kuwaitenergy fourth quarter 2010 activity report
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Kuwaitenergy Fourth Quarter 2010 Activity ReportTRANSCRIPT
Fourth 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]
Fourth Quarter 2010 Activity Report
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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.
Fourth Quarter 2010 Activity Report
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Contents
1. Executive Summary ................................................................................................................................... 4 2. Reserves .......................................................................................................................................................... 8 3. Production ..................................................................................................................................................... 9 4 Development Activity ............................................................................................................................... 11 5. Exploration Activity .................................................................................................................................. 12 6. Financials .................................................................................................................................................... 14
Cover Picture: Kuwait Energy Management Team from the Strategy Meeting of 31 October 2010
Kuwait Energy Company KSCC Salem Al Mubarak St., Laila Tower, Block 4, Bldg. #35, 13th Floor, Office 2, Salmiya, Kuwait
P.O. Box. 5614, Salmiya 22067 Kuwait Tel: (965)2575‐5657 Fax: (965) 2575‐5679
Fourth Quarter 2010 Activity Report
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1. Executive Summary: Fourth Quarter 2010 Activity Report
For the period ended 31 December 2010
Comparative Performance at a Glance
Quarterly comparison Q4 2010 Q3 2010 Change %
Production boepd 13,372 13,168 1.5%
Revenue** US$ Million 39.7 35.8* 10.9%
Yearonyear comparison Q4 2010 Q4 2009 Change %
Production boepd 13,372 12,798 4.5%
Revenue** US$ Million 39.7 27.6 43.8%
* Q3 2010 revenue reported here is different to the numbers reported in the Q3 2010 Activity Report, due to accounting adjustments resulting from an additional Government share paid on East Ras Qattara (ERQ), Egypt.
** Revenue reported is sales less profit petroleum and is based on management accounts which are subject to audit.
Quarterly production and sales summary – fourth quarter 2010 Average daily working interest production was 13,372 barrels of oil equivalent per day (boepd),
a 1.5% increase on the previous quarter; revenue was up 10.9% from the previous quarter due to higher production from East Ras Qattara (ERQ), Egypt and Ukraine and product prices.
Production was up 4.5% compared to Q4 2009 primarily due to production increases in ERQ, Egypt and Ukraine .
Revenue was US$39.7 million; up 43.8% from Q4 2009 as a result of higher production and
higher realized oil and gas prices. Key activities during the period
Financial
PreIPO Equity: Kuwait Energy is currently in the process of completing a Rights Issue to existing Shareholders of KD30.7 million (~US$100million) which was approved at the Shareholders’ meeting held on 10 October 2010. These additional funds will be utilized in the development of the Company’s reserve base, further exploration and to pursue major growth opportunities.
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Key activities during the period (continued)
Operations
Health, Safety, Environment and Social Responsibility: No Recordable Incidents* in Kuwait Energy operated assets and ten recordable incidents in Kuwait Energy’s non‐operated assets:
HSE Recordable Incidents (Kuwait Energy Non‐Operated Assets)
Field/Area Classification # of Incidents in Q4
2010
Karim Small Fields, Oman LTI (Lost Time Incidents) 5
MTI (Medical Treatment Case Incidents) 3
Block 43, Yemen MVI (Motor Vehicle Incidents) 2
* 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).
On 13 December 2010, Kuwait Energy, in Egypt, passed two years acting as Operator without any recordable incidents. On 31December 2010, Kuwait Energy, in Russia, passed one year acting as Operator, without any recordable incidents.
Exploration: BEA‐W‐1X well, Burg El Arab (BEA), Egypt was completed in the Abu Roash G formation and is producing 140 barrels of oil per day.
Balharak South‐2X well, Block 49, Yemen was completed and tested three objectives with one objective flowing traces of oil with water. The well has been suspended for further evaluation. Kunri‐A‐1 well, Kunri, Pakistan was plugged and abandoned. Four exploratory wells: Jherruck‐1, Pakistan, Yara‐1, Shebyl‐1 in ERQ and ZZ‐4, Abu Sennan, Egypt were drilling at the end of the quarter. The acquisition and processing of the 3D seismic data of 300 km2 in Latvia offshore blocks was also completed.
Production: Production increased by 204 boepd from the previous quarter primarily due to Ukraine and the ERQ field, Egypt.
Development: Ten successful development wells drilled during the quarter in the Karim Small Fields, Oman.
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Key activities during the period (continued)
Divestment: Work continued towards closing the transfer of Kuwait Energy’s 22% interest in Abu Sennan and 15% in Mesaha to Beach Energy Limited and the assignment documentation is now with the regulatory authorities and the Minister for signing. All pre‐emptive rights in relation to both concessions have either expired or been waived.
Sale and Purchase Agreement for sale of 20% interest of BEA to East West Petroleum has been signed and Kuwait Energy is currently working on closing the transfer of interest.
Business Development
Iraq Opportunities: On 20 October 2010, Kuwait Energy participated in Iraq’s Third petroleum licensing bid round and was awarded 20 year term gas development contracts for the Siba and Mansuriya fields.
