Second Quarter 2011 Activity Report
Enquiries: Abbas Al‐Rasheed Public Relations Advisor Kuwait Energy Company Tel: (+965) 2575 5657 – 2575 5878 / Ext 314 Fax: (+965) 2575 5679 Mobile: (+965) 9729 8106 Email: Public.Relations@kec.com.kw
Forward looking statements This Quarterly Activity Report includes statements that contain words or phrases such as “will”, “aim”, “will likely result”, “believe”, “expect”, “will continue”, “anticipate”, “estimate”, “intend”, “plan”, “contemplate”, “seek to”, “future”, “objective”, “goal”, “project”, “should”, “will pursue”, and similar expressions or variations of such expressions which are “forward looking statements”. Such forward looking statements are by their nature speculative and based on various assumptions. Any such statements are hypothetical with respect to prospective events and should not be construed as being indicative of the actual events which will occur or a guarantee of future performance. All forward‐looking statements are subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those contemplated by the relevant forward looking statements. Important factors that could cause results to differ materially from the Company’s expectations include, among others:
General economic and business conditions in Kuwait and other countries; The Company’s ability to successfully implement its strategy, growth and expansion plans and technological changes; Changes in the value of the Kuwaiti Dinar and other currency changes; Changes in Kuwaiti or international interest rates; Changes in laws and regulations that apply to investment companies in Kuwait; Changes in political conditions in Kuwait and other countries; and Changes in the foreign exchange control regulations in Kuwait.
Disclaimer: All information provided in this report is for information purposes only. All financial information is unaudited and is subject to an annual financial audit.
Second Quarter 2011 Activity Report
Page 2
Contents
1. 2. 3. 4 5. 6.
Executive Summary ................................................................................................................................... 4 Reserves .......................................................................................................................................................... 7 Production ..................................................................................................................................................... 8 Development Activity ............................................................................................................................ 10 Exploration Activity ................................................................................................................................ 11 Financials .................................................................................................................................................... 12
Cover Picture: Kuwait Energy signing Siba and Mansuriya gas development contracts in Baghdad, Iraq.
Kuwait Energy Company KSCC Salem Al Mubarak St., Laila Tower, Block 4, Bldg. #35, 13th Floor, Office 2, Salmiya, Kuwait P.O. Box. 5614, Salmiya 22067 Kuwait Tel: (965)2575‐5657 Fax: (965) 2575‐5679
Second Quarter 2011 Activity Report
Page 3
1. Executive Summary: Second Quarter 2011 Activity Report For the period ended 30 June 2011 Comparative Performance at a Glance Quarterly comparison
Production
boepd
Revenue*
US$ Million
Yearonyear comparison Production
boepd
Revenue*
US$ Million
Q2 2011
Q1 2011
Change %
12,902
12,985
‐0.6%
46.5
41.4
12.3%
Q2 2011
Q2 2010
Change %
12,902
13,074
‐1.3%
46.5
36.9
26.0%
* Revenue reported is sales less profit petroleum
Quarterly production and sales summary – second quarter 2011
Revenue was US$46.5 million for Q2 2011, a quarterly record; up 12.3% from Q1 2011 and 26.0% from Q2 2010, primarily due to higher realized oil and gas prices. Daily average working interest production for Q2 2011 was 12,902 barrels of oil equivalent per day (boepd), a 0.6% decrease on the previous quarter. This decrease was primarily due to production in the Luzskoye field in Russia being shut‐in for 40 days while a new bridge to transport the oil was being constructed to replace the old bridge which was damaged by floods.
Key activities during the period Financial
IPO Update: Following approval from shareholders at the 2009 AGM, Kuwait Energy retains its intention to list on the London and/or Kuwait Stock Exchanges, the timing is dependent on market conditions. Kuwait Energy is on track in terms of its internal preparation. Receipt of Divestment Proceeds: Kuwait Energy received the final payment of divestment proceeds for the sale of 22% working interest in Abu Sennan, Egypt. 2010 Financial Results and Dividend Announcement: Kuwait Energy provided its 2010 Financial Reports and declared a dividend of 5 fils per share at the General Assembly Meeting held on 27 June 2011.
Second Quarter 2011 Activity Report
Page 4
Key activities during the period (continued) 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). During Q2 2011, five recordable incidents occurred, two RWIs in Kuwait Energy’s operated assets BEA and Area A, Egypt, two MTIs in Kuwait Energy’s non‐operated Karim Small Fields (KSF), Oman, and one LTI in Kuwait Energy’s non‐ operated ERQ asset, Egypt.
