Kuwait Energy Company Third Quarter 2010 Activity
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Transcript of Kuwait Energy Company Third Quarter 2010 Activity
Third Quarter 2010 Activity Report Second Quarter 2010 Activity Report
Enquiries:
Abbas Al-Rasheed Public Relations Advisor Kuwait Energy Company Tel: (+965) 2575 5657 – 2575 5878 / Ext 314 Fax: (+965) 2575 5679 Mobile: (+965) 9729 8106 Email: [email protected]
Kuwait Energy
Third Quarter 2010 Activity Report
Page 2
Forward looking statements
This Quarterly Activity Report includes statements that contain words or phrases such as “will”, “aim”, “will
likely result”, “believe”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”,
“seek to”, “future”, “objective”, “goal”, “project”, “should”, “will pursue”, and similar expressions or variations
of such expressions which are “forward looking statements”. Such forward looking statements are by their
nature speculative and based on various assumptions. Any such statements are hypothetical with respect to
prospective events and should not be construed as being indicative of the actual events which will occur or a
guarantee of future performance. All forward-looking statements are subject to risks, uncertainties and
assumptions that could cause actual results to differ materially from those contemplated by the relevant
forward looking statements.
Important factors that could cause results to differ materially from the Company’s expectations include,
among others:
General economic and business conditions in Kuwait and other countries; The Company’s ability to successfully implement its strategy, growth and expansion plans and
technological changes; Changes in the value of the Kuwaiti Dinar and other currency changes; Changes in Kuwaiti or international interest rates; Changes in laws and regulations that apply to investment companies in Kuwait; Changes in political conditions in Kuwait and other countries; and Changes in the foreign exchange control regulations in Kuwait.
Disclaimer: All information provided in this report is for information purposes only. All financial
information is unaudited and is subject to an annual financial audit.
Third Quarter 2010 Activity Report
Page 3
Contents
1. Executive Summary ................................................................................................................................ 4
2. Reserves ......................................................................................................................................................8
3. Production ..................................................................................................................................................9
4 Development Activity ............................................................................................................................ 11
5. Exploration Activity ............................................................................................................................... 13
6. Financials ................................................................................................................................................. 14
Cover Page: Kuwait Energy celebrated its fifth anniversary on 28 August 2010
Kuwait Energy Company KSCC Salem Al Mubarak St., Laila Tower, Block 4, Bldg. #35, 13th Floor, Office2, Salmiya, Kuwait
P.O. Box. 5614, Salmiya 22067 Kuwait Tel: (965)2575-5657 Fax: (965) 2575-5679
Third Quarter 2010 Activity Report
Page 4
1. Executive Summary: Third Quarter 2010 Activity Report
For the period ended 30 September 2010
Comparative Performance at a Glance
Quarterly comparison Q3 2010 Q2 2010 Change %
Production boepd 13,168 13,074 0.7%
Revenue* US$ Million 39.8 36.9 7.9%
Corresponding Period Q3 2010 Q3 2009 Change %
Production boepd 13,168 12,611 4.4%
Revenue* US$ Million 39.8 26.8 48.5%
* Revenue reported is sales less profit petroleum
** In the Q2 2010 activity report, revenue for Q2 was reported as US$32.9million. This has been revised to
US$36.9million during the recent mid-year audit concluded by Company auditors
Quarterly production and sales summary – third quarter 2010
Average daily working interest production was 13,168 barrels of oil equivalent per day (boepd), a 0.7% increase on the previous quarter; revenue was up 7.9% from the previous quarter.
Production was up 4.4% compared to Q3 2009 primarily due to production increases in ERQ, Egypt and Russia.
Revenue was US$39.8 million; up 48.5% from Q3 2009 as a result of higher production and
higher realized oil and gas prices.
Key activities during the period
Financial
Profit: Reported third quarter 2010 net profit (unaudited) of US$7.7million, up US$1.3million from second quarter 2010.
