112
million in 2006 to $20.2 million in 2013, representing a CAGR of 54%. The Group’s positive operating cash flows have
helped to fund its exploration, appraisal and development programme, as well as growth through selective acquisitions.
The table below shows the evolution of the Group’s 2P reserves by region on a working interest basis since 2008.
2008
(1)
2009
2010
2011
2012
2013
(mmboe)
Location
Egypt...........................
17.8
19.9
20.9
33.1
28.1
28.4
Iraq..............................
-
-
-
139.7
134.3
132.5
Yemen.........................
0.3
0.4
0.7
0.7
7.3
5.6
Total
...........................
18.1
20.3
21.6
173.4
169.7
166.5
(1)
Unaudited numbers based on the Group’s internal estimates.
The Group’s rapid growth, and its ability to convert resources into reserves, is attributable to the success of its
management and technical teams, which have technical and operational knowledge and expertise as a result of their
extensive experience with the geological and subsurface conditions in the core MENA region, based on a long history of
operating and investing. The Group’s management and engineering teams have worked in the core MENA region for a
broad range of oil and gas organisations, including state-owned companies, large multinational integrated oil and gas
companies, independent exploration and production companies, and oil and gas ministries. The Group is the operator of
assets which account for 85.0% of its 31 May 2014 2P working interest reserves and 50% of its 31 May 2014 2P net
entitlement reserves. Through its equity interests and operatorship of assets, the Group has a high degree of control over
the amount and timing of capital expenditure and the pace and nature of exploration, appraisal and development activity.
The Group’s degree of technical expertise and its relatively high proportion of ownership as compared to most of its JV
partners have contributed to the Group achieving 22 successful exploration wells drilled out of a total of 49 wells as at 31
March 2014 and an exploration drilling success rate of 44% and finding costs of $7.78 per barrel over the period from 1
January 2009 to 31 December 2013.
The Group has sought to combine its extensive technical and operational expertise with its local knowledge and a
management approach that is tailored to the relevant asset and its local context. The Group’s technical expertise and
local knowledge have contributed to the turnaround of several previously under-performing assets. For example, after the
Group acquired the Area A licence in Egypt, it was able to significantly reduce operating costs and drilling costs and
materially increase the expected life of the asset. It was able to double production after the Shukheir North West field
discovery in the third quarter of 2008 and decrease the decline rate of the old mature fields to a lower level compared to
the period before its ownership. In parallel, the Group succeeded in arresting the decline in production from the Yusr
field, which is the largest mature field in the area. The success of the Group in managing Area A secured a leading role
for the Group to manage such mature fields. Following a similar trajectory, production in the BEA field in Egypt has
more than doubled over the period since the Group acquired the operatorship of the BEA licence from Gharib in August
2009. As the Group continues to develop the BEA asset, the operating expenses per barrel continue to decline. The
Directors believe the Group’s proven track record of being a strong operator of oil and gas assets has been instrumental
in the Group accessing new investment opportunities, such as the award of the Group’s assets in Iraq, including its most
recent award of Block 9.
Operations with strong and steady cash flow generation
As a result of rising working interest production volumes, particularly in Egypt, the Group’s operating cash flow before
taking into account changes in working capital increased by $11.9 million, or 33.1%, from $35.9 million in the three
months ended 31 March 2013 to $47.8 million in the three months ended 31 March 2014. Similarly, the Group’s
operating cash flow before taking into account changes in working capital increased from $95.2 million in 2011 to
$131.4 million in 2012 and $189.9 million in 2013, primarily as a result of higher working interest production volumes.
Flexibility and control over capital expenditures and costs
Under the terms of its licenses, the Group maintains significant flexibility in respect of the timing and scope of capital
expenditures and operating costs. As at 1 June 2014, the Group currently expects to incur exploration and development
capital expenditures through the end of 2016 of at least $377.6 million, of which substantially all is capital expected to be
