2012 Full Year Results

Released : 14 Mar 2013

RNS Number : 9643Z
Salamander Energy PLC
14 March 2013
 



 

14 March 2013

 

Salamander Energy Plc

("Salamander", "the Group", or "the Company")

 

2012 Full Year Results

 

Salamander today announces its full year results for the year ended 31 December 2012. The highlights are:

 

Operations

 

·     Bualuang Bravo platform successfully installed on time and budget, cost saving initiative on schedule

·     16 well development drilling campaign on-going, current field production 11,500 bpd

·     Over 30 targets identified from 3D in G4/50, first 9 matured to drill ready status, with 3 high graded for H1 2013 drilling

·     North Kutei exploration campaign yields oil and gas discovery in first well, second prospect currently drilling

·     Strategic partner secured for Greater Kerendan area, field development on track

·     Average daily production of 10,800 boepd (2011: 18,600), down year on year following the sale of non-core assets in 2H 2011

 

Financial

 

·     Revenue of $368.0 million (2011: $408.0 million)

·     Profit before tax of $10.8 million (2011: $112.6 million)

·     Pre-tax operating cash flow of $255.7 million (2011: $296.0 million)

·     Post-tax operating cash flow per boe of $40.22/boe (2011: $28.56/boe )

·     $212 million rights issue completed to fund accelerated work programme

·     Completed $350 million debt refinancing, reflecting reserve upgrades during 2011

·     Year-end net debt of $194.6 million (2010: $210.1 million)

·     Year-end cash and fund balances of $208.8 million (2010: $85.8 million)

 

Outlook

 

·     2013 average Group daily production rate forecast to be 12,500-15,500 boepd

·     G4/50 exploration drilling planned for 2Q 2013, Atwood Mako on contract until 3Q 2014

·     Further North Kutei drilling - Bedug well to follow North Kendang

·     Kerendan exploration drilling to commence in 2Q 2013

·     Kerendan field on-stream mid-2014

·     New acreage award in Greater Kerendan anticipated 1H 2013

 

Chief Executive James Menzies commented:

"In 2012 the Group successfully prepared the technical and operational ground for 2013. We raised new debt and equity that has enabled us to accelerate our work programmes, signed long-term rig contracts, installed the Bualuang Bravo platform and matured the prospect inventory ahead of an extensive exploration drilling programme. In 2013, we are looking forward to production growth, rising cash flows and a multi well-exploration programme that offers shareholders exposure to multiple catalysts across the full E&P cycle."

There will be a live webcast of the analyst presentation from 10am this morning. Participants can register via. the Company's website at www.salamander-energy.com.  A recording of the webcast will be available from mid-afternoon on Thursday 14th March.

 

 

Enquiries:

Salamander Energy                                                                                         + 44 (0)20 7432 2680

James Menzies, Chief Executive Officer

Geoff Callow, Head of Corporate Affairs

 

Brunswick Group                                                                                             +44 (0)20 7404 5959

Patrick Handley

Elizabeth Adams

 

 

About Salamander

 

Salamander Energy is an independent upstream oil and gas exploration and production company listed on the main market of the London Stock Exchange (Ticker: SMDR) and is a constituent of the FTSE 250 index. The Group is focused on growth assets in and around three core areas: Greater Bualuang, Gulf of Thailand; North Kutei, Indonesia; and Greater Kerendan, Indonesia. In each of these areas the Group has a material, operated position and a detailed understanding of the petroleum systems of the basin.

 

 

CHAIRMAN AND CHIEF EXECUTIVE'S REPORT

Strategy

 

Salamander's balanced portfolio of assets offers investors a secure and growing production and development base, as well as exposure to material upside opportunities through exploration.

 

Our core asset portfolio is made up of three hub positions, each with discovered hydrocarbons, step out exploration potential, and new acreage opportunities within the same basin. This focused approach provides us with a greater technical understanding of the basins in which we are exploring, improved access to better quality rigs and support services, and fiscal incentives to invest.

 

We are pleased to note that Salamander has established a well-respected operating capability, having successfully developed oil and gas fields and managed production operations onshore and offshore across S.E. Asia. This gives us a clear advantage relative to other small to mid-sized independents when looking to develop new business in the region.

 

Business Environment

 

In 2012, the global macroeconomic agenda continued to be dominated by the fallout from the "credit crisis" and in particular, the instability of the Eurozone. However, while developed, western economies have struggled to return to growth, Asian economies largely continued on their established growth trajectory. The IMF is forecasting GDP growth of around 6% in 2013 in both Thailand and Indonesia, the Group's main countries of operation. This healthy level of domestic growth has fuelled increased demand for power, supporting gas prices in our end user markets. In Indonesia, gas prices have more than doubled over the past five years, with demand seen from power generation, petrochemicals as well as LNG - both for export and domestic use.

 

The oil price has remained relatively stable at over $100 per barrel for the majority of the last two years, which has shaped our long term investment decision making, such as the construction and installation of the Bualuang Bravo platform. As production from the Bualuang oil field increases through 2013, robust oil prices should deliver strong cash flow growth.

 

In summary, we are operating in areas that are experiencing strong economic growth, which is driving oil and gas demand higher. In Indonesia, we are also exposed to some of the most dynamic gas markets in the world, where there is established infrastructure and a shortage of supply. This is an excellent market backdrop against which to deliver on the Group's strategy.

 

Operational Summary

 

2012 was a year in which we placed operational emphasis on our three core areas of Greater Bualuang (offshore Gulf of Thailand), Greater Kerendan (onshore Kalimantan, Indonesia) and the North Kutei (offshore East Kalimantan, Indonesia). All three areas offer opportunities for material value appreciation and the Board agreed that it was appropriate to raise additional equity in order to fund an accelerated work programme, thereby providing shareholders with earlier exposure to the potential upside.

 

We successfully completed a $212 million rights issue in the first half of 2012 and were delighted to receive strong support from both new and existing shareholders. As a balanced exploration and production Company, we believe it is important to ensure that we fund the business appropriately and during the fourth quarter we completed a re-structuring of our debt. With the continued support of our core relationship banks we were able to secure financing which now provides the Group with an expanded facility with greater flexibility, at a lower cost of borrowing. In particular, we were pleased to secure debt financing for the Kerendan field development.

 

Development activity progressed during the year on the Bualuang and Kerendan fields and we undertook extensive geological and geophysical work on our exploration acreage surrounding the Bualuang field (offshore Thailand) and in the North Kutei Basin (offshore Indonesia). With adequate funding in place, the Group was in a position for the first time to commit to long-term drilling contracts. We secured the Atwood Mako jack up rig for development and exploration drilling offshore Thailand for a two year period and committed to a number of drilling slots with the Ocean General semi-submersible rig for exploration drilling offshore East Kalimantan.

 

It is important that we continue to invest in growing our production base and we were delighted that the Bualuang Bravo platform was completed, on schedule and on budget, and was successfully installed in the second half of 2012. We are in the middle of a 16 well development drilling programme that we anticipate will increase production in 2013 by at least 50% to 11,000 - 14,000 bopd. Work has started on construction of the power and processing modules that will be loaded onto the platform in 2014. These new modules will enable us to drive operating costs down by switching out the floating production, storage and offtake (FPSO) unit for a floating storage and offtake (FSO) vessel for which we have now signed a letter of intent. We also plan to reduce costs further through the use of our own crude, rather than third-party diesel, for power generation on the Bualuang platform.

 

Elsewhere in our portfolio, we continued to drive down costs associated with the Kambuna field operations and completed the successful appraisal of the Dong Mun gas field, onshore North East Thailand, for which a Commercial Area has been awarded by the Thai regulatory authorities.

 

Financial Summary

 

The stability of the oil price over the period was reflected in oil realisations of $103.95 per barrel, broadly in line with realisations in the previous year (2011: $104.45). Gas realisations, however, increased significantly to $7.17 per Mcf (2011: $5.47 per Mcf) reflecting the sale of our low priced gas assets in the second half of 2011. The focus on higher margin assets is reflected in the fact that, despite production falling by 42% year on year (due to portfolio rationalisation), revenue only fell by 10% to $368.0 million (2011: $408.0 million).

 

The Group reported a profit before tax of $10.8 million (2011: $112.6 million) following exploration expenses of $51.1 million (2011: $57.8 million) and impairment charges totalling $23.2 million (2011: nil).

 

Despite production 42% below 2011, pre-tax operating cash flow fell by only 14% to $255.6 million (2011: $296.0 million); this figure cushioned by a continuing trend of cash margin growth, unit  post-tax operating cash flow expanding by 40% to $40.22 per barrel (2011: $28.56).

At year end 2012 cash and funds balance was $208.8 ($85.8 million).

 

Governance and Board

 

Jim Coleman stepped down from the Board at the Group's AGM in June 2012. On behalf of the Board, we would like to thank Jim for his contribution over the last four years. We were delighted to appoint Dr Carol Bell to the Board as a non-executive director in January 2012. Carol has a long-standing involvement in the oil and gas industry and has already proven to be a valuable addition to the Board.

