All references to tables and charts can be found in the link at the end of the release.
RIO DE JANEIRO, Aug. 14, 2013 /CNW/ - HRT Participações em Petróleo S.A. - "HRT", "HRTP" or "Company" (BM&FBovespa: HRTP3 and TSX-V: HRP.V) announces its results for the second quarter of 2013 ("2Q13"). Unless otherwise specified, the financial and operational information below is presented on a consolidated basis and stated in thousands of Brazilian Reais (R$) according to International Financial Reporting Standards (IFRS), including our direct subsidiaries: HRT O&G Exploração e Produção de Petróleo Ltda. ("HRT O&G"), Integrated Petroleum Expertise Company - Serviços em Petróleo Ltda. ("IPEX"), HRT Africa Petróleo S.A. ("HRT Africa"), HRT Netherlands B.V. ("Netherlands"), Air Amazonia Serviços Aéreos Ltda. ("Air Amazonia"), HRT America Inc. ("HRT America"), and its respective subsidiaries and branches.
2Q13 HIGHLIGHTS AND SUBSEQUENT EVENTS
CORPORATE
SOLIMÕES BASIN
POLVO
NAMIBIA BASIN
AIR AMAZONIA
MANAGEMENT REPORT
This Second Quarter of 2013 was marked by corporate initiatives to review HRT organization and work plans. The results of HRT-11 in Solimões and Murombe-1 in Namibia, both dry wells, and Wingat-1, also in Namibia, as a non-commercial oil discovery, have triggered a list of adjustments that will decisively impact on the way of conducting HRT´s activities in the future. First, we have started a process to concentrate efforts on the HRT´s core business, which includes the planned sale of Air Amazonia, IPEX, HRT Chinese rigs and other non-core assets. This process will not only bring important financial resources but also allow us to focus on our main challenges. Second, a Special Committee of the Board has been established, to evaluate alternatives to maximize value to HRT`s shareholders. Third, HRT is adjusting its staff and management to become a leaner, more efficient and less expensive organization.
We signed an updated contract with Erickson Air-Crane for the sale of HRT's air logistics business, Air Amazonia. The new terms include a reduction in the number of aircraft sold (6 helicopters) at a total price between US$ 26 million and US$ 40 million. The updated contract reflects the revised work program for the Solimões, providing certain advantages to improve HRT financial risk management and increases operational flexibility, when compared to the previous one. In addition, HRT moves forward with its plan to sell its remaining fleet of 8 helicopters, at a US$ 30 million total market value, and it is currently negotiating with other potential buyers.
Further divestment efforts include the sale of HRT's world-class G&G service provider, IPEX, which offers integrated analytical services and technology to support petroleum production and exploration players. HRT is already in conversations with potential interested companies.
HRT also launched the sale of four heli-transportable drilling rigs with the capacity to drill up to a 4,000 meters depth. The total market value for the drilling rigs ranges from, approximately, US$ 40 million to US$ 50 million and the Company is in preliminary negotiations with potential buyers.
As for HRT's core business, the transition process regarding our acquisition of a 60% participating interest in the Polvo Field, in the Campos Basin, from BP, has advanced significantly. HRT has teams working on all fronts so that, as soon as the final approval by the National Petroleum, Natural Gas and Biofuels Agency (ANP) is given and certain precedent conditions are accomplished, we may take on as operator.
Our program in the Solimões Basin has been reviewed and HRT is now focusing on the acquisition of 2D seismic data in areas that have not been drilled yet. The decision to postpone drilling in Solimões, at this time, is a strategic decision, since the period coincides with an active moment in our exploratory campaign in Namibia and a period in which the gas monetization project is still under analysis.
During the quarter, HRT concluded the drilling of its second offshore well, Murombe-1, in ultra-deep waters, ahead of schedule and below cost estimates. Found to be a dry hole, HRT now moves 635 kilometers to the south towards Petroleum Exploration License 24 (PEL 24), to drill the Moosehead Prospect, in the Orange Basin. We are very excited about the Moosehead Prospect and believe in its potential to be the first large oil discovery in Namibia. The full results of the Murombe-1 well are still under analysis, as well as its implications for the Walvis Basin future activities to be developed. HRT's efforts to farm-down the fourth drilling slot of the Marianas rig are still underway.
