MX Oil reveal 2014 FY details

From an early stage we recognised the reopening of the vast Mexican energy sector for the first time since the 1930s presented an enormous value creating opportunity for international companies such as MX Oil. The numbers speak for themselves. According to the Oil & Gas Journal, as at the end of 2013, Mexico’s proven oil reserves stood at approximately 10 billion barrels. Rather than seeing a rise in hydrocarbon output to monetise these enormous reserves, Mexico’s production has been on a downwards trajectory for a number of years, thanks to a sustained period of underinvestment and a lack of access to the latest recovery techniques and technologies. It is to reverse this trend that the Mexican Government has opened up the sector to attract foreign capital and expertise.

For MX Oil to be able to participate in what is, for the international sector, an exciting new hydrocarbon play, we had to identify and secure a first class local partner. In Geo Estratos (‘Geo’) we believe we have just such a partner. Not only does Geo have proven expertise in Mexico’s energy sector, it importantly has a long established track record of working closely with Pemex and other operators in Mexico, and also has built a comprehensive database covering all of Mexico’s relevant licence areas. We were therefore delighted to have formed a joint venture with Geo during the year through which we are working together to secure concessions in Mexico that meet our investment criteria.

We took the decision early to focus on onshore conventional concessions, specifically those with existing discoveries requiring development, as well as those with mature fields in need of secondary interventions to enhance hydrocarbon recovery rates from the basin. This was taken with a view to positioning MX Oil as a development rather than an exploration company, thereby placing us at the lower end of the risk spectrum. Focusing on proven fields also provides the Company with a faster, more visible, route to generating near term cash flows. By targeting near term production, MX Oil would be able to use the associated cash flows and reserves in the ground as a solid foundation to which additional assets can be added as we look to build a portfolio of high impact development projects. Our focus on conventional fields has an additional benefit that is highly relevant to today’s markets. These fields are low cost and therefore require low oil prices to break even. As a result they remain profitable at or below current oil prices and provide a high degree of insulation from the period of heightened oil price volatility we are currently experiencing.

The liberalisation of Mexico’s energy regime is a huge undertaking. Importantly post period end the National Hydrocarbons Commission (‘CNH’) set out a timetable for the third phase of Bid Round 1. This phase is focused on the tender for mature onshore conventional fields in Mexico which require the application of secondary interventions to enhance recovery rates from the basin, as well as previous discoveries requiring development. In all, a total of 29 Land Contract Areas in the states of Chiapas, Nuevo Leon, Tabasco, Tamaulipas and Veracruz will be included. As these fields match our criteria, MX Oil is looking to participate in this tender. Pre-qualification of companies participating in the round was announced on 13 May 2015 with final award of contracts due to take place in November 2015. As previously announced by the CNH, those companies that can demonstrate extensive experience in either working with Pemex, the state-owned oil company, or a proven track record of developing onshore fields will be prioritised. This differs from the first two phases of Bid Round 1, where the main criteria were technical and financial. We are therefore confident that with Geo as our partner, our JV will be viewed as a strong bidder in the third tender.

Reflecting the new focus of our company, the composition of our Board was also changed during the course of the year. The appointment of Pat Mendoza and Sergio Lopez as non-executive directors in the second half of the year, both of whom have extensive operational experience on the ground in the Mexican and US onshore oil and gas sectors, complements the Board’s existing expertise in operating in London’s capital markets. Combined, we believe the Board now has the necessary skillset to build a leading oil and gas company.

Financial Review

The Group made a net loss from continuing activities of £1,149,000 (2013: £51,000) during the year to 31 December 2014.

In March 2014 we successfully raised £1.05 million via the issue of 105,000,000 new ordinary shares at a price of 1 pence per share. A further £2 million was raised in August 2014 through the issue of 66,666,666 new ordinary shares at a price of 3p per share. The Company has no Ordinary Shares held in treasury therefore the total number of voting rights in the Company following the Placing is 201,332,079.

Outlook

With a strong Board and management team, a joint venture in place with a well-connected and respected local oil and gas services partner, and exposure to a vast reopening market which matches our investment criteria and offers multiple opportunities for ground floor entry, the year ahead promises to be a highly exciting one for MX Oil. In addition we remain on the lookout for similar opportunities worldwide that match our investment criteria of low cost conventional assets in proven hydrocarbon regions. We have worked tirelessly on behalf of all shareholders to get MX Oil this far and we will continue to do so, as we look to build on the excellent platform we have put in place and deliver on our objective to create significant value through the acquisition and development of low risk, low cost assets with near term production potential.

Andrew Frangos

Chairman