The following table provides days without Lost Time Incidents for the countries in which Kuwait Energy operates: Country Days without Lost Time Incidents Egypt
929
Yemen
394
Russia
546
Ukraine
834
Exploration: Three exploration wells were drilled during Q2 2011 with two of these wells successfully discovering oil. The Shebyl East‐1 well in ERQ, Egypt was drilled to a depth of 4,100 meters and initial tests showed a production flow of 1,500 barrels of oil per day. The ZZ‐4 well in Abu Sennan, Egypt encountered oil in the Lower Bahariya formation and was suspended for testing. Development: Twelve development wells were drilled/spud during the quarter; nine in Oman, two in Egypt and one in Russia. Portfolio Management: Kuwait Energy continues to work on closing the 15% working interest partial divestment in Mesaha, Egypt to Beach Energy. Kuwait Energy and East West Petroleum have agreed not to pursue the Sale and Purchase Agreement for the partial divestment of Kuwait Energy’s 20% working interest in Burg El Arab, Egypt. Kuwait Energy is continuing its effort to balance its asset portfolio and is actively looking for strategic partners to farm in to some of its non‐core assets.
Second Quarter 2011 Activity Report
Page 5
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’s third petroleum licensing bid round On 20 October 2010, Kuwait Energy participated in Iraq’s third petroleum licensing bid round and was awarded 20 year term gas development contracts for the Siba and Mansuriya fields. The Siba and Mansuriya gas contracts were signed on 5 June 2011.
Picture: Kuwait Energy CEO, Ms Sara Akbar, signing the Siba and Mansuriya gas development contracts in Baghdad, Iraq.
Iraq’s fourth petroleum licensing bid round Iraqi Ministry of Oil announced its intention to offer 12 exploration blocks covering various locations in Iraq. Details of the fiscal terms are yet to be provided. The initial timeline is that technical data will be available for purchase is approximately August, fiscal terms and draft contract will be released in November and the bidding/awarding will take place in January 2012. Kuwait Energy is conducting preliminary technical evaluation of the blocks and screening possible prospects with potential partners. Yemen Opportunities: An assessment of Yemen gas resources and a feasibility study (Yemen Gas Master Plan) was completed 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 and discussion on the way forward is progressing. Second Quarter 2011 Activity Report
Page 6
2. Reserves: Kuwait Energy engaged Gaffney Cline & Associates (GCA), an independent energy consulting firm, to undertake an audit of its year end 2010 reserves, and Fugro Robertson to estimate its year end 2010 resources. As at 31 December 2010, Kuwait Energy’s working interest Proven and Probable (2P) reserves are 48.8mmboe, working interest contingent risked resources to be 32mmboe and best estimate of risked prospective resources of 212mmboe. The prospective resource revision includes adjustments for the Abu Sennan partial divestment. A breakdown of the reserves and resources is shown in the tables below: Classification
Kuwait Energy Reserves and Resources in mmboe YE10 Working Interest
Category YE09
Production
Exploration Revisions Adds
Acq/Divest
YE10 - WI
YE10 - Net Entitlement 35.73
Reserves
Proven + Probable
51.20
-3.72
0.90
1.11
-0.71
48.77
Contingent Resources
2C
15.45
--------
--------
16.50
0.00
31.95
Prospective Resources
Best
235.22
--------
--------
3.49
-26.61
212.10
=
35%
Proven plus Probable RRR
Proven plus Probable Reserves (Kuwait Energy Working Interest) Sales Gas (bcf)
Crude Oil Condensate (mmbbl) (mmbbl)
Total (mmboe)
Reserves year end 2009 Production Exploration Discoveries Acquisition/Divestments & Revisions
57.91 -1.77 0.00 -2.30
38.61 -3.37 0.90 1.11
3.13 -0.06 0.00 -0.36
51.20 -3.72 0.90 0.40
Reserves year end 2010
53.84
37.26
2.71
48.77
Notes: 1. Reserve and resource estimates are Kuwait Energy Working Interest 2. Resource Estimates are risked 3. Estimates above exclude Karim Small Fields (Oman) which is covered by a Service Agreement which does not allow external reporting of reserve volumes 4. YE10 reserves were prepared by Gaffney Cline & Associates (GCA) and Resource estimates by Fugro Robertson 5. In 2010, KEC won the bid to develop the Siba & Mansuriya fields in Iraq ‐ additional 2P WI reserves of 141.9mmboe will be booked once the contract is signed
Reserves & Resources Definitions
Reserves and resources have been estimated in accordance with the 2007 Society of Petroleum Engineers (SPE), World Petroleum Council (WPC), American Association of Petroleum Geologists (AAPG), Society of Petroleum Evaluation Engineers (SPEE) and Petroleum Resources Management System (PRMS) – commonly referred to as the SPE PRMS.
Second Quarter 2011 Activity Report
Page 7
3. Production: Kuwait Energy’s working interest share of production and the revenue for the quarter ended 30 June 2011 compared to the quarters ending 31 March 2011 and 30 June 2010 is shown in the table below: Asset
Daily Average Production (boepd)
Q2 2011
Q1 2011
Egypt
Q2 2010
BEA
323
295
551
Area A
4,163
4,305
4,333
ERQ
3,510
3,210
3,387
Egypt Total
7,996
7,810
8,271
Oman
2,723
2,756
2,646
Yemen
672
695
768
Ukraine
1,174
1,181
891
Russia
338
543
498
Total
12,902
12,985
13,074
Sales Revenue (US$ million)*
46.5
41.4
36.9
109.02
94.74
70.09
8.50
8.18
8.03
Average Oil Price** (US$ per bbl) Average Gas Price*** (US$ per mcf)
Daily average working interest production for Q2 2011 was 12,902 barrels of oil equivalent per day (boepd), a 0.6% decrease on the previous quarter. This decrease was primarily due to production in the Luzskoye field in Russia being shut‐in for 40 days while a new bridge to transport the oil was being constructed to replace the old bridge which was damaged by floods. * 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)
Second Quarter 2011 Activity Report
Page 8
Quarterly Revenue and Production The chart below shows quarter‐by‐quarter daily average production (boepd) and revenue from Q1 2006 to Q2 2011:
Revenue was up 12.3% from the previous quarter due to higher realized product prices.