Looking towards the future, in Amazônia, HRT's joint efforts with Petrobras and Rosneft Brasil E&P Ltda ("Rosneft") for the gas monetization in the Solimões Basin continue. During this third quarter, the results of the monetization studies should be concluded and the next steps of the project defined. In Namibia, the drilling of Moosehead-1 well to test potential reservoirs equivalent to the sub-salt reservoirs in the Santos Basin is other very important step in the Company's work plan for 2013. The results of this well can change the future of the Company. Last, it is the submission of the Polvo Field acquisition to ANP´s analysis and approval. Becoming an oil and gas producer will certainly be an important achievement for HRT.
In conclusion, we are conscious that HRT is going through challenging times but we are also confident that with the measures that are being implemented and with the work plan we have developed, the Company has a future. We are confident that these latest steps will be decisive in recovering relevant financial resources to strengthen HRT's cash position and lead the Company towards a sustainable future.
Milton Romeu Franke
Diretor-Presidente da HRT
CORPORATE GOVERNANCE
In the second quarter of 2013, HRT has performed a series of changes in the composition of its management team.
On May 13th, after a unanimous decision of the Board of Directors, HRT announced the appointment of Mr. Milton Romeu Franke as Chief Executive Officer ("CEO") of the Company. Milton Romeu Franke joined HRT in 2009, and served on the Company's Board of Officers with lead responsibility for Engineering, Drilling and Production.
Following that decision, on May 15th, the appointment of Mr. Nilo Azambuja as CEO of the wholly-owned subsidiary HRT O&G Exploração e Produção ("HRT O&G) was announced, as a replacement for Mr. Milton Franke. Mr. Azambuja's position as HRT's Technical Officer was maintained as well.
On June 7th, the Board of Directors approved the appointment of Mr. Ricardo Bottas Dourado to the position of Chief Financial Officer ("CFO") and Investor Relations Officer ("IRO") of HRT. The executive joined HRT in 2011, and up to that moment served as the Planning and Business Development Executive Manager.
On the same date, the Board also approved the appointment of Mr. Luiz Eduardo Conde as the Chief Administrative Officer ("CAO") of HRT. The executive joined the Company in 2011, and has served as Corporate Administrative Executive Manager.
At the end of June, the Board of Directors unanimously decided to establish a Special Committee to promptly evaluate strategic alternatives to maximize the value to shareholders. Such alternatives include but are not limited to, potential asset sales, strategic combinations, or sources of further capital. Goldman Sachs has been engaged to act as global financial advisor in that process. This Committee will present its recommendations to the Board of Directors.
Following the creation of the Special Committee, HRT also initiated discussions with leading companies to evaluate the sale of its world-class geochemistry services provider, IPEX. HRT is already in conversations with potential interested companies.
IPEX is a Brazilian Company, providing integrated analytical services and technology to support petroleum production and exploration players. IPEX's projects are diversified and range from molecular geochemistry of oil and gas samples to 3D basin modeling. IPEX laboratory facilities have attained important certifications, such as ISO 9001:2008 and ISO 17025:2005.
HRT has also launched the sale of four heli-transportable drilling rigs with the capacity to drill up to a 4,000 meters depth. The Company is in preliminary negotiations with potential buyers and results should be disclosed as soon as a final agreement is entered into. The market value for the drilling rigs ranges from, approximately, US$ 40 million to US$ 50 million.
HRT GROUP COMPANIES
2Q13 HIGHLIGHTS AND SUBSEQUENT EVENTS
HRT OIL & GAS
SOLIMÕES
● HRT-11
In May, HRT O&G concluded the drilling of well 1-HRT-11-AM, on the Cajazeira prospect, located at Block SOL-T-172, in the Solimões Basin, Municipality of Coari, State of Amazonas.
The well was spudded on March 17, 2013 and drilled in 49 days, having as the main target the sandstones of the Lower Member of the Juruá Formation, Carboniferous in age, and as secondary objective the Devonian sandstones. The well reached its total depth at 2,402 meters, after penetrating the metamorphic basement.
