Wessex Exploration : Final Results



WESSEX EXPLORATION PLC

(AIM: WSX)

Final Results for the Full Year to 30 June 2014

Wessex Exploration PLC ("Wessex" or the "Company"), the hydrocarbon exploration company, is pleased to announce its audited results for the full year ended 30 June 2014.

Operational highlights

·      Conclusion to the Guyane Maritime drilling programme; data interpretation led to identification of new leads and prospects in the, so far untested, Central Area.

·      South of England licences relinquished in order to allow the areas to be included in the forthcoming Licensing Rounds. Subsequently awarded three blocks in 28th Seaward Round.

Financial highlights

·      In the year to 30 June 2014, the loss before taxation was £6.87m (2013 loss: £3.39m) and operating loss was £1.86m (2013 loss: £1.88m) of which cash administration costs accounted for £0.73m (2013: £1.03m).

·      Strong cash position of £1.9m (2013: £4.4m) and minimal project commitments

·      Cost reduction initiatives successfully implemented for additional flexibility

Post-period corporate and strategic highlights

·      Transformational acquisition of Hague and London Oil BV ("HALO") completed, strengthening the business financially and operationally

·      Asset in Philippines added to portfolio with cost-effective upside potential

·      Andrew Cochran and William Phelps joined the board

Outlook

·      Corporate review to be initiated in order to determine strategic direction

·      Discussions ongoing between partners regarding application for a new drilling permit in Guyane Maritime

·      Update expected on Juan de Nova five-year renewal application during H1 2015

·      Anticipated third-party drilling relevant to SADR acreage commencing in Q4 2014

Malcolm Butler commented:

"Wessex is a stronger, leaner Company today than at the beginning of the year. The board committed to identifying a strategy to maximise value for shareholders and we are pleased to have delivered on this commitment. The Company is now well positioned for a new phase of stability and growth and has a much brighter future ahead as an independent oil & gas player."

Andrew Cochran commented:

"Wessex has undergone transformational changes and I am excited to be a part of the next stages in its corporate development. Our focus for the coming year will be on defining and implementing strategies for material growth and diversification within these challenging market conditions. We are now seeing many more opportunities arise to actively manage, and build on, the existing portfolio to develop Wessex into a robust independent E&P company."

"I would also like to warmly thank Malcolm Butler and Andy Yeo , both of whom have agreed to stand down at the AGM, for their significant contribution in guiding Wessex to date and making our transaction possible. Their vision, work and support have made these changes happen."

Andrew Cochran, Chairman and Interim CEO	[phone]
Natalia Erikssen, IR/PR enquiries
John Wakefield (Corporate Finance)	[phone]
Kelsey Traynor	[phone]

Chairman's Statement

The past year has been a busy period for Wessex Exploration PLC ("Wessex"), with a number of strategic and corporate initiatives which led to the repositioning of the Company and its portfolio. Operational activity and the subsequent review conducted by the board led to a significant transformation of the business, which culminated in a post-period strategic transaction. As a result, the Company emerges from this period stronger, leaner and well positioned for a new stage of growth.

The early part of the financial year was marked by a disappointing conclusion to the Guyane Maritime drilling programme. The Company reacted promptly by ensuring it could continue to operate without external funding while new alternatives were sought. The failure of GM-ES-4, announced in July 2013, led the board to take steps to reduce expenditures: firstly, by triggering a contractual right contained in the Northpet Shareholders' Agreement to elect not to fund £1.29m of future funding requests and secondly, by instigating an overhead cost reduction programme.

These actions have ensured Wessex has been able to complete the four-well programme, culminating in the unsuccessful GM-ES-5, while maintaining a healthy cash balance. This allowed not only sufficient time to evaluate the results of the wells and new 3D seismic data in Guyane but also to investigate new strategic directions for the Company. As a result Wessex ended the financial year with a strong cash position of £1.9m and minimal project commitments.     

