Annual Report Exploration and gas monetisation in East Africa

Transcription

1 Annual Report 2010 Exploration and gas monetisation in East Africa

2 Wentworth Resources Limited is an East African upstream, midstream and downstream oil and gas company. The Company has a highly focused Rovuma Basin portfolio with: proven, producing natural gas reserves; gas processing, pipeline, and power generation assets; a royalty interest in the recent drilling success by Anadarko in Mozambique; a large scale gas monetisation project in development; and a high impact exploration and appraisal drilling programme. Contents highlights 02 At a glance 04 Executive Chairman s statement 06 Overview of assets and operations 12 Management s discussion and analysis 20 Board of Directors 22 Management s responsibility for financial reporting 23 Independent auditor s report 24 Consolidated balance sheets 25 Consolidated statements of operations and comprehensive loss and deficit 26 Consolidated statements of cash flows 27 Notes to consolidated financial statements 40 Statement of corporate governance 43 Corporate information 44 Advisers Our advantage page 02 Gas monetisation page 03 Review of operations page 06

3 Introduction highlights > Significant operating cost reduction programme implemented and executed > Farmouts to new partners generated cash, reduced financial exposure, and a carried interest on two onshore exploration wells and the acquisition of 200km² of 3D seismic > Deep water Offshore Rovuma Area 1 working interest was sold for cash consideration and a royalty interest in future profit petroleum > Three successful deepwater exploration wells drilled by Anadarko in the Offshore Rovuma Area 1 concession > Convertible debt retired through conversion to equity > Successfully completed an amalgamation with Wentworth Resources Limited, which led to an injection of US$12.75 million in new equity capital Turnover (US$m) +89% > Company renamed Wentworth Resources Limited > New highly experienced executives and Directors appointed to lead the Company s upstream and downstream gas monetisation strategies Power Production (MWh) +42% 26,594 28,579 40, G&A (US$) -53% i Find out more Annual Report 2010 Wentworth Resources Limited

4 02 Introduction At a glance Our vision is to become a leading East African independent exploration and production company and we believe we will achieve this through focused exploration and appraisal drilling and through developing and constructing large scale natural gas monetisation infrastructure. We are East Africa s only independent energy company with a well defined gas monetisation strategy. Our Directors and executives have proven upstream and downstream gas monetisation experience and we are committed to using that experience to commercialise our substantial gas resources. Our advantage 1. We are focused The Company s assets and interests are highly focused in the Rovuma Basin, an area that is proving to be one of the world s next great hydrocarbon provinces. 2. Our people make the difference The professionals that make up the Wentworth team have proven experience in exploration, field development and commercialising stranded or otherwise low value natural gas resources. 3. We are invested in our success Senior executives and Directors have made and continue to make significant financial investments in the Company. 4. Commercialisation strategy Whilst other companies in the region wait for the market to come to them we are actively developing a large scale gas monetisation project to consume significant quantities of natural gas. 5. Exploration upside Our royalty interest in deepwater Mozambique and our exploration programmes in onshore Tanzania and Mozambique add diversification and potential future upside. Wentworth Resources Limited Annual Report 2010

5 Introduction 03 We are headquartered in Dar es Salaam, Tanzania, and employ over 70 local professionals. Our Directors and employees are our greatest strength and we take pride in fostering a company culture of empowerment and dedication to achievement and service to our community. Our shares are listed on the Oslo Stock Exchange under the symbol WRL. Our operations Tanzania Wentworth has a working interest in the Mnazi Bay concession area and it includes a 25.4% interest in the proven, producing gas fields (Mnazi Bay and Msimbati), and a 31.75% interest in the concession area s exploration prospects. Other facts: of producing of equivalent cost) Mozambique has an 11.59% working/13.64% paying interest in the concession. Other facts: of a working hydrocarbon system has a 4.95% non-paying royalty interest in Cove Energy s 8.5% working interest. Other facts: well with oil, gas, and condensate present Large scale gas monetisation project Wentworth and its partners are actively developing a large scale project to monetise the substantial Mnazi Bay natural gas resources. On 26 June 2010 a Memorandum of Understanding was signed with the government of Tanzania to assess a potential domestic development project, which would include the aims of spurring industrial growth in the Mtwara and Lindi administrative regions, and utilising the domestic gas resource for the production of fertiliser, methanol and potentially other value added products for use within these regions as well as throughout Tanzania and for sale abroad. Third party engineering and products marketing consultants have been engaged to provide independent advice to the partners, a pre-feasibility study has been completed and the steering committee that includes representatives from the government of Tanzania will make a final decision to proceed to a full feasibility study complete with a Front End Engineering & Design (FEED) package. Annual Report 2010 Wentworth Resources Limited

