Rose Petroleum plc

Operational and production update for 1 October to 31 December 2013 ("Q4")

19-March-2014

Operational and production update for 1 October to 31 December 2013 ("Q4")

Rose Petroleum plc (AIM Ticker: ROSE) announces an update from its oil & gas division and its gold and silver operations in Mexico, which are operated by its wholly owned subsidiary, Minerales VANE S.A. de C.V. ("MV"), together with an update on the activities of its wholly owned subsidiaries AVEN Associates LLC (“AVEN”) and VANE Minerals (US) LLC in relation to copper and uranium.

HIGHLIGHTS

Oil & Gas

  • Completed acquisition of three licences in Germany totalling 1,292,000 acres with oil shows and nearby oil & gas production

Post period:

  • Signed farm-in agreement on significant U.S. shale oil play in Utah, over 195,000 acres in the Uinta and Paradox Basins with nearby oil production

Matthew Idiens, CEO, said: "Our Mexican operations continue to perform well, providing a valuable revenue stream, and the recent strengthening of precious metals prices should be reflected in higher returns in the upcoming quarter. More importantly, I feel the significance of our most recent Oil & Gas transaction has yet to be realised by the markets. To be able to gain entry to such a significant oil play in the US, which brings the ability to operate in two proven established oil plays, with multi interval pay zones, is truly exciting for Rose.”

Gold and silver (Mexico operations)

  • Total revenue for Q4 of US$2,438,399 (unaudited) (Q3 2013: US$2,419,167 (unaudited))
  • Direct production cost of $677.72 per oz. Au equivalent or $10.87 per oz. Ag equivalent (Q3 2013: $760.07 per oz. Au equivalent or $12.49 per oz. Ag equivalent)

Copper and uranium

  • AVEN Associates LLC (copper) – Earn-in agreement signed with Lowell Copper Ltd for exploring our TC porphyry copper project. Ongoing discussions with parties interested in participating in other projects
  • VANE Minerals (US) LLC (uranium) – Discussions ongoing with potential buyers.

OPERATIONS UPDATE

Oil & Gas

Pursuant to the Company’s announcements in Q3 pertaining to its oil and gas business, the Q4 period was spent working through the process of completing the acquisitions of the new oil & gas ventures in Germany and investigating additional opportunities. These efforts culminated in early 2014 as announced on 21 and 31 January 2014, with the addition of three licences in Germany; Konstanz and Biberach licences in Baden-Württemberg and the Weiden licence in the Weiden Basin in Bavaria. These licences comprise a total of 1,292,000 acres with oil shows and nearby oil & gas production.

Post period, as announced on 17 March, the company also signed a significant oil exploration farm-in agreement to acquire a 75% working interest in leases covering 195,000 acres and one shut-in well located in the Uinta and Paradox Basins of eastern Utah, USA. Both the Uinta and Paradox Basins are significant oil & gas producing basins with extensive infrastructure. The agreement makes Rose Petroleum (Utah) LLC (“Rose Utah”) a major stakeholder in two established U.S. unconventional oil resource plays.

Rose Utah is the designated operator and its 75% working interest in the leases equates to approximately 146,250 acres net to Rose Utah, together with a 75% interest in one shut-in well, with the seller currently retaining a 25% interest. The Project targets two prolific unconventional shale resource plays, being the Mancos and Cane Creek Shales.

As announced on 17 March 2014, Rose Utah's Leases are located 12 miles north of Fidelity Exploration and Production Company's ("Fidelity") Cane Creek Field, which it's currently developing. Fidelity is a wholly owned subsidiary of MDU Resources Group, Inc. (NYSE: MDU). The Cane Creek Shale is a member of the Pennsylvanian age Paradox Formation (the "Cane Creek" or the "Cane Creek Shale"). Within and adjacent to the Cane Creek Field there are vertical Cane Creek wells that have produced over 1.0 million barrels of oil ("MMBO") from individual vertical wells.

Fidelity's current drilling programme is regularly achieving initial production rates of over 1,000 BOPD with individual well reserve estimates as high as 1.5 MMBO per well. Fidelity's Cane Creek 12-1 well was among the best onshore wells drilled in the U.S. in 2012. It flowed at 1,500 BOPD for nine months and is still flowing at 1,000 BOPD and has produced over 600 MBO to date. In 2013, Fidelity produced nearly 1.0 MMBO for the year from the Cane Creek Field from less than 15 wells.