Pre-IPO Equity: Kuwait Energy is currently in the process of a Rights Issue to existing Shareholders of KD24 million (~US$100million) which was approved at the Shareholders meeting held on 10 October 2010. The closing date for the Rights Issue is the 4 November 2010. These additional funds will be utilized in the development of the Company’s reserve base, further exploration and to pursue major growth opportunities.
Third Quarter 2010 Activity Report
Page 5
Key activities during the period (continued)
Letter of Credit Facility: The Company finalized a US$20 million letter of credit facility with J P Morgan against 50% cash collateral.
Production Hedging: Kuwait Energy finalized a production hedging transaction with Citi Bank. As per this agreement, the Company is hedged at US$81.85/barrel for 2,000bpd of crude oil for one year commencing October 2010.
Operations
Health, Safety, Environment and Social Responsibility: No Recordable Incidents in Kuwait
Energy operated assets and six recordable incidents in Kuwait Energy non- operated assets: a
Medical Treatment Incident (MTI), three Lost Time Incidents (LTI) in KSF, Oman and two LTI in
Block 43.
Recordable Incidents are measured in terms of the consequences associated with health, safety
and the surrounding environment that could lead to fatalities, LTI, MTI and Restricted Work
Incidents (RWI).
Exploration: Well BEA- W-1X in Burg El Arab, Egypt encountered oil shows at the shallower Cretaceous levels and also at deeper Jurassic levels. This well was drilled to a depth of 18,350 ft, which is the deepest well in the Western Desert, Egypt to date. During the Q4 2010 the well will be production tested.
Well Balharak South 2X in Block 49, Yemen was spud on 11 August 2010. This is Kuwait Energy’s first operated exploration well in Yemen. The target depth of 7,708 ft is expected to be reached by mid November 2010.
Production: Production increased marginally from the previous quarter due to increased production in Oman and Russia. Production in the fourth quarter 2010 is expected to increase primarily due to a full quarter of production from Al Zahraa-3, ERQ Field, Egypt.
Development: Successfully drilled a total of ten development wells, nine in Oman and Al
Zahraa-3 in ERQ Field, Egypt. The Al Zahraa-3 well in ERQ field is currently producing ~2,200
bopd, gross.
Divestment: Kuwait Energy entered into a Sales and Purchase Agreement with Beach
Petroleum to partially divest a 22% interest in Abu Sennan and a 15% interest in Block 6, Egypt.
These divestments reduce Kuwait Energy’s exploration commitments and their finalization is
subject to customary regulatory approvals including the Egyptian government approvals.
Third Quarter 2010 Activity Report
Page 6
Business Development
Iraq Opportunities: Kuwait Energy has been pursuing potential growth opportunities for over three years. On the 24 June 2010, the Company was pre-qualified by the Iraq Ministry of Oil to participate in the 3rd petroleum licensing bid round. During Q3 2010, Kuwait Energy’s Iraq team attended a technical workshop in Istanbul and prepared to submit bids for Siba and Mansuriya gas fields on 20th October 2010.
Kuwait Energy’s bids were successful and the Company was awarded 20 year term gas development contracts for Siba and Mansuriya gas fields. Kuwait Energy will be the operator of Siba, participating with a 60% contractor share and Türkiye Petrolleri Anonim Ortaklığı
(TPAO) participating with 40%. TPAO will be the operator of Mansuriya, participating with a 50% contractor share, Kuwait Energy 30% and Korea Gas Corporation (KOGAS) 20%. For further details please refer to the press release on our website www.kec.com.kw
Ahmed Haidar, Business Development Manager placing a winning bid in Iraq on 20 October 2010
Yemen Opportunities: The Yemen gas sector has existing potential opportunities to supply power plants, industry and the domestic market. The Yemen Ministry of Oil and Minerals signed a Memorandum of Understanding (MoU) with Kuwait Energy on 6 October 2010, that allows the Company to conduct a six-month study addressing the potential development of natural gas reserves in Yemen and the optimization of the country’s natural gas resources for the benefit of its people. For further details please refer to the press release on our website www.kec.com.kw
Russian Acquisition: On 31 December 2009, Kuwait Energy agreed to acquire for shares, Pechora Energy Company and VIK (two wholly owned subsidiaries of Concorde Oil & Gas Plc), the owners of two assets Luzskoye and Chikshina in Russia. Prior to this acquisition, Kuwait Energy has a 36.56% interest in the two subsidiaries. In the third quarter 2010 we have made significant progress with the documentation requirements of European Bank for Reconstruction and Development (EBRD) which has financed this operation and are close to completion.
