First Quarter 2012 Activity Report
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Disclaimer
This Quarterly Activity Report and its contents are for information purposes only. All financial information is unaudited and is subject to an annual financial audit. No reliance may be placed for any purpose whatsoever on the information contained in this Report or on its completeness. The information and opinions contained in this Report does not purport to be comprehensive. No representation or warranty, express or implied, is given by Kuwait Energy or any of its affiliates or their respective directors, officers or employees or any other person as to the accuracy or completeness of the information or opinions contained in this Report and no liability is accepted for any such information or opinions. This Report does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any securities in Kuwait Energy, nor shall it or any part of it or the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment or decision in relation thereto. Certain statements in this Report are forwarding-looking statements. By their nature, forward-looking statements involve a number of risks, uncertainties and assumptions that cause actual results or events to differ materially from those expressed or implied by the forward-looking statements, a number of which are beyond Kuwait Energy’s control. Any forward-looking statement contained in this Report that refers to past trends or activities should not be taken as a representation that such trends or activities will necessarily continue in the future. You should not place any reliance on any projections, targets, estimates or forecasts, which speak only as of the date of this Report.
First Quarter 2012 Activity Report
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Contents 1. 2. 3. 4 5. 6.
Executive Summary ................................................................................................................................ 4 Reserves ...................................................................................................................................................... 7 Production ................................................................................................................................................. 8 Development Activity ......................................................................................................................... 10 Exploration Activity ............................................................................................................................ 12 Financials................................................................................................................................................. 14
Cover Picture: Symphony Towers, Salmiya – Kuwait Energy, Kuwait new office location
First Quarter 2012 Activity Report
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1. Executive Summary: First Quarter 2012 Activity Report for the period ended 31 March 2012 Comparative Performance at a Glance Quarterly comparison
Q1 2012
Q4 2011
Change %
Production
BOEPD
17,370
15,018
15.7%
Revenue*
USD Million
65.8
45.6
44.3%
Q1 2012
Q1 2011
Change %
Corresponding Period Production
BOEPD
17,370
12,985
33.8%
Revenue*
USD Million
65.8
41.4
58.9%
* Revenue reported is sales less profit petroleum
Quarterly production and sales summary – First Quarter 2012
Kuwait Energy registered a new record in production and revenue levels, achieving 17,370 barrels oil equivalent per day (boepd) in production and US$65.8 million in revenue for the quarter.
Daily average working interest production for Q1 2012 was 17,370 boepd, a 15.7% increase from the previous quarter. This increase was primarily due to higher production in Egypt from exploration successes and development wells being brought on line.
Revenue was US$65.8 million for Q1 2012, up 44.3% from Q4 2011 and 58.9% higher than Q1 2011 due to higher realized oil and gas prices as well as increased production.
Key activities during the period Corporate
Kuwait Office: The Company’s Kuwait offices relocated to new and larger premises located in the Symphony Towers on Salem Mubarak Street, Salmiya, Kuwait.
Appointment of a new Board member: Ms. Rachel English was appointed to the Board of Kuwait Energy plc as an independent director. Ms. English has over 25 years experience working for international, energy companies, including the BG Group and Shell, with responsibilities including: finance, strategy, planning, business development, mergers and acquisitions. Ms. English has a Master of Arts from the Oxford University and is a Fellow of the Institute of Chartered Accountants, England and Wales. She is an independent director on the Board, and is also the Chair of the Remuneration Committee and a member of the Audit Committee.
IPO Update: The Kuwait Energy group completed its restructuring to a Jersey-based holding company in December 2011, and is currently preparing for a future listing, subject to market conditions. First Quarter 2012 Activity Report
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Key activities during the period (continued) Financial
Debt Financing: Kuwait Energy worked on a Strategic Investment Agreement during the quarter with Dubai-based Abraaj Capital, a leading private equity manager investing in high growth markets, to finance its immediate development and growth plans. The Agreement was signed in early April 2012.