Brent Crude Oil Price
Source: EIA
Second Quarter 2011 Activity Report
Page 9
4. Development Activity:
Development expenditure in 2Q 2011 was US$ 17.9* million which was primarily spent on:
Drilling development wells in Oman, Egypt and Russia. Upgrading surface facilities and preparing two pads in Luzskoye Field, Russia in preparation for drilling five development wells during 2011. Well workovers in BC fields, Ukraine. Basin/Area Target Status at end Q2 2011 Country No. of KEC Wells Interest Q1 2011 Oman
Karim Small Fields
8
Oil
15.0%
Q2 2011
Oman
Karim Small Fields
8
Oil
15.0%
Producers
Oman
Karim Small Fields
1
Oil
15.0%
Drilling
Burg El Arab
1
Oil
75.0%
Drilling
East Ras Qattara
1
Oil
49.5%
Drilling
Luzskoye
1
Oil
100.0%
Drilling
Egypt Russia
Producers
* Based on management accounts which are subject to audit.
4.1 Facilities Country
Facilities Area A Purchased an Export Production Facility for the Shukheir NW field. ERQ
Egypt
QPC Treatment Facility: Construction work underway for upgrading the oil separation and treatment facilities to increase capacity and reduce downtime. Burg El Arab Installed tank to increased storage capacity of BEA by an additional 500 barrels. Luzskoye
Russia
Facility upgrades focussed on infrastructure, flow assurance and increasing production capacity including main oil processing facility, well pads and tank storage. A new bridge to transport oil was also constructed to replace the old bridge. These upgrades increase processing capacity to 7,400 bopd and also facilitate a future upgrade to increase capacity to 11,000 bopd.
Second Quarter 2011 Activity Report
Page 10
5. Exploration Activity: Exploration expenditure in Q2 2011 was US$ 9.0* million which was primarily spent on:
Drilling Egypt exploration wells. Acquisition and processing of 2D and 3D seismic data in Egypt, Yemen, Ukraine, Russia and Latvia. The table below provides the status of these wells: Country
Well
Target
KEC Cost Interest
Shebyl‐1
Oil
49.5%
Yara‐1
Oil
49.5%
Abu Sennan
ZZ‐4
Oil
78.0%
Jherruck
Jherruck‐B‐1
Gas
40.0%
Karma‐1 Saady‐1
Oil Oil
49.5% 49.5%
Shebyl‐East‐1
Oil
49.5%
Al Ahmadi‐1X
Oil
78.0%
Basin/ Area
Well Status
2010 Carry over ERQ Egypt
Pakistan
Oil discovery, production tested at 600 bopd, waiting to be put online Dry hole, P & A Suspended for testing and waiting for workover rig Gas discovery, temporarily suspended, investigating commerciality
Q1 2011 Egypt
ERQ
Dry hole, P & A Dry hole, P & A Oil discovery, production tested at 1500 bopd, waiting to be put online
Q2 2011 Egypt
Abu Sennan
Rigging up
* Based on management accounts which are subject to audit.
5.1 Seismic Activity:
Seismic activity during Q2 2011 is shown in the table below: Country
Area/Basin
Type
km/km2
Status at end Q2 2011
Q1 & Q2 2011 Egypt
Mesaha
2D
800 km
Acquisition of 2011 seismic infill program completed. Data processing ongoing.
Yemen
Block 74
2D
267 km
Completed interpretation and old data integration
Ukraine
NY
3D
54 km2
Completed seismic processing. Interpretation ongoing.
Russia
Luzskoye
3D
28 km2
Completed seismic acquisition, processing ongoing.
Chikshina
3D
14 km2
Preparing for Seismic acquisition
Latvia
License 1/2009
3D
300 km2
Acquisition and fast track processing completed, detailed processing ongoing
Second Quarter 2011 Activity Report
Page 11
6. Financials:
Estimated Consolidated Statement of Income: Quarter on Quarter Comparison
Actual US$ Million
Consolidated Statement of Income Revenue (Sales) Other Income Royalties Operating Cost, General & Administrative Expenses Operating Cash Flow
Q2 2011 46.5 0.7 ‐ 2.6 ‐14.9 29.7
Q1 2011 41.4 0.0 ‐ 2.3 ‐16.9 22.2
Q2 2010 36.9 0.3 ‐2.9 ‐11.7 22.6
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. Revenue was up 12.3% from the previous quarter due to higher realized product prices.
Second Quarter 2011 Activity Report
Page 12