25 February 2015

 

FORUM ENERGY PLC

 

("Forum Energy" or the "Company")

 

Audited results for the year ended 31 December 2014

 

Forum Energy, the UK incorporated oil and gas exploration and production company with a focus on the Philippines, today announces its audited results for the year ended 31 December 2014.

 

 

FINANCIAL HIGHLIGHTS

 

·      Revenues of US$6.8 million in 2014 (2013: US$4.4 million)

 

·      Gross Profit of US$2.9 million in 2014 (2013: US$1.5 million)

 

·      Administrative expense reduced to US$1.6 million in 2014 (2013: total administrative expense of US$2.5 million)

 

·      Net Profit attributable to owners of the parent of  US$0.2 million (2013: loss US$2.9 million)

 

·      Working capital of US$1 million at year end (2013: US$0.3 million)

 

·      Philex Petroleum loan facility due for repayment 24 November 2016 currently US$15.5 million due (2013: US$15.2 million)

 

·      Available funds of US$2.5 million under the Philex loan facility as at 31 December 2014 (2013: US$2.8 million)

 

 

OPERATIONAL HIGHLIGHTS

 

•      Unable to commence SC72 drilling programme due to the on-going maritime dispute between the Philippine and Chinese governments. An extension was granted to August 2016 to complete the second sub-phase obligations of drilling wells on SC72. Commencement of offshore exploration activities remains subject to securing the necessary approvals from the DOE and other relevant Philippine Government agencies.

 

•      Galoc Oil field production increased to an average of 8,000 barrels of oil per day (bopd) in 2014, compared to an average of 4,720 bopd in 2013, this follows the completion of Phase II of the development in November 2013, which involved the drilling of two additional wells.  The average oil price achieved in 2014 was $107 per barrel of oil (2013 - $110). Average prices per barrel declined sharply in the last quarter of 2014 and has continued to decline in 2015 up to the date of these results.

 

•      The operator of the Galoc oil field, The Galoc Production Company (GPC), is reviewing plans for the Phase III development of the Galoc oil field, which potentially may involve the drilling of an additional production well and also an exploration well in the Galoc Mid or Galoc North prospects.

 

•      With regards to SC40, we have identified potential prospective onshore areas. Geological and geophysical activities on these areas are on-going along with continued discussions with potential farm-in partners

 

 

Robin Nicholson, Chairman, commented: "Whilst it is disappointing that we have been unable, as a result of matters beyond our control, to carry out drilling under the second sub-phase of the Service Contract 72 contract, we remain committed to pursuing the project and continue to have the support of the Philippine Government as demonstrated by the extension awarded in respect of the second sub-phase.  We remain financially committed to ensure the Company ultimately achieves its objectives at such time as government approval to proceed with work at SC72 is granted. Our producing Galoc field performed well in 2014 and we increased gross profit to US$2.9 million, but are expecting lower levels of gross profit in 2015, due to lower oil prices and lower levels of production at the Galoc field. We thank our shareholders for their ongoing support and will continue to update the market as developments occur".  

 

The Company expects to announce, in due course, when it has posted its Annual Report and Accounts and AGM Notice.

 

 

For further information please contact:

Forum Energy Plc

Andrew Mullins, Executive Director                                                Tel: +44 (0) 208 616 7297

Execution Noble & Company Limited

Harry Stockdale                                                                                   Tel: +44 (0) 20 7456 9191

John Riddell

 

Or visit the Company's website:

www.forumenergyplc.com <http://www.forumenergyplc.com>

 

 

 

OVERVIEW

 

The company's primary focus is on developing its current production and exploration licences.

 

The principal asset of the company is a 70% interest in Service Contract 72 (SC72), an 8,800-square kilometre (Km2) offshore petroleum licence situated west of Palawan Island in the West Philippine Sea. In 2006, results from a 250 Km2 3D seismic survey over the licence area indicated a mean volume of 3.4 trillion cubic feet (TCF) gas-in-place (GIP) with significant upside potential. It is a primary objective of the company to establish the commerciality of the hydrocarbons within SC72 by continuing further exploration subject to securing the necessary approvals from the Philippine Department of Energy (DOE) and other relevant Philippine Government agencies which has been pending resolution of the maritime dispute in the West Philippine Sea.

 

In March 2011, a total of 565 Km2 of 3D seismic data was acquired over the Sampaguita Gas Field and 2,202 Line-Km of 2D seismic data was acquired to further define additional leads identified within the SC72 acreage and to possibly upgrade existing leads to prospects. This work, which satisfied Forum's obligations with the DOE under the first sub-phase of the SC72 contract, was primarily designed to provide a more comprehensive evaluation of the SC72 property and to identify potential sites for appraisal wells.

 

SC72 seismic interpretation and resources update was completed in April 2012, which showed an improvement in the resources previously known and supported the case to proceed with the drilling programme as part of the second sub-phase of the SC72 contract.

 

During 2012, the company was unable to secure the necessary approvals from the DOE for the scheduled exploration activities in the SC72 contract area. Recognising that these matters were beyond the control of the company, in January 2013 the DOE granted a one year extension to August 2015 for the company to complete its second sub-phase work obligations which are expected to cost in excess of US$50 million.

 

On 22 January 2013, an arbitration case under Annex VII to the United Nations Convention on the Law of the Sea was commenced when the Philippines served China with Notification and Statement of Claim "with respect to the dispute with China over the maritime jurisdiction of the Philippines in the West Philippine Sea." Further information about the ongoing case is available on the website of the Permanent Court of Arbitration (www.pca-cpa.org).

 

As announced in July 2014, the DOE granted a further one year extension to August 2016 for the company to complete the second sub-phase of the planned programme.

 

Our largest producing asset is the Galoc oil field which accounts for 87% of our total income (2013: 76%). We plan to continue participating in the continued development of the field to maximise our revenue stream.

 

 

ASSET SUMMARY

 

SC72 (70% interest)

 

The SC72 licence was awarded on 15 February 2010. It covers an area of 8,800 Km2 and contains the Sampaguita Gas Discovery which has the potential to contain In-Place Contingent Resources of 2.6 TCF of gas plus another In-Place Prospective Resources totalling 8.8 TCF including the North Bank prospect, based on a resource assessment performed in 2012 by Weatherford Petroleum Consultants, an independent qualified competent person. The results of the study were used to define the location of two wells, to be named Sampaguita-4 and Sampaguita-5. The drilling of two wells is part of the work programme of the company for the second sub-phase of SC72, which must be completed by 14 August 2016, having been granted a second extension by the DOE.

