TIDMIGAS
RNS Number : 5939U
Igas Energy PLC
07 April 2021
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.
7 April 2021
IGas Energy plc (AIM: IGAS)
("IGas" or "the Company" or "the Group")
Full year results for the year ended 31 December 2020
IGas announces its full year results for the year ended 31
December 2020.
Results Summary
Year ended Year ended
31 Dec 2020 31 Dec 2019
GBPm GBPm
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Revenues 21.6 40.9
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Adjusted EBITDA (1) 4.0 13.8
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Loss after tax (42.1) (49.8)
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Operating cash flow before working
capital adjustments 3.3 14.3
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Net debt (2) 12.2 6.2
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Cash and cash equivalents 2.4 8.2
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Notes
(1) Adjusted EBITDA is considered by the Company to be a useful
additional measure to help understand underlying performance.
(2) Net debt is borrowings less cash and cash equivalents
excluding capitalised fees
Operational Summary
-- Net production averaged 1,907 boepd for the year (2019: 2,325
boepd), within revised guidance, while operating costs for the year
were c.$33/boe (at an average 2020 exchange rate of GBP1:$1.29)
(2019: c.$30/boe).
-- In 2021, we anticipate net production of between 2,150-2,350
boepd and operating costs of c.$32/boe (assuming an exchange rate
of GBP1:$1.35), albeit subject to the ongoing challenges that
COVID-19 presents.
-- Reserves and resources upgraded in DeGolyer & MacNaughton
(D&M) CPR as at 31 December 2020 - IGas net reserves and
resources (MMboe)*
1P 2P 2C
As at 31 Dec 2019 10.55 16.05 19.51
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As at 31 Dec 2020 11.74 17.12 20.35
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o 2P reserves replacement 250% (1P 275%)
o 1P NPV10 of $150 million: 2P NPV10 of $204 million*
*based on forward oil curve of: 2021 $53/bbl; 2022 $56/bbl; 2023
$58/bbl; 2024 $59/bbl; 2025 $62/bbl (for full price deck see
CPR).
-- Planning for Stoke-on-Trent geothermal project granted by
Newcastle-under-Lyme, awaiting Stoke-on-Trent approval.
-- The Renewable Energy Association (REA) and ARUP will launch a
report in April 2021 into the economic opportunity of harnessing
deep geothermal energy to solve the decarbonisation of heat in the
UK.
-- First sites for hydrogen production in South-east England identified
-- Planning submissions Q2/3 2021
-- Final Investment Decision to follow within 3 months of planning approval
-- First production of hydrogen could be in 2022
Corporate and Financial Summary
-- Successful redetermination under the Group's Reserve Based
Lending facility (RBL) at 31 December 2020 confirming $31.7 million
(GBP24.0 million) of debt capacity and headroom of $11.7 million
(GBP8.9 million).
-- Cash balances as at 31 December 2020 of GBP2.4 million and net debt of GBP12.2 million.
-- The Group invested GBP8.5 million across its asset base
during the year (2019: GBP6.4 million). Budgeted capex for 2021 is
GBP5.3 million.
-- Underlying loss of GBP2.7 million (2019: profit GBP4.6
million). Loss after tax of GBP42.1 million (2019: loss GBP49.8
million) due to an impairment of GBP38.5 million of oil and gas
assets (2019: impairment of GBP53.9 million primarily relating to
our shale assets) being recognised on oil and gas assets due to
lower oil price forecasts. Ring fence tax losses of GBP256 million
as at 31 December 2020.
-- As at 31 December 2020, the Group had hedged a total of
369,600 bbls for 2021, using a combination of collars (166,800 bbls
at an average downside protected price of $43.0/bbl) and fixed
price swaps (202,800 bbls at an average fixed price of
$44.7/bbl).
-- Foreign exchange hedges in place at 31 December 2020 of $3
million for 2021 at an average rate of $1.20:GBP1.
Commenting today Stephen Bowler, Chief Executive Officer,
said:
"2020 was an exceptionally difficult year for everyone. Despite
these highly challenging circumstances, the Company has continued
to make progress in a number of key areas and continues to adapt
its business to operate, both in the current environment, and to
develop its business strategies to deliver a long-term and
sustainable business.
We still retain a sharp focus on costs and conserving cash but
as commodity prices improve we will continue to invest in our
assets where appropriate and to move ahead purposefully with our
geothermal and hydrogen projects ."
A results presentation will be available at
http://www.igasplc.com/investors/presentations.
Ross Pearson, Technical Director of IGas Energy plc, and a
qualified person as defined in the Guidance Note for Mining, Oil
and Gas Companies, March 2006, of the London Stock Exchange, has
reviewed and approved the technical information contained in this
announcement. Mr Pearson has 20 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
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/Virginia Bull
Canaccord Genuity (Joint Corporate Broker) Tel: +44 (0)20 7523 8000
Henry Fitzgerald-O'Connor/James Asensio
Vigo Communications Tel: +44 (0)20 7390 0230
Patrick d'Ancona/Chris McMahon/Charlie Neish
Chairman's Statement
At the time of writing, England is slowly emerging from its
third national lockdown in less than 12 months. This reporting
period has seen extraordinary challenges for individuals and
businesses alike, as we all respond to the global public health
emergency - COVID-19 - which has impacted, and continues to impact,
all aspects of our lives.
As the scale and seriousness of the COVID-19 pandemic emerged,
the initial focus and principal concern for the Company was, and
remains, the health and safety of its employees, contractors, and
communities. In this regard, all office-based employees have been
working from home where possible since March 2020. The Company has
established procedures and plans to ensure the continued safe
operation of its production sites whilst adapting operations to
enable and implement social distancing. Oil and gas workers are
classified as 'key workers', recognising the importance of
maintaining oil and gas supply to meet the UK's energy demands.
The oil price had already been impacted early in the year by
OPEC's failure to reach an agreement on supply. The end of the
first quarter saw a further significant reduction in commodity
prices, principally due to COVID-19 related drop in demand for oil
and gas, which affected both our revenues and profitability. We
took swift action to reduce costs and preserve cash in the business
always being mindful of the longer-term effects those measures may
have.
Despite these highly challenging circumstances, the Company has
continued to make progress in a number of key areas and continues
to adapt its business to operate, both in the current environment,
and to develop its business strategies.
In 2020, we delivered production within the revised guidance,
brought our waterflood projects online, which will bring increased
production in 2021 and beyond, and completed a significant
transaction with the acquisition of the geothermal energy
developer, GT Energy (GTE).
The geothermal acquisition is a major strategic milestone for
IGas. It provides us with an exciting entry point into this highly
attractive growth market, one that has seen material progress in
Europe over the past five years. The decarbonisation of electricity
generation has already made significant steps forwards with
renewables and gas replacing coal. The next significant area that
must be addressed, namely to achieve the UK's net zero ambitions,
is the decarbonisation of heat. We anticipate that this will
dramatically increase the development of deep geothermal heating
plants in the UK and across Europe.
There are considerable growth opportunities for IGas as we
continue to look at ways of maximising returns from our existing
operations and engineering expertise, repurposing our extensive
infrastructure and seeking to high-grade potential opportunities
for other forms of energy, including electricity generation and
storage.
In October 2020, we announced a partnership with BayoTech, a
leading technologies business in hydrogen generation systems. We
have identified existing sites where the gas resource can be
reformed into hydrogen which will then be sold to local or national
customers.
In November 2020, the Government announced its "Ten Point Plan"
for a green industrial revolution setting out a roadmap for the
country's economic recovery: Building back better, supporting green
jobs, and accelerating our path to net zero. We welcomed the long
awaited Energy White Paper which was released the following month
which acknowledges that the UK's domestic oil and gas industry has
a critical role in maintaining the country's energy security and is
a major contributor to the economy.
The projection for demand for oil and gas, though much reduced,
is still forecast to continue for decades to come and whilst
Government stresses the importance of sourcing lower emission
fuels, it does not tackle the issue of growing imports of oil and
gas. According to the most recent analysis by the Climate Change
Committee (CCC) for the Sixth Carbon Budget using their 'Balanced'
and 'Headwinds' scenarios, import dependencies will rise to between
61% and 83% for gas and up to 40% for oil by 2050.
As we broaden our energy portfolio, engaging effectively with
all our stakeholders helps inform our future plans. Listening and
responding to the views of communities, regulators, policy makers
and shareholders helps us better refine our business objectives and
deliver value. A sustainable and responsible company is one that is
committed to protecting and enhancing the wider environment and
working with communities to provide them with lasting
socio-economic benefits. Last year, we aligned ourselves with a
number of the UN Sustainable Development Goals and we will continue
to develop and grow our environmental KPIs.
Despite the significant challenges the pandemic has presented us
with, IGas's operations were safe and environmentally responsible.
It is a reflection of our high standards that led to us again
receiving the RoSPA President's Award, representing 14 consecutive
years of commitment to Occupational Health and Safety. Our ISO9001
and ISO14001 accreditation was also renewed during 2020, important
benchmarks in managing our production processes and environment
responsibilities.
People
The great majority of IGas staff who are able to work from home
are still doing so and appropriate precautions in operations and
offices have been implemented.
