TIDMIGAS
RNS Number : 3632I
Igas Energy PLC
21 March 2018
21 March 2018
IGas Energy plc (AIM: IGAS)
Full year results for the year ended 31 December 2017
IGas Energy plc ("IGas" or "the Company" or "the Group"), one of
the leading producers of hydrocarbons onshore in Britain, announces
its full year results for the year ended 31 December 2017.
Results Summary
Year Year
ended ended
31 Dec 31 Dec
2017 2016
GBPm GBPm
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Revenues 35.8 30.5
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Adjusted EBITDA(1) 9.2 10.2
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Profit/(loss) after tax 15.5 (32.9)
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Net cash from operating activities 6.7 12.4
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Net debt(2) 6.2 99.7
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Cash and cash equivalents 15.7 24.9
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Operational Summary
-- Net production averaged 2,335 boepd for the year (2016: 2,355
boepd). Operating costs for the year were $28.2/boe (2016:
$28.8/boe). We currently anticipate net production of between 2,300
- 2,400 boepd in 2018 and operating expenditure of $32.5/boe
(assuming an exchange rate of GBP1:$1.40)
-- 2P conventional reserves replacement of over 100% (31 Dec
2017: Net 2P reserves 13.64 MMboe(3) ).
-- Site construction continues at both our sites in North
Nottinghamshire, Springs Road and Tinker Lane. We are on track to
spud the first well mid-2018.
-- In the North West, at Ellesmere Port, we were granted
environmental permits and the Planning Officer's recommendation for
the approval of our application. At the planning committee meeting
on 25 January 2018, the committee voted to refuse the application.
It is our intention to appeal this decision.
-- Also in the North West, at Ince Marshes, we continue to
progress our planning application to drill a new well and
hydraulically fracture at this existing site. Subject to surveys
and monitoring we expect to submit the application mid-2018.
-- Our gas monetisation project at Albury in Surrey is
progressing well. We anticipate first gas from Albury in the second
half of 2018, subject to planning consent.
-- The Stockbridge field project, which includes a number of
secondary recovery techniques, is well underway. These activities
will not only de-risk the existing production but add up to 30% of
incremental production from the field.
Corporate and Financial Summary
-- Successful completion of capital restructuring and fundraising in April 2017.
-- Cash balances as at 31 December 2017 of GBP15.7 million and net debt of GBP6.2 million.
-- Carried work programme of up to $240 million as at 31
December 2017, at year end exchange rate of $1.35.
-- 600,000 barrels hedged for 2018 using three-way zero cost
collars with an average floor price protection of $47/bbl and an
average call spread of $60/bbl - $75/bbl.
Notes
1. Adjusted EBITDA is considered by the Company to be a useful
additional measure to help understand underlying performance. A
reconciliation to loss before tax is included in the financial
review.
2. Net debt is borrowings less cash and cash equivalents excluding capitalised fees.
3. Company estimates.
Commenting today Stephen Bowler, Chief Executive Officer,
said:
"The expectation of ongoing free operating cash flow provides us
with a solid platform and financial flexibility to execute our
growth plans, as we move into a busy operational period for IGas.
We have sanctioned a number of projects, including Albury and
Stockbridge, and would expect to see the benefits of these projects
during the latter part of 2018.
Site construction continues at Springs Road and Tinker Lane and
we look forward to progressing to drilling. These wells will form
the foundation of a wider development in the East Midlands with the
mid-term focus moving to a pilot development in the Gainsborough
Trough, leveraging our existing, long standing operations in the
East Midlands.
In the North West we are progressing our application at Ince
Marshes and advancing further applications. It is our intention to
appeal the decision of Cheshire West and Chester Council's Planning
Committee of 25 January 2018 to refuse planning consent for our
application to test the Pentre Chert formation at Ellesmere
Port.
There is also a significant level of activity onshore UK, and
over the next 12 months, the industry is expected to have a number
of operators either drilling or flowing wells. As momentum builds
across both our business and the industry as a whole, we look
forward to the future with excitement as security of energy supply
and diversification of the UK energy mix becomes ever more
important."
A results presentation will be available at
http://www.igasplc.com/investors/presentations.
John Blaymires, Chief Operating Officer of IGas Energy plc, and
a qualified person as defined in the Guidance Note for Mining, Oil
and Gas Companies, June 2009, of the London Stock Exchange, has
reviewed and approved the technical information contained in this
announcement. Mr. Blaymires has 35 years oil and gas exploration
and production experience.
For further information please contact:
IGas Energy plc
Tel : +44 (0)20 7993 9899
Stephen Bowler, Chief Executive Officer
Julian Tedder, Chief Financial Officer
Ann-marie Wilkinson, Director of Corporate Affairs
Investec Bank plc (NOMAD and Joint Corporate Broker)
Tel: +44 (0)20 7597 5970
Sara Hale/Jeremy Ellis/George Price
Canaccord Genuity (Joint Corporate Broker)
Tel: +44 (0)20 7523 8000
Henry Fitzgerald-O'Connor
Vigo Communications
Tel: +44 (0)20 7830 9700
Patrick d'Ancona/Chris McMahon
Chairman's Statement
I am pleased that the Company is now both financially stronger
and at a very exciting point in its operational evolution. 2017 was
a year of significant change at IGas. A major financial
restructuring was successfully completed and as part of that
process we attracted a new strategic investor in Kerogen Capital,
who specialise in the oil and gas sector. Alongside the
refinancing, we changed the composition of the Board, and
implemented cost savings, particularly at head office, in order to
be well positioned for the future.
The second half of the year brought a more stable and increasing
oil price and momentum not only across the different facets of our
business but across the wider UK onshore industry. We are
generating operating cash flow and production levels are stable at
2,300 boepd. We have a committed carried work programme of up to
c.$240 million with our key partner INEOS, to develop our shale
assets, and have commenced work on a number of projects within our
conventional production assets that we were able to progress
following the refinancing.
As we start another year, I find myself questioning how is the
UK going to continue to meet the significant national demand for
gas? Gas heats 8 out of 10 homes, produces nearly half of our
electricity and is used as a vital feedstock by British industry.
In December 2017, three separate events caused a European gas
shortage and subsequent price spike, with Middle Eastern and
Russian LNG suppliers assigning tankers to meet demand.
There may be plenty of gas that can be imported from around the
world but that comes at a cost, not just a high financial one but
imports have a higher carbon footprint and we cannot control
employment and environmental policies and regulations in other
jurisdictions. If we develop our own home-grown supply we can
maximise both the economic and environmental opportunities that
come with it and have more security of supply.
Our businesses have been operating onshore in the UK for more
than three decades and we are conscious of the significant
responsibility we have not just to our shareholders and colleagues
but to the communities in which we operate and the partners with
whom we work. Much of our workforce live in and around the
communities where we operate and understand what it means to be a
responsible neighbour. Our focus on health, safety and the
environment continues to be a key priority across the business.
Our Community Fund is now in its tenth year and we are proud of
the work we have done to support local communities across our
portfolio, investing almost GBP1 million in numerous projects that
are both meaningful and sustainable to local residents. We will
continue making these important donations whilst endeavouring to
engender trust within the communities in which we operate.
In June 2017, Francis Gugen who had been Chairman of the Company
since it was founded, retired from the Board. I would like to thank
Francis for his pivotal role in establishing IGas as one of the
leading onshore oil and gas operators and we all wish him well for
the future. John Bryant, Senior Independent Non-executive Director,
also retired from the Board in June 2017, having served on the
Board for nine years. I would like to thank John for his
significant contribution to the Company.
Following the successful completion of the refinancing in April
2017, two directors from Kerogen Capital, Philip Jackson and Tushar
Kumar joined the Board as Non-executive Directors. In addition,
John Blaymires and Julian Tedder resigned from the PLC board but
remain directors of the operating companies and continue to fulfil
their executive roles.
In particular, I am grateful to the IGas leadership team for
their energy and dedication in steering the business through a
complicated restructuring and successful capital raise.
I want it to be recognised how hard our colleagues have worked
during the past year and thank them for their commitment and
resilience through challenging times and I would also like to thank
our shareholders for their continued support.
Outlook
The last couple of years have been challenging both for IGas and
the industry as a whole, but with the appropriate steps having been
taken by the Company coupled with a more stable commodity price
outlook, IGas is now well set for the next period of its
growth.