6 04 Introduction Executive Chairman s statement 2010 was a pivotal year in the history of our Company. The progress made by our Company has set the stage for realising goals and objectives that might have been nearly impossible just one year ago. Setting a course for growth 2010 was a pivotal year in the history of our Company. The past events that led to the Company s struggle for access to capital and liquidity were mitigated through: a 2009 farmout of interests in all three of the Company s concession areas; a negotiated conversion of debt to equity; a committed cost reduction programme; and an amalgamation of two companies that led to the injection of new equity capital and the subsequent changing of the Company s name to Wentworth Resources Limited. As the Company s Executive Chairman it is my pleasure to report on the progress we made and how that progress has a set a foundation for maintaining a sound fiscal regime and for realising the full potential of our substantial natural gas resources and exploration programmes. Exploration update post 2009 farmout 1. Offshore Rovuma Area 1, Mozambique The Company retained a 4.95%, non-paying royalty interest in Cove Energy s net profit petroleum. The concession s operator, deepwater exploration well. On 18 February 2010 Anadarko announced that the first well, Windjammer, encountered more than 480 feet of net natural gas pay in high quality reservoir sands. Anadarko continued drilling Windjammer and found an additional 75 feet of natural gas pay in a deeper zone. For the remainder of the year Anadarko went on to drill an additional five wells of which two wells were significant natural gas discoveries (Barquentine and Lagosta) and one well (Ironclad) encountered oil and gas in saturated sands. Whilst our royalty is a future claim on profit petroleum and not immediately accretive, the inherent value of the royalty was positively enhanced by the significant drilling success. Going forward, Anadarko and its partners have an extensive seismic, drilling and development programme planned for 2011, 2012 and Onshore Rovuma, Mozambique The Company retained an 11.59% net working interest and the concession partners have since agreed to move into the second phase of exploration. Going forward, an extensive seismic programme is planned for 2012 and drilling at least one new exploration well is planned for Mnazi Bay, Tanzania The Company retained a 25.4% net working interest in this concession. Minimal work was carried out on the concession over the past two years but an extensive work programme is planned for The work programme is expected to include two exploration wells and workovers of three of the four completed wells. The first exploration well is expected to spud in early Our Company will be carried on cost of the exploration wells as part of the 2009 farmout agreement. Continued cost reduction initiatives and financial performance The Company-wide cost reductions initiative by the Board in 2008 continued throughout the year. Year on year (2009 vs. 2010) General and administrative expenses were reduced by over 53%. Annual revenues were up over 88% and the net loss for the year was reduced by over 83%. We are proud of the cost reduction and revenue growth achievements made by our management and employees and we remain focused on achieving additional savings and efficiencies whenever and wherever possible. -53% General and administration expenses reduced by over 53% Wentworth Resources Limited Annual Report 2010

7 Introduction 05 Restructuring of the Mtwara energy project The Company held discussions with the Government of Tanzania to postpone the planned lease of transmission and distribution assets owned by TANESCO in the Mtwara and Lindi regions, by at least three years. The Masasi and Msimbati connections, built by Umoja (a Wentworth Resources company) using funds provided by the Government of Tanzania, will therefore be handed to and put in the care of TANESCO following completion of these discussions. The power generation business owned US$0.1195/kWh. Current and long-term bonds converted to equity In late February 2010 a proposal was made by the Company for the early redemption of 100% of the Company s 15% senior secured convertible bonds. On 11 March 2010 the bondholders met and approved the early redemption. The transaction subsequently settled on 17 March This was a critical transaction for the Company and agreement by the bondholders to convert their bonds to equity saved the Company from insolvency. Amalgamation with Wentworth Resources Limited In late March 2010 the previous Chairman of the Board of Directors signed an amalgamation Letter of Intent with privatelyheld Wentworth Resources Limited. I was Chairman and Chief Executive Officer of Wentworth at the time and the purpose of the proposed transaction was: to bring together two companies with complimentary assets and people; enable the Company to seek and secure additional operating and exploration capital; and to develop a downstream project to monetise the Company s significant natural gas resources. The transaction included a US$12.75 million equity capital investment and it closed on 26 July We have since completed a private placement of equity (in February 2011) and a subsequent repair issue (in April 2011) where we issued a total of 18,750,000 new shares at NOK5.15 per share for total proceeds of NOK96,562,500 (approximately US$17 million). Board and management changes Immediately following the closing of the Wentworth transaction the Board of Directors was reconstituted with new members. Mr. Neil Kelly and Mr. Issa Baluch were appointed Non- Executive Directors and I was appointed the Company s new Chairman and Chief Executive Officer. Together with several existing Directors and one senior executive, who agreed to continue to serve the Company, we set about implementing a new growth strategy for the Company. That strategy revolves around our experience, ability, and commitment to develop a downstream petrochemicals project to convert very low value gas in the ground to high value-added finished products. We are also committed to ensure that the Company has the resources to participate in the Tanzanian and Mozambican exploration programmes developed by the Company since its inception. On 1 October 2010 Mr. Geoff Bury joined the Company as Chief Operating Officer. Geoff and I have a long history together going back to the early 1990s and continuing on to the time he served as Finance Manager of my petrochemicals project in Qatar from 2003 to Late in the year Geoff also assumed the CFO role when Cameron Barton resigned to pursue a career with another company. Gas monetisation project The Company commissioned Nexant UK to conduct an independent Screening Study of all possible natural gas monetisation solutions for Mnazi Bay gas. The screening study found that based on current estimates of reserve size and the development phase in Tanzania, the most appropriate monetisation option would be methanol and ammonia/urea production. Consequently we authorised Nexant to proceed for combined methanol and ammonia/urea production. The results of Nexant s study were made available to us in early The study was presented to the government of Tanzania and the partners in the Mnazi Bay concession. Subsequent to the completion of the Nexant study, the government of Tanzania put forward plans to substantially increase available gas for turbine power generation. The government s plans include a new 500km pipeline from Mtwara to Dar es Salaam. We expect that if the pipeline is built a substantial portion of the natural gas demand will be provided by Wentworth and its partners in Mnazi Bay. The 2012 Mnazi Bay concession drilling programme is designed to prove up additional reserves to address both the power generation demand and our requirements for sufficient gas to feed the downstream petrochemicals project. Rovuma onshore concession license extended petitioned the relevant authorities in Mozambique for a six month of the request was to allow time to further study the results of the previously drilled Mecupa-1 well and continue to study the seismic and other G&G data in order to better define future drilling prospects, and to make a final decision about which part of the concession area would be designated for mandatory relinquishment. On 9 August 2010 the government approved our Outlook The progress made by our Company in 2010 has set the stage for realising goals and objectives that might have been nearly impossible just one year ago. Our balance sheet is strengthened and our access to new growth capital is better than it has been in years. Our team is strengthened by the addition of experienced and proven professionals who are committed to the success of our Company. The support we have received and continue to receive from government and other stakeholders gives us confidence that we can achieve our short, medium and long-term objectives. We entered 2011 with a sense of purpose and a defined strategy for growing the value of our Company. I want to thank our shareholders and stakeholders for their support and continued confidence. Robert P. McBean Executive Chairman Annual Report 2010 Wentworth Resources Limited