I am deeply impressed by the resilience our people have shown as
we have adapted to new ways of working, while retaining an
unrelenting focus on safety and delivery. I want to thank each and
every one of our hardworking colleagues for their commitment and
determination during such a tough year.
Outlook
The ongoing impacts of the COVID-19 pandemic continue to present
a volatile and challenging trading environment. Whilst the
International Energy Agency expects a strong oil price recovery in
the second half of 2021, it has warned that fresh restrictions
related to the SARS-CoV-2 virus will depress demand in the short
term.
We remain firmly focused on cost and capital discipline,
controlling what is within our power in the near-term, whilst still
continuing to build our business for the future. Given that the
shape and pace of economic recovery is uncertain, it would be
imprudent to rule out future impacts on the business.
That said, we will continue to invest in our existing assets
where appropriate to realise future benefits and to move ahead
purposefully with our geothermal and hydrogen projects. What is
clear, is that the UK has set out a pathway to net zero and
recognising there is a role for oil and gas, as part of that
evolution, IGas is committed to maximise the value of its extensive
skillset and existing infrastructure to further progress its own
energy transition pathway.
Chief Executive's Statement
Introduction
The announcement by the World Health Organisation in March 2020,
declaring the coronavirus outbreak a pandemic was an intensely
sobering moment for everyone. As a company, we made clear from the
outset that our overriding priority was the health and safety of
all our employees, contractors and other visitors to sites,
maintaining operations and supporting the safe and reliable
production of energy.
Like every other company operating in the UK, we are not immune
from the wider economic impacts of coronavirus and the significant
reduction in global demand for oil and gas impacted our financial
results. It is our job to guide the Company through this continued
period of uncertainty and ensure it is well-placed for the economic
recovery when it comes.
We moved quickly to mitigate the immediate impacts of COVID-19
and the fall in oil price by shutting in sites to preserve cash and
as low commodity prices continued we undertook a further, in-depth
review of costs. The outcome of that exercise resulted in a
redundancy programme, salary replacement for the Board and senior
executives, and a reduction in benefits across the organisation.
These measures, coupled with the cost savings made in the first
half of the year, have amounted to a cash saving in 2020 of GBP0.6
million. Further savings of GBP1.0 million are expected in 2021. We
vacated our London premises at the earliest opportunity, at the end
of March 2021, and until there is more certainty, our London based
employees will continue to work remotely.
2020 was a pivotal year for the company. Last year, I outlined
our desire to position IGas to deliver a variety of energy sources
to the UK and, in September, we took a bold step in realising that
aspiration by acquiring a deep geothermal development business. We
also took our first steps to allow us to advance hydrogen
production opportunities through the partnership agreement we
announced in October 2020, with BayoTech. This will enable us to
monetise stranded gas reserves and increase the value of the gas we
produce, whilst pioneering the use of small-scale steam methane
reformation (SMR) equipment in the UK.
During the year, as part of our approach to responsible and
sustainable development we undertook to align ourselves to a number
of the United Nation's Sustainable Development Goals. We recognise
the need to reduce greenhouse gas (GHG) emissions and strive to
reduce them through new initiatives, including the installation of
best available technology to all new projects to minimise their
carbon intensity.
Operating Review
Production
Net production for the period averaged 1,907 boepd, in line with
our revised forecast of 1,850 - 2,050 for the full year. We
anticipate net production in 2021 of between 2,150 boepd and 2,350
boepd, assuming there are no further significant disruptions to our
business from COVID-19.
In May 2020, when the oil price was trading at c.$25/bbl, we
announced a temporary shut-in of a number of fields for the months
of May and June. The impact of the shut-ins was a reduction in
production by c.600 boepd for this period. This action had a
positive impact on cash flow during these two months of c.GBP0.5
million. Those employees that were impacted by the shut-ins were
furloughed in line with the Government scheme.
We have, since then, returned all but two fields back to
production following improvements in the oil price. As the majority
of our sites are 100% owned and operated by us, it gave us the
flexibility to take shut-in decisions quickly and the ability to
rapidly restore production, at some of our fields, once energy
prices improved.
Given the fall in oil prices, we reviewed our capital
expenditure programme for the year and reduced it broadly by half
to focus on maintenance capex, abandonment and capital for projects
already in execution which amounted to GBP6.0 million. IGas retains
significant flexibility over its capital expenditure, and will
ensure that as we move forward, expenditure commitments are
appropriate in the macro environment.
It is our highest priority to continue to operate all of our
assets in a safe and responsible manner, to ensure the safety of
our workforce and communities in which we work and to minimise the
potential risk to the environment. Throughout 2020, we worked
closely with all our regulators to ensure we met the stringent
guidelines in respect to COVID-19.
Reserves and Resources
In February 2021, IGas announced the publication of the
Competent Persons Report (CPR) by DeGolyer & MacNaughton
(D&M), a leading international reserves and resources
auditor.
The report comprised an independent evaluation of IGas
conventional oil and gas interests as of 31 December 2020. The full
report can be found on the IGas website
www.igasplc/investors/publications-and-reports
IGas Group Net Reserves & Contingent Resources as at 31(st)
Dec 2020 (MMboe)
1P 2P 2C
Reserves & Resources as at 31(st) Dec 2019 10.55 16.05 19.51
Production during the period (0.68) (0.68) -
Revision of estimates 1.87 1.75 0.84
Reserves & Resources as at 31(st) Dec 2020 11.74 17.12 20.35
The report confirms a continuing high reserves replacement of 2P
reserves of approximately 250% reflecting the good performance of
our production assets and progression of projects demonstrating the
significant upside that remains in our conventional portfolio. Some
75% of the 2P is developed meaning it does not require any capital
investment to produce.
IGas has a track record of significant reserves replacement with
a three-year average of over 200%.
This independent report valued our conventional assets at c.$204
million on a 2P NPV10 basis: 1P NPV10 of $150 million (based on
forward oil curve of 2021 $53/bbl; 2022 $56/bbl; 2023 $58/bbl; 2024
$59/bbl; 2025 $62/bbl).
Development
Conventional
In spite of the considerable challenges related to the COVID-19
pandemic, we commenced water injection at our Scampton North site
on schedule and on budget in July 2020. As well as increasing oil
production, the in-field pipeline and a new processing facility at
the Scampton North C-Site will provide greater efficiency and
environmental improvements by reducing venting, the need to truck
water to the Welton Gathering Centre, as well as increasing the
amount of gas available for power generation. The latest D&M
CPR estimates this project will increase production from the
Scampton field by 180 Mbbl (2P-Proved plus Probable reserves) and
our mid-case economics for the project have an IRR of over 40% and
a NPV of GBP2.5 million (which assumes a long-term oil price of
$55/bbl).
Our second waterflood opportunity in the southern section of the
Welton Field experienced delays predominantly with the supply chain
and resource availability due to the pandemic, however, the project
was brought online in January 2021, slightly behind our planned
initial production of Q4 2020 and largely in line with budget. This
is a material project in IGas's inventory, developing approximately
660 Mbbl of 2P reserves and adding over 100 bopd incremental
production with a base case NPV10 of c.GBP7 million (assuming a
long-term oil price of $55/bbl).
Both these projects are important advancements in developing the
Company's 2P reserves.
Work on other projects, to appraise the potential that exists in
our prospective resources such as the prospect at Godley Bridge in
the South-east, will ramp-up again once there is more certainty in
energy prices.
Gas from Shale
The effective moratorium on high volume hydraulic fracturing for
shale-gas, that was introduced by the Government in November 2019,
remains in place until new evidence is provided . IGas, along with
its industry peers, continues to be committed to working closely
with the OGA and other regulators to demonstrate that we can
operate safely and in an environmentally responsible manner, and we
remain confident of doing so by adopting a rigorous scientific
approach.
It is worth noting that the Gainsborough Trough, where our
world-class Springs Road gas asset is situated, is characterised by
its structural simplicity and limited faulting. This has been
confirmed by the recent reinterpretation of the 69 sq km
reprocessed 3D seismic data around the Springs Road area which was
originally acquired in 2014.
In November 2020, IGas submitted a Section 73 Planning
Application to vary a condition of our existing Planning Permission
in order to extend the operational period of the site for a further
three years. The application was validated by Nottinghamshire
County Council the same month.
Ellesmere Port Appeal
Our application to conduct a well test at our existing Ellesmere
Port well, originally drilled in November 2014, was submitted on 21
July 2017. Following the Planning Committee's refusal against
Officer recommendation in January 2018, a 12-day Planning Appeal
was held between 15 January 2019 and 6 March 2019. The Secretary of
State recovered the appeal on 27 June 2019. Some 21 months later
and 44 months after the initial application, a decision is still
awaited, despite the Written Ministerial Statement in May 2018
committing to a rapid turnaround in decisions.
Geothermal
Despite the challenges the pandemic has presented, we completed
a significant transaction with the acquisition of the geothermal
developer, GTE. This equity-funded deal was a major strategic
milestone for the Company given our intention to play an important
role in the UK's energy transition and is a logical step given the
development and operational synergies with our onshore
business.
There are many synergies between our existing skill sets.
Essentially this is a very similar process in terms of geological
interpretation, drilling, completion and facility design; we are
just looking for a different resource, a permeable heat
reservoir.