While we remain focused on maintaining a solid operating
performance, we have also allocated some capital to deploy in
growth projects across our conventional assets and will be focused
on delivering sanctioned projects. Maintaining the strength of our
conventional operating platform is a fundamental part of the
Company's equity story, underpinning the significant opportunity
our unconventional acreage presents.
Momentum is building across the business and across the industry
as we start to drill and flow appraisal wells to assess commercial
viability of these shale resources. There is a significant level of
activity onshore UK, and over the next year, the industry is
expected to have over half a dozen operators either drilling or
flowing wells, including a number from IGas.
We look forward to the future with excitement not only for IGas,
but for the wider UK onshore industry, as security of energy supply
and diversification of the UK energy mix becomes ever more
important.
Chief Executive's Statement
We ended 2017 in a stronger financial position having carried
out a successful capital restructuring earlier in the year against
a backdrop of continued commodity price volatility. Now, with
capital available to deploy, we are taking further steps to improve
operating and production efficiency that will underpin our
conventional production through 2018 and beyond.
The midpoint of the year saw the start of the current oil price
run. A convergence of supply constraints and demand strength are
factors contributing to continued oil price strength and creating
foundations to sustain that relative strength in 2018.
Over the past few years we have driven operating costs down to
approximately US$28/boe. With oil prices now above US$60/bbl, we
are reviewing further various initiatives to grow our production
from our existing producing sites across the country.
The UK is heavily reliant on gas, being the second largest
consumer of gas in the EU after Germany. Latest data available from
2016 shows 40% of UK primary energy was derived from natural gas,
representing a 50% increase since 1990. Currently c.50% of our gas
is imported and that is set to rise to nearly 80% in the next 17
years.
We have the opportunity to be a potentially important
contributor to changing the future dynamics of the UK's supply of
gas, reducing our growing reliance on imports while meeting our
national demand for gas, bringing direct local investment and also
benefits to our wider environment and economy.
Strengthening the Balance Sheet
In April 2017, shareholders approved the terms of a fundamental
capital restructuring of the Group concluding a long process that
commenced in early 2016. This complex restructure involved new
equity of $57 million being raised, a number of secured and
unsecured bonds exchanged for equity, a number bought back and the
remaining bond terms amended. This resulted in net debt being
reduced from c.$120 million to under $10 million on completion.
The transaction has significantly improved our financial
position and we are generating operating cash for reinvestment back
in the business at the current oil price of over $60/bbl.
We have created a more robust and stable financial platform for
the future development of the Group with senior management now
focused on delivering operationally as well as strategically.
Operational Performance
Group production averaged 2,335 boepd for the year as our
production crews worked hard getting wells back online that had
required maintenance.
We continue to identify and evaluate opportunities across our
conventional assets. We see value creation in turning maturing
field decline into production growth and whilst the past couple of
years has seen little capital investment given the challenging oil
price backdrop and focus on cash preservation, we are now spending
more time looking at exploration and appraisal opportunities within
these existing assets.
We have approved some incremental projects including the Albury
and Gainsborough gas projects, pump enhancement and waterflood
activity at Welton and plant and maintenance projects. We expect to
see the benefits of these projects during the latter part of
2018.
We have also identified, and are looking to accelerate, a number
of other projects with attractive returns. Detailed technical and
economic evaluations are progressing to advance these opportunities
which will further underpin our conventional portfolio.
IGas is now approaching a period of increased operational
activity across its acreage. Having received formal planning
approval for three wells in North Nottinghamshire, site
construction continues at our Tinker Lane and Springs Road sites.
We anticipate that we will spud the first well mid-2018.
In the North West, in July 2017, we submitted a planning
application to test the Pentre Chert formation at our existing site
at Ellesmere Port. The planning officer made a recommendation for
approval but the planning committee refused consent. It is our
intention to appeal this decision. At Ince Marshes, we continue to
progress our planning application to drill a new well and
hydraulically fracture at this existing site. Subject to surveys
and monitoring we expect to make the application mid-2018.
Momentum in UK onshore activity
2018 will be a defining year for the onshore oil and gas
industry. There is a significant level of activity onshore UK, and
over the next 12 months, the industry is expected to have a number
of operators either drilling or flowing wells. The industry has
made the first payments under its community benefits scheme,
prepared to begin drilling horizontally into shale rock for the
first time in Lancashire and submitted a final stage application
for high volume hydraulic fracturing in North Yorkshire.
Cuadrilla has announced that early results from its vertical
wells in Lancashire were very encouraging and they are confident
that there is a very sizeable quantity of natural gas in the
Bowland Shale. The coming months should see important data in terms
of flow rates that will help the industry better understand the
geology in the key basins.
IGas in the Community
It is hugely important to us that the local communities where we
operate benefit from our presenceboth economically and
socially.
This means not only via investments from our own community fund,
which has distributed almost GBP1 million to communities in which
we operate, but also providing jobs, working closely with the local
supply chain and funding apprentices.
As many of our existing production sites will still operate for
years to come and as new sites are brought into production we want
to make sure that we make a positive difference to the local
community.
People
2017 was another challenging year for the business, balancing
the restructuring process with maintaining production and pursuing
our shale development programme.
We continue to operate in an ever-changing and complicated
industry where the challenges are numerous and the pace and
pressure to deliver constant. What I appreciate is just how much
each of our people cares, how dedicated they are to making this
work and the personal sacrifices made to ensure the continued
success of the business.
Outlook
The expectation of ongoing free operating cash flow provides us
with a solid platform and financial flexibility to execute our
growth plans.
Whilst we are optimistic about our plans and the opportunities
before us, we are also cautious about the macro environment and
will continue to maintain financial discipline across the business
whilst bringing projects forward that have attractive returns at
current oil prices.
There will be a number of wells drilled this year, some with
hydraulic fracturing. Once we have proven to our local communities
that we can conduct this highly regulated and proven process in a
safe and accountable way we hope that those undecided and unsure of
the process will come to accept it for what it is, and has been for
the last five decades: a standard oilfield operation that will help
support the UK's energy independence, economy and environment.
Operational Review
Production
During 2017 the production division continued to deliver cost
and production efficiencies through extending and embedding many of
the initiatives that had been introduced in previous years.
Throughout the year we conducted a significant programme of well
and facility maintenance which has resulted in the return to
production of several shut-in wells. All of this activity resulted
in average net production for the year of 2,335 boepd with
operating costs of c.$28/bbl.
Our operations are based largely within mature fields with aged
assets and as a consequence we believe that realising high
production efficiency will be a fundamental component of achieving
our operating cost goals going forward. As the fields have a long
operating history and we have significant local operating knowledge
we have been able to take advantage of both to conduct a systematic
review of each of our wells in order to ascertain any performance
or reliability issues. This exercise coupled with the live data
that we now have from our downhole gauges and Rod Pump Off
Controllers (part of our Digital OilField initiative) has meant
that we are better able to execute predictive techniques with our
wells. For example, in order to avoid rod breaks or to ensure that
following a rod break we have an enhanced repair program "on the
shelf" to quickly return the well to production. This approach has
delivered a 70% reduction in rod failures since its introduction
and has created the capacity to allow our rodding rig to focus more
on proactive activities and opportunities.
The deployment of our Digital Oil Field concept also continues
as we see this being an enabler for real-time, swifter and better
informed decision making, with increased employee engagement and
productivity all combining to assist in driving down our future
operating costs.
Early in the year a focus on developing near term projects and
identifying optimisation opportunities continued, with key
activities being progressed to ensure that we were well positioned
to take them forward following the Company refinancing and an
improved oil price environment. Post the restructuring, several of
our optimisation projects were sanctioned including the
mobilisation of a coiled tubing unit for work on three separate
wells, two of which have increased their production rates by over
100% and the third brought back online after being shut-in due to
loss of productivity. These works combined with an intensive
workover campaign that included deployment of wax mitigation
technologies, pump optimisations and well conversions have
effectively offset the annual decline with our production rates
exiting the year almost 5% higher than at the start.
We approved the trial of beam pump gas compressors at two of our
fields in order to reduce back pressure on several of our wells.
These units are due for installation in mid-2018. If successful
they will improve the individual well productivity and provide
additional gas for our power generation schemes as well as opening
up the potential for further roll out across several other sites in
the portfolio. Other innovations include the installation of a
micro turbine package to trial the potential to utilise annulus gas
for small scale local power generation whilst also taking back
pressure off the well; this is also due for commissioning in
mid-2018.
