TIDMENW
RNS Number : 1691H
Enwell Energy PLC
26 July 2023
26 July 2023
Enwell Energy plc
("Enwell" or the "Company")
Quarterly Operations Update
Enwell Energy plc (AIM: ENW), the AIM-quoted oil and gas
exploration and production group, provides an update on its
operational activities in Ukraine in respect of its
Mekhediviska-Golotvshinska ("MEX-GOL"), Svyrydivske ("SV") and
Vasyschevskoye ("VAS") gas and condensate fields and
Svystunivsko-Chervonolutskyi ("SC") exploration licence .
Production - Q2 2023
The average daily production of gas, condensate and LPG from the
MEX-GOL, SV and VAS fields over the period from 1 April 2023 to 30
June 2023 was as follows:
Field Gas Condensate LPG Aggregate
(MMcf/d) (bbl/d) (bbl/d) boepd
Q2 2023 Q2 2022 Q2 2023 Q2 2022 Q2 2023 Q2 2022 Q2 2023 Q2 2022
-------- -------- -------- -------- -------- -------- -------- --------
MEX-GOL
& SV 9.6 10.7 373 421 392 241 2,351 2,478
-------- -------- -------- -------- -------- -------- -------- --------
VAS 1.6 - 15 - - - 308 -
-------- -------- -------- -------- -------- -------- -------- --------
Total 11.2 10.7 388 421 392 241 2,659 2,478
-------- -------- -------- -------- -------- -------- -------- --------
The ongoing war in Ukraine continues to cause disruption to
operations at the Company's fields, and more recently adverse
regulatory actions by the Ukrainian authorities, culminating in
suspension of the VAS and SC licences on 4 May 2023, have caused
additional, and severe, disruption to the Company's operations.
Production volumes at the MEX-GOL and SV fields were lower when
compared with Q2 2022 due to natural field decline, with the
exception of LPG recoveries, which improved significantly following
the completion of upgrade works to the gas processing facilities at
the fields in mid-2022. Production from the VAS field was suspended
on 4 May 2023, and so the average production figures for Q2 2023
are based on the days that the VAS field was actually in production
during the quarter, namely 34 days. The comparative figures for Q2
2022 show no production as the VAS field was shut in during that
quarter due to the war.
Operations
Production operations are continuing at the MEX-GOL and SV
fields, and, currently, the production rate is approximately 2,245
boepd. Field operations are currently continuing relatively
normally, but there have been disruptions to the supply of
equipment and fuel, as well as interruptions to the supply of
electricity, which has caused delays to the progress of some
activities. In general, the operating environment in Ukraine
remains very challenging.
The GOL-107 well was spudded in December 2022, and has been
drilled to its final depth of 5,190 metres. This well is a
development well, aiming to achieve production from the V-20 and
V-23 horizons in the Visean formation. It is now planned to test
the well, and, subject to successful testing, to hook-up the well
for production later in Q3 2023.
At the VAS field and SC exploration licence area, all operations
are suspended following suspension orders made by the State
Geologic and Subsoil Survey of Ukraine (the "SGSS") on 4 May
2023.
The Company continues to be cautious and vigilant in continuing
with its operations and is taking the appropriate measures
available to protect and safeguard its personnel and business. The
safety and wellbeing of its personnel and contractors is paramount
and the Company will continue to take all possible steps to ensure
their safety.
Interim Dividend
On 15 June 2023, the Company paid an interim dividend to
shareholders of GBP0.15 per ordinary share (approximately GBP48.1
million in aggregate).
Cash Holdings
At 30 June 2023, the Company's cash resources were approximately
$33.8 million, comprised of $12.1 million equivalent in Ukrainian
Hryvnia and the balance of $21.7 million equivalent in a
combination of US Dollars, Pounds Sterling and Euros.
Gas Sales and Sales Receivables
During Q2 2023, demand for gas has remained weak due to the war
in Ukraine, and gas sale prices have also weakened as demand has
fallen. The Company has completed a restructure of its contractual
relationships relating to the sale of its gas, and pursuant to such
restructuring, has ceased selling gas to LLC Smart Energy. The
Company now sells all of its gas directly to its off-takers.
Approximately $32.8 million of the receivable balance under the
previous sale arrangement with LLC Smart Energy was received after
the end of the quarter, and the remaining balance of approximately
$3.8 million is expected to be received shortly. Largely as a
result of the receipt of these receivable payments after the end of
the quarter, the Company's cash resources are currently
approximately $67 million equivalent.