GTE's principal project is a 14MW deep geothermal project in the
Etruria Valley, Stoke-on-Trent. The project is anticipated to
supply zero carbon heat to the city of Stoke-on-Trent on a
long-term 'take or pay' contract with Stoke-on-Trent City Council
(SoTCC). It is anticipated that the heat will be supplied through
the SoTCC owned and operated district heating network, which is
undergoing installation. All the geophysical work on the project is
complete and the necessary permitting in place. We await the grant
of the renewed planning permission.
Like many other things however, COVID-19 has taken its toll on
the project and t his has meant that all construction of the heat
network has paused and the TPA (thermal purchase agreement) has not
been completed. However, in an effort to progress the project, we
have entered into discussions with the council and Engie to deliver
the project. This structure would take all financial risk away from
the council and allow the project to proceed at a faster pace.
Discussions with Government regarding future financial support
for renewable heat from geothermal beyond the closure of the
Non-domestic Renewable Heat Incentive on 31 March 2021, are both
ongoing and positive.
The Renewable Energy Association (REA) and ARUP supported by GTE
and other industry players will launch a report in April 2021 into
the economic opportunity of harnessing deep geothermal energy to
solve the decarbonisation of heat in the UK. The report will
highlight the significant geothermal resource that exists within
the UK and show how other European countries with similar resources
have been successful in exploiting their resources. A number of
MP's have already indicated their support for developing an
industry to harness geothermal.
We have identified a number of strategic geothermal development
locations across the UK and are working at converting these into a
development pipeline of projects. Areas include Newcastle, Crewe,
and Southampton.
Hydrogen
In October 2020, IGas announced that it had entered into a
partnership agreement with BayoTech, a manufacturer of modular SMR
equipment.
BayoTech, whose high efficiency, low carbon technologies
originated in Sandia National Laboratories, is a hydrogen
generation technology company offering hydrogen production
solutions through rentals, leases, sales and gas as a service to
customers worldwide. Headquartered and produced in New Mexico, USA,
BayoTech's on-site hydrogen generators are more efficient than
legacy SMRs, leading to lower carbon emissions and low-cost
hydrogen. In January 2021, BayoTech received an equity investment
of up to $157 million from Newlight Partners LP, to accelerate its
strategic growth.
The company's intent is to utilise this equipment to produce
high quality hydrogen from its gas producing assets and from
stranded gas assets.
IGas has initially identified two of its existing sites, in the
South-east, where the gas resource can be reformed into hydrogen
which will then be sold to local or national customers. We expect
to advance these projects in 2021.
Outlook
Given the rapidly changing environment that the COVID-19
pandemic has created, it is still difficult to forecast with
accuracy the full extent of the pandemic's impact on business.
However, through all of this, the underlying operations of the
company remained safe and steadfast, and projects continued to be
brought online. None of this could have been achieved without the
commitment and resilience of all our teams.
I am excited about the various energy transition opportunities
that we have identified in our existing and new businesses. Our
land portfolio is well suited to the development of renewable and
hybrid flexible power generation and our assets have the potential
for carbon storage close to emitters.
The British Geological Survey recently estimated that geothermal
energy resources in the UK are sufficient to deliver about 100
years of heat supply for the entire UK. The publication of the UK
Government's Ten Point Plan and Energy White Paper provides a
strong platform for our geothermal business to contribute
significantly towards the decarbonisation of large-scale heat.
We look forward to advancing these and other opportunities that
will allow IGas to make material contributions to the Green Energy
Revolution whilst continuing to maximise returns from our
conventional portfolio given the clear need for oil and gas in a
2050 net zero environment.
Financial Review
During 2020, the average monthly price of Brent crude ranged
between $16/bbl and $70/bbl. The lower average price of $42/bbl for
the year versus $64/bbl for 2019 had a negative impact on our
revenues. The average GBP/USD exchange rate for the year was
broadly in line with the previous year at GBP1: $1.29 (2019: GBP1:
$1.28).
For the year ended 31 December 2020 adjusted EBITDA was GBP4.0
million (2019: GBP13.8 million) whilst a loss was recognised from
continuing activities after tax of GBP42.1 million (2019: loss
GBP49.8 million). The main factors driving the movements between
the years were as follows:
-- Revenues decreased to GBP21.6 million (2019: GBP40.9 million)
principally due to lower oil prices and a 17% decrease in oil sales
volumes as a number of sites were shut-in for a period due to the
impact of COVID-19. This was partially offset by a realised gain on
oil price hedges of GBP4.6 million;
-- Other costs of sales decreased to GBP17.5 million (2019:
GBP20.5 million). Operating costs were GBP3.0 million lower than
the prior year as the decision to temporarily shut in a number of
sites led to lower production, transportation and maintenance
costs;
-- DD&A decreased to GBP6.0 million (2019: GBP9.1 million)
due to lower production volumes and the impact of an increase in
reserves on the depletion rate;
-- Administrative expenses increased by GBP0.8 million to GBP5.3
million (2019: GBP4.5 million). Savings during the year following
cost saving measures were offset by redundancy costs of GBP0.6
million, one-off acquisition costs related to GTE of GBP0.2 million
and lower allocation to capital projects and lower recoveries from
partners due to lower activity during the year;
-- An impairment of GBP38.5 million (2019: nil) was recognised
on oil and gas assets due to lower oil price forecasts. Exploration
and evaluation assets of GBP0.1 million were written off during the
year (2019: GBP53.9 million written off primarily relating to our
shale assets in the North West following the effective moratorium
on fracking in England);
-- Net finance costs decreased to GBP2.2 million (2019: GBP3.4
million) due to lower borrowings combined with lower interest costs
following the refinancing in October 2019 and gains on foreign
exchange; and
-- A tax credit of GBP2.0 million was recognised mainly due to
adjustment to losses brought forward due to Ring Fence Expenditure
Supplement claims (2019: GBP9.3 million recognised due to the
recognition of a deferred tax asset relating to ring-fence tax
losses).
Income statement
The Group recognised revenues of GBP21.6 million for the year
(2019: GBP40.9 million). Group production for the year averaged
1,907 boepd (2019: 2,325 boepd). Revenues included GBP1.1 million
(2019: GBP2.4 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 $39.1/bbl
(2019: $61.7/bbl) and post-hedge $48.4/bbl (2019: $60.1/bbl). A
gain of GBP4.6 million was realised on hedges during the year due
to a successful hedging programme. (2019: realised loss of GBP1.0
million). The average GBP/USD exchange rate for the year was GBP1:
$1.29 (2019: GBP1: $1.28).
Cost of sales for the year were GBP23.5 million (2019: GBP29.6
million) including depreciation, depletion and amortisation
(DD&A) of GBP6.0 million (2019: GBP9.1 million), and operating
costs of GBP17.5 million (2019: GBP20.5 million). Operating costs
were GBP3.0 million lower than the prior year due to decrease in
production and transportation costs of $1.4 million and maintenance
costs of $0.6 million. Operating costs include a cost of GBP1.0
million (2019: GBP2.2 million) relating to third party oil. The
contribution received from processing this third party oil was GBP
0.1 million (2019: GBP0.2 million).
Operating costs per barrel of oil equivalent (boe) were GBP25.8
($33.3), excluding third party costs (2019: GBP23.6 ($30.1) per
boe). Savings in absolute operating costs were offset by lower
production volumes.
Adjusted EBITDA in the year was GBP4.0 million (2019: GBP13.8
million). The gross loss for the year was GBP1.9 million (2019:
gross profit of GBP11.3 million).
Administrative costs increased by GBP0.8 million to GBP5.3
million (2019: GBP4.5 million). A cost saving programme reduced
costs by c.GBP0.6 million net of redundancy costs of GBP0.6
million. However, net administrative costs increased due to lower
allocation to capital projects and lower recoveries from partners
due to lower activity during the year. The Group also incurred
costs related to the acquisition of GTE of GBP0.2 million.
An impairment of GBP38.5 million was recognised on oil and gas
assets during the period (2019: GBPnil) primarily as a result of
lower oil price forecasts. The future cash flows were estimated
using price assumptions for Brent of $50-55/bbl for the years
2021-2022 and $60/bbl thereafter. Management also performed
sensitivity analysis on the key assumptions. See note 8 for further
details.
Exploration and evaluation assets of GBP0.1 million were
written-off during the year (2019: GBP53.9 million written off
primarily relating to our shale assets in the North West following
the effective moratorium on fracking in England).
Net finance costs were GBP2.2 million (2019: GBP3.4 million)
primarily related to interest on borrowings of GBP1.3 million
(2019: GBP1.9 million) and the unwinding of discount on provisions
of GBP1.5 million (2019: GBP1.3 million), offset by a net foreign
exchange gain of GBP1.5 million, principally on US dollar
denominated debt and US dollar bank balances and a successful
foreign exchange hedging programme (2019: gain GBP0.3 million).
Interest on leases was GBP0.8 million (2019: GBP0.7 million).
The Group recognised a net gain on oil price derivatives of
GBP3.5 million for the year (2019: loss GBP3.3 million) and a gain
on foreign exchange hedges of GBP0.2 million (2019: gain GBP0.3
million).
A tax credit of GBP2.0 million was recognised mainly due to the
adjustment to losses brought forward due to Ring Fence Expenditure
Supplement claims (2019: a tax credit of GBP9.3 million mainly due
to the recognition of a deferred tax asset relating to ring-fence
tax losses).