Kuwait Energy will be the operator of Siba, where it will participate with a 60% contractor share alongside Türkiye Petrolleri Anonim Ortaklığı (TPAO), who retains the remaining 40%. TPAO will be the operator of Mansuriya, participating with a 50% contractor share, while Kuwait Energy and Korea Gas Corporation (KOGAS) will retain 30% and 20% respectively.
The Siba and Mansuriya gas contracts were initialed on 14 November 2010 and the signing is expected during the first quarter 2011.
Yemen Opportunities:
The Yemen gas sector has significant potential to further develop supply to power plants, industry participants and the domestic market. The Yemen Ministry of Oil and Minerals signed a Memorandum of Understanding (MoU) with Kuwait Energy on 6 October 2010 allowing 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.
Following the signature of this MoU, Kuwait Energy commenced a comprehensive assessment of the gas reserves and resources as well as a study of the gas demand and infrastructure in Yemen.
Russian Acquisition:
Kuwait Energy completed the acquisition of Pechora Energy Company LLC and OJSC VIK, which own the two Russian oil fields, Luzskoye and Chikshina, from Concorde Oil and Gas Limited.
Kuwait Energy entered into this transaction in December 2009. Prior to the transaction, Kuwait Energy had a 36.56% working interest in the Luzskoye and Chikshina oil fields through its 36.56% ownership of Concorde Oil & Gas Limited. With the completion of the transaction, Kuwait Energy has a 100% working interest, as well as operatorship, of the two oil fields.
Fourth Quarter 2010 Activity Report
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Key activities during the period (continued)
Technology Related Developments:
In Q4 2010, Kuwait Energy signed a five year technology sharing contract with Schlumberger. This contract grants Kuwait Energy access to Schlumberger’s oilfield services expertise and technologies. Kuwait Energy will benefit from oil and gas software and IT infrastructure solutions which improve business performance, reduce exploration and development risk, and realize the full potential of its oil and gas fields.
The Company also entered into a three‐year agreement with East West Petroleum Corporation, a Calgary‐based exploration and production company, for the application of emerging unconventional oil and gas technologies in concessions owned by Kuwait Energy.
Kuwait Energy will benefit from East West Petroleum’s technologies in identifying resource plays such as: shale gas, shale oil and tight sand gas, for future development. The identification process is studied through comprehensive rock and formation analyses, state‐of‐the‐art drilling design and modern reservoir fracturing applications for unconventional and conventional reservoirs.
The agreement covers 13 exploration and production concessions held by Kuwait Energy in four countries, namely Egypt, Yemen, Ukraine and Russia.
Fourth Quarter 2010 Activity Report
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2. Reserves: Kuwait Energy has engaged Gaffney Cline & Associates (GCA), an independent energy consulting firm, to undertake an audit of its year end 2010 reserves which is expected to be completed in Q1 2011 . As at 31 December 2009, Kuwait Energy’s working interest Proven and Probable (2P) reserves are 51.2mmboe. A breakdown of the reserves is shown in the tables below:
Notes:
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.
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 CategoryKEC WI Reserves/Resources mboe
Proven plus Probable Reserves (KEC Working Interest)
Reserves year end 2008 85,350 25,041 4,470 43,445Production 1,894 2,892 28 3,235Exploration Discoveries 0 2,394 0 2,394Acquisition/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)
Fourth Quarter 2010 Activity Report
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3. Production:
Kuwait Energy’s working interest share of production and the revenue for the quarter ended 31 December 2010 compared to the quarters ending 30 September 2010 and 31 December 2009 is shown in the table below:
Asset Daily Average Production (boepd)
Q4 2010 Q3 2010 Q4 2009
Egypt
BEA 228 287 257
Area A 4,351 4,335 4,779
ERQ 3,692 3,383 2,809
Egypt Total 8,271 8,005 7,845
Oman 2,763 2,783 2,805
Yemen 717 752 933
Ukraine 1,020 904 925
Russia 602 724 290
Total 13,372 13,168 12,798
Sales Revenue (US$ million)*
39.7 35.8 27.6
Sales Revenue (US$ per boe)
32.27 29.55 23.44
Kuwait Energy’s Q4 2010 average daily working interest production was 13,372 boepd, a 1.5%
increase on Q3 2010, primarily due to Ukraine and ERQ, Egypt; and a 4.5% increase on Q4 2009 production primarily due to higher production from ERQ, Egypt, Ukraine and Russia.
Revenue was up 10.9% from the previous quarter due to higher production from ERQ, Egypt
and Ukraine and product prices. Q3 2010 revenue reported here are different to the numbers reported in the Q3 2010 Activity
Report due to accounting adjustments resulting from an additional Government share paid on ERQ, Egypt.
* Sales revenue includes revenue from sale of gas and condensate from Ukraine assets and is less profit petroleum and is based on management accounts which are subject to audit.
Fourth Quarter 2010 Activity Report
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Quarterly Revenue and Production
The chart below shows quarter‐by‐quarter daily average production (boepd) and revenue from Q1 2006 to Q4 2010:
Revenue was up 10.9% from the previous quarter due to higher production from ERQ, Egypt and Ukraine and product prices.