8 06 Business review Overview of assets and operations Wentworth has interests in three adjacent East African hydrocarbon concessions: 1) Mnazi Bay in Tanzania; 2) Onshore Rovuma Block in Mozambique; and 3) Offshore Rovuma Area 1 Block (via a Net Profits Royalty or NPR ) in Mozambique. It also has midstream and downstream assets in Tanzania, including the Mtwara Power Plant. Wentworth s assets and operations comprise: Concession/Asset % Interest or ownership Description Mnazi Bay Development 25.4¹ pro rata share of a proven, producing natural gas fields in southern Tanzania Mnazi Bay Exploration 31.75¹ Mnazi Bay Infrastructure 25.4¹ 100¹ pro rata share of oil and gas exploration immediately adjacent and surrounding its proven natural gas fields in southern Tanzania pro rata share of midstream natural gas infrastructure in Tanzania including two gas processing plants and 27 kilometres of pipeline a regulated 18MW gas-fired power production plant in Tanzania Onshore Rovuma Block pro rata share of an oil and gas exploration licence in northeastern Mozambique (primarily onshore) Offshore Rovuma Block 4.95 petroleum in an offshore northern Mozambique exploration licence ¹t he percentages are the interest held by the subsidiaries involved in each of the projects and do not take into account the interest attributable to the holding of FMO in the subsidiaries during the exploration phase of the licence Reserves and resources summary Wentworth has had an independent resource assessment of its interests in the Mnazi Bay License in Tanzania and the Rovuma Onshore Block in Mozambique together with a review of the Rovuma Offshore Area 1 Block in Mozambique. Our resource The assessment was divided into four parts: 1. Contingent resources for the Mnazi Bay and Msimbati fields using available 2D seismic and well data License resulting from interpretations of 2D seismic lines supplied by Wentworth Onshore Block resulting from interpretations of 2D seismic lines supplied by Wentworth and AVO analysis 4. Rovuma Offshore Area 1 Block resource potential review based on public source information 1, 3 31 B c f New P50 prospective gross resources assigned to Rovuma Onshore concession Wentworth Resources Limited Annual Report 2010

9 Kilometres Miles ,000 MTR MAP PROJECTIO N Zone 37S (36 E to 42 E) WGS 1984 XY IN METER S Blue Marble Projection Details Datum: WGS 1984 Ellipsoid: WGS 1984 Projection: T ransverse Mercator Central Meridian: False Easting: Meter (m ) False Northing: Meter (m ) Latitude Of Origin: Scale Factor: EPSG: Last Updated : September ,000 MTR File: Wentworth_Concession_Map_02 V3.ai 700,000 MTR 700,000 MTR Business review 07 The contingent and prospective resource volumes and resource potential are summarised in the following tables and text: Overview of Rovuma Basin Contingent resources (unrisked) Mnazi Bay license, Tanzania (Bcf) 100% Field values Gas originally in place Recoverable resources Wentworth 25.4% interest Mean P90 P50 Mean P ,112 2, , ,800,000 MTR Ruvuma Basin TULLOW/AMINEX Mtwara Block 1 OPHIR/BG North Mnazi Bay HYDROTANZ LTD Mnazi Bay Onshore Rovuma Block Chaza-1 Offshore Rovuma Block Windjammer, Barquentine and Lagosta Gas Discoveries 8,800,000 MTR Prospective resources (unrisked) Mnazi Bay license, Tanzania (Bcf) 100% Field values Wentworth 31.75% interest Mean P90 P50 Mean P10 Tanzania Mozambique Mecupa-1 Tubarao Gas Discovery Gas originally in place 1,658 2,817 2,952 4, ,402 Mocimboa-1 Recoverable resources 1,133 1,948 2,062 3, Prospective resources (unrisked) Rovuma onshore, Mozambique (Bcf) 100% Field values Gas originally in place Recoverable resources Wentworth 11.59% interest Mean P90 P50 Mean P ,929 2,192 3, ,331 1,531 2, of Wentworth s interest in the Rovuma Offshore Area 1 Block as the terms and conditions associated with Wentworth s royalty operator (Anadarko) has announced a contingent resource volume of 6Tcf associated with three of the five discoveries in independently validate the quantities in Anadarko s announced of the resource potential of the Block. Wentworth owns a royalty interest equivalent to 4.95% of net profits from Cove Energy s 8.5% working interest in the Mozambique Rovuma Offshore Area 1 Block. Concession Areas and Interests South Eastern Tanzania North Eastern Mozambique Wentworth License Wentworth Royalty Mnazi Bay Msimbati Msimbati NE Msimbati NE Extension Oil & gas shows Gas wells Gas shows Upper Tertiary leads Jurassic leads Cretaceous leads Leads and prospects Overview of Rovuma Basin The Rovuma Basin covers approximately 64,000 square kilometres, in the southern end of the extensive passive margin system in East Africa and includes the Company s existing licenses. It is an under-explored frontier basin. This basin, centred in northern Mozambique and southern Tanzania, has been penetrated by 15 wells to date. They include the Lukuledi well, the Mnazi Bay well and the Mocimboa well all drilled in the 1980s, the Mnazi Bay-1 well re-entry, the Mnazi Bay-2 well, the Mnazi Bay-3 well and the Msimbati X-1 well drilled by Wentworth between 2005 and More recently the Mecupa-1 well was drilled by Anadarko and its onshore Rovuma Mozambique partners in Eight wells have been drilled to date by Anadarko and its partners in Rovuma Offshore Area 1 including Windjammer, Tubarão, Collier, Barquentine, Lagosta, Ironclad, Barquentine-2 and Camarao. Likonde-1 well was drilled by Tullow Oil in Tanzania and one well (Chaza-1) was drilled by BG Group and its partner offshore Block 1 in Tanzania. The seven wells successfully drilled by Anadarko in the Rovuma Basin, (Windjammer, Barquentine-1, Barquentine-2, Lagosta, Tubarão, Ironclad and Camarao); Wentworth s four gas wells in Mnazi Bay; and BG s one well have proven the presence of a potentially significant gas resource. The latest gas discoveries reported by Anadarko and BG are promising that further potential resources may exist in the Rovuma Basin. 8 wells drilled to date in Rovuma Offshore Area 1 Annual Report 2010 Wentworth Resources Limited

