Widespread Energy Final Announcement for year to 31 March 2010

Widespread Energy – Final Announcement for the Year ended 31 March 2010

 

Financial Result

 

Your directors submit the audited financial statements of Widespread Energy Limited for the year to 31 March 2010. The trading result for the period was a loss of $198,000 (2009 loss $516,000). 

 

An analysis of the result is provided in the table below 

 

	Year to 31 March 2010 ($,000)	Year to 31 March 2009 ($,000)
Income	34	35
Administrative expenses	142	172
Exploration costs written down		107
Impairment on investments	91	272
Net Profit (loss) before income tax	(198)	(516)
Income tax
Net profit (loss) after tax	(198)	(516)

 

The reduced reported deficit for the year to 31 March 2010 reflected a lower level of activity overall and a reduced write-down in respect of our investment in Green Gate Limited.

 

Shareholders’ Funds, assisted by $392,000 raised immediately prior to year-end, increased during the period from $964,000 to $1,159,000. 

 

Investment Summary

 

Widespread Energy holds the following investments:

 

• An offshore prospecting permit (Continental Shelf Licence 50270) covering 4,726 km² on the central Chatham Rise that includes significant seabed deposits of rock phosphate. (90% Widespread Energy, 10% Widespread Portfolios)
• Petroleum exploration permit (PEP) 38526 over the prolific oil seeps at Kotuku on the West Coast (100%)
• PEP 50439 covering an area of 1,313 km², off the West Coast of the South Island between Hokitika and Punakaiki (100%)
• An 11.8% interest in Green Gate Limited, the holder of PEP 51150 in Taranaki.
• An investment in Akura Limited, a Fiji based private company, which holds three Petroleum Exploration Licenses in Fiji, predominantly offshore.

 

 

Highlights of the Year

 

Widespread Energy has had a pretty good year.

Milestones achieved include:

 

• The granting of the Chatham Rise prospecting licence on 25 February after a 30 month gestation period
• The immediate commencement of the year one work programme including the establishment of a Wellington based project headquarters
• Drilling of an exploration bore at Kotuku (near Lake Brunner) as part of the stage two work programme for PEP 38526
• The granting of three petroleum exploration licences to Fiji based Akura Limited
• The raising of nearly $400,000 by means of private placements in February and March and a similar amount by means of a share purchase plan immediately after year-end.

 

The company now has quite some momentum and with approximately $900,000 in cash is well enough funded to actively progress several of its projects in the 2011 year.   

 

Capital Raised

 

As noted above, the company raised $392,000 by means of private placements during February and March. The lion’s share of this funding was invested by two high profile overseas mining sector identities that are particularly interested in the potential of the Chatham Rise Rock Phosphate project. Collectively they now hold 14% of Widespread Energy (on an undiluted basis) and are the second largest shareholding bloc behind Widespread Portfolios (20%).

 

Subsequent to the private placements existing shareholders were extended the opportunity to participate in a share purchase plan. This had strong support from shareholders, with the modest shortfall being placed principally with one of the overseas shareholders and with Widespread Portfolios.

 

Following these issues the issued capital is now 23,987,272 shares and 16,080,276 June 2011 10c options. As at the time of writing the market capitalisation of the company (including shares (14 cents) and options (4 cents) is $4.006 million. This compares with a company market value of $2.001 million at the same time last year.

 

Operations Review

 

Chatham Rise Rock Phosphate Project 

 

On 25 February 2010, a consortium comprising Widespread Energy and associated company Widespread Portfolios Limited, (“the Joint Venture or JV”) was granted an offshore prospecting permit by the Crown Resources division of the Ministry of Economic Development covering an area of 4,726 km² on the central Chatham Rise. The permit area, which is in New Zealand territorial waters, is located 600 km east of Christchurch and includes significant shallow seabed deposits of rock phosphate and other potentially valuable minerals.

 

The initial term of the permit is two years with further priority rights to either extend the prospecting permit or apply for a mining licence.

 

 

 

Background

 

Rock phosphate is the primary constituent of most fertilisers that are manufactured and distributed in New Zealand.  Rock phosphate can also be applied directly to pasture. Field trials undertaken by the Ministry of Agriculture in the 1980s demonstrated that in some conditions such direct application of rock phosphate can result in a more effective fertiliser with less environmental damage from run-off.  

 

At present virtually all of the rock phosphate used by the New Zealand fertiliser industry (approximately 1 million tonnes a year) is imported from Morocco, with high  transport costs adding to the local landed costs of this product.

