RE: ALL sedar docs stop on march 30Oilexco posts $9.99-million loss in 2004
2005-03-31 20:56 ET - News Release
Mr. Arthur Millholland reports
OILEXCO'S 2004 YEAR END RESULTS SHOW RAPID GROWTH
Oilexco Inc. has released its 2004 year-end financial results, a year that Oilexco evolved substantially due to its activities in the United Kingdom North Sea. High levels of activity in the United Kingdom have caused significant changes in the financial status and trends of the company over the 2003 comparative year. During 2004, Oilexco drilled seven wells and 14 boreholes, inclusive of sidetracks, on its 100-per-cent owned licences P.1042 and P.1157, covering blocks 15/25b and 15/25e, in the Outer Moray Firth of the Central United Kingdom North Sea. This program fully appraised the Brenda oil find made by Oilexco's initial test well 15/25b-6 completed in January, 2004. Oilexco was able to achieve this level of activity by having a semi-submersible offshore drilling rig under contract for the majority of the year, as well as having access to capital through the equity markets in the United Kingdom, by virtue of the company's listing on the Alternative Investment Market of the London Stock Exchange. To continue its United Kingdom North Sea program in 2005 the company has contracted the semi-submersible offshore drilling rig Sedco 712 from the end of March, 2005, to the end of March, 2006. This will allow Oilexco to undertake its 2005 United Kingdom North Sea exploration/appraisal program in addition to the drilling of production wells at Brenda. This was a strategic decision made by Oilexco amid a tightening rig market in October, 2004, as there is a finite supply of these United Kingdom capable drilling units available. Currently all worthy semi-submersible drilling units in the North Sea have been contracted through to the second quarter 2006, reflecting rapid increases in industry activity levels due to high world crude oil prices. The company is progressing toward its goal of bringing its Brenda field in the United Kingdom to production, and remains confident that it will remain on budget and on schedule for first oil in 2006.
Oilexco exited 2004 in excellent financial condition. The company maintained high cash balances at year-end 2004 of $19,045,429 and $20,892,264 in 2003, reflecting Oilexco's equity financings in these periods. Cash balances are expected to remain high in 2005 and 2006 due to the company's access to project financing facilities for Brenda development, as well as increases from future equity issues when deemed necessary. The dramatic increase in capital assets in 2004 to $122,747,357 was due to a substantial increase in funds expended in 2004. These funds were expended on Brenda appraisal drilling, and on the acquisition of the Balmoral/Glamis field producing interests in the United Kingdom North Sea. This contrast is most apparent when compared with Oilexco's capital assets of $6,657,866 in 2003. Similar increases in capital assets are forecast for 2005 due to the company maintaining activity at 2004 levels in the United Kingdom North Sea. The substantial increase in current liabilities $21,670,945 at year-end 2004 compared with $3,128,905 at year-end 2003 reflects accrued payables at year-end from the 2004 United Kingdom North Sea drilling program, which was completed in December. This level of activity had no comparison in 2003. The company expects levels of current liabilities to be similar at year-end by maintaining 2004 levels of United Kingdom exploration/appraisal drilling in 2005. Increases in share capital, shareholder equity and common shares outstanding in 2004 and 2003 reflect $95.3-million in equity financings completed by the company in 2004 and $30,103,000 in equity financings completed by the company in 2003 to finance its United Kingdom North Sea appraisal program, which commenced in the fourth quarter of 2003 and continued throughout 2004. Oilexco expects to access the equity markets to raise additional capital in 2005.
Increased levels of activity in the United Kingdom North Sea in 2004 also caused significant changes in the year-over-year trends in Oilexco's operating results. Oil and gas revenues in 2004 increased to $2,715,587, significantly higher than $1,519,688 in the comparable period in 2003. Increases in 2004 oil and gas revenues were due to substantially higher prices and the acquisition of the Balmoral/Glamis oil production interests in September. Oilexco forecasts oil and gas revenues to increase in 2005 due to production enhancements at Balmoral/Glamis. In addition, the company forecasts its benchmark crude oil prices to average $50 (U.S.) per barrel. Oil and gas operating costs increased substantially in 2004 to $1,598,899 over $217,806 in the comparative 2003 period due to the acquisition of the Balmoral/Glamis production interests. Further increases in operating costs are expected by the company in 2005 due to inflationary price increases in oil field services, onshore and offshore, in the current high oil price environment. General and administrative expenses increased in 2004 to $2,917,781, compared with $1,163,218 in 2003, due to the company's intensified activity in the United Kingdom North Sea which necessitated its opening of an office in Aberdeen, Scotland. General and administrative expenses will increase in 2005 as employment levels increase, reflecting an increase in staffing in the Aberdeen office. Increased levels of general and administrative expense in 2005 will also be due to higher salary levels needed to attract and maintain professional staff. Oilexco has not experienced difficulties in attracting well qualified staff due to the company's compensation policy of combining share options with competitive salary and benefit packages. Share incentive compensation expense levels increased dramatically in 2004 to $8,456,000 from $1,165,000 in 2003, as the company issued share options to its employees, consultants and new hires for compensation in times of increased prices for Oilexco's common shares. The company expects share incentive compensation expense to remain high in 2005 as the company will continue to issue options to key employees as well as new hires in key positions.
In 2004, the company experienced a substantial net loss of $9,993,820 primarily due to accounting for increased share incentive compensation expenses. High levels of share incentive compensation expenses were also primarily responsible for the high net loss in 2003 of $2,508,597. The company expects high net losses to continue in 2005 due to the expensing of share incentive compensation. Losses reflecting this expense item also will continue until 2006 when oil production at Brenda in the United Kingdom North Sea is expected to commence. In 2004, funds flow was "to the company" (negative funds flow) in the amount of $663,057, compared with negative funds flow of $149,995 in 2003. This negative funds flow was due to the company's high expenditures related to the intense level of activity in the United Kingdom North Sea in 2004. As levels of activity are forecast to remain the same, or possibly increase for 2005 along with increased general and administrative expenses, funds flow may continue to be "to the company" (negative), even after forecasting a full year of stable, to enhanced oil production at Balmoral/Glamis with comparable 2004 average oil prices.
In 2004, Oilexco pursued an intense appraisal program in the United Kingdom North Sea, ending the year with positive working capital $2.7-million. Oilexco financed its 2004 United Kingdom North Sea appraisal drilling program from the equity markets because the company lacked internally generated cash flow to finance the program. Oilexco intends to finance the company's 2005 United Kingdom North Sea exploration/appraisal program from the equity markets because the company continues to lack the internal cash flow to finance these activities. Oilexco is currently negotiating a project financing facility with the Royal Bank of Scotland to finance the Brenda field development program. The company hopes to finalize these agreements in the second quarter of 2005.
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