenues were down on the same period last year but
improved on the second half by 18%. The Board is encouraged to see
a large number of onshore drilling rigs returning to work and we
look forward to improving revenues in the second half of 2011.
"Drilling activity in the coal bed methane sector should rise
significantly in the second half now that two of these projects are
sanctioned for development. Rheochem is well placed to take
advantage of this increased activity, as it already has supply
contracts with several customers in this sector."
The hydrocarbon reserves estimates in this report are based on
information compiled by Mr Michael Rose, a non-executive director
of Rheochem PLC. Mr Rose's qualifications include a BSc (Hons)
degree in Geology and Chemistry from Leicester University, UK and
more than 30 years of relevant experience. Mr Rose has consented in
writing to the inclusion of this information in this report in the
form and context in which it appears.
For further information please contact:
Haydn Gardner, CEO - Rheochem +61 (0) 8 9410
8200
Billy Clegg, Edward Westropp, Alex Beagley +44 (0) 20 7269
- FD 7207
Shane Gallwey - Northland Capital Partners +44 (0) 20 7492
4775
Andy Yeo - McCall, Aitken, McKenzie +44 (0) 20 7464
4062
AUSTRALIAN SECURITIES EXCHANGE - APPENDIX 4D
Results for announcement to the Market
Half Year Half Year
Ended Ended
31 Dec 10 31 Dec 09
% Change $A 000's $A 000's
Revenue from ordinary activities Down 14% 10,173 11,798
(Loss)/profit from ordinary
activities after tax attributable
to members Down 162% (1,642) (626)
Net (loss)/profit for the period
attributable to members Down 162% (1,642) (626)
Rheochem will not be declaring
an interim dividend
Cents Cents
Net tangible assets per ordinary
share (cents) 13.6 14.0
CHIEF EXECUTIVE'S OVERVIEW
Group revenue for the period was A$10.2m (2009 H1: A$11.8m.).
Revenue from the oilfield services division was A$10.2m (2009 H1:
A$11.8m). Severe flooding in Queensland, New South Wales and South
Australia has continued to hamper drilling activity. Offshore
revenues were also lower than budgeted due to a further deferral of
drilling projects.
Group EBITDA losses increased modestly to A$0.7m compared with a
profit of A$0.4m in the previous year. Oilfield services EBITDA
profit reduced to A$1.1m (2009 H1: profit A$1.9m), EBITDA margins
remain at 11.2% (2009 H1:16.3%).
Group loss for the period was A$1.6m (2009 H1: loss A$1.8m) and
attributable loss to share holders was A$1.6m (2009 H1: loss
A$0.6m)
OILFIELD SERVICES
Australia
Onshore
Rheochem Limited continues to be a major supplier of drilling
fluid chemicals and services for both onshore and offshore oil and
gas drilling campaigns. In this interim period we experienced a
marked reduction in onshore drilling activity due to extensive
flooding in Queensland and South Australia. Whilst impacting short
term activity, the longer term outlook remains robust. We were
delighted to announce in December that, Rheochem Ltd had renewed
its largest onshore contract for a further three years with a
possible further two year extension.
Coal Bed Methane
Drilling activity in the coal bed methane sector is increasing
rapidly and we see the potential for strong growth in this area.
The Company has developed a range of products for the Coal Bed
Methane drilling industry and these are gaining increased market
acceptance. Further marketing is being undertaken to strengthen the
Company's position in this sector.
Geothermal
Rheochem has signed a letter of intent to enter into a contract
with Geodynamics Ltd to supply fluids to some of the deepest and
hottest wells to be drilled onshore in Australia. During the period
our technical department continued with the development of extreme
temperature drilling and completion fluids capable of withstanding
300 degrees Celsius.
Offshore
The level of activity in offshore operations with existing
customers for the period has continued to be disappointing.
However, the Company renewed its offshore contract with Santos Ltd
for a further twelve months and we expect offshore drilling to
commence in March.
New Zealand
Rheochem Pacific Limited continues to provide drilling fluids
and engineering services to two major entities operating in the
geothermal industry in New Zealand. These contracts have been
operating since 2004 and 2005 respectively and continue into
2010/11. In November 2010, we announced a contract award from TAG
Oil to provide drilling fluids and engineering services to its
oilfield operations.
India
Rheochem India (Private) Ltd (RIPL) is a 70% owned subsidiary
and continues to perform strongly. During the period, this division
has completed a contract for drilling fluid services from Oil and
Natural Gas Company India "ONGC" for its Tripura onshore asset in
Agartala, India. The contract has a provision to provide services
for future locations depending on performance and operational
requirements of ONGC. We expect this option will be exercised,
thereby extending the contract significantly and we will update the
market as to the outcome of this extension.
This division also completed a contract for drilling fluid,
engineering and dewatering services from Hindustan Oil Exploration
Company Limited "HOEC", a new customer for Rheochem, for the
appraisal of its Dirok gas discovery onshore on Block AAP-ON-94/1
in the state of Assam, India. The contract was for one firm well
with a provision for a further two optional wells and we will
update the market as to the outcome of any extension.
The Company also continues to seek opportunities for export of
oilfield products, which can be manufactured cost effectively in
India.
Indonesia
PT Rheochem Indonesia has received all the licences required to
operate in the Indonesian oil and gas industry.
As with India, the Directors believe Indonesia represents a
potential growth market in the oil and gas as well as geothermal
industries. Rheochem Plc has a 95% holding in this subsidiary.
OIL & GAS ASSETS
United Kingdom
Zeus Petroleum Limited is a 100% owned subsidiary of Lochard
Energy UK Limited which is a 100% owned subsidiary of Rheochem
PLC.
