RAK Petroleum H1 2017 Report

 RAK Petroleum Plc. today published its Half-Year Financial Report for the period ending 30th June 2017.

In his introduction to the report, Bijan Mossavar-Rahmani, Executive Chairman of the Board of Directors, acknowledged the executive management’s and staff’s diligence and commitment to the company, and said that he, and the members of the Board of Directors, are grateful to RAK Petroleum Plc. shareholders for their continued support and confidence, adding, "We look forward to an exciting future for our company."

The report explains that the company’s fundamental objective is to generate significant total shareholder returns from investments in the oil and gas industry, with a focus on the Middle East and Africa.

"We currently hold interests in two oil and gas companies, DNO ASA (DNO) and Foxtrot International LDC ("Foxtrot International").

DNO is a publicly listed Norwegian exploration and production company focused on the Middle East-North Africa region and the North Sea with interests in oil and gas blocks in various stages of exploration, development and production, both onshore and offshore. DNO’s growth comes through smart exploration, cost effective and fast track development, efficient operating techniques and strategic acquisitions.

In the first half of 2017, DNO strengthened its balance sheet with improved cash generation from operating activities of US$211.5 million, up from $20.9 million in 1H 2016.

In August 2017, DNO signed a landmark deal with the Kurdistan Regional Government (KRG) to settle the outstanding receivables from past oil sales from the Tawke license. Following the settlement agreement, DNO holds 75 percent of the Tawke license with the transfer to DNO of the KRG’s 20 percent carried interest effective 1st August, giving the company further exposure to the potential of the Tawke field and the Peshkabir field currently being appraised in the license. DNO will also receive a monthly sum from the KRG equal to three percent of gross license revenues for a period of five years as further payment towards the receivables. The settlement agreement also extinguishes certain obligations by DNO, including funding of a USD 150 million water purification plant that is no longer deemed necessary.

DNO has stepped up activity at the Tawke license with 10 new wells to be drilled in 2017 following the mobilisation of a third drilling rig.

New wells are intended to maintain oil production capacity at 110,000 barrels per day (bpd). Appraisal of the Peshkabir field is continuing with drilling of the Peshkabir-3 well currently underway and production from the Peshkabir-2 well since June.

The performance of Peshkabir-2 to date indicates connectivity to a sizable resource; however, further drilling and testing is required to more accurately determine the likely volume.

Also in the first half of 2017, DNO acquired Origo Exploration Holding AS, renamed DNO Norge AS, which holds 11 licenses in the North Sea on both the Norwegian Continental Shelf (NCS) and UK Continental Shelf (UKCS). The acquisition sees DNO return to its home ground with an experienced and successful team already in place and ready to bid in the two upcoming licensing rounds later in 2017.

DNO aims to be among the most active explorers on the NCS, targeting participation in five exploration wells per year. One prospect on the UKCS DNO reported first half 2017 operating profit of US$26.6 million on revenues of $158.4 million.

After financial income and expense and income tax, DNO reported a net profit of US$1.8 million for the first half of 2017 (net loss of $35.3 million for the full year 2016).

During the first half of 2017, DNO purchased 24.9 million own shares, booked on its balance sheet as treasury shares, resulting in a net RAK Petroleum ownership percentage excluding treasury shares of 41.7 percent as at end June.

The Company’s share of DNO’s first half 2017 result was a profit of US$ 0.67 million.

Through its wholly owned subsidiary, Mondoil Enterprises, LLC (Mondoil Enterprises), the company also holds 33.33 percent of Foxtrot International, a private exploration and production company active in West Africa.

Foxtrot International in turn holds a 27.27 percent stake in, and operatorship of, Block CI-27 in Cote d’Ivoire.

Block CI-27 contains the two largest gas fields in Cote d’Ivoire, contributing a gross daily average of 170 million cubic feet (mmcf/d) of production in the first half of 2017 (157 mmcf/d in 2016) or nearly three-quarters of the country’s total. Foxtrot International also produced an average of 2,757 bpd of oil and condensate in the first half of 2017.

The company’s share of Foxtrot International’s first half 2017 net profit was US$7.7 million prior to depletion and $7.0 million after accounting for depletion (net profit after depletion of $7.9 million in 2016). The company received US$14.4 million in cash distributions from Foxtrot International and reinvested $2.5 million towards capital and operating expenditures during the first half of 2017.

Consolidated Results: After adjustments for US$0.5 million of other income, general and administrative expenses of $4.4 million and finance costs of $1.0 million, the company recorded a profit of US$2.8 million for the first half of 2017 (profit of $6.9 million in 2016). At 30 June 2017, total cash and cash equivalents stood at US$15.9 million and the company’s indebtedness was $32.7 million.

At 30 June 2017, the company’s stake in DNO had a market value of US$400 million, although the DNO shareholding is carried on the company’s statement of financial position at $518 million, reflecting the original acquisition cost after certain adjustments. The company’s stake in Mondoil Enterprises is carried on our statement of financial position at US$98 million.

Net equity at 30 June 2017 stood at US$599 million compared with $597 million at 31 December 2016.

The principal risks and uncertainties facing the company remain largely unchanged from our recently published 2016 Annual Report available on our website.

The successful military campaigns in northern and western Iraq against Daesh and the settlement agreement signed by DNO and the KRG in August 2017 (two similar agreements were signed with other international operators) reduce the risk to DNO with respect to recovery of its receivables and improve the overall oil and gas investment climate in Kurdistan."

Source: Wam