Rose Petroleum plc (AIM: ROSE), the North America-focused oil and gas company, is pleased to announce its unaudited interim results for the six months ending 30 June 2018.
A copy of the Company’s unaudited interim report for the six months to 30 June 2018 will shortly be available from its website http://www.rosepetroleum.com.
Matthew Idiens, Chief Executive Officer of Rose Petroleum, said:
“Following a period of intense activity, we are at a really exciting time in the Company’s development as we look to evolve from an oil explorer to an oil producer in the next quarter.”
Rose Petroleum plc
Matthew Idiens (CEO)
Tel: +44 (0)20 7225 4595
Chris Eadie (CFO)
Tel: +44 (0)20 7225 4599
Allenby Capital Limited – AIM Nominated Adviser
Jeremy Porter / James Reeve / Liz Kirchner
Tel: +44 (0)20 3328 5656
Cantor Fitzgerald Europe -Financial Adviser and Joint Broker
Tel: +44 (0)131 257 4634 Tel: +44 (0)20 7894 7686
Turner Pope Investments – Joint Broker
Tel: +44 (0)20 3621 4120
Tel: +44 (0)20 3633 1730
Notes to editors
Rose Petroleum plc (http://www.rosepetroleum.com) is a North America-focused oil and gas company whose primary asset is approximately 80,000 net acres in the prolific oil and gas producing Paradox Basin in Utah, U.S.A., where it is earning into a 75% working interest. Using high-quality data gathered in a 3D seismic survey completed in October 2017, the Company has identified drilling locations in naturally fractured areas of the Paradox Formation with the intention of commencing a drilling programme in Q4 2018.
The Company’s established management is supported by an expert technical team with extensive experience of the basin, where current operations nearby have proven successful, with significant initial production rates and low decline rates, offering strong break even economics.
The Company’s strategy is to grow both organically and through acquisition, identifying additional hydrocarbon assets, conventional or unconventional, that would benefit from the Company’s fast-acting, entrepreneurial approach.
Rose Petroleum has been quoted on AIM since June 2004.
ROSE PETROLEUM PLC
INTERIM REPORT FOR THE SIX MONTHS TO 30 JUNE 2018
The Board of Rose Petroleum plc (“Rose”, the “Company” or the “Group”) is pleased to present its unaudited interim report for the six-month period to 30 June 2018.
REVIEW OF ACTIVITIES
OVERVIEW AND OUTLOOK
The period under review has been one of sustained progress, and the Group aims to achieve its key strategic objective of spudding its first well on its acreage in the Paradox Basin, Utah, U.S.A. (“Paradox acreage” or “Paradox”) before the end of 2018. The Group is earning into a 75% working interest in approximately 80,000 acres in the Paradox acreage through its joint venture partnership with Rockies Standard Oil Company (“RSOC”).
This follows on from the successful 3D seismic acquisition in the fourth quarter of 2017.
The key operational milestones achieved during the period have been:
· the assembling of a high quality operations team with extensive Paradox Basin experience to deliver the project;
· the interpretation of the 3D data;
· completion of an updated Competent Persons Report (“CPR”) on the resources within Clastic 21 in the area covered by the 3D acquisition;
· the commencement of the permitting of the Applications for Permit to Drill (“APD”) for the first Paradox wells;
· well design engineering and detailed costings of the initial wells;
· the acquisition of further highly prospective new acreage that falls within the 3D shoot area; and
· the engagement with financial and industry partners to obtain funding for the drilling of the first Paradox well and overall development of the project.
This activity has been carried out with continued cash conservation which remains a key priority for the Board.
The work carried out during the period, and particularly the interpretation and resource update work, has continued to highlight the substantial scale, value and geological potential of the Paradox project and it is very much hoped that the drilling operations planned for the fourth quarter of 2018 will enable the Group to unlock the potential of the Paradox acreage and begin to deliver the significant value on offer for its shareholders.