 

Exploration conducted in the 1970s and 1980s by the New Zealand Government, Fletcher Challenge Corporation and other companies indicated the potential for economic concentrations of rock phosphate on the Chatham Rise. Although significant sample quantities were gathered during these exploration programmes, no production has occurred from this region. The sample quantities gathered during this period of exploration showed that the Chatham Rise rock phosphate occurs in nodules that also contain a number of other potentially valuable substances, including rare earth minerals, silicon and fluorine.

 

Recent increases in the market value of rock phosphate and advances in offshore extraction technology mean that the profitable exploitation of this marine deposit may now be feasible. The deposit lies on the surface of the seabed at relatively shallow depths and, based on technology now available and used routinely in the offshore construction and oil sectors, it is considered likely that the rock phosphate will be economically feasible to extract.

 

Literature on the Chatham Rise Rock Phosphate  

 

As a result of the extensive exploration programme described above, there have been numerous reports published concerning the presence and the characteristics of the Chatham Rise rock phosphate deposit. These reports are publicly available and can be obtained through the Crown Minerals website at www.crownminerals.govt.nz.

 

A report by David J. Cullen published in 1987 and entitled The Submarine Phosphate Resource on Central Chatham Rise summarises the various data collected during the earlier exploration programmes and suggests that:

 

• Intensive surveys of limited areas of the crest of Chatham Rise have proved reserves of some 30 million tonnes of phosphorite; and
• The total resource is provisionally estimated at 100 million tonnes.

 

• Although this data was obtained approximately 30 years ago, the grant of the prospecting permit will allow the JV to test and confirm these conclusions.

 

If it can be confirmed that there is a rock phosphate resource of 100 million tonnes in our prospect area, the present in-situ value of the rock phosphate alone would be, based on current market prices, approximately NZ$25 billion.

 

Possible Project Economics

 

In order to further understand the potential value of this mineral asset, initial scoping studies have been undertaken by the Joint Venture, based on the following assumptions:

 

• A probable reserve of 30 million tonnes of rock phosphate exists in a small section of the permit area. This assumption is based on the historical data referred to above.
• This reserve can be extracted at a rate of at least 500,000 tonnes a year to replace 50% of the rock phosphate that is presently imported into New Zealand.
• Extraction and local transport costs are estimated to be less than $US 100/tonne compared with imported rock phosphate assumed to have a long run cost ex Morocco of  $US 150 per tonne plus $US 60/t shipping cost, i.e. $US 210 c.i.f. in New Zealand.

 

Based on these raw assumptions and other relevant factors the project could generate annual pre-tax profits of $NZ 50 million compared with importing rock phosphate from Morocco. 

 

Another possible way of assessing the potential value of the deposit is to use the above provisional estimate of 100 million tonnes of rock phosphate in our permit area and value it on an “in-situ” basis. If the Joint Venture were able to on-sell the resource for $US 1/tonne (approximately half of one percent of the cost of imported rock phosphate) that would value the resource at US$100 million. At present exchange rates this scenario implies a project value per Widespread Energy share of NZ$5.16 (NZ$3.09 after conversion of the options).

 

Clearly the assumptions that underlie these valuation approaches need to be independently and rigorously critiqued and this process is presently underway. Wellington based resource-sector adviser Rockpoint Corporate Finance is in the final stages of completing a project pre-feasibility study and independent valuation. 

 

Once the report is finalised a summary of the key conclusions of their valuation report will be advised to shareholders and NZX.

 

Management of the Marine Environment

 

The Widespread Joint Venture is acutely aware of its responsibilities to conduct both the mineral prospecting programme and (hopefully) extraction of the rock phosphate, in a manner that causes minimal disruption to the marine environment.

 

To this end, we have already been engaged in discussions with the relevant NZ Government Crown Research Institute, the National Institute of Water & Atmospheric Research (NIWA). We will be working closely with NIWA to optimise our activities so that

 

a)      minimal disruption occurs to the marine environment and

b)      b) we do not impact adversely on animal or plant habitats.

 

Specifically, NIWA (which has already mapped the Chatham Rise seabed and its flora and fauna in close detail) will assist us in gaining a comprehensive understanding of the manner in which we will need to operate to minimise environmental impact from potential extraction activities. 

 

In addition to this, it is a term of our prospecting licence that all prospecting or extraction activity will be undertaken strictly in accordance with the environmental guidelines published by the International Marine Minerals Society “Code for Environmental Management of Marine Mining”.  

 

Work Programme

 

The work programme for the first 12 months under the permit includes:

 

• A literature review of all previous reports and studies arising from the extensive earlier exploration work programmes
• Digitisation of all geological, geochemical and geophysical data gathered in these earlier programmes
• Subsequent analysis of this data in order to plan future seabed sampling requirements
• Evaluation of other possible exploration techniques including underwater radiometric surveys
• Environmental base-line monitoring
• A progress report to Crown Minerals.  

