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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR MAY 26, 1999
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PETSEC ENERGY LTD
Level 13, 1 Alfred Street
Sydney, NSW 2000
Australia
(Address of principal executive offices)
[Indicate by check mark whether the registrant files or will file annual
reports under cover of Form 20-F or Form 40-F]
Form 20-F _X_ Form 40-F ___
[Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.]
Yes ___ No _X_
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PETSEC ENERGY LTD
ACN 000 602 700
CHAIRMAN'S ADDRESS TO THE
THIRTY-FIRST ANNUAL GENERAL MEETING
HELD ON 26 MAY 1999 AT 11.00 AM
1998 was an extremely difficult year for the oil industry as oil prices
declined to 14 year lows. The industry responded by cutting exploration
dramatically, reducing staff and selling assets. Many companies have merged to
achieve economies of scale. Earnings have fallen considerably, and book values
of assets have been written down resulting in the widespread reporting of
substantial losses for the year.
Petsec Energy's results were largely affected by low commodity prices, but
were further impacted by a disappointing drilling programme in the year.
To the end of 1997 Petsec had, since it began operations in the Gulf of Mexico
in 1990, seven continuous years of growth in reserves, production and cash
flow. Over the 3 1/2 years to December 1997 we had annual compound growth
rates of 70% for reserves, 88% for production and 109% for cash flow.
The Company had achieved this high level of growth through exploration success
(39 successes out of 42 wells drilled) on generally small (10-20 Bcfe), lower
risk targets. However, general industry success in the Gulf of Mexico and
buoyant commodity prices in 1997 resulted in an increase of competition, lease
bonus payments, drilling and development costs. The increases were of such a
magnitude as to significantly erode the economics of the smaller, lower risk
prospects. To maintain growth in 1998 we modified our exploration strategy to
include a number of higher potential prospects, with attendant higher risk, in
our drilling programme.
We also sought to achieve our growth objectives by seeking a strategic
alliance or merger with companies of similar size to Petsec and larger. This
"Strategic Alternatives" process was commenced in the second quarter of the
year by opening a comprehensive data room for the exchange of data with a
number of selected companies. A good deal of interest was shown in the
Company; unfortunately, due to the extraordinary collapse of oil and gas asset
values and share prices of US exploration and production companies in the
third quarter of the year, expectations changed dramatically and the process
was prolonged. A number of valuable relationships were established through the
process which should result in future joint ventures.
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Our 1998 capital expenditure of US$125 million included eight exploration
wells. Five of these found oil and gas reserves but generally were quite
small. This expenditure, together with a halving of our anticipated operating
cashflow for the year, resulting from the substantial decline in oil and gas
prices, gave rise to unacceptably high levels of bank debt particularly in an
environment of US$11 per barrel of oil and US$1.80 per Mcf of gas.
Therefore, in February we sold a 50% working interest in 17 production leases
and six exploration leases to Apache Oil & Gas Inc. for $111.7 million
(US$68.3 million) thereby reducing our bank debt to $14.3 million (US$9
million) and our overall debt to $170 million (US$109 million).
We retained, however, most of our one trillion cubic feet of gas equivalent of
exploration potential. We have a large inventory of over 40 prospects on the
45 leases we hold, and this will form the basis of our future growth.
We now intend to revert to the more conservative exploration approach that was
so rewarding for the Company in the years 1990-1997 and we will further reduce
our risk through farmout to joint venture partners.
Drilling and development costs have fallen by as much as 50% in the Gulf
compared to 12 months ago so now is an appropriate time to restart our drilling
programme.
Our first well in the Apache joint venture commenced two weeks ago, the Ship
Shoal 193 B-2 well. We expect to drill a further 2-3 wells with Apache this
year.
The first wells in the LLOG and Coastal Oil & Gas joint ventures, that I was
pleased to announce this morning, should spud within three months.
The LLOG joint venture covers three leases in the Mustang Island area,
offshore Texas. We have recovered much of our past costs and LLOG will carry
89% of the cost of drilling the first three wells. We retain a 331/3% working
interest.
The Coastal Oil & Gas joint venture covers three leases in offshore Louisiana.
Again, we have recovered much of our past costs and will enjoy a carry of our
25% retained working interest for the drilling of the first two wells.
I hope to be able to announce further joint venture deals in the near future
but, as a minimum, we intend to participate in 6-8 wells this year which will
expose the Company to in excess of 60 billion cubic feet of gas equivalent
(Bcfe) net reserves potential.
The exploration drilling programme will be met from our cash flow, the quantum
of which is reasonably assured as expected production in 1999 is substantially
hedged at US$2.45 per Mcf of gas and US$17.72 per barrel of oil.
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We were very pleased to have been awarded the Vermilion 258 lease from the
March Louisiana sale and expect to drill the prospect in early 2000. We hope
to be awarded West Delta 113 in the near future, a lease we jointly bid with
Coastal Oil & Gas.
We are looking forward to the results of this year's programme recapturing
part of the shareholder value eroded last year. Our highly motivated staff are
determined to regain our former reputation for rapid growth of asset values
through successful exploration.
T N Fern
Chairman
Level 13 Gold Fields House, 1 Alfred Street, Sydney NSW 2000, Australia
PO Box R204 Royal Exchange, Sydney NSW 1225, Australia
Tel: 9247 4605 Fax: 9251 2410
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PETSEC ENERGY LTD
Date: May 26, 1999 By: /s/ G.H. FULCHER
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Name: G.H. Fulcher
Title: Company Secretary