Gaffney Cline & Associates (“GCA”) were engaged to prepare the CPR for the acreage of the 3D seismic acquisition held by Rose (the “3D area”), being approximately 17,250 acres of the total acreage held by Rose in Utah. This CPR focused solely on a single reservoir, the Cane Creek reservoir (the “CCR” or “Clastic 21”), of the multiple prospective reservoirs within the Paradox Formation. The CPR upgraded the resource classification from Prospective Resources to Contingent Resources within the 3D seismic acquisition area, and reported, net to the Group, a 2C Contingent Resource of 9.25 million barrels of oil (“MBO”) and 18.50 billion standard cubic feet (“Bscf”) of gas and an unrisked pre-tax NPV10 of US$122 million. For a full summary of the CPR, please refer to the Group’s announcement on 22 June 2018.
The CPR clearly demonstrates the significant potential upside compared to the Group’s current valuation. The Paradox Formation is made up of approximately 24 clastic zones, of which the Cane Creek Cycle (Clastic 21) is the primary producing zone of the basin to date. Up to five additional clastics, above the Cane Creek Cycle, are also thought to be prospective. The current CPR only covers a single reservoir interval (Clastic 21) out of these six potential stacked pays and only covers the small portion of the Group’s total acreage position covered by the 3D acquisition, providing the opportunity to significantly increase resource numbers on the Paradox project in the future.
The Board also believes that the CPR ratifies the proposed appraisal plans for the Paradox acreage, which will be the first combination of horizontal drilling steered by high quality 3D seismic data on the Group’s acreage. A similar approach has proved very successful in the development of the Cane Creek Field analogue directly south of the Group’s acreage. Further, we continue to evaluate the remaining Clastic 21 potential outside the 3D area and shallower prospective zones both within the 3D area and outside it, which represent further upside opportunities within the Group’s existing acreage footprint.
On 4 April 2018, the Group announced that it had increased its land position in the Paradox Basin with the acquisition of some highly prospective new acreage. The Group acquired a 75% working interest in an additional 3,320 gross acres (2,490 net acres) (the “new acreage”) for US$36 per gross acre, resulting in a total consideration of approximately US$120,000.
The acquisition of the new acreage, which is continuous with the Joint Venture’s existing acreage and is in close proximity to the producing 28-11 well, was achieved following detailed technical analysis of its geological potential. The new acreage is covered by the Group’s 3D seismic survey which shows multiple highly attractive geological structures and potential well site locations.
The prospectivity of the Group’s acreage is further underpinned by the existence of the producing 28-11 well which is found just outside the new acreage, 365 metres to the south-west, and produces from a porous and permeable fracture network within Clastic 21, as shown on our 3D seismic. The 28-11 is a vertical well that was drilled by Delta Petroleum in 2006 without the benefit of 3D seismic. It has produced 141,000 barrels of oil equivalent (“BOE”), and represents a key piece of evidence for the presence of a greater fracture network across the area covered by the 3D seismic. In addition to the 28-11 well, three other vertical wells have been drilled within the 3D seismic areal extent and all show the presence of moveable oil within the reservoir matrix. These factors give the Board a high degree of confidence in the potential of the Group’s acreage and, as a result, it has been decided to proceed to apply for an APD permit for an additional well location in the new acreage, the 22-1 well, which is also planned as a horizontal well targeting Clastic 21. The APD is expected to be approved shortly.
Given the potential of the new acreage, the Group has been working with the BLM to include this new acreage within the Gunnison Valley Unit (“GVU”), where the Group’s operational activity is focused. The addition of the new acreage within the GVU would give the Group more options in terms of first well location. This has been carried out in tandem with ongoing work to manage the existing acreage position and the Unit itself which requires careful oversight, particularly when taking into account the more proactive approach of the BLM towards land usage under the new political administration.