Third Quarter 2010 Activity Report
Page 7
2010 Budget
Item 2010 Budget
Production 5.4 mmboe
Daily Average Production 14,839boe
Production Costs US$40.0million
Exploration Capital US$36.5 million
Development Capital US$112.0 million
Total Capital US$148.5 million
2010 Work Program
In 2010, we have a target to achieve the following work program together with our Joint Venture
partners:
11 Exploration wells + 1 carry over well from 2009
34 Development wells + 4 carry over wells from 2009
152 Workover wells
Third Quarter 2010 Activity Report
Page 8
2. Reserves: Kuwait Energy’s working interest year end 2009 Proven and Probable (2P) reserves are 51.2mmboe. This represents an increase of 18% over year end 2008. A breakdown of the reserves is shown in the tables below:
YE08 Production Exploration
Adds
Acq/Divest &
Revisions
YE09
(GCA/NSAI)
Reserves 2P 43,445 3,235 2,394 8,592 51,197
Contingent &
Prospective
Resources
Mid Case 921,146 -------- -------- 800,854 1,722,000
2P RRR = 340%
Classification Category
KEC WI Reserves/Resources mboe
Proven plus Probable Reserves (KEC Working Interest)
Reserves year end 2008 85,350 25,041 4,470 43,445
Production 1,894 2,892 28 3,235
Exploration Discoveries 0 2,394 0 2,394
Acquisition/Divestments & Revisions -25,545 14,070 -1,307 8,592
Reserves year end 2009 57,912 38,614 3,135 51,197
Sales Gas
(mmcf)
Crude Oil
(mbbl)
Condensate
(mbbl)
Total
(mboe)
Note:
Estimates above are KEC working interest and are unrisked
Estimates above exclude Karim Small Fields (Oman) which is covered by a Service Agreement which
does not allow external reporting of reserve volumes.
Year end 2009 reserves were audited by Gaffney Cline & Associates (GCA) with the exception of
Russia which was audited by Netherland Sewell & Associates (NSAI).
Year end 2009 contingent and prospective resources were estimated/reviewed by Fugro Robertson
Limited, UK.
Reserves & Resources Definitions
Reserves and resources have been estimated in accordance with the 2007 Society of Petroleum
Engineers (SPE), World Petroleum Council (WPC), American Association of Petroleum Geologists
(AAPG), Society of Petroleum Evaluation Engineers (SPEE) and Petroleum Resources Management
System (PRMS) – commonly referred to as the SPE PRMS.
Third Quarter 2010 Activity Report
Page 9
3. Production:
Kuwait Energy’s working interest share of production and the revenue for the quarter ended 30
September 2010 compared to those of the quarter ended 30 June 2010 is shown in the table below:
Asset Daily Average Production (boepd)
Q3 2010 Q2 2010 Q3 2009
Egypt
BEA 287 551 227
Area A 4,335 4,333 4,892
ERQ 3,383 3,387 2,538
Egypt Total 8,005 8,271 7,657
Oman 2,783 2,646 2,776
Yemen 752 768 1,024
Ukraine 904 891 886
Russia 724 498 268
Total 13,168 13,074 12,611
Sales Revenue (US$
million)*
39.8 36.9** 26.8
Sales Revenue (US$ per
boe)
32.85 31.01 23.06
Kuwait Energy’s Q3 2010 average daily working interest production was 13,168 boepd, a 0.7%
increase on the Q2 2010, due to increased production in Oman and Russia and a 4.4% increase on the
Q3 2009 production due to increased production in BEA and ERQ Fields in Egypt, Ukraine and Russia.