Progress also continues with our water injection initiatives in
both the Weald and the East Midlands. We have recently approved a
new scheme at our Welton field that, following the conversion of an
existing well and the installation of injection facilities,
envisages the return to production of two wells that are currently
shut-in with the added benefit of de-risking the current production
from the field.
Another project, at our Stockbridge field, is also underway
where we have developed a package of works across five wells to
debottleneck the water management constraints at the field whilst
also returning existing wells to production. The program includes
the side-track of a previously abandoned water injection well, the
stimulation of a well with low productivity, two workovers and the
reinstatement of a well shut-in for water management to be returned
to production. These activities will not only de-risk the existing
production but add up to 30% of incremental production from the
field.
The monetisation of our stranded gas assets advanced throughout
2017; most notably at our Albury site. For several years the gas
transmission business has been increasingly deregulated as it has
had to adapt to enable the injection of small quantities of
biomethane into the network. Typically this takes the form of CNG
or low pressure gas; however, this has also created the opportunity
for direct gas to grid solutions to be accepted for entry and
following discussions with the local gas distribution network
operator we have unlocked this as an alternative development
solution to the originally planned CNG option. This new choice adds
significant value to this development and has clear synergies for
other stranded gas applications within our portfolio.
Capital expenditure across these projects amounted to c.GBP4.0
million during the year. Going forward, we expect c.GBP5.0 million
of incremental capital expenditure per annum will result in
production of levels of c.2,500 boepd in the medium term.
IGas net reserves and resources (MMboe)
We have had over 100% reserves replacement with 2P reserves
standing at 13.64 MMboe as at 31 December 2017.
The Group's estimates of proved and proved plus probable
reserves are taken from year-end internal estimates as of 31
December 2017. Proved reserves are estimated reserves that
geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years under existing economic
and operating conditions. The probable reserves are estimated
additional reserves determined to be more likely than not to be
recoverable with some planned future capital investments.
As these are mature fields, their historical performances have
reliable declines in producing-rate trends and the proved reserves
have been estimated by the application of appropriate decline
curves only to the limits of economic production. Probable
undeveloped reserves were estimated for some incremental projects
by using analogy type-well data of nearby wells completed in the
same reservoirs. These incremental projects are based mainly on
reinstatement of some offline wells to access shut-in and/or
behind-pipe reserves by workovers, recompletions and
sidetracks.
There has been 2P reserves replacement of over 100% based on a
cumulative production of 0.89 MMboe in the year. The reserves
growth is due largely to a combination of planned future
investments in non-producing and undeveloped reserves, and better
reservoir management. The developed producing 2P reserves represent
about 90% of the total 2P reserves.
Net Reserves and Resources (MMboe)
1P 2P 2C
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As at 31 Dec
2016(1) 9.02 13.37 21.84
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As at 31 Dec
2017(2) 8.11 13.64 22.21
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Notes
1. D&M estimates as ta 30 June 2016 adjusted for six months
production to 31 December 2016.
2. IGas estimates, cumulative production in 2017 of 0.89
MMboe.
Development/Appraisal Assets
During 2017, good progress was made with developing our East
Midlands and North West shale acreage.
East Midlands
In the East Midlands we signed Section 106 legal agreements in
May 2017 for the exploratory well sites at both Springs Road and
Tinker Lane with Nottinghamshire County Council ("NCC"), in effect
the legal agreement for the planning consent. Construction
commenced at both sites in late 2017 and is largely complete at
Springs Road, with good progress being made at Tinker Lane.
The wells will be drilled during 2018 and will form the
foundation of a wider development in the East Midlands with the
mid-term focus moving to a pilot development in the Gainsborough
Trough, leveraging on our existing, long standing operations in the
East Midlands.
North West
In the North West, we submitted a planning application at our
existing site at Ellesmere Port in July 2017. Evaluation of
wire-line logs acquired across the various formations encountered
during the drilling of the well in 2014 indicated hydrocarbons
being present in the Pentre Chert Formation.
The Pentre Chert Formation is a naturally fractured reservoir
rock composed of interbedded layers of cherts and cherty mudstones,
with subordinate thin layers of siltstones, limestones and
sandstones.
The proposed project includes carrying out further tests on the
Pentre Chert, including a Drill Stem Test ("DST"), to provide an
initial analysis of the hydrocarbon composition and its flow
characteristics within the formation. The initial information
obtained during the DST will be used to determine whether
commercially viable quantities of hydrocarbons exist and if
successful we will then carry out an Extended Well Test to better
understand the production performance and associated volumes.
Environmental permits were issued by the Environment Agency in
November 2017 and on 17 January 2018, the Planning Officer at
Cheshire West and Chester Council made a recommendation for the
approval of our application. At the planning committee meeting on
25 January 2018, the committee voted to refuse the application. It
is our intention to appeal this decision.
Separately, a scoping report was submitted to Cheshire West and
Chester Council in October 2017 which sought the Councils' views on
a future application to drill a new well at our existing Ince
Marshes well site. The proposed development would be for one new
well, initially to be drilled vertically and then horizontally. We
also intend to hydraulically fracture and flow test the target
formation, to assess the flow potential of the well. A planning
application will be made in the first half of 2018.
Further planning applications to drill, hydraulically fracture
and flow test new wells will be made in 2018, with a view to
utilising the 3D seismic data acquired in 2015 and accelerating
development in this basin.
Financial Review
During the first half of the year the Company concluded a
successful capital restructuring, significantly reducing debt and
giving the company an improved capital structure which is
sustainable in the current oil price environment. The restructuring
proposal was formally approved by all stakeholders in April 2017
and resulted in the issue of new equity for $57 million, secured
bonds of $40 million being exchanged for equity at par, $49.2
million of secured bonds being bought by the Company at par, $27.4
million unsecured bonds being exchanged for equity at 60 cents in
the dollar and the remaining $30 million of secured bonds having
their terms amended. On completion, net debt was reduced from
c.$120 million (GBP100 million) to under $10 million (GBP7
million).
Results for the year
Oil prices remained volatile during the year driven by concerns
over high inventories and over supply. In the second half, OPEC
extended its production cuts and rig counts in the US remained at
relatively low levels, against the backdrop of increasing global
growth, providing support for oil prices. The price of Brent crude
averaged $54.2/bbl (2016: $44/bbl) for the year, which had a
positive impact on our revenues. Sterling strengthened against the
US dollar and the exchange rate increased from GBP1:$1.26 at the
beginning of the year to GBP1:$1.35 in December 2017, having a
negative impact on our US dollar revenue but a positive impact on
US dollar denominated debt.
For the year ended 31 December 2017 adjusted EBITDA(1) was
GBP9.2 million (2016: GBP10.2 million) whilst a profit was
recognised from continuing activities after tax of GBP15.9 million
(2016: loss GBP31.8 million). The main factors driving the
movements between the years were as follows:
-- Revenues increased to GBP35.8 million (2016: GBP30.5 million)
principally due to higher oil prices. This was moderated slightly
by a stronger average sterling to US dollar exchange rate and
slightly lower oil volumes for the year;
-- Other costs of sales increased to GBP21.4 million (2016:
GBP20.9 million) mainly due to additional workovers and higher
inspection and re-permitting costs;
-- Administrative expenses decreased by GBP5.0 million to GBP6.4
million (2016: GBP11.4 million). Legal and professional costs were
GBP2.6 million lower in 2017 as 2016 included costs relating to the
proposed refinancing whereas similar costs in 2017 were offset
against the gain on restructuring once completed. Share-based
payment charges were GBP1.5 million lower in 2017 as prior year
schemes became fully vested by the end of 2016. A cost reduction
exercise also contributed to the reduction in administrative
expenses;
-- Redundancy costs were GBP0.2 million (2016: GBP0.6 million)
as the redundancy programme was completed primarily in 2016;
-- The GBP0.1 million exploration write-off related to costs on
relinquished licences (2016: GBP4.5 million);
-- Other income decreased to GBP0.2 million (2016: GBP0.7 million); and
-- A tax credit of GBP19.1 million was recognised mainly due to
the recognition of a deferred tax asset relating to ring-fence tax
losses (2016: a tax credit of GBP13.0 million due to the reversal
of temporary timing differences and a reduction in the
supplementary corporation tax rate from 20% to 10% from 1 January
2016).