Note: Q3 2010 revenue is different to that reported in the Q3 2010 Activity Report due to accounting adjustments resulting from an additional Government share paid on ERQ, Egypt.
Brent Crude Oil Price
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 Q4 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 13,371
Revenue US$MM 0.1 0.4 0.8 1.1 3.7 7.1 7.3 7.8 13.3 30.1 32.3 15.0 14.4 19.5 26.8 27.6 33.1 36.9 35.8 39.7
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Historical Brent US$/bbl 62.8 70.3 70.8 60.7 58.6 68.6 74.4 88.4 96.2 122.5 117.5 58.0 45.8 59.7 69.3 75.5 77.3 79.4 76.9 85.1
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Fourth Quarter 2010 Activity Report
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4. Development Activity:
Development expenditure in 2010 totalled US$49.6* million which was primarily spent on the drilling of 33 development wells, 32 in Oman and one in ERQ, Egypt. This expenditure also includes 2009 carry over wells in Egypt, Ukraine and Russia.
During the fourth quarter, a total of ten development wells were drilled in Karim Small Fields in Oman:
Country Basin/Area No. of Wells
Target KEC Interest
Status at end Q4 2010
Oman Karim Small Fields 10 Oil 15.0% Producers
* Based on management accounts which are subject to audit. 4.1 Facilities
Country Facilities
Egypt
Area A
Installed rental indirect heater at Um‐El Yusr station to improve water separation and reduce back pressure at Yusr production manifold.
ERQ Qarun Petroleum Company (QPC) receiving area: On‐spec delivery: Completed all civil, mechanical and electrical work.
Shahd SE: Installed two tanks (2,400 bbls each), completed mechanical work, conducted hydro test, and both tanks are on stream. Completed all required modifications to the new production separator.
Al Zahraa: Installed two tanks (2,400 bbls each), completed mechanical work to bring both tanks on stream.
Ukraine
BC Performed compressor maintenance, installed flow meters for condensate and water in the gas plant.
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5. Exploration Activity: Exploration expenditure in 2010 totalled US$43.1* million which was primarily spent on the drilling of 11 exploration wells (eight in Egypt, two in Pakistan and one in Yemen).
During the fourth quarter, exploration expenditure totaled US$18.4* million and the key activities were:
BEA‐W‐1X well, BEA, Egypt was completed in the Abu Roash G formation and is producing 140 boepd. Balharak South‐2X well, Block 49, Yemen was completed and tested three objectives with one objective flowing traces of oil with water. The well has been suspended for further evaluation.
Kunri‐A‐1 well, Kunri, Pakistan was plugged and abandoned. Four exploratory wells: Jherruck‐1, Pakistan, Yara‐1, Shebyl‐1 in ERQ and ZZ‐4, Abu Sennan, Egypt were drilling at the end of the quarter.
Acquisition and processing of the 3D seismic data of 300 km2 in Latvia offshore blocks was completed.
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% Oil Producer 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 75.3% Suspended
Q4 2010
Egypt
Abu Sennan
AS ZZ‐4 Oil 72.0%*** Drilling – Carried over to 2011
ERQ Yara‐1 Oil 49.5% Drilling – Carried over to 2011
ERQ Shebyl‐1 Oil 49.5% Drilling – Carried over to 2011
Pakistan Kunri Kunri‐1 Oil 40.0% Dry Hole Jherruck Jherruck‐1 Gas 40.0% Drilling – Carried over to 2011
* Based on management accounts which are subject to audit. ** 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
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5.1 Seismic Activity:
Seismic activity during 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 655 km2 Data reprocessing completed.
Q3 2010
Egypt Area A 3D 655 km2 Interpreting reprocessed seismic data.
Mesaha 2D 1,000 km Data interpretation completed.
Yemen Block 74 2D 267 km Acquisition of seismic completed, data processing in progress.
Q4 2010
Egypt Area A 3D 655 km2 Interpretation of data is in progress.
Yemen Block‐74 2D 267 km Processing of data in progress.
Ukraine NY 3D 54 km2 Acquisition in progress.
Latvia North Block 3D 300 km2 Acquisition and fast track processing completed.
Fourth Quarter 2010 Activity Report
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6. Financials:
Estimated Consolidated Statements of Income: Quarter on Quarter Comparison
Consolidated Statement of Income
Actual
US$ Million
Q4 2010 Q3 2010 Q4 2009
Revenue (Sales) 39.7 35.8 26.3 Other Income 15.5 1.0 7.9 Royalties (2.1) (3.0) (0.4) Operating Cost, General & Administrative Expenses (16.7) (14.7) (16.1)
EBITDA 36.4 19.1 17.8
Notes:
All financial numbers are based on management accounts and are unaudited; December 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.
Revenue was up 10.9% from the previous quarter due higher production from East Ras Qattara (ERQ) Egypt and Ukraine and product prices.
Other income includes partial receipts on divestment of 22% working interest in Abu Sennan and 15% working interest in Mesaha, Egypt
Q3 2010 financial numbers reported here are different to the numbers reported in the Q3 2010 Activity Report due to accounting adjustments resulting from an additional Government share paid on ERQ, Egypt.