* Sales revenue includes revenue from sale of gas and condensate from Ukraine assets and is less profit petroleum ** In the Q2 2010 activity report, revenue for Q2 was reported as US$32.9million. This has been revised to US$36.9million
due to the recent mid-year audit concluded by Company auditors where the Royalty amounts were added back into the revenues.
Third Quarter 2010 Activity Report
Page 10
The chart below shows quarter-by-quarter daily average production (boepd) and revenue from Q1 2006
to Q3 2010:
Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10
Daily Avg Prodn (BOEPD) 20 120 608 1,971 2,333 3,005 2,891 4,630 5,873 8,264 9,140 9,364 10,021 10,493 12,611 12,798 13,421 13,074 13,168
Revenue US$MM 0.1 0.4 0.8 1.1 3.7 7.1 7.3 7.8 13.3 30.1 32.3 15.0 14.4 19.5 26.8 27.6 33.1 36.9 39.8
0
5
10
15
20
25
30
35
40
45
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
U
S
$
M
M
B
O
E
P
D
Third Quarter 2010 Activity Report
Page 11
4. Development Activity:
Development expenditure to 30 September 2010 was US$42.3 million. During the quarter a total of ten
development wells were drilled and all were producers: nine in Oman and Al Zahraa-3 in ERQ Field,
Egypt. The Al Zahraa-3 well in ERQ field is currently producing ~2,200 bopd, gross.
The BC 116a well in BC Field, Ukraine which was cased and completed in Q2 2010, produced late in the third quarter. Well 304 in Luzskoye Field, Russia which was cased in Q2 2010 was temporarily abandoned. It is planned to perforate the deeper sands which have oil shows, at a later stage. The table below summarizes the ten development wells drilled during the third quarter 2010:
Country Basin/Area No. of
Wells
Target KEC
Interest
Status at end Q3 2010
Oman Karim Small Fields 9 Oil 15.0% Producers
Egypt ERQ/Al Zahraa 3 1 Oil 49.5% Completed, producing
~2,200bopd, gross
4.1 Facilities
Country
Facilities
Egypt
Area A – Tender to replace Shukheir North West rental facility with a permanent facility was called off due to high prices. Currently discussing lease to buy option with the rental facility provider. ERQ – Currently completing construction of the treating facility.
Russia
State approval to complete upgrades to the Central Processing Facility (CPF) received. Progressed paperwork for approval of the interfield flow line system required by Russian authorities.
Third Quarter 2010 Activity Report
Page 12
5. Exploration Activity:
Exploration expenditure during Q3 2010 was US$14.3 million. Exploration drilling activity focused on two wells Al Zahra West-2 in ERQ, Egypt and Balharak South 2X in Block 49, Yemen. Al Zahra West-2 was a dry hole and Balharak South 2X is currently drilling and reached 4,200 ft by the end of the quarter and its target depth is 7,708 ft. Well BEA-W-1X in Burg El Arab, Egypt encountered oil shows at the shallower Cretaceous levels and also at deeper Jurassic levels. This well was drilled to a depth of 18,350 ft, which is the deepest well in the Western Desert, Egypt to date. During the Q4 2010 the well will be production tested.