 

Outlook

 

2013 has got off to a good start, with drilling rigs operating in each of our three core areas and a forecast for a sharp rise in Group average daily production, from 10,800 boepd in 2012 to 12,500 - 15,500 boepd for the year. This is driven primarily by production growth from the Bualuang oil field, where we expect to see a rise from 7,200 bopd in 2012 to between 11,000 - 14,000 bopd in 2013. As a result of high-grading our portfolio, Bualuang production now represents not only our highest margin barrels, but also the greatest single contributor to Group production. As a result, we are in turn forecasting a substantial rise in Group cash flow in 2013.

 

We are continuing to manage our portfolio actively, as demonstrated by the recent swap out of non-core assets in the Tarakan basin, and introduction of a strategic partner to the Bangkanai PSC (in our core Greater Kerendan area). In addition, we anticipate the award of new acreage in the onshore Kalimantan area, that surrounds our Kerendan gas field, in the current Indonesian licencing round.

2013 is set to be a big year for the exploration drill bit as we plan to drill prospects in all three core areas. Encouraging drilling results are starting to come through from the North Kutei basin and we have plans to test large gas prospects onshore Kalimantan as well as oil prospects in the acreage surrounding our Bualuang oil field (offshore Thailand).

 

We would like to thank our employees for all their hard work in getting us to this position and we are looking forward to an exciting and successful year ahead for both staff and shareholders alike.

 

Charles Jamieson                                                                James Menzies

CHAIRMAN                                                                             CHIEF EXECUTIVE OFFICER

13 March 2013                                                                       13 March 2013

 

OPERATIONS REVIEW

Highlights

 

Operational activity in 2012 largely focused on our three core areas - Greater Bualuang (offshore Gulf of Thailand), Greater Kerendan (onshore Kalimantan, Indonesia) and the North Kutei (offshore Kalimantan, Indonesia). Rigs arrived on location in all of these areas during the second half of 2012 and have been active throughout the first part of 2013.

 

The main operational achievement during the year was the completion and installation of the Bualuang Bravo platform. Construction was completed both on time and on budget and over 1.3 million man hours were completed on the project without any lost time incidents. The Bravo platform was successfully installed in November 2012 and will allow the drilling of 16 new wells on the field to drain the reserves efficiently. It also provides space for crude fired power generation and oil processing modules to be installed as part of an initiative that will drive down operating costs and increase the cash margin on a produced barrel.

 

Outside of the Bualuang area, the DrillCo-1 land rig arrived on location at the Kerendan gas field in Central Kalimantan to begin development drilling. This will lead to production growth from 2014, further diversifying the Group's production basis.

 

In the North Kutei, the Group's high impact exploration drilling programme commenced in the fourth quarter of 2012. This campaign got off to an encouraging start and we announced in February 2013 that the South Kecapi-1 well was an oil and gas discovery which flowed 6,000 bopd on test. The North Kendang-1 well, is currently drilling, and on completion the rig will move to drill the Bedug prospect.

 

Production

 

Production for the year averaged 10,800 boepd and in 2013 the Group expects daily production to average between 12,500 and 15,500 boepd. Production in 2012 was down year on year following the decision to sell the Offshore Northwest Java and Southeast Sumatra PSC's in the second half of 2011 and to re-invest the capital into growing production from fields that produce higher value barrels

 

Production growth in 2013 will be driven by an anticipated increase of at least 50% in production at the Bualuang oil field, the field which has the highest cash margin per barrel metrics within the Group's portfolio.

 

Reserves and Resources

 

The Group entered 2012 with 75.3 MMboe of proved and probable ("2P") reserves. During the year production totalled 3.9 MMboe and there were downward reserves revisions totalling 1.4 MMboe against the Kambuna field. Set against this was an upgrade of 2.1 MMbo at the Bualuang field. These additional reserves are associated with the T2 and T5 reservoir horizons. As a result of these movements the Group's 2P reserves as at 31 December 2012 were 73.3 MMboe.

 

HSE

 

During the year, the man hours worked on operated projects across the Group fell to 2.2 million (2011: 3.5 million) reflecting the concentration of effort on the Group's three core areas. Following a review of HSE procedures and practice in late 2011, the Group achieved a period of nine consecutive months without any recordable incidents. However, three lost time incidents were recorded on operations in Kalimantan in the second half of the year. Whilst none of these incidents resulted in serious injury, the occurrence underlines the need for continued vigilance and improvement.

 

Thailand

 

The Group's operations in Thailand are focused on the Greater Bualuang area, offshore in the Gulf of Thailand. The Group also participates in a non-operated capacity onshore Thailand in the Khorat Plateau basin.

 

Greater Bualuang

 

The Greater Bualuang area consists of the B8/38 Production Licence which contains the Bualuang oil field and the G4/50 Exploration Concession that surrounds B8/38. The emphasis on B8/38 is very much on the development of the Bualuang field. In G4/50, the focus is on exploration and the technical teams were busy in 2012 maturing leads and prospects to drill ready status for exploration activity in 2013.

 

B8/38

 

Bualuang Field Development

Development drilling during the period was conducted initially using the Ensco-53 jack up rig, while later in the year the Atwood Mako jack up rig was secured on a long term contract. The rig arrived on location in September 2012, initially on a one year contract, which has subsequently been extended to September 2014. This removes the risk of slippage on our planned programme due to difficulties securing rigs in a tight market and provides us with the flexibility to drill development, exploration and appraisal wells at our own discretion.

 

The Atwood Mako started development drilling on the Bravo platform in November 2012 as soon as installation of the platform was complete. The first well started producing in December. Sixteen development wells are planned as part of the current phase of development drilling; eleven of these wells will be drilled into the main part of the Bualuang field and five wells will be drilled into the East Terrace. The wells drilled into the East Terrace will be the first production wells in that part of the field; this has been brought on stream less than two years after discovery. In addition to the development of the East Terrace, in the second quarter of 2013 a slant well is to be drilled into the T2 reservoir, underlying the main reservoir, which is known to be oil-bearing and has the potential to add further reserves to the field.

 

Production from the Bualuang field averaged 7,200 bopd in 2012 and is expected to average between 11,000 and 14,000 bopd in 2013, representing a minimum production increase of 50% year on year.

 

Facilities Investment

Funds raised as part of the rights issue will be used for investment in power modules and processing facilities to be installed on the Bravo platform, which will lead to substantial cost savings. Construction of these facilities was sanctioned in mid-2012, and they are progressing to schedule with delivery to the field expected in Q1 2014.

 

The power generators, being supplied by Caterpillar, have been designed to run using Bualuang crude as fuel. Burning a few hundred barrels a day of crude will power both the Alpha and Bravo platforms and all the electrical submersible pumps and will lead to substantial reductions in operating costs.

 

The processing facilities, under construction at the same Thai Nippon Steel fabrication yard in Thailand where the Bravo platform was built, will enable us to switch out the Rubicon Vantage FPSO - which is currently used to process and store Bualuang crude - for an FSO, that is only required to store and offload the crude. FSOs are considerably cheaper than FPSOs and this change will significantly reduce Bualuang operating costs. After an extensive tender process, a letter of intent has been signed for the Navion Clipper with Teekay Nordic Holdings Inc. with the Clipper scheduled to be delivered to the Bualuang field in mid-2014, detailed engineering studies for the vessel's refit are well advanced, with yard space reserved in China, and long-lead items on order.

 

Power generators and processing modules are scheduled to be installed on the Bravo platform in the first quarter of 2014. Then, in the second quarter, the FSO is scheduled to arrive and the FPSO will go off contract at the end of August. The savings realised are forecast to reduce field operating costs by approximately 25% per annum from mid-2014.

 

Exploration

During 2012, we also completed two exploration wells in B8/38, on the Far East and North West Terrace prospects. Whilst both wells found excellent quality reservoirs, the main targets were water bearing. Despite the disappointing results, the wells have provided useful data points in helping to refine the understanding of reservoir development, trapping mechanisms and the regional oil migration system. Salamander can directly apply the knowledge gained to refine our model ahead of exploratory drilling on G4/50 in 2013.

 

G4/50

 

The G4/50 licence covers 5,000 sq km and surrounds the B8/38 licence in the Gulf of Thailand. Having entered the licence in the second half of 2011, a comprehensive 3D seismic survey was completed in the first quarter of 2012. The new data has now been processed and integrated with the existing 3D seismic so that there is now more than 5,000 sq km of 3D data on and around the block. The data quality is extremely good and the extensive drilling on B8/38 provides an excellent calibration of the seismic to the geology. The four sub-basins identified in G4/50 have a very high density of structures of various styles and since mid-2012, work has been focused on maturing some 30 identified leads to drillable prospect status.

 

G4/50 represents an excellent exploration opportunity, with proven oil, direct analogue discoveries and fields. We have identified over 30 targets on the 3D data.  Nine prospects have been matured to drill ready status, with mean prospective resource estimates in the range 20 - 150 MMbo, and chances of success in the range 15 - 30%. The Group plans to drill at least six wells here in 2013.