10 O S O 08 Business review Overview of assets and operations continued Mnazi Bay exploration and development O S O S Mtwara Tanzani a Mozambique O E Indian Ocean Mnazi Bay South Eastern Tanzania O E Msimbati NE Msimbati Mnazi Bay Leads Oil & gas shows Gas wells Gas show s Wentworth PSA Last Updated : September 2011 File: Mnazi_Bay.CDR Additional exploration and development activities planned for Mnazi Bay and Onshore Rovuma Chaza-1 Msimbati NE Extension S Mnazi Bay exploration and development Overview and background On 18 May 2004, the Company s majority owned subsidiary, Wentworth Gas Limited (formerly known as Artumas Group & Government of the United Republic of Tanzania, and Tanzanian by Artumas Tanzania (Jersey) Limited. Wentworth owns 87.33% of Artumas Tanzania (Jersey) Limited with the remaining 12.67% owned by FMO. In September 2009, Wentworth farmed out a 54.6% participating interest in all petroleum operations other Cove Energy (16.38%) and a 68.25% participating interest in Energy (20.475%). Wentworth retains a 25.4% participating interest in petroleum operations other than exploration and a partners) may undertake certain petroleum operations on behalf resulting from those petroleum operations, based on exploration and development licences granted by the Ministry of Energy and southeastern Tanzania, borders Mozambique and is situated within the northeast extension of the Rovuma Basin along the flank of the Rovuma River. In 1981, ENI drilled a shallow water, offshore well and discovered the Mnazi Bay Concession. In 2005, the Company successfully re-entered that shut in well and subsequently successfully drilled two appraisal wells and one exploration well all of which yielded natural gas. The exploration well drilled discovered a new field called Msimbati, and seismic interpretation also identified two additional channel features called Msimbati N.E. and Msimbati N.E. Extension. It is believed that the Msimbati N.E. channel is connected to the Mnazi Bay channel complex. Wentworth Resources Limited Annual Report 2010