During drilling, wireline logs were run, identifying two intervals of interest, the first one from 2,170 to 2,189 meters, in the Upper Mb. of the Juruá Formation, and the second one from 2,251 to 2,402 meters, composed of sandstones of the Lower Mb. of the Juruá Formation.
In both intervals, oil shows were observed in cuttings and cores and the tests recovered formation water, confirming that the oil shows were due to the presence of residual oil in the reservoir.
The above-mentioned results indicate that the petroleum system was active within the prospect area. In light of the results, the well has been abandoned as a dry hole with hydrocarbon shows. Geological information resulting from this well are being analyzed and calibrated with available information in order to assist in further decisions on the Solimões Basin forward work program.
● NEW STRATEGIC PLAN
Due to recent results, the Solimões program was reviewed and it has been significantly reduced.
HRT has decided to acquire approximately 400 km of new seismic for the eastern blocks 151 and 174, with new parameters with 15-meter deep charges, and with the consequent improvement in data quality. The new seismic that will be acquired will allow the enhancement of prospects mapping that may be object of future drilling.
In 2014, a new seismic acquisition campaign will be carried out in the southwestern portion of our concession in order to further extend the exploratory frontier southwards.
No drilling will be performed in the next six months. The focus will be on the development of the gas monetization project for the discoveries made in the Juruá cluster to date.
● FARM-DOWN
In the 2Q13, HRT has decided to initiate a farm-down process for the Solimões basin, in order to strengthen the exploratory campaign and the appraisal plans for the discoveries, through the presence of additional partners that will share the work program investments and associated rewards. The Company is looking for a broad range of potential partners, from upstream to downstream.
● RELINQUISHMENT DECISION OF BLOCkS SOL-T-219 AND SOL-T-220
At the beginning of August, the Company notified ANP about its intention of not renewing the concession agreement for the second period of the exploration phase of Blocks SOL-T-219 and SOL-T-220, relinquishing the areas of the relevant Blocks to that Regulatory Agency.
The first period for the above-mentioned Blocks expired on March 3rd, 2013, and it was postponed, by ANP, up to August 3rd, 2013.
HRT's decision on the non-continuity comes from the struggle in obtaining environmental and operational licenses due to the presence of two National Forests, present on both Blocks, the respective Buffer Zones and the adjacent flood plains that would make the development of geological, geophysical and drilling activities on the land impossible.
POLVO
At the beginning of May, a Purchase and Sale Agreement (PSA) was signed with BP Energy do Brasil Ltda ("BP") for the acquisition of a 60% stake in the Polvo Field and 100% of BP Energy America LLC, owner of the "Polvo A" fixed platform, and a drilling rig, which amounted to US$ 135 million.
In the 2Q, the assignment application for the transfer of Concession Rights of the Polvo field to HRT was submitted to ANP by BP. The regulatory approval is expected to happen in the 4th quarter of 2013, when other closing conditions should be met. All results generated by Polvo to BP, starting from January 1st, 2013, accrue to HRT through a reduction on the purchase price.
During the quarter, HRT and BP workstreams have been intensively working together to manage the transition activities and to assure that safety and reliable standards will be maintained.
HRT AFRICA
● WINGAT
On May 20th, HRT announced that its first exploration well, Wingat-1, from a multi well offshore program in Namibia has found oil, although not in commercial volumes. This well is located in PEL 23, in the Walvis Basin, offshore Republic of Namibia, and it was spudded on March 25th, drilled in water depths of circa 1,005 meters, reaching a final depth of 5,000 meters.
The initial plan was to drill the Wingat-1 to a total depth (TD) of 4,127 meters, but due to the potential to drill deeper to test the presence of turbidite reservoirs and the opportunity to penetrate and sample the main source rock, the consortium decided to go deeper, to a TD of 5,000 meters. This decision was also supported by the increasing concentrations of hydrocarbon shows present in the well below of 1,500 meters depth.
The main objective of the well was to test the resource potential of the Albian-aged carbonate platform, which was penetrated on the targeted depth, but its reservoir quality was much less developed than originally expected.
The information obtained, coupled with the results of preliminary studies of all data collected from the well, allowed HRT to identify two well-developed source rocks, which are rich in organic carbon and both are within the oil-generating window. Also, the well encountered several thin-bedded-sandy reservoirs that are saturated by oil. HRT collected four samples of this oil, each of 450cc, and the analysis of these samples indicated the presence of light oil, 38o to 42o API, with minimal contamination. No water-bearing zones were identified in the drilled section.