 

Environmental Permits

To proceed with E&P activities requires the completion of an Environmental Impact Assessment ("EIA"). This must be prepared to meet detailed guidelines, and involves the participation of communities that may be affected by the activity. Once these steps are complete, the EIA application must then be submitted to the Office of Natural Resources Environmental Policies & Planning ("ONEP"), a part of the Ministry of Environment. The EIA must be approved by ONEP before any activity can start. Salamander is fully supportive of the EIA process and committed to ensure that all of its activities are conducted to minimise any adverse environmental impact. Salamander is putting extensive resources to work in preparing and submitting EIAs that meet the highest industry standards, and we continue to work with both the Department of Minerals & Fuels ("DMF") and ONEP to secure approvals as smoothly and efficiently as possible.

 

Salamander currently has EIAs approved for six exploration drilling locations in the north of G4/50 and is awaiting approval for the re-location of a further two EIAs in the central area of the block. In addition, the Company is now in the process of finalising the submission of EIAs to cover 18 drilling locations in the southern area of the license; the associated Public Participation meetings currently being completed. We expect to submit the applications during Q2 2013, and to receive approval in Q3 2013. With the Atwood Mako rig on a long term contract, we have the rig capacity and flexibility to commence drilling as soon as we choose, once we receive the EIA approvals.

 

Onshore Non-core

 

Production from the Sinphuhorm gas field was in line with expectation in 2012 averaging 1,500 boepd. During 2013, it is forecast to produce between 1,400 - 1,600 boepd (net to Salamander).

The Group also successfully appraised the Dong Mun discovery during 2012 with the Dong Mun 3ST well testing at 10 MMscfd on a long term test. The Dong Mun field has now been granted commercial field status by the Thai authorities and a plan of development has been submitted. Options for the marketing of Dong Mun gas are under consideration. In December 2012 the Group relinquished its interest in the L26/50 licence, onshore Thailand. In January 2013 it also relinquished its interest in the neighbouring L15/50 licence.

 

Indonesia

 

The Group's activities in Indonesia focused on the operated Greater Kerendan and North Kutei areas. There is further production from the operated Kambuna field, offshore North Sumatra, and development projects associated with the non-operated Bengara and Simenggaris licence areas. The Group also has non-operated interests in the Kutai and South Sokang PSCs.

 

Greater Kerendan

 

Activity on the Bangkanai PSC has increased during 2012 with the DrillCo-1 land rig completing a four month mobilisation to the Kerendan gas field in August. The rig immediately commenced the batch drilling of four development wells on the Kerendan field. These wells are expected to comfortably deliver the 20 MMscfd that is the daily contract quantity ("DCQ") in the Gas Sales Agreement with PLN (the gas off-taker), that has commercialised 122 Bcf of gas. The two wells flow tested to date produced at a combined rate of 20 MMscfd. Once all four wells are completed the Company will seek to start discussions with the Indonesian authorities to commercialise some of the additional gas resources in the field.

 

Gas from the Kerendan field will be used to fire a power plant to be constructed at the field location by PLN. PLN is expected to award the contract for construction of the power plant at the end of the first quarter of 2013, with first gas deliveries anticipated in July 2014. The power plant will have a total capacity of up to 320 Mega Watts and will be able to accept up to approximately 60 MMscfd before it reaches capacity, three times the volume currently contracted. There is no other potential supplier in the local vicinity of the plant.

 

The Kerendan field development is the anchor project for the Greater Kerendan region and the development drilling programme is improving our understanding of the sub-surface in the area. Using the knowledge gained, the exploration drilling programme will start during the second quarter of 2013 with the drilling of the West Kerendan and Sungai Lahei prospects. The drill-pad is at an advanced stage of preparation for the exploration drilling.

 

The West Kerendan and Sungai Lahei prospects contain a combined mean prospective resource of 900 Bcf. In the event of success, the Group will look to commercialise the discovered volume through construction of a pipeline from Greater Kerendan to the gas markets in East Kalimantan.

Beyond these two prospects, there are further prospects contained in the Bangkanai PSC, including the large Jupoi surface anticline. The Group also anticipates being awarded two new licences adjacent to the Bangkanai PSC providing further growth opportunities in the basin.

 

North Kutei

 

During 2012, preparations were completed for the North Kutei exploration drilling campaign. The Ocean General semi-submersible rig was contracted as part of a four company consortium and drilling started on the Bontang PSC in December 2012 with the South Kecapi-1 exploration well and has continued through the first quarter of 2013.

 

The South Kecapi-1 well encountered over 40 metres of net oil and gas pay in high quality stacked Pliocene channel sandstones. The shallower BT18-BT25 channels contained 29 metres of net gas pay in thick channel sandstones, although the volume encountered is not thought to be commercial on a stand-alone basis. In the deeper BT45 Pliocene channels, 11 metres of net oil pay was encountered and flowed light oil at a constrained rate of 6,000 bopd when tested. It is thought the well would have flowed at over 14,000 bopd on an unconstrained basis. The reserve potential of the BT45 is between 13 MMbbls and 133 MMbbls, the wide range reflecting the uncertainty in the extent of the channel sandstone reservoir.

 

The North Kendang-1 well was spudded in the Southeast Sangatta PSC in February 2013. It is located some 18km to the northeast of the South Kecapi well location.

 

On completion of the North Kendang well, the Ocean General will move back to the Bontang PSC to drill the Bedug prospect. Bedug is targeting oil and gas in multiple stacked Pliocene and Miocene channel sandstones. The targets include the BT45 horizon which was found to be oil bearing down-dip in the South Kecapi-1 well.

 

Also on the Bontang PSC the Group successfully appraised the Tutung structure, with the Tutung Alpha-3 well, and is currently working on a plan of development for this gas condensate field for submission to the Indonesian authorities.

 

Other Non-core

 

The Kambuna gas-condensate field (50%, operator), offshore North Sumatra averaged 15,500 MMscfd and 900 bcpd during 2012. The field will reach the end of its commercial life in 2013 and it is expected that the infrastructure will be handed over to Pertamina.

 

In the Kutai PSC, the operator is planning to drill the Tayum exploration well in the second quarter of 2013. In the South Sokang PSC acquisition of a 3D seismic survey will complete the committed work programme for the block and interpretation of the data will determine if drilling will follow.

 

Vietnam

 

Following unsuccessful exploration drilling in 2010 and 2011, the Group relinquished its Vietnamese licences during 2012 and has subsequently closed its operations in the country.

 

Summary

 

2012 saw the start of intensive drilling programmes on all three of the Company's core areas. The continuation of these programmes, along with exploration and development projects, will make 2013 by far the busiest operational year in the Group's history. The work programme is well balanced between development activity in Bualuang and Kerendan that will grow the core value of the assets and increase cash flow, and exploration activity in the Greater Bualuang, Greater Kerendan and North Kutei areas that seek to deliver material resources growth. Our focus is on safely delivering these work programmes on schedule and within budget.

 

Mike Buck

CHIEF OPERATING OFFICER

13 March 2013

 

Statement of Proved and Probable Reserves (Working Interest Basis)

The Group's proven and probable commercial working interest reserves at 31 December 2012 were as follows:

 


Thailand

Indonesia(2)

Total


Oil

Gas

Oil

Gas

Oil

Gas



MMbo

BCF

MMbo

BCF

MMbo

BCF

MMboe(1)

At 1 Jan'2012

34.6

101.2

1.9

120.7

36.5

221.9

75.3

Additions

-

-

0.1

6.8

0.1

6.8

1.3

Disposals

-

-

-

-

-

-

-

Revisions

2.1

(0.3)

(0.3)

(5.5)

1.8

(5.8)

0.6

Production

(2.6)

(3.2)

(0.2)

(2.8)

(2.8)

(6.0)

(3.9)

At 31 Dec'2012

34.1

97.7

1.5

119.2

35.6

216.9

73.3

1.        All gas reserves are converted at 6.0 Bcf/MMbo except Kambuna which is converted at 4.8 Bcf/MMbo and Kerendan which is converted at 5.5 Bcf/MMbo.

2.        Indonesia includes 2.4 MMboe in respect of Simenggaris which was held for sale on the Balance Sheet at 31 December 2012.

 

Proved and probable commercial reserves are based on reports produced by the Group's independent engineer, RPS Energy, and supplemented by the Group where necessary with additional and more recent information.

 

The Group provides for amortisation on its oil and gas properties on a net entitlements basis, which reflects the share of future production estimated to be attributable to the Group under the terms of the PSCs related to each field. Total proved and probable entitlement reserves were 61.9 MMboe at 31 December 2012 (31 December 2011: 66.0 MMboe).

 

The 2012 reserves replacement ratio was 49% (2011: 235%). On a three year rolling average, reserves replacement ratio was 148% (2011: 140%).