11 Business review 09 Geological description The Mnazi-Bay 1 well is in shallow water, close to the Mnazi Bay production facilities. The well, which was drilled in 1981 and subsequently suspended in 1982, was re-entered by Wentworth in 2005 to evaluate its condition and its productive capacity. The well has a dual completion facilitating separate production from each of two gas bearing zones evaluated in the wellbore. At existing reservoir pressures, these two zones, totalling 39 feet of net pay, are capable of flowing gas at sufficient rate to meet foreseeable gas demand requirements the Mnazi Bay-1 well produced stabilised flow of 10.5MMscf/d with a drawdown of only 131 psi at the reservoir face, as compared to an initial reservoir pressure of approximately 2900 to 2990 psia. The Mnazi Bay-1 well is currently the only well on production at a rate of approximately 1.7MMscf/d. The Mnazi Bay-2 well was drilled up dip of Mnazi Bay-1 in 2006 as the first appraisal well targeting the Tertiary gas bearing sands. Following the unsuccessful attempt to drill directionally from the well site to the bottom hole target locations, the well was drilled vertically and successfully penetrated the target Mnazi Bay sands. The well is completed in one of four gas bearing zones, with total net pay of 90 feet. During open hole drill stem testing, each of the four gas-bearing zones produced between 7.8 and 8.7MMscf/d of gas at stabilised flow rates, with draw downs between 1 psi and 12.1 psi as compared to an initial reservoir pressure of approximately 2900 to 2990 psia. The Mnazi Bay-3 well, drilled during Q4 of 2006 and Q1 of 2007 period to test the extent of the Mnazi Bay Concession, encountered four productive intervals totalling 157 feet of net pay. During open hole drill stem testing, each of the four gas-bearing zones produced between 9.3 and 14.6MMscf/d of gas at stabilised flow rates, with draw downs between 19 psi and 49 psi as compared to an initial reservoir pressure of approximately 2900 to 2990 psia. A 5km, 10 inch pipeline has recently been constructed to tie in Mnazi Bay-3 to the gas processing facility to act as security of gas supply to the power plant and to cater for additional customers. The well is currently shut in until such demand is required. The Msimbati 1-X well, drilled in Q1 of 2007, was the first exploration well targeting amplitude anomalies mapped on seismic that were shallower than the Mnazi Bay gas field sands. The well encountered four gas bearing sands in what has now been labelled the K Sands interval, thereby discovering a new field named Msimbati. The well also encountered deeper sands related to Mnazi Bay Concession sand sections, helping to delineate the extent of the Mnazi Bay Concession. A third channel slope feature, referred to as Msimbati N.E. is present at Mnazi Bay/Msimbati. The channel is interpreted to be connected to the Mnazi Bay channel complex. Msimbati N.E. is a separate channel to the Mnazi Bay and Msimbati channels, deposited in a similar slope setting and is expected to contain similar sand properties to the other channels and is potentially connected laterally and/or vertically to the Mnazi Bay and Msimbati channels. A fourth channel slope feature, identified as the Msimbati N.E. Extension was likewise mapped, this feature may or may not be connected to Msimbati N.E. proper. The imaging of this feature in the transition zone is not as good as the other channel features. The majority of the channel lies down-dip from Msimbati N.E. Production and exploration potential The Mnazi Bay-1 well is currently the only producing well at a rate of approximately 1.7MMscf/d. Gas is transported by Wentworth has interpreted the 130 kilometres of 2D seismic data acquired in 2008, and is using the results to create a fully integrated reservoir and production model for the Mnazi Bay and Msimbati Fields. The 20 kilometres 2D seismic line tie-in linking the seismic database covering the Mnazi Bay Concession in Tanzania to the seismic database covering the Mozambique Onshore Rovuma Block enhances the Company s understanding of the geological model and potential of the Rovuma Basin. In addition to the discovered resources in the Mnazi Bay and Msimbati Fields, this geophysical mapping has confirmed the in its independent resource assessment, the prospective resources relate to five prospects identified at Mnazi Bay (3 onshore and 2 offshore) with geological chance of success between 17% and 27%. Facilities and development plan Cove Energy, the parties benefit from a 25 year development Gas production from the Mnazi Bay Field is tied in to production liquids and then shipped by pipeline to the town site of Mtwara, the location of the gas receiving facilities and power generation and receiving plants have been designed and constructed to accommodate modular expansions in production capacity that would significantly increase the existing processing capacity limitation of about 10MMscf/d. With the addition of compression, the pipeline is capable of transporting close to 70MMscf/d. Further to the terms of Mnazi Bay Farmout Agreement, Maurel program of equal cost) and one exploration well which may be undertaken by the parties. Under the Mnazi Bay Farmout Agreement, each party has a right of first refusal in circumstances of any of the joint venture partners wishing to sell their interest in the Mnazi Bay concession, and as such there is potential to increase exploration exposure through acquisition of farmout interests marketed by joint ventures partners that may choose to exit their interests in the concession. Also, Wentworth has the right (but not the obligation) to elect not to pay for the first two appraisal wells in exchange for transferring a further 5% participating interest per well. The partners are currently finalising the bid process for securing a land rig to commence drilling in early The forward work programme is expected to include the drilling of at least one exploration well along with a workover of three existing wells. i Find out more Annual Report 2010 Wentworth Resources Limited

12 10 Business review Overview of assets and operations continued Onshore Rovuma Block Overview and background In mid-2005 the Mozambique government initiated its second licensing bid round in relation to the Onshore Rovuma Block. Wentworth bid on two blocks and successfully acquired an exploration and production concession contract for this block immediately adjacent to the Mnazi Bay concession. In November 2008, Wentworth (as previous operator and 49.30% working interest partner) completed a 2D seismic acquisition program over the northeastern part of the Onshore Rovuma Block. A total of 640 kilometres of seismic data was acquired. The program included a seismic tie-in line northward to link to the seismic database covering the Mnazi Bay Concession in Tanzania. Subsequent to completing this seismic commitment Wentworth transferred operatorship of the concession to Anadarko (35.70%). In September 2009, Wentworth farmed out a 37.71% participating interest in the Onshore Rovuma Block to Maurel 11.59% participating interest, together with a 13.64% paying interest during the exploration phase of the license. In the farmout Wentworth for the cost of the committed Mecupa-1 exploration well. In December 2009, it was confirmed by the operator that the Mecupa-1 commitment well encountered hydrocarbon shows. However, whilst the well had encountered reservoir sands and indications of hydrocarbons at various intervals, it was plugged-back and abandoned. In August 2010, the joint venture partners were awarded a six-month extension, without further commitment, to the current exploration period for the Onshore Rovuma licence. This extends the term of the initial exploration period from 1 September 2010 to 1 March This extension allowed the joint venture partners to further evaluate the data from the Mecupa-1 well before proceeding with further seismic and drilling commitments. The Company and its partners have now entered the second exploration phase. Geological description The Onshore Rovuma Block is situated in northeastern Mozambique and is adjacent to the Mnazi Bay concession. The depositional environment is part of the same deltaic complex identified at Mnazi Bay. The concession area covers approximately Exploration programme The joint venture partners have entered the second exploration period of 30 months from 1 March The Company and its joint venture partners are in the process of finalising a work program for 2012, which is expected to include an extensive 2D seismic program, followed by the drilling of one or more exploration wells starting in Offshore Rovuma Block Overview and background The Offshore Rovuma Block is currently operated by Anadarko on Cove Energy s profit petroleum from this block. The indicated that there are currently over 50 de-risked exploration seismic data was acquired in 2008 by Anadarko. Geological description The Offshore Area 1 Rovuma Block is situated offshore northeastern Mozambique. The concession area covers deep marine portion of the prograding deltaic system, consisting of Oligocene-Miocene deep water turbidites deposited at the end of the canyon/channels as subterranean fans Natural gas monetisation to drive revenue, cash flow and profit Wentworth Resources Limited Annual Report 2010