 

Commencement of offshore exploration activities in the SC72 contract area remains subject to securing the necessary approvals from the DOE and other related Philippine Government agencies which is pending resolution of the maritime dispute in the West Philippine Sea. Based on initial discussions with the DOE and the previous experience of the company, the board of directors are confident that adjustments in the schedule of the current and succeeding sub-phases will be obtained in case of further delays.

 

Galoc (2.27% interest)

 

Production from the Galoc development reached 2.9 million barrels gross in 2014 (1.72 million barrels gross in 2013) and is expected to produce 2.2 million barrels in 2015. The company has a 2.27% interest in the field and received US$4.6 million (US$2.1 million in 2013) after deduction of share of operating costs from crude sales from the field during the year. The second phase of development was completed in November 2013 with the drilling of two additional production wells.

 

The Galoc Production Company (GPC) are reviewing plans for the Phase III development of the Galoc oil field, which potentially may involve the drilling of an additional production well and also an exploration well in the Galoc Mid or Galoc North prospects.

 

SC40 (66.67% interest)

 

SC40 contains the producing Libertad gas field and the Maya field as well as several other prospects and leads. On 30 January 2009, the company entered into a Gas Sale & Purchase Agreement (GSPA) with Desco, Inc., for the development of the Libertad gas field for power generation. On 3 February 2012, commercial production at the Libertad Field commenced. The total production from the Libertad Field in 2014 was 41 million cubic feet of gas (79 million cubic feet of gas in 2013), the reduced production was due to a prolonged shutdown caused by engine problems. However these revenues of US$62,000 (2013 - US$ 115,000), are not considered to be material to the group's cash flow.

 

Having identified the prospective exploration onshore areas over the rest of SC40 in 2014, further technical studies and discussion with potential farm-in partners, are on-going.

 

 

LATEST RESOURCES AT SERVICE CONTRACT 72

 

In 2012, Weatherford Petroleum Consultants ("Weatherford") completed a report on SC72, which took into account the 565 Km2 of 3D seismic data over the Sampaguita Gas Field and the 2,202 Line-Km of 2D seismic data over SC72. Weatherford produced the following summary of unrisked resources initially in place:

 

SC72 - In-Place Contingent Resources

 

		Gross			Net Attributable		Risk Factor
Oil & Liquids Contingent	Low	Best	High	Low	Best	High
Resources	Estimate	Estimate	Estimate	Estimate	Estimate	Estimate
Sampaguita segment 2	34	59	103	24	41	72	0.50
Sampaguita segment 4	3	6	12	2	4	8	0.50
Total for Oil & Liquids   (OIIP) MMbbls	37	65	115	26	45	80
Sampaguita segment 2	1,348	2,354	4,110	944	1,648	2,877	0.50
Sampaguita segment 4	127	249	488	89	174	342	0.50
Total for Gas (GIIP) BCF	1,475	2,603	4,598	1,033	1,822	3,219

 

SC72 - In-Place Prospective Resources

 

		Gross			Net Attributable
Oil & Liquids Prospective	Low	Best	High	Low	Best	High
Resources	Estimate	Estimate	Estimate	Estimate	Estimate	Estimate
Sampaguita segment 1	40	76	146	28	53	102	0.48
Sampaguita segment 3	34	61	110	24	43	77	0.45
North Bank prospect	43	83	160	30	58	112	0.16
Total Oil & Liquids (OIIP) MMbbls	117	220	416	82	154	291
Sampaguita segment 1	1,603	3,055	5,821	1,122	2,139	4,075	0.48
Sampaguita segment 3	1,357	2,441	4,393	950	1,709	3,075	0.45
North Bank prospect	1,706	3,303	6,398	1,194	2,312	4,479	0.16
Total for Gas (GIIP) BCF	4,666	8,799	16,612	3,266	6,160	11,629

 

The net attributable amounts in respect of SC72 represent the company's 70% interest in the estimated resources. These pre-drill estimates of resources are based on certain assumptions and the information and interpretations currently available. There can be no assurances that these assumptions or estimates will prove to be accurate as future technical evaluations and results, including drilling results, could lead to variations or differ materially from those included in Weatherford's report.

 

The methods and terms used in the preparation of these summaries are in accordance with Society of Petroleum Engineers guidelines. For more details please refer to www.spe.org.

 

 

LATEST RESERVES AT GALOC OIL FIELD

 

In March 2014, RISC Operations Pty Ltd (RISC), a leading independent petroleum advisory firm, was appointed to complete a reserves review of the Galoc field for Otto Energy, which at the time owned the Galoc Production Company, the operator of the Galoc oil field.  RISC has extracted a table of reserves for Forum Energy to use in its 2014 Annual Report, as disclosed below:

 

Estimated Ultimate Recovery (EUR) and Reserves	1P Proven Reserves	2P Proven and Probable Reserves	3P Proven and Probable and Possible  Reserves
	MMbbl oil	MMbbl oil	MMbbl oil
EUR at 1st Jan 2013	21.7	25.4	30.4
EUR at 1st Jan 2014	21.51	25.06	26.66
Change in EUR	-1%	-1%	-12%
Cumulative Production to 1st Jan 2014	11.66	11.66	11.66
Gross Field Reserves at 1st Jan 2014	9.85	13.40	15.00
PSC Contractor Entitlement Reserves at 1st Jan 2014	8.34	11.42	12.64
Forum Energy Net Entitlement Reserves at 1st Jan 2014	0.19	0.26	0.29
Notes: 1. The ultimate recovery and cumulative production exclude 0.395 MMbbl from the Galoc-1 EPT. 2. The equity of Forum Energy Philippine Corporation in the Galoc field is 2.27575%.

 

RISC's review was completed to SPE PRMS standards. All assumptions and forecasts (technical, commercial and others) are the same as those generated for Otto Energy, using Otto Energy's and RISC's estimates and public domain data at the time.

