Offshore Hydrocarbon Mapping plc - Preliminary results to 31 August 2008

18 Dec 2008

Offshore Hydrocarbon Mapping plc presents its preliminary results for the year ended 31 August 2008.

Commenting on the results Executive Chairman, Dave Pratt, said: "Controlled Source ElectroMagnetic (CSEM) surveying is a demonstrably value adding offshore exploration technology, especially when integrated with seismic and other geophysical data. A year ago we believed that CSEM had become a mainstream exploration tool and invested in additional crews, equipment and a second long term charter. Shareholders will therefore share our disappointment that utilisation of our CSEM acquisition crews and industry adoption of the technology slowed dramatically during 2008. Regrettably, this has led to reduced revenues of £10.8 million and increased pre tax losses of £8.7 million for the twelve months ended 31 August 2008.

"At the end of fiscal year 2008 we had cash in hand of over £8 million, however we will,
during 2009, require significantly increased revenues and /or a further fundraising to get through this current difficult period. The position of the capital markets may make a
fundraising difficult or overly dilutive and in addition to reducing costs wherever possible
the Board is considering all options to ensure OHM's continued viability.

"We retain a strong belief in the value of our services and a confidence that integrated
electromagnetic and acoustic measurements of the earth will provide significant benefits to explorers and exploiters of hydrocarbons in future years."

Contact:

 Offshore Hydrocarbon Mapping plc  http://www.ohmsurveys.com/
 Dave Pratt - Executive Chairman   0870 429 6581
 Bob Auckland - Finance Director   0870 429 6581

 KBC Peel Hunt (Broker and NOMAD)  020 7418 8900
 Julian Blunt
 David Anderson

 Aquila Financial Ltd (PR)          
 Peter Reilly                      0118 979 4100

Chairman's Statement

Controlled Source ElectroMagnetic (CSEM) surveying is a demonstrably value adding offshore exploration technology, especially when integrated with seismic and other geophysical data. A year ago we believed that CSEM had become a mainstream exploration tool and invested in additional crews, equipment and a second long term charter. Shareholders will therefore share our disappointment that utilisation of our CSEM acquisition crews and industry adoption of the technology slowed dramatically during 2008. Regrettably, this has led to reduced revenues of £10.8 million and increased pre tax losses of £8.7 million for the twelve months ended 31 August 2008.

We need to understand what has driven this decline and if this signals a change in our view of how our clients will adopt this technology.

It is first worthwhile looking at the supply side of our market. The service sector has now grasped the potential of CSEM and more players have entered, or are attempting to enter the market, in some cases with significantly different configurations of technology. This has dramatically increased the levels of supply and in mid-summer there were potentially eleven electromagnetic crews available. OHM has played its part in this increase in capacity with the introduction of our third crew on the recently delivered OHM Leader, which was ordered a year ago in a time of apparently steady market growth.

Coupled with this increase in supply, the demand side of the business took a setback when
significant work programs in Asia were cancelled for a number of reasons not associated with the technology. This coincided withoperationally driven lulls in activity by the major users of the technology resulting in a likely overall decline in market size for 2008. The significant imbalance of supply and demand created difficult market conditions for both OHM and its competitors, all of whom have visibly suffered this year.

Our market research shows that the main reasons for slow adoption, amongst those not yet
using CSEM, are to do with a lack of understanding of the technology, a lack of resources to deal with it, and uncertainty about how to integrate and incorporate the results with other geophysical and geological data in a value creating way. Lack of budgets was also cited as an important issue but these budgets will follow if we can solve the first two issues. We have redoubled our efforts to showcase the benefits of CSEM to potential clients in a
bid to overcome this resistance.

Against this landscape, we must ask what the future holds for us. Here, I believe there is
cause for some optimism. When we look at our contracts to date we still note a pleasing mix of work with a steadily rising number of repeat clients, together with a solid flow of new ones. This gives us confidence that new users are still coming to the technology and that a significant number of them will go on to adopt.

We believe that our technical research continues to give us an edge too, by improving the
value of the information provided by CSEM surveys and by widening the envelope of geological settings in which we can apply CSEM. OHM pioneered the application of CSEM in shallow water and we have recently completed a CSEM survey in a shallow water carbonate setting. Such a survey, in this type of geological setting, would have been unimaginable two years ago and conducting CSEM operations in these water depths would have been deemed impossible when OHM was founded. The results of the survey are still at an early stage of analysis but look extremely promising. By increasing the range of geological conditions in which we can apply the technique, we significantly increase the
potential market for CSEM.