New Auditor and Suspension from trading on AIM Market
The Company is currently engaged in discussions with a potential
new UK auditor for the audit of its financial statements, and a
further announcement will be made in due course in this regard. In
the meantime, the Company has engaged Kreston Ukraine to undertake
the Ukrainian component of the audit for the financial year ended
31 December 2022 for its Annual Report and Financial Statements
(the "2022 Annual Report and Accounts"), and this work is currently
underway.
However, as the Company has not yet been able to secure the
services of a new UK auditor for the audit of the 2022 Annual
Report and Accounts, it was not able to complete, publish and post
its audited 2022 Annual Report and Accounts to shareholders by the
deadline of 30 June 2023 as required by Rule 19 of the AIM Rules
for Companies. As a result, trading in the Company's ordinary
shares on AIM was suspended with effect from 7.30 a.m. on 3 July
2023 pending publication and posting to shareholders of the 2022
Annual Report and Accounts. Suspension from trading is expected to
be lifted upon publication and posting to shareholders of the 2022
Annual Report and Accounts.
Suspension of VAS and SC Licences
As announced on 4 May 2023, the SGSS has issued orders
suspending the Company's VAS production licence and SC exploration
licence.
This followed action by the Ministry of Justice of Ukraine (the
"MoJ") on 2 May 2023, which made Orders (the "MoJ Orders")
cancelling the registration entry made on behalf of three Ukrainian
subsidiaries of the Company named LLC Prom-Enerho Produkt ("PEP"),
LLC Arkona Gas-Energy ("Arkona") and LLC Well Investum ("Well
Investum") respectively in the Unified State Register of Legal
Entities, Individuals-entrepreneurs and Civil Institutions of
Ukraine (the "State Register") relating to the ultimate beneficial
owners of such companies. The registration entry for each of these
companies stated the ultimate beneficial owners to be the
beneficial owners of the indirect majority shareholder of the
Company as notified to the Company and published to the market on
26 January 2023, but the MoJ Orders removed each such registration
entry and restored the previous entry in the State Register, Vadym
Novynskyi ("Mr Novynskyi"). As announced on 26 January 2023, the
Company was notified that Mr Novynskyi ceased holding a beneficial
interest in the indirect majority shareholder of the Company on 1
December 2022. PEP holds the VAS production licence, Arkona holds
the SC exploration licence and Well Investum is a dormant
company.
Under Ukrainian Law No. 2805-IX, which came into force on 28
March 2023 , the SGSS has legislative powers to suspend and/or
revoke hydrocarbon licences of which the ultimate beneficial owner
is the subject of Ukrainian Government sanctions. A s announced on
9 December 2022, the Ukrainian Government imposed sanctions on Mr
Novynskyi, who previously held a major indirect shareholding
interest in the Company, but ceased to do so on 1 December 2022 as
referred to above. However, following the issuance of the MoJ
Orders, Mr Novynskyi is now registered in the State Register as the
ultimate beneficial owner of each of PEP and Arkona, and is
consequently recognised by the SGSS as the ultimate beneficial
owner of each of the VAS production licence and SC exploration
licence. As a result, the SGSS issued the suspension orders in
respect of each of the VAS production licence and SC exploration
licence for a period of 5 years effective from 4 May 2023 .
Accordingly, the Company has ceased all field and production
operations on the VAS and SC licence areas.
Successful Final Appeal in Legal Proceedings relating to SC
Licence
Since the Company completed the acquisition of Arkona in March
2020, there have been a number of legal challenges relating to the
SC exploration licence. As announced on 3 July 2020, PJSC Ukrnafta
("Ukrnafta"), as claimant, brought legal proceedings against
Arkona, as defendant, in which Ukrnafta made claims asserting that
irregular procedures were followed in the grant of the SC licence
to Arkona in May 2017. Ukrnafta also brought these proceedings
against the SGSS. Both Arkona and the SGSS disputed these claims.
In these proceedings, the First Instance Court in Ukraine made a
ruling in favour of Ukrnafta, determining that the grant of the SC
licence was irregular, and accordingly, the SC licence would be
invalid. Arkona filed an appeal of this decision in the Appellate
Administrative Court in Kyiv, and on 29 September 2020, the
Appellate Administrative Court ruled in favour of Arkona,
overturning the earlier decision of the First Instance Court.
Ukrnafta filed a further appeal in the Supreme Court in Kyiv, and
in February 2021, the Supreme Court ruled that the arguments raised
by Ukrnafta in the appeal were not substantiated, and that the
proceedings against Arkona should be dismissed. The decision of the
Supreme Court represented the final
appeal procedure in respect of these legal proceedings, and
accordingly, these proceedings against Arkona were exhausted.