Zeus was awarded a 90% interest in nine blocks (out of the 10
applied for) in the UK 26(th) round of offshore licensing in late
2010. To add to the Athena and Thunderball discoveries from
previous licencing rounds, a number of appraisal projects and
intriguing exploration blocks were added in the round, to make it
11 held UK blocks in total. Zeus holds a 10% interest in the Athena
Field and a 90% interest in all the remaining blocks. Zeus was
unsuccessful in securing farm in partners for its exploration
prospect Metis on North Sea block 14/11 and this block was
relinquished in December 2010.
Licence Blocks Zeus Interest %
--------- ----------------- ----------------
P 1293 14/18b ( Athena) 10
--------- ----------------- ----------------
P 1611 14/26b 90
--------- ----------------- ----------------
P 1868 14/27b 90
--------- ----------------- ----------------
P 1867 14/17 90
--------- ----------------- ----------------
P 1861 3/5 90
--------- ----------------- ----------------
P 1861 3/10c 90
--------- ----------------- ----------------
P 1863 9/17b 90
--------- ----------------- ----------------
P 1863 9/22b 90
--------- ----------------- ----------------
P 1865 13/16b 90
--------- ----------------- ----------------
P 1865 13/17 90
--------- ----------------- ----------------
P 1871 16/8c 90
--------- ----------------- ----------------
Zeus Licence interests as at 25 February 2011
LICENCE P1293 (Block 14/18b) Athena, Zeus 10%
Athena (Block 14/18b) Reserves
Athena Reserves Athena Reserves
(Gross 100%) (Net to Zeus)
Reserve Category MMstb MMstb
----------------------------------- ---------------- ----------------
Proved + Probable (2P) 24.4 2.44
----------------------------------- ---------------- ----------------
Proved + Probable + Possible (3P) 43.88 4.39
----------------------------------- ---------------- ----------------
Development Block
1. Athena Oilfield 14/18b
The Athena Field lies approximately 180 km north-east of
Aberdeen and 18 km west of the Talisman operated Claymore platform.
The Field lies entirely within UKCS block 14/18b. This Field is
currently under development.
Athena is an oil field comprising a thick oil column within the
Lower Cretaceous Scapa A Member sandstones. The development plan
consists of four production wells completed with electrical
submersible pumps (ESP's) and one water injection well. The three
existing wells will be re-entered and completed as producers. A
water injection well has been drilled and one further producer will
be drilled prior to first oil which is expected Q4 2011. Initial
production rates are estimated at 2000 barrels of oil per day (net
to Zeus).
Appraisal Blocks
1. 3/5 & 10c
These blocks contain a BP 1980's Upper Jurassic gas discovery,
3/10b-1, which tested gas at a relatively low flowrate of c.1
mmscfd. A potentially large gas-bearing area has been mapped to the
north and south of the well, which was not optimally placed. There
are additional untested sands in the well and a gas-water contact
was not encountered, leaving plenty of upside. Reservoir parameters
of 11% porosity and 10md permeability within a 200ft gross interval
should allow modern drilling and engineering techniques to increase
flowrates and it is this aspect which will be investigated by the
future work programme on the blocks. There is a further lead
located to the north of block 3/5. Both blocks are located adjacent
to the Alwyn Fields and facilities which are operated by Total.
In-house prospective resources range (minimum-mid-maximum cases)
- all recoverable
(3/10b-1): 480-1057-2196 BCF. (mid case c.95% on block)
(3/5 north): 38-166-580 BCF. (mid case c.85% on block)
2. 14/26b 'Thunderball'
The Thunderball discovery well (14/26b-5) tested at a
significant rate of 34 mmscfd and 200 bcpd, and requires appraisal
drilling to quantify significant upside potential. The Lower
Cretaceous to Upper Jurassic reservoir interval in the discovery
well (thought to be Scapa sand) consists of a 97ft gas and 32ft oil
column within an overall 450ft gross interval. This can be mapped
to continue further updip of the well location, where the reservoir
quality of 25% porosity and net to gross ratios of 50% are expected
to improve. The ultimate trapping mechanism is uncertain: there is
a large structural mid case but with a large stratigraphic upside
case. Block 14/27b was acquired in the 26(th) licensing round to
protect the stratigraphic upside.
There is also a further exploration target for oil located
immediately below the gas-bearing horizon in the Jurassic Buzzard
sands, which at the proposed well location would be both above the
hydrocarbon-water contact (6466 ftss) and from evidence in the
14/26b-5 well, expected to be in the same pressure regime. Zeus
intends to appraise this discovery via a relatively shallow well as
soon as possible.
In-house prospective resources range (minimum-mid-maximum cases)
- all recoverable
(Thunderball): 32-318-2398 BCF. (mid prospective resources c.50%
on block)
(Buzzard): 10-65-341 MMBBL. (mid prospective resources c.60% on
block)
3. 16/8c 'Moby'
The 16/8c-13 well was drilled to test the north-eastern flank of
the Kingfisher field by Marathon in 1993. It is sited c.5km NE of
the Kingfisher facilities. The well encountered a net thickness of
180 ft of hydrocarbon-bearing sandstone in the Brae Formation
Miller sands. Where cored, the Miller Sands show good porosities of
14-18% and permeabilities in the 100's of millidarcies.
Although not tested, fluid samples were recovered by wireline
and confirm the interpretation of separate hydrocarbon-bearing
zones. With increasing depth, the fluid samples recovered: oil,
water then oil and wet gas. The API gravity and GOR of the oil
samples increase with depth.