Income statement
The Group recognised revenues of GBP35.8 million in the year
(2016: GBP30.5 million). Group production in the year averaged
2,335 boepd (2016: 2,355 boepd). Revenues for the year included
GBP3.0 million (31 December 2016: GBP3.3 million) relating to the
sale of third party oil, the bulk of which is processed through our
gathering centre at Holybourne in the Weald Basin.
The average pre hedge realised price for the year was $51.0/bbl
(2016: $44.1/bbl) and post hedge $51.3/bbl (2016: $58.1/bbl).
GBP0.2 million was realised on hedges during the year with average
Brent oil prices generally trading within the monthly hedged
collars (2016: realised gains of GBP8.5 million). The average
GBP/USD exchange rate for the year was GBP1: $1.29 (2016: GBP1:
$1.37) which negatively impacted revenue for the year.
Cost of sales for the year were GBP29.3 million (2016: GBP27.2
million) including depreciation, depletion and amortisation
(DD&A) of GBP7.8 million (2016: GBP6.3 million), and operating
costs of GBP21.4 million (2016: GBP20.9 million). Operating costs
include a cost of GBP2.8 million (2016: GBP2.7 million) relating to
third party oil. The contribution received from processing this
third party oil was GBP0.2 million (2016: GBP0.6 million).
Operating costs per barrel of oil equivalent (boe) were GBP21.9
($28.2), excluding third party costs (2016: GBP21.1 ($28.8) per
boe). Operating costs per boe were higher in 2017 due to additional
workovers and higher inspection and re-permitting costs.
Adjusted EBITDA in the year was GBP9.2 million (2016: GBP10.2
million). Gross profit for the year was GBP6.5 million (2016:
GBP3.3 million). Administrative costs decreased by GBP5.0 million
to GBP6.4 million (2016: GBP11.4 million) principally due to lower
legal and professional costs, lower share-based payment charges due
to options relating to prior year schemes becoming fully vested and
a general cost reduction exercise.
Exploration costs written off of GBP0.1 million related to costs
on relinquished licences (2016: GBP4.5 million relating to
relinquishment of licences during the year).
Other income was GBP0.2 million (2016: GBP0.7 million which
included a GBP0.4 million adjustment on the contingent deferred
consideration in relation to an amount payable to a joint venture
partner).
Net finance costs were GBP6.2 million (2016: GBP28.8 million),
which primarily related to interest on borrowings of GBP5.4 million
(2016: GBP11.9 million) and, a net foreign exchange gain of GBP0.2
million, principally on US$ denominated debt and bank balances
(2016: loss GBP14.8 million). 2016 also included a GBP1.5 million
loss on the sale of bonds. The Group realised a net gain on
restructuring of GBP4.9 million (2016: nil).
The Group made a loss on oil price derivatives of GBP2.1 million
for the year due to the increase in underlying prices (2016: loss
GBP3.5 million).
Cash flow
Net cash generated from operating activities for the year was
GBP6.7 million (2016: GBP12.4 million). The decrease was primarily
due to higher revenue and a decrease in administrative expenses
offset by lower realised hedges and the timing of payments. The
Group invested GBP6.3 million across its asset base during the year
(2016: GBP8.8 million), of which GBP3.7 million was invested in the
conventional assets, where investments continue to maintain our
production at current levels, and GBP2.6 million in unconventional
assets in relation to our shale development programme.
IGas carried out a capital restructuring during the year
resulting in a cash inflow of GBP46.8 million from the issue of
shares and cash outflows of GBP39.3 million and GBP4.3 million,
respectively, from the repayment of secured bonds and payment of
fees. IGas also repaid GBP3.6 million ($4.6 million) of principal
on borrowings to bondholders during the year in accordance with the
terms of the bonds and purchased bonds with a face value of GBP1.8
million ($2.2million) (2016: repaid GBP4.9 million ($7.1 million),
and sold bonds with a face value of $8.0 million for $6.0 million).
Future annual interest costs have decreased to approximately $2.3
million following the capital restructuring.
IGas paid GBP5.9 million ($7.3 million) in interest (2016:
GBP11.6 million ($15.5 million)).
Cash and cash equivalents were GBP15.7 million at the end of the
year (2016: GBP24.9 million).
Balance sheet
Net assets were GBP181.6 million at 31 December 2017 (2016:
GBP70.5 million) with the increase of GBP111.1 million arising
primarily from the results of the capital restructuring and an
income tax credit.
Borrowings decreased from GBP124.6 million to GBP21.2 million
following the successful capital restructuring during the year.
At 31 December 2017, the Group's derivative instruments had a
net negative fair value of GBP2.8million due to an increase in the
underlying Brent forward curve (2016: net negative fair value of
GBP0.9 million).
Net debt at the year end, being the nominal value of borrowings
less cash and cash equivalents, was GBP6.2 million (2016: GBP99.7
million).
31 December 31 December
2017 2016
------------------------ ------------ ------------
GBPm GBPm
------------------------ ------------ ------------
Debt (nominal
value excluding
capitalised expenses) (21.9) (124.6)
------------------------ ------------ ------------
Cash and cash
equivalents 15.7 25.0
------------------------ ------------ ------------
Net Debt (6.2) (99.7)
------------------------ ------------ ------------
Shareholders' equity increased by GBP111.1 million to GBP181.6
million primarily as a result of the gain after tax and the capital
restructuring.
Adjusted EBITDA and underlying Operating Profit are considered
by the Company to be useful additional measures to help understand
underlying performance.
Adjusted EBITDA
Year
to 31 Year to
December 31 December
2017 2016
GBP
million GBP million
Loss before tax (3.3) (44.8)
Net finance costs 6.2 28.8
Depletion, depreciation & amortisation 7.9 6.5
Share based payment charges 1.1 2.6
Redundancy costs 0.2 0.6
Impairments/write offs 0.1 4.5
Gain on capital restructuring (4.9) -
Unrealised loss on hedges 1.9 12.0
Adjusted EBITDA 9.2 10.2
---------- -------------
Underlying Operating Profit
Year
to 31 Year to
December 31 December
2017 2016
GBP
million GBP million
Operating loss (2.0) (16.0)
Share based payment charges 1.1 2.6
Restructuring costs 0.2 0.6
Impairments/write offs 0.1 4.5
Unrealised loss on hedges 1.9 12.0
Underlying operating profit 1.3 3.7
---------- -------------
Principal risks and uncertainties
The Group constantly monitors the Group's risk exposures and
reports to the Audit Committee and the Board on a regular basis.
The Audit Committee receives and reviews these reports and focuses
on ensuring that the effective systems of internal financial and
non-financial controls including the management of risk are
maintained. The results of this work are reported to the Board
which in turn performs its own review and assessment.
The principal risks for the Group can be summarised as:
-- Strategy fails to meet shareholder expectations;
-- Planning, environmental, licensing and other permitting risks
associated with its operations and, in particular, with drilling
and production operations;
-- No guarantee can be given that oil or gas can be produced in
the anticipated quantities from any or all of the Group's assets or
that oil or gas can be delivered economically;
-- Development of shale gas resources not successful;
-- Loss of key staff;
-- Market price risk through variations in the wholesale price
of oil in the context of the production from oil fields it owns and
operates;
-- Market price risk through variations in the wholesale price
of gas and electricity in the context of its future unconventional
production volumes;
-- Exchange rate risk through both its major source of revenue
and its major borrowings being priced in US$ while most of the
Group's operating and G&A costs are denominated in UK pounds
sterling;
-- Liquidity risk through its operations;
-- Capital risk resulting from its capital structure, including
operating within the covenants of its existing bond agreements;
and
-- Political risk such as change in Government or the effect of local or national referendum.
Going Concern
The strength of the Group's balance sheet was improved
significantly by the capital restructuring which was completed in
April 2017. The Group continues to closely monitor and manage its
liquidity risks. Cash forecasts for the Group are regularly
produced based on, inter alia, the Group's production and
expenditure forecasts, management's best estimate of future oil
prices (based on current forward curves, adjusted for the Group's
hedging programme) and the Group's borrowings. Sensitivities are
run to reflect different scenarios including, but not limited to,
possible further reductions in commodity prices below the current
forward curve, reductions in forecast oil and gas production rates
and changes in the US$ to GBGBP exchange rates.
