Petrel confident about returning to “Irish roots”

Despite seeing “a flow of hydrocarbon proposals” Petrel Resources (LON:PET) said today that, with one exception, it has not seen anything that it deems to be superior to investing in Ghana as well as continuing to pursue an oil project in Iraq.

The company, which announced interim results this morning, said the one exception involves a return to its Irish roots. In 1982, it was a partner in offshore Irish exploration and, although unsuccessful at that time, 30 years on new technology and models, together with high oil prices, have led to renewed interest.

Petrel has bid on three separate packages in the prospective Porcupine area in the current Irish offshore Atlantic Margin bid round and it is “quietly confident” that it will get a favourable decision from the authorities in the fourth quarter of this year.

The firm’s chairman John Teeling said today that during a period of unprecedented uncertainty, “it is pleasant to be able to report that Petrel holds cash balances of almost US$6 million and has no liabilities”.

This money has come from payments for the firm’s original 50-per cent stake in the Subba and Luhais EPC contract in Iraq. Petrel continues to hold a 10-per cent profit interest in the project, but in light of inflation in Iraq and design changes there is “unlikely to be a significant payoff”.

Meanwhile, the firm is continuing to make progress with its Ghanaian licence application. In 2010, the firm’s Ghanaian vehicle (in which it holds a 30-per cent interest) signed an agreement with the Ghanaian National Petroleum Company to explore Tano 2A – a 1,532-square kilometre onshore/offshore block close to the Kosmos/Tullow Jubilee block. The agreement is subject to Cabinet and Parliamentary approval and Teeling said he is “hopeful that this process is nearing finality”.

Ratification of the Tano 2A concession “will trigger immediate and extensive activity”, added Teeling.

Meanwhile, after 14 years in Iraq Teeling said the country continues to frustrate. “The economy remains fragile, as does the security situation,” he said. “There is still no hydrocarbon law. As such, our legal position is in limbo on the 10,000 square kilometre area of ground in the Western Desert formerly known as Block 6.”

Teeling said Petrel will protect its interest in this block, but the firm remains “nonplussed” as to how the super-majors will ever make money in many instances. “We struggled to explain the financial logic behind bidding for low returns in projects which involve geological, as well as operational and political risks,” he said.

The firm is now taking a fresh look at its approach in Iraq, and this may lead to a change in its strategy. “Iraq still offers the best hydrocarbon potential worldwide but it does not make sense to work for inadequate returns,” added Teeling.

During the six months to June 30, Petrel made a loss before tax of £558,000 (H1 2010: £171,000).

Shares in Petrel remained unchanged this morning at 7.875 pence each.