 

Information on the Reserves in this statement relating to Service Contract SC14-C (Galoc Sub Block) is based on an independent review and audit conducted by RISC and fairly represents the information and supporting documentation reviewed. The review and audit was carried out in accordance with the SPE Reserves Auditing Standards and the SPE-PRMS guidelines under the supervision of Mr. Peter Stephenson, a Partner of RISC. Mr. Stephenson has a M.Eng in Petroleum Engineering, is a member of the SPE and IChemE and has more than 30 years of relevant experience.

 

The Galoc Production Company (GPC) is the operator of the Galoc oil field and has a 33% interest in the field. In 2015 Otto Energy sold GPC to Nido Petroleum for US$108 million. GPC's only asset was the interest in the Galoc oil field at the time of the sale.

 

LATEST RESOURCE ESTIMATES AT SERVICE CONTRACT 40

 

On 19 February 2013, the company was presented with a new competent persons report, prepared by PGS on the SC40 contract area. SC40 contains a developed gas field, two tested oil prospects and nine untested oil and gas exploration leads and prospects. This report included probabilistic resource estimates for the gas field and all of the leads and prospects, as follows:

 

SC40 - In-Place Reserves:

 

		Gross			Net Attributable
	(1P)	(2P)	(3P)	(1P)	(2P)	(3P)
	Low	Best	High	Low	Best	High
Gas Reserves	Estimate	Estimate	Estimate	Estimate	Estimate	Estimate
Libertad Field	0.9	1.2	4.1	0.6	0.8	2.7
Total for Gas (GIIP) BCF	0.9	1.2	4.1	0.6	0.8	2.7

 

 

SC40 - In-Place Contingent Resources:

 

		Gross			Net Attributable		Risk Factor
	(1C)	(2C)	(3C)	(1C)	(2C)	(3C)
Oil & Liquids	Low	Best	High	Low	Best	High
Contingent Resources	Estimate	Estimate	Estimate	Estimate	Estimate	Estimate	(RF)
Toledo	1.1	1.6	2.4	0.7	1.1	1.6	8%
Maya	7.2	12.5	20.2	4.8	8.3	13.5	<5%
Total for Oil & Liquids   (OIIP) MMbbls	8.3	14.1	22.6	5.5	9.4	15.1

 

 

SC40 - In-Place Prospective Resources:

                                                                                                                                                                   

	Gross			Net Attributable			Risk Factor
Oil & Liquids	Low	Best	High	Low	Best	High
Prospective Resources	Estimate	Estimate	Estimate	Estimate	Estimate	Estimate	(RF)
Prospects
Tambongon Clastics	115.0	237.0	410.0	76.7	158.0	273.3	9%
Tambongon Limestone	90.0	219.0	427.0	60.0	146.0	284.7	9%
Sabil Point	23.0	50.0	90.0	15.3	33.3	60.0	7%
Batbatan South	22.0	44.0	76.0	14.7	29.3	50.7	9%
Jibitnil Island	20.0	38.0	61.0	13.3	25.3	40.7	8%
Leads
Batbatan SE	19.0	37.0	63.0	12.7	24.7	42.0	<5%
Central Tañon	4.0	7.8	13.7	2.7	5.2	9.1	<5%
North Maya	6.5	9.8	14.3	4.3	6.5	9.5	<5%
Agojo	0.8	1.6	2.7	0.5	1.1	1.8	<5%
Total for Oil & Liquids
(OIIP) MMbbls	300.3	644.2	1,157.7	200.2	429.5	771.8

 

The net attributable amounts in respect of SC40 represent the Company's 66.67% interest in the estimated resources. These pre-drill estimates of resources are based on certain assumptions and the information and interpretations currently available. There can be no assurances that these assumptions or estimates will prove to be accurate as future technical evaluations and results, including drilling results, could lead to variations or differ materially from those included in PGS' report.

 

The methods and terms used in the preparation of these summaries are in accordance with Society of Petroleum Engineers guidelines. For more details please refer to www.spe.org.

 

In accordance with AIM Guidelines, Mr A.J. Williams, BSc (Hons) in Geology, a distinguished member of the Petroleum Exploration Society of Australia (PESA) and a member of the American Association of Petroleum Geologists (AAPG) is the qualified person that has reviewed the technical information in relation to SC40 contained in the tables on this page. Mr Williams has 33 years of varied petroleum geology, geophysics and resource management experience and is a manager of Reservoir Group at PGS, an independent consultancy specialising in petroleum reservoir evaluation and economic analysis.

 

 

STRATEGIC REPORT

 

Business Review

 

Service Contract 72

The encouraging results of the resource assessment study conducted in early 2012 by Weatherford Petroleum Consultants supported the case to proceed with the drilling of the Sampaguita-4 and Sampaguita-5 wells in 2013. However, commencement of our drilling programme has been delayed due to the on-going maritime dispute between the Philippine and Chinese governments. In the meantime, we carried out a seismic reprocessing program involving close to 3,000 line-Km of 2D data with CGG as contractor, which was completed in November 2013. The project aims to map out prospects and leads of SC72 outside the Sampaguita field.

 

The required environmental and local government permits, including the strategic environmental plan clearance from the Palawan Council for Sustainable Development were secured in 2013. Commencement of offshore exploration activities in the SC72 contract area remains subject to the securing the necessary approvals from the Department of Energy and other related Philippine Government agencies. Based on initial discussions with the DOE and the previous experience of the company, the board of directors are confident that adjustments in the schedule of the current and succeeding sub-phases will be obtained in case of further delays.

 

Galoc

The company has a 2.27% interest in the Galoc oil field. Gross production during the year averaged 8,000 bopd (2013: 4,720 bopd); the increase is due to the commencement of production of Phase II in December 2013. Receipts totalled US$4.6 million (2013: US$2.1 million) after deduction of share of operating costs. Phase II of the development commenced in production in December 2013 with the drilling of two additional production wells, Galoc 5 and Galoc 6. Total oil production is expected to be around 2.2 million barrels in 2015. In 2015 Otto Energy sold their 33% interest in the field for US$108 million to Nido Petroleum.  Nido Petroleum the new operators are reviewing the options for Phase III of development, however, it remains a contingent programme up to this time.