The Group's working capital forecasts show that the Group will
have sufficient financial headroom for the 12 months from the date
of approval of the financial statements. The Directors, therefore,
have a reasonable expectation that the Group has adequate resources
to continue in existence for the foreseeable future and they
continue to adopt the going concern basis of accounting in the
preparation of the financial statements.
Outlook
Following the completion of the capital restructuring in April
2017 we have a strong balance sheet that will allow us to fully
pursue our strategy of achieving long term value creation for all
our stakeholders.
Stephen Bowler Julian Tedder
Chief Executive Chief Financial Officer
Officer 20 March 2018
20 March 2018
Consolidated Income Statement
For the year ended 31 December 2017
Year ended Year ended
31 December 2017 31 December 2016
Notes GBP000 GBP000
------------------------------------------------------------------------- ----- ----------------- -----------------
Revenue 2 35,793 30,471
Cost of sales:
Depletion, depreciation and amortisation (7,832) (6,323)
Other costs of sales (21,435) (20,857)
------------------------------------------------------------------------- ----- ----------------- -----------------
(29,267) (27,180)
Gross profit 6,526 3,291
Administrative expenses (6,441) (11,406)
Redundancy costs (212) (557)
Exploration and evaluation assets written off 8 (70) (4,485)
Loss on oil price derivatives (2,050) (3,496)
Other income 3 214 660
Operating loss (2,033) (15,993)
Finance income 4 277 277
Finance costs 4 (6,428) (29,057)
Gain on restructuring 4,935 -
------------------------------------------------------------------------- ----- ----------------- -----------------
Loss from continuing activities before tax (3,249) (44,773)
Income tax credit 5 19,105 13,006
------------------------------------------------------------------------- ----- ----------------- -----------------
Profit/(loss) after tax from continuing operations attributable to equity
shareholders of the Group 15,856 (31,767)
Loss after tax from discontinued operations (375) (1,144)
------------------------------------------------------------------------- ----- ----------------- -----------------
Net profit/(loss) attributable to equity shareholders of the Group 15,481 (32,911)
------------------------------------------------------------------------- ----- ----------------- -----------------
Profit/(loss) attributable to equity shareholders:
Basic loss per share (pence/share) 6 12.76p (219.74p)
Diluted loss per share (pence/share) 6 12.46p (219.74p)
------------------------------------------------------------------------- ----- ----------------- -----------------
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2017
Year ended Year ended
31 December 2017 31 December 2016
GBP000 GBP000
------------------------------------------------------------------ ----------------- -----------------
Profit/(loss) for the year 15,481 (32,911)
Other comprehensive income/(loss) for the year
Currency translation adjustments recycled to the income statement - 105
Currency translation adjustments 931 (1,231)
------------------------------------------------------------------ ----------------- -----------------
Total comprehensive income/(loss) for the year 16,412 (34,037)
------------------------------------------------------------------ ----------------- -----------------
Consolidated Balance Sheet
As at 31 December 2017
31 December 31 December
2017 2016
Notes GBP000 GBP000
--------------------------------------------- ----- ----------- -----------
ASSETS
Non-current assets
Goodwill 7 4,801 4,801
Intangible exploration and evaluation assets 8 115,130 112,448
Property, plant and equipment 9 93,158 97,709
Restricted cash 303 -
Deferred tax asset 16,900 -
230,292 214,958
--------------------------------------------- ----- ----------- -----------
Current assets
Inventories 1,322 1,270
Trade and other receivables 7,459 7,015
Cash and cash equivalents 15,727 24,946
Restricted cash 126 -
24,634 33,231
--------------------------------------------- ----- ----------- -----------
Total assets 254,926 248,189
--------------------------------------------- ----- ----------- -----------
LIABILITIES
Current liabilities
Trade and other payables (6,558) (8,170)
Current tax liabilities (358) (1,318)
Borrowings 11 (1,687) (6,084)
Other liabilities - (11)
Derivative financial instruments (2,749) (876)
(11,352) (16,459)
--------------------------------------------- ----- ----------- -----------
Non-current liabilities
Borrowings 11 (19,553) (118,495)
Other creditors (303) -
Deferred tax provision - (1,779)
Other provisions 12 (42,117) (40,924)
--------------------------------------------- ----- ----------- -----------
(61,973) (161,198)
Total liabilities (73,325) (177,657)
--------------------------------------------- ----- ----------- -----------
Net assets 181,601 70,532
--------------------------------------------- ----- ----------- -----------
EQUITY
Capital and reserves
Called up share capital 30,333 30,282
Share premium account 102,342 32
Foreign currency translation reserve (7,059) (7,990)
Other reserves 29,994 28,757
Accumulated surplus 25,991 19,451
--------------------------------------------- ----- ----------- -----------
Total equity 181,601 70,532
--------------------------------------------- ----- ----------- -----------
Consolidated Statement of Changes in Equity
For the year ended 31 December 2017
Foreign
Called up Share Capital currency
share premium redemption translation Other Accumulated
capital account reserve reserve* reserves** (deficit)/surplus Total equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- --------- ------------ ------------- ------------ ----------------- --------------
At 1 January
2016 29,882 121,623 64,882 (6,864) 23,544 (134,296) 98,771
Loss for the
year - - - - - (32,911) (32,911)
Capital
reduction - (121,776) (64,882) - - 186,658 -
Employee share
plans - - - - 5,344 - 5,344
Forfeiture of
LTIPs under the
employee share
plan - - - - (131) - (131)
Issue of shares 400 185 - - - - 585
Currency
translation
adjustments - - - (1,126) - - (1,126)
---------------- ----------- --------- ------------ ------------- ------------ ----------------- --------------
At 31 December
2016 30,282 32 - (7,990) 28,757 19,451 70,532
Profit for the
year - - - - - 15,481 15,481
Employee share
plans - - - - 1,333 - 1,333
Forfeiture of
LTIPs under the
employee share
plan - - - - (85) 56 (29)
Lapse of LTIPs
under the
employee share
plan - - - - (11) 11 -
Issue of shares
and conversion
of debt 51 93,302 - - - - 93,353
Reserves
transfer on
equitisation of
unsecured bonds
*** - 9,008 - - - (9,008) -
Currency
translation
adjustments - - - 931 - - 931
At 31 December
2017 30,333 102,342 - (7,059) 29,994 25,991 181,601
---------------- ----------- --------- ------------ ------------- ------------ ----------------- --------------
*The foreign currency translation reserve represents exchange
gains and losses arising on translation of foreign currency
subsidiaries net assets and results, and on translation of those
subsidiaries intercompany balances which form part of the net
investment of the Group.
**Other reserves include: 1) EIP/MRP/LTIP/VCP/EDRP reserves
which represent the cost of share options issued under the long
term incentive plans; 2) share investment plan reserve which
represents the cost of the partnership and matching shares; 3)
treasury shares reserve which represents the cost of shares in IGas
Energy plc purchased in the market and held by the IGas Employee
Benefit Trust to satisfy awards held under the Group incentive
plans; and 4) capital contribution reserve which arose following
the acquisition of IGas Exploration UK Limited.
***The transfer on equitisation of unsecured bonds has arisen
due to the unsecured bonds being equitised at 60% of par and
represents the difference between the nominal value of the shares
issued and the book value of the debt exchanged.
