I N T E R I M R E P O R T

Transcription

1 I N T E R I M R E P O R T

2 LETTER FROM THE CEO Leigh A. Hooper, CEO Dear Investor, Thank you for your interest and continued support of Activa Resources AG. The first half of 2009 was very challenging for our company. While global economic recovery has helped the capital and credit markets and the oil price recover, prices for US natural gas have trended weaker all the way through to September, reaching levels last seen in With natural gas making up approx. 65 % of our production this has had a material impact on our revenues during the first half of the year which could not be fully compensated by our higher production volumes. In our dialogue with you, whether via our news releases, newsletters or at our AGM, we have explained our strategy to weather this environment: personnel reductions, cost cutting, focussing on our producing US assets, disposing of our German activities. Members of the group management have also provided funds into our US subsidiary to ensure that working capital balances remain healthy while production cash flows are under pressure. At the same time Activa has focused on completing its technical work on several key projects which is shifting our proven and probable (2P) reserve mix back towards oil. There are two prerequisites to generating significant shareholder value going forward which management is prioritising: First, de-leveraging the company. Our debt position is the single largest impediment to our growth story. Like many other companies worldwide we are working on a plan to ensure that it is significantly reduced. Second, securing funding to develop our existing oil and gas reserves. Our US subsidiary is well positioned for growth with a well balanced reserve base with long life production potential. Drilling costs have greatly declined over the last 12 months thus providing significant opportunity for us to develop our assets at lower cost going forward. This combination of factors will drive long term value creation. Allow me to put the development of US natural gas prices into perspective for you. The US natural gas price is arguably the best barometer for the underlying performance of the US economy. We believe that the US economy will recover during 2010, but not before and only gradually. Natural 2

3 gas prices will mirror this scenario. Indeed, forward natural gas prices for the 4 th quarter of 2010 are trading near USD 7 per MCF, compared to current spot prices in the region of USD We also expect oil prices to stay above USD 65. This bodes well for the future development of Activa s inventory of US oil and gas projects, which are both under-explored and under-developed and offer the potential for high investment returns. Our strategic aim is to continue to position the company in anticipation of a commodity price expansion cycle. Please don t hesitate to contact me for more information on Activa Resources. Leigh A. Hooper CEO September 2009 This report is based on the Activa Resources AG consolidated financial statements prepared in accordance with IFRS and reviewed by the company s US and German auditors 3

4 FIRST HALF NEWS g Revenues decline 29 % to EUR 1.68 million despite 40 % production increase g Positive EBITDA of EUR 0.46 million g PV10 of proven reserves EUR 25 million (USD 35 million) g No new drilling - focus on G+G work on core US projects g Exit from Rhein Petroleum GmbH OPERATIONS REPORT Production up 40 % Activa s net production of oil and gas during the first half of 2009 was approx. 40 % higher than the previous year as a result of our successful 2008 drilling programme. Daily production rates rose to just under 400 BOED and averaged 380 BOED during the second quarter. Natural gas production accounted for approx. 65 % thereof, markedly higher than last year as a result of the high rate Loma Field well put on production in September 2008 Cost savings implemented As previously reported Activa reacted swiftly to the lower price environment by reducing costs across the board. Total overhead costs were 30 % lower in the first half. This included salary cuts and reductions in G + A costs across the board. The headcount in the US was cut from 11 to 7 at the end of New drilling activity stopped After our successful drilling programme during the second half of 2008 we postponed all new drilling activity as a direct consequence of the collapse in oil and natural gas prices. Activa will recommence drilling activities subject to better pricing and/or lower price volatility. Focus on G + G work G + G work on our existing project portfolio has been ongoing and focussed on our main oilproducing asset, the OSR-Halliday field in east Texas which has been producing continually since Current production remains steady at 330 BOED. The main attraction of this asset, however, is its additional development potential. Together with Cobb and Accociates, Activa s technical team is nearing being able to fully define the development potential of additional primary production as well as the field s potential for waterflooding and producing from deeper horizons. Activa s initial plan is to implement a PUD development plan before moving on to secondary techniques (waterflood). Proven reserves net to Activa currently amount to 1 million barrels. The additional potential is expected to amount to at least 2 million barrels net to Activa. Internally generated projects Activa s G & G efforts also include work on a number of internally generated projects, where various field studies are at an early stage. The most advanced of these is a natural gas prospect in Montgomery County, Texas (working name Wilcox Project ). The field study of this new multi-prospect play is now 80 % complete and Activa has to date leased approx. 1,500 acres. Drilling could commence in The play has reserve potential exceeding 250 BCF, subject to successful test drilling. 4

