Abridged Chairman’s Statement
Chairman’s Statement for year to 31 December 2010
Business Review
The US natural gas price did not recover in 2010 from the doldrums of the previous year as reduced domestic demand and over-supply from large-scale shale production combined to negatively affect the market. With the company’s portfolio of assets still weighted to natural gas production, revenues dipped to $1.52m (2009: $1.75m). Gas production reduced as no new wells were drilled in the Justin field.
Cost of sales reduced dramatically to $1.07m (2009: $2.53m) including dry hole cost in the Kleckner asset as attempts were made to develop this, primarily, oil field. The company carefully managed overheads in the face of difficult trading conditions.
Operating profit came in at $88k (2009 loss: $1.01m). The write off of the balance of the original Lensoil investment, loan and new investment in 2010, after the pursuit of the Knapton assets did not ultimately succeed, resulted in a loss of $74k on ordinary activities before taxation.
Shareholders’ funds stood at $4.5m at the year-end. No dividend was declared.
United Kingdom activity
Lensoil Ltd
In an effort to diversify the company’s portfolio of assets, Lensoil Ltd, in which the company had a 25% equity share, was formed in early 2008 to apply for licenses in the UKs 25 th Seaward Licensing Round and to purchase a UK onshore production opportunity. Investments were made in Lensoil during the period 2008 - 2010 , and, after a considerable amount of work, Lensoil made a non binding indicative bid in October for the Knapton assets in North Yorkshire. However this was unsuccessful and Lensoil is now being voluntarily wound up.
United States of America Assets
Justin
The Justin Project is an ongoing Barnett shale gas development project in Denton County, Texas approximately 20 miles north west of Dallas. The field is operated by J W Operating’s affiliate company Cohort Energy Company and our interest was acquired in 2001.
At 31 December 2010:
- The Company’s working interest weighted average was 11.02% and the net revenue interest was 8.04% in 14 lease blocks, unchanged from 2009.
- The number of wells in which FPC had an interest remained static at 53 at the year end as no new wells were drilled in 2010 as development remained on hold pending an improvement in the gas price.
- There were estimated to be up to 27 further potential locations.
Green Canyon
Green Canyon contributed $217k to company revenues in 2010, up a little from $196k in 2009. It continues to be an important asset for the company.
Other producing assets
- The company retains working interests in a number of minor producing assets in Oklahoma including; Kleckner, Harrison, and BF Wells as well as an ORRI in the Vernon gas field, Louisiana
Conclusion
Although the US natural gas price remained low during 2010 and, with no new development, the company’s revenues reduced, costs were controlled, performance stabilised and an operating profit before exceptional items posted. The company also used positive cash flows to extinguish its bank loan leaving it in a strong position to participate in any future Justin development programme and to consider new investment opportunities.
The directors’ faith in the Justin asset is supported by more positive decline curves emerging from the latest engineering and the good number of identified new locations in the field makes this a good long-term asset.
As reported last year, the directors, aware that the company’s portfolio of assets was weighted heavily towards US natural gas, were actively seeking opportunities to add oil producing assets. Neither the Lensoil venture nor the Kleckner well bore fruit, however the board continues to look at exciting, reasonably priced investment opportunities in the US and your support continues to be valued.
Alexander West
Chairman
26 July 2011
Click for Chairmans Statement for year to 31 December 2009
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