In Guyane, the partners have largely completed the evaluation and interpretation of the valuable body of information derived from drilling and the new Central Area 3D seismic. A new portfolio of leads and prospects has now been defined in the, so far untested, Central Area. Discussion amongst partners on applying for a new drilling permit (AOT), a prerequisite to drilling a further well, is ongoing. However, given the long lead-time in determining an AOT and subsequently securing a deep-water rig, it is unlikely that any further drilling could occur before the end of 2015. Any further well would have to be drilled before the expiry of the exploration phase of the Guyane Maritime Permit in June 2016, unless it can be extended.     

During the year, all three of the South of England licences were relinquished earlier than their expiry dates in order to allow the areas to be included in the forthcoming 2014 Licensing Rounds. The Company's subsidiary, Wessex Hydrocarbons Limited, applied for and was awarded blocks 98/7b, 98/8a and 98/12 (northern part) in the 28th Seaward Round. However, it was decided not to apply for new licences under the 14th Landward Round.

W e anticipate news in Juan de Nova on the five year renewal application during the first half of 2015. If successful, the initial work programme is expected to be the acquisition of a grid of 2D seismic over the retained areas.

In SADR, exploration activity is reaching the drilling stage in the licences awarded by Morocco over SADR waters, with Kosmos expected to spud a well in Q4 2014 close to the Company's Imlili and Guelta blocks. The Wessex-operated group has agreed to extend the Imlili block for a three-year period and has recently made a proposal to the SADR authorities to align the end dates and extend the duration of the Assurance Agreements covering the Bojador, Imlili and Guelta blocks to December 2020.

Concurrently, the board has pursued a number of strategic options for the Company, seeking to maximise the value of the current portfolio of assets and create value for shareholders in the future.

By the end of calendar year 2013, the directors had evaluated several propositions from third parties in detail and it was agreed in early March 2014 to progress discussions with one of these parties.

Towards the end of March 2014, a general meeting was requisitioned by Milroy Capital and former Managing Director Frederik Dekker. The proposals to remove and replace the directors were defeated at the general meeting on 15 May 2014 by a majority of more than two to one, with all the leading institutional shareholders voting against the proposals. The board considered this a clear endorsement of its chosen growth strategy, including the proposed acquisition of Hague and London Oil BV ("HALO").

On 31 October 2014, Wessex announced it had completed the transformational acquisition of HALO. The acquisition brings a number of benefits to Wessex which includes a prospective offshore block in the Philippines, a sizeable cash contribution, the addition of two highly experienced new directors and support from new shareholders.

Following the completion of the transaction, Malcolm Butler and Andy Yeo have agreed to stand down at the AGM, having delivered the transition and set the Company on the new path. Andrew Cochran has joined the board of Wessex as Chairman and Interim Chief Executive Officer and William Phelps joined as a non-executive director. Both Mr Cochran and Mr Phelps were formerly executive directors of Coastal Energy Company until its sale to CEPSA. Mr Cochran has vast experience in the upstream sector and gas transactions globally, having been CEO of Dominion Petroleum and one of the founders of Salamander Energy.

In the year ahead, the board will focus on developing the right strategy for future growth.

Financial Review

Consolidated Income Statement

In the year to 30 June 2014, the loss before taxation was £6,872,989 (2013: loss £3,389,514) and loss per share was 0.95p (2013: loss 0.47p).

Administrative expenses were £1,856,244 (2013: £1,877,722) of which £729,331 (2013: £1,025,440) represented actual cash administration costs with £301,696 being accounted for by expensed project costs and foreign exchange losses; leaving the balance of £825,217 in non-cash share option and impairment charges.

Overall, non cash items were £5,848,276 (2013: £2,501,309) of which our share of the operating loss attributed to our indirect interest in the Guyane Maritime Joint Venture (JV) was £5,023,059 (2013: £1,626,446). This included full impairment of costs related to GM-ES-2, GM-ES-4 and GM-ES-5 and rig decommissioning costs; GM-ES-3 having been impaired in full as at 30 June 2013. The booked share of losses in joint ventures has been reduced by £265,813 from the provision of £5,288,872 made for the first half of the year. This is due to well and decommissioning costs coming in below the level of cash advances called against Shell's original budget.