There are 30 individual reservoir intervals in the Paradox Formation, of which the Cane Creek is only one. To date, Fidelity has focused its development on the Cane Creek interval but it has been reported by Fidelity that it plans to initiate development of the other intervals this year having identified 10 additional intervals as prospective with anticipated reserves of 150 to 400 MBO per interval, per well.

Gold and silver - Mexico operations

  • 1,649 oz. Au and 16,905 oz. Ag produced in Q4 (Q3 2013: 1,387 oz. Au and 21,059 oz. Ag)
  • 9,211 tonnes of ore processed during Q4 (Q3 2013: 10,196 tonnes) with average mill head grades 7.23 g/T Au and 85.8 g/T Ag (Q3 2013: 5.88 g/T Au and 94.3 g/T Ag) Average recovery rate of 83% Au and 73.7% Ag (Q3 2013: 81.1% Au and 71.6% Ag)
  • Total revenue for Q4 of US$2,438,399 (unaudited) (Q3 2013: US$2,419,167 (unaudited))
  • Direct production cost of $677.72 per oz. Au equivalent or $10.87 per oz. Ag equivalent (Q3 2013: $760.07 per oz. Au equivalent or $12.49 per oz. Ag equivalent)
  • 11 tonnes of concentrate held in inventory at period end (Q3 2013: 49.3 tonnes)
  • SDA Mill operated at 113% of capacity
  • Profit share increase to 65/35% in favour of MV
  • All gold and silver sold unhedged

Q4 Ore production and revenue arose from the Company's joint venture with MET-SIN. Revenue remained consistent as compared with Q3. Ore throughput decreased in Q4 by 11% due to the customary end of year holiday shut down. However, the improved production seen previously continued and is reflected in the mill maintaining ore throughput at 113% of capacity for the period. The average price received for gold and silver sales during the quarter were $1,243.35 and $19.95 respectively. 

In order to improve the profit share split with MET-SIN, we have removed the wider area of interest under the JV and re-negotiated terms, with the intention of moving forward with the Maria Fernanda Mine development as the sole focus of the joint venture. MV will control the development and mining for a period of three years, which will give it more operational control and efficiency. MV has already engaged contract miners who are on site at Maria Fernanda, with ore expected to be shipped to the SDA mill in April 2014. The profit share has increased from 50:50 to 65:35 in favour of MV. In addition, the Company continues to evaluate other opportunities in Mexico. During the transition period to Maria Fernanda ore, the SDA Mill is expected to run at full capacity with the exception of a 15-day period and will be processing stockpiled ore from the Diablito mine.

Copper

The Company is very pleased to be in the position to resume exploration drilling on its copper assets. As announced on 4 March 2014, Lowell Copper Ltd (“LCL”) entered into an earn-in agreement with AVEN on the TC porphyry copper project located in the State of New Mexico. The initial phase is underway whereby LCL will invest US$250,000 in drilling to earn a 25% interest in the project and property. Activities consist of permitting for exploration drilling, which is anticipated to commence in Q2 2014 (assuming no permitting delays).

After completion of the initial exploration phase LCL will have an option to increase its interest to 51% by funding the next US$2,500,000 of the exploration programme and a further option to increase to a 70% interest by investing an additional US$3,500,000 at which point LCL's total investment in the JV will be US$6,250,000.

The TC project is a covered terrain target derived from the covered area programme in which AVEN personnel are a key part. The project consists of overlying “post-mineral” rock covering what is believed could be a buried copper porphyry. Indications include porphyry-style mineralization and alteration and historic mining activity on the margins of the covered terrain. Samples collected by Company geologists on some of these mineral occurrences have returned assays including 3,896 ppm Cu, 84 ppm Mo, 4,876 ppm Pb, 1,997 ppm Zn, 24 g/t Au, and 204 g/t Ag verifying a potential porphyry copper-related system in the area.

Uranium

Processing of the Mineral Lease application on the Wate Project by the Arizona State Land Department continues. Wate contains an NI 43-101 resource of 1.118M lbs eU3O8 in high-grade ore averaging 0.79% eU3O8 within a breccia pipe in the Northern Arizona Breccia Pipe District where these deposit types are actively being mined. The Company's remaining uranium programmes have been placed on care and maintenance while the Company’s uranium assets are being marketed due to the change of focus of the Company to oil and gas. In addition to the Wate resource, the Company holds in its portfolio approximately 100 high-priority uranium pipe targets on state lands ranked according to exploration potential. This will assist with the transition to exploration drilling for a buyer of/ investor in these assets.