About

Petroceltic International PLC is a publicly quoted oil and gas exploration and production company headquartered in Dublin with offices in Algiers, Cairo, Edinburgh, London, Rome and Varna. Petroceltic’s shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange and the Enterprise Securities Market (ESM) of the Irish Stock Exchange. Petroceltic is an equal opportunities employer.

2014 Highlights

  • 2014 production of 22.5 mboepd
  • Significant progress on the Ain Tsila project in Algeria; front end engineering and design and gas sales contracts awarded
  • Algerian farm-out to Sonatrach concluded, costs carried to Q2 2016
  • Egyptian receivable decreased by 38% in the year to $50 million (2013: $81 million)
  • Year-end net debt significantly reduced to $153 million (2013: $246 million)
  • Share placing raised gross funds of $100 million
  • Capital expenditure of $109 million

Key Performance Indicators

The Board assesses the Company’s performance through the measurement of specific KPIs

  • Production was in line with guidance for the year 2014
  • Reserves decreased during 2014 primarily due to the farm-out to Sonatrach who acquired Algerian reserves of 97.3 MMboe
  • The number of lost time injuries (LTI) reduced significantly in 2014

Operational Performance Indicators

Production - working interest (boepd)

2014
22,457
2013
25,171

Production - net entitlement (boepd)

2014
11,876
2013
13,870

Proved plus probable reserves - working interest (Mboe)

2014
245,125
2013
360,693

Lost time injuries

2014
2
2013
6

Financial Performance Indicators

Revenue ($ m)

2014
157
2013
197

EBITDAX ($ m)

2014
102
2013
145

Group net indebtedness ($ m)

2014
153
2013
246

Net indebtedness/EBITDAX

2014
1.5
2013
1.7

Interest cover

2014
5.5x
2013
6.6x

Operating costs ($ per boe - working basis)

2014
3.1
2013
2.3

Investment Activity

Capital expenditure

2014
109
2013
161

Exploration

2014
70%
2013
34%

Development

2014
30%
2013
66%

About

Petroceltic International PLC is a publicly quoted oil and gas exploration and production company headquartered in Dublin with offices in Algiers, Cairo, Edinburgh, London, Rome and Varna. Petroceltic’s shares are listed on the Alternative Investment Market (AIM) of the London Stock Exchange and the Enterprise Securities Market (ESM) of the Irish Stock Exchange. Petroceltic is an equal opportunities employer.

2014 Highlights

  • 2014 production of 22.5 mboepd
  • Significant progress on the Ain Tsila project in Algeria; front end engineering and design and gas sales contracts awarded
  • Algerian farm-out to Sonatrach concluded, costs carried to Q2 2016
  • Egyptian receivable decreased by 38% in the year to $50 million (2013: $81 million)
  • Year-end net debt significantly reduced to $153 million (2013: $246 million)
  • Share placing raised gross funds of $100 million
  • Capital expenditure of $109 million

Chairman’s
Statement

I am pleased with Petroceltic’s production and development business which performed well in 2014. Production was in line with guidance and a series of contract awards in respect of the Ain Tsila development asset in Algeria confirm the encouraging progress of this project. During 2015, we are focussing strongly on delivering value from our core producing assets and de-emphasising certain exploration initiatives, while maintaining exposure to long term growth.

Robert Adair
Chairman

Chief Executive’s
Review

Petroceltic had a busy year in 2014, with material activity both in our operations and strategic direction of the business. The Group’s flagship project in Algeria was a key area of focus and success, with important posts filled, major contracts advanced, a second farmout successfully concluded and the Groupement, or joint operations team, functioning effectively. We also achieved our production guidance, successfully raised $100m through an oversubscribed share placing and renewed our Egyptian business through the acquisition of highly prospective new acreage. Less positively, however, we had a number of disappointments within our exploration portfolio, while the withdrawal of a proposal to acquire Petroceltic by Dragon Oil deprived shareholders the chance to consider a potential cash bid.

Brian O’Cathain
Chief Executive

Financial
Review

The Group’s financial results for 2014 reflect what has been a challenging period for the oil and gas sector with the significant decline in the oil prices and the resultant impact on both direct revenue and also the balance sheet values of assets. Given the nature of Petroceltic’s production portfolio which generates the majority of its revenue from gas production, the Group’s 2014 revenue has not been materially affected by the reduction in commodity prices. However, the current low price environment does impact on the asset value of the Group’s oil and gas assets, which has contributed to the significant impairment charges reflected in the 2014 results.