In the consolidated balance sheet, for which Wessex follows a Successful Efforts accounting policy, Wessex is now carrying the Guyane investment at £3,467,422 (2013: £6,991,574) and Total Equity is £5,337,215 (2013: £11,976,250). As shareholders will be aware, Northpet follows a Full Cost accounting policy, and in the past, the Parent Company Balance Sheet has incorporated the Company's pro rata share of its equity investment in Northpet at that Company's book value.

This year, the board has decided, that it would be prudent to impair the value of the equity investment to our share of Northpet's net assets as they would have been presented in that Company's accounts, had Northpet adopted a Successful Efforts policy. This adjustment has no impact on cash nor on the consolidated balance sheet.

During the four months from October 2013, Wessex opted out of £1.29m of funding requests in respect of operations in Guyane and thereby reduced its ownership in Northpet from 50.00% to 44.11%. Payments were recommenced February 2014 at the new pro-rata rate of 44.11% of Northpet, an effective interest in the Guyane Maritime JV of 1.103%. It is the board's intention to maintain this effective interest in Guyane in the foreseeable future.

At the end of June 2014, cash resources stood at £1.9m (2013: £4.4m). Project spend was £1.67m in the year, 90% of it committed in Guyane (£1.5m). Looking forward, our project commitments for calendar year 2015 are minimal. As of the balance sheet date, Wessex was holding 63% (2013: 55%) of its cash resources in US$ .     

Cash administration costs, at £729,331, were down 29% overall in the year, with H1 2014 costs falling 44% over H1 2013 and H2 2014 down 7% compared with H2 2013. If the requisitioned General Meeting costs (£54k paid in the financial year) are excluded then the H2 2014 costs are down by almost 20% and overall costs for the year are 34% lower.

The rise in expensed project costs reflects the fact that all of our historic projects, save Guyane, have now been fully impaired, so any further expenditure incurred is expensed.

Non cash items included £233,954 of share option expense and an impairment charge of £591,263 (£214,752 on P1928; £374,153 on PEDL239; and £2,358 on SADR).  

Breakdown of Administrative Expenses (2013 and 2014)

Year to 30 June	2014	2014	2014	2013	2013	2013
Expenses	H1	H2	FY	H1	H2	FY
Cash	(£)	(£)	(£)	(£)	(£)	(£)
Administration	341,156	388,175	729,331	608,720	416,720	1,025,440
Expensed Project	43,821	98,634	142,455	45,268	(4,169)	41,099
Forex	120,747	38,494	159,241	30,546	(94,226)	(63,680)
Non-Cash
Share Options	201,432	32,522	233,954	156,455	203,786	360,241
Impairment	214,752	376,511	591,263	72,557	442,065	514,622
Total	921,908	934,336	1,856,244	913,546	964,176	1,877,722

Project Review

Guyane

INTEREST HOLDING

Wessex holds a 44.11% interest in Northpet Investments Limited (Northpet), giving it a 1.103% beneficial interest in the Guyane Maritime Permit. The remaining interest in Northpet is owned by Northern Petroleum plc. Northpet holds a 2.5% interest in this Permit in partnership with Shell (operator, 45%), Tullow (27.5%) and Total SA (25%).

In December 2013, it was announced that GM-ES-5 had been unsuccessful. This was the final well to be drilled under the Shell-operated four-well drilling campaign which commenced in July 2012, and was designed partly to test the down-dip limit of the accumulation in the initial Zaedyus (GM-ES-1) discovery. The Stena Icemax drill ship was released from contract on 5 December 2013 and much of the decommissioning activity on the associated infrastructure was completed by the turn of the calendar year.

There have now been five wells drilled by the partnership in 2012 and 2013, the successful Zaedyus exploration well in September 2011, followed by 2 unsuccessful appraisal wells to Zaedyus and 2 unsuccessful exploration wells on the Eastern Slope.

Since last December, the partners have largely completed the evaluation and interpretation of the valuable body of information derived from drilling and from the new Central Area 3D seismic that was delivered from processing in August 2013. A new portfolio of leads and prospects has now been defined in the, so far untested, Central Area. Discussion amongst partners on applying for a new drilling permit (AOT), a prerequisite to drilling a further well, is ongoing. However, given the long lead-time in determining an AOT and subsequently securing a deep-water rig, it is unlikely that any further drilling could occur before the end 2015. Any further well would have to be drilled before the expiry of the exploration phase of the Guyane Maritime Permit in June 2016, unless it can be extended.