Operations
Health, Safety, Sustainability and Environment: Kuwait Energy classifies its recordable incidents as Lost Time Incidents (LTI), Restricted Work Incidents (RWI) and Medical Treatment Incidents (MTI). No recordable incidents occurred during Q1 2012 on its operated assets. The following table provides days without LTI for the countries in which Kuwait Energy operates: Country
Days without LTI
Egypt
1,204
Ukraine
1,109
Russia
821
Yemen
669
Iraq
35 (operations commenced 25 February 2012)
Exploration: During Q1 2012, four new exploration wells were spud in Egypt and four wells were carried over from 2011. Three of the carry over wells were successful: Al Jahraa-1X and El Salmiya-1 in Abu Sennan and Ahmad-1X in Area A. One of the wells spud in 2012 was successful, West Ahmad1X in Area A, Egypt and recorded a gross initial production of 1,250 boepd.
Development: During Q1 2012, eight development wells were drilled, six in Oman and two in Luzskoye, Russia.
Portfolio Management: Kuwait Energy is continuing to manage its asset portfolio and is actively seeking strategic partners to farm into some of its non-core assets.
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Key activities during the period (continued) Business Development Kuwait Energy is pursuing its growth strategy with a main geographical focus on the MENA region specifically Egypt, Yemen and Iraq. Iraq Opportunities: Iraq Fourth Petroleum Licensing Bid Round The Iraqi Ministry of Oil announced its intention to offer 12 exploration blocks covering various locations in Iraq. The bid dates have been moved from April to May 2012. Kuwait Energy has carried out its preliminary technical evaluations on some of the blocks and selected potential partners for further cooperation. Yemen Opportunities: An assessment of Yemen gas resources and a feasibility study (Yemen Gas Master Plan) was completed in April 2011, as per the Memorandum of Understanding (MoU) signed between Kuwait Energy and the Yemen Ministry of Oil & Minerals (MOM) in October 2010. The study was submitted to the Petroleum Exploration and Production Authority (PEPA), Yemen. Discussions on the way forward are on hold due to the current situation in Yemen.
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2. Reserves: Kuwait Energy engaged Gaffney Cline & Associates (GCA), an independent energy consulting firm, to undertake an audit of its year end 2011 reserves and contingent resources, and Fugro Robertson to estimate its year end 2011 prospective resources. As at 31 December 2011, Kuwait Energy’s working interest Proven and Probable (2P) reserves are 235.3 mmboe, working interest contingent risked resources are 43 mmboe and best estimate of risked prospective resources is 265.7 mmboe. A breakdown of the reserves and resources is shown in the tables below:
Kuwait Energy Year End 2011 Reserves & Resources as at 31 December 2011 Classification
Category YE10
Reserves
1P 2P 3P
8.1 48.8 129.8
Kuwait Energy Reserves and Resources in mmboe Working Interest Exploration Production Revisions Acq/Divest YE11 Adds 5.7 1.8 79.4 91.4 -3.8 9.3 41.4 139.7 235.3 15.5 105.8 157.2 404.5
Contingent 2C 32.0 0.0 11.0 0.0 Resources Prospective 212.1 Best 0.0 53.6 0.0 Resources Proven Organic Reserves Replacement Ratio (RRR) = 202% Proven plus Probable Organic Reserves Replacement Ratio (RRR) = 1,349% 2P WI Reserves Reserves year end 2010 Production Exploration Discoveries Revisions Acquisition/Divestments Reserves year end 2011
Crude Oil (mmbbl) 37.3 -3.4 9.3 42.4 0.0 85.6
Sales Gas (bcf) 53.8 -1.3 0.0 -6.3 665.6 711.9
Condensate (mmbbl) 2.7 -0.1 0.0 -0.2 28.7 31.1
YE11-Net Entitlement
22.3 94.6 228.7
43.0 265.7
Total (mmboe) 48.8 -3.8 9.3 41.4 139.7 235.3
Notes 1. 2. 3. 4. 5. 6. 7.
Reserve and resource estimates are Kuwait Energy working interest YE11 reserves and contingent resources were audited by Gaffney Cline & Associates (GCA). Prospective Resources were estimated by Fugro Robertson Prospective Resources estimates are risked Estimates above exclude Karim Small Fields (Oman) which is covered by a Service Agreement and does not allow external reporting of reserve volumes. For Year-End 2011 gas and condensate volumes were converted to oil equivalent volumes using conversion factors of 6.0 Mscf/boe and 1.0 BBl/boe respectively. Totals may not exactly equal the sum of the individual entries due to rounding. Organic RRR does not take into account acquisition or divestment activities.