 

This programme is already well advanced – in the last 10 weeks the Joint Venture has:

 

• Raised further capital to finance an accelerated work programme
• Contracted NIWA to undertake a series of environmental studies in order to fully understand the marine environment in our licence area
• Commenced negotiations with NIWA concerning the digitisation and re-analysis of historic exploration data. This work is expected to commence soon
• Engaged geological consultants Kenex Limited to undertake permit management and reporting to Crown Minerals, interpretation of historic data, and design of the second year exploration programme
• Mandated Rockpoint Corporate Finance to complete a pre-feasibility study and independent project valuation. This work is already well advanced.
• Marketed the project to the share-broking community in Wellington, Taranaki and Auckland
• Established a Wellington based project headquarters
• Commissioned a new project focussed website (www.rockphosphate.co.nz)  

 

The Joint Venture is aiming to complete the first year’s work programme by 30 November (three months early). The purpose of this is to fast-track the year-two seabed sampling work to take advantage of more benign sea conditions in early 2011.  

 

All going well it is intended to complete the year-two work programme by Christmas 2011 and by then to be well advanced in preparation of an application to recover the rock phosphate resource from the seabed.  

 

PEP 38526 - Kotuku

 

PEP 38526 is located north of Lake Brunner, on the West Coast, South Island. The

permit covers the northern half of the Kotuku Structure and a significant portion of

the associated Grey Valley Trough.

 

As part of the year-two work programme Widespread Energy started drilling a stratigraphic exploration bore in mid March 2010.  The aims of the bore were to confirm the shape of the Kotuku anticline, recover samples of the rock strata and determine the nature of any fluids contained within it.

 

The drill rig encountered technical issues shortly after commencing Widespread 1 and relocated to an adjacent site and spudded as Widespread 1A. A week later Widespread 1A encountered oil shows from 21m-90m, and then began to flow gas from 90m depth. The gas was not expected to be encountered at this depth so well control procedures were undertaken and the flow of gas was shut off so that a coring rig could be mobilised in order to continue drilling to the target depth of 250 metres.

 

In mid April Widespread 1A was recommenced and several attempts were made to re-enter the well. These failed (due to engineering difficulties with the 6 inch casing) and the decision was made to plug and abandon the bore.

 

While the target depth of 250 metres was still not reached the earlier persistent oil shows that occurred between 21 metres and 90 metres are of considerable interest.

 

We are now undertaking a detailed analysis of the data gathered to date before planning the next stages of the exploration programme. The initial focus in respect of the Widespread 1A well outcome will be determining the characteristics and feasibility of oil recovery in the oil-saturated layers of rock.

 

If the outcome of this work is positive further bores could be drilled in the vicinity of Widespread 1A to determine the likely lateral extent of the oil bearing rock structure. It is also possible that another deeper bore will be undertaken on order to reach the original target depth of 250 metres.

 

PEP 38526 also contains a number of other promising targets so our interest in this licence remains very much alive and well.

 

 

PEP 50439 – Offshore West Coast.

 

On 6 March 2008 Widespread Energy Ltd was granted a Petroleum Exploration Permit covering an area of 3,269 km², off the West Coast of the South Island between Hokitika and Punakaiki.

 

PEP 50439 was granted for an initial term of five years, subject to the staged work programme tendered by Widespread Energy.  Geosphere Ltd was contracted by Widespread Energy Limited to conduct the majority of the geological and geophysical investigations.

 

During the first 12 months, this work programme involved:

 

• Reprocessing of 200km of seismic data into a digital form that can be integrated with the existing digital data set
• Mapping of selected geological horizons
• Investigation of thermal history to ascertain the timing and quantity of oil and gas generation, and
• The development of an inventory of exploration leads and prospects
• Compilation of a report which was submitted to Crown Minerals in May 2009.

 

 

In March 2009, Widespread Energy applied to reduce the licence area of PEP 50439 from 3,269 square kilometres to 1,313 square kilometres.  The relinquishment of the northern and further offshore area of PEP 50439 resulted from the evaluation of existing seismic data and other studies undertaken by Geosphere on behalf of Widespread Energy.   This work confirmed the prospectivity in the portion of PEP 50439 which Widespread retained.

 

In the PEP 50439 retained area five main reservoir targets are considered as being of suitable reservoir quality to potentially contain hydrocarbon accumulations:

 

• Sandstones within the Brunner Coal Measures
• Base Eight Mile Formation Callaghans Greensand Member
• Upper Blue Bottom Group basin floor fan sediments
• Takutai Half-Graben fill deposits of the Pororari Group
• Sandstones within the Paparoa Coal Measures deposited in the Takutai Half-Graben.