Cash flow
Net cash generated from operating activities for the year was
GBP3.6 million (2019: GBP12.0 million). The decrease was primarily
due to lower revenue, net of realised hedge income, and working
capital movements. The decrease was partially offset by cost
savings.
The Group invested GBP8.5 million across its asset base during
the year (2019: GBP6.4 million). GBP6.2 million was invested in our
conventional assets primarily on the Scampton North and Welton
waterflood projects and to optimise existing facilities and
systems. GBP2.3 million, net of recoveries from our joint venture
partners, was invested in progressing the Group's shale programme
and on working up additional exploration opportunities on
conventional assets.
The Group spent GBP1.3 million on its abandonment programme
during the year (2019: GBP1.8 million).
The Group made a net drawdown of GBP0.9 million ($1.0 million)
under its Reserve Based Lending facility (the RBL) and paid GBP0.9
million ($1.2 million) in loan interest (2019: GBP2.0 million ($2.6
million)).
To protect against the volatile oil price, the Group places
commodity hedges for a period of up to 12 months. As at 31 December
2020, the Group had hedged a total of 369,600 bbls for 2021, using
a combination of collars (166,800 bbls at an average downside
protected price of $43.0/bbl) and fixed price swaps (202,800 bbls
at an average fixed price of $44.7/bbl).
Cash and cash equivalents were GBP2.4 million at the end of the
year (2019: GBP8.2 million).
Balance sheet
Net assets decreased by GBP39.8 million to GBP73.3 million at 31
December 2020 (2019: GBP113.1 million), mainly related to an
impairment of oil and gas assets of GBP38.5 million (2019:
nil).
The Group recognised an intangible development asset of GBP3.2
million on the acquisition of GT Energy UK Limited in September
2020.
The Group also recognised an increase in the net deferred tax
asset of GBP2.0 million due to a decrease in accelerated capital
allowances liability offset by a decrease in losses recognised
(2019: increase in net deferred tax asset of GBP9.3 million).
Changes to the estimate of decommissioning costs following an
internal review increased both assets and liabilities by GBP6.2
million (2019: increase of GBP7.7 million).
At 31 December 2020, right of use assets capitalised was GBP7.7
million (2019: GBP7.7 million) and lease liabilities increased to
GBP7.5 million (2019: GBP7.2 million).
At 31 December 2020, the Group has a combined carried gross work
programme of up to $218 million (GBP160 million) (2019: $214
million (GBP161million)) from its partner, INEOS Upstream Limited.
In 2020, GBP0.4 million (2019: GBP7.3 million) gross costs were
carried, principally in relation to activities at Springs Road,
which have not been included in the additions to intangible
exploration and evaluation assets during the year.
Borrowings increased from GBP13.1 million to GBP13.7 million due
to net drawdowns of GBP0.9 million, offset by a revaluation gain of
GBP0.6 million and amortisation of capitalised fees of GBP0.3
million.
Net debt at the year-end, being the nominal value of borrowings
less cash and cash equivalents, was GBP12.2 million (2019: GBP6.2
million).
31 December 31 December
2020 2019
GBPm GBPm
------------ ------------
Debt (nominal value excluding
capitalised expenses) (14.6) (14.4)
------------ ------------
Cash and cash equivalents 2.4 8.2
------------ ------------
Net Debt (12.2) (6.2)
------------ ------------
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;
-- Climate change risks that causes changes to laws,
regulations, policies, obligations and social attitudes relating to
the transition to a lower carbon economy which could have a cost
impact or reduced demand for hydrocarbons for the Group and could
impact our strategy;
-- Cyber security risk that gives exposure to a serious
cyber-attack which could affect the confidentiality of data, the
availability of critical business information and cause disruption
to our 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 RBL facility;
-- Political risk such as change in Government or the effect of
local or national referendum; and
-- Pandemic that impacts the ability to operate the business effectively.
Going Concern
The Group continues to closely monitor and manage its liquidity
risks. Cash flow 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,
management's best estimate of foreign exchange rates and the
Group's available loan facility under the RBL. Sensitivities are
run to reflect different scenarios including, but not limited to,
possible further reductions in commodity prices, strengthening of
sterling and reductions in forecast oil and gas production
rates.
The ability of the Group to operate as a going concern is
dependent upon the continued availability of future cash flows and
the availability of the monies drawn under its RBL, which is
re-determined semi-annually based on various parameters (including
oil price and level of reserves) and is also dependent on the Group
not breaching its RBL covenants. Whilst we have better financial
flexibility and a reduced overall cost of debt under the RBL and
have successfully completed the 2020 year-end re-determination, we
have re-evaluated our priorities in the short-term to ensure we
weather both any oil price weakness and other impacts of COVID-19,
including potential disruption to the Group's operational
activities which could impact earnings, cash flows and financial
condition of the Group.
The COVID-19 pandemic developed rapidly in 2020, with a
significant number of cases worldwide. Measures taken by various
governments to contain the virus affected global economic activity
and resulted in a significant reduction in demand for oil. The fall
in oil demand led to a fall in oil prices from around $60/bbl at
the start of 2020 to a low of under $20/bbl in April 2020. Although
the oil price has recovered sharply since then, to close 2020 above
$50/bbl and has had a strong start to 2021, there remains
significant uncertainty as to how COVID-19 and its aftermath will
impact economies, oil demand and therefore oil price over the near
and mid-term.
Management has also considered the impact of the COVID-19 global
crisis on the Group's operations. We continue to monitor the
situation closely and act within Government guidelines and have a
number of contingency plans in place should our operations be
significantly affected by the coronavirus. Many of our sites are
remotely manned and at this stage we are well equipped as a
business to ensure we maintain business continuity. Our production
comes from a large number of wells in a variety of locations and we
have flexibility in our off-take arrangements. We continue to
liaise and co-operate with all the relevant regulators.
The Group's base case cash flow forecast was run with average
oil prices of $61/bbl for 2021 and $58/bbl in 2022, with a foreign
exchange rate of $1.40/GBP1 during the period. Our modelling
included the benefits of the Group's commodity hedging policy with
369,600 bbls hedged at an average minimum price of $44/bbl. Our
forecasts show that the Group will have sufficient financial
headroom to meet its financial covenants based on the existing RBL
facility. Given the uncertainties described above, the level of
Group revenues and availability of facilities under the RBL are
inherently uncertain. As such, management has also prepared a
downside forecast with average oil prices at $63/bbl in the second
quarter of 2021 and have then modelled in a sudden crash in price
to $43/bbl in July 2021 with prices remaining at that level for a
year before increasing to $45/bbl in July 2022. Our downside case
also included an average reduction in production of 5% over the
period and a strengthening of sterling against the US dollar with
rates moving to $1.45 by October 2021 and remaining at this level
for 2022. To manage the impact of the downside scenario modelled,
management would take mitigating actions, including further
commodity hedging, delaying capital expenditure and additional
reductions in costs in order to remain within the Group's debt
liquidity covenants. All such mitigating actions are within
management's control. In the downside case, management would also
consider additional cash generating opportunities for the Group.
While management acknowledges that these may not be completely in
our control, we have assumed that cash flow from some of these
opportunities would be available in 2022. In this downside
scenario, our forecast shows that the Group will have sufficient
financial headroom to meet its financial covenants for the 12
months from the date of approval of the financial statements.
However, should oil price or demand (and therefore revenue) fall
below our downside scenario oil price forecast, the Group may not
have sufficient funds available for 12 months from the date of
approval of these financial statements.
As a result, at the date of approval of the financial
statements, there continues to be a material uncertainty in respect
of the potential impact of COVID-19 on the Group's operational
activities and future commodity prices. These material
uncertainties may cast significant doubt upon the Group's ability
to continue as a going concern. Notwithstanding these material
uncertainties, the Directors have a reasonable expectation that the
Group has adequate resources to continue in existence for the
foreseeable future and have concluded it is appropriate to adopt
the going concern basis of accounting in the preparation of the
financial statements. The financial statements do not include the
adjustments that would result if the Group was unable to continue
as a going concern.
Stephen Bowler
Chief Executive Officer
Adjusted EBITDA and underlying operating (loss)/profit
Adjusted EBITDA and underlying operating (loss)/profit are
considered by the Company to be useful additional measures to help
understand underlying performance.
