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Northcote (LSE:NCT) has provided its final results for the year ended 31 December 2013.
Highlights
Year under review:
· Multiple milestones met towards delivering long term success in the onshore US oil and gas industry.
o Increased acreage to over 5,000 net acres during the period;
o 2013 Northcote grew through low cost land acquisitions, expanding and diversifying the inventory of scalable development opportunities;
o Ideally positions Northcote for near, mid and long term production, revenues and reserves growth; and
o Current reserves of 2.49 million BOE.
· Operator status in Osage County gained across three of eight core properties – enables Northcote to control capital expenditure and rapidly take advantage of value accretive opportunities
· Production increased to 100BOEPD ahead of schedule with 2013 and 2014 operational initiatives underway to deliver 250BOEPD
Post period end:
· Commenced a continuous and diverse work programme across Osage County portfolio post period end, including low cost recompletions/ workovers, new wells
· Focussed on increasing daily production levels, to achieve sustainable cash flow generation from operations over forthcoming 12 months and broadening available funding options
Northcote Chairman Ross Warner said, “In Northcote’s first year of listing, the management team have increased revenues and reduced the importance of single wells in its portfolio through accretive acquisitions and field development, improved field level margins on various of its assets through farm-out and operational gains which have also enabled it to recycle capital, and added additional potential upside in existing and new projects.
Northcote has a dynamic and enterprising management team and it is now primed for growth. In the coming year we expect to deliver significant growth in the Company’s value which we believe should be reflected in our share price.”
NORTHCOTE ENERGY LIMITED
CHAIRMAN’S STATEMENT:
Northcote has transformed its revenues and asset base in the period under review. This activity has established a strong platform for growth and we expect to deliver significant gains across a number of measures in the forthcoming year.
Northcote’s strategy is simple:
• Deliver revenue growth through a combination of asset acquisitions and field development;
• Improve operating margins by operating its assets and farming out interests on promoted terms; and
• Access additional non-dilutive capital through commercial bank debt.
Northcote has acquired a number of assets since listing. We believe each of these assets has significant undeveloped potential but each was purchased at a price which reflected the estimated present value of future cash flows from existing proven and producing reserves. This represents a cheap option on the undeveloped potential. As a consequence of these acquisitions, we have grown reserves and revenues, acquired a significant inventory of development opportunities and the Company’s revenues are now generated from a large number of wells across a number of projects and States.
Whilst we will continue to review acquisition opportunities in the coming year, the Company has entered into a new phase of its development and we expect a greater contribution to revenue growth to come from field development. The field development programme will continue to include workovers and recompletions but will also include a new well drilling programme. We have a large inventory of drilling opportunities ranging from US$200,000 low risk shallower opportunities to US$5 million high impact deeper opportunities. This inventory will provide significant opportunities which Northcote can scale to fit its capital expenditure capacity for many years to come.
Northcote has entered into a number of farm-out arrangements in the period under review. The Company seeks to farm out on promoted terms which have the net effect of improving our operating margins on these assets. The full year benefits of the current initiatives will be seen in subsequent accounts. These arrangements enable us to allocate and recycle capital and we will continue to undertake this activity in the coming year.
The Company has increased its capacity to operate assets in the period under review and will continue to do so in the forthcoming year. Northcote seeks to control its assets by either operating or owning a majority interest in them. This enables the Company to control the pace of development and schedule its capital commitments to reflect its capital expenditure capacity. In addition, operating the asset improves operating margins as it enables us to re-charge a proportion of the operating costs to non-operated interests. This initiative has had short term cost implications. However, from this point on, the Company’s operating capacity will be a key component in generating future revenues and controlling costs.
The reported loss for the year of $3,755,000 reflects the high level of acquisition activity and the costs associated with the listing. The adjusted EBITDA loss of $1,769,000, removing certain non-recurring costs, is further detailed in the financial report. We expect substantial improvements in 2014 as we move from the acquisition to development phase and towards a sustainable E&P business through the development of Zink Ranch and our other properties, which are being funded through the issue in 2014 of the convertible loan notes, farm-outs and internally generated cash flows.
In summary, in the period under review Northcote has increased revenues and reduced the importance of single wells in its portfolio through accretive acquisitions and field development, improved field level margins on various of its assets through farm-out and operational gains which have also enabled it to recycle capital, and added additional potential upside in existing and new projects.
Northcote has a dynamic and enterprising management team and it is now primed for growth. In the coming year we expect to deliver significant growth in the Company’s value which we believe should be reflected in our share price.
Ross Warner
Executive Chairman
27 June 2014