Reserves & Resources Definitions Reserves and resources have been estimated in accordance with the 2007 Society of Petroleum Engineers (SPE), World Petroleum Council, American Association of Petroleum Geologists, Society of Petroleum Evaluation Engineers (SPEE) and Petroleum Resources Management System (PRMS) – commonly referred to as the SPE PRMS.
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3. Production: Kuwait Energy’s working interest share of production and the revenue for the quarter ended 31 March 2012 compared to the quarters ending 31 December 2011 and 31 March 2011 is shown in the table below: Asset
Daily Average Production (boepd)
Q1 2012
Q4 2011
Q1 2011
968
692
295
Area A
4,624
4,300
4,305
ERQ
7,045
5,127
3,210
12,637
10,118
7,810
Oman
3,053
2,892
2,756
Yemen
508
573
695
Ukraine
317
819
1,181
Russia
855
617
543
Total
17,370
15,018
12,985
Sales Revenue (US$ million)*
65.8
45.6
41.4
Average Oil Price** (US$ per bbl) Average Gas Price*** (US$ per mcf)
110.5
104.6
94.7
14.3
14.0
7.3
Egypt BEA
Egypt Total
Daily average working interest production for Q1 2012 was 17,370 boepd, a 15.7% increase from the previous quarter. This increase was primarily due to higher production from Egypt and Russian fields as seven wells were put on production during the quarter. The quarterly production reduction in Ukraine was due to the JAA429 license being terminated in December 2011. *
Sales revenue includes revenue from sale of gas and condensate from Ukraine assets and is less profit petroleum and is based on management accounts which are subject to audit. ** Average Oil Price excludes Karim Small Fields, Oman as it is under a Service Agreement. *** Average Gas Price includes Value Added Tax (VAT)
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Quarterly Revenue and Production The chart below shows quarter-by-quarter daily average production (boepd) and revenue from Q2 2006 to Q1 2012:
20,000
70
18,000 60
16,000 50
14,000 12,000
B O E P D
40
10,000 30
8,000 6,000
U S $ M M
20
4,000 10
2,000 0
Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12
Daily Avg Prodn (BOEPD)
120
608
Revenue US$MM
0.4
0.8
0
1,971 2,333 3,005 2,891 4,630 5,873 8,264 9,140 9,364 10,021 10,493 12,611 12,798 13,421 13,074 13,168 13,371 12,985 12,902 13,568 15,018 17,370 1.1
3.7
7.1
7.3
7.8
13.3
30.1
32.3
15.0
14.4
19.5
26.8
27.6
33.1
36.9
35.8
39.7
41.4
46.5
45.4
45.6
65.8
The Q1 2012 production was 15.7% and revenue 44.3% higher than the previous quarter and is also the highest recorded in the history of the Company.
Brent Crude Oil Price
Historical Brent US$/bbl 140 120
US$/bbl
100 80
60 40 20 0
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12
Historical Brent US$/bbl 70
71
61
59
69
74
88
96 123 117 58
46
60
69
76
77
79
77
87 105 117 113 109 119
Source: EIA
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4. Development Activity: Development expenditure during the first quarter 2012 was US$15.3 million* which was primarily spent on:
Drilling eight development wells (six in Oman and two in Russia). Upgrading production and transportation facilities in Egypt and in Ukraine.
The Yusr-52 ST well, a carry over well from Q4 2011 was completed in the Area A, Egypt and was put on production at a gross initial rate of 500 boepd. In the Karim Small Fields, Oman, six wells were drilled of which four were completed as producers at the end of the quarter with an initial production rate in the range of 100–250 boepd and the other two were still drilling. In Russia, two development wells, 324 and 336 were drilled and completed in the Luzskoye field. Well #324 was put on production at a gross initial production rate of ~150 boepd. Well #336 was being completed at the end of the quarter. Country
Basin/Area
No. of Target Wells
Kuwait Status at end Q1 2012 Energy Interest
Q4 2011 Carry-over wells Egypt
Area A
1
Oil
49.5%
Oman
Karim Small Fields
2
Oil
15%
Producer 2 producers
Q1 2012 Egypt
No new development wells were drilled in Q1 2012
Oman
Karim Small Fields
6
Oil
15%
4 producers, 2 drilling
Russia
Luzskoye
2
Oil
100%
1 producer, 1 under completion
* Based on management accounts which are subject to audit.
