Germany: RWE Dea Earnings Rise 83 pct on High Prices

RWE Dea AG,an international company operating in the field of exploration and production of natural gas and petroleum based Hamburg, remains on a very good track: in the financial year 2011, the Company improved its earnings by 83 per cent. Operating profit amounted to 558 million euros in 2011 (2010: 305 million euros).

“Above all, the reasons for this substantial improvement in earnings are the high level of crude oil and gas prices, as well as the increase in our production,” explained Chief Executive Officer Thomas Rappuhn at today’s annual press conference in Hamburg. “Our Company is right on target on its growth path,” said Rappuhn: “In 2012, we want to further increase the production of oil and gas by developing new reservoirs and boost our earnings”.

The Company’s growth projects already initiated were reflected in increasing capex investments in 2011: RWE Dea made a substantial investment of 688 million euros – 36 per cent more than in the previous year (507 million euros).

Chief Financial Officer Dr Johannes Karlisch emphasised: “It’s particularly gratifying that we’ve generated a positive free cash flow and managed to fund our investments on our own steam.” Earnings after taxes amounted to euros 200 million. The absolute value contribution was equivalent to 205 million euros. Sales revenues in fiscal 2011 came close to 2 billion euros (previous year: 1.5 billion euros).

Oil and total production exceed previous year’s level

In 2011, RWE Dea produced 2.7 billion cubic metres of gas and 2.5 million cubic metres of crude. Converted into oil equivalents, total production amounted to 5.1 million cubic metres, In total, it was slightly higher year-on-year. Owing to the natural production decline in Germany and the United Kingdom, gas production witnessed a slight decrease. Oil production was increased by 9 per cent. The reason for this, above all, is the Norwegian Gjøa field, which had commenced with production at the end of the year 2010. In addition, the production start of an additional well in the Mittelplate oil field contributed to this rise. “In the course of our production activities, we compensated for the natural production decline in many locations by means of new widely deviated wells and high-tech measures,” reports Chief Operating Officer Ralf to Baben.

Earnings benefit from higher crude oil prices

Crude was trading at very high prices on the international markets in 2011. The annual average price for a barrel of the reference oil Brent crude reached a level of around US$ 111. Compared with the previous year, the price of crude was up by almost US$ 32, or 40 per cent. In particular, rising demand from the rapidly growing Asian economies exerted an influence on prevailing trends on the oil market. The political unrest in North Africa and in the Middle East was a further compounding factor. In a number of countries, this led to a decline in production and raised concerns that the oil supply might become increasingly scarce. Over the course of the year, the situation on the oil market eased somewhat. The price level of natural gas likewise increased on the wholesale markets. The average natural gas price realised by RWE Dea, at 25.50 €-cents per cubic metre, exceeded the previous year’s level of 20.40 €-cents per cubic metre by 25 per cent.

Investments continued at a high level

Capex investments by RWE Dea AG increased by 36 per cent in fiscal year 2011, to reach 688 million euros (previous year: 507 million euros). The Company managed to fund these investments from its operational cash flow. The focal points of investment activity were Europe and North Africa. The funding requirements in Europe increased for the Company’s activities in the United Kingdom – namely the Breagh, Devenick and Clipper South field developments and the successful Breagh East appraisal well. In the area of the German gas business, extensive funds were invested in two production wells in Völkersen and in the Inzenham gas storage facility. In Egypt, the primary focus of our capital spending was on North Alexandria in the western Nile Delta, our biggest field development project. Also reflected here are the higher funding requirements for work programmes in the Gulf of Suez and for exploration wells in the North El Amriya concession. Chief Operating Officer Ralf to Baben: “In 2011, this funding enabled us to achieve further progress with our large-scale development projects. We continue to work intensively on the speedy development of reservoirs in order to boost the production of oil and gas substantially and lay decisive foundations for our future.”

Further increase in base of reserves and contingent resources

In 2011, RWE Dea was able to further increase its total reserves and contingent resources in addition to withdrawals from current production by approximately 9 million cubic metres of oil equivalents, or 4 per cent, to around 237 million cubic metres of oil equivalents. This was achieved in particular through the successful drilling of exploration wells and by revaluations in Egypt and Norway. The expansion of resources is the result of highly success exploration activities. The positive track record of previous years continued in 2011: of 15 wells drilled in which RWE Dea held a stake, eight – more than half – were successful and proved commercially viable. The picture is even more positive on the cost side. Some 77 per cent of the expenditure on exploration and appraisal wells went into successful projects. “High strike rates in exploration during the last financial year secure the sustained growth of RWE Dea,” said Mr to Baben: “Through our very successful exploration and appraisal wells, we are laying the foundations for further sustained organic growth in the future.”

Extension of the portfolio of licences in highly promising regions

In order to ensure that production can be maintained at a high level and also boosted further in the long term following the projected production increase, RWE Dea is on the lookout for attractive opportunities to expand the portfolio. In addition to its existing focus regions in Europe, North Africa and the Caspian Sea region, RWE Dea has also identified attractive areas of interest in Africa, the Middle East and in the Caribbean. For instance, in April 2011 it was possible to sign a Production Sharing Agreement for the shallow-water offshore block NCMA2 with the government of Trinidad and Tobago. As a result, RWE Dea now has access to a country with a well-developed natural gas infrastructure, in a region rich in petroleum and natural gas deposits. A 3D seismic campaign has already been carried out in the region, which was concluded as early as end-January 2012.

Employee numbers at previous year’s level

At the end of December 2011, RWE Dea employed a workforce of 1,362, in terms of full-time equivalents. The size of the workforce thus remained stable at the previous year’s level. At the end of 2011, some 30 per cent of the Company’s employees were working outside Germany. The planned increase in the workforce in North Africa did not go ahead due to the political upheavals there. “As the situation returns to normal in North Africa, we will reinforce our personnel there with an additional number of highly qualified experts. Accordingly, the size of the workforce is likely to see a further increase for some time,” emphasised Thomas Rappuhn. RWE Dea provides highly qualified employees attractive fields of activity in a technologically innovative enterprise operating on an international scale, promoting successful business development through targeted recruiting and systematic personnel development. Moreover, RWE Dea also has a commitment to further the social interests of the people at the Company and its surroundings.

Consistent field development and robust growth targeted

RWE will continue to implement its targeted growth strategy consistently and boost production, earnings and key financial ratios significantly. The Company will make a contribution to the divestment programme of RWE AG, but remain a part of the Group. Production will be clearly extended through the gradual realisation of field development projects already started. RWE Dea remains one of the growth companies within the RWE Group.

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Source: RWE Dea, March 20, 2012