Zeus intends to map the individual sand bodies within the Miller
sands, utilizing the internal seismic character from the latest
data. Ultimately, this should enable smart wells to be drilled
(e.g. multi-lateral) and efficient development of the hydrocarbons.
A thorough engineering review will be undertaken to assess drilling
and production options.
In-house prospective resources range (minimum-mid-maximum cases)
- all recoverable
(Moby): 15-43-102 MMBBL plus 39-94-204 BCF (mid prospective
resources c.70% on block)
Exploration Blocks
1. 9/17b & 22b
Drilled by Quintana in 1972, this well encountered a 220ft
Tertiary Balder sand from 4280-4500ftmd with excellent hydrocarbon
shows (brown oil stain, white-fair yellow live oil fluorescence and
fast cut with yellow cut fluorescence) over the upper 120ft. A gas
peak of 8000ppm was also recorded. The mudlog suggests that the mud
weight was overbalanced over the interval.
The main Balder sand body has a net to gross ratio close to 100%
and the porosities are in the range of 30-35%. In regard to the
reservoir, the well is very similar in appearance to the Gryphon
discovery well, 9/18b-7. Additionally, the well is located
immediately downdip of a striking seismic analogy to the nearby
Gryphon and Harding producing oilfields.
It is thought very likely that the well is an 'unrecognized oil'
discovery. Zeus intends to purchase 3D seismic over the blocks,
carry out a petrophysical review of the old logging data and
consider re-dating of the sands where necessary.
As mapping is in progress, resource estimates can only be based
on likely areal size, reservoir quality and sand thickness. These
suggest that the Eocene sands have the potential to be as large as
the adjacent Gryphon Field. Published field reserves for the
Gryphon field are currently set at 130mmbbl oil plus 130bcf gas
recoverable.
2. 13/16b & 17
The main potential for these blocks exists in a large Upper
Jurassic stratigraphic Lead located in the Smithbank Graben just to
the north of the Captain Oilfield. The seismic signature is very
similar to that seen in the Buzzard field. This potential was first
realized on 2D seismic data and recent 3D acquisition has thrown up
some intriguing results. There is an AVO effect seen on this
seismic which is a potential direct hydrocarbon indicator and so is
something that Zeus would like to investigate further.
In addition to the Jurassic, there is further reservoir
potential recognized in younger Lower Cretaceous Scapa-type sands,
similar to those seen in Athena. A clear sediment wedge, sitting on
the base Cretaceous reflector, can be observed on seismic on the
downthrown side of the main SW-NE Smithbank fault which traverses
blocks 13/16b and 13/17.
In-house prospective resources range (minimum-mid-maximum cases)
- all recoverable.
(Jurassic): 121-367-1113 MMBBL. (mid prospective resources c.
70% on block)
(Cretaceous): 16-140-1135 MMBBL (mid prospective resources 100%
on block)
3. 14/17
This block is located immediately on trend and to the West of
the Athena field in 14/18b. Both blocks are located in a
significant Lower Cretaceous half-graben, adjacent to the Halibut
Shelf. This trend is a continuation of that already successfully
tested in 14/18b by the Athena wells and further to the east, by
the Scapa field itself. Older 3D seismic data has identified leads
in the block but future work will concentrate on mapping new data
which should help to identify additional seismic packages similar
to those seen in the Athena and Scapa fields.
As mapping is in progress, resource estimates can only be based
on likely areal size, reservoir quality and sand thickness, but it
is not unreasonable to assume that a 15-20mmbbl accumulation could
be defined.
4. 14/27b (see 14/26b Thunderball)
This block was selected as protection acreage for the existing
Thunderball gas discovery in 14/26b which was already licensed to
Zeus. 14/27b could contain significant upside potential, located
directly up dip of the Thunderball discovery.
USA
Blackwell Project
Rheochem's 100% owned subsidiary, Lochard Energy Inc.
("Lochard") holds a 65% working interest (48.75% revenue interest)
in 22 wells on the Blackwell leases in Caldwell County, Texas, USA.
The Company does not intend to participate in any further wells in
this field.
Schuster Flats
Lochard holds an 18.75% working interest over approximately
34,400 acres in the natural gas and oil leases in the Schuster
Flats prospect which is located in the central portion of the Big
Horn Basin in the state of Wyoming, USA. No further drilling is
budgeted for 2010/2011 financial year and the leases are being
reviewed for potential sale or joint venture.
Bearcat Prospect
Lochard holds a 13.75% working interest (10.31% revenue
interest) in the 960 acre Bearcat Prospect located in Park County
at the north end of the Big Horn Basin in the state of Wyoming,
USA. The Company does not intend to participate in any further
wells in this field until US gas prices improve and commercial flow
rates can be proven from the Two Dot #12-42 well.
Legal dispute
As previously announced, Zeus Petroleum has a legal dispute with
Senergy Limited; a UK based drilling company, claiming US$11.907m
and GBP1.822m in respect of contracted works not carried out in
accordance with the terms of an alleged contract with Zeus. Since
initial contact was made by Senergy, informing Zeus of Senergy's
position, a claim has now been lodged in the High Court and Zeus
intends to rigorously defend this claim. A court date has been set
for 10 October 2011.
While the management of Zeus believe that Senergy's claim is
unlikely to succeed, it does give rise to a contingent liability in
the Zeus and consolidated group accounts as at 31 December
2010.
Whilst a contingent liability in a subsidiary is deemed to be a
contingent liability for group accounting purposes, there is no
legal liability attributable to Lochard Energy or Rheochem Plc.
Outlook
The second half of the financial year looks very promising for
the fluids business and we expect revenues from this division well
in excess of the first half which was heavily impacted by floods in
Australia. The Company has renewed most of its major contracts and
these will underpin the main revenue stream.