Tom Hickey
Chief Financial Officer

Chairman’s
Statement

I am pleased with Petroceltic’s production and development business which performed well in 2014. Production was in line with guidance and a series of contract awards in respect of the Ain Tsila development asset in Algeria confirm the encouraging progress of this project. During 2015, we are focussing strongly on delivering value from our core producing assets and de-emphasising certain exploration initiatives, while maintaining exposure to long term growth.

Robert Adair
Chairman

Chief Executive’s
Review

Petroceltic had a busy year in 2014, with material activity both in our operations and strategic direction of the business. The Group’s flagship project in Algeria was a key area of focus and success, with important posts filled, major contracts advanced, a second farmout successfully concluded and the Groupement, or joint operations team, functioning effectively. We also achieved our production guidance, successfully raised $100m through an oversubscribed share placing and renewed our Egyptian business through the acquisition of highly prospective new acreage. Less positively, however, we had a number of disappointments within our exploration portfolio, while the withdrawal of a proposal to acquire Petroceltic by Dragon Oil deprived shareholders the chance to consider a potential cash bid.

Brian O’Cathain
Chief Executive

Financial
Review

The Group’s financial results for 2014 reflect what has been a challenging period for the oil and gas sector with the significant decline in the oil prices and the resultant impact on both direct revenue and also the balance sheet values of assets. Given the nature of Petroceltic’s production portfolio which generates the majority of its revenue from gas production, the Group’s 2014 revenue has not been materially affected by the reduction in commodity prices. However, the current low price environment does impact on the asset value of the Group’s oil and gas assets, which has contributed to the significant impairment charges reflected in the 2014 results.

Tom Hickey
Chief Financial Officer

Corporate Strategy

Our strategy is to bring our development asset to first gas on schedule and to maximise the value of our producing assets through on-going investment, active reserves management and cost control. Through discovery of assets with material hydrocarbon resource potential, we develop these assets to deliver superior shareholder value. We focus on developing material asset positions in attractive fiscal regimes with strong partners that can add complementary skills as well as financial strength. Our geographical focus is Middle East-North Africa (“MENA”), the Black Sea and the Mediterranean basin.

Sustainable and clear long term production profile

Mboepd, Working Interest basis

Gas Liquids
50
40
30
20
10
0
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032

2014 Key Achievements

Algeria:

  • Farm-out provides $160m funding to cover capex until Q2 2016 and further contingent payments of up to $20m
  • FEED and Gas Sales Agreement contracts awarded

Egypt:

  • Production of 19.3 Mboepd, generating revenue of $106m
  • Completion of two successful development wells and one workover
  • New acreage granted - portfolio renewal
  • Receivables reduced to $50m

Bulgaria:

  • Production of 3.2 Mboepd generating revenue of $51m
  • Successful export compressor major overhaul

Corporate/Other:

  • $100m share placing
  • Net debt reduced to $153m

Future Key Targets

  • Award of Rig Contract (achieved in April 2015) and EPC contract
  • Project delivery on budget- circa $430m net capex spend to first gas (post carry)
  • First gas anticipated Q4 2018 with 14 year wet gas production plateau of 355 MMscfpd
  • Maintenance of production- 2015 guidance of 12.5-13.3 Mboepd
  • Infill drilling and facilities investment
  • Gas injection to maximise liquids recovery
  • Farm-out exploration acreage to manage risk and financial exposure
  • Seismic acquisition on new licences
  • Maintenance of production- 2015 guidance of 1.5-1.7 Mboepd
  • Kavarna East completion and tie back
  • Invest in Kaliakra to deliver existing reserves
  • Progress financing strategy for Ain Tsila development expenditure
  • Divest or relinquish non-core/low graded exploration licences at minimal cost
  • Restructure the organisation to match reduced exploration
  • Retain high quality opportunities (while minimising cost)

2014 Key Achievements

Future Key Targets

Algeria:

  • Farm-out provides $160m funding to cover capex until Q2 2016 and further contingent payments of up to $20m
  • FEED and Gas Sales Agreement contracts awarded
  • Award of Rig Contract (achieved in April 2015) and EPC contract
  • Project delivery on budget- circa $430m net capex spend to first gas (post carry)
  • First gas anticipated Q4 2018 with 14 year wet gas production plateau of 355 MMscfpd

Egypt:

  • Production of 19.3 Mboepd, generating revenue of $106m
  • Completion of two successful development wells and one workover
  • New acreage granted - portfolio renewal
  • Receivables reduced to $50m
  • Maintenance of production- 2015 guidance of 12.5-13.3 Mboepd
  • Infill drilling and facilities investment
  • Gas injection to maximise liquids recovery
  • Farm-out exploration acreage to manage risk and financial exposure
  • Seismic acquisition on new licences