The fact that the source rock is in the oil window, generating excellent-quality liquid hydrocarbons, confirms the source potential of the basin. These source rocks present in the well can charge reservoir intervals of other prospects identified in the license.
● MUROMBE
In mid-July, the Murombe-1, the second offshore well in our exploratory drilling campaign was concluded as a dry hole. This well was targeting the Murombe Prospect, also located in PEL 23.
The main objective of the well was to test the resource potential of the Murombe (Barremian Age) basin floor fan turbidites and the drilling plan was to penetrate the top of the Murombe reservoir on a total depth (TD) below the reservoir, at 5,658 meters, run the wireline logs, conduct sidewall core sampling, acquire fluid samples and abandon the well. A secondary target, the Baobab (Santonian Age) confined channel complex, would also be penetrated.
The Murombe-1 well penetrated the Baobab objective, which contained 36 meters net sand within a 242-meter interval (15% N/G). The average porosity was 19% and the sands were water wet.
The well-developed marine source seen in the Wingat-1 well, located 15 kilometers east of Murombe-1, was also present above the deeper Murombe turbidite prospect and ongoing sample analysis will determine the quality of this source interval.
The well reached at total depth of 5,729 meters and the Murombe objective was penetrated. In addition, petrophysical evaluation of wireline logs indicated that the interval consisted of non-reservoir facies with low porosity.
● MOOSEHEAD
By the beginning of August, the Moosehead-1 well, the third offshore well in our exploratory drilling campaign, was spudded. The well is located in PEL 24, in the Orange Basin, and will target Barremian carbonates to a projected total depth of 4,100 meters.
Moosehead-1 will test a Cretaceous age, 546 km2 4-way dip closure, mapped on a 3D PSDM seismic data set. The main objective of this well is to test the oil potential of Barremian-aged carbonate reservoirs, expected to be equivalent to the Brazil and Angola "pre-salt" reservoirs.
Several source rocks are expected to be penetrated, including the Aptian source rock, which is anticipated to be oil generating, according to HRT's geochemical modeling. The total time estimated to complete the operations is approximately 53 days.
● FARM-DOWN
The Company has started a farm-down process for its Namibian assets with a main focus on Namibian operators, Africa exploration companies and Angola/South Africa NOC's. HRT's main objectives are risk reduction, leverage learning from the Wingat and Murombe well results and generation of additional funding for the remaining exploration program.
Meetings with potential candidates will be held in the next couple of months, as well as data room visits.
AIR AMAZONIA
On July 19, an updated contract was signed with Erickson Air-Crane Inc. ("Buyer") for the sale of HRT's air logistics business, Air Amazonia, reflecting the reduction in Solimões' work program. This event replaces the binding Term Sheet announced on March 7, 2013.
The updated contract improves HRT's financial risk management and operational flexibility, when compared to the earlier structure.
New terms includes: (i) a reduction in the number of aircraft sold exclusively to the Buyer and (ii) an initial one-year term with annual-renewal options and structured incentives over an additional four-year period.
The new agreement includes the sale of 6 helicopters and an aerial service agreement with an initial one- year term to support HRT's operations in the Solimões Basin.
The total transaction price agreed is between US$ 26 million and US$ 40 million, depending on meeting certain contractual terms.
HRT has granted the Buyer with preemptive rights on the sale of the remaining fleet of 8 helicopters and on additional aerial services that the Company may require.
The sale is expected to be completed in the third quarter.
HRT plans to sell the remaining fleet of 8 helicopters and ongoing negotiations with other potential buyers are currently in place, with a market value of US$ 30 million.
FINANCIAL RESULTS - 2Q13
In the table below are the Company's summarized consolidated results, including the results of its subsidiaries HRT O&G, IPEX, HRT Netherlands, HRT America, HRT Africa, HRT Luxembourg and Air Amazonia. The main events with a financial impact in the first half of 2013 were:
The EBITDA result for the first half of 2013 was negative in R$ 661 million, 1045% compared to the same period of the previous year, basically due to the write-off of the drilled-well costs, those with non-commercial volumes or dry wells in Namibia and Solimões projects. Additionally, the 2012 EBITDA had a positive impact, which arose from the sale of a 45% working interest in the Solimões Consortium to Rosneft.