Drilling activity in the coal bed methane sector should rise
significantly in the second half, now that two of these projects
are sanctioned for development. Rheochem is well placed to take
advantage of this increased activity as it already has supply
contracts with several customers in this sector.
Offshore drilling activity is also expected to increase with
drilling of a project to commence in March 2011. Rheochem owns one
of the four fluids blending plants on the North West Shelf of
Australia and competes directly against the three major
international oilfield service companies.
With regards to E&P, Zeus obtained partner sanction and
government production consent to allow the Athena development to
proceed. This will be the first offshore oilfield development for
the Company. First oil is expected in Q4 2011 and although it will
not make a revenue contribution to our financial year 2010/2011, it
should have a major positive impact in the following financial
year. Zeus's initial share of oil production is expected to be
around 2000 bbls/day.
Zeus secured a US$14million loan facility from Gemini II oil and
gas fund in August2010. A further US$14million will be required to
fully fund its share of this project. The Company continues to
review the final funding options for the Athena Project which
include, but are not limited to:
-- equity raising and, if required, other debt instruments,
sufficient at least to cover the Group's commitment to the Athena
project. Were the group to raise additional funds these could be
used in mitigation of the other potential liabilities, including
the legal claim described below; or
-- a trade sale of the oil services business
Securing the funding should allow investors the opportunity to
ascertain the inherent value in each business group and allows the
Company to work towards separating the two groups under the most
favourable conditions. We hope to be able to announce the outcome
of the strategic review shortly.
The award of a 90 % interest in nine North Sea blocks was a
major addition to the Company's exploration and appraisal
portfolio. This adds two more discoveries to our appraisal
programme and significant potential value to our portfolio.
Finally I would like to thank our management team and staff for
their hard work and dedication during a difficult year. On behalf
of shareholders I would like to thank them for their loyalty and
commitment.
Haydn Gardner
Chief Executive
28 February 2011
The hydrocarbon reserves estimates in this report are based on
information compiled by Mr Michael Rose, a non-executive director
of Rheochem PLC. Mr Rose's qualifications include a BSc (Hons)
degree in Geology and Chemistry from Leicester University, UK and
more than 30 years of relevant experience. Mr Rose has consented in
writing to the inclusion of this information in this report in the
form and context in which it appears.
The directors of the Company at any time during or since the end
of the interim period are:
Haydn L Gardner
Craig R McGuckin
Lincoln C McCrabb
Michael Rose
Peter R Youd
James Brooke (appointed 14 December 2010)
All directors held office during and since the end of the
half-year.
Financial Results
The Group recorded turnover for the six months ended 31 December
2010 of A$10.173 million compared with A$11.798 million for the
same period of the prior year.
Earnings before interest and tax decreased to a loss of A$0.945
million (2009: Loss A$0.057 million) and net assets increased to
A$36.861 million (2009:A$33.445 million).
Dividend
Rheochem will not be declaring an interim dividend (2009:
A$nil).
Consolidated Income Statement, for the half year ended 31
December 2010
Six months Six months
ended ended Year ended
30 June
31-Dec-10 31-Dec-09 2010
A$ 000's A$ 000's A$ 000's
Continuing operations
Revenue on trading
operations 10,173 11,798 20,401
Revenue 10,173 11,798 20,401
----------- ----------- -----------
Cost of sales on trading
operations (6,599) (7,298) (12,411)
Impairment loss oil
& gas assets (11) - (119)
Cost of Sales (6,610) (7,298) (12,530)
----------- ----------- -----------
Gross profit 3,563 4,500 7,871
Administrative expenses (4,508) (4,557) (8,872)
Operating
(loss) (945) (57) (1,001)
Finance income 304 920 7,849
Finance expense (963) (2,675) (4,237)
----------- ----------- -----------
(Loss)/profit before
tax (1,604) (1,812) 2,611
Income tax credit/(expense) 19 62 (107)
(Loss)/profit for the
period (1,585) (1,750) 2,504
=========== =========== ===========
Attributable
to:
Equity holders of the
parent (1,642) (626) 4,824
Non-controlling interests 57 (1,124) (2,320)
(1,585) (1,750) 2,504
=========== =========== ===========
Basic earnings per
share (cents) (0.7) (0.3) 2.1
Diluted earnings per
share (cents) (0.7) (0.3) 2.1
Consolidated statement of comprehensive income, for the half
year ended 31 December 2010
Six months Six months
ended ended Year ended
30 June
31-Dec-10 31-Dec-09 2010
A$ 000's A$ 000's A$ 000's
(Loss)/profit for the
period (1,585) (1,750) 2,504
Other comprehensive
income
Exchange differences
arising on
translation of foreign
operations (2,976) (500) 736
Income tax relating
to components of other
comprehensive income - - -
----------- ----------- -----------
Other comprehensive
income for the
period (2,976) (500) 736
Total comprehensive
income for the period (4,561) (2,250) 3,240
Total comprehensive income attributable to:
Equity holders of the
parent (4,594) (1,435) 5,509
Non-controlling interests 33 (815) (2,269)
(4,561) (2,250) 3,240
=========== =========== ===========
Consolidated statement of financial position, as at 31 December
2010
Six months Six months Year ended
30 June
31-Dec-10 31-Dec-09 2010
A$ 000's A$ 000's A$ 000's
ASSETS
Current Assets
Cash and cash equivalents 7,621 6,471 5,800
Trade and other receivables 4,017 5,002 3,283
Inventories 7,645 8,405 8,288
Other financial assets 76 72 11