Adjusted EBITDA
2020 2019
------- -------
GBPm GBPm
------- -------
Loss before tax (44.1) (59.1)
------- -------
Net finance costs 2.2 3.4
------- -------
Loss on refinancing - 0.7
------- -------
Changes in fair value of contingent consideration 0.2 -
------- -------
Depletion, depreciation & amortisation 6.3 9.2
------- -------
Impairments/write offs 38.6 58.7
------- -------
EBITDA 3.2 12.9
------- -------
Lease rentals capitalised under IFRS 16 (1.8) (2.0)
------- -------
Share-based payment charge 1.0 0.8
------- -------
Unrealised loss on hedges 0.8 2.1
------- -------
Redundancy costs 0.6 -
------- -------
Acquisition costs 0.2 -
------- -------
Adjusted EBITDA 4.0 13.8
------- -------
Underlying operating (loss)/profit
2020 2019
------- -------
GBPm GBPm
------- -------
Operating loss (42.1) (55.0)
------- -------
Operating lease rentals capitalised
under IFRS 16 (1.8) (2.0)
------- -------
Share-based payment charge 1.0 0.8
------- -------
Impairments/write-offs 38.6 58.7
------- -------
Unrealised loss on hedges 0.8 2.1
------- -------
Redundancy costs 0.6 -
------- -------
Acquisition costs 0.2 -
------- -------
Underlying operating (loss)/profit (2.7) 4.6
------- -------
Realised Price Per Barrel
2020 2019
----- -----
$ $
----- -----
Realised price per barrel 48.4 60.1
----- -----
G&A per BOE 10.3 7.0
----- -----
Other operating cost (underlying) 24.3 22.2
----- -----
Well services 5.4 4.5
----- -----
Transportation and storage 3.6 3.4
----- -----
2020 2019
GBPm GBPm
-------------------------- ------ ------
Revenues 21.6 40.9
-------------------------- ------ ------
Adjusted EBITDA 4.0 13.8
-------------------------- ------ ------
Underlying operating
(loss)/profit (2.7) 4.6
-------------------------- ------ ------
Loss after tax (42.1) (49.8)
-------------------------- ------ ------
Net cash from operating
activities 3.6 12.0
-------------------------- ------ ------
Net debt(1) (12.2) (6.2)
-------------------------- ------ ------
Cash and cash equivalents 2.4 8.2
-------------------------- ------ ------
Net assets 73.3 113.1
-------------------------- ------ ------
Note 1 Net debt is borrowings less cash and cash equivalents
excluding capitalised fees
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2020
Year ended Year ended
31 December 2020 31 December 2019
Note GBP000 GBP000
-------------------------------------------------------------------------- ---- ----------------- -----------------
Revenue 2 21,578 40,901
Cost of sales:
Depletion, depreciation and amortisation (5,974) (9,058)
Other costs of sales (17,553) (20,542)
-------------------------------------------------------------------------- ---- ----------------- -----------------
(23,527) (29,600)
Gross (loss)/profit (1,949) 11,301
Administrative expenses (5,331) (4,533)
Exploration and evaluation assets written-off 7 (67) (53,928)
Oil and gas assets impairment 8 (38,535) -
Goodwill impairment - (4,801)
Gain/(loss) on oil price derivatives 3,520 (3,348)
Gain on foreign exchange contracts 229 265
Operating loss (42,133) (55,044)
Finance income 3 1,472 460
Finance costs 3 (3,648) (3,861)
Loss on extinguishment of debt 10 - (692)
Changes in fair value of contingent consideration 11 (180) -
Other income 415 -
Loss from continuing activities before tax (44,074) (59,137)
Income tax credit 4 1,985 9,307
-------------------------------------------------------------------------- ---- ----------------- -----------------
Loss after tax from continuing operations attributable to shareholders'
equity (42,089) (49,830)
Loss after taxation from discontinued operations
after tax from discontinued operations 12 (11,060) (396)
-------------------------------------------------------------------------- ---- ----------------- -----------------
Net loss for the year attributable to shareholders' equity (53,149) (50,226)
-------------------------------------------------------------------------- ---- ----------------- -----------------
Loss attributable to equity shareholders from continuing operations:
Basic loss per share 5 (34.35p) (40.93p)
Diluted loss per share 5 (34.35p) (40.93p)
Loss attributable to equity shareholders including discontinued
operations:
Basic loss per share 5 (43.37p) (41.26p)
Diluted loss per share 5 (43.37p) (41.26p)
-------------------------------------------------------------------------- ---- ----------------- -----------------
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEARED 31 DECEMBER 2020
Year ended Year ended
31 December 2020 31 December 2019
GBP000 GBP000
------------------------------------------------------------------ --- ----------------- -----------------
Loss for the year (53,149) (50,226)
Other comprehensive loss for the year:
Currency translation adjustments recycled to the income statement 12 10,781 (63)
Currency translation adjustments (19) 68
------------------------------------------------------------------ --- ----------------- -----------------
Total other comprehensive loss for the year 10,762 5
Total comprehensive loss for the year (42,387) (50,221 )
------------------------------------------------------------------ --- ----------------- -----------------
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2020
31 December 31 December
2020 2019
Note GBP000 GBP000
------------------------------------- ---- ----------- ----------------------------
ASSETS
Non - current assets
Intangible assets 7 46,711 41,455
Property, plant and equipment 8 72,439 104,532
Right-of-use assets 7,658 7,668
Restricted cash 9 410 410
Deferred tax asset 4 31,945 29,961
159,163 184,026
------------------------------------- ---- ----------- ----------------------------
Current assets
Inventories 1,023 1,193
Trade and other receivables 4,095 5,986
Cash and cash equivalents 9 2,438 8,194
Derivative financial instruments 314 127
7,870 15,500
------------------------------------- ---- ----------- ----------------------------
Total assets 167,033 199,526
------------------------------------- ---- ----------- ----------------------------
LIABILITIES
Current liabilities
Trade and other payables (5,247) (9,288)
Derivative financial instruments (1,271) (266)
Lease liabilities (694) (988)
Provisions 11 (293) -
(7,505) (10,542)
------------------------------------- ---- ----------- ----------------------------
Non - current liabilities
Borrowings 10 (13,695) (13,071)
Other payables (1,160) (1,529)
Lease liabilities (6,820) (6,173)
Provisions 11 (64,550) (55,101)
(86,225) (75,874)
Total liabilities (93,730) (86,416)
------------------------------------- ---- ----------- ----------------------------
Net assets 73,303 113,110
------------------------------------- ---- ----------- ----------------------------
EQUITY
Capital and reserves
Called up share capital 30,333 30,333
Share premium account 102,906 102,680
Foreign currency translation reserve 3,473 (7,289)
Other reserves 35,117 32,781
Accumulated deficit (98,526) (45,395)
Total equity 73,303 113,110
------------------------------------- ---- ----------- ----------------------------
These financial statements were approved and authorised for
issue by the Board on 7 April 2021 and are signed on its behalf
by:
Stephen Bowler Frances Ward
Chief Executive Officer Finance Director
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 31 DECEMBER 2020
Foreign
Share currency
Called up premium translation Other Accumulated Total
share capital account reserve* reserves** surplus/(deficit) equity
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------------- --------------- --------- ------------- ------------ ------------------ --------
At 1 January 2019 30,333 102,501 (7,294) 31,310 4,831 161,681
Loss for the year - - - - (50,226) (50,226)
Share options
issued under the
employee share
plan - - - 1,599 - 1,599
Issue of shares - 179 - - - 179
Forfeiture of
options under the
employee share
plan - - - (128) - (128)
Currency
translation
adjustments - - 5 - - 5
At 31 December 2019 30,333 102,680 (7,289) 32,781 (45,395) 113,110
Loss for the year - - - - (53,149) (53,149)
Share options
issued under the
employee share
plan - - - 2,366 - 2,366
Issue of shares - 226 - (30) - 196
Disposal of shares
held in EBT - - - - 18 18
Currency
translation
adjustments - - 10,762 - - 10,762
At 31 December 2020 30,333 102,906 3,473 35,117 (98,526) 73,303
------------------- --------------- --------- ------------- ------------ ------------------ --------
* 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 (EBT) to satisfy awards held under the Group
incentive plans; and 4) capital contribution reserve which arose
following the acquisition of IGas Exploration UK Limited.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEARED 31 DECEMBER 2020
Notes
Year ended Year ended
31 December 31 December
2020 2019
GBP000 GBP0 00
Cash flows from operating activities:
Loss from continuing activities before tax for
the year (44,074) (59,137)
Net loss on extinguishment of debt re-financing 10 - 692
Depletion, depreciation and amortisation* 6,303 9,449
Abandonment costs/other provisions utilised (1,348) (1,760)
Share based payment charge 1,025 801
Exploration and evaluation assets written-off 7 67 53,928
Oil and gas assets impairment 8 38,535 -
Goodwill impairment - 4,801
Unrealised loss on oil price derivatives 1,048 2,380
Unrealised gain on foreign exchange contracts (229) (265)
Changes in fair value of contingent consideration 11 180
Other income (415) -
Finance income 3 (1,472) (460)
Finance costs 3 3,648 3,861
Other non-cash adjustments (10) (14)
------------------------------------------------------ ------ ------------- --------------
Operating cash flow before working capital movements 3,258 14,276
Decrease/(increase) in trade and other receivables
and other financial assets 1,514 (602)
Decrease in trade and other payables (1,187) (1,733)
Decrease/(increase) in inventories 170 (44)
Cash from continuing operating activities 3,755 11,897
------------------------------------------------------ ------ ------------- --------------
(Increase)/decrease in discontinued operating
activities (156) 105
------------------------------------------------------ ------ ------------- --------------
Taxation paid - continuing operating activities - -
Net cash from operating activities 3,599 12,002
------------------------------------------------------ ------ ------------- --------------
Cash flows from investing activities:
Purchase of intangible exploration and evaluation
assets (2,314) (2,716)
Purchase of property, plant and equipment (6,152) (3,668)
Purchase of intangible development assets (67) -
Cash acquired on acquisition of subsidiary 6 77 -
Proceeds from disposal of assets - 1
Other income received 4 14
Interest received 11 129
------------------------------------------------------ ------ ------------- --------------
Cash used in continuing investing activities (8,441) (6,240)
Net cash used in investing activities (8,441) (6,240)
------------------------------------------------------ ------ ------------- --------------
Cash flows from financing activities:
Cash proceeds from issue of ordinary share capital 56 69
Proceeds from disposal of shares held in EBT net
of costs 4 -
Drawdown on Reserves-Based Lending Facility 9 5,544 19,319
Repayment on Reserves-Based Lending Facility 9 (4,645) (4,639)
Fees paid related to debt re-financing 9 - (1,059)
Repayment of bonds 9 - (21,355)
Repayment of principal portion of lease liability (973) (2,010)
Repayment of interest on lease liabilities (795) (677)
Interest paid 9 (940) (2,021)
Net cash used in financing activities (1,749) (12,373)
------------------------------------------------------ ------ ------------- --------------
Net decrease in cash and cash equivalents in the
year (6,591) (6,611)
Net foreign exchange difference 835 (307)
Cash and cash equivalents at the beginning of
the year 8,194 15,112
------------------------------------------------------
Cash and cash equivalents at the end of the year 9 2,438 8,194
------------------------------------------------------ ------ ------------- --------------
* Depletion, depreciation and amortisation includes GBP1.3
million (2019: GBP1.5 million) relating to right-of-use assets
CONSOLIDATED FINANCIAL STATEMENTS - NOTES
FOR THE YEARED 31 DECEMBER 2020
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
accounting standards in conformity with the requirements of the
Companies Act 2006 ("the "Standards") , this announcement does not
contain sufficient information to comply with the Standards. The
Group will publish full financial statements that comply with the
Standards in May 2021.