If the BLM approves the proposed plan to include the new acreage within the GVU, then the Group will also be able to propose the next obligation well within this added acreage. The GVU, which covers approximately 60,000 acres, presently requires four obligation wells; the first obligation well has already been completed (GVU 22-9) by Anadarko in 2012 and the Group plans to drill the next one this year. In addition to the 22-1 well, the Group is also in the process of permitting the GVU 29-1 well and the State 16-2L well. The permit approvals are expected to be received shortly.
The current discussions with the BLM in respect of the new acreage and unit reshape are not expected to impact on the Group’s timeline on its plan of operations for the drilling programme. We have been working closely with the BLM on permitting in order to achieve this objective. Subject to rig availability and concluding project funding, it remains the Group’s intention and expectation to drill its first Paradox well in the fourth quarter of this year.
The Group has assembled a highly experienced subsurface and surface operational team with extensive experience and a successful track record in the Paradox Basin. The team designed, managed and implemented a nine-well drilling programme in the Paradox Basin for Fidelity Exploration and Production Inc., directly to the south of the Group’s acreage. Eight of these wells were commercial and production grew from circa 100 barrels of oil per day (“BOPD”) to over 3,500 BOPD from 2012 to 2014. As the Group moves through the well selection, permitting and funding processes for the first Paradox well, the Group is already realising the benefits of having such a first class team.
As the Group’s activity in the Paradox basin has intensified, Rose has been approached by a number of third parties about potential partnering and investment opportunities in the region. While the Group remains wholly focused on the Paradox project, the Directors believe that they should appraise any additional opportunities further, particularly those comprising producing or near-term producing assets, to see if there may be commercial synergies with the existing Paradox operations and whether they might add value to the Group’s portfolio. The Paradox activity will remain the absolute priority, and there are no guarantees that any opportunities reviewed will develop further.
The Group gave a full update on the status of its residual mining asset portfolio in its 2017 Annual Report. There have been no significant developments since the Annual Report was published in June 2018 and the profit from discontinued operations disclosed in the income statement relates to the conclusion of its activities in Mexico.
The Group continues to have an open dialogue with the Cuban national oil company, CUPET, regarding oil and gas licences. We believe that the oil and energy sectors in Cuba will offer excellent potential in the future and we will continue to keep a watching brief for future investment opportunities. The Group is not currently incurring any expenditure in respect of these opportunities.
The financial information is reported in United States Dollars (“US$”).
The Group reports a net loss after tax of US$0.5 million or a loss of 0.41 US cents per share for the six months ended 30 June 2018 (30 June 2017: net loss after tax of US$2.2 million or a loss of 5.78 US cents per share).
The reduced loss for the period when compared to the prior year comparative period is primarily the result of unrealised foreign exchange differences that arise on the restatement of the Company’s loans to its subsidiaries. These foreign exchange differences resulted in an unrealised gain of US$0.5 million for the six months ended 30 June 2018 (30 June 2017: unrealised loss of US$0.7 million). The gain in this period is the result of the strengthening of the US dollar against sterling.
Administrative expenses for the period were US$1.0 million (30 June 2017: US$0.9 million), and were consistent with those incurred in the prior year.
Intangible assets at 30 June 2018 were US$12.5 million (30 June 2017: US$10.2 million). The primary reason for the increase was the ongoing investment into the Paradox and specifically the 3D seismic acquisition in the second half of 2017.
Cash and cash equivalents at 30 June 2018 were US$2.0 million (30 June 2017: US$0.9 million) and increased as a result of equity fund raises in late 2017 and the first half of 2018.
The period under review has seen the Group deliver on many of the key operational milestones required to enable the spudding of its first Paradox well before the end of the calendar year. The Board is looking ahead with confidence and is excited about the Group moving from being an oil explorer to an oil producer in the next quarter.
I would also like to take this opportunity to thank our shareholders, advisers and employees for their continued support.
Chief Executive Officer
25 September 2018