Consolidated Cash Flow Statement
For the year ended 31 December 2017
Notes
Year Year
ended ended
31 December 31 December
2017 2016
GBP000 GBP000
Cash flows from operating activities:
Loss before tax (3,249) (44,773)
Write off deferred consideration - (420)
Net gain on capital restructuring (4,935) -
Depletion, depreciation and amortisation 9 7,968 6,474
Decommissioning costs incurred - (418)
Other provisions utilised (39) -
Share based payment charge 1,056 3,499
Exploration and evaluation assets
written off 8 70 4,485
Unrealised loss on oil price derivatives 1,872 11,969
Finance income 4 (277) (277)
Finance costs 4 6,428 29,057
Other non-cash adjustments 24 (13)
Operating cash flow before working
capital movements 8,918 9,583
Decrease in trade and other receivables
and other financial assets 40 3,366
(Decrease)/increase in trade and other
payables, net of accruals related
to investing activities (2,084) 698
Increase in inventories (52) (176)
Cash generated from continuing operating
activities 6,822 13,471
-------------------------------------------- ------ ------------- --------------
Cash generated from/(used in) discontinued
operating activities 422 (489)
-------------------------------------------- ------ ------------- --------------
Taxation paid - continuing operating
activities (571) (559)
Net cash generated from operating
activities 6,673 12,423
-------------------------------------------- ------ ------------- --------------
Cash flows from investing activities:
Purchase of intangible exploration
and evaluation assets (2,591) (2,304)
Purchase of property, plant and equipment (3,679) (6,509)
Disposal of subsidiary - (171)
Disposal of oil and gas assets 14 22
Interest received 27 34
-------------------------------------------- ------ ------------- --------------
Cash used in continuing investing
activities (6,229) (8,928)
Cash used in discontinued investing
activities - (177)
Net cash used in investing activities (6,229) (9,105)
-------------------------------------------- ------ ------------- --------------
Cash flows from financing activities:
Cash proceeds from issue of ordinary
share capital 77 136
Cash proceeds from the issue of shares
in capital restructuring 46,789 -
Cash paid in settlement of secured
bonds (39,337) -
Fees paid relating to capital restructure (4,311) -
Repayment and repurchase of borrowings 10 (5,423) (4,916)
Sale of bonds - 4,914
Interest paid 10 (5,917) (11,570)
Net cash used in financing activities (8,122) (11,436)
-------------------------------------------- ------ ------------- --------------
Net decrease in cash and cash equivalents
in the year (7,678) (8,118)
Net foreign exchange difference (1,541) 4,450
Cash and cash equivalents at the beginning
of the year 24,946 28,614
--------------------------------------------
Cash and cash equivalents at the end
of the year 10 15,727 24,946
-------------------------------------------- ------ ------------- --------------
Consolidated Financial Statements - Notes
For the year ended 31 December 2017
1 Accounting policies
(a) Basis of preparation of financial statements and corporate
information
Whilst the financial information in this preliminary
announcement has been prepared in accordance with International
Financial Reporting Standards (IFRS) and International Financial
Reporting Interpretation Committee (IFRIC) interpretations adopted
for use by the European Union, with those parts of the Companies
Act 2006 applicable to companies reporting under IFRS and with the
requirements of the United Kingdom Listing Authority (UKLA) Listing
Rules, this announcement does not contain sufficient information to
comply with IFRS. The Group will publish full financial statements
that comply with IFRS in April 2018.
The financial information for the year ended 31 December 2017
does not constitute statutory accounts as defined in sections 435
(1) and (2) of the Companies Act 2006. Statutory accounts for the
year ended 31 December 2016 have been delivered to the Registrar of
Companies and those for 2017 will be delivered following the
Company's annual general meeting. The auditor has reported on these
accounts; their reports were unqualified, did not include a
reference to any matters to which the auditor drew attention by way
of emphasis of matter and did not contain a statement under section
498 (2) or (3) of the Companies Act 2006.
The accounting policies applied are consistent with those
adopted and disclosed in the Group's financial statements for the
year ended 31 December 2016. There have been a number of amendments
to accounting standards and new interpretations issued by the
International Accounting Standards Board which were applicable from
1 January 2017, however these have not had a material impact on the
accounting policies, methods of computation or presentation applied
by the Group.
IGas Energy plc is a public limited company incorporated and
registered in England and Wales and is listed on the Alternative
Investment Market ("AIM"). The Group's principal area of activity
is exploring for, appraising, developing and producing oil and gas
resources in Great Britain.
The financial information is presented in UK pounds sterling and
all values are rounded to the nearest thousand (GBP000) except when
otherwise indicated.
(b) Going concern
The strength of the Group's and Company's balance sheet has been
improved significantly by the capital restructuring as disclosed in
note 13. Based on their strategic plans and working capital
forecasts, the Directors have a reasonable expectation that the
Group and the Company have adequate resources to continue in
existence for the foreseeable future. Thus they continue to adopt
the going concern basis in the preparation of the financial
statements.
2 Revenue
All revenue, which represents turnover, arises solely within the
United Kingdom and relates to external parties.
Year ended Year ended
31 December 31 December
2017 2016
GBP000 GBP000
------------------ ------------ ------------
Oil sales 35,289 30,009
Electricity sales 504 462
35,793 30,471
------------------ ------------ ------------
Revenues of approximately GBP19.3 million and GBP15.9 million
were derived from the Group's two largest customers (2016: GBP17.6
million and GBP12.4 million).
3 Other income
Other income includes GBP0.2 million relating to rental income
(2016: GBP0.2 million relating to rental income and GBP0.4 million
relating to the release of contingent deferred consideration).
4 Finance income and costs
Year Year
ended ended
31 December 31 December
2017 2016
GBP000 GBP000
------------------------------------ ------------ ------------
Finance income:
Interest on short-term deposits 26 63
Foreign exchange gains 239 -
Other interest 1 78
Gain on fair value of warrants 11 136
Finance income 277 277
------------------------------------ ------------ ------------
Finance expense:
Loss on sale of bonds - 1,540
Interest on borrowings 5,358 11,930
Foreign exchange loss - 14,841
Unwinding of discount on provisions 1,070 746
Finance expense 6,428 29,057
------------------------------------ ------------ ------------
5 Income tax credit
i) Tax credit on loss from continuing ordinary activities
Year ended Year ended
31 December 2017 31 December 2016
GBP000 GBP000
------------------------------------------------------------------------ ----------------- -----------------
Current tax:
Charge on loss for the year - -
Credit in relation to prior years (426) (149)
Total current tax credit (426) (149)
------------------------------------------------------------------------ ----------------- -----------------
Deferred tax:
Credit relating to the origination or reversal of temporary differences (21,180) (6,009)
Credit relating to the movement due to the tax rate changes - (6,270)
Charge/(credit) in relation to prior years 2,501 (578)
------------------------------------------------------------------------ ----------------- -----------------
Total deferred tax credit (18,679) (12,857)
------------------------------------------------------------------------ ----------------- -----------------
Tax credit on loss on ordinary activities (19,105) (13,006)
------------------------------------------------------------------------ ----------------- -----------------
ii) Factors affecting the tax charge
The majority of the Group's profits are generated by
"ring-fence" businesses which attract UK corporation tax and
supplementary charge at a combined average rate of 40%.
A reconciliation of the UK statutory corporation tax rate
applied to the Group's loss before tax to the Group's total tax
credit is as follows:
Year ended Year ended
31 December 2017 31 December 2016
GBP000 GBP000
-------------------------------------------------------------------------------- ----------------- -----------------
Loss from continuing ordinary activities before tax (3,249) (44,773)
-----------------
Expected tax credit based on profit or loss from continuing ordinary activities
multiplied
by an average combined rate of corporation tax and supplementary charge in the
UK of 40% (2016:
40%) (1,300) (17,909)
Deferred tax charge/(credit) in respect of the prior year 2,501 (578)
Current tax credit related to prior year (426) (149)
Tax effect of expenses not allowable for tax purposes / (income not taxable) 616 2,926
Tax effect of differences in amounts not allowable for supplementary charge
purposes* 1,467 945
Impact of profits or losses taxed or relieved at different rates (1,699) 3,093
Loss carried back - 975
Net (decrease)/increase in unrecognised losses carried forward (20,347) 3,961
Tax rate change - (6,270)
Other 83 -
Tax credit on loss on ordinary activities (19,105) (13,006)
-------------------------------------------------------------------------------- ----------------- -----------------
* Amounts not allowable for supplementary charge purposes relate
to net financing costs disallowed for supplementary charge offset
by investment allowance which is deductible against profits subject
to supplementary charge.
iii) Deferred tax
The movement on the deferred tax liability in the year is shown
below:
Year ended Year ended
31 December 2017 31 December 2016
GBP000 GBP000
--------------------------------------------------- ----------------- -----------------
Liability at 1 January (1,779) (14,636)
Tax (charge)/credit relating to prior year (2,501) 578
Tax credit during the year 21,180 6,009
Tax credit arising due to the changes in tax rates - 6,270
--------------------------------------------------- ----------------- -----------------
Asset/(liability) at 31 December 16,900 (1,779)
--------------------------------------------------- ----------------- -----------------
The following is an analysis of the deferred tax liability by
category of temporary difference:
31 December 31 December
2017 2016
GBP000 GBP000
--------------------------------------------------- ----------- -----------
Accelerated capital allowances (33,897) (34,206)
Tax losses carried forward 41,553 22,522
Investment allowance unutilised 485 313
Decommissioning provision 4,628 6,348
Unrealised gains or losses on derivative contracts 2,843 2,126
Share based payments 1,288 1,118
Deferred tax asset/(liability) 16,900 (1,779)
--------------------------------------------------- ----------- -----------
iv) Tax losses
Deferred tax assets have been recognised in respect of tax
losses and other temporary differences where the Directors believe
it is probable that these assets will be recovered. Such tax losses
include GBP107.5 million (2016: GBP67.4 million) of ring-fence
corporation tax losses.