United Kingdom

INTEREST HOLDING

Wessex, as administrator of Promote Licence blocks 98/7b, 98/8a and 98/12 (northern part), holds a 35% interest through its wholly-owned subsidiary Wessex Hydrocarbons Limited. Its partner, NWE Mirrabooka (UK) Pty. Ltd (a wholly-owned subsidiary of ASX listed, Norwest Energy NL) has a 65% interest.   

During the year, all three of our South of England licences were relinquished, offshore P1928 in December 2013 and onshore PEDL 238 and PEDL 239 in April 2014. These licences were all due to expire between February and July 2014 and the Norwest-operated group was not in a position to make the drilling commitments necessary to extend their lives. The group therefore adopted a strategy of early relinquishment, after consultation with the UK's Department of Energy & Climate Change (DECC), in order to allow the areas to be included in the forthcoming 2014 Licensing Rounds.

Subsequent to the year end, the Company's subsidiary, Wessex Hydrocarbons Limited, was awarded blocks 98/7b, 98/8a and 98/12 (northern part) in the 28th Seaward Round. However, it was decided not to apply for new licences under the 14th Landward Round.

Subject to completion of licence documentation, the award will allow Wessex and NWE to explore the Blocks for an initial period of two years, during which existing 3D seismic data will be reprocessed to pre-stack depth migration. At the end of this initial period, the group must either commit to drill a well in the remaining two years of the licence or relinquish it in full.

Juan de Nova

INTEREST HOLDING

Wessex will have the right to hold a 50% interest in a renewed permit, under an agreement with its partner and operator, Jupiter Petroleum Juan de Nova Limited (a wholly-owned subsidiary of Global Petroleum Limited), which holds the remaining 50%.

The current Juan de Nova Permit expired on 30 December 2013 and is suspended pending determination by the French Authorities of the renewal application. Ahead of the renewal, a new Joint Venture agreement was signed with Global granting it the operatorship and giving Wessex the right to apply to take legal title to a 50% working interest in the event that a renewal is successful.

The renewal acreage includes the northernmost and southernmost parts of the original permit, which are considered to be the most prospective. If successful, the initial work programme is expected to be the acquisition of a grid of 2D seismic over the retained areas. We anticipate news on the renewal during the first half of 2015.

Western Sahara (SADR)

INTEREST HOLDING

Maghreb Exploration Limited (a wholly-owned subsidiary of Wessex Exploration PLC) and Comet Petroleum (SADR) Limited (a wholly-owned subsidiary of Tower Resources plc) each hold a 50% interest in three licence blocks under Assurance Agreements in the SADR - Bojador, Guelta and Imlili.

The Assurance Agreements are valid for periods of up to ten years and confer the right to convert to Production Sharing Agreements upon the meeting of certain external conditions, including the recognition of SADR sovereignty and formulation of comprehensive tax laws. Agreement was reached with the SADR authorities to renew the Imlili block for a period of 3 years in October 2014. The Bojador and Guelta blocks also expire in the relatively near future, and we have recently made a proposal to the authorities to align the end dates and extend all three Assurance Agreements to a uniform date in December 2020.  

The areas covered by our licence blocks lie almost completely in the zone controlled by Morocco since 1975 and there is currently no possibility of access. However, exploration activity is reaching the drilling stage in the licences awarded by Morocco over SADR waters, with Kosmos expected to spud a well in Q4 2014 close to the Company's Imlili and Guelta blocks. The Company hopes that success will encourage the progress of diplomatic efforts to settle the long-standing territorial dispute which has hampered exploration progress in the past. We continue to believe holding these blocks offers excellent prospectivity for oil and gas at minimal cost. 

Philippines

INTEREST HOLDING

Acquired post the year end, Wessex (through wholly owned subsidiary HALO BV), holds a 15% interest in Service Contract SC54A in the NW Palawan Basin, offshore Philippines. The partners are NIDO Petroleum Ltd (operator, 42.4%, recently acquired by Bangchat Petroleum), Kairiki Energy (30.1%) and TG World (BV) Corp. (12.5%).