The financial information for the year ended 31 December 2020
does not constitute statutory financial statements as defined in
sections 435 (1) and (2) of the Companies Act 2006. Statutory
financial statements for the year ended 31 December 2019 have been
delivered to the Registrar of Companies and those for 2020 will be
delivered following the Company's annual general meeting. The
auditor has reported on these financial statements; their reports
were unqualified, though they drew attention to a material
uncertainty related to going concern in 2020. These reports 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 2019. 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 2020. These did not have a material impact on the
accounting policies, methods of computation or presentation applied
by the Group .
There are also a number of amendments to accounting standards
and new interpretations issued by the International Accounting
Standards Board which will be applicable from 1 January 2021
onwards. These are not expected to have a material impact on the
accounting policies, methods of computation or presentation applied
by the Group and have not been adopted early.
Further details on new International Financial Reporting
Standards adopted and yet to be adopted will be disclosed in the
2020 Annual Report and Financial Statements.
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 Group continues to closely monitor and manage its liquidity
risks. Cash flow 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,
management's best estimate of foreign exchange rates and the
Group's available loan facility under the RBL. Sensitivities are
run to reflect different scenarios including, but not limited to,
possible further reductions in commodity prices, strengthening of
sterling and reductions in forecast oil and gas production
rates.
The ability of the Group to operate as a going concern is
dependent upon the continued availability of future cash flows and
the availability of the monies drawn under its RBL, which is
re-determined semi-annually based on various parameters (including
oil price and level of reserves) and is also dependent on the Group
not breaching its RBL covenants. Whilst we have better financial
flexibility and a reduced overall cost of debt under the RBL and
have successfully completed the 2020 year-end re-determination, we
have re-evaluated our priorities in the short-term to ensure we
weather both any oil price weakness and other impacts of COVID-19,
including potential disruption to the Group's operational
activities which could impact earnings, cash flows and financial
condition of the Group.
The COVID-19 pandemic developed rapidly in 2020, with a
significant number of cases worldwide. Measures taken by various
governments to contain the virus affected global economic activity
and resulted in a significant reduction in demand for oil. The fall
in oil demand led to a fall in oil prices from around $60/bbl at
the start of 2020 to a low of under $20/bbl in April 2020. Although
the oil price has recovered sharply since then, to close 2020 above
$50/bbl and has had a strong start to 2021, there remains
significant uncertainty as to how COVID-19 and its aftermath will
impact economies, oil demand and therefore oil price over the near
and mid-term.
Management has also considered the impact of the COVID-19 global
crisis on the Group's operations. We continue to monitor the
situation closely and act within Government guidelines and have a
number of contingency plans in place should our operations be
significantly affected by the coronavirus. Many of our sites are
remotely manned and at this stage we are well equipped as a
business to ensure we maintain business continuity. Our production
comes from a large number of wells in a variety of locations and we
have flexibility in our off-take arrangements. We continue to
liaise and co-operate with all the relevant regulators.
The Group's base case cash flow forecast was run with average
oil prices of $61/bbl for 2021 and $58/bbl in 2022, with a foreign
exchange rate of $1.40/GBP1 during the period. Our modelling
included the benefits of the Group's commodity hedging policy with
369,600 bbls hedged at an average minimum price of $44/bbl. Our
forecasts show that the Group will have sufficient financial
headroom to meet its financial covenants based on the existing RBL
facility. Given the uncertainties described above, the level of
Group revenues and availability of facilities under the RBL are
inherently uncertain. As such, management has also prepared a
downside forecast with average oil prices at $63/bbl in the second
quarter of 2021 and have then modelled in a sudden crash in price
to $43/bbl in July 2021 with prices remaining at that level for a
year before increasing to $45/bbl in July 2022. Our downside case
also included an average reduction in production of 5% over the
period and a strengthening of sterling against the US dollar with
rates moving to $1.45 by October 2021 and remaining at this level
for 2022. To manage the impact of the downside scenario modelled,
management would take mitigating actions, including further
commodity hedging, delaying capital expenditure and additional
reductions in costs in order to remain within the Group's debt
liquidity covenants. All such mitigating actions are within
management's control. In the downside case, management would also
consider additional cash generating opportunities for the Group.
While management acknowledges that these may not be completely in
our control, we have assumed that cash flow from some of these
opportunities would be available in 2022. In this downside
scenario, our forecast shows that the Group will have sufficient
financial headroom to meet its financial covenants for the 12
months from the date of approval of the financial statements.
However, should oil price or demand (and therefore revenue) fall
below our downside scenario oil price forecast, the Group may not
have sufficient funds available for 12 months from the date of
approval of these financial statements.
As a result, at the date of approval of the financial
statements, there continues to be a material uncertainty in respect
of the potential impact of COVID-19 on the Group's operational
activities and future commodity prices. These material
uncertainties may cast significant doubt upon the Group's ability
to continue as a going concern. Notwithstanding these material
uncertainties, the Directors have a reasonable expectation that the
Group has adequate resources to continue in existence for the
foreseeable future and have concluded it is appropriate to adopt
the going concern basis of accounting in the preparation of the
financial statements. The financial statements do not include the
adjustments that would result if the Group was unable to continue
as a going concern.
2 Revenue
The Group derives revenue solely within the United Kingdom from
the transfer of goods and services to external customers which is
recognised at a point in time when the performance obligation has
been satisfied by the transfer of goods. The Group's major product
lines are:
Year ended Year ended
31 December 31 December
2020 2019
GBP000 GBP000
------------------ ------------ ------------
Oil sales 20,546 39,248
Electricity sales 438 966
Gas sales 594 687
------------------ ------------ ------------
21,578 40,901
------------------ ------------ ------------
Revenues of approximately GBP11.9 million and GBP8.7 million
were derived from the Group's two largest customers (2019: GBP18.8
million and GBP20.5 million) and are attributed to the oil
sales.
As at 31 December 2020, there are no contract assets or contract
liabilities outstanding (2019: nil).