Non-interest bearing
loans 19 84 88
Interest bearing loans - 10,342 -
Current tax
assets 172 - -
Prepayments 148 147 205
Total Current Assets 19,698 30,523 17,675
----------- ----------- -----------
Non-current
Assets
Property, plant and
equipment 8,600 9,075 8,907
Oil and gas intangible
assets 27,581 23,401 24,127
Other financial assets - - 1
Deferred tax
assets 649 472 493
Prepayments 20 33 26
Other intangible assets
and goodwill 2,940 2,969 2,940
Total Non-current Assets 39,790 35,950 36,494
----------- ----------- -----------
TOTAL ASSETS 59,488 66,473 54,169
=========== =========== ===========
Consolidated statement of financial position, as at 31 December
2010 (continued)
Six months Six months Year ended
30 June
31-Dec-10 31-Dec-09 2010
A$ 000's A$ 000's A$ 000's
LIABILITIES
Current Liabilities
Trade and other payables 5,996 4,781 2,861
Interest-bearing loans
and borrowings 6,911 8,469 8,055
Other financial liabilities 8,323 - -
Non-interest bearing
loans and
borrowings - 17,285 -
Income tax
payable - 440 149
Employee benefits 781 256 758
Provisions 127 299 150
Total Current Liabilities 22,138 31,530 11,973
----------- ----------- -----------
Non-current Liabilities
Interest-bearing loans
and borrowings 172 973 505
Employee benefits 85 339 71
Provisions 173 161 167
Deferred tax liabilities 59 25 20
Total Non-current Liabilities 489 1,498 763
----------- ----------- -----------
TOTAL LIABILITIES 22,627 33,028 12,736
=========== =========== ===========
NET ASSETS 36,861 33,445 41,433
=========== =========== ===========
EQUITY
Equity attributable to equity holders of the
parent
Issued capital 29,108 26,439 29,108
Share premium 32,035 32,035 32,035
Other equity (2,047) (2,047) (2,047)
Other reserves (2,631) (1,388) 257
Accumulated losses (19,890) (15,783) (18,234)
36,575 39,256 41,119
Non-controlling interest 286 (5,811) 314
TOTAL EQUITY 36,861 33,445 41,433
========= ========= =========
Signed on behalf of the Board of Directors
Haydn Gardner
28 February 2011
Consolidated statement of changes in equity, for the half year
ended 31 December 2010
Share
Share based
Issued premium Asset payment Translation Retained Non-controlling
capital account revaluation reserve reserve earnings Total Interests Total
A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's A$ 000's
Group
1 July 2009 26,439 32,035 (2,047) 657 (1,325) (15,156) 40,603 (4,996) 35,607
Shares issued 2,669 - - - - - 2,669 - 2,669
Share issue
costs - - - - - (258) (258) - (258)
Share based
payments - - - 176 - - 176 - 176
Minority share
on
consolidation - - - - - (7,644) (7,644) 7,644 -
Retained
profit for
the year - - - - - 4,824 4,824 (2,320) 2,504
Translation
adjustment
for the year - - - - 749 - 749 (14) 735
--------- --------- ------------ --------- ------------ --------- --------- ---------------- ---------
30 June 2010 29,108 32,035 (2,047) 833 (576) (18,234) 41,119 314 41,433
Share based
payments - - - 88 - - 88 - 88
Acquisition of
non
controlling
interest - - - - - (14) (14) (49) (63)
Losses for
the period - - - - - (1,642) (1,642) 57 (1,585)
Translation
adjustment
for the
period - - - - (2,976) - (2,976) (36) (3,012)
31 December
2010 29,108 32,035 (2,047) 921 (3,552) (19,890) 36,575 286 36,861
--------- --------- ------------ --------- ------------ --------- --------- ---------------- ---------
Consolidated statement of cash flows, for the half year ended 31
December 2010
Six months Six months Year ended
30 June
31-Dec-10 31-Dec-09 2010
A$ 000's A$ 000's A$ 000's
Net (loss)/profit (1,585) (1,750) 2,504
Adjustments for:
Depreciation of non-current
Assets 287 443 862
Amortisation of development
and abandonment costs - 34 63
Net unrealised foreign
exchange
Losses 399 2,353 3,598
Impairment of oil &
gas assets 11 - 119
Employee share option
costs 88 88 176
Gain on settlement of
loan
Notes - - (6,595)
Net finance income 233 (598) (616)
Income tax expense (19) (62) 107
----------- ----------- -----------
(586) 508 218
Changes in assets and
liabilities:
Change in receivables (734) 1,439 3,089
Change in inventory 643 (882) (764)
Change in prepayments 63 125 75
Change in payables 718 (981) (2,698)
Change in provisions (23) 67 2
Change in current tax
liability - (19) -
667 (251) (296)
Interest paid (264) (316) (619)
Income tax paid (460) (341) (688)
Net cash flows (used in)/from (643) (400) (1,385)
operating activities
----------- ----------- -----------
Consolidated statement of cash flows, for the half year ended 31
December 2010 (continued)
Six months Six months Year ended
Ended ended
30 June
31-Dec-10 31-Dec-09 2010
A$ 000's A$ 000's A$ 000's
Cash flows from investing
activities
Interest received 37 67 122
Payment of cash bonds (65) - (1)
Development expenditure (3,510) (101) (1,194)
Loan to joint venture
company - (61) -
Purchase of property,
plant and
Equipment 19 (254) (240)
Net cash flows used
in investing
Activities (3,519) (349) (1,313)
----------- ----------- -----------
Cash flows from financing
activities
Proceeds from issue
of share
Capital - - 2,411
Proceeds from borrowings 7,871 - -
Repayment of borrowings (1,424) (1,650) (3,083)
Payment of finance lease
liabilities (53) (349) (270)
Net cash flows from/(used
in)
financing activities 6,394 (1,999) (942)
----------- ----------- -----------
Net increase/(decrease)
in cash
and cash equivalents 2,232 (2,748) (3,640)
Cash and cash equivalents
at
beginning of the year 5,800 9,779 9,779
Effect of exchange rate
fluctuations on cash
held (411) (560) (339)
Cash and cash equivalents
at end
of the year 7,621 6,471 5,800
----------- ----------- -----------
1. Reporting entity
Rheochem Plc is a public limited company incorporated in England
and Wales. The consolidated interim financial statements of the
Company as at and for the six months ended 31 December 2010 relates
to the Company and its subsidiaries (together referred to as the
"Group").