 

FINANCIAL REVIEW

KEY FINANCIAL INDICATORS

 

 

Units

2012

2011

2010

2009

INCOME STATEMENT:

 

 

 

 

 

Realised Prices:

 

 

 

 

 

    Oil and Liquids

$/bbl

103.95

104.45

73.16

51.37

    Gas

$/Mscf

7.17

5.47

5.12

4.03

Revenue

$'millions

368.0

408.0

323.4

157.1

Operating Costs per boe

$/boe

18.36

15.46

15.11

13.99

Profit/(Loss) Before Taxation

$'million

10.8

112.6

(113.7)

(3.0)

Taxation

$'million

73.2

158.1

55.8

10.6

BALANCE SHEET:

 

 

 

 

 

Capital Expenditures:

 

 

 

 

 

    Acquisitions

$'millions

5.6

7.5

116.7

7.1

    Exploration and Appraisal

$'millions

128.5

84.6

73.5

34.3

    Development and Production

$'millions

194.8

99.0

24.2

79.0

Net Disposal Proceeds

$'millions

-

45.7

-

-

Net Debt(1)

$'millions

194.6

210.1

190.2

119.3

Gearing(2)

%

43

42

39

23

CASH FLOW STATEMENT:

 

 

 

 

 

Cash Generated From Operations

$'millions

255.7

296.0

125.2

72.1

Taxation Payment

$'millions

97.2

102.1

18.7

18.6

Net Cash From Operations per boe

$/boe

40.22

28.56

14.38

12.41

1.        See note 11 to the Financial Statements for further details.

2.        Gearing is defined as debt divided by debt plus book net equity.

 

INTRODUCTION

 

Having crystallised production-based value through the sale of low-margin assets late in 2011, capital in 2012 was refocused to drive growth from higher margin oil barrels within the Greater Bualuang Area (Thailand), to develop strategically important gas reserves in the Greater Kerendan Area (Indonesia), and to explore for material oil and gas resource in North Kutei (Indonesia).

 

Although this repositioning lowered the Group's production and 2012 profits, it has delivered cash-margin growth. Unit post-tax operating cash flow increased to $40.22/boe, a 40% rise on 2011 ($28.56/boe). Looking beyond 2012, alongside a step-change in production, the Group expects to see a continuation of the trend of margin growth via. a combination of greater fiscal efficiency and reduced operating costs.

 

Ahead of a busy 2012/2013 programme of activity, Salamander strengthened its finances further through the successful completion of a $212 million rights issue (May 2012), and the refinancing of its debt (completed in December 2012, with syndication of the facility completed in March 2013). Through the refinance, the Group has improved the efficiency of its capital structure by more appropriately leveraging its portfolio of production and development assets. Having strengthened the balance sheet, the Group has been able to accelerate both its programme of exploration drilling and its planned investment across its core development and producing assets.

 

At end 2012, cash and funds totalled $208.8 million (2011: $85.8 million), with total net debt approximately flat on 2011 (2012: $194.6 million; 2011: $210.1 million).

 

STATEMENT OF COMPREHENSIVE INCOME

 

Revenue, Realisations and Production

 

Following Salamander's disposal in late 2011 of its operations in Offshore Northwest Java and Southeast Sumatra, along with the continued decline in production from the Kambuna field, 2012 production fell to 10,800 boepd (2011: 18,600 boepd). However, this strategic repositioning focused capital toward areas of significantly higher-margin production within Thailand; oil in 2012 accounted for 71% of Group output (2011: 63%), and gas sales became more heavily weighted toward Sinphuhorm, the highest margin gas production in the portfolio.

 

With crude prices flat year-on-year, and a continuing tight Brent-Dubai spread, 2012 oil realisations (post hedging) averaged $103.95/bbl (2011: $104.45/bbl). For gas, Group average realisations rose in 2012 to $7.17/Mscf (2011: $5.47/Mscf); with prices at Sinphuhorm, that are indexed to high sulphur fuel oil, rising to an average $9.10/Mscf across the year (2011: $8.93 Mscf).

 

This focus on more cash generative barrels meant that whilst production year on year was down by 42%, headline revenue fell by a more modest 10% (2012: $368.0 million, versus 2011 $408.0 million); this widening to 25% when adjusted for inventory movements (2012: $331.6 million, versus 2011: $442.6 million). By geography, 90% of 2012 Group revenue (adjusted for inventory movements) was generated in Thailand, the balance in Indonesia.

 

Cost of Sales

 

Cost of sales of $245.2 million in 2012 was up on 2011 ($205.5 million). Within this figure, direct operating costs fell to $74.8 million (2011: $104.9 million), although unit operating costs rose to $18.36/boe (2011: $15.46/boe). This rise in unit costs principally reflected the greater weighting of Bualuang production within the mix; the field's fixed operating cost base, and lower total production impacting unit metrics. However, with Bualuang output expected to grow by a minimum of 50% in 2013, unit costs are expected to fall considerably. Salamander is also well advanced with the construction of processing and power generation units the installation of which targets a further material reduction of operating costs from mid-2014.

 

Driven by the phasing of liftings, royalties rose year-on-year to $30.6 million (2011: $26.1 million). Amortisation of oil and gas properties declined to $96.7 million, but on a unit basis rose to $20.70/boe (2011: $109.0 million, and $16.10/boe respectively). With Kambuna approaching the end of its productive life, the Group decided to downgrade the field's recoverable reserves. As a result, 2012 cost of sales includes a $6.7 million Kambuna impairment, as well as $21.2 million resulting from an increase in unit amortisation charges.

 

Finally, a $34.6 million inventory of crude oil, held within Bualuang's tanks at end 2011, was sold in 2012 generating a corresponding $36.3 million negative inventory movement.

 

Netting revenue with cost of sales, gross profit in 2012 declined to $122.8 million (2011: $202.5 million).

 

Exploration Expenses

 

Exploration costs expensed through the income statement totalled $51.1 million (2011: $57.8 million); $28.9 million of which was reported in H1 2012. Of the full year figure, $6.7 million related to pre-licence expense (2011: $7.5 million), $1.6 million originated in Vietnam resulting from closure of its operations, and $1.3 million related to activities within Indonesia. The remainder, $41.5 million, was incurred within Thailand.

 

Of this Thai total, relinquishment of block L26/50 and L15/50 crystallised a $9.0 million charge; however, the economic benefit of these sunk costs will be preserved as an offset against future year's tax. The remaining balance of $32.4 million captures costs associated with the unsuccessful B8/38 Far East-1 and North West-1 wells, as well as a revision to exploration value that had been held on the balance sheet since the time of the acquisition of GFI Oil and Gas in 2008.

 

Disposal of Assets and Assets Held for Sale

 

Having disposed of the Group's Offshore Northwest Java and Southeast Sumatra positions in 2011 (Indonesia; a $6.8 million profit reported), Salamander did not make any further asset disposals in 2012.

 

However, during 2012, the Group agreed to swap its Simenggaris JOB and Bengara PSC (both assets in Indonesia) for a further 15% interest in the Bangkanai PSC, Indonesia. These assets are held for sale on the balance sheet at 31 December 2012 at a value of $18.0 million. The transaction was signed in March 2013 and is expected to complete in May 2013.

 

Since the year end the Group has signed a farm-out agreement with PT. Saka Energi Indonesia to farm out a 30% interest in the Bangkanai PSC.

 

Administrative Expense

 

Following implementation of a cost management review, administrative expenses for full year 2012 fell versus the prior period to $10.8 million (2011: $14.6 million).

 

Finance Revenue and Expense

 

During Q4 2012, Salamander refinanced its reserve based lending facility; improving the efficiency of the Group's capital structure by more fully accessing borrowing capacity associated with the significant organic reserve growth of its primary assets that had been delivered in the previous 12 months (net of disposals and production, at end 2011 1P reserves rising by 36%, 2P reserves rising by 14%).

 

As a consequence of this, finance costs in 2012 rose to $27.3 million (2011: $22.3 million) due largely to a one off write-off of unamortised arrangement fees relating to previous reserves based lending facilities (see note 4 to the Financial Statements). Stripping these fees out, Salamander's underlying finance costs totalled $18.1 million, this being approximately flat year-on-year (2011: $18.3 million). With a lower cost of borrowing accessed through the Group's refinanced reserves based lending facility, finance costs should fall in 2013.

 

Other financial losses of $6.3 million (2011: $2.1 million loss) principally reflect the mark-to-market accounting of the Group's commodity price hedging and currency exchange losses (see note 5 to the Financial Statements).

 

Year-to-year, Salamander undertakes a limited oil price hedging programme, the aim of which is to protect the cash flows that fund the Group's future capital expenditure programme. For 2012, the Group hedged 1,800 bpd at an average swap price of $103/bbl, and 1,800 bpd put options at a strike price of $70/bbl. For 2013, the Group has hedged 2,600 bpd at an average swap price of $103/bbl; and for 2014, 1,300 bpd at an average swap price of $99/bbl.