3 Finance income/(costs )
Year Year
ended ended
31 December 31 December
2020 2019
GBP000 GBP000
---------------------------------------------------------- ------------ ------------
Finance income:
Interest on short - term deposits 11 127
Foreign exchange gains 1,461 333
Finance income 1,472 460
---------------------------------------------------------- ------------ ------------
Finance expense:
Interest on borrowings (940) (1,651)
Amortisation of finance fees on borrowings (387) (223)
Unwinding of discount on decommissioning provision ( note
11) (1,466) (1,310)
Unwinding of discount on contingent consideration (note
11) (60) -
Finance charge on lease liability for assets in use (795) (677)
---------------------------------------------------------- ------------ ------------
Finance expense (3,648) (3,861)
---------------------------------------------------------- ------------ ------------
4 Income tax credit
(i) Tax credit on loss from continuing ordinary activities
Year ended Year ended
31 December 31 December
2020 2019
GBP000 GBP000
--------------------------------------------------------------------------------- ------------ ------------
Current tax:
Charge on loss for the year - -
Charge in relation to prior years - -
Total current tax charge - -
--------------------------------------------------------------------------------- ------------ ------------
Deferred tax:
Charge/(credit) relating to the origination or reversal of temporary differences 1,409 (3,461)
Credit due to tax rate changes (99) -
Credit in relation to prior years (3,295) (5,846)
--------------------------------------------------------------------------------- ------------ ------------
Total deferred tax credit (1,985) (9,307)
--------------------------------------------------------------------------------- ------------ ------------
Tax credit on loss on ordinary activities (1,985) (9,307)
--------------------------------------------------------------------------------- ------------ ------------
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% (2019:
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 31
December December
2020 2019
GBP000 GBP000
----------------------------------------------------------------------------------------------- --------- ----------
Loss from continuing ordinary activities before tax (44,074) (59,137)
Expected tax credit based on loss from continuing ordinary activities multiplied by an average
combined rate of corporation tax and supplementary charge in the UK of 40 % (2019: 40%) (17,630)
(17,776) (23,655)
Deferred tax credit in respect of the prior year (3,295) (5,846)
Tax effect of expenses not allowable for tax purposes (740) 9,850
Tax effect of differences in amounts not allowable for supplementary charge purposes* 6 (121)
Impact of profits or losses taxed or relieved at different rates 461 292
Net increase in unrecognised losses carried forward 7,781 10,197
Net increase in unrecognised temporary taxable differences 11,533 -
Tax rate change (99) -
Other (2) (24)
----------------------------------------------------------------------------------------------- --------- ----------
Tax credit on loss on ordinary activities (1,985) (9,307)
----------------------------------------------------------------------------------------------- --------- ----------
* 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 asset in the year is shown
below:
Year ended Year ended
31 December 31 December
2020 2019
GBP000 GBP000
--------------------------------------------------- ------------ ------------
Asset at 1 January 29,961 20,656
Tax credit relating to prior year 3,295 5,846
Tax (charge)/credit during the year (1,409) 3,461
Tax charge arising due to the changes in tax rates 99 -
Other (1) (2)
--------------------------------------------------- ------------ ------------
Asset at 31 December 31,945 29,961
--------------------------------------------------- ------------ ------------
The following is an analysis of the deferred tax asset by
category of temporary difference:
31 December 31 December
2020 2019
GBP000 GBP000
--------------------------------------------------- ----------- -----------
Accelerated capital allowances (7,791) (13,993)
Tax losses carried forward 26,633 29,735
Investment allowance unutilised 1,542 1,297
Decommissioning provision 7,390 9,628
Unrealised gains or losses on derivative contracts 2,126 1,799
Share based payments 2,090 1,675
Right-of-use asset and liability (45) (180)
Deferred tax asset 31,945 29,961
--------------------------------------------------- ----------- -----------
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 based on a
five-year profit forecast. Such tax losses include GBP130 million
(2019: GBP94.4 million) of ring-fence corporation tax losses.
The Group has further tax losses and other similar attributes
carried forward of approximately GBP215.4million (2019: GBP234.8
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.
5 Earnings per share (EPS)
Continuing
Basic EPS amounts are based on the loss for the year after
taxation from continuing operations attributable to ordinary equity
holders of the parent of GBP42.1 million (2019: a loss after
taxation from continuing operations attributable to shareholders'
equity of GBP49.8 million) and the weighted average number of
ordinary shares outstanding during the year of 122.5 million (2019:
121.7 million).
Diluted EPS amounts are based on the loss for the year after
taxation from continuing operations 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.
As at 31 December 2020, there are GBP10.9 million potentially
dilutive employee share options (31 December 2019: 6.3 million
potentially dilutive share options) which are not included in the
calculation of diluted earnings per share as their conversion to
ordinary shares would have decreased the loss per share.
The following reflects the income and share data used in the
basic and diluted earnings per share from continuing
operations:
Year ended Year ended
31 December 31 December
2020 2019
----------------------------------------------------------- ------------ ------------
Basic loss per share - ordinary shares of 0.002 pence each (34.35p) (40.93p)
Diluted loss per share - ordinary shares of 0.002 pence
each (34.35p) (40.93p)
Loss for the year attributable to equity holders of the
parent from continuing operations - GBP000 (42,089) (49,830)
Weighted average number of ordinary shares in the year-
basic EPS 122,537,605 121,729,407
Weighted average number of ordinary shares in the year-
diluted EPS 122,537,605 121,729,407
----------------------------------------------------------- ------------ ------------
Discontinued
The following reflects the income and share data used in the
basic and diluted earnings per share including discontinued
operations:
Year ended Year ended
31 December 31 December
2020 2019
----------------------------------------------------------- ------------ ------------
Basic loss per share - ordinary shares of 0.002 pence each (43.37p) (41.26p)
Diluted loss per share - ordinary shares of 0.002 pence
each (43.37p) (41.26p)
Loss for the year attributable to equity holders of the
parent - GBP000 (53,149) (50,226)
Weighted average number of ordinary shares in the year-
basic EPS 122,537,605 121,729,407
Weighted average number of ordinary shares in the year-
diluted EPS 122,537,605 121,729,407
----------------------------------------------------------- ------------ ------------
6 Acquisitions
Acquisition of GT Energy UK Limited
IGas entered into a sale and purchase agreement ("SPA") to
acquire GT Energy UK Limited ("GT Energy"), a developer of deep
geothermal heat projects onshore UK on 16 September 2020. GT
Energy's principal project is a 14MW deep geothermal project in the
Etruria Valley, Stoke-on-Trent. The project is anticipated to
supply zero carbon heat to the city of Stoke-on-Trent on a
long-term 'take or pay' contract ("TPA") with Stoke-on-Trent City
Council ("SoTCC"). It is anticipated that the heat will be supplied
through the SoTCC owned and operated district heating network,
which is undergoing installation.
Under the terms of the SPA, IGas made an initial payment of
GBP0.5 million (the "Initial Purchase Price") to the Sellers
satisfied in 2,222,223 IGas ordinary shares on completion by the
transfer of 1,844,637 shares held by IGas (not as treasury shares,
as defined under the AIM Rules) and allotment and issue of 377,586
shares based on an agreed share price of GBP0.225 per share. The
Initial Purchase Price was subject to an immaterial post-completion
adjustment following the preparation of completion accounts, and an
adjustment will be made against any additional consideration
payable upon satisfaction of future milestone events ("Milestone
Consideration") in accordance with the SPA.
The maximum consideration payable to the Sellers under the SPA
is GBP12.0 million and the ordinary shares of IGas which may be
issued under the SPA shall not exceed twenty-nine point nine per
cent (<=29.9%) of the fully diluted issued ordinary share
capital of IGas. In addition to the Initial Purchase Price, the
Company may be required to pay the Milestone Consideration - see
below. GT Energy has entered into a term sheet with Gravis Capital
Management Limited ("Gravis") which provides indicative and
non-binding terms, on behalf of Funds managed by Gravis, to fund a
significant proportion of the c. GBP20 million project through a
limited-recourse debt facility. Such provision of finance is
conditional on, inter alia, signature of the TPA by SoTCC and GT
Energy, agreement and execution of the financing documentation, the
completion of Gravis' due diligence and internal Gravis and
third-party approvals. GT Energy is currently engaged in advanced
negotiations with SoTCC in respect of the TPA.
The Company may be required to pay Milestone Consideration
upon:
(i) financial close, within five years of the date of the SPA
(the "First Milestone Longstop"), of a funding facility in respect
of GT Energy's principal project (described above) on terms
reasonably acceptable to the Company (the "First Milestone");
(ii) subject to completion of the First Milestone first delivery
of heat to the district heat network under the TP
(iii) subject to completion of the First Milestone, six months following (ii),
(iv) subject to completion of the First Milestone the first anniversary of (ii);
(v) the first of either (being the "Business Development Milestone"):
-- GT Energy securing a further geothermal project in the UK by
successfully completing certain key targets relevant thereto (as
set out in the SPA), within the earlier of (a) the fifth
anniversary of the date of the SPA, and (b) the second anniversary
of an announcement by the UK Government of a new RHI Scheme, or in
the reasonable opinion of the Company, equivalent scheme; or
-- One Thousand British Pounds (GBP GBP1,000) per full kW
electrical generating capacity installed, capped at GBP1 million
(for 1000kW or more) subject to and measured on the date upon
which, inter alia, validation of a planning application to allow
electricity generation at the primary project location, and
installation and successful commissioning of an electricity
generation plant which utilises excess heat from the primary
project, together with the ability to utilise such electricity to
supply the Project's electricity requirements, and / or connect to
a private wire or the national grid as the case may be.
The Milestone Consideration will be satisfied by the allotment
of ordinary shares in IGas, as is derived by, for each Seller,
dividing their proportion of the relevant Milestone Consideration
by: (a) in respect of ordinary shares in IGas to be allotted in
respect of the First Milestone: either (i) if the First Milestone
is satisfied within thirty (30) months of the date of the SPA, the
volume weighted average price of IGas' ordinary shares as derived
from the AIM section of the London Stock Exchange Daily Official
List ("VWAP"), on the one hundred and eighty (180) dealing days
preceding the date of the SPA ("First VWAP"), or (ii) if the First
Milestone is satisfied in the period falling on or after thirty
(30) months from the date of the SPA and before the First Milestone
Longstop, the VWAP on the thirty (30) dealing days preceding the
date of the satisfaction of the First Milestone ("Second VWAP");
(b) in respect of ordinary shares in IGas to be allotted in respect
of any other milestone (other than the Business Development
Milestone), either the First VWAP or Second VWAP as was applicable,
or would have been applicable to (as the case may be), to any
ordinary shares in IGas to be allotted under the First Milestone;
and (c) in respect of ordinary shares in IGas in respect of the
Business Development Milestone, the VWAP on the ninety (90) dealing
days preceding the date of satisfaction of the relevant Business
Development Milestone, with, in each case, the resulting number
being rounded down to the nearest whole share and subject to, inter
alia, admission to trading on AIM of the relevant shares.