Bulgaria:

  • Production of 3.2 Mboepd generating revenue of $51m
  • Successful export compressor major overhaul
  • Maintenance of production- 2015 guidance of 1.5-1.7 Mboepd
  • Kavarna East completion and tie back
  • Invest in Kaliakra to deliver existing reserves

Corporate/Other:

  • $100m share placing
  • Net debt reduced to $153m
  • Progress financing strategy for Ain Tsila development expenditure
  • Divest or relinquish non-core/low graded exploration licences at minimal cost
  • Restructure the organisation to match reduced exploration
  • Retain high quality opportunities (while minimising cost)

Operational Review

Algeria

Production
Development/Late Appraisal
Exploration

Highlights

  • Ain Tsila development Front End Engineering and Design contract awarded
  • Contract awarded to Sinopec for drilling rig
  • First 12 development well locations agreed
  • Mobilisation of the Joint Operating Organisation to Hassi Messaoud complete
  • Fully termed Gas Sales Agreement signed and approved
  • Divestment to Sonatrach of an 18.375% interest in the field

During 2014, Petroceltic made significant progress towards the development of the strategically important Ain Tsila gas condensate field, which lies within the Isarene concession in the Illizi basin in south east Algeria.

The Front End Engineering and Design (‘FEED’) contract was awarded in September and the Gas Sales Agreement was signed and approved by the Algerian authorities in November.

Of particular importance during the year was the successful completion of a second farm-out of a 18.375% interest in the Ain Tsila field to Sonatrach, the National oil and gas company of Algeria.

2015 will see the completion of the FEED studies and the tender and award of the EPC contract for the major project construction contracts.

Egypt

Production
Development/Late Appraisal
Exploration

Highlights

  • Average production of 95.3 MMscfpd of gas and 2,821 bopd of hydrocarbon liquids
  • Completion of two successful development wells and one workover
  • Commissioning of the West Khilala and South Damas compression projects
  • Ratification of two new exploration licences and the award of a third
  • EGPC receivables reduced from $81m to $50m

Petroceltic’s core area of operations in Egypt is in the onshore Nile Delta where it holds a 100% operated interest in 12 producing fields in 14 development concessions in the El Mansoura and the South East El Mansoura concession areas. The field development operations are managed through a Joint Operating Company called Mansoura Petroleum Company jointly owned by Petroceltic and the Egyptian Government.

During 2013 and 2014, the Company has significantly renewed its exploration portfolio in Egypt and in January 2014 PSCs were signed for two new licences. These include a 75% interest in the onshore South Idku concession and a 50% interest in the exciting, deep water North Thekah block, which is thought to contain an extension of the prolific Levantine basin exploration play.

Bulgaria

Production
Development/Late Appraisal
Exploration

Highlights

  • Average gas production rate of 18.6 MMscfpd
  • Kavarna East development planning completed
  • Successful export compressor major overhaul

Petroceltic has a 100% operated interest in three producing gas fields and one future development in the Galata Exploration Block, which is located in shallow water, offshore Bulgaria, in the Black Sea. The producing fields were developed using an unmanned platform located on the main Galata field, to which the Kaliakra and Kavarna fields have been tied-back using subsea completions.

The combined production rate from the Galata, Kaliakra and Kavarna fields averaged 18.6 MMscfpd during the year, with a cumulative production volume of 6.8 Bcf. The gas was sold to two customers, Bulgargaz (the state gas utility company) and Agropolychim (an independent fertiliser plant) at an average price of $8.34/Mcf giving total revenues of $51m.

Romania (relenquished)

Production
Development/Late Appraisal
Exploration

Highlights

  • Safely completed the drilling of South Cobalcescu-1 and Muridava-1 exploration wells
  • Licences divested in June 2015

During 2014, Petroceltic operated two offshore exploration concessions in the Romanian sector of the Black Sea with a 40% operated interest in each. The licences, Block 27 Muridava and Block 28 Est Cobalcescu, are located in shallow water and have a combined area of approximately 2,000 sq km. Both blocks cover an area that has historically been under-explored due to a previous maritime border dispute.

The Block 27 Muridava partnership comprised Petroceltic Romania B.V. (40% equity and operator), Midia Resources S.R.L. which is a wholly owned subsidiary of Sterling Resources Ltd (40% equity) and Petromar Resources S.A. (20% equity). The Block 28 Est Cobalcescu partnership comprised Petroceltic Romania B.V. (40% equity and operator), Beach Petroleum S.R.L. which is a wholly owned subsidiary of Beach Energy Ltd (30% equity) and Petromar Resources S.A. (30% equity). The initial minimum work programme for each Block comprised seismic acquisition and three wells.