13 Business review 11 Resource potential Anadarko has indicated a contingent resource of 6Tcf present gas resources contained in the Tubarão discovery. Anadarko has also announced a Cretaceous oil discovery at Ironclad, in the southern portion of the block. Cove owns an 8.5% working interest in the block, and using the Anadarko contingent resource estimate of 6Tcf, the Cove working interest in the resources would be 510Bcf. Wentworth s potential value in this resource is through potential production and sale of Cove Energy s estimated 510Bcf working interest contingent resource volume. Development plan Operator Anadarko has drilled seven wells to date, five of which have been announced as major gas discoveries: The sixth well, named Ironclad, targeted Cretaceous aged sediments in two distinct fan lobes. The well discovered 125 feet of oil and gas saturated sands in the upper fan lobe, however according to Anadarko the well is not likely to be commercial. The seventh well, named Collier, was drilled on the southeast portion of the block in The well was suspended at the top of the predicted reservoir objective due to unexpected pore pressure issues. The well has been sealed and can be re-entered at a later date. Mtwara power plant The Mtwara power plant is an 18MW gas-to-power generation facility located in Mtwara, Tanzania and provides electricity to TANESCO in the Mtwara and Lindi region of southern Tanzania. The Mtwara power plant is supplied by natural gas produced, processed and pipelined from Mnazi Bay. It was developed as part of the Company s agreement to provide a gas-to-power energy solution for the region. The Company originally installed six 2MW Caterpillar generators in 2008 and recently added three more 2MW Caterpillar generators to meet growing demand. Wentworth has the exclusive right to expand its power generation in the region up to a total of 30MW. Long-term gas monetisation strategy Wentworth is actively studying the optimal way to develop and build a large scale petrochemicals facility to monetise the Mnazi Bay natural gas resource. On 26 June 2010 a Memorandum of Understanding was signed with the government of Tanzania (the MoU ) to assess a potential domestic development project, which would include the aims of spurring industrial growth in the Mtwara and Lindi administrative regions, and utilising the domestic gas resource for the production of fertiliser, methanol and potentially other value-added products for use within these regions as well as throughout Tanzania and for sale abroad. Notwithstanding the expiry of the MoU, the government of Tanzania has indicated its continuing support to the Company s effort to develop a fertiliser and methanol plant in Mtwara. Nexant, an engineering and products marketing consultant, has been engaged to provide independent advice to the joint venture partners and to carry out a pre-feasibility study evaluating the various options for monetising the Mnazi representatives from the government of Tanzania are reviewing the results of this pre-feasibility study along with a similar study Concession, and will make a final decision whether to proceed to a full feasibility study complete with a Front End Engineering & Design (FEED) package. inside the Mnazi Bay Concession area) as a suitable site to construct the project as it provides marine access to land construction materials and transport finished products. In addition, a 300MW power project to be located near Mtwara or Dar es Salaam has been proposed for development and is expected to take 36 months to build. The proposed power project is expected to be built by CMEC, be owned and operated by TANESCO, and is intended to supply electricity to the country s main power grid. The Tanzanian government recently requested Wentworth and its partners to enter into negotiations to supply in excess of 60MMscf/d of natural gas to this project. In addition, the Government of Tanzania recently announced plans to develop a 24 inch natural gas pipeline from Mtwara to Somanga and a 30 inch pipeline from Somanga to Dar es Salaam. The pipeline is expected to connect Mnazi Bay, Songo Songo, Kiliwani/Nyuni, Mkuranga and deep sea gas reserves in the country. The Company s interest in the Mtwara power plant is indirectly held by Artumas Tanzania (Jersey) Limited. Wentworth owns 87.33% of Artumas Tanzania (Jersey) Limited with the remaining 12.67% owned by FMO. i Find out more Annual Report 2010 Wentworth Resources Limited