Prior to the Company's acquisition of Arkona, Ukrnafta had
previously issued legal proceedings in 2018, raising substantially
the same claims, which proceeded through the First Instance Court
and Appellate Administrative Court, before a final appeal was
determined by the Supreme Court in October 2019, in which
Ukrnafta's claims were denied. In April 2021, an entity named JV
Boryslav Oil Company ("Boryslav"), which is 25.0999% owned by
Ukrnafta, issued a further legal claim, also claiming that
irregular procedures were followed in the grant of the SC licence,
which claim was denied by the First Instance Court in July 2021 and
by the Appellate Administrative Court in October 2021. There was no
further appeal in this case and so the decision of the Appellate
Administrative Court in these legal proceedings is final. In
September 2021, Boryslav issued a further legal claim, again
claiming that irregular procedures were followed in the grant of
the SC licence, against the SGSS, the State Commission of Ukraine
for Mineral Resources (the "SCP") and Arkona, as defendants, with
Ukrnafta named as a third party. In this claim, the First Instance
Court made a ruling in January 2022 in favour of Boryslav. This
ruling was appealed to the Appellate Administrative Court, and on 2
November 2022, the Appellate Administrative Court made a ruling in
favour of Boryslav, to uphold the decision of the First Instance
Court. The Company appealed the decision of the Appellate
Administrative Court to the Supreme Court, and on 3 May 2023, the
Supreme Court published its decision to allow the Company's appeal
and overturn the ruling made by the Appellate Administrative Court.
The Supreme Court represents the final appellate court in these
legal proceedings, and accordingly, the decision of the Supreme
Court is final.
Regulatory Actions by Ukrainian Authorities
As announced on 12 April 2023, during the quarter, the Ukrainian
authorities undertook a number of regulatory actions against
certain of the Company's subsidiaries in Ukraine, including
conducting a search at the Group's Yakhnyky office, from where the
MEX-GOL and SV fields are operated, and placing certain physical
assets of the Ukrainian branch (representative) office of Regal
Petroleum Corporation Limited ("RPC") and Arkona (which
respectively hold the MEX-GOL and SV fields and the SC exploration
licence) under seizure, thereby restricting any actions that would
change registration of the property rights relating to such assets.
However, the use of such assets is not restricted and therefore the
Company is able to continue to operate and produce gas and
condensate from the MEX-GOL and SV fields. In addition, the MoJ
made an Order cancelling the registration entry made on behalf of a
subsidiary of the Company named LLC Regal Petroleum Corporation
(Ukraine) Limited in the State Register relating to the ultimate
beneficial owners of such company, thereby restoring the previous
entry in the State Register, Mr Novynskyi. Furthermore, the SGSS
issued an Order to RPC requiring that additional information be
provided and/or violations be eliminated in the disclosures
relating to the ultimate beneficial owners of the MEX-GOL and SV
licences respectively.
Sergii Glazunov, Chief Executive Officer, said : "The operating
environment in Ukraine continues to be extremely challenging as a
result of the war, and additionally the recent regulatory actions
and suspension orders made by the Ukrainian authorities are
extremely disappointing. Nevertheless, w e are pleased to be able
to continue our production operations at the MEX-GOL and SV fields,
as well as completing drilling operations on the GOL-107 well. We
are consulting with our lawyers to take all available measures to
protect our assets and business and to, hopefully, successfully
challenge the recent regulatory actions."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014, which forms part of United
Kingdom domestic law by virtue of the European Union (Withdrawal)
Act 2018, as amended by virtue of the Market Abuse (Amendment) (EU
Exit) Regulations 2019.
For further information, please contact:
Enwell Energy plc Tel: 020 3427
3550
Chris Hopkinson, Chairman
Sergii Glazunov, Chief Executive Officer
Bruce Burrows, Finance Director
Strand Hanson Limited Tel: 020 7409
3494
Rory Murphy / Matthew Chandler
Zeus Capital Limited Tel: 020 7614
5900
Alexandra Campbell-Harris (Corporate
Finance)
Simon Johnson (Corporate Broking)
Citigate Dewe Rogerson Tel: 020 7638
9571
Ellen Wilton
Dr Gehrig Schultz, BSc Geophysical Engineering, PhD Geophysics,
Member of the European Association of Geophysical Engineers, Member
of the Executive Coordinating Committee of the Continental European
Energy Council, and a Non-Executive Director of the Company, has
reviewed and approved the technical information contained within
this announcement in his capacity as a qualified person, as
required under the AIM Rules for Companies.
Definitions
bbl/d barrels per day
boepd barrels of oil equivalent per day
cf cubic feet measured at 20 degrees Celsius and
one atmosphere
LPG liquefied petroleum gas
MMcf/d million cubic feet per day
% per cent.
$ US Dollars
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END
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