SC54A, a c.880 sq.km licence block, is located over the shallower area of sector SC54, where water depths are generally less than 120 metres. The Company sees the potential to exploit the proven oil potential of the Nido Limestone pinnacle reef play by using low cost development concepts. The entire block is covered by 3D seismic data and contains a number of exploration prospects and leads as well as three oil discoveries.

On 5 September 2014, the operator announced that SC54A had been extended for a period of three years from 5 August 2014 to allow the partners to evaluate the results of the discoveries made and determine future plans. On the expiration of this period, the partners can decide to move into the next exploration phase, which would require one well to be drilled in 2018.

The Directors believe there is potential to increase HALO's interest in SC54A. 

Consolidated Income Statement

for the year ended 30 June 2014

	2014		2013
	£		£
Revenue	-		-
Administrative expenses	(1,856,244)		(1,877,722)
Operating loss	(1,856,244)		(1,877,722)
Finance income	6,314		114,654
Share of losses of joint ventures	(5,023,059)		(1,626,446)
Loss before taxation	(6,872,989)		(3,389,514)
Taxation	-		-
Loss for the financial year	(6,872,989)		(3,389,514)
Attributable to:
Equity shareholders of the Company	(6,872,989)		(3,389,514)
Loss per share
Basic and diluted loss per share (pence)	(0.95)		(0.47)

Consolidated Statement of Comprehensive Income

for the year ended 30 June 2014

		2014		2013
		£		£
Loss for the financial year		(6,872,989)		(3,389,514)
Other comprehensive income		-		-
Other comprehensive income for the financial year, net of tax		-		-
Total comprehensive loss for the financial year		(6,872,989)		(3,389,514)

Consolidated Balance Sheet

as at 30 June 2014

	2014		2013
Assets	£		£
Non-current assets
Property, plant and equipment	-		729
Intangible assets	-		564,854
Investments in joint ventures	3,467,422		6,991,574
	3,467,422		7,557,157
Current assets
Trade and other receivables	47,318		30,984
Cash and cash equivalents	1,905,416		4,442,258
	1,952,734		4,473,242
Total assets	5,420,156		12,030,399
Equity and liabilities
Capital and reserves attributable to the Company's equity shareholders
Share capital	724,343		724,343
Share premium account	16,800,122		16,800,122
Share-based payments reserve	1,078,182		844,228
Retained earnings	(13,265,432)		(6,392,443)
Total equity	5,337,215		11,976,250
Current liabilities
Trade and other payables	82,941		54,149
Total liabilities	82,941		54,149
Total equity and liabilities	5,420,156		12,030,399

Parent Company Balance Sheet

as at 30 June 2014           

	2014		2013
	£		£
Fixed assets
Intangible assets	-		564,854
Tangible fixed assets	-		729
Investments	3,487,422		8,682,840
	3,487,422		9,248,423
Current assets
Debtors	63,607		30,984
Cash at bank	1,901,572		4,438,317
	1,965,179		4,469,301
Creditors: amounts falling due within one year	(81,441)		(86,364)
Net current assets	1,883,738		4,382,937
Net assets	5,371,160		13,631,360
Capital and reserves
Called up share capital	724,343		724,343
Share premium account	16,800,122		16,800,122
Share-based payment reserve	1,078,182		844,228
Profit and loss account	(13,231,487)		(4,737,333)
Shareholders ' funds	5,371,160		13,631,360

Consolidated Statement of Changes in Equity

for the year ended 30 June 2014

	Share capital	Share premium account	Retained earnings	Share-based payment reserve	Total
	£	£	£	£	£
Balance at 1 July 2013	724,343	16,800,122	(6,392,443)	844,228	11,976,250
For the financial year ended 30 June 2014
Loss for the year	-	-	(6,872,989)	-	(6,872,989)
Total comprehensive income	-	-	(6,872,989)	-	(6,872,989)
Share option expense	-	-	-	233,954	233,954
Balance at 30 June 2014	724,343	16,800,122	(13,265,432)	1,078,182	5,337,215
Balance at 1 July 2012	724,343	16,800,122	(3,002,929)	483,987	15,005,523
For the financial year ended 30 June 2013
Loss for the year	-	-	(3,389,514)	-	(3,389,514)
Total comprehensive income	-	-	(3,389,514)	-	(3,389,514)
Share option expense	-	-	-	360,241	360,241
Balance at 30 June 2013	724,343	16,800,122	(6,392,443)	844,228	11,976,250