 

Service Contract 40

On 3 February 2012, commercial production at the Libertad Field commenced. The total production in 2014 was 41 million cubic feet of gas (79 million cubic feet of gas in 2013). The reduced production was due to a prolonged shutdown caused by engine problems. The Libertad Field was impaired by US$729,000 in 2013 as reservoir pressure decline rate forecasts show ultimate recoverable gas resource will be lower than earlier estimated.

 

In early 2013, the land gravity survey in northern Cebu was concluded and the gravity data processing and interpretation were completed in May 2013. Also, reprocessing of approximately 500 line-Km of vintage 2D seismic data was completed by Fairfield Vietnam in October 2013.

 

A technical evaluation study on the SC40 was completed in 2014, which focused on the prospectivity of onshore northern Cebu.  Further activities such as land gravity and geochemical surveys are being considered in 2015 by Forum alone or in cooperation with potential partners.

 

Business Model

 

The company operates exclusively in the oil and gas sector in the Philippines.

 

The senior staff at the company have over 25 years' experience in the Philippines oil and gas sector, which gives the company the ability to maximise the value of our producing and exploration assets.

 

The Philippines' economy was among the world's fastest-growing in 2014 with a 6.2% growth in gross domestic product (GDP) according to the International Monetary Fund (IMF). For 2015, the IMF forecasts a 6.3% growth for the Philippines, trailing only China and India across Asia. The Asian Development Bank (ADB), however, is forecasting slightly higher GDP growth rate of 6.4% in 2015. In May 2014, the DOE launched a new contracting round for petroleum and coal to attract energy investors to develop the country's indigenous energy resources. At the same time, the DOE has been actively promoting renewable energy (RE) development and use to lessen the country's dependency on imported fuel.

 

Objectives and Strategy

 

The core objective of the company is to maximise the potential of all of its current licences, to increase its income and the continued reduction of administrative expenses.

 

The company plans to achieve these objectives by:

 

·      the development of Service Contract 72 by completing its obligations under the second sub-phase of the licence;

·      the continued participation in the development of the Galoc oil field;

·      the continued review of the prospective onshore areas of Service Contract 40 onshore prospects, to identify any potential drilling targets; and

·      the continued review of staff numbers and the company's administrative expenses.

 

Financial Results and Key Financial Indicators

 

Our revenues increased by 54% in 2014 to US$6.8 million due to a 70% increase in production at the Galoc oil field, with the commencement of Phase II production in December 2013.

 

The gross profit increased 88% to US$2.9 million due to the increased production at Galoc and a reduction in cost per barrel of oil from Galoc of $29 in 2013 to $23 in 2014.

 

The administrative expense reduced 35% to US$1.6 million, as the company continues to reduce staffing cost and to review all company expenditure.

 

The group recorded a net profit attributable to equity holders of the parent of US$0.2 million, compared with a net loss of US$2.9 million in 2013 which generated a profit per share of US0.6 Cents (2013: loss per share US8.3 Cents).

 

During the year, the cost of the development of SC72 was minimal at US$0.05 million (2013: US$0.4 million) as permission to start the second sub-phase has not been obtained, due to the territorial dispute between the Philippine and Chinese governments. Future spending on SC72 will be minimal until the United Nations tribunal rules on the West Philippine Sea disputed area, where SC72 is located.

 

The capital spending on the Galoc oil field in 2014 reduced to US$0.7 million (2013: US$4.2 million), as Phase II of its development was completed in November 2013.The possible development of Phase III will not occur until 2016 at the earliest.

 

The company's working capital, excluding the loan from Philex Petroleum Corporation increased from US$0.3 million (2013) to US$1 million (2014) principally due to cash generated from the Galoc oil field.

 

Cash and cash equivalents at the end of the period stood at US$0.8 million (2013: US$0.2 million). The outstanding amount of the loan with Philex Petroleum Corporation was US$15.5 million (2013: US$15.2 million).

 

Principal Risks and Uncertainties

 

BUSINESS RISK

 

The Directors have identified the following current principal risks in relation to the company's future performance. The relative importance of risks faced by the company can, and is likely, to change with progress in the company's strategy and developments in the external business environment.

 

Strategy risk

The company's strategy may not deliver the results expected by shareholders. The Directors regularly monitor the appropriateness of the strategy, taking into account both internal and external factors, and the progress in implementing and modifying the strategy as may be required based on results. Key elements of this process are annual business plans and strategy reviews, monthly reporting and regular Board meetings.

 

The Board has identified the development of SC72, as an important element of the company's strategy and recognises the risks to this development represented by the current territorial disputes between the Philippine and Chinese governments.

 

Exploration risk

Exploration activities within the company's licences may not result in a commercial discovery. Forum is pursuing a growth strategy with a concentrated portfolio of exploration assets. The historic industry average exploration drilling success rate is approximately one success for every five wells. There is no certainty of success from the existing portfolio.

 

Forum mitigates the exploration risk through the experience and expertise of the company's specialists, the application of appropriate technology and the selection of prospective exploration assets.

 

Health, Safety, Environment, and Security (HSES) risk

The company conducts operations in the Philippines. There is a risk of an HSES incident in these operations, with the potential impact on staff, contractors, communities and the environment, and to have a negative impact on the company's reputation. This risk is mitigated through the implementation of the company's HSES management system, training of staff and selection of contractors.

 

Counterparty risk

Forum's cash resources may be negatively affected by failure of counterparty. To mitigate this risk, the company holds a large proportion of its cash reserves in US Dollars on deposit with banks and institutions with a minimum credit rating of AA-. The currency for most contracts, procurement, services and oil sales is US Dollars and therefore the company believes it is not particularly exposed to large currency fluctuations.

 

Country risk

The company's assets are located in a non-OECD country. Governments, regulations and the security environment may change with a consequential effect on the company's assets.

 

Country risk is mitigated by monitoring the political, regulatory and security environment within the country in which Forum holds assets, engaging in constructive discussions where and when appropriate, and introducing third party expertise if this may assist in resolution of issues affecting the company's assets.

 

In addition to the current principal risks identified above and general business risks, the group's business is subject to risks inherent in oil and gas exploration, development and production activities.