Our pool of identified opportunities for 2009 is larger than the comparable view we had in
2008, and we are now engaged in efforts to turn this potential into order backlog. Our alliance with CGGVeritas is also contributing to this picture, helping us to build relationships and create prospects in markets that were previously not available to us through a lack of resources to maintain significant market presence.

Adding further momentum to our business, we continue to see the value in the combination of CSEM with other information, and our recent acquisition of Rock Solid Images has enabled us now to create unique, multidisciplinary teams of analysts who are able to engage with all of the geosciences data that clients have and to fully integrate CSEM results, unlocking the true potential of the technique. Our first proposals to operate for oil companies in this way have met with a positive response and we see this type of approach as quickly becoming the norm for CSEM applications. We believe that we have a significant lead in creating the operational tools, workflows, and architecture to
work in this way.

We must counter this positive view with an awareness of the potential threats to these work programs resulting from the current global financial situation. We count ourselves fortunate to have a significant portion of our opportunities with major companies who have
considerable cash generating capability and who, we hope, are engaged in investing in reserves replacement for the long term. We will closely monitor developments over the coming months.

The supply side of the business also gives us some hope for optimism. Faced with extremely high costs, we believe that some of our competitors appear to be withdrawing capacity from the market.

At OHM, we have always maintained a strategy of having at least some of our capacity in
mobile equipment that is not associated with vessels chartered longer than the length of any given client contract. To ensure security of supply of capacity, we have balanced this up
with long term charter commitments on vessels that we believe give us a significant operational edge. These vessel charters contain favourable provisions to provide periods free of charge during periods of low utilisation. This provides us some cushion, but regrettably not enough in these oversupplied markets. To try to limit our fixed costs exposure, we have looked for opportunities to sub-charter out capacity on short term contracts and have had some success so far in achieving this aim.

Our Rock Solid Images subsidiary gives us hope for optimism too. The restructuring and
integration of Rock Solid Images into OHM is complete and we have a strengthened management team going forward with Richard Cooper, Rock Solid Image's former President, assuming a group role as President of the OHM group.

Some momentum has been lost and revenues have been disappointing at Rock Solid Images during this integration period when we have also refocused the business to concentrate on growing their rock physics driven seismic inversion offering. This is now gaining real traction in the market place, helped by significant technical success on the exciting new Jubilee trend in West Africa. Rock Solid Images now has a strong order backlog which should support much better performance in 2009.

Our Board has seen a number of changes in the course of the year and I would like to take
this opportunity to thank our former Chairman, Pierre Jungels, who retired at the last AGM, for his guidance and wisdom since our arrival as a public company. Pierre was rigorous in the standards of corporate governance that he expected of us, and our strong foundations in these aspects are his legacy. Thierry Le Roux and Steve Ludlow both joined the Board as non executive directors in the course of the year bringing a wealth of experience of public company governance within the geophysical industry to our board team. Steve will shortly step down due to his other commitments and I wish to take this opportunity to thank him for his wise counsel in the time he has been with us. Keith Lough, our longest serving non executive director, formally took on the role of senior independent non executive director.

Taking stock of our current situation we note that by building our three crews' worth of equipment, our data processing facilities, and by acquiring the added skills that came with Rock Solid Images, we have put in place the essential building blocks we need to deliver
services as demand for our technology offering increases. We have a strong team of dedicated professionals to support these operational capabilities and I would like to extend my thanks to them for their efforts and professionalism in difficult circumstances in the past year.

Outlook

We must now focus our efforts on sales and marketing, on driving forward industry adoption of CSEM, and on evangelising the benefits that we can deliver through the integration of CSEM with other data.

At the end of the fiscal year 2008 we had cash in hand of over £8 million, however we will, during 2009, require significantly increased revenues and /or further fundraising to get through this current difficult period. The position of the capital markets may make a fundraising difficult or overly dilutive and in addition to reducing costs wherever possible
the Board is considering all options to ensure OHM's continued viability. I would draw your attention to the statement on the going concern assumption in note 2 where the directors explain the reasons why it continues to be appropriate to prepare the financial statements on a going concern basis. As a consequence, the audit report to the 2008 financial statements will contain an emphasis of matter paragraph drawing attention to the Group's viability as a going concern.

As I write this report we are engaged with a number of parties who have expressed early
interest in the possibility of acquiring the Company. In tandem with this, we are pursuing a number of opportunities to temporarily sub-charter some of our vessel capacity to reduce our fixed cost base.

We retain a strong belief in the value of our services and a confidence that integrated
electromagnetic and acoustic measurements of the earth will provide significant benefits to explorers and exploiters of hydrocarbons in future years. Our short term challenge is to secure the Company's future.