14 12 Business review Management s discussion and analysis Years ended 31 December 2010 and 2009 in, unless otherwise stated The following management s discussion and analysis ( MD&A ), dated 19 April 2011 regarding the results of operations of Wentworth Resources Limited (formerly Artumas Group Inc.) ( Wentworth, the Company or WRL ) for the year ended 31 December 2010 and 2009 and the financial condition of Wentworth as at 31 December 2010 should be read in conjunction with the Company s audited consolidated financial statements for the years ended 31 December 2010 and The MD&A includes forward-looking statements and estimates that are subject to unknown risks and uncertainties, some of which are outside the Company s control. These risks and uncertainties include, but are not limited to, changes in market conditions, law or governing policy, operating conditions and costs, operating performance, commodity prices, exchange rates, and technical and economic factors. The Company s actual results, performance or achievement could differ materially from those expressed in or implied by these forward-looking statements and estimates and accordingly, Wentworth can give no assurances that any of the events anticipated by the forward-looking estimates will transpire or occur. The consolidated financial statements associated with this report do not include any adjustments to the amounts and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern and, therefore, be required to realise its assets and discharge its liabilities in other than the normal course of business and at amounts different from those reflected in the accompanying consolidated financial statements. Recent financings The Company successfully completed a private placement issuance of 15,000,000 new common shares on 28 February 2011 for cash consideration of NOK 5.15 (approximately $0.90) per share for total gross proceeds of NOK 77,250 (approximately $13,527). On 5 April 2011, the Company completed a subsequent offering, relating to the private placement, for the issuance of 3,750,000 new common shares, for cash consideration of NOK 5.15 (approximately $0.90) per share for total gross proceeds of NOK 19,313 (approximately $3,508). Total combined gross proceeds from the private placement and subsequent offering was $17,035. Following the private placement and subsequent offering the Company had 80,469,940 common shares outstanding. Wentworth Resources Limited Annual Report 2010

15 Business review 13 Operating highlights Monetisation of natural gas assets Pre-feasibility study The results for the ammonia/urea/methanol pre-feasibility study conducted by Nexant Limited, London have been completed. are currently reviewing findings of the study and are discussing how to advance the project which will likely to involve additional drilling and the preparation of the front end engineering and design (FEED) package. 300 MW power project Tanzania Electric Supply Company Limited ( TANESCO ) and China National Machinery & Equipment Import & Export in November 2010 and commissioned a feasibility study in January The plant gas requirement is 27.74bcf per year and commissioning date is expected to be April, The project constitutes the following parts: line from Mtwara to Singida in central Tanzania Wentworth together with its joint venture partners (Maurel Corporation) are expected to be involved as a supplier of Mnazi Bay natural gas to the project. Mozambique exploration ( Anadarko ) made three new announcements of significant gas discoveries in the Rovuma Basin Area 1 Offshore Mozambique. The announcements were made on 19 February (Windjammer exploration well), 20 October (Barquentine exploration well) and 29 November (Lagosta prospect). Subsequent to the year end, on 7 February 2011, Anadarko made another announcement of their latest gas discovery on the Tubarão prospect. Wentworth is entitled to receive an overriding royalty interest Rovuma Basin Area 1 Offshore Mozambique. Status of the Mtwara Energy Project ( MEP ) Limited) and (ii) Electricity Transmission and Distribution (Umoja operates an 18MW facility in Mtwara which has been fully financed by equity and produces power which is sold to the Umoja Light was formed with the expectation that it would lease the regional transmission and distribution facilities in Mtwara would become an integrated electric utility company. Having completed and signed all contractual agreements with the Government of Tanzania in December 2008 which support attention to the matter of gaining acceptance of long-term tariffs from the Tanzanian Energy Regulatory Authority. Tariffs covering all facilities whether owned or leased, were essential to secure planned debt and grant financing, which in turn could enable all long-term agreements to become effective. Due to delays in tariff approvals, grant funds expected to be received from the Netherlands Government through its were cancelled. Loss of the grant now jeopardises the economic viability of the Transmission and Distribution lease aspects of still ineffective. The Company is in discussions with the Government of Tanzania to postpone the planned lease of transmission and distribution assets owned by TANESCO in Mtwara and Lindi regions by at least three years. The Masasi and Msimbati connections, built by Umoja using funds provided by the Government of Tanzania, will therefore be handed to and put in the care of TANESCO on or about 30 April Limited remains viable and continues to operate and sell power Umoja is currently undertaking construction of a new 28km, 33kV electricity line from Mtwara to the Msimbati village where the Mnazi Bay natural gas field is located. The construction is expected to be completed by end of the first quarter in In the Rovuma Basin Area 1 Onshore Mozambique, the partners have agreed to enter into the second phase exploration program that commenced on 1 March The minimum work obligations for phase 2 consist of 100 square kilometres of 3D seismic and the drilling of one exploration well. Wentworth has an 11.59% working interest in this block. Annual Report 2010 Wentworth Resources Limited