The consolidated annual financial report of the Group as at and
for the year ended 30 June 2010 is available upon request from the
Company's Australian office, 11 Alacrity Place Henderson, Western
Australia or from our web site, www.rheochem.com.au.
The Company's functional and reporting currency is the
Australian dollar. The financial statements are presented in
Australian dollars, rounded to the nearest thousand.
The Directors of the Company approved the financial information
included in this interim result on 28 February 2011.
The consolidated interim financial statements for the period
ended 31 December 2010 are unaudited but have been reviewed by the
auditors, the Independent Review Report is set out on page 26.
2. Basis of preparation
The consolidated interim financial statements have been prepared
on a going concern basis which the directors believe to be
appropriate for the following reasons.
As described in more detail below:
-- Although the Group has obtained financing to cover 50% of its
share of the estimated development costs for the Athena oil field,
additional external funding for the balance of the development
costs is still required to meet cash calls from April 2011.
-- The Group company owning the Group's interest in the Athena
oil field (Zeus Petroleum Limited ("Zeus")) is subject to a
significant claim that could result in that entity being unable to
continue realising its assets and discharging its liabilities in
the normal course of business if it were ultimately found to be
liable for the full amount claimed.
The Directors have prepared cash flow forecasts for the Group
for the period to 30 June 2012 based on their assessment of the
prospects of the Group's operations, on the assumption that the
above matters are successfully concluded. These forecasts reflect
the recent renewal of the Group's banking facilities (held in its
oil services business), which now fall due for renewal in November
2011. They include a base case and also take into account possible
adverse variances in trading conditions, Athena development costs
and Athena production forecasts and costs that might reasonably
occur.
Based on an assessment of the resulting financing requirement,
the Directors have satisfied themselves that the Group has a
reasonable prospect of being able to meet its external liabilities
as they fall due for the foreseeable future although in the
scenario that Zeus does not secure sufficient funding it would be
unable to meet its financial liabilities as they fall due.
2. Basis of preparation (continued)
In preparing base and sensitised cash flow forecasts the
Directors have had to use their best judgement. The most
significant relate to:
-- the likelihood that additional financing will be secured to
allow the group to participate in the development of the Athena
field and its production; and
-- the likelihood that a legal claim against Zeus will result in
a liability and the timing of any resultant cash outflow.
These key estimates and assumptions are discussed below.
Funding development of the Athena oil field
The base forecast of the oil and gas division is based upon
estimates of forecast development expenditure for and production
from the Athena field (due to commence in the fourth quarter of
2011) and future oil prices and operating costs.
Notwithstanding these estimates, to date the Directors have
identified an additional funding requirement of US$14million to
meet the required project funding for the Athena development.
Without any additional funding Zeus would be unable to meet
forecast cash calls from April 2011 onwards. The Directors
recognise that, should Zeus, at any time, fail to secure the
required funding, that the existing interest in Athena could
ultimately be forfeited. The current carrying value of oil and gas
assets in these financial statements is A$24 million. The directors
recognise that this outstanding funding issue is a significant
uncertainty regarding the recoverability of the current carrying
value of the oil and gas assets.
During the period the Directors have secured funding for half of
the required Athena development funds (see note 9). The repayment
of this funding, although it is contingent on Athena production
volumes (regardless of Zeus or Rheochem ownership of Athena), is
guaranteed by Rheochem Plc. The Directors continue to review
funding options, for the remainder of the Group's commitment to the
Athena Project, which include but are not limited to:
-- equity raising and, if required, other debt instruments,
sufficient at least to cover the Group's commitment to the Athena
project. Were the group to raise additional funds these could be
used in mitigation of the other potential liabilities, including
the legal claim described below; or
-- a trade sale of the oil services business.
The directors have a reasonable expectation that the required
funding will be obtained and expect to be in a position to report
on progress in the next two months. However, they acknowledge that
there can be no certainty as to the amount and timing of funding.
The funding proposals noted above may not be sufficient to cover
the possibility of any cash outflows as a result of the legal
proceedings noted below.
2. Basis of preparation (continued)
Legal proceedings
As discussed in note 13, Zeus is subject to a significant legal
claim for which a contingent liability of A$15 million has been
disclosed, but no liability has been recognised in respect of this.
The directors believe no outflow is probable from this claim. The
next judicial hearing on this matter is timetabled for October
2011. Although the directors have received strong legal advice that
Zeus should prevail, the directors acknowledge that the ultimate
outcome of these legal proceedings cannot currently be determined
with certainty. Whilst no provision for any liability that may
result has been made in the financial statements, in the event that
the claim fully crystallises, it would amount to approximately A$15
million plus interest and costs in the Group accounts. Zeus's
potential liabilities in relation to this matter are not guaranteed
by any group member, though Rheochem plc's guarantee of Zeus'
liability to Gemini under the funding arrangements described above
would remain in place. The cash flow forecasts have been prepared
on the basis that there will be no cash outflow resulting from this
litigation other than legal fees.
