Offshore Hydrocarbon Mapping plc - Interim results for the six months ended 28 February 2009

23 Apr 2009

Offshore Hydrocarbon Mapping plc, the provider of remote electromagnetic sensing services designed to detect the presence of offshore oil and gas, (CSEM) and of integrated CSEM, Seismic and Rock Physics analysis, today announces its interim results for the six months ended 28 February 2009.

  • CSEM order book visibility remains low
  • Rock Solid Images business performing well
  • Integrated offering attracting industry attention
  • Cost structure review complete
  • Revenues of GBP6.2 million, an increase of 31% over 1H 2008
  • Pre tax loss of GBP5.6 million
  • Cash at period end GBP2.3 million

Dave Pratt, Offshore Hydrocarbon Mapping's Executive Chairman, said: "Given the uncertain climate that prevails in the industry, we have completed a review of the Group's cost structure resulting in significant reductions in the Group's fixed costs. Charter terms for OHM's chartered vessels OHM Leader and OHM Express have been renegotiated and a number of staff, at all levels in the Group, have been made redundant. Remaining members of senior management have also taken material salary cuts.

"OHM's technologies provide new insights that will drive exploration success and enhance recovery of reserves. We continue to focus on prevailing in the challenging conditions we face, and on growing our order book to secure our place in these exciting markets to come."

Offshore Hydrocarbon Mapping plc     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

The oil service industry is currently experiencing a deeply challenging period. The global economic crisis has impacted dramatically on the world's financial markets making it difficult for companies to raise money both through debt and equity offerings. For many of our clients this has meant that the cash they need to fund their exploration and development programs is diminished and indeed, for some, this has resulted in them ceasing trading or being sold off in consolidation with other players.

The price that our clients achieve for their produced oil and gas has seen a significant decrease from the highs of 2008. This has prompted many of them to cut exploration and production spending or to delay planned projects. Even those who have strong cash positions and take long term industry views, or even invest counter cyclically, find it difficult to fully execute on these strategies when their partner Group members in individual projects seek to reduce expenditures.

This environment has mixed impacts on our business lines. Oil companies seeking to reduce overall spending may choose to invest more in their existing data to further de-risk their decision making in place of new data acquisition programs. This plays well for our Rock Solid Images business line, which is experiencing historically strong order backlog.

Conversely, CSEM technology related expenditures, being at an early stage of industry adoption, are not so embedded in our clients' workflows and accordingly may be more easily curtailed or delayed. However, on a more positive note I am pleased to note recent publication of exploration successes supported by CSEM results, like Ophir's recent Fortuna discovery in Equatorial Guinea where OHM's advanced data processing revealed a resistive body associated with the gas reservoir.

Like many other companies the turmoil on the financial markets has also adversely impacted OHM's share price. There has been an overall reduction in valuation multiples in oil service stocks. Together with this, a number of funds that were invested in OHM are facing difficulties and redemption calls. With many funds moving to bigger and more liquid companies, demand for OHM's shares is much reduced. This has resulted in a current market capitalisation for the OHM Group, of less than one tenth of the shareholders equity position on our balance sheet. This is despite improved trading from Rock Solid Images since we acquired them less than two years ago and significant progress by the Group in
the integration of seismic and CSEM data to give advanced insights into rock and fluid properties in the subsurface. The economic environment will eventually recover a measure of stability and this should drive an improved trading environment which will hopefully reward shareholders patience for persevering with us during these trying times.

Reacting to prevailing market conditions - restructuring of cost base
In my Chairman's report, at the end of Financial Year 2008, I highlighted that prevailing market conditions could impact on the Group's future business plans, and that OHM would need to achieve a dramatic upturn in its trading position, and/or deal with vessel capacity costs and/ or raise additional finance to ensure continuing viability.

The Board subsequently instigated a number of initiatives to improve the Group's viability. Given the uncertain climate that prevails in the industry, we have completed a review of the Group's cost structure resulting in significant reductions in the Group's fixed costs. Charter terms for OHM's chartered vessels OHM Leader and OHM Express have been renegotiated and a number of staff, at all levels in the Group, have been made redundant. Remaining members of senior management have also taken material salary cuts.

On an annualised basis, Group fixed costs should reduce by an estimated GBP13 million. Going forward these cost adjustments will allow the Group to become cash positive at a significantly lower revenue level than would previously have been required and which can be expected in this depressed market. These cuts have been carefully crafted to reduce only capacity and not quality or capability. We have strived to preserve the essential core of knowledge from which we can re-grow when market demand for CSEM gets back on its growth track.

Our restructuring has not been all about cost saving. Importantly, we have also been building multidisciplinary teams of geologists, geophysicists and petrophysicists uniquely giving us the architecture necessary to deliver on the benefits we will reap from the close integration of seismic and CSEM measurements.