16 14 Business review Management s discussion and analysis continued Financial highlights Comparative cash flow (US $ millions) Year-ended 31 December 2010 Annual 2009 Cash inflows Opening cash and short-term investments 5,484 43,893 Proceeds from sale of assets 67 11,185 Convertible bonds 2,400 Proceeds from issuance of common shares and warrants 9,180 Other long-term liabilities 1,656 Convertible loan 1,500 Proceeds from credit facility 6,154 1,273 24,041 58,751 Cash outflows Repayment of convertible bonds 3,159 19,760 Capital additions (net) 4,761 5,192 Project operations and G&A 3,641 10,767 Corporate expenditures 7,789 16,560 Deferred financing costs 120 Bond conversion fee 1,150 Working capital 104 (282) 19,454 53,267 Ending cash and cash equivalents 4,587 5,484 Capital expenditures Wentworth incurred $4,761 in capital additions during the additions include the purchase and installation of additional gas fuelled generators for the production of electricity of $3,104, transmission and distribution capital expenditures of $886 and Mnazi Bay joint venture capital expenditures of $285. Revenues Wentworth reported revenues of $5,465 in the year ended $4,862 is related to power sales, while in 2009, all of the revenue was related to power sales. The increase in revenue in 2010 over 2009 is a result of the electrification of the Masasi district beginning in late February The balance of the 2010 revenue is related to natural gas sales made to generate electricity. The natural gas revenue is shared by Wentworth Gas Limited and its partners based on their participating interests. In 2009, as Wentworth Gas Limited had no partners, the revenue generated by its sales to the power company were eliminated on Limited, as this was an inter-company transaction (see operating costs below). Operating and overhead expenses Operating expenses totalled $4,915 for the year ended 31 December 2010 as compared to $3,689 in In 2010, operating expenses include the cost of natural gas purchases from Wentworth Gas Limited, through the operator, Maurel & Wentworth Gas Limited, who had no partners, and therefore the on consolidation against the revenue earned by Wentworth Gas Limited, as this was an inter-company transaction (see revenue above). For the year ended 31 December 2010, total operating costs before natural gas purchases are approximately 70% of the total expenses incurred in the same period for the prior year. This reflects the cost-saving initiatives that were implemented throughout 2009, and the effect of the farm-in on the Tanzanian gas assets. Consulting expenses for 2010, compared to 2009, are higher, which is a result of the use of third party contractors by the operator of the Tanzanian gas facilities. The operating expenses are detailed below: Operating expense Year-ended 31 December 2010 Year-ended 31 December 2009 Maintenance and transportation 864 1,594 Salaries and benefits 607 1,223 Insurance, office supplies Consulting and professional fees Travel and related expenditures Joint interest billing (686) Other Sub-total 2,525 3,411 Natural gas purchases 2, Operating expense 4,915 3,689 Wentworth Resources Limited Annual Report 2010

17 Business review 15 The Company s cost-saving initiatives have also resulted in reductions in general and administrative (G&A) expenses. During the year ended 31 December 2010, Wentworth reported $12,224 of G&A expenses, as compared to $25,716 for the same period in These costs are detailed below: General and administrative expenses Year-ended 31 December 2010 Year-ended 31 December 2009 Consultants and professional fees 2,679 4,157 Salaries and benefits 2,737 4,829 Office expenses and other 799 2,461 Occupancy costs 2,108 2,171 Travel and related expenditures Communication and delivery Public company costs Sub-total 10,044 15,719 Non-operated G&A (281) 1,254 Non-recurring costs 2,461 8,891 General and administrative 12,224 25,864 Overheads capitalised and joint interest billing (148) Net general and administrative 12,224 25,716 Non-recurring costs include expenses associated with legal costs on negotiating the long-term loan, settlement of past legal claims, the settlement of tax assessments in Canada and a commission paid on the sub-lease of the Calgary office space. Non-operated general and administrative costs are expenses incurred in Mozambique and billed to the Company by the operator, Anadarko. Other overhead costs Year-ended 31 December 2010 Year-ended 31 December 2009 Depletion, depreciation and amortisation 3,978 4,952 Accretion of long-term receivable (3,335) (2,946) Changes in accounting estimates on long-term receivable 4,749 Financing costs (net) ,481 Loss on redemption of bonds 103 Exchange (gains) losses (290) 503 Stock based compensation Other overhead costs 6,165 17,430 Financing costs for the year ended 31 December 2010 were $733 as compared to $14,481 in the comparable period of Of the $733 of finance charges for year ended 31 December 2010, $510 relates to accrued interest for the Tanzania investment Bank ( TIB ) loan, interest charged during the two year grace period which will be added on the principal balance at the end of the grace period, which ends on 5 January The decrease in finance costs compared to the prior year is due to the decrease in convertible debt held by the Company in The convertible bond of $2.4 million was repaid in full on 17 March In the same period in the prior year, the Company had convertible bonds outstanding of $115 million. Accretion of the long-term receivable resulted from the signing receivable, the receivable s stated amount of $34,130 (principal of $31,207 and expected interest $2,923) as at 31 December 2010 has been determined to be approximately $18,105 as at 31 December 2010 ($706 current portion and $17,399 long-term portion). This receivable will be accreted over the expected term of the receivable. Stock based compensation expense for the year ended 31 December 2010 and 2009 is related to common shares and warrants issued to key individuals as a reward and incentive to reach important milestones for the Company and a result of 4,750,000 options granted to certain executives, senior employees and Directors in During the year ended 31 December 2010, the Company experienced a $290 gain on foreign exchange Non-controlling interest At 31 December 2007, the Netherlands Development Financial Institute ( FMO ) held an interest of 19.65% in Wentworth Tanzania (Jersey) Limited ( WTJL ). FMO s investment to date of $29.8 million represents the maximum investment allowed in WTJL by FMO s credit committee. The Company has an arrangement with FMO to reduce its interest in this investment when expenditures are not proportionately funded. On this basis, FMO has acknowledged the reduction. As at 31 December 2010 Financial condition/liquidity Assets At 31 December 2010 Wentworth had cash of $4,587. The Company s credit risk with respect to current accounts receivable is limited due to the high proportion of amounts due from government departments as tax input credits for Value Added Tax (VAT) in Tanzania and Mozambique and sales. VAT in Tanzania is now outstanding on a current basis. The VAT in Mozambique is past due and the Company is working with the Government of Mozambique to have the receivable recognised and determine when payment will be made. The Company has earned full rights to the Mnazi Bay Concession in Tanzania and the Rovuma Basin Onshore Block operating under interim tariff orders. Three generators have been commissioned in Q3 period with the addition of 6MW, and the plant is increasing capacity utilisation following enhancements to the transmission facility to Masasi. Annual Report 2010 Wentworth Resources Limited