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Roc Oil Company Limited
Level 16
100 William Street
Sydney NSW 2011

Open Briefing: Roc Oil. CEO Doran on Profit & Outlook
Date of Report: 13 Mar 2002

               Record of interview :

               Roc Oil Company Limited (ROC) recently announced a $24
               million after tax profit, before asset sales and write downs, for the
               year to December 31, 2001 versus $16.5 million for the previous
               corresponding period (pcp). What underpinned this 45 percent
               improvement in underlying profit?

               CEO John Doran
               The Saltfleetby Gas Field (ROC 100%), onshore UK, delivered
               strong gas production enhanced by very low operating costs and
               a production decline which has been more gentle than expected.
               Also, the Kyle Oil and Gas Field (12.5%) came on production in
               April last year and although the longer term development of Kyle
               may be a bit of a challenge in terms of technical analysis and
               prudent reservoir management, the first nine months of its life
               provided significant cash flow. We also benefited from some
               fortunate, proactive, oil and gas price hedging.

               We were particularly pleased to be able to report a strong rise in
               underlying profit at a time when much of the industry was
               reporting lower profits due to lower product prices.

               The result was reduced to a net loss of $9.2 million after including
               asset sales ($5.8 million), development asset write downs ($38.4
million) and exploration expenditure written off or expensed ($0.6
million). The development asset write down relates to the recently
agreed sale of three North Sea assets - Kyle, the undeveloped
Chestnut Oil Field (14.875%) and a minority interest in a southern
North Sea gas exploration permit. Why are you selling the three
North Sea assets?

CEO John Doran
Our perception of those assets has fluctuated over the last two
and half years according to events which were outside our
control. In light of recent positive events in other parts of ROC’s
portfolio we've now decided that shareholders would be better
served if we monetise those assets, over which we have no
influence, and redirect the proceeds into growth projects such as
our oil discoveries in offshore Mauritania, offshore Western
Australia and, as of this week, offshore China. Particularly since
we are the operator of the last two mentioned areas.
Why didn't you sell all your North Sea assets?

CEO John Doran
We believe the North Sea assets we've retained have more
upside oil exploration potential than the North Sea assets which
we're selling. In particular, some of our permits are close to a
significant 2001 discovery called Buzzard which is reported to be
the largest discovery made in the UK North Sea for a decade or

In the longer term, we view all our current North Sea assets as
non-core and would be prepared to sell them, but only at an
appropriate time in their exploration-development cycle and only
at the right price.
In February 2002, you chose to farm-in to 25 percent of Block
22/12 in the Beibu Gulf, offshore China. The Wei-6-12-1
exploration well, ROC’s first well in China, has just drilled a 13.5
metre gross oil column with a nine metre net oil pay. How
significant is this result and what are your future plans?

CEO John Doran
It's a good result: the nearest thing you get to instant gratification
in this business. We farmed in last month, started drilling a couple
of weeks ago and now have a discovery. The oil pay is 80 metres
down from the top of the structure and we didn’t see an oil-water
contact. Also, it seems to be good quality oil in a wonderful
reservoir. Following pressure tests, we suspect that the oil-water
contact isn't far below the bottom of the oil column. If that is the
case, I think we’d be very lucky to get a stand alone development
at this location. We would, however, be unlucky not to find more
oil in the block and there must be a good chance that a
commercial field will be found somewhere within the permit in the
not too distant future.

The well will be plugged and abandoned as an oil discovery.
ROC will now exercise its option to enter into the next Permit
Term and, subject to government approval, become operator.
Subject to Joint Venture discussion, rig availability and
government approvals it is quite possible that around this time
next year a multi-well drilling programme could be underway.
That programme will look for new fields and chase up some of
the several existing discoveries that lie within the permit. We are
keen to see if the heavy duty seismic techniques used so
successfully in and around our deep water acreage offshore West
Africa can be used to achieve more exploration success offshore

One ironic thing about the Wei-6-12-1 exploration well is that it's
possible that we may have clipped the edge of another ten metre
oil-bearing sand a couple of hundred metres above the oil pay we
found. Overall though, we're happy that ROC's first well in China
was a discovery, following on from the oil discoveries with our first
wells in Mauritania and Australia.
The three North Sea assets were written down by $38.4 million.
Although you will receive approximately $33.5 million plus
another $2 million from production payments for the sale of the
North Sea assets, have ROC's investments in North Sea oil and
gas assets been unsuccessful?