Additionally, the EBITDA was impacted by some non-recurring expenses with employees and officers. Personnel expenses variation is a result of the recognition of the loss on stock options distributed to employees in the amount of R$ 25 million. According to the international accounting standards, the difference between the acquisition cost and market value should be recognized on the grant date, whether or not the options have been exercised by the employee.
Furthermore, personnel expenses were impacted by an amount of R$ 26 million, including taxes and social costs, as a result of termination expenses to three of the Company's Officers that have left. Management and the Audit Committee were informed on August 9, 2013 that the calculations of the amounts of indemnities paid are being reviewed by the Compensation Committee for future recommendations to the Board of Directors, and in this way, the Company could recoup an amount. Such amount, on a gross basis, refers to R$ 9.7 million plus social costs, due to potential overpayments for former executive officers, which the Company is pursuing.
Excluding non-recurring items in personal expenses, it would have a -20% variation compared to the first half of 2012, and -53% compared to the same quarter of 2012.
The items "third-party services" and "general and administrative expenses" when combined, presented a reduction of 18%, compared to the first half of 2012. The reduction in the headcount during the year of 2012 and 2013, and the consequent reduction in demand for general and administrative services explain the decrease in these lines.
The variation of "other expenses" is a result of exploration costs impacted by the well costs write-off in the amount of R$ 450 million, referring to the Solimões' and Namibia's wells which were not successful in their exploratory campaigns (R$ 430 million), as well as relinquished blocks, SOL-T-219 and SOL-T-220 (R$ 20 million).
Financial revenues, which include foreign exchange fluctuations, were reduced by 28% in 1H2013, when compared with the same period in 2012, primarily due to a 23% decrease in the cash balance over the semester, an increase of our cash position abroad, based on LIBOR as reference rate, in order to support our exploratory campaign in Namibia and the Polvo acquisition, and a reduction of 20%, on average basis, of the Brazilian basic interest tax rate (SELIC), which determines the interest earned by the Company in Brazil.
The main highlights of the Income Statement in the second quarter of 2013, compared with the same quarter of the previous year, were:
BALANCE SHEET
The following table presents the variation in the main balance sheet accounts in 2013, compared with 2012.
The variations in the total cash position result from normal application of funds in the Solimões' and Namibia's exploratory campaigns, as detailed in the next section. The reduction in the fixed assets results from the non-core divestment plan. Thus, the fixed assets were placed under the item "Assets Held for Sale" in the Current Assets.
TOTAL CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company ended the second quarter with a consolidated cash balance of R$ 814 million, a decrease of 23% over the balance of the 4Q12, due to disbursements for the exploratory campaign in the Solimões and Namibia basins, considering that the drilling campaign in Namibia began at the end of 1Q13, impacting significantly the costs in 2Q13.
The cash position was lessened by two factors: (i) the receipt of US$ 51 million from GALP due to the spud- in of Wingat and Murombe, that happened in the second quarter of 2013, and (ii) the increase of R$ 150 million resulting from a loan agreement with Credit Suisse bank as part of the payment for the agreement with BP Energy do Brasil Ltda. to acquire a 60% stake in the Polvo field.
The chart below presents the total cash evolution and the liquidity curve of the Company's consolidated current financial assets, resulting from the pledge as warranty of approximately R$ 155 million (USD 70 million) to lease the rig and related drilling services, to be used in the Namibia's exploratory campaign, and R$ 293 million as a guarantee to the Polvo acquisition. In addition, we provide the breakdown by financial institution where HRT Group's funds are invested, notably internationally renowned top tier institutions.
The chart below presents the cash flow, with demonstration of its main inflows and outflows, highlighting disbursements, inflow from revenues and receivables due to new loans.
CONSOLIDATED CASH FLOW
The table below presents the composition of disbursements registered in 2013 summarized by projects and recurring and non-recurring disbursements:
The exploratory campaign costs, around R$ 402 million, refer to disbursements for exploration activities, drilling, logistics (air, fluvial and land) allocated to intangible assets, plus the cost of personnel expenses, third-party services and other expenses paid and allocated to income statement.