 

In 2012, Salamander reported a pre-tax profit of $10.8 million (2011: $112.6 million).

  

Taxation

 

Taxation charges, as reported on the income statement, fell to $73.1 million (2011: $158.1 million). Breaking this into its component parts, current taxation charges fell to $78.9 million (2011: $121.4 million); the Group's deferred taxation falling to a credit of $5.8 million (2011: charge of $36.7 million).

 

A reconciliation of the Group's tax charge to profit before tax is set out in note 6 to the Financial Statements. As in previous years, the income statement tax charge is distorted by a number of items that cannot be taken as allowances against tax. Principal amongst these in 2012 were: UK losses ($21.4 million, 2011: $15.1 million); Thailand special remuneratory benefit charges ($28.8 million, 2011: $37.5 million); and other items (net of $17.0 million, 2011: $52.6 million).

 

The year on year reduction in 'other items' reflects the implementation of greater tax efficiency in respect of Salamander's producing assets, and includes: the benefit arising from the restructuring of the Group's Thai portfolio; a reduced level of non-allowable exploration expenses; and the impact of accelerated depreciation. The Thailand special remuneratory benefit charge is deductible against income tax and therefore the impact of the charge is reduced by the effective tax rate.

 

With an on-going programme of significant investment within the Greater Bualuang area, the Group remains focused on its strategy to maximise fiscal efficiency across its Thai operations. As part of this programme, Salamander commenced a restructuring of its Thai assets in 2012, which will be completed in 2013.

 

Salamander's net loss for 2012 totalled $62.3 million; equivalent to a 32 cents loss per share (2011: net loss of $45.5 million; 29 cents loss per share).

 

BALANCE SHEET

 

Capital Expenditure

 

Reflecting an expansion in activity across all three of Salamander's core areas of operational focus, accrued capital expenditure in 2012 rose to $328.9 million (2011: $191.1 million). Production and development capital expenditure totalled $200.4 million, 68% of which was incurred within Thailand, with the balance almost exclusively in Indonesia. Exploration and appraisal expenditure totalled $128.6 million, which was split 37%:63% between Thailand and Indonesia respectively.

 

Within these figures, there is also a modest component of acquisition costs. Salamander acquired an additional 11% of the Bangkanai PSC (Greater Kerendan Area) in 2011 at a cost of $7.5 million. In 2012 the Group acquired a further 5% of the Bangkanai PSC at a cost of $5.6 million.

 

Exploration and appraisal, and production and development expenditures capitalised and carried forward on the Balance Sheet at 31 December 2012 totalled $897.5 million (2011: $749.6 million).

 

Cash and Net Debt

 

On 17 May 2012, Salamander completed a $212 million ($198.6 million post expenses) rights issue through the issue of 100.65 million new ordinary shares. The issue was priced at a 37% discount to the theoretical ex-rights price ("TERP"), and acceptances totalled approximately 98%. Proceeds from this equity issuance are being used to accelerate and expand activity both within the Greater Bualuang Area (Thailand) and North Kutei (Indonesia).

 

Subsequent to this, with the drilling on Bualuang and Kerendan moving as yet unleveraged reserves closer to cash flow, it was decided in H2 2012 to launch a refinancing of Salamander's existing $325 million ($250 million senior, $75 million junior) reserve based lending facilities.

 

On 20 December 2012, the Group announced the signature of two new borrowing facilities: a $300 million seven-year senior reserve based lending facility, secured against expected cash flow from Salamander's producing assets; and a $50 million two-year facility, which will be used to debt fund the development of the Kerendan gas field. Together, these facilities extend the maturity of the Group's financing, simplify Salamander's borrowing structure, and lower its cost of debt. As development of the Kerendan field proceeds, it is envisaged that the shorter-term borrowings will be folded into the new reserve based lending facility, which will then expand to $350 million.

 

With pre-commitments from BNP Paribas, Standard Chartered and the International Finance Corporation, the balance of the new facility was underwritten by BNP Paribas and Standard Chartered allowing Salamander to repay its previous facilities, and drawdown new funds before end 2012. Syndication of Salamander's new reserves based lending facility was successfully completed in March 2013.

 

At 31 December 2012, Salamander's total gross debt equalled $403.4 million (YE 2011 $295.8 million). Of this figure, bank borrowings totalled $303.4 million (YE 2011: $195.8 million); with the balance being a five-year $100 million convertible bond (issued March 2010). Against this position, cash and funds totalled $208.8 million; just $1.5 million of which lay in restricted bank deposits (2011: $85.8 million; with $25.4 million in restricted bank deposits).

 

Taken together, Salamander's end-2012 total net debt equalled $194.6 million (2011: $210.1 million), the Group's gearing was broadly unchanged at 43% (end 2011: 42%), and net assets expanded to $520.3 million (2011: $379.0 million).

 

CASH FLOW STATEMENT

 

Operating Cash Flow

 

Against a disposal-driven 42% decline in headline production, and broadly flat oil prices, a greater weighting of high-margin Bualuang barrels has cushioned the resulting fall in Group cash generation; 2012 pre-tax cash from operations totalling $213.0 million (2011: $293.6 million). This effect is best illustrated on a unit basis, where cash flow prior to working capital expanded in 2012 by 25% to $54.1/boe (2011: $43.3/boe).

 

Operating cash flow also benefited from a $42.7 million positive movement in working capital. Driven by changes to inventories, this lifted unit cash generation to $72.40/boe (2011: $43.60/boe). 2012 cash taxation totalled $97.2 million (2011: $102.1 million). This tax payment consisted of a $54.2 million payment relating to special remuneratory benefit (2011: $65.2 million) in Thailand, and $43.0 million relating to income tax (2011: $7.0 million).

 

Post tax and movements in working capital, operating cash flow for 2012 totalled $158.4 million, 18% below that reported in 2011 ($193.9 million). On a unit of production basis, post-tax operating cash flow expanded by 40% to $40.22/boe versus $28.56/boe in 2011.

 

With the majority of any single year's cash tax payment relating to Thai activity in the prior-year period, elevated levels of investment in 2012 will in turn shelter Salamander from cash taxation payments in 2013. Further guidance is given in the outlook section of this review.

  

Investing Cash Flow

 

Against guidance of $275 million, net cash used in investing activities rose year-on-year to $285.8 million (2011: $203.3 million). Within this figure, production and development activities totalled $174.0 million (2011: $108.2 million); the investment distributed between Thailand $117.7 million (2011: $51.8 million) and Indonesia $56.3 million (2011: $54.4 million).

 

Exploration and appraisal activities conducted in 2012 resulted in a $113.1 million outflow of cash (2011: $108.2 million). Exploration in Thailand totalled $41.3 million (2011: $38.8 million); this principally accounted for by activity on B8/38, where the unsuccessful Far East-1 and North West-1 exploration wells and the successful Dong Mun-3ST well were drilled. In Indonesia exploration cap-ex totalled $71.2 million (2011: $60.8 million). The key focus of this spend has been on the Bontang licence, where both the Tutung Alpha-3 appraisal well and South Kecapi-1 exploration well delivered success.

 

Financing Cash Flow

 

Net cash flows provided by financing activities expanded to $277.1 million (2011: $19.5 million outflow). Broken into its constituent parts, net proceeds from the Group's H1 2012 rights issue totalled $198.6 million, with new borrowing facilities delivering a further net $92.7 million inflow of funds.

 

Across 2012, Salamander's operations led to a $149.9 million inflow of cash, which compares to a $28.9 million cash outflow during 2011.

 

FINANCIAL OUTLOOK

 

With strong production growth expected in 2013, this will boost Group operating cash generation at a time that coincides with delivery of the fiscal benefits that result from Salamander's increased levels of investment within the Greater Bualuang Area. As a result, against a baseline of significantly expanded Group cash flow, cash taxation charges in 2013 are forecast to remain broadly flat on 2012.

 

New processing and power generation modules remain on track for installation on Bualuang Bravo during Q1 2014, and an FSO is under heads of agreement. Salamander is making solid progress toward its target to significantly reduce operating costs on the Bualuang field.

 

With the Group maintaining high rates of activity in all three focus areas, capital expenditure for 2013 is forecast to be between $325 million and $375 million. We anticipate that the total Group's capital expenditure for 2013 will be approximately evenly split between exploration and appraisal, and production and development. By country, Thailand will account for 55% of the total, and 85% of the Group's production and development spend. The balance of capital expenditure will be in Indonesia.

 

JONATHAN COPUS

Chief Financial Officer

13 March 2013

DIRECTORS' RESPONSIBILITY STATEMENT

The responsibility statement below has been prepared in connection with the Company's full annual report for the period ending 31 December 2012. Certain parts thereof are not included within this announcement.

