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Northern Petroleum Plc

Northern Petroleum Plc is an EU oil company that acquires low entry cost exploration, production and development assets and is committed to adding high value to shareholders from production and asset sales.

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Interim Statement 2006

Interim Results for the Six Months to 30 June 2006

Operational highlights:

  • Netherlands oil and gas field development projects progressing on a fully funded basis and with key personnel in place
  • Ottoland oil field (Netherlands) drilling advanced to early 2007 to increase initial production rates
  • Steenwijk–1 exploration well (Netherlands), targeting a 150-240 bcf gas prospect, to start drilling in late October 2006
  • Italian activities accelerated through a two licence farmout in the Po Valley and contract for offshore seismic survey to commence this winter. Interests in Italy now cover in excess of 12,000 square kilometres
  • Wells also expected within next 12 months in Guyane, South of England and Spain

Financial highlights:

  • Cash in hand of £20.3 million plus Standard Bank credit committee approval for project finance and working capital facilities of up to €40 million
  • Even with increased activities reported losses for the period have been restricted to £941,000, of which £387,000 is due to charges and provisions relating to share based incentives issued to staff by the Company

Chairman’s Statement

We now stand ready to commence the fully funded development of the Company’s 56 million barrels of oil equivalent of proven and probable reserves in The Netherlands. In March the Company received credit committee approval from Standard Bank Plc for a €40 million project finance and working capital facility to fund the Netherlands developments, which was subsequently complemented by the placing in May of 15,384,616 shares to raise £20 million. 

In late October this year the Steenwijk-1 exploration well will commence our Netherlands exploration activities with the drilling of a gas prospect of up to 240bcf near to the Eesween and Wanneperveen gas fields. 

I am very pleased that the Company has been able to build a good rapport with the local media and municipal authorities which has enabled us to progress quickly and offset some administrative delays in the issuance and transfer of the licences. As a result the Company has been able to reschedule the projects and advance the drilling of the Ottoland sidetrack from late 2008 to early 2007, enabling earlier the capability  of oil production at higher rates. In addition progress on the obtaining of development consents required for the Papekop oil field has been good and I expect to announce the timing for the drilling of the Papekop development sidetrack in the near future. 

I can announce that we are about to sign a contract to secure a drilling rig for these two wells. In the current rig market this is a considerable achievement for the Company’s operational management. 

In Italy we have moved to a more active phase of managing our large licence position which together with two recent applications is now in excess of 12,000 km². We are expending modest funds that can significantly upgrade the trade value of the licence interest within the oil industry by the expenditure of modest amounts to acquire data and rework and upgrade prospects. Once an asset development has been achieved this strategy will be reviewed.

This winter, Northern is planning a seismic survey of 1500km over C.R146.NP, C.R147.NP, G.R17.NP, G.R18.NP and G.R19.NP. With this survey we will improve the delineation of current prospects and leads on the blocks prior to attracting one or more third parties to pay for drilling costs of wells. The first offshore well is planned to be on licence C.R146.NP where a Vega oil field “look alike” has been identified. 

The survey is expected to prove the thrust play west of Sicily, a play which in Tunisian waters Shell has recently farmed into licences held by Anadarko and Petrocanada. This is one of our “core” areas of three existing and a further four pre-awarded licences. There is multiple prospect potential recognised and mapped by ENI and major oil companies in the late 1970s and early 1980s, but located in water depths too challenging for the technology of the time and during a period of declining oil prices. Subsequent advances in sub-sea developments and horizontal drilling have changed the situation.  It is exciting to be a significant party in a potential major new oil province.

We will also better assess prospects and leads in C.R147.NP, near Pantelleria and north of two licences where Grove Energy has announced a two well 2007 drilling programme in the highly productive Birsa sandstone trend extending into Italy from a region of producing oil fields in Tunisia.

A detailed study of the production and exploration resource potential of the Durres Basin in the southern Adriatic Sea is underway. Here we have an interest in four applications, two of which the preliminary award has been received. These two blocks contain the Giove, Medusa and Rovesti oil discoveries. We are now examining the geological and economic cases for development prior to undertaking appraisal drilling. Our southern Adriatic position must be considered a key asset.

We have a 50% interest in the equivalent of sixty North Sea blocks applied for before the recent oil price rise which has created today’s increased interest  and competition for licences in the area.

In the South of England the Company is currently finalising land and planning matters for an appraisal well (Northern 50%) east of the Horndean oil field in the South Weald Basin. Oil production from Horndean (Northern 10%) continues to make a valuable contribution to the Company’s finances. At Avington we await the drilling of the side track, Avington-3z, as a potential production well (Northern 5%).

In Guyane we await the licence extension and a firm commitment from the Operator, Hardman Resources Limited (“Hardman”), for the drilling of the large Matamata prospect. Tullow Oil Plc, who have recently announced a recommended offer to acquire Hardman, have announced that they are planning to drill the substantial Matamata prospect in the third quarter of 2007.

In Spain we await the announced drilling by Ascent Resources Plc of the Hontomin and Tozo wells in which we hold a 1.25% gross over-riding royalty.

The results for the Group for the six months ending 30 June 2006 show a loss of £941,000 compared to a (restated) loss of £242,000 for the six months ending 30 June 2005. Approximately £347,000 of the increase in net overheads is due to a charge for the period in respect of the employers’ national insurance potentially due on the future exercise of staff warrants. I have previously brought this matter to shareholders’ attention, as this not only amounts to a tax on successfully growing a business but also has the potential to create significant volatility in the Company’s reported results. Such volatility is also created by the adoption of FRS 20, 'Share-based Payment', an accounting standard which all AIM companies are required to adopt for accounting periods commencing 1 January 2006. Under this FRS all options or warrants granted after 7 November 2002 are required to be valued and a charge made to the profit and loss account and it has been necessary for us to create a 'Share incentive reserve' and restate comparatives accordingly. A table detailing the effect of this standard on prior periods is shown in note 6. I would stress that the adoption of this FRS has no overall impact on either the Group’s reported net assets or cash flow.

Other than the effect of these charges the result was in line with management expectations and comparable with the Group’s overheads for the second half of 2005.

I would also like to welcome Tony Brewer to the Board. His experience will be of great benefit to your Company and his appointment aids further the Company’s compliance with the Combined Code.

In conclusion, we are moving to a much more active operational phase and in the next year will establish a profitable production base in The Netherlands which we intend to use to finance the further Netherlands and Italian exploration activities. The base has been laid and we enter the execution phases of the plan.

R Latham
Chairman

28 September 2006

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