Dave Pratt
Executive Chairman

Business Review

Introduction

Offshore Hydrocarbon Mapping plc uses specialist remote sensing information to help our
clients to understand the subsurface of the earth. The company was formed to commercialise the controlled source electromagnetic (CSEM) technique which focused on providing information on the nature of electrically resistive bodies in the subsurface as an aid to oil and gas exploration and development. The Company was founded in 2002 and was floated on the AiM market of the London Stock Exchange in 2004.

Rock Solid images (RSI) joined the group in the last weeks of our 2007 fiscal year. RSI was founded in 1998 though the merger of The Discovery Bay Company, Seismic Research Corporation and PetroSoft, Inc. RSI offers a range of products and services including seismic and well data conditioning, seismic inversion for rock and fluid properties and software for rock-physics, seismic modelling and seismic attribute calculation and classification.

RSI is the industry leader in the application of rock-physics for integrating and calibrating seismic and borehole data to provide geologic insight and reservoir understanding at all stages of the oilfield lifecycle.

The acquisition of Rock Solid Images has added key skills and capabilities to OHM which
will allow the Group to lead the market in the integration of CSEM with the seismic and well logging information which oil companies traditionally use to examine their subsurface
formations. Our research leads us to believe that there is immense value to be created in this combination.

Science behind the image

Offshore Hydrocarbon Mapping's unique capability is to use the Controlled Source ElectroMagnetic surveying technique, often in combination with other geophysical remote sensing techniques, to provide meaningful images of the structure of the earth which can be used in the search for and production of hydrocarbons.

In its simplest embodiment, CSEM can be used to detect anomalous responses associated with resistive bodies in the earth. Complex processing and analysis of these simple field responses is required to provide detailed images of the subsurface to discriminate between
signals related to commercial hydrocarbon deposits and those from other geologic or topographic features of the subsurface. By using its unique techniques and software to identify resistive bodies in the earth that correlate in depth and extent to suspected hydrocarbon plays, and having resistivity values consistent with hydrocarbon saturated sediments, OHM are able to significantly reduce the risk of their clients drilling non-commercial wells.

Operating activity in 2008

The Company has experienced a difficult year in its CSEM operations, having seen expected proprietary and data library programs delayed or cancelled for many reasons, none of them to do with adoption of the technology. As we have moved into new operating areas, where CSEM surveys have not previously been undertaken, and as the technology has increased its profile more attention is being paid to the permitting process. This pressure is expected to ease as the technology becomes more routine.

Our proprietary data acquisition product line conducted a number of survey operations in
North West Europe including a technically demanding shallow water survey targeted on carbonate reservoirs, a completely new market for the technology. This survey, one of the most technically challenging that the company has attempted, was safely concluded ahead of schedule.

The bespoke handling systems and advanced sea keeping capabilities of the OHM Express together with the significant progress that has been made in improving the operational integrity of our CSEM equipment all contributed to this success. Resultant data is currently being analysed and it is hoped that significantly more work will follow in 2009 based on a successful outcome.

Data library campaigns were undertaken in Norway and in the North Atlantic. Some of these surveys were focused on prospects identified on seismic data which were to be included in the recent Norwegian 20th licensing round, and there has been a flurry of sales in the run up to the closing of the round.

Other data library surveys are focused on a longer term objective to map and understand
the nature of the sediments underlying massive basalt sheets which cover the Atlantic margins of the United Kingdom and Norway. These sediments are often invisible to seismic data, which has problems penetrating the basalt, and electromagnetic surveying is proving a useful tool in mapping and understanding the sediment thicknesses in the areas. These surveys, which have already achieved some sales, are seen as part of a long shelf life study which should lead to steady sales over the coming years as operators revisit the prospectivity of these areas.

OHM has now conducted data library campaigns in four core areas:

    *     Campaigns offshore Norway in relation to various Norwegian licensing rounds
conducted in conjunction with TGS Nopec and aimed at detecting resistive bodies associated with seismically mapped leads.
    *     Long, regional lines offshore Norway and West of Britain aimed at mapping the base of basalts that is not clearly seen on seismic and also in detecting the top of basement to identify the thickness of sedimentary sequences underlying the basalts.
    *     A campaign in Equatorial Guinea in partnership with Geseis and aimed at detecting
resistors in a prospect mapped from seismic. Purchase of this data is mandatory on award of the covered blocks and OHM understands that negotiations are ongoing at present to award the block to a two oil company group.
    *     On the Exmouth Plateau off Australia.

Full cost recovery has been made from sales on many of these surveys and active sales are
being steadily made from the data library.