 

We confirm that to the best of our knowledge:

 

·     the financial statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

·     the management report, which is incorporated into the Directors' report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 

This responsibility statement was approved by the board of directors on 13 March 2013 and signed on its behalf by:

 

James Menzies                                                                     Jonathan Copus

CHIEF EXECUTIVE OFFICER                                               CHIEF FINANCIAL OFFICER

 

INFORMATION ON Salamander Energy Plc Group

Consolidated Statement of comprehensive income

For the Year Ended 31 December 2012

 



2012

2011


Notes

$'000s

$'000s

CONTINUING OPERATIONS




Revenue


367,987

408,000

Cost of sales:




    Operating costs


(74,784)

(104,895)

    Royalty payable


(30,572)

(26,117)

    Amortisation of oil and gas properties


(96,723)

(109,034)

    Impairment of producing oil and gas properties

8

(6,682)

-

    Movement in inventories of oil


(36,403)

34,550

Total cost of sales


(245,164)

(205,496)

Gross profit


122,823

202,504

Exploration expenses:




    Pre-licence exploration expenses


(6,744)

(7,502)

    Exploration costs written off

7

(44,384)

(50,316)

Total exploration expenses


(51,128)

(57,818)

Profit on disposal of subsidiary undertakings


-  

6,807

Impairment of non-producing assets held for sale

9

(16,554)

-  

Administration expenses


(10,820)

(14,568)

Operating profit


44,321

136,925

Interest revenue


193

55

Finance costs

4

(27,352)

(22,247)

Other financial losses

5

(6,328)

(2,084)

Profit before tax


10,834

112,649

Taxation:




    Current tax

6

(78,910)

(121,425)

    Deferred tax

6

5,786

(36,686)

Total Taxation


(73,124)

(158,111)

Loss for the year (and total comprehensive loss) attributable to equity owners of the Company


(62,290)

(45,462)





Loss per ordinary share


$'s

$'s

Basic and diluted


(0.32)

(0.29)

 

Consolidated Balance Sheet

31 December 2012

 



2012

2011


Notes

$'000s

$'000s

ASSETS




Non-current assets




Intangible exploration and evaluation assets

7

298,256

226,825

Property, plant and equipment

8

599,184

522,770

Other receivables:




    Restricted bank deposits


1,363

    Other


47,206

23,889

Deferred tax asset

6

559

789

Total non-current assets


945,205

775,636





Current assets




Assets classified as held for sale

9

18,000

Inventories


37,508

60,067

Trade and other receivables


64,115

51,740

Restricted bank deposits


1,467

24,011

Cash and cash equivalents


207,342

60,376

Total current assets


328,432

196,194

Total assets


1,273,637

971,830





LIABILITIES




Non-current liabilities




Borrowings

10

280,823

171,351

Convertible bonds


93,691

90,887

Provisions


25,267

12,677

Deferred tax liability

6

149,965

155,981

Total non-current liabilities


549,746

430,896





Current liabilities




Liabilities associated with assets held for sale

9

1,884

-  

Trade and other payables


119,461

60,851

Borrowings due within one year

10

12,709

17,303

Current tax liability


65,529

83,807

Provisions


4,000

-  

Total current liabilities


203,583

161,961

Total liabilities


753,329

592,857

Net assets


520,308

378,973





EQUITY




Share capital


46,632

30,160

Share premium


563,703

381,565

Other reserves


271,719

266,704

Retained loss


(361,746)

(299,456)

Total equity, all attributable to owners of the Company


520,308

378,973

 

Approved by and authorised for issue, and signed on behalf of, the Board of Directors.

 

JONATHAN COPUS

Chief Financial Officer

13 March 2013

Company Number 5934263

Consolidated Statement of Changes in Equity

For the Year Ended 31 December 2012

 


Share
Capital

Share
Premium

Other

Reserves

Profit and
 Loss

Total


$'000s

$'000s

$'000s

$'000s

$'000s

At 1 January 2011

30,034

381,565

261,786

(253,994)

419,391

Ordinary shares issued

126

126

Share based payments

4,918

4,918

Comprehensive loss for the year

(45,462)

(45,462)

At 31 December 2011

30,160

381,565

266,704

(299,456)

378,973

Ordinary shares issued

16,472

182,138

198,610

Share based payments

5,015

5,015

Comprehensive loss for the year

(62,290)

(62,290)

At 31 December 2012

46,632

563,703

271,719

(361,746)

520,308

 

Other Reserves

 

Other reserves comprise:

 




2012

2011




$'000s

$'000s

Share based payment reserve



18,717

13,702

Convertible bond



11,271

11,271

Merger reserve



241,731

241,731

Total other reserves



271,719

266,704



Consolidated Cash Flow Statement

For the Year Ended 31 December 2012

 



2012

2011



$'000s

$'000s

CASH FLOW FROM OPERATING ACTIVITIES




Profit before tax


10,834

112,649

Adjustments for:




    Amortisation, depreciation and impairment of property plant and
    equipment


96,907

109,308

    Impairment of producing oil and gas properties


6,682

-  

    Exploration write offs


44,384

50,316

    Profit on disposal of subsidiary undertakings


-  

(6,807)

    Impairment of non-producing assets held for sale


16,554

-  

    Interest revenue


(193)

(55)

    Finance costs


27,352

22,247

    Other financial losses


6,328

2,084

    Share based payment


4,113

3,836


212,961

293,578

Decrease/(increase) in oil inventories


36,403

(34,551)

(Increase)/decrease in trade and other receivables


(10,425)

53,395

Increase/(decrease) in trade and other payables


16,679

(16,461)


255,618

295,961

Payment of tax


(97,188)

(102,052)

Net cash from operating activities


158,430

193,909

 

INVESTING ACTIVITIES




Expenditure on intangible assets


(113,125)

(123,318)

Purchase of property, plant and equipment


(173,982)

(108,211)

Proceeds from disposal of subsidiary undertakings


-  

45,673

Movement in other receivables (including restricted bank deposits)


1,235

(17,465)

Interest received


193

4

Net cash used in investing activities


(285,679)

(203,317)

 

FINANCING ACTIVITIES




Interest paid


(14,700)

(13,877)

Other financial receipts and payments


573

(2,762)

Cash flows in respect of long term borrowings:




   Repayment of borrowings facilities


(195,805)

(224,678)

   Drawdown of borrowings facilities


288,466

221,712

Cash flow in respect of shares issued:



126

    Gross proceeds


210,455

-  

    Fees


(11,845)

-  

Net cash from/(used in) financing activities


277,144

(19,479)





Net increase/(decrease) in cash and cash equivalents


149,895

(28,887)

Cash and cash equivalents at the beginning of the year


60,376

89,860

Effect of foreign exchange rate changes


(2,929)

(597)

Cash and cash equivalents at the end of the year


207,342

60,376



Notes to the Consolidated Financial INFORMATION

For the Year Ended 31 December 2012

 

1. Basis of Preparation

 

The consolidated financial information for Salamander Energy plc and its subsidiaries (the "Company") set out in this preliminary announcement has been derived from the audited consolidated financial statements of the Company for the period ended 31 December 2012 (the "financial statements").

 

This preliminary announcement does not constitute the full financial statements prepared in accordance with International Financial Reporting Standards ("IFRSs"). The financial statements were approved by the Board of directors on 13 March 2013. Statutory accounts for 2011 have been delivered to the Registrar of Companies and those for 2012 will be delivered in due course.

 

The report of the auditors on the 2012 Financial Statements was unqualified, did not draw attention to any matters by way of emphasis without qualifying their report, and did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006 or equivalent preceding legislation.

 

When published, the annual report will be available from www.salamander-energy.com.

 

2. Going Concern

 

The Group has significant expenditure commitments on its exploration and development portfolio within the next twelve months. The Group meets these investment requirements through a $350 million senior reserves based lending facility (see note 10), a $50 million bridge facility (see note 10) and a $100 million convertible bond.

 

In order to ensure it remains within the terms of these loan facilities, the Group regularly produces cash flow statements and forecasts and sensitivities are run for different scenarios including, but not limited to, changes in commodity prices, different production rates from the Group's producing assets and delays to development projects. The commodity (primarily oil price) risk also affects the availability under the reserves based lending facility, but is partly managed by a 2013 hedging programme. To optimise the development of the portfolio, or in the event there are unexpected adverse changes to the Group's cash flows, the Directors are confident that the Group could manage its financial affairs, including the securing of additional capacity under its reserves based lending facility, portfolio management, share placings and deferring of non-essential capital expenditure, so as to ensure that sufficient funding remains available for the next twelve months.

 

Accordingly, notwithstanding the above uncertainties, the Directors believe that the Group's forecasts and projections, taking account of reasonably possible changes in economic assumptions, show that the Group will be able to meet all its contractual commitments and to operate within the level of its current lending facilities for the foreseeable future, being twelve months from the date of this report.

 

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Financial Information and accounts.

   

3. Segmental Analysis

 

The Group's reportable and geographical segments are Thailand, Indonesia and Other. For 2012, the Group has consolidated the previously reported, but immaterial, segments of Philippines, Lao PDR and Vietnam into Other. In addition, Other activities include the corporate centre in the UK.

 

Information regarding the Group's operating segments is reported below.