Possible consequences on the financial statements
A forfeiture of the Athena asset, which could happen from April
2011, would, on its own, result in the failure to recover the A$24
million asset for the Athena field. In such an eventuality, whilst
the remainder of the Group remains insulated from Zeus' litigation
and other sundry liabilities, it remains liable for the guarantee
of the existing Athena funding. In such an eventuality, the Group
would be unable to meet its guarantee liability and be unable to
continue realising its assets and discharging its liabilities in
the normal course of business.
If the Athena development is funded by an equity and/or debt
raising for an amount equal to or in excess of the estimated
development costs, full crystallisation of the claim before Zeus
has accumulated enough cash from operations to settle it (estimated
to be March 2012 on the basis that only sufficient funds have been
raised to cover the development costs) could render Zeus unable to
continue realising its assets and discharging its liabilities in
the normal course of business. In such an eventuality, whilst the
remainder of the Group remains insulated from Zeus' litigation and
other sundry liabilities, it remains liable for the guarantee of
the existing Athena funding and the Group could be unable to meet
its guarantee liability.
If the Athena development is funded by a trade sale of the oil
services business, then Zeus would constitute substantially all of
the Group's business and full crystallisation of the claim would,
if it occurred before March 2012, and assuming base case cash flows
from Athena, cause the Group to be unable to continue realising its
assets and discharging its liabilities in the normal course of
business or at least the forced disposal of substantially all of
its operation.. The directors acknowledge that a combination of
these circumstances (the failure to secure adequate funding for the
Athena development, the Zeus litigation and the calling of the
guarantee in respect of the existing Athena funding) represents a
material uncertainty that casts significant doubt upon the group's
ability to continue as a going concern and that, therefore, the
Group may be unable to continue realising its assets and
discharging its liabilities in the normal course of business.
The
2. Basis of preparation (continued)
financial statements do not include any adjustments that would
result from the available funding being insufficient to meet the
Group's requirements.
Nevertheless given consideration to uncertainties described
above, the directors have a reasonable expectation that the Group
will be able to obtain sufficient funding to continue in
operational existence for the foreseeable future. For these
reasons, they continue to adopt the going concern basis in
preparing the consolidated interim financial statements.
2. Basis of preparation (continued)
The comparative figures for the financial year ended 30 June
2010 are not the Company's statutory accounts for that financial
year. These accounts have been reported on by the Company's
auditors and delivered to the registrar of companies. The report of
the auditors was (i) unqualified, (ii) included a reference to two
matters to which the auditors drew attention by way of emphasis
without qualifying their report, and (iii) did not contain a
statement under section 498 (2) or (3) of the Companies Act
2006.
3. Significant accounting policies
Except as described below, the accounting policies applied by
the Group in these consolidated interim financial statements are
the same as those applied by the Group in its consolidated
financial statements as at and for the year ended 30 June 2010.
4. Related parties
Arrangements with related parties continue to be in place. For
details on these arrangements refer to the annual financial report
for the year ended 30 June 2010.
5. Earnings per share
Basic EPS is calculated as net profit attributable to members,
adjusted to exclude costs of servicing equity (other than
dividends) and preference share dividends, divided by the weighted
average number of ordinary shares, adjusted for any bonus
element.
Diluted EPS is calculated as net profit attributable to members,
adjusted for:
-- Costs of servicing equity (other than dividends) and
preference share dividends:
-- The after tax effects of dividends and interest associated
with dilutive potential ordinary shares have been recognised as
expenses; and
-- Other non-discretionary changes in revenues or expenses
during the period which would result from the dilution of potential
ordinary shares;
divided by the weighted average number of ordinary shares and
dilutive potential ordinary shares, adjusted for any bonus element.
The number of average weighted shares on issue is 249,579,902
(2009: 217,026,002).
6. Operating Segments
The Group's reportable segments under IFRS 8 consist of the
following Group entities:
Corporate services Rheochem Plc
Drilling fluid services Rheochem Limited, Rheochem Pacific
Limited,
Rheochem India Pvt Ltd and PT Rheochem Indonesia.
Oil and gas assets Lochard Energy Limited, Zeus Petroleum
Limited and
Lochard Energy Inc.
There are varying amounts of transactions between the group
entities. All intersegment pricing is determined on an arm's length
basis.
6. Segment analysis (continued)
Business
Segment Drilling fluid services Oil and gas assets Corporate services Total
31-Dec-10 31-Dec-09 30-Jun-10 31-Dec-10 31-Dec-09 30-Jun-10 31-Dec-10 31-Dec-09 30-Jun-10 31-Dec-10 31-Dec-09 30-Jun-10
A$000's A$000's A$000's A$000's A$000's A$000's A$000's A$000's A$000's A$000's A$000's A$000's
Revenue
Revenue from
external
customers 10,164 11,790 20,318 9 8 18 - - 65 10,173 11,798 20,401
Intersegment
revenues 358 638 1,133 - - - 60 252 397 418 890 1,530
Total segment
revenues 10,591 12,688 21,931
Eliminate
Inter-segment
sales (418) (890) (1,530)
Consolidated
revenue 10,173 11,798 20,401
Profit or
(loss)
Segment profit
or (loss) 155 352 1,093 (10,136) (7,430) (3,400) 1,091 500 (2,675) (8,890) (6,578) (4,982)
Eliminate
adjustments
on
consolidation 7,305 4,828 7,486
Consolidated
profit or
(loss) (1,585) (1,750) 2,504
7. Equity
The total number of shares on issue at 31 December 2010 were
249,579,902 (30 June 2010 249,579,902)
8. Borrowings
The following borrowings (non-current and current) were drawn
down/(repaid) during the six months ended 31 December 2010.