The Group has further tax losses and other similar attributes
carried forward of approximately GBP195 million (2016: GBP210
million) for which no deferred tax asset is recognised due to
insufficient certainty regarding the availability of appropriate
future taxable profits. The unrecognised losses may affect future
tax charges should certain subsidiaries in the Group generate
taxable trading profits in future periods.
6 Earnings per share (EPS)
Basic EPS amounts are based on the profit for the year after
taxation attributable to ordinary equity holders of the parent of
GBP15.5 million (2016: GBP32.9 million) and the weighted average
number of ordinary shares outstanding during the year of 121.3
million (2016: 299.5 million).
Diluted EPS amounts are based on the profit after taxation
attributable to the ordinary equity holders of the parent and the
weighted average number of shares outstanding during the year plus
the weighted average number of ordinary shares that would be issued
on the conversion of all the potentially dilutive ordinary shares
into ordinary shares, except where these are anti-dilutive.
For the year ended 31 December 2016, there were 1.6 million
(restated based on the subdivision) potentially dilutive employee
share options, LTIPs and warrants, which are not included in the
calculation of diluted earnings per share because they were
anti-dilutive as their conversion to ordinary shares would decrease
the loss per share.
The following reflects the income and share data used in the
basic and diluted earnings per share computations:
Year Year
ended ended
31 December 31 December
2017 2016
--------------------------------------------- ------------ ------------
Basic EPS - ordinary shares of 0.002 pence
each 12.76p (219.74)p
Diluted EPS - ordinary shares of 0.002 pence
each 12.46p (219.74)p
Profit/(loss) for the year attributable
to equity holders of the parent - GBP000 15,481 (32,911)
Weighted average number of ordinary shares
in the year- basic EPS 121,357,572 14,977,131
Weighted average number of ordinary shares
in the year- diluted EPS 124,298,195 14,977,131
--------------------------------------------- ------------ ------------
7 Goodwill
31 December 31 December
2017 2016
GBP000 GBP000
----------------------------- ----------- -----------
At 1 January and 31 December 4,801 4,801
----------------------------- ----------- -----------
The carrying value of goodwill relates to unconventional assets
acquired as part of the Dart acquisition in 2014.
The Group tests goodwill for impairment annually or more
frequently if there are indications that goodwill might be
impaired. The Group reviewed the valuation of goodwill as at 31
December 2017 and assessed it for impairment by estimating the fair
value of risked contingent resources using an estimated market
valuation of resources. The fair value is a level 3 fair value
measurement. No impairment was required for the year (2016:
GBPnil).
8 Intangible exploration and evaluation assets
31 December 31 December
2017 2016
GBP'000 GBP'000
--------------------------- ------------- -----------
At 1 January 112,448 113,394
Additions 2,752 3,616
Changes in decommissioning - (77)
Amounts written off(*) (70) (4,485)
At 31 December 115,130 112,448
--------------------------- ------------- -----------
* Write off of unconventional exploration and evaluation assets
due to relinquishment of licences considered to be
uncommercial.
Under the terms of the secured bond agreement, the secured
bondholders have a fixed and floating charge over these assets.
The Group's exploration and evaluation assets were reviewed for
indicators of impairment as at 31 December 2017 and at 31 December
2016. No indicators of impairment were identified at either
year-end.
9 Property, plant and equipment
31 December 2017 31 December 2016
---------------------------------- -------------------------------
Oil Oil
and Other and Other
gas fixed gas fixed
assets assets Total assets assets Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- ------------ --------- --------- --------- ---------
Cost
At 1 January 168,329 3,767 172,096 147,434 3,731 151,165
Additions 3,380 58 3,438 5,622 342 5,964
Disposals (14) (23) (37) (77) (306) (383)
Changes in decommissioning(**) - - - 15,350 - 15,350
Transfers 193 (193) - - - -
Write off - (6) (6) - - -
At 31 December 171,888 3,603 175,491 168,329 3,767 172,096
--------------------------------- --------- ------------ --------- --------- --------- ---------
Depreciation and
Impairment
At 1 January 72,894 1,494 74,388 66,815 1,439 68,254
Charge for the
year* 7,669 299 7,968 6,156 338 6,494(*)
Disposals - (23) (23) (77) (284) (361)
Transfers 193 (193) - - - -
At 31 December 80,756 1,577 82,333 72,894 1,493 74,387
--------------------------------- --------- ------------ --------- --------- --------- ---------
NBV at 31 December 91,132 2,026 93,158 95,435 2,274 97,709
--------------------------------- --------- ------------ --------- --------- --------- ---------
* Charge for the year includes GBP125 thousand charge
categorised as administration expenses in the profit and loss
(2016: GBP151 thousand) and GBP11 thousand (2016: GBP20 thousand)
relating to capitalised equipment used for exploration and
evaluation.
**The decommissioning asset increased in line with the
decommissioning liability following a review of the estimate and
assumptions at 31 December 2016.
Under the terms of the secured bond agreement, the secured
bondholders have a fixed and floating charge over these assets.
Impairment of oil and gas properties
Due to the continuing volatility in oil and gas prices and
foreign exchange rates, the Group's oil and gas properties were
reviewed for impairment as at 31 December 2017. CGUs for impairment
purposes are the group of fields whereby technical, economic and/or
contractual features create underlying interdependence in cash
flows. The Group has identified the three main producing CGUs as:
North, South, and Scotland. The impairment assessment for the North
and South was prepared on a value-in-use basis and using discounted
future cash flows based on 2P reserve profiles. The impairment
assessment for Scotland was prepared on a fair value less costs of
disposal basis. The future cash flows were estimated using price
assumption for Brent of $67/bbl for 2018, $64/bbl for 2019, $61/bbl
for 2020, $60/bbl for 2021 and $75/bbl thereafter, and a USD/GBP
foreign exchange rate of $1.43/GBP1.00. Cash flows were discounted
using a pre-tax discount rate of 11%. No impairment was required in
the year (2016: GBPnil).
Sensitivity of changes in assumptions
As discussed above, the principal assumptions are recoverable
future production and resources, estimated Brent prices and the
USD/GBP foreign exchange rate. Neither a 10% reduction in
production a 10% reduction in Brent prices nor a 10% decline in the
value of sterling against the US dollar would result in an
impairment in the South or Scotland CGUs. For the North CGU, a 10%
reduction in either production or price would result in an
impairment of GBP11.7 million and a 10% reduction in the USD/GBP
exchange rate would result in an impairment of GBP4.0 million.
10 Cash and cash equivalents and other financial assets
31 December 31 December
2017 2016
GBP000 GBP000
------------------------- ----------- -----------
Cash at bank and in hand 15,727 24,946
------------------------- ----------- -----------
The carrying value of the Group's cash and cash equivalents as
stated above is considered to be a reasonable approximation of
their fair value. Cash and cash equivalents included GBP9.1 million
at 31 December 2016 which was held in the Debt Service Retention
Account ("DSRA"). This was designated, at the Company's discretion,
for the buy-back or repayment of bonds. In April 2017, the Company
restructured its debt which resulted in the removal of the
requirement for a DSRA.
Restricted cash
31 December 31 December
2017 2016
GBP000 GBP000
------------ ----------- -----------
Current 126 -
Non-current 303 -
------------ ----------- -----------
The non-current restricted cash represents restoration deposits
paid to Nottinghamshire County Council which serve as collateral
for the restoration of the sites at the end of their life. The
current restricted cash balance relates to margin payments in
respect of oil hedge contracts.