5 Activa s management believes that developing internally-generated prospects of this nature is a key method of laying the foundations for future value creation. Most importantly, it is the single most cost-effective method for enhancing the company s project portfolio during the current environment when taking a 3 to 5 year investment view. Rhein Petroleum interest sold In June Activa Resources AG sold its 33 % interest in Rhein Petroleum GmbH. The primary trend in the global oil and gas sector in the current economic and pricing environment is towards focussing on O&G prospects with the highest expected investment returns. Activa Resources is allocating its resources in the most efficient way by focussing on its US projects which have lower risk profiles and better defined development potential. Only one-quarter of Activa s proven reserves are currently on production and Activa s investment focus is geared to monetising these assets given their superior risk-reward ratios. The consideration for the sale comprised reimbursement of the all expenditures and investments made by Activa into Rhein Petroleum and a 1 % non-cost bearing revenue interest in all future oil and gas prospects on the licences currently held by Rhein Petroleum, with a EUR 1 million cap. Further details on Activa s projects will be provided in the Q3 Newsletter scheduled for publishing in November. P R O D U C T I O N R E V E N U E S USD H H H H H H H H H1 5

6 FINANCIAL REPORT I. CONSOLIDATED INCOME STATEMENT Revenues of EUR 1.68 million Activa Resources AG generated consolidated revenues of EUR 1.68 million (USD 2.21 million) from the production of oil and natural gas during the first half of This represents a decrease of 29.4 % versus the first half of 2008 and is solely due to lower market prices for oil and natural gas. Other operating income amounted to EUR 0.18 million resulting from hedging (see below) and currency gains. The total cost of oil and gas operations comprising Production taxes and Lease Operating Expenses amounted to EUR 0.63 million or 37.4 % of production revenues (vs % in 2007). There were no dry hole costs (EUR 0.16 million in 2008). Oil hedge earns EUR 97,000 Activa has in place a costless collar hedge with a floor and cap of USD 65 and USD 76 respectively on 50 BOED through During the first half Activa recorded a derivative settlement gain of EUR 97,000 as a result of oil prices trading lower than the floor. This compares to a 2008 H1 loss of EUR 210,000 resulting from oil prices exceeding the cap during that period. Overhead costs down 30 % Activa s overall cash overhead costs personnel and other operating expenses were reduced by 30 % y-o-y from EUR 1.10 million to EUR 0.77 million during the first half (2008 figure is adjusted for non-cash charges of EUR 0.29 million related to the 2006 granting of 168,183 stock options to the company s management). Depletion and depreciation expenses increased to EUR 0.87 million (vs. EUR 0.40 million in 2008) primarily as a result of lower natural gas prices as at June 30. EBITDA of EUR 0.46 million Profits before interest, taxes and depreciation expenses amounted to EUR 0.46 (EUR 0.53 million in 2008, also adjusted for the stock option expense) and was clearly positive. A net loss of EUR 0.87 million (EUR 0.14 million in 2008) was recorded. II. CONSOLIDATED BALANCE SHEET Total assets EUR 16.9 million The balance sheet total fell marginally y-o-y to EUR 16.9 million at June 30. Capitalised expenditures in Activa s oil and gas projects increased to EUR 14.9 million vs. EUR 12.6 million as a result of successful wells drilled during the latter part of On the assets side, lower cash balances of EUR 0.35 and deferred tax reductions account for the minor balance sheet contraction. The dissolution of provisions for hedging losses as a result of the lower pricing environment was the most significant change on the liabilities side. Related party transaction Given the ongoing difficulties in tapping the capital and credit markets and the negative impact of natural gas prices on its cash balances, the company made an important move to improve its liquidity position during the second quarter of the year. The company entered an agreement 6