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4.1 Facilities Country Facilities Area A Shukheir North West Facility: Upgraded the facility with a 2,400 barrels capacity tank and a three phase production separator along with extension and modification for manifolds and tanks discharge lines. ERQ
Egypt
El Tebeen Shipping Capacity Upgrade: Installed a 6,000 boepd shipping pump to decrease tanker turn-around times and increase operational efficiency. Burg El Arab Pipelines from wells BEA W1-X and BEA-4 were connected and tied back to BEA production station eliminating the need for road tankers, thus reducing operating costs. Export Line – Commenced work on design and construction of BEA shipping export line and pumping station. Storage capacity – Installation of additional 2,400 barrels oil storage tank in progress. BC Fields
Ukraine
Completed construction of gas lift injection line. Completed gas lift design of well head equipment for well BC#110. Commenced flow line and hook up of well BC#7.
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5. Exploration Activity: Exploration quarterly expenditure up to 31 March 2012 was US$ 8.6 million* which was primarily spent on:
Drilling exploration wells in Area A, Abu Sennan and ERQ concessions in Egypt.
The table below provides the status of these wells: Country
Basin/ Area
Well
Target
Kuwait Energy Cost Interest
Well Status
Ahmad-1X
Oil
70.0%
Success, initial gross production 890 boepd
Fatema-1X
Oil
70.0%
Dry hole, P & A
Al Jahraa 1X
Oil/ Gas Oil/ Gas
78.0%
Success, initial gross production 835 boepd Success, initial gross production 5,600 boepd
Q4 2011 Carry-over Area A
Egypt
Abu Sennan
El Salmiya-1
78.0%
Q1 2012
Egypt
Area A
West Ahmad-1X
Oil
70.0%
Success, initial gross production 1,250 boepd
Abu Sennan
Salwa-1X
Oil
78.0%
Dry hole, P&A
Hawalli-1X
Oil
78.0%
Dry hole, P&A
Ghard-2 ST
Oil
49.5%
Temporarily abandoned
ERQ
* Based on management accounts which are subject to audit. In Area A, two exploration wells Ahmad-1X and West Ahmad-1X were successfully tested at gross initial rates of 890 boepd and 1,250 boepd, respectively. In the Abu Sennan Concession, wells Al Jahraa-1X and El Salmiya-1 were successfully tested in the Abu Roash “E” formations at gross initial production rates of 835 boepd and 5,600 boepd respectively.
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5.1 Seismic Activity: Seismic activity during Q1 2012 is shown in the table below:
Country
Area/Basin
Type
km/km2
Status at end Q1 2012
Egypt
Mesaha
2D
800 km
Data processing in progress.
Yemen
Block 74
2D
267 km
Completed interpretation of new 2D lines and integration with old data.
Ukraine
NY
3D
54 km2
Reprocessing and merging of two vintage data completed. Interpretation work initiated.
Luzskoye
3D
28
km2
Processing of new vintage 3D and merging with old vintage data completed. Basic seismic interpretation and map generation completed.
Chikshina
3D
14 km2
Acquisition of 3D seismic survey completed. Data being prepared for processing.
300 km2
3D short offset processing, pre-stack inversion, gravity magnetic data processing and interpretation completed. 3D seismic data interpretation and mapping completed.
Russia
Latvia
License 1/2009
3D
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6. Q1 2012 Financials: Estimated Consolidated Statement of Income: Quarter on Quarter Comparison
Actual Consolidated Statement of Income Q1 2012
Q4 2011
Q1 2011
65.8
45.6
41.4
-
0.7
-
Royalties
(2.5)
(1.6)
(2.3)
Operating Cost & General and Administrative Expenses
(18.0)
(14.8)
(16.9)
45.3
29.9
22.2
Revenue (Sales) Other Income
Operating Cash Flow
US$ MM
Revenue was US$20.2 million higher than the previous quarter primarily due to increased sales volumes and higher product prices realized. Royalty payments were US$0.9 million higher than the previous quarter primarily due to higher sales in Russia. Operating Costs, General and Administration Expenses were US$3.2 million higher than the previous quarter primarily due to a 15.7% increase in production.
Notes:
All financial numbers are based on management accounts and are unaudited; Revenue is reported net of government take, in line with the common accounting practices of leading E&P companies listed on the London Stock Exchange.
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