Disbursements for seismic, amounting to R$ 70 million, were related to exploration activities in the Solimões and Namibia basins, and involved services survey and seismic processing contracting, due to expenses paid and allocated to income statement.
The G&A expenses, amounting to R$ 9 million, including financial expenses and exchange rate variation, were related to corporate expenses with personnel, third-party services and general and administrative expenses not directly allocated to the exploratory campaign, however existing to supply the development of the Group's operating activities.
The chart below shows the evolution of average daily cash disbursements (gross and net of income) in the second quarter of 2013, where there was an increase, when compared to the previous quarter.
The positive impact (net inflow) in the 2nd quarter of 2012 resulted from the receipt of the first instalment from Rosneft, regarding the acquisition of blocks in Solimões. In the second quarter of 2013, despite the increase in disbursements related to the Namibia`s campaign, HRT received two contributions (cash calls) from Galp, amounting to R$ 106 million, related to the drilling of Wingat-1 and Murombe-1 wells, reflecting a decrease in the cash burn rate to R$ 1.8 million per day, on average (excluding inflow from loan).
NON CURRENT ASSETS
The two tables below present detailed breakdown of fixed assets and intangible assets groups. The evolution is associated with the exploratory campaign in the Solimões and Namibia basins.
The decrease of approximately R$ 114 million in property, plants and equipment is mainly due to the transfer of the value of the helicopters involved in the sale transaction of Air Amazonia in the first quarter 2013 to the item "Assets Held for Sale" in the Current Assets, and that represented R$ 134 million at the end of 2012.
Recently, the Company notified ANP the relinquishment decision on the second exploration period of blocks SOL-T-219 and SOL-T-220, mainly due to difficulties in conducting geophysical surveys and obtaining environmental permits. The subscription bonus related to the relevant blocks was reclassified in the 2Q13 results (R$ 20 million).
In the first half of 2013, the Company invested R$ 520 million in its exploratory campaign (exploration expenses as intangible assets) and wrote off R$ 430 million as costs of dry and non-commercial wells in Solimões and Namibia.
ABOUT HRT
HRT Participações holds one of the largest independent oil and gas exploration and production companies in Brazil. The HRT Group comprises eight main subsidiaries: HRT O&G Exploração e Produção de Petróleo Ltda., Integrated Petroleum Expertise Company - Serviços em Petróleo Ltda., HRT Africa Petróleo S.A., HRT Netherlands B.V., Air Amazonia Serviços Aéreos Ltda., HRT America Inc., HRT Canada Inc.. The Company retains a 55% interest in 19 exploratory blocks in the Solimões Basin. HRT also operates ten exploratory blocks off the Namibian coast: eight blocks in the Orange Sub-basin and two blocks in the Walvis Sub-basin. HRT's team includes PhDs and masters in geochemistry, geophysics, biology and engineering, most of them former employees of Petrobras and ANP (Brazil petroleum agency). HRT is committed to minimizing any possible environmental impacts in the sites where it acts. Our commitment to the local communities is towards health conditions, safety and quality of life. For more information, please visit the Company's website: www.hrt.com.br/ir
DISCLAIMER
Certain information contained in this document, including any information as to our strategy, projects, plans or future fi nancial or operating performance and other statements that express management's expectations or estimates of future performance constitute "forward-looking statements". All statements, other than statements of historical fact, are forward-looking statements. The words "believe", "expect", "will", "anticipate", "contemplate", "target", "plan", "continue", "budget", "may", "intend", "estimate" and similar expressions identify forward-looking statements. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable by management, are inherently subject to signifi cant business, economic and competitive uncertainties and contingencies. HRT cautions the reader that such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual fi nancial results, performance or achievements of HRT to be materially different from HRT's estimated future results, performance or achievements expressed or implied by those forwardlooking statements and the forward-looking statements are not guarantees of future performance.
HRT disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.
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SOURCE: HRT Participações em Petróleo S.A.
Investor Relations
Contacts
www.hrt.com.br/ir
[email protected]
+55 21 2105-9700
Ricardo Bottas Dourado
CFO and IRO
Sandra Calcado
IR Manager
Tainah Costa
IR Senior Analyst
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