Kurdistan Region of Iraq (relenquished)

Production
Development/Late Appraisal
Exploration

Highlights

  • Shakrok 1 well plugged and abandoned and the Shakrok licence relinquished
  • Shireen 1 well encountered operational problems and without positive indications of commercial hydrocarbons the Dinarta licence was relinquished

Petroceltic has been active in the Kurdistan Region since 2011 when the Shakrok and Dinarta blocks were awarded with Petroceltic holding a 16% interest (20% paying interest) in each Production Sharing Contract (“PSC”) in the northern area of the Kurdistan Region of Iraq (“KRI”). The blocks were awarded in partnership with the operator, Hess Middle East New Ventures Ltd (“Hess”), with a 64% participating interest (80% paying interest) and the KRG with a 20% carried interest.

The work programme for each block consisted of 2D seismic and the drilling of two exploration wells, one on each block. The Company’s first exploration well in the KRI, Shakrok-1, was spudded in August 2013 and reached a total depth of 3,538 metres in the Triassic Geli Khana formation in March 2014. Drill Stem Tests were carried out over four prospective zones in the Jurassic.

Italy

Production
Development/Late Appraisal
Exploration

Highlights

  • Re-submission of Environmental Impact Assessments for approval for Elsa and Carpignano Sesia
  • International certification of country level HSES Management System
  • Purchase of 750km 2D seismic data over the high-graded offshore Turchese prospect

The past year has seen steady progress on the Company’s Italian assets, with significant milestones achieved on key projects in the Central Adriatic and in the Po Valley. The primary focus has been on recommencing the environmental permitting process in key projects, supported by ongoing engagement with national and local institutions to demonstrate that exploration activity can deliver tangible benefits to local communities and the Government in a safe and environmentally responsible fashion. A significant milestone was achieved in June 2014 when DNV certified the country level HSES management system as meeting the requirements of ISO14001 for environmental management and OHSAS18001 for occupational health and safety management. This brings Italy into line with the Company’s other operating areas which also have the international accreditation.

The “Restart Italy” decree, passed into law in November 2014, builds on the National Energy Strategy of 2013 in reaffirming the strategic nature of domestic hydrocarbon exploration and production activities and contains a number of measures aimed at facilitating progress in the sector whilst aligning regulation with offshore safety EU directive. These include the introduction of the “Single Permit” which aims at simplifying permitting by combining exploration and production phases into a single licence and transferring the responsibility for onshore environmental permits from the Regions to the Ministry of the Environment.

Greece

Production
Development/Late Appraisal
Exploration

Highlights

  • The award of the Patraikos block (Petroceltic, Hellenic (operator) and Edison 33.3% each) was formally ratified by the Greek parliament in October 2014.

The licence is located in the Gulf of Patra and covers an area of 1,892 sq km with water depths principally in the range of 100 to 300 metres. The concession is potentially oil prospective in the Jurassic, Cretaceous and Eocene formations and the regional hydrocarbon system has been proven by the Katakolon oil discovery wells drilled in 1982, approximately 35 kilometres south of the block. There are also several known oil seeps around the Gulf of Patra area.

There is extensive 2D seismic data already available over the block and the unrisked mean prospective resources for the mapped prospects lie in the range of 80 MMbbl to 360 MMbbl.

The Group is currently considering divestment of this licence.

Algeria

Production
Development/Late Appraisal
Exploration

Highlights

  • Ain Tsila development Front End Engineering and Design contract awarded
  • Contract awarded to Sinopec for drilling rig
  • First 12 development well locations agreed
  • Mobilisation of the Joint Operating Organisation to Hassi Messaoud complete
  • Fully termed Gas Sales Agreement signed and approved
  • Divestment to Sonatrach of an 18.375% interest in the field

During 2014, Petroceltic made significant progress towards the development of the strategically important Ain Tsila gas condensate field, which lies within the Isarene concession in the Illizi basin in south east Algeria.

The Front End Engineering and Design (‘FEED’) contract was awarded in September and the Gas Sales Agreement was signed and approved by the Algerian authorities in November.

Of particular importance during the year was the successful completion of a second farm-out of a 18.375% interest in the Ain Tsila field to Sonatrach, the National oil and gas company of Algeria.

2015 will see the completion of the FEED studies and the tender and award of the EPC contract for the major project construction contracts.