Following the restructuring, Richard Cooper is Group President with responsibility for the running of the Group's businesses. Bob Auckland remains Chief Financial Officer and Dr. Lucy Macgregor Chief Scientist. Dr Anthony Greer is promoted to manage OHM Ltd, taking on responsibility for the day to day running of the CSEM business line.

These changes materially improve the Group's financial position although, like any other business, we rely on an inflow of orders from our clients to continue to be able to generate cash flows. In this respect we are hopeful that we will receive a number of key orders which will enable adequate CSEM revenues to be generated in the summer operating season to give the required boost to the cash position of our OHM Ltd subsidiary. In this respect, we are actively negotiating a number of projects which would deliver this revenue generation. The situation is better at Rock Solid Images where their order book gives encouraging visibility.

Review of operations
We have seen an increase in demand for CSEM services and products over the same period last year, driven by a comparatively extended season of work in the North Sea, and some key pilot program work done in the winter months. Data library sales were also robust in response to the Norwegian 20th licensing round. Early sales from the WISE product line, the Group's products arising from the close integration of CSEM and seismic, made a small contribution to revenues. Although these revenues are welcome, they are more significant as a commercial proof of concept for industry's appetite for this service.

There has been continuing exploration success by the group of oil companies that operates the Mahogany / Jubilee field in Ghana, where Rock Solid Images are playing a key role in mapping the individual hydrocarbon bearing sands in complex fan setting. This has been a catalyst for demand growth for Rock Solid Images' seismic inversion workflows which are underpinned by proprietary seismic data conditioning tools and rock physics capabilities. This increase in seismic inversion throughput has resulted in a significant change in product mix within Rock Solid Images which has driven both increased revenues and margins over the comparable period in 2008.

Revenues for the first half year of the year to February 28th 2009 were GBP6.2 million, an increase of 31% over the corresponding period last year. This growth results both from the increase in demand for CSEM services and data and by strong growth in the rock physics driven seismic inversion services.

Significant cost base reductions will not take full effect until the second half of FY2009 though there are exceptional costs of the order of four hundred thousand pounds associated with this restructuring which are recognised in the first half accounts. Accordingly, the Group made a loss before tax, after restructuring costs, of GBP5.6 million for the first half of the current financial year. The Group's cash balance at the 28th of February was GBP2.3 million and the Group's borrowing facilities amounting to US$3 million remain untouched.

Research and Development
Our commercial research and development goals are little changed. We seek to widen the geological settings in which we can apply our core technologies and to enhance the value of the information that these technologies provide to our clients. What has changed over the years is our insight into the power of data integration as an enabler for these objectives. A good deal of our leading edge research is now focused on the benefits that arise from such data integration and with gaining new insights into lithology and fluid prediction from
geophysical measurements.

Our business model of having such research underwritten by industry consortia allows us to continue to invest in research and development in these troubled times while allowing our consortia members to gain insights into emerging capabilities that allow them to accelerate adoption and implementation of our results.

Trading outlook
Demand for CSEM work is depressed compared to the levels seen in 2007. Based on a review of our clients' budgets, we see hope for an improvement in demand in 2009, but clients' caution and cash preservation could very likely delay this spending.

The Rock Solid Images business line which undertakes advanced analysis of seismic and well log data continues to perform well with a strong backlog extending well into the Group's second half year. Recently introduced workflows which are designed to provide information to allow increased production from unconventional shale plays are now creating industry interest adding to the Group's backlog.

In difficult market conditions, positive progress has been made in CSEM adoption with five new clients added within the half year period. WISE, the Group's latest product which enhances CSEM data through advanced combination with seismic information to provide insights into rock and fluid properties has also just completed its first commercial project. Industry support for this initiative continues to grow with oil company support remaining high for the WISE research consortium.

We have extremely encouraging results from CSEM pilot programs conducted over the last twelve months in reservoir settings that are technically challenging for the CSEM technology highlighting the rapid improvements in capability that are resulting from OHM's research and development effort. We have reasonable expectations that these pilot programs will lead to some larger commercial programs in the summer of 2009.

We also anticipate further data library sales from our existing data sets triggered by the award of licences related to the Norwegian 20th licensing round.

The ongoing success of our CSEM acquisition business line is heavily dependent on securing orders in these areas and the management and sales teams are actively pursuing the opportunities that will deliver this success.

The fundamentals of the oil industry remain very clear and very simple. Hydrocarbons are a finite essential resource on which global energy and materials businesses are dependant. Existing reserves are being steadily depleted, and the industry is not finding new resources fast enough to meet forecast long term demands. Economies will recover and hydrocarbon consumption will accelerate once again. The easy to find hydrocarbons have been found and the easy to produce have been produced. OHM's technologies provide new insights
that will drive exploration success and enhance recovery of reserves. We continue to focus on prevailing in the challenging conditions we face, and on growing our order book to secure our place in these exciting markets to come.

David Pratt
Executive Chairman

The full text of this announcement is available on RNS.