 

Executive Chairman's Statement

 

2014 was another quiet year in relation to our core asset, SC72, after we were unable to secure an approval from the DOE to drill our two commitment wells. The company has put on hold all offshore exploration activities until said DOE approval is obtained.  We will continue to appraise our shareholders of any developments.

 

We have identified the potential prospective onshore areas of SC40, geological and geophysical activities in these areas continue along with continued discussions with potential farm-in partners.

 

The Galoc Field Phase II development was successfully completed in December 2013, with the additional two production wells increasing output to 8,000 bopd from 4,720 bopd in 2013. The Galoc Field has been a steady provider of cash to fund operations and we anticipate this will continue, but at a reduced rate due to the current oil price and a decline in production. Gross production is forecast to decrease from 2.9 million barrels in 2014 to 2.4 million barrels in 2015, Forum share of Galoc is 2.27%.

 

Outlook for 2015

 

We remain focused on our goal of establishing the commerciality of the potential hydrocarbon resources within the SC72, but recognise that we face significant challenges in the West Philippine Sea where SC72 is located. We appreciate that this goal can only be realised with the continuing support of the Philippine Government.

 

I would like to take this opportunity once again to thank our shareholders, our staff and members of the Board of Directors, for their continuing support and commitment.

 

 

Robert Nicholson

Executive Chairman

24 February 2015

 

 

Consolidated statement of comprehensive income

for the year ended 31 December 2014

 

 

		Year ended	Year ended
		31 December	31 December
		2014	2013
	Note	US$'000	US$'000
Revenue	2	6,811	4,426
Cost of sales		(3,956)	(2,906)
Gross profit		2,855	1,520
Administrative expenses		(1,619)	(2,507)
Impairment charge	3	(41)	(1,298)
Total operating expenses		(1,660)	(3,805)
Profit/(loss) from operations		1,195	(2,285)
Finance income		24	248
Finance expenses		(866)	(1,271)
Profit/(loss) before tax		353	(3,308)
Taxation		(200)	(337)
Profit/(loss) for the year from continuing operations		153	(3,645)
Other comprehensive income		65	60
Total comprehensive profit/(loss) for the year		218	(3,585)
Profit/(loss) and total comprehensive loss attributable to:
Owners of the parent		207	(2,938)
Non-controlling interest		11	(647)
		218	(3,585)
		US Cents	US Cents
Profit/(loss) earnings per Ordinary Share (US Cents) attributable to equity holders of the company
Basic and diluted		0.6	(8.3)

 

All of the results of the group during the year relate to continuing activities.

 

 

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

at 31 December 2014

 

		2014	2013
	Note	US$'000	US$'000
Assets:
Non-current assets
Exploration, evaluation and development assets	6	27,883	27,534
Oil and gas properties	7	7,583	8,863
Other property, plant and equipment		4	56
Deferred tax		119	287
Other receivables		10	117
Investments		-	9
Total non-current assets		35,599	36,866
Current assets
Inventories		464	307
Trade and other receivables		1,080	2,398
Derivative asset		-	22
Cash and cash equivalents		778	242
Total current assets		2,322	2,969
Total assets		37,921	39,835
Liabilities:
Non-current liabilities
Loans		15,500	16,438
Deferred tax		45	23
Other liabilities and provisions		4,034	3,917
Total non-current liabilities	8	19,579	20,378
Current liabilities
Loans		-	1,239
Trade payable and other payables		1,104	1,198
Income tax payable		225	225
Total current liabilities	8	1,329	2,662
Total liabilities		20,908	23,040
Total net assets		17,013	16,795
Capital and reserves attributable to equity holders of the company
Share capital		6,322	6,322
Share premium		51,061	51,061
Retained deficit		(40,863)	(41,070)
		16,520	16,313
Non-controlling interest		493	482
Total capital and reserves		17,013	16,795

 

 

The financial statements of Forum Energy Plc (registered number 05411224) were approved by the Board of Directors and authorised for issue on 24 February 2015. They were signed on behalf of the Board of Directors by:

 

 

Paul Wallace

Finance Director

 

 

 

Statement of changes in equity

for the year ended 31 December 2014

 

						Non-	Total capital
		Share	Share	Retained		controlling	and
		capital	premium	deficit	Total	interest	reserves
Group		US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Balance as at 1 January 2013		6,322	51,061	(38,132)	19,251	1,129	20,380
Loss for the year		-	-	(2,998)	(2,998)	(647)	(3,645)
Other comprehensive income		-	-	60	60	-	60
Total comprehensive income for the year		-	-	(2,938)	(2,938)	(647)	(3,585)
Balance as at 31 December 2013		6,322	51,061	(41,070)	16,313	482	16,795
Profit for the year		-	-	142	142	11	153
Other comprehensive income		-	-	65	65	-	65
Total comprehensive income for the year		-	-	207	207	11	218
Balance as at 31 December 2014		6,322	51,061	(40,863)	16,520	493	17,013

 

Share capital represents the nominal value of shares issued. The share premium account holds the balance of consideration received in excess of the par value of the shares.

 

The retained deficit is the cumulative net gains and losses recognised in the statement of comprehensive income adjusted for transfer on exercise, cancellation or expiry of options from the share option reserve.

 

No interim of final dividend has been paid or proposed during the year.

 

 

 

CONSOLIDATED STATEMENT OF CASH FLOWS

for the year ended 31 December 2014

 

		Year ended	Year ended
		31 December	31 December
		2014	2013
		US$'000	US$'000
			Restated*
Cash flows from operating activities
Profit/(loss) before tax from operations		353	(3,308)
Adjustments for:
Depletion and depreciation		1,899	938
Impairment charge		41	729
Write off of accounts receivable		149	-
Loss on sale of exploration equipment		-	569
Loss on investments		9	2
Finance income		-	(1)
Interest charge on loan facility		852	1,050
Hedging (gain)/losses and charge		(3)	219
Working capital adjustment
Decrease/(increase) in trade and other receivables		1,274	(164)
Increase in inventories		(88)	(60)
Increase /(decrease) in trade and other payables		49	(1,290)
(Decrease)/Increase in provisions and employee benefits		(4)	26
Cash flows from operating activities		4,531	(1,290)
Tax paid		(15)	(393)
Net cash used in operating activities		4,516	(1,683)
Investing activities:
Purchase of oil and gas properties		(475)	(25)
Purchase of property, plant and equipment		-	(2)
Disposal of property, plant and equipment		-	45
Purchase of exploration, evaluation and development asset		(349)	(6,629)
Disposal of exploration equipment		-	1,294
Interest received		-	1
Net cash used in investing activities		(824)	(5,316)
Financing activities:
Loan facility drawn down		300	2,677
Loan facility repayments		(2,477)	-
Hedging payments		(151)	(70)
Interest paid		(828)	(1,126)
Net cash from financing activities		(3,156)	1,481
Net increase/(decrease) in cash and cash equivalents		536	(5,518)
Cash and cash equivalents at beginning of the year		242	5,760
Cash and cash equivalents at end of the year		778	242

 

*Certain amounts shown here do not correspond to the 2013 financial statements and reflects adjustments made.