Country Basin/
Area
Well Target KEC Cost
Interest
Well Status
2009 Carry over
Egypt
ERQ Diaa-1 Oil 49.5% Oil Producer
BEA BEA-1ST* Oil 75.0% Oil Producer; oil bearing in two deeper
exploration zones
Q1 2010
Egypt
ERQ Rana SE-2 Oil 49.5% Oil Producer
Abu Fudha-1 Oil 49.5% Dry hole
Q2 2010
Egypt
BEA BEA-W-1X Gas 75.0% Completed, currently production testing
ERQ Al Zahraa West-1 Oil 49.5% Abandoned due to technical reasons
Q3 2010
Egypt ERQ Al Zahraa West-2 Oil 49.5% Dry hole
Yemen Block 49 BS-2X Oil 75.29% Spud on 18 Aug 2010, currently drilling
Q4 2010 Plan
Egypt
Abu
Sennan
AS ZZ-4 Oil 72.0%**
ERQ Yara-1 Oil 49.5%
ERQ Shebyl-1 Oil 49.5%
Area A Shukheir NW
(western ext)
Oil 70.0%
BEA BEA-NW-1X Oil 75.0%
Third Quarter 2010 Activity Report
Page 13
Q4 2010 Plan (continued)
Pakistan Kunri Kunri-1 Oil 40.0% Spud on 06 October 2010, currently drilling
Jherruck Jherruck-1 Gas 40.0%
* Development well with exploration objectives at deeper levels (extension well)
** Kuwait Energy has divested 22% of Abu Sennan to Beach Energy Ltd subject to Egyptian Regulatory
approvals
5.1 Seismic Activity:
Seismic activity during the Q3 2010 is shown in the table below:
Country Area/Basin Type km/km2 Status
Q1 2010
Egypt Mesaha 2D 1,000 km Acquisition of seismic and data processing
completed.
Q2 2010
Ukraine DB 3D 76 km2 Completed seismic interpretation.
Egypt Area A 3D 655km2 Data reprocessing completed.
Q3 2010
Egypt Area A 3D 655km2 Currently interpreting data.
Mesaha 2D 1,000 km Data interpretation in progress.
Yemen Block 74 2D 267 km Acquisition of seismic completed, data
processing in progress.
Q4 2010 Plan
Ukraine NY 3D 54 km2 Acquire 3D seismic.
Latvia North Block 3D 300 km2 Acquire 3D seismic.
Yemen Blocks 82 & 83 3D 150 km2 Acquire 3D seismic, reprocess available seismic
data
Third Quarter 2010 Activity Report
Page 14
6. Financials:
Estimated Consolidated Statements of Income: Quarter on Quarter Comparison
Consolidated Statement of Income
Actual
US$ Million
Q3 2010 Q2 2010
Revenue (Sales) 39.8 36.9
Other Income 1.0 0.3
Royalties (3.0) (2.9)
Operating Cost (12.2) (7.0)
General and administrative expenses (4.5) (4.7)
EBITDA 21.1 22.6
Depletion of oil and gas properties (14.4) (14.4)
Finance Cost & Others 0.2 (0.1)
Depreciation of other assets (0.2) (0.1)
Taxation relating to Subsidiaries 1.1 (1.4)
Provision for Zakat & KFAS (0.1) (0.2)
Profit for the period 7.7 6.4
Estimated Consolidated Statements of Income: Q3 2010 Comparison to Budget
Q3 2010
Consolidated Statement of Income US$ Million
Actual Budget
Revenue (Sales) 39.8 37.3
Other Income 1.0 -
Royalties (3.0) (6.0)
Operating Cost (12.2) (10.2)
General and administrative expenses (4.5) (4.1)
EBITDA 21.1 17.0
Depletion of oil and gas properties (14.4) (15.3)
Finance cost & others 0.2 -
Depreciation of other assets (0.2) -
Taxation relating to Subsidiaries 1.1 -
Provision for Zakat & KFAS (0.1) 0.0
Profit for the period 7.7 1.7
Notes: Budget at US$60/boe All financial numbers are based on Management accounts and are unaudited; September 2010 numbers are on an estimated basis.
Revenue is reported net of government take, in line with the common accounting practices of leading E&P companies listed on the London Stock Exchange.