OHM's data library is still a maturing business but it has shown steady year on year revenue growth, and has delivered good profit margins on surveys that have gone through their full sales cycle. OHM has strict qualifying hurdles for proposed data library programs and rigidly applies this discipline. As a result of this, the ratio of annual sales to year end
carrying book value of the library has improved from 25% to 100% over the last two years.

Our data processing teams conducted work behind our own vessel's data acquisition and also reprocessed data acquired by our competition where OHM's industry leading capabilities can improve the imaging that had been achieved previously.

Rock Solid Images provided services in Asia, Europe, and North America. They had a
relatively quiet year as they changed the focus of their services towards increased provision of rock physics driven seismic inversion services. Early work conducted by RSI in this area had considerable success in predicting the distribution of hydrocarbon bearing sands in the
Mahogany / Jubilee discoveries in West Africa, and based on this success, there has been growing demand for their services. They currently have a strong order backlog, which we expect to result in significantly improved 2009 performance.

Safety and the environment

The Company conducts operations offshore, often in hostile and remote conditions. In order to control the risks associated with this activity, the Company has developed a comprehensive safety and environmental management system. This system is frequently reviewed and updated for new circumstances and to capture increasing experience and emerging best practice. Ownership of the system lies not just with the Company and its management but with operational personnel whose experience and knowledge are vitally important in the development and maintenance of safe working regimes.

It is a testament to the dedication and professionalism of all our staff that we have, for the seventh successive year, achieved our goal of conducting our operations without significant injury, lost time incidents, or accidental damage to our environment. Once again, in 2008 we were grateful to have received awards from some of our clients for our HSE performance.

Research and Development

OHM's general research goals are: to improve the images of the earth that CSEM provides; to widen the application of the method to a wider set of geological environments; and to be able to accurately quantitatively predict the earth's rock and fluid properties through the integration of seismic, electromagnetic and petro-physical data with geological knowledge. We continue to lead the market in our ability to conduct CSEM operations in a full range of water depths and to produce images of complex resistive structures in complex basins and are seeing strong interest in our data integration concept which we believe has the potential to lead to a very significant market in reservoir management.

The Group invests strongly in research and development and Dr. Lucy MacGregor leads a team of 23 researchers and developers together with 8 internationally renowned retained consultant researchers including Arthur Cheng, Gary Mavko, Martin Sinha, Tury Taner, and Svein Treitel.

The Group conducts some research through organising and leading industry research consortia which, in addition to providing some funding for our research and development, enable us to allow our clients early insights into our future technical capabilities as a vehicle to accelerate adoption of our technologies.

We have two active consortia at present: Lithology and Fluid Prediction (LFP) which has18-20 Oil company members and the WISE project investigating advanced issues around the integration of seismic and EM data (6 members). We are also completing a joint industry project into appraisal and monitoring using CSEM with BP, BERR and The National Oceanographic Centre.

OHM is involved in a number of external research collaborations allowing us to leverage our own research and development effort. These projects also seek to address the chronic shortage of well trained EM practitioners by sponsoring studentships both to further its research ties with universities and also to train future employees.

Intellectual Property

The work conducted by OHM's researchers led to a number of patent filings in the course of the year adding to OHM's growing portfolio of intellectual property rights which now stands at 40 granted patents with 78 applications pending. OHM's intellectual property strategy is to patent instrumentation, processes and applications that improve the effectiveness of the CSEM and associated techniques. A competitor has for a number of years pursued a general method patenting strategy in this area. OHM has always contended that these general method patent applications were flawed mainly due to the amount of information relating to the technique that was published by academics before the
commercialisation phase began.

Financial review

Following a number of periods of sustained growth our revenues fell back considerably in
2008 driven by adverse supply/demand conditions in the CSEM market. Revenues for the year were a disappointing £10.8 million (2007: £17.7 million) resulting in a pre tax loss of £8.7 million (2007: (£1.0m))

Revenues from the Rock Solid Images group and our CSEM data processing and interpretation revenues are being consolidated into a single data processing and analysis revenue stream reflecting the consolidation of these groups into multi disciplinary teams. This revenue stream accounted for £2.7 million in the year (2007: £0.1 million).

Data library saw strong growth with sales of off the shelf data doubling on the previous year but this was offset by a sharp decline in utilisation of our full service survey activities as poor industry supply demand dynamics significantly reduced our utilisation.