 

Notes to the financial statements

for the year ended 31 December 2014

 

 

1 ACCOUNTING POLICIES

 

1.1 Basis of preparation

 

The policies have been consistently applied to all the years presented, unless otherwise stated. The group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards (IFRSs) and IFRIC Interpretations, issued by the International Accounting Standards Board (IASB) as endorsed for use in the European Union (IFRSs) and those parts of the Companies Act 2006 that are applicable to companies that prepare their financial statements under IFRS.

 

The financial information for the years ended 31 December 2014 and 31 December 2013 does not constitute statutory accounts as defined by section 435 of the Companies Act 2006 but is extracted from the audited accounts for those years. The 31 December 2013 accounts have been delivered to the Registrar of Companies. The 31 December 2014 accounts will be delivered to Companies House within the statutory filing deadline. The auditor's report on those financial statements was unqualified and did not contain a statement under s498 (2) - (3) of Companies Act 2006.

 

The consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value. The consolidated financial statements are presented in US Dollars, and all values are rounded to the nearest thousand (US$ thousand), except where otherwise indicated.

 

1.2 Going concern

 

The group is currently conducting exploration and development activities using existing funds including those generated by the group's interests in producing assets, including the Galoc oil field. In the absence of a defined timetable for further activity related to the appraisal and development of SC72, the group's cash flow forecasts are mostly dependent on the performance of the Galoc field and prices achieved from the sale of the associated production. Despite the substantial fall in oil prices in the third quarter of 2014 continuing into 2015, the group is confident of still generating cash from its interest in Galoc due the operating cash costs of $23 per barrel.

 

The Directors are currently reviewing various funding options for the continued development of SC72 once the territorial dispute between the Philippine and Chinese governments has been resolved.

 

The Directors secured a loan facility with Philex Petroleum repayable on 24 November 2016 in the amount of US$18 million. At the date of approval of these financial statements US$15.5 million has been drawn down under the facility. Based on the Group's cash flow forecasts, the directors believe that the group will not have sufficient funds available to repay the loan when it falls due for repayment in November 2016. As such, the directors are in discussions with Philex Petroleum and its other major shareholders regarding the current terms of the loan repayment. These discussions are currently at an early stage and there can be no guarantee of their success.

 

However, the directors believe that through either renegotiations of the Philex Petroleum loan facility or other potential sources of debt and equity capital available lead to a reasonable expectation that the Group will continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing these financial statements.

 

1.3 Critical accounting estimates and judgements in relation to SC72

 

With respect to exploration license SC72, there is significant uncertainty about the future outcome of the territorial dispute between the Philippine and Chinese Governments in relation to the West Philippine Sea area where the Group's SC72 asset is located.  Further exploration work in relation to the second sub-phase and all subsequent sub-phases has been suspended until the territorial dispute in the West Philippine Sea has been resolved. There is currently no fixed timeframe for the matter to be concluded.  The Group's best estimate as at the date of these financial statements is that the territorial dispute will ultimately be resolved in such a way that the Company will be able to recover the carrying amount of $23,735,000 recorded at the balance sheet date but significant uncertainty remains as to how, and when, this will be resolved. The ultimate outcome of these matters cannot be presently determined and no impairment has been recorded in respect of the SC72 intangible exploration asset in the financial statements.  If the maritime dispute is not resolved, the intangible assets included in the balance sheet with a carrying value of $23,735,000 would be fully impaired, as the Company would not be able to recover the carrying amount.  Details of any impairment charges recognized in the income statement are provided in Note 3, below.

 

1.4  Auditors' Emphasis of Matter statement in relation to the recoverability of exploration assets

 

In forming their opinion on the consolidated financial statements, which is not modified, the auditors, Ernst & Young LLP, have considered the adequacy of the disclosure concerning the significant uncertainty over the resolution of the maritime dispute in the West Philippine Sea, and its impact on the recoverability of the Group's intangible exploration assets.  If the maritime dispute is not resolved, the intangible assets included in the balance sheet with a carrying value of $23,735,000 would be fully impaired, as the Company would not be able to recover the carrying amount. The ultimate outcome of these matters cannot be presently determined and no impairment has been recorded in respect of the intangible exploration assets in the financial statements.

 

 

2 SEGMENT ANALYSIS

 

The group's costs and sales are based on geographic areas and they are not larger than a segment. The group currently has one pool, the Philippines.

 

Geographical information

	Revenues from external customers		Non-current assets
	2014	2013	2014	2013
	US$'000	US$'000	US$'000	US$'000
United Kingdom	-	-	10	170
Philippines	6,811	4,426	35,589	36,696
	6,811	4,426	35,599	36,866

 

All of the 2014 revenues (2013: 100%) were generated from Philippine-based assets including the Galoc, Libertad, Nido and Matinloc fields.

 

Annual revenue from major customers is detailed below:

	Year ended	Year ended
	31 December 2014	31 December 2013
	US$'000	US$'000
Hyundai Oilbank Company Limited	2,196	-
GS Caltex Corporation	1,415	-
Thai Oil Public Co. Ltd	1,191	-
Shell Petroleum corporation	797	912
SK Energy Company Limited	731	-
MT Bei Hai Ming Wand	-	872
MT Bang Gong Hu	-	839
MT Pacific Bridge	-	762
MT Xuan Wu Hu	-	697

 

Revenue of US$481,000 (2013: US$344,000) is attributable to external customers with individual revenue amounts less than 10% of the group's revenue.