CEO John Doran
On balance, yes. In fact, the need for a write down reflects the
fact that with hindsight, those assets were assigned too great a
value within the much broader UK package we acquired.
However, that package has demonstrated that it was an excellent
purchase and, ironically, the UK assets we're keeping were
assigned a value that has turned out to be too conservative. The
write down of the North Sea assets is a non-cash item but the UK
package has generated a lot of cash despite the North Sea
assets underperforming.

We've written down the North Sea assets to reflect their sale
value but if we had sold the UK assets which we’re retaining we
would have booked a significant profit on that transaction, on the
same valuation basis, because their carrying value is well below
what that sale price would be.
Cash flow from operations was $73 million ($0.68 cents per
share), up 31 percent pcp. ROC holds $76 million in cash and
short term deposits at end-2001 with debt of US$30.5 million.
Cash deposits will increase to almost $100 million (approximately
$0.92 per share) after the North Sea assets sale. Where do you
expect to spend cash and cash flow this year?

CEO John Doran
We've established a pattern of generating strong cash flow from
our UK production and from the sale of peripheral UK assets and
reinvesting those monies in high growth projects, both onshore
UK and elsewhere. We now have an abundance of high potential
projects which will absorb some of that cash flow, particularly if
they mature to development status.

Within 12 months we’ll be very busy with multi-well drilling
programmes offshore Perth Basin, offshore Mauritania, possibly
offshore China and onshore UK. Also, later in 2003, there is the
possibility of a well in, or adjacent to, our acreage offshore
Equatorial Guinea. Finally, we have a Production Sharing
Contract in Angola which we are keen to trigger so that we can
start work in an area which has never been touched by modern
exploration techniques. All of that will require money and we're
now nicely set to meet and greet those expenditures when they

If our recent discoveries lead to developments, they can probably
be project financed but we've always found that you get a better
deal from the banks if you're not desperate for finance.
To what extent will you save on development expenditure on Kyle
and Chestnut this year?

CEO John Doran
We estimate that we will retain an additional A$60 million or more
over the next couple of years that would otherwise have been
spent on capital development and operating costs. When you
offset the production revenue we’ll lose against both the sale
proceeds and the expenditure savings, the rationale behind the
sale becomes quite compelling for a small company like ROC.
What revenue and profit did your main remaining producing
asset, Saltfleetby, contribute in 2001?

CEO John Doran
In 2001, Saltfleetby accounted for over 70 percent of ROC's
revenue and about 75 percent of our earnings and it will remain
the cornerstone of our immediate financial performance.
What impact did gas prices at Saltfleetby have on the result and
what is the outlook?

CEO John Doran
A big impact. The results were largely driven by UK gas prices. In
the latter part of 2001, UK gas prices weakened but not to the
same extent as oil prices. Although oil prices are now firming, we
have modest expectations for UK gas prices during 2002.

By October 2002, we should have concluded negotiations for a
new contract gas price and although discussions have a long way
to go, not surprisingly, we believe there is a strong case for a
higher contract gas price. The current contract was negotiated by
the previous owner of Saltfleetby at a time when they needed the
contract in order to develop the field. The forward gas price curve
is also more favourable now than when the original contract was
What do you expect ROC's share of production and current
proved and probable (2P) reserves to fall to after allowing for the
North Sea asset sale?

CEO John Doran
ROC's production should reduce by about 25 percent to about
5,800 BOEPD based on a predicted gentle decline at Saltfleetby
which is currently producing about 30 million cubic feet per day
plus some condensate production.

ROC's 2P reserves will fall by about 30 percent to approximately
20 MMBOE after the sale.
You had hedged around two thirds of Kyle's production over the
first half of this year at above US$25 per barrel. What will you do
with this hedging?

CEO John Doran
When the current asset sales have been finalised we’ll close it
out and take our profit.
What is your profit outlook?

CEO John Doran
Like everyone else in this business we’re subject to all the usual,
hard to predict, vagaries including fluctuations in product price
and the impact which any new acquisition may have. However, if
things eventuate as currently expected ROC will remain profitable
through 2002, although the profit figure will be markedly lower
than 2001.
Thank you John.

For previous Open Briefings by ROC visit
Filename:            ASX Release_130302_Open Briefing
Directory:           L:\Administration\ASX\Releases\2002
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