Cost of sales increased year on year through the addition of a full year's worth of Rock
Solid Images' costs and costs associated with the demobilisation of a vessel sent to South East Asia for an aborted work program there. This was offset by reductions in marginal costs driven by low data acquisition activity and a number of cost saving initiatives. Year on year our overall cost of sales declined from £14.8 million to £13.0 million. This resulted in a gross loss from operations of £2.3 million pounds compared to a £2.9 million profit in the previous year.

Overheads rose sharply from £4.1 million to £7.2 million on increases in research and development, sales and marketing effort, and on the absorption of a full year's worth of Rock Solid Images' overheads.

The Company's cash balance at the 31st of August 2008 stood at £8.2 million (2007: £19.0 million) with the bulk of our anticipated capital expenditure on equipment for our third EM crew completed. This gives us the resource to cope with significant market growth and accordingly, for the foreseeable future, capital expenditure is likely to be limited to essential maintenance items. The Company's cash balance as at 30 November stood at £5.9 million.

Principal Risks and Uncertainties.

The Offshore Hydrocarbon Mapping Group operates in a competitive environment and many of its technologies are at the leading edge of industry capability. Accordingly, the Group's growth is heavily driven by the general state of demand for oil and gas exploration and exploitation services, by the rate of adoption of these technologies by its oil industry
clients, and by competitive pressures created by new entrants seeking to duplicate its offering. The Group seeks to control these risks through its marketing and sales strategies and by patenting key elements of its technology. It invests in Research and Development to maintain its lead over its competitors. A number of oil service companies have indicated intent to enter the Group's core offshore electromagnetic market and accordingly earnings could be impacted if these companies succeeded in developing a competitive offering which captured market share. The recent decline in oil prices and general economic situation may lead to delays or declines in spending by OHM's client base.

A good portion of the Group's operations are carried out offshore and internationally. Offshore operations increase exposure to certain health, safety and environmental risks. Offshore Hydrocarbon Mapping plc has well developed operating procedures and a health, safety and environmental management system through which it seeks to control these risks and these are regularly audited by our clients and benchmarked against industry norms and host government standards to ensure that we are operating at acceptably high levels in this regard. Where necessary advice is taken from security consultants before making decisions about sending staff to countries where there may be a security
risk.

Offshore operations can be impacted by conditions beyond the Group's control including,
but not limited to, the effects of weather, tides, currents, and third party interference. Where possible, our operating companies seek to pass as many of these risks on through its contracts with clients.

The supply chain in sectors of the oil and gas industry is exhibiting significant tightness of supply for key resources like skilled staff and offshore vessels. The Group has developed training, recruitment, and retention programmes to endeavour to ensure that it can meet
its staffing requirements going forward. There is a share based retention scheme for key
personnel. The Group monitors other areas of its supply chain frequently and seeks to establish strategic relationships with key suppliers to ensure security of supply.

International operations create an exposure to foreign currency and foreign tax risks which are, where possible, mitigated through hedging in the supply chain and in contractual terms with clients.

In the past there have been challenges to the Group's freedom to operate resulting from a
competitor attempting to enforce intellectual property rights. The Group invests in the top quality legal advice in this area and constantly monitors the patent landscape around its
technologies. To date, the group has prevailed in these actions and there are no current
proceedings against any of the Group's companies, although if proceedings emerged which lead to adverse rulings in this area there could be severe restrictions on the Group's operations. OHM note that the High Court in London is expected to rule on the 19th of January 2009 on the challenge mounted by Schlumberger on a number of emgs's patents. The Court may decide to overturn, uphold, or restrict the scope of the patents. The Court may also decide to take the path chosen recently by the Dutch Courts and defer their decision pending the European Patent Office's consideration of OHM's and Schlumberger's challenges to the patents. Whilst an adverse decision could deleteriously affect OHM'S business, OHM has followed the progress of Schlumberger's action and has noted that the arguments advanced by Schlumberger with respect to the invalidity of these patents closely match OHM's position.

Offshore Hydrocarbon Mapping Group's companies carry out extensive data processing
operations which rely on large computer assets and complex proprietary processing software. Interruptions in operations of these computing resources could impact the Group's earnings. The Group seeks to distribute and back up its computing assets to mitigate these risks. The current conditions in the financial markets could present difficulties in fund raising both for OHM and for its clients, and such impact on the Company's future business plans will need constant review. OHM will need to achieve a dramatic upturn in its trading position, and/or sub-charter excess vessel capacity, and/or raise additional finance in FY2009 to ensure its continuing viability. I would draw your attention to the statement on the going concern assumption in note 2 where the directors explain the reasons why it continues to be appropriate to prepare the financial statements on a going concern basis.

Dave Pratt
Executive Chairman

The full text of this announcement is available on RNS.

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