Offshore Hydrocarbon Mapping plc - Interim results for the six months ended 29 February 2008
22 Apr 2008
Offshore Hydrocarbon Mapping plc, the provider of remote electromagnetic sensing services designed to detect the presence of offshore oil and gas, today announces its interim results for the six months ended 29 February 2008.
•Challenging market conditions
•Revenues of £4.7 million versus
£7.6m in the preceding half year
•Cash balance of £14.4 million
•Data Library investment increased
•Rock Solid Images integration going well
•CGGVeritas relationship flourishing
•WISE research consortium formed with industry
participation
Commenting on the results, OHM's Executive Chairman, Dave
Pratt, said:
'This first half year to 29 February 2008 has been a challenging market for all CSEM companies with no large proprietary surveys completed by the Company in the winter season. Against this backdrop OHM is directly addressing market adoption and our market penetration through the strategic developments announced last year. We remain focused on developing the reach of CSEM, and OHM as a leading developer of the technology.
We believe that our developing relationship with CGG Veritas will soon see an increase in our marketing penetration while the acquisition and integration of Rock Solid Images has improved the breadth and depth of our overall offering to clients.'
For further information, please contact:
Offshore Hydrocarbon Mapping
plc
www.ohmsurveys.com
Dave Pratt, Executive
Chairman
0870 429 6581
Bob Auckland, Finance Director
Aquila Financial
Limited
Peter
Reilly
0118 979 4100 / 07881 920542
KBC Peel Hunt
Julian
Blunt
020 7418 8900
David Anderson
Offshore Hydrocarbon Mapping plc
Chairman's Statement
This first half year to 29 February 2008 has been a challenging market for all CSEM companies with no large proprietary surveys completed by the Company in the winter season. Against this backdrop OHM is directly addressing market adoption and our market penetration through the strategic developments announced last year. We remain focused on developing the reach of CSEM, and OHM as a leading developer of the technology, in the following ways:
•Increasing our sales channels through our
relationship with CGG Veritas,
the world's largest seismic company;
•Enhancing the operating window of our CSEM
surveys in terms of weather
tolerance of our field crews, depth of targets
that can be imaged, and
developing solutions for challenging geological
problems, like imaging of
sediments below basalts and salt. We are the
only CSEM provider able to
demonstrate a track record of successful
performance in shallow water CSEM
surveys;
•Further improving the efficiency and quality of
our surveys including the
anticipated introduction of our third crew on
the vessel, OHM Leader,
enabling us to operate effectively in multiple
regions; and
•Continued commitment to R&D aimed at
integrating CSEM with seismic and
reservoir data to enable CSEM to become a major
tool in development and
management of reservoirs as well as in efficient
exploration.
We remain of the view that the value-proposition for exploration and production companies in using CSEM represents a market of significant growth potential for OHM.
Controlled Source Electromagnetic imaging (CSEM) measures and maps subsurface electrical resistivity. In the oil and gas industry, CSEM is a game changing application where this electrical resistivity can be used as a direct hydrocarbon indicator.
The OHM Group leads the industry in developing, improving and integrating CSEM technologies with other existing technologies and we have the quality of people and resources to continue to be at the forefront of the industry. There are many hurdles to cross in making this technology commercially operational. Developing and producing effective high-power electromagnetic transmitters and extremely sensitive electromagnetic receivers poses significant engineering design challenges. Creating the complex mathematical analysis code to create meaningful images of the subsurface from the measurements made in CSEM in the presence of real-world noise and signal distortion requires theoreticians and computer scientists of the highest calibre.
The challenge the Company now faces is to achieve mass adoption of the CSEM technique by an industry that is generally slow to embrace new technologies. To date, we have made significant progress in assisting the early adopters of technology, like Exxonmobil and Shell, to appreciate the benefits of CSEM. We also have seen encouraging take-up by a number of oil companies of various sizes who recognise the value of the information that CSEM provides. We are pleased to note that our client base has expanded to over 40 companies.
As the investment community shies away from funding exploration due to the current very high cost of and relative lack of success from drilling, we expect more companies to seek ways of reducing the risk of exploration drilling. This, together with increasing awareness of the CSEM technique and application in both deep and shallow water, should ultimately drive more business for OHM.
A recent market research report in the oil service industry (conducted by Welling and Co.) showed that only about a third of the oil companies polled were currently users of CSEM technology confirming our view that there is considerable scope for further growth in the CSEM market. Encouragingly though, three quarters of those who had used the technology were satisfied with the results they achieved.