 

 

3 IMPAIRMENT CHARGE

	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Impairment of other property, plant and equipment	41	-
Impairment of Investment Impairment of oil and gas property		729
Loss on sale of exploration equipment	-	569
	41	1,298

 

The Libertad gas field has been written down by US$729,000 in 2013 to a value of US$345,000, due to a reduction in the field's estimated ultimate recoverable gas reserves which is the recoverable amount of the asset (cash generated unit). The recoverable amount of the asset is its value in use.

 

The impairment of exploration equipment of US$569,000 in 2013 is based on the amount received for the sale of exploration equipment during the prior year.

 

Refer to Note 1.3 above outlines the Group's assumptions, judgements and estimates in concluding on the impairment assessment for the Group's interest in exploration asset SC72.   No impairment has been recognised in the period related to this exploration asset (2013 - $nil).

 

 

4 PROFIT/(LOSS) PER SHARE

 

Basic earnings per share amounts are calculated by dividing the profit or loss for the year attributable to ordinary equity holders of the parent by the weighted average number of Ordinary Shares outstanding during the year.

 

Profit for the group attributable to the equity holders of the company for the year US$0.2 million (2013: Loss US$2.94 million).

 

	Year ended	Year ended
	31 December	31 December
	2014	2013
Weighted average number of equity shares for the period in issue	35,549,533	35,549,533
Fully diluted number of equity shares for the period in issue	35,549,533	35,549,533

 

 

5 ADJUSTED PROFIT/(LOSS) PER SHARE

 

In order to show results from operating activities on a consistent basis, an adjusted earnings per share is presented which excludes certain items as set out below. It is emphasised that the adjusted earnings per share is a non-GAAP measure. The Board considers the adjusted earnings per share to better reflect the underlying performance of the group.

 

	Year ended	Year ended
	31 December	31 December
	2014	2013
	US$'000	US$'000
Profit/(loss) for the group	207	(2,938)
Adjustment:
Impairment charge	41	1,298
Adjusted profit/(loss) per year	248	(1,640)

 

 

6 EXPLORATION, EVALUATION AND DEVELOPMENT ASSETS

	Unevaluated	Unevaluated
	oil and gas and development	oil and gas and development
	costs	costs
	2014	2013
Group	US$'000	US$'000
Cost and net book value
At 1 January	27,534	27,567
Additions	349	4,841
Transfer to oil and gas properties	-	(4,874)
At 31 December	27,883	27,534

 

The unevaluated oil, gas and mining costs relate to the acquisition of the group's assets in the Philippines.

 

The net book values of assets included within exploration, evaluation and development assets are as follows:

	31 Dec 2014	31 Dec 2013
	US$'000	US$'000
SC72	23,735	23,689
SC40	3,748	3,511
SC6A	53	51
SC6B	299	283
SC14	48	-
	27,883	27,534

 

 

7 OIL AND GAS PROPERTIES

	Oil and gas
	costs
	US$'000
Cost
At 1 January 2014	20,960
Additions	669
Reclassification	(220)
At 31 December 2014	21,409
Depreciation
At 1 January 2014	12,097
Charge for the year	1,939
Reclassification	(210)
At 31 December 2014	13,826
Cost
At 1 January 2013	16,790
Additions	25
Impairment	(729)
Transfer from exploration, evaluation and development assets	4,874
At 31 December 2013	20,960
Depreciation
At 1 January 2013	11,019
Charge for the year	1,078
At 31 December 2013	12,097
Net book value
At 31 December 2014	7,583
At 31 December 2013	8,863

 

 

 

8 LIABILITIES

	Group
	2014	2013
Current	US$'000	US$'000
Loans	-	1,239
Trade payables	58	5
Other payables	966	943
Employee benefits	80	122
Deferred premium	-	79
Derivative liabilities	-	40
Tax payable	225	234
	1,329	2,662

 

The US$15 million loan in 2012 from Philex Mining Corporation was originally due for repayment on 24 November 2013, but has been assigned to Philex Petroleum Corporation and increased to US$18 million with the repayment date extended to 24 November 2016.

 

All amounts fall due for payment within one year.

	Group
	2014	2013
Non-current liabilities	US$'000	US$'000
Loan facility	15,500	16,438
Other provisions	3,839	3,866
Decommissioning liability	195	-
Deferred premium	-	51
	19,534	20,355

 

Included in loan facility is a loan from Philex Petroleum Corporation of US$15.5 million (2013 US$15.2 million) repayable on 24 November 2016. Philex Petroleum Corporation is one of the company's major shareholders.

 

Other provisions

 

Other provisions comprise provisions under the share purchase agreement for Forum Exploration Inc. dated 11 March 2003, amounts of up to Philippine peso  171,650,193  (2013: Philippine peso  171,650,193) are due to the vendor out of the group's share of future net revenues generated from licence SC40. The liability is in Philippine Pesos there are movements during the year due to changes in exchange rate as at 31 December 2014 - 44.7 Philippine peso/USD (2013: 44.4 Philippine peso/USD). The timing and extent of such payments is dependent upon future field production performance and cannot be accurately determined at this stage.

 

Decommissioning provision

 

The Group makes full provision for the future cost of decommissioning oil production facilities and pipelines on a discounted basis on the installation of those facilities.

 

The decommissioning provision represents the present value of decommissioning costs relating to oil and gas properties, which are expected to be incurred up to 2019 for the Galoc Oil field and up to 2017 for Libertad Gas Field. Which is when the producing oil and gas properties are expected to cease operations. These provisions have been created based on the Group's internal estimates. Assumptions based on the current economic environment have been made, which management believes are a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works required that will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. This, in turn, will depend upon future oil and gas prices, which are inherently uncertain.