 

Segment Revenues and Results

 

The following is an analysis of the Group's revenue, results and assets by reportable segment (as reviewed by management):

 


2012


Thailand

Indonesia

Other

Total


$'000s

$'000s

$'000s

$'000s

Revenue (external)

342,581

30,808

(5,402)

367,987

Operating profit/(Loss)

113,072

(46,993)

(21,758)

44,321

Interest revenue

-

-

193

193

Finance cost

-

-

(27,352)

(27,352)

Other financial losses

-

-

(6,328)

(6,328)

Profit before tax

113,072

(46,993)

(55,245)

10,834

Tax



(73,124)

(73,124)

Loss for the year

113,072

(46,993)

(128,369)

(62,290)






Non-current assets

570,704

369,763

4,738

945,205

Total assets

655,711

436,590

181,336

1,273,637

Additions to non-current assets

183,151

140,619

3,697

327,467

Depreciation and amortisation

55,480

41,243

-  

96,723

Impairment of producing oil and gas properties

-  

6,682

-  

6,682

Exploration costs written off

41,516

1,344

1,524

44,384

Impairment of non-producing assets held for sale

-  

16,554

-  

16,554

 


2011


Thailand

Indonesia

Other

Total


$'000s

$'000s

$'000s

$'000s

Revenue (external)

291,438

116,212

350

408,000

Operating profit/(loss)

152,996

14,630

(30,701)

136,925

Interest revenue

-  

-  

55

55

Finance cost

-  

-  

(22,247)

(22,247)

Other financial losses

-  

-  

(2,084)

(2,084)

Profit before tax

152,996

14,630

(54,977)

112,649

Tax

-  

-  

(158,111)

(158,111)

Loss for the year

152,996

14,630

(213,088)

(45,462)






Non-current assets

458,969

286,851

29,816

775,636

Total assets

529,440

324,264

118,126

971,830

Additions to non-current assets

95,924

71,634

36,355

203,913

Depreciation and amortisation

54,518

54,598

192

109,308

Impairment of oil and gas properties

-  

-  

-  

-   

Exploration write off cost and impairment of intangibles

21,834

12,306

16,176

50,316   

The accounting policies used for the reportable segments are the same as the Group's accounting policies.

 

For the purposes of monitoring segment performance and allocating resources between segments, the Group's Chief Operating Officer monitors the tangible, intangible and financial assets attributable to each segment. All assets are allocated to reportable segments with the exception of the segments financial assets (except for trade and other receivables) and tax assets.

 

4. Finance Costs

 


2012

2011


$'000s

$'000s

Long term borrowings:



Amortisation of capitalised arrangement fees



    Fees attributable to repaid borrowings

12,721

5,986

    Fees attributable to outstanding borrowings

-  

1,878

Interest expense

15,169

13,527

Unwinding of discount



    Convertible bonds

2,317

2,317

    Provision for decommissioning

474

348

Less interest capitalised

(3,329)

(1,809)

Total finance costs

27,352

22,247

 

Interest capitalised during the year arose on the general borrowings pool and is calculated by applying a capitalisation rate of 4.3% (2011: 4.7%) to expenditure on such assets.

 

The amortisation of capitalised arrangement fees attributable to repaid borrowings of $12,721,000 for 2012 is the write off of unamortised fees in respect of the reserves based lending facility of May 2011 which was fully repaid on drawdown of the reserves based lending facility of December 2012. The 2011 figure includes $5,986,000 relating to the write off of equivalent fees on the reserves based lending facility which was replaced by the May 2011 facility.

 

5. Other Financial Gains and (Losses)

 


2012

2011


$'000s

$'000s

Loss relating to oil derivatives

(3,982)

(2,435)

Profit relating to interest rate swap derivatives

395

1,032

Profit/(loss) on investments

188

(84)

Currency exchange loss

(2,929)

(597)

Total other financial (losses)

(6,328)

(2,084)

 

No other gains and losses have been recognised in respect of loans and receivables, other than those recognised in interest receivable. No gains or losses have been recognised on financial liabilities measured at amortised cost other than as disclosed in finance costs (note 4).

  

6. Taxation

 

Taxation charge comprises:

 


2012

2011


$'000s

$'000s

Current taxation



Special remuneratory benefit

26,096

58,295

Income tax

52,814

63,130

Total current tax

78,910

121,425




Deferred taxation



Special remuneratory benefit

31,600

13,860

Income tax

(37,386)

22,826

Total deferred tax

(5,786)

36,686




Total tax charge

73,124

158,111

 

Special remuneratory benefit is a tax that arises on one of the Group's assets, Bualuang in Thailand at rates that varies from zero to 75% of annual petroleum profit depending on the level of annual revenue per cumulative meter drilled. The current rate for special remuneratory benefit for 2012 was 47% (2011: 46%). Petroleum profit for the purpose of special remuneratory benefit is calculated as revenue less a number of deductions including operating costs, royalty, capital expenditures, special reduction (an uplift of certain capital expenditures) and losses brought forward.

 

Reconciliation of special remuneratory benefit charge to profit before taxation

 

The taxation charge for special remuneratory benefit for the year can be reconciled to the profit before tax per the Statement of Comprehensive Income as follows:

 


 2012

 2011


 $'000s

 $'000s

Profit before taxation

10,834

112,649

Less (profits) and losses before taxation for activities outside of Thailand

102,238

39,836

Profit before taxation for activities in Thailand

113,072

152,485

Applicable rate of special remuneratory benefit

47%

46%

Tax at the applicable rate of special remuneratory benefit

53,144

70,143

    Thai (profits) and losses not subject to special remuneratory benefit

(6,486)

6,357

    Special reduction

(6,575)

(1,646)

    Change in special remuneratory benefit average deferred tax rate(1)

20,463

6,045

    Other

(2,850)

(8,745)

Total special remuneratory benefit charge

57,696

72,154

Income tax impact (after deduction at the applicable rate of income tax)

28,848

37,520

1.        Special remuneratory benefit average deferred tax rate for 2012 was 20% (2011: 15%). This differs from the actual rate for 2012 of 47% as it takes into consideration the rate expected to apply when the related temporary differences reverse.

 

The applicable rate for special remuneratory benefit is the rate applied for the year.

 

There were no unrelieved losses in respect of special remuneratory benefit for year ended 31 December 2012 (2011: nil).

 

Special remuneratory benefit is fully deductible for corporate tax purposes in Thailand and accordingly the figure of $28,848,000 (2011: $37,520,000) in the income tax effective rate reconciliation below represents the incremental impact of special remuneratory benefit, current and deferred, on the overall tax charge, after taking account of the tax relief thereon.

 

Reconciliation of total tax charge to profit before taxation

 

The tax charge for the year can be reconciled to the profit before tax per the Statement of Comprehensive Income as follows:

 


2012

2011(1)


$'000s

$'000s

Profit before taxation

10,834

112,649

Applicable rate

50%

48%

Tax at the applicable rate of tax

5,418

54,072

Tax effect of:



    UK losses not recognised

21,365

15,046

    Foreign losses not recognised

-  

963

    Brought forward losses previously written off

(18,000)

-  

    Special remuneratory benefit

28,848

37,520

    Items which are not deductible for tax:



        Exploration expenses

9,211

27,637

        Other

26,558

24,904

    Different foreign tax rates

(276)

(2,031)

Total tax charge

73,124

158,111

1.        Numbers have been restated from the 2011 Financial Statements to illustrate more clearly the full taxation impact of special remuneratory benefit on the total tax charge. There has been no net impact to the 2011 tax charge compared to that previously stated.

 

The Group's operations are conducted primarily outside the United Kingdom. Accordingly the applicable tax rate used above is the average statutory rate of tax (excluding special remuneratory benefit), weighted in proportion to accounting profits, applicable across the Group.

 

Deferred tax

 

Net deferred tax liabilities were:

 


Accelerated Tax Amortisation


2012

2011


$'000s

$'000s

At 1 January

155,192

118,506

Debited/(credited) to Statement of Comprehensive Income:



    Income tax

(37,386)

22,826

    Special remuneratory benefit

31,600

13,860

At 31 December

149,406

155,192

  

 

Deferred tax assets and liabilities included in the Balance Sheet were as follows:

 


Special Remuneratory Benefit

Income Tax

Total


2012

2011

2012

2011

2012

2011


$'000s

$'000s

$'000s

$'000s

$'000s

$'000s

Deferred tax assets

-  

-  

(559)

(789)

(559)

(789)

Deferred tax liabilities

76,120

44,520

73,845

111,461

149,965

155,981

Net deferred tax liabilities

76,120

44,520

73,286

110,672

149,406

155,192

 

At 31 December 2012, the Group had unused tax losses of $149,881,000 (2011: $134,500,000) available for offset against future profits. The Group has not recognised a potential deferred tax asset of $34,473,000 (2011: $33,600,000) relating to these losses, as there is insufficient evidence of future taxable profits in the relevant jurisdictions.

