Northern Petroleum, the oil and gas production, development and exploration company listed on AIM, has released its unaudited preliminary results for the year ended 31st December 2007.  Revenue came in at £4.1 million up from £0.3 million in 2006 thanks to the 880 million cubic feet of gas produced from its Waalwijk field in the Netherlands – exceeding forecasts by 7%.  Net profit after tax increased from a net loss in 2006 of £1.7 million to a net profit of £14.9 million in 2007 thanks to the £19.7 million profit booked on the sale of sale of a 25% interest in six onshore Dutch oil and gas discoveries to Dyas B.V.  Basic and diluted earnings per share turned positive at 21.2p and 19.7p respectively compared to 2006’s results of a negative 2.7p for both measures.  Net cash stood at around £22 million at the balance sheet date, but with approximately £4.6 million due from the strategic alliance fee agreed with Dyas in April 2008, current net cash reserves are believed to be around £26 million.  Net assets jumped to £41.0 million, up from £23.9 million, as booked P2 reserves increased by almost 27% over the year.

In the Netherlands, although the planning and regulatory authorities slowed progress, the re-drilling of the Ottoland well is well advanced and will deliver faster production rates in the next few months.  Planning is moving forward at the Papekop and Brakel sites in the south, while the restructured Geesbrug and Grolloo gas fields in the north aim to take advantage of newly available processing capacity at a nearby facility.  At Waalwijk, Northern hopes to increase late phase gas production and advance plans to develop a 30 bcf underground gas storage facility.

Exciting developments in Italy has seen the company produce large gains of reserves in the Durres basin.  The Giove and Rovesti fields show P2 reserves of 53.23 million barrels of oil with each project’s production potential assessed at over 20,000 bopd.  Further prospects in the Adriatic Sea and around Sicily have great potential with the former showing P10 reserves of 6.03 billion barrels of oil and the latter seeking farm out licences for development of the site.

Closer to home, drilling sites and planning approvals are being sought at Markwells Wood, Hedge End and PEDL 099/155 in the UK.  The Avington site is awaiting planning permission from the local council authority, which once granted will prompt the commencement of a long term production strategy.

Overall, barrels of oil equivalent in reserves jumped from 60.53 million to 76.55 million in 2007.  Acquisitions at the Waalwijk site in the Netherlands boosted gas holdings by 20.21 bcf, while 26.61 million bbl oil was discovered at the company’s Italian projects.  Production of 0.88 bcf gas (Netherlands) and 0.01 million bbl oil (UK), together with the disposal of 25% of the company’s interest in the oil and gas discoveries in the Netherlands reduced oil and gas reserves by 3.45 million bbl and 60.65 bcf respectively. 

The first significant sale of gas from the Netherlands marks an exciting development in the company’s history.  Despite the number of well advanced projects in Northern’s portfolio, there is always a relief when the first sale is made.  The company’s projects in the Netherlands and UK are expected to produce steady cashflow during 2008, however it is Italy and the Dutch gas storage scheme where the real upside is to be found  We forecast revenue to remain flat in 2008, but with a major jump in 2009 as further production sites in the Netherlands come on line.  Our sum of the parts derived valuation remains at 321p and our recommendation remains buy.

Forecast Table Year to 31st December Sales (£ Million) Pre-tax Profits (£ Million) Basic Earnings per share (pence) 2006A 0.2 (1.65) (2.6) 2007A 4.1 19.41 21.2 2008E 4.0 0.30 0.3 2009E 20.0 12.00 11.8 *This company is a corporate client of Bishopsgate Communications which, in RSH, shares a common ultimate owner with GE&CR.