Carrying amount
Currency Interest rate A$ 000's
Liabilities
Unsecured non-bank
project funding USD (a) 7,871
Secured bank borrowings AUD 30day BBSY+2.75% 952
Secured bank borrowings AUD 30day BBSY+2.10% 5,850
Unsecured loans AUD 4.40% 41
Finance lease liabilities AUD 8.81% 239
----------------
Balance at 31 December
2010 14,953
----------------
(a) Unsecured nonbank project funding is provided by Gemini Oil
& Gas Fund II, LP. The repayment terms are to be paid out of
Zeus' future share of Athena gross oil revenues. The effective
interest rate is approximately 69% per annum. The high rate of
effective interest is due to the financier taking into account the
production risk.
9. Acquisition of non-controlling interest
On 29 July 2010 the Group acquired an additional 15 % interest
in PT Rheochem Indonesia for A$63 thousand consideration increasing
its ownership from 80% to 95%. The directors believe Indonesia
represents a potential growth market in the oil and gas as well as
geothermal industries.
10. Contingent liability
Zeus Petroleum Limited
Zeus Petroleum Limited ("Zeus"), a subsidiary company, has been
notified that Senergy Limited, a UK based drilling Company, has, on
1 April 2010, commenced proceedings in the High Court in London
claiming US$11.907million and GBP1.822million (approximately
A$14.489million) in respect of alleged contracted works not carried
out in accordance with the terms of a Letter of Commitment dated
May 2008 ("L.O.C"). The claim also includes a rectification
agreement claiming an alleged error in the L.O.C. The management of
Zeus intend to vigorously defend the claim. The management of Zeus
believe that they will successfully defend the claim and that it
does give rise to a contingent liability in the Zeus financial
statements. No provision has been made for any settlement. . Since
initial contact was made by Senergy, informing Zeus of Senergy's
position, a claim has now been lodged in the High Court and Zeus
intends to rigorously defend this claim. A court date has been set
for October 10 2011.
Were the contingent liability in Zeus Petroleum Limited to
crystallise the Directors estimate that a significant portion of
the A$27million loans due from Zeus Petroleum Limited would be
irrecoverable.
There is no legal liability attributable to Lochard Energy
Limited or Rheochem Plc.
Rheochem Plc
Were the contingent liability in Zeus Petroleum Limited to fully
crystallise the Directors estimate that further provisions in the
range of A$10million might be required by the Company against
amounts due from its subsidiaries.
INDEPENDENT REVIEW REPORT TO RHEOCHEM PLC
Introduction
We have been engaged by the company to review the condensed set
of financial statements in the half-yearly report for the six
months ended 31 December 2010 which comprises the consolidated
income statement, the consolidated statement of financial position,
the consolidated statement of cash flows, the consolidated
statement of comprehensive income, the consolidated statement of
changes in equity and the related explanatory notes. We have read
the other information contained in the half-yearly report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the company in accordance with the
terms of our engagement. Our review has been undertaken so that we
might state to the company those matters we are required to state
to it in this report and for no other purpose. To the fullest
extent permitted by law, we do not accept or assume responsibility
to anyone other than the company for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The half-yearly report is the responsibility of, and has been
approved by, the directors. The directors are responsible for
preparing the half-yearly report in accordance with the AIM
Rules.
As disclosed in note 2, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the EU.
The condensed set of financial statements included in this
half-yearly report has been prepared in accordance with the
recognition and measurement requirements of IFRSs as adopted by the
EU.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of financial statements in the half-yearly report
based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410 Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity issued by the Auditing Practices Board for use in the
UK. A review of interim financial information consists of making
enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
(UK and Ireland) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the unaudited condensed set of financial
statements in the half-yearly report for the six months ended 31
December 2010 is not prepared, in all material respects, in
accordance with the recognition and measurement requirements of
IFRSs as adopted by the EU and the AIM Rules.
INDEPENDENT REVIEW REPORT TO RHEOCHEM PLC (continued)
Emphasis of matter - going concern and recovery of oil and gas
assets
In forming our conclusion on the interim financial statements,
which is not qualified, we have considered the adequacy of the
disclosures in note 1 to the financial statements concerning the
group's ability to continue as a going concern and the related risk
that its oil and gas assets will need to be impaired.
The Group's ability to continue as a going concern is dependent
inter alia upon the possible outcome of legal proceedings, for a
claim of A$15 million, which have been brought against Zeus
Petroleum Limited, the Group's subsidiary holding its major oil and
gas asset.
In addition, the Group needs, by April 2011 at the latest, to
raise additional funds for the development of that asset. The
Directors are considering the raising of development funds by a
sale of the Group's assets and business other than the oil and gas
assets or by an equity and/or debt raising. If the Group cannot
meet development expenditure required of it, beginning in April
2011, it would forfeit that oil and gas asset. This matter would
give rise to an impairment in the oil and gas asset's carrying
value which is currently A$24million in the group accounts and also
to the insolvency of the Group.
In the event that sufficient development funding is obtained and
the litigation claim were then to crystallise, it could result in
the insolvency of the Group or at least the forced disposal of
substantially all of its operations in some circumstances.
This, along with the other matters explained in note 2 to the
financial statements, indicate the existence of a material
uncertainty that casts significant doubt on the Group's ability to
continue as a going concern.
Adrian John Wilcox for and on behalf of KPMG Audit Plc Chartered
Accountants 8 Salisbury Square
London EC4Y 8BB
UK 28 February 2011
This information is provided by RNS
The company news service from the London Stock Exchange
END
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