Net debt reconciliation
31 December
2017
GBP000
------------------------------------ -----------
Cash and cash equivalents 15,727
Borrowings (21,240)
------------------------------------ -----------
Net debt (5,513)
Borrowings - capitalised fees (686)
Net debt excluding capitalised fees (6,199)
------------------------------------ -----------
Cash and cash
equivalents Borrowings Total
GBP000 GBP000 GBP000
--------------- ---------- --------
At 1 January 2017 24,946 (124,579) (99,633)
Capital restructuring 3,140 90,025 93,165
Repayment and repurchase of borrowings (5,423) 5,423 -
Interest paid (5,917) 5,917 -
Foreign exchange adjustments (1,541) 2,369 828
Other cash flows 522 - 522
Other non-cash movements - (395) (395)
At 31 December 2017 15,727 (21,240) (5,513)
--------------------------------------- --------------- ---------- --------
11 Borrowings
31 December 2017 31 December 2016
----------------------------- -----------------------------
Current Non-current Total Current Non-current Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------ ------- ----------- ------- ------- ----------- -------
Bonds - secured 1,687 19,553 21,240 6,084 96,700 102,784
Bonds - unsecured - - - - 21,795 21,795
------------------ ------- ----------- ------- ------- ----------- -------
Total 1,687 19,553 21,240 6,084 118,495 124,579
------------------ ------- ----------- ------- ------- ----------- -------
In 2013, the Company and Norsk Tillitsmann ("Bond Trustee")
entered into a Bond Agreement for the Company to issue up to $165.0
million secured bonds and up to $30.0 million unsecured bonds
(issued at 96% of par). These bonds were subsequently listed on
Oslo Bors and the Alternative bond market in Oslo. Both secured and
unsecured bonds carried a coupon of 10% per annum (where interest
was payable semi-annually in arrears). The secured bonds were
amortised semi-annually at 2.5% of the initial loan amount. Final
maturity on the secured notes was on 22 March 2018 and on the
unsecured notes was 11 December 2018.
In April 2017, the Company restructured its debt resulting in
the equitisation of the unsecured bonds and a
repayment/equitisation of a portion of the secured bonds. The
restructuring reduced the total aggregate face value of the secured
bonds to $30.4 million. The interest rate was reduced to 8%, the
repayment term was extended to 30 June 2021, and the amortisation
rate was increased to 5% of the initial loan amount from 23 March
2018. The restructuring also resulted in changes to the covenants
and the removal of the need for a Debt Service Requirement Account
(DSRA). The secured bonds now have two covenants: a liquidity
requirement of $7.5 million and a leverage ratio, tested every six
months, that requires net debt versus adjusted EBITDA to be less
than 3.5 times.
Further details of the restructuring transaction are provided in
note 13.
12 Other provisions
31 December 2017 31 December 2016
--------------------------------- ----------------------------------------
Decommissioning Other Total Other Total
GBP000 GBP000 GBP000 Decommissioning GBP000 GBP000 GBP000
----------------------------------------- --------------- ------- ------- ---------------------- ------- -------
At 1 January 40,885 39 40,924 25,284 39 25,323
Utilisation of provision - (39) (39) (418) - (418)
Unwinding of discount 1,070 - 1,070 746 - 746
Reassessment of decommissioning
provision/liabilities 162 - 162 15,273 - 15,273
At 31 December 42,117 - 42,117 40,885 39 40,924
----------------------------------------- --------------- ------- ------- ---------------------- ------- -------
Decommissioning provision
Provision has been made for the discounted future cost of
restoring fields to a condition acceptable to the relevant
authorities. The abandonment of the fields is expected to happen at
various times between 1 to 31 years from the year end (2016: 2 to
29 years). These provisions are based on the Groups' internal
estimate as at 31 December 2017. Assumptions based on the current
economic environment have been made, which management believes are
a reasonable basis upon which to estimate the future liability. The
estimates are reviewed regularly to take into account any material
changes to the assumptions. Actual decommissioning costs will
ultimately depend upon future costs for decommissioning which will
reflect market conditions and regulations at that time.
Furthermore, the timing of decommissioning is uncertain and is
likely to depend on when the fields cease to produce at
economically viable rates. This, in turn, will depend on factors
such as future oil and gas prices, which are inherently
uncertain.
The risk free rate range of 0.98% to 3.05% is used in the
calculation of the provision as at 31 December 2017 (2016: Risk
free rate range of 0.58% to 3.80%).
13 Capital restructure
During the year ended 31 December 2016, the Company disclosed
that it expected to be non-compliant with its leverage covenants
under its secured bond agreement and that it also expected to
breach its daily liquidity covenant in late March 2017. The Company
therefore engaged in discussions with its bondholders, a strategic
investor and other potential investors and stakeholders with regard
to possible restructuring options in order to provide a remedy to
the expected breach and achieve a capital structure that would be
sustainable in the current oil price environment. In March 2017,
the Company announced final terms of the restructuring and
fundraising package which were subsequently approved at the
meetings of the Company's secured and unsecured bondholders and at
the general meeting of shareholders on 3 April 2017. In addition,
the shareholders approved the subdivision of each of the
303,305,534 ordinary shares of 10p each of the Company into one new
ordinary share of 0.0001p each and one deferred share of 9.9999p
each.
On 4 April 2017, the Company announced that all new ordinary
shares issued in accordance with the terms of the fundraising were
admitted to trading and, as a result, the restructuring of the
Company's secured bonds and unsecured bonds and the fundraising had
become effective in accordance with their respective terms. The
principal terms are set out below:
-- 679,282,165 new ordinary shares were issued to Unconventional
Energy Limited, an affiliate of Kerogen Capital, pursuant to a
subscription agreement (including 40,030,273 new ordinary shares at
nominal value pursuant to a top-up mechanism) raising GBP28.77
million and giving Unconventional Energy Limited an interest of 28%
in the Company.
-- 400,069,644 new ordinary shares were issued pursuant to a
placing, open offer and ancillary subscription raising GBP18.04
million.
-- 528,175,031 new ordinary shares were issued to holders of
secured bonds who accepted voluntary equity exchange of secured
bonds extinguishing $28.92 million (GBP23.78 million) in face value
of the secured bonds.
-- 202,398,542 new ordinary shares were issued to holders of
secured bonds pursuant to a conditional secured debt for equity
swap extinguishing a further $11.08 million (GBP9.11 million) in
face value of the secured bonds.
-- c.$49.2 million (GBP40.4million) in face value of secured
bonds were cancelled in consideration for c.$49.2 million (GBP40.4
million) cash pursuant to a voluntary cash offer.
-- 312,776,818 new ordinary shares were issued to holders of
unsecured bonds on the conversion of all unsecured bonds into
equity extinguishing $27.4 million (GBP22.5 million) in face value,
being all of, the unsecured bonds not held by the Company.
-- The Company cancelled $13.09 million (GBP10.7 million) in
face value of the secured bonds and unsecured bonds held by the
Company, being all of the unsecured bonds and secured bonds held by
the Company.
-- The renegotiated terms and conditions and covenants for the
remaining secured bonds (total aggregate face value of c.$30.08
million) came into effect upon admission.
-- The new ordinary shares were issued at a price of 4.5p per share.
A gain of GBP4.9 million (net of fees of GBP2.5 million) arising
from the restructure has been recognised for the year.
14 Subsequent events
On 24 January 2018 the Group issued 69,195 Ordinary GBP0.00002
shares in relation to the Company's SIP scheme. The shares were
issued at GBP0.69 resulting in share premium of GBP47,570.
Glossary
GBP The lawful currency of the United Kingdom
$ The lawful currency of the United States of America
1P Low estimate of commercially recoverable reserves
2P Best estimate of commercially recoverable reserves
3P High estimate of commercially recoverable reserves
1C Low estimate or low case of Contingent Recoverable Resource
quantity
2C Best estimate or mid case of Contingent Recoverable Resource
quantity
3C High estimate or high case of Contingent Recoverable Resource
quantity
AIM AIM market of the London Stock Exchange
boepd Barrels of oil equivalent per day
bopd Barrels of oil per day
GIIP Gas initially in place
MMboe Millions of barrels of oil equivalent
MMscfd Millions of standard cubic feet per day
NBP National balancing point - a virtual trading location for
the sale and purchase and exchange of UK natural gas
PEDL United Kingdom petroleum exploration and development
licence.
PL Production licence
Tcf Trillions of standard cubic feet of gas
UK United Kingdom
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FKKDPCBKDDNB
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