Consolidated Statement of Cash Flows

for the year ended 30 June 2014

	2014		2013
	£		£
Cash flow from operating activities	(858,599)		(828,318)
Cash flow from investing activities
Purchase of intangible assets	(26,409)		(215,407)
Investments in joint ventures	(1,498,907)		(4,933,468)
Interest received	6,314		114,654
Net cash used in investing activities	(1,519,002)		(5,034,221)
Net (decrease) in cash and cash equivalents	(2,377,601)		(5,862,539)
Impact of foreign exchange on cash balances	(159,241)		63,680
Cash and cash equivalents at beginning of financial year	4,442,258		10,241,117
Cash and cash equivalents at end of financial year	1,905,416		4,442,258

Notes to the Consolidated Financial Statements

for the year ended 30 June 2014

1.     Basis of Preparation

This announcement has been prepared in accordance with International Financial Reporting Standards ("IFRS") but in itself does not contain sufficient information to comply with IFRS.  Details of the accounting policies are set out in the annual report for the year ended 30 June 2014. 

2.     Loss Per Share

Basic loss per share is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Given the Group's reported loss for the year share options are not taken into account when determining the weighted average number of ordinary shares in issue during the year and therefore the basic and diluted earnings per share are the same.

Basic and diluted loss per share

	2014 Pence		2013 Pence
Loss per share from continuing operations	(0.95)		(0.47)

The loss and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:

	2014 £		2013 £
Loss used in the calculation of total basic and diluted earnings per share	(6,872,989)		(3,389,514)

	2014 Number		2013 Number
Number of shares
Weighted average number of ordinary shares for the purposes of basic and diluted earnings per share	724,343,472		724,343,472

If the Company's share options were taken into consideration in respect of the Company's weighted average number of ordinary shares for the purposes of diluted earnings per share, it would be as follows:                               

Number of shares
Potential dilutive effect of share options and warrants	35,500,000		37,949,315
Weighted average number of ordinary shares for the purposes of diluted earnings per share	759,843,472		762,292,787

3.     Cash Flow from Operating Activities            

	2014 £		2013 £
Loss for the financial year	(6,872,989)		(3,389,514)
Finance income	(6,314)		(114,654)
Share-based payment	233,954		360,241
Loss from joint venture	5,023,059		1,626,446
Depreciation	729		732
Impairment of intangible assets	591,263		514,622
Impact of foreign exchange movements	159,241		(63,680)
	(871,057)		(1,065,807)
Changes in working capital
(Increase)/decrease in trade and other receivables	(16,334)		230,892
Increase in trade and other payables	28,792		6,597
Net cash outflow from operating activities	(858,599)		(828,318)

4.     Publication of Non-Statutory Accounts

The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 30 June 2014 or 30 June 2013.

The financial information has been extracted from the statutory accounts of the Company for the years ended 30 June 2014 and 30 June 2013. The auditors' opinion on those accounts was unmodified and did not contain a statement under section 498 (2) or section 498 (3) Companies Act 2006 and did not include references to any matters to which the auditor drew attention by the way of emphasis.

The statutory accounts for the year ended 30 June 2013 have been delivered to the Registrar of Companies, whereas those for the year ended 30 June 2014 will be delivered to the Registrar of Companies following the Company's Annual General Meeting.

5.     Annual Report and Annual General Meeting

The Annual Report will be made available from the Company's websitewww.wessexexploration.comand will be posted to shareholders in due course.  The Annual General Meeting of the Company will be held at 11 a.m. on 19 December 2014 at the offices of Ashfords LLP, Tower Wharf, Cheese Lane, Bristol BS2 0JJ. 

This information is provided by RNS

The company news service from the London Stock Exchange

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