 

There are no significant unrecognised temporary differences associated with undistributed profits of subsidiaries and joint ventures.

 

The net deferred tax liability of $149,406,000 (2011: $155,192,000) materially arose as a result of accelerated tax depreciation.

 

7. Intangible Exploration and Evaluation Assets

 


2012

2011


$'000s

$'000s

Exploration and evaluation



At 1 January

226,825

239,278

Additions

128,543

84,617

Transfers to property, plant and equipment

-  

(46,754)

Transfers to assets held for sale

(3,400)

-  

Impairment of assets held for sale

(9,328)

-  

Costs written off

(44,384)

(50,316)

At 31 December

298,256

226,825

 

The amounts shown above for intangible exploration and evaluation assets represent the Group's current exploration projects. The transfer to and impairment of assets held for sale reflects the Group's plan to dispose of its Bengara, Indonesia asset in early 2013 (see note 9). Included within the total amount are assets held in Indonesia of $242,503,000 (2011: $177,616,000) and Thailand of $54,621,000 (2011: $45,873,000).

  

8. Property, Plant and Equipment

 


Oil and Gas Properties

Other Fixed Assets

Total Net Book Value


Cost

Amortisation

Total

Cost

Depreciation

Total


$'000s

$'000s

$'000s

$'000s

$'000s

$'000s

$'000s

1 January 2011

870,018

(353,954)

516,064

2,971

(2,030)

941

517,005

Additions for the period

106,502

-  

106,502

683

-  

683

107,185

Disposals for the period

(38,866)

-  

(38,866)

-  

-  

-  

(38,866)

Transfers from intangible assets

46,754

-  

46,754

-  

-  

-  

46,754

Amortisation and depreciation

-  

(109,166)

(109,166)

-  

(142)

(142)

(109,308)

31 December 2011

984,408

(463,120)

521,288

3,654

(2,172)

1,482

522,770

Additions for the period

200,360

-  

200,360

1,469

-  

1,469

201,829

Transfers to assets held for sale

(14,600)

-  

(14,600)

-  

-  

-  

(14,600)

Impairment of assets held as property, plant and equipment

(6,682)

-  

(6,682)

-  

-  

-  

(6,682)

Impairment of assets held for sale

(7,226)

-  

(7,226)

-  

-  

-  

(7,226)

Amortisation and depreciation

-  

(96,723)

(96,723)

-  

(184)

(184)

(96,907)

31 December 2012

1,156,260

(559,843)

596,417

5,123

(2,356)

2,767

599,184

 

Additions to oil and gas properties includes capitalised interest of $3,329,000 (2011: $1,809,000) charged at an average rate of 4.3% (2011: 4.7%). The transfer to and impairment of assets held for sale reflects the Group's plan to dispose of its Simenggaris, Indonesia asset in early 2013 (see note 9). Included in the net book amount at 31 December 2012 in oil and gas properties are assets amounting to $588,389,000 (2011: $464,117,000) pledged against the Group's lending facilities.

 

The impairment of $6,682,000 shown above relates to the Kambuna field in Indonesia and was calculated based on the respective assets' value in use, using management's best estimate of future commodity prices, the latest estimate of commercial reserves and a pre-tax discount rate of 12.5%. The impairment for Simenggaris was determined based on the expected sales proceeds for the asset.

 

9. Assets Held for Sale

 

The major classes of assets classified as held for sale are as follows:

 


2011

2012


$'000s

$'000s

Intangible exploration and evaluation assets

3,400

-  

Property, plant and equipment

14,600

-  

Liabilities associated with assets held for sale

(1,884)

-  

Net assets held for sale

16,116

-  

 

Intangible exploration and evaluation assets relate to the Group's asset, the Bengara-1 PSC (41%), Indonesia. Property, plant and equipment assets relate to the Group's asset, Simenggaris JOB (21%), Indonesia. They have been classified as held for sale as the Group agreed in principle in December 2012 to exchange its interest in the assets for an additional 15% interest in the Bangkanai PSC.

 

An impairment charge of $16,554,000 has been charged to the income statement reflecting the difference between the asset carrying value and the fair value of the additional 15% interest in the Bangkanai PSC (see note 12).

  

10. Borrowings

 


2012

2011


$'000s

$'000s

Principal repayable on maturity

303,368

195,805

Less deferred fees

(9,836)

(7,151)

Total unamortised borrowings

293,532

188,654

Less amounts due within one year

(12,709)

(17,303)

Total long term borrowings

280,823

171,351

 

In December 2012, the Group completed the refinancing of its existing borrowings, replacing its combined $325 million senior/junior reserves based lending facilities with a $350 million senior reserves based lending facility and a $50 million bridge facility. The new facilities have been arranged for tenures of seven years and two years respectively.

 

The reserves based lending facility is secured against certain of the Group's Thailand and Indonesia development and producing assets. There has been no breach of terms on the borrowing facility. The key terms of the facility are:

 

·    Initial facility amount of $350 million.

·    Financial covenants relating to the ratio of the loan balance outstanding to the net present value of cash flows of the secured assets and relating to the ratio of the loan balance outstanding to the net present value of cash flows during the life of the loan of the secured assets.

·    Financial covenants relating to the maximum amount of borrowings of the Group.

·    The Group may draw an amount up to the lower of the facility amount or the borrowing base amount as determined by the forecast cash flows arising from the borrowing base assets.

·    Interest accrues at a rate of between 3.70% and 4.20% plus LIBOR depending on the maturity of the assets. The borrowing base amount is re-determined on a bi-annual basis, with the Group further having the option to undertake two mid-period redeterminations in each year should it elect to do so.

·    No early repayment penalties.

·    Change of control provisions.

 

The bridge facility is secured against the Group's Bangkanai PSC, Indonesia and other assets of assets of the Group. The key terms of the facility are:

 

·     Initial facility amount of $50 million.

·     Financial covenants relating to working capital and the maximum amount of borrowings of the Group.

·     Interest accrues at a rate of between 6.00% and 6.50% plus LIBOR depending on the borrowing period.

·     No early repayment penalties.

·     Change of control provisions.

 

At 31 December 2012, the Group had drawn fully against the amounts that were available under the reserves based lending facility and bridge facility (2011: fully drawn as the facility available).

  

11. Net Debt

 


2012

2011


$'000s

$'000s

Amounts Due on Maturity:



Borrowings

303,368

195,805

Convertible bonds

100,000

100,000

Total gross debt

403,368

295,805

Less restricted bank deposits

(1,467)

(25,374)

Less cash and cash equivalents

(207,342)

(60,376)

Total net debt

194,559

210,055

 

At the balance sheet date, the principal repayable on maturity (excluding the convertible bonds) is calculated to be repayable as follows:

 


2012

2011


$'000s

$'000s

On demand or due within one year

 12,709

17,303

In the second year

 101,448

41,937

In the third to fifth year inclusive

 132,128

105,301

After five years

57,083

31,264

Total principal payable on maturity

303,368

195,805

 

Total gross debt at the balance sheet date includes a five year convertible bond completed May 2010 a seven year reserves based lending facility completed in December 2012 (see note 10) and a two year bridge facility completed in December 2012 (see note 10).

 

12. Post Balance Sheet Events

 

On 4 February 2013 the Group announced that the South Kecapi-1 DIR/ST exploration well in the Bontang PSC, Indonesia had been completed as an oil and gas discovery. South Kecapi is the first well in Salamander's multi-well programme in the Indonesia North Kutei basin.

 

On 11 March 2013 the Group announced the transaction with PT Medco Energi Internasional that will see Salamander swap its 21% participating interest in the Simenggaris PSC and 41.7% participating interest in the Bengara-1 PSC for Medco's 15% participating interest in the Bangkanai PSC.

 

On 11 March 2013 the Group announced that it has reached agreement to farm-out a 30% interest in the Bangkanai PSC, Indonesia to PT. Saka Energi Indonesia. On completion of the transaction, and the Medco swap outlined above, the Group will have a 70% operated interest in the Bangkanai PSC, which contains the Kerendan field development and surrounding exploration. The key terms of the agreement are: $27 million cash; a carry on development costs for the Kerendan field of up to $30 million; a 2:1 promote on the drilling of the West Kerendan exploration well; and 1.25:1 promote on the drilling of the subsequent exploration or appraisal well.

 

DISCLAIMER

This announcement (in particular the Chairman's Statement and the Chief Executive Officer's Report) has been prepared solely to provide additional information to shareholders to assess the Company's strategies and overall performance. Certain statements in this announcement constitute or may constitute forward-looking statements. Any statement in this announcement that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is or may be a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected or implied in any forward-looking statement. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in this announcement. As a result, whilst they are made in good faith based on information available up to the time of their approval of this announcement, you are cautioned not to place any reliance on such forward-looking statements. The forward-looking statements reflect knowledge and information available at the date of this announcement and the Company undertakes no obligation to update its view of such risks and uncertainties or to update the forward-looking statements contained herein. Nothing in this announcement should be construed as a profit forecast.

 


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