This supports our confidence in the long term growth potential of the CSEM market, and we continue to take steps to position the Company to take advantage of that growth.
We believe that our developing relationship with CGG Veritas will soon see an increase in our marketing penetration while the acquisition and integration of Rock Solid Images has improved the breadth and depth of our overall offering to clients and provided extra skills and depth to our research and development efforts. These factors, together with our data library investment, the results achieved on client surveys and the fact that we are regularly asked to reprocess and reinterpret our competitors' data, lead me to believe that CSEM is here to stay and that OHM will be a highly successful player in the field.
First half operations
In the first half year to 29 February 2008 the Company has experienced difficult and testing trading circumstances. Despite this, we have remained focused on our strategy for building the future of the Company.
We entered FY2008 with an expectation that the growing market for CSEM services would take on a seasonal imprint. Adoption of the technology in North West Europe had been proceeding well and this led to a busy time for our crews in the summer of 2007. As the Northern Hemisphere winter set in we expected this work to come to an end and had made plans to occupy our crews with data library and some large proprietary prospects in Asia and West Africa. Regrettably, these plans were delayed by a number of factors, most significantly being delays incurred in permitting the use of our new technology in various international jurisdictions.
Having sent one crew to Asia on the vessel Energy Miner for a large non- exclusive program, we were forced to demobilise that crew to cut costs when the access permits for the intended work area were delayed. Our strategy of keeping some of our capacity on portable packages that can be rapidly mobilised on and off of vessels served us well in this case.
Our other crew, on OHM Express, completed a number of proprietary programs in the North Sea before being occupied on a large data library program West of Britain. The advanced deployment and recovery systems on this vessel, together with its superior sea keeping capability allowed the vessel to make safe progress on this program through the winter despite some extremely heavy sea conditions. We have been very pleased with the performance of OHM Express which has, in many cases, exceeded our expectations.
This delay in some work programs together with a focus on data library work has resulted in significantly reduced revenues (of £4.7 million) compared to the preceding half year. As we have fully written-off the costs associated with mobilising to South East Asia in this period, our operations costs are also significantly higher. Both data processing and Rock Solid Images performed broadly in line with our expectations but the contributions from operations in these areas were significantly outweighed by high marine operations costs and accordingly we have posted a loss of £4.0 million. Our cash position at the end of the period remained strong at £14.4 million.
Research and Development Following our acquisition of Rock Solid Images, we have made good progress on the integration of their research with OHM's research groups. An industry research consortium, called WISE, has been instigated to investigate the potential for quantitative prediction of rock and fluid properties from the combination of controlled source electromagnetic data with surface seismic and well data.
We believe that achieving this goal will create a valuable market in the monitoring and management of oil and gas fields throughout their life cycle, with a view to increasing the recovery of hydrocarbon reserves. A significant number of oil companies are currently either members or are in the process of joining. As well as defraying OHM's research costs, this research consortium will provide a bridgehead within the member oil companies which we hope will accelerate the adoption of resultant technologies.
Trading outlook
As we move back towards the North Sea operating season we are seeing an increase in sales enquiries and are starting to build up our order book again. A number of large tenders have been issued and we are hopeful that these will result in significant order intake over the coming weeks.
That being said, our market is still at a very early stage of development and is characterised by quite large swings in the supply / demand balance. Order visibility is not as long as we would like it to be and accordingly the market is currently quite competitive and unpredictable.
Our next vessel, OHM Leader, is presently undergoing conversion at a shipyard in Sweden and is expected to enter service in early June. This vessel is slightly larger than her sister ship, OHM Express, and we expect even greater advances to be made in her safe operating envelope. The CSEM equipment for the vessel is mostly delivered and is in the process of being tested. Recruitment and training has been ongoing over the last months both in offshore staff, and also in onshore data processing staff to deal with the data the vessel generates.
Our relationship with CGGVeritas, one of the world's leading seismic contractors, continues to flourish. Since the execution of our agreement we have been working with CGGVeritas to train members of their sales force on the benefits of CSEM and we are now beginning to see the first signs of sales pipeline generation through CGGVeritas' sales channels. We are focused on gaining momentum from these sales efforts.
Whilst our operating results for the period are clearly below what we desire, much has been achieved in building for the future and none of this progress of your Company could have been achieved without the dedication and hard work of our staff and I would like to extend my thanks to them for their efforts and resilience.
David Pratt
Chairman
The full text of this announcement is available on RNS.