7 with an investor group whereby USD 600,000 was transferred to the company. The investor group comprises primarily the management of Activa Resources, LLC and Activa Resources AG s largest shareholder. The agreement grants an option to purchase the Adams Ranch project and various non-core interests (Santa Rosa, Double 7, Broyles and AKG-Tait) for a total con-sideration of USD 601,000, a price which materially exceeds the market price for these assets in the current natural gas pricing environment. The company has in turn been granted the right to retain the assets by returning the USD 600,000 plus a fee of 10 %. The initial term is Dec. 31, 2009 although this will likely be extended. The item has been recorded as a current liability. The sole motivation of this related party transaction is to bolster the financial position of Activa Resources, LLC during this phase of depressed natural gas prices. RESERVE REPORT S U M M A R Y O F O I L A N D N A T U R A L G A S R E S E R V E S O i l (barrels) N AT. G A S (MCF) F N R (USD) P V 1 0 (USD) PROVEN DEVELOPED PRODUCING 429,099 1,867,860 21,582,704 13,043,860 PROVEN BEHIND PIPE 784,056 3,450,821 69,629,127 22,250,968 UNDEVELOPED TOTAL PROVEN 1,213,155 5,318,681 91,211,831 35,294,828 PROBABLE 2,365,990 1,192, ,501,546 66,067,507 TOTAL PROVEN + PROBABLE 3,579,145 6,511, ,713, ,362,335 ADDITIONAL POSSIBLE/POTENTIAL 5,184, ,170, ,281, ,616,510 1) Price assumptions: Strip pricing August ) FNR = Future Net Revenue. Figures as at 1 st July 2009 New reserve estimates Activa Resources continues to set high standards in reserve transparency. We provide our shareholders with a detailed and updated breakdown of net oil and gas reserves by category, expected future net revenues and PV10 values. Our reserve estimates are prepared by Sojen Petroleum Consultants of Austin, Texas. Proven reserves stable at 2 million BOE Table 2 provides a reserve summary for Activa Resources, LLC as at 1 July Proven reserves have remained stable over the last 12 months with new discoveries adding reserves to compensate for those produced. Proven reserves amount to approx. 2 million BOE with a PV10 of USD 35 million based on August strip pricing. Probable reserves account for an additional 2.6 million BOE, up from approx. 2 million BOE over the last 12 months, with a PV10 of USD 65 million. The total potential of Activa s reserve base is, however, materially higher. Balanced oil/gas split Activa s reserve base is well balanced. Proven reserves (P1) comprise 53 % oil and 47 % natural gas while probable reserves are geared more significantly to oil. Achieving a balanced reserve basis is a key element of Activa s model portfolio strategy. Activa s PDP reserves account foronly a small portion of its total proven and probable reserves. 7

8 OUTLOOK The challenges facing Activa - resulting from low natural gas pricing and its debt position - are surmountable. Management is working with its advisors to de-leverage the company and fund the development of its assets. Since the early part of the year oil pricing has improved and the capital markets are beginning to function more normally. This will help put Activa back onto its growth track. Looking at the company s reserve base, Activa is ideally positioned with a balanced project portfolio to ride the next commodities cycle. Assuming oil and gas prices remain stable during the final quarter of the year Activa expects to generate USD 4.5 million in production revenues in

9 C O N S O L I D A T E D I N C O M E S T A T E M E N T (Euro) JUN 30, 2009 JUN 30, 2009 SALES REVENUES 1,678,543 2,377,212 OTHER OPERATING INCOME 183,542 34,740 1,862,085 2,411,952 OPERATING EXPENSE COST OF PRODUCTION PERSONNEL EXPENSES DEPRECIATION OTHER OPERATING EXPENSES ,272,421-2,552,792 OPERATING RESULT -410, ,840 FINANCIAL RESULT -454, ,305 TAXES ON INCOME AND EARNINGS NET PROFIT / LOSS -865, ,137 C O N S O L I D A T E D B A L A N C E S H E E T (Euro) A S S E T S JUN 30, 2009 JUN 30, 2008 FIXED ASSETS MINING RIGHTS, DRILLING AND DEVELOPMENT COSTS 14,900,875 12,567,178 PROPERTY AND EQUIPMENT 88, ,292 AT EQUITY AFFILIATE ,989,716 12,702,484 DEFERRED TAXES 428,235 2,168,294 CURRENT ASSETS ACCOUNTS RECEIVABLE 1,188,779 1,282,738 SECURITIES 2 2 OTHER CURRENT ASSETS 0 16,569 LIQUID ASSETS 315,528 1,036,804 1,504,309 2,336,113 TOTAL ASSETS 16,922,260 17,206,891 L I A B I L I T I E S SHAREHOLDER S EQUITY CAPITAL STOCK 3,046,665 2,878,266 CAPITAL RESERVES 3,419,830 2,898,173 ANNUAL PROFIT/LOSS -865, , ,383 5,632,302 LONG-TERM LIABILITIES FINANCIAL DEBT (BOND) 9,668,496 8,601,778 SHORT-TERM LIABILITIES LIABILITIES FROM GOODS AND SERVICES 295, ,224 PROVISIONS 372,721 2,137,023 OTHER SHORT-TERM LIABILITIES 984, ,564 1,652,381 2,972,811 TOTAL LIABILITIES 16,922,260 17,206,891 9