INTERIM REPORT FOR HALF YEAR TO 30 TH JUNE 2009
I am pleased to provide you with the above Report which also includes information on projects after 30 June 2009.
Company’s Activities
1. United States of America
As at 30 June 2009 there were 53 producing wells in the Justin field of which 34 are horizontal and 19 are vertical. There are a total of 28 development locations currently intended for the Justin Project.
The US natural gas price declined to a very low level in the period January – September reducing first half Justin revenues from $2.18m to $795k. The company was party to and fully concurred with the Operator’s decision to postpone the drilling of new Justin wells until the gas price recovers when the drilling programme will recommence. No new wells have been drilled in the field since the first quarter of this year. The gas price has shown signs of improvement in the past three months.
The Justin interests remain a fine asset with substantial future potential.
- Green Canyon Over-Riding Royalty Interest
In the six months to 30 June 2009 income from the ORI amounted to $ 63 k compared with $247k for the six months to 30 June 2008. The record-high oil price for part of 2008 enhanced revenue compared to the first six months of 2009, the revenue for which was affected by reduced production due to hurricane damage to sub-sea infrastructure towards the end of the 2008, a temporary shut-in of the wells and the low oil price. More stable levels of production and revenue have now resumed.
Certain other US assets
- LBJ Prospect, Wise County , Texas :
Your company sold its working interest in this prospect in February 2007 to Barnett Exploration Inc, Allen Texas but retained a royalty of 3.75% as this was a joint venture project with McKenny Energy.
Production from the existing well is marginal at best but recent activity by EOG to the north in Cooke and Montague Counties could continue south into our area.
- Vernon : Jackson Parish, Louisiana.
Income from the Vernon royalty for the 6 months to 30 June 2009 was $8k compared with $25k for the 6 months to 30 June 2008 again reflecting the low gas price.
- Kleckner: South East Seward, Logan County, Oklahoma
Your Company holds a 20% working interest in oil and gas wells in South East Seward, Logan County, Oklahoma. Sentinel Petroleum the operator has proposed an offsetting well to the Kleckner #1. Subject to agreement on the optimum location your company will be participating in the drilling and completion of the well.
2. United Kingdom
- Lensoil Ltd - Proposed purchase of UK onshore gas assets
In an effort to diversify the company’s portfolio of assets, an investment of £87,500 ($166,950) was made in Lensoil Ltd during 2008. Your company has a 25% equity share in that company which 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.
In recognition of the risk of the Lensoil acquisition of UK onshore production not ultimately proving successful, the company took an impairment charge of $125k in the 2008 financial statements against the original investment. A loan of $100k was extended to Lensoil in the first half of 2009 to fund the ongoing acquisition work. However the risk remains that negotiations might be unsuccessful and a further write off might be necessary.
Outlook
The worldwide recession impacted on both oil and gas prices as economic confidence ebbed and energy consumption fell. Although the oil price has since improved, the natural gas price in the US has taken much longer to recover due to low demand from industry and high levels of gas storage. There have been more positive signs in the final quarter and it is hoped that this continues.
The company is well-funded with a renewed revolving credit facility with BancFirst and is therefore well-placed when development work continues in the Justin field.
Your support continues to be appreciated.
Alex West
Chairman