 

	Decommissioning	Other provisions	Total
At 1 January 2014	-	3,866	3,866
Arising during the year	195	-	195
Exchange rate movement	-	(27)	(27)
At 31 December 2014	195	3,839	4,034
Comprising:
Current 2014	-	-	-
Non-current 2014	195	3,839	4,034
Current 2013	-	-	-
Non-current 2013	-	3,866	3,866

 

Interest-bearing loans and borrowings

	Effective interest rate		2014	2013
	%	Maturity	US$'000	US$'000
Current
BNP Paribas facility	Libor + 6.0	31-Dec-14	-	1,239
			-	1,239
Non-current
Philex Petroleum facility	Libor + 4.5	24-Nov-16	15,500	15,200
BNP Paribas facility	Libor + 6.0	31-Dec-15	-	1,238
			15,500	16,438

 

 

US$2.4 million BNP Paribas facility

 

This loan was repaid during 2014. It was secured by a share mortgage consisting over 100% of the share capital of Forum Energy Philippines Corporation and security agreement for the rights and interests in Project Accounts, Hedging Agreements, Agreed Insurances, Offtake Agreement and intercompany loans.

 

US$15.5 million Philex Petroleum Corporation

 

This loan is unsecured and is repayable on 24 November 2016.

 

Total interest expense for the year on the interest-bearing loans and borrowings was US$852,000 (2013: US$802,000), of which none (2013: US$75,000) has been capitalised.

 

 

9 COMMITMENTS

 

At 31 December 2014, the group and company had commitments as follows:

 

- US$4.2 million in operational and exploration expenditure, for the second sub-phase programme over Service Contract 72 (SC72) (31 December 2013: US$4.2 million). This is subject to permission being granted by the Philippine Department of Energy.

 

- US$0.05 million for SC40 work programme

 

 

10 RELATED PARTY TRANSACTIONS

 

During the year the following related party transactions occurred within the group and company:

 

Philex Mining Corporation is the majority shareholder and ultimate controlling party of the group.

 

In 2010 Forum Philippines Holdings Ltd, a wholly-owned subsidiary of the company, entered into a US$10 million Facility Agreement ("the Facility") with Philex Mining Corporation on 24 November 2010. The facility was increased to US$15 million during 2012. The Facility was available for a three-year period from 24 November 2010 and funds were borrowed at an interest rate of US LIBOR + 4.5%. As at 31 December 2012 the full US$15 million was drawn down to enable the company to fund its 70% share of the work programme over SC72.

 

On 21 November 2013 the following amendments were made to the Facility:

 

·      increase the Facility to US$18 million;

·      extended repayment date to 24 November 2016; and

·      Philex Mining Corporation assigned the facility to Philex Petroleum Corporation, a major shareholder of the company and wholly-owned subsidiary of Philex Mining Corporation.

 

All other terms of the Facility agreement remain the same.

 

Under the amended Facility agreement an additional US$0.3 million was drawn down during 2014.

 

The following transaction in relation to the Facility occurred during the year:

	31 Dec 2014	31 Dec 2013
	US$'000	US$'000
	Unaudited	Audited
Loan amount due to:
Philex Mining Corporation	-	-
Philex Petroleum Corp.	15,500	15,200
Interest charge for use of facility payable to:
Philex Mining Corporation		649
Philex Petroleum Corporation	750	77
Interest due to:
Philex Mining Corporation	11	686
Philex Petroleum Corporation	789	77

 

Philex Petroleum Corporation is also the majority shareholder of Pitkin Petroleum Plc (Pitkin). Pitkin was the operator in 2014 of the following blocks which the Company have an interest in:

SC14C-2 West Linapacan - 2.27575% Company Interest
SC6A - Octon - 1.668% Company interest

Pitkin Petroleum Plc was solely responsible for the exploration costs of these blocks until the discovery of first commercial oil. On 1 January 2015 Pitkin withdrew from SC6A Octon, and is no longer responsible for its exploration costs, as a result of the withdrawal from this block Forum's share increased to 5.56%.

Forum Pacific Inc. is a 33.33% shareholder in Forum Exploration Inc. Other provisions comprise provisions under the share purchase agreement for Forum Exploration Inc. dated 11 March 2003, amounts of up to Philippine peso  171,650,193  (2013: Philippine peso  171,650,193) are due to Forum Pacific Inc. out of the group's share of future net revenues generated from licence SC40. The liability is in Philippine Pesos there are movements during the year due to changes in exchange rate as at 31 December 2014 - 44.7 Philippine peso/USD (2013: 44.4 Philippine peso/USD). The timing and extent of such payments is dependent upon future field production performance and cannot be accurately determined at this stage

 

11 CONTINGENT LIABILITIES

 

The company and group have no contingent liabilities.

 

 

12 SUBSEQUENT EVENTS

 

On 1 January 2015 Pitkin, a related party withdrew from block SC6A Octon, and is no longer responsible for its exploration costs, as a result of the withdrawal from this block Forum's share increased to 5.56%.

 

13 RETROSPECTIVE RESTATEMENT

 

The comparative period of consolidated statement of cash flows has been adjusted due to presentation errors in the consolidated statement of cash flow for the year ended 31 December 2013 to reflect the following:

 

1)     The amount of net hedging losses of $149,000 was not paid during 2013 and therefore the presentation in the operating and financing activities has been corrected to reflect the actual payments made ($70,000) which was previously included within interest paid.

 

In addition, the hedging losses of $70,000 were previously presented within interest charge and finance costs on loan facility. The losses have now been correctly included within Hedging losses and charges increasing the total charge for year to $219,000 after reclassification. The overall net impact on Finance expenses line in the Consolidated Statement of Comprehensive Income is $nil.

 

The corresponding lines in operating activities of the Consolidated Statement of Cash Flows (Interest charge on loan facility and Hedging (gains)/losses and charge) have now been updated to reflect the reclassification of the $70,000 hedging losses and charges payment made during 2013.

 

2)     The loss on sale of exploration equipment in the amount of $569,000 has been presented separately within the operating activities of the cash-flow to present it separately from the impairment charge in the prior year.

 

3)     The disposal proceeds from the sale of exploration equipment in the amount of $1,294,000 was previously presented net of the amounts paid for the purchase of exploration equipment for $1,863,000. The disposal proceeds have now been presented separately within investing activities of the cash-flow.

 

The effect of these adjustments on the consolidated statement of cash flows is set out below:

 

Effect on Consolidated Statement of Cash Flow				US$'000 Effect on 31 December 2013
Operating				(149)
Investing				-
Financing				149
Net increase in cash and cash equivalents				-

 

 

 - END -