Details of the consideration (Initial Purchase Price and
Milestone Consideration) and net assets acquired are as
follows:
GBP000
------------------------------------------------------------- -------
Amount settled in cash -
Fair value of Initial Purchase Price 500
Fair value of the Milestone Consideration 2,784
Fair value of the consideration transferred 3,284
Recognised amounts of identifiable assets and liabilities
at fair value
Property, plant and equipment 1
Intangible Assets- Development costs 3,223
Trade and trade receivables 18
Cash and cash equivalents 77
Trade and other payables (35)
------------------------------------------------------------- -------
Net identifiable assets and liabilities 3,284
------------------------------------------------------------- -------
The fair value of the consideration relating to the Initial
Purchase Price (GBP0.5 million) is based on 2,222,223 shares issued
at an agreed share price of 22.5p under the SPA.
The GBP2.8 million fair value of the Milestone Consideration
(contingent consideration liability) recognised on the acquisition
date has been calculated by determining the probability weighted
value of the Milestone payments and the fair value of IGas shares
issued to satisfy these payments. The calculation is based on an
internal assessment of the probability of the milestones being
achieved and of the inputs to the economic model which determines
the level of the consideration for each milestone in accordance
with the SPA. The probability weighted Milestone payments were
discounted using a WACC of 8.3%. The resulting consideration amount
was divided by the First VWAP (28.09p) to calculate the estimated
number of shares to be issued as management have assumed that the
First Milestone would be satisfied within 30 months of the date of
the SPA. The estimated number of shares to be issued was then
multiplied at a share price of 12.6p, being the IGas share price as
at acquisition date (which is reflective of the estimated fair
value of IGas shares), resulting in the estimated fair value of the
Milestone Consideration of GBP2.8 million. The estimated fair value
of the Milestone Consideration will be reviewed at each year end
and any changes recognised in the income statement.
Acquisition related costs amounting to GBP0.2 million have been
recognised as an expense in the consolidated income statement, as
part of administrative expenses.
7 Intangible assets
2020 2019
----------------------------------------- -----------------------------------------
Exploration Exploration
and evaluation Development and evaluation Development
assets costs Total assets costs Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------------- ---------------- ------------ --------- ---------------- ------------ ---------
At 1 January 41,455 - 41,455 89,282 - 89,282
Acquisitions (note
6) - 3,223 3,223 - - -
Additions 2,090 67 2,157 3,984 - 3,984
Transfers from held
for sale - - - 342 - 342
Changes in decommissioning* (57) - (57) 1,775 - 1,775
Amounts written-off (67) - (67) (53,928) - (53,928)
---------------------------- ---------------- ------------ --------- ---------------- ------------ ---------
At 31 December 43,421 3,290 46,711 41,455 - 41,455
---------------------------- ---------------- ------------ --------- ---------------- ------------ ---------
*The decommissioning asset decreased in line with the
decommissioning liability following a review of the estimate at 31
December 2020 ( note 11).
Exploration and evaluation assets
In November 2019, the UK Government announced an effective
moratorium on fracking in Britain, based on analysis of one well in
the North West by the Oil and Gas Authority ("OGA"), until new
scientific evidence is provided in respect of the impacts of
seismicity during the process of hydraulic fracturing. Management
has been working and will continue to work closely with the
relevant regulators to demonstrate that the Group can operate
safely and environmentally responsibly. During the year, we also
continued the interpretation of the Springs Rd well results and
re-interpreted the 3D seismic data acquired in the Springs Road
area in 2014.
Exploration and evaluation costs written off were GBP0.1 million
(31 December 2019: GBP53.9 million). Following an impairment review
in 2019, the Group impaired in full those assets outside our core
area where the Group does not have plans in the near-term to
continue exploration or development activities. The impairment
comprised GBP51.8 million related to licences in the North West,
primarily PEDL145 (Doe Green), PEDL 193, PEDL147 and PEDL 189 where
the previously capitalised assets have been written off in full;
and GBP0.8 million related to PEDL 146, EXL 288 and 56-1 in the
East Midlands where relinquishment of the licences are planned in
2020/2021. The balance relates to exploration costs on a number of
other licences outside our core area. Management continually review
the Group's acreage positions and will seek to relinquish non-core
licences or impair licences where the carrying value cannot be
supported.
Further analysis by location of assets is as follows:
North West: The Group has GBP6.1 million (2019: GBP5.9 million)
of capitalised exploration expenditure relating to Ellesmere Port
where IGas has lodged an appeal against the decision made by
Cheshire West and Chester Council's Planning and Licensing
Committee to refuse planning consent for routine tests on a rock
formation encountered in the Ellesmere Port-1 well. The Secretary
of State has recovered the appeal and we are awaiting the outcome.
As the outcome is still undetermined and the North West acreage
continues to be an area of focus for the Group, it is appropriate
to keep the carrying value of the asset capitalised.
East Midlands: The Group has GBP32.8 million (2019: GBP31.6
million) of capitalised exploration expenditure relating to our
core area in the Gainsborough Trough which includes PEDL's 12, 139,
140, 169, 200 and 210. The Gainsborough Trough is an area with
significant shale potential. Following the moratorium on fracking,
we continue to work with the OGA, BEIS and No 10 Policy Unit to
demonstrate that we can develop shale in this area in a safe
manner. Our discussions have focused on the new science that would
be brought forward on a sector wide and site-specific basis that
would allow the moratorium to be lifted. We are doing this in
conjunction with our joint venture partners and the work is ongoing
at present.
Conventional assets: The Group has GBP4.5 million (2019: GBP4.0
million) of capitalised exploration expenditure on conventional
assets which includes PEDL 235 and PL 240. The Group spent GBP0.6
million during the year progressing exploration opportunities on
conventional assets.
At 31 December 2020, the Group has a combined carried gross work
programme of up to $ 218.0 million (GBP 160.0 million) (2019:
$214.0 million (GBP161.0 million)) from its partner, INEOS Upstream
Limited. In 2020, GBP0.4m (2019: GBP7.3 million) gross costs were
carried, principally in relation to activities at and Springs Road,
which have not been included in the additions to intangible
exploration and evaluation assets during the year.
Development costs
Development costs relate to assets acquired as part of the GT
Energy UK Limited acquisition as explained in note 6. The costs
relate to the design and development of deep geothermal heat
projects in the United Kingdom, with the principal project being at
Etruria Valley, Stoke-on-Trent.
The Group reviewed the carrying value of development costs as at
31 December 2020 and assessed it for impairment. No impairment was
required for the year (2019: GBPnil).
8 Property, plant and equipment
2020 2019
------------------------------------- -------------------------------------
Other Other
Oil and property, Oil and property,
gas plant gas plant
assets and equipment Total assets and equipment Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- --------------- --------- --------- --------------- ---------
Cost
At 1 January 197,875 3,660 201,535 154,649 2,871 157,520
Additions 5,212 1 5,213 5,491 10 5,501
Disposals (117) (710) (827) (118) - (118)
Changes in decommissioning* 6,255 - 6,255 5,908 - 5,908
Transfers from assets
held for sale - - - 31,945 779 32,724
------------------------------ --------- --------------- --------- --------- --------------- ---------
At 31 December 209,225 2,951 212,176 197,875 3,660 201,535
------------------------------ --------- --------------- --------- --------- --------------- ---------
Accumulated Depreciation
and Impairment
At 1 January 94,940 2,063 97,003 65,002 1,115 66,117
Charge for the year 4,875 151 5,026 7,688 258 7,946
Disposals (117) (710) (827) (117) - (117)
Impairment 38,535 - 38,535 - - -
Transfers from assets
held for sale - - - 22,367 690 23,057
------------------------------ --------- --------------- --------- --------- --------------- ---------
At 31 December 138,233 1,504 139,737 94,940 2,063 97,003
------------------------------ --------- --------------- --------- --------- --------------- ---------
NBV at 31 December 70,992 1,447 72,439 102,935 1,597 104,532
------------------------------ --------- --------------- --------- --------- --------------- ---------
*The decommissioning asset increased in line with the
decommissioning liability following a review of the estimate at 31
December 2020 ( note 11).
Expenditure during the year related to the Welton and Scampton
North waterflood projects and continued investment in our assets to
increase or maintain production rates.
Impairment of oil and gas properties
The COVID-19 pandemic developed rapidly in 2020, with a
significant number of cases worldwide. Measures taken by various
governments to contain the virus affected global economic activity
and resulted in a significant reduction in demand for oil and,
therefore, in oil prices. The decline in oil prices in first half
of 2020 and the uncertainty surrounding the pandemic triggered an
impairment review of oil and gas properties as at 30 June 2020.
Although the oil price improved towards the end of the year,
management identified impairment triggers due to the significant
uncertainty as to how COVID-19 and its aftermath would impact
economies, oil demand and oil price over the near and mid-term.
Therefore, management carried out a further review of oil and gas
properties for impairment as at 31 December 2020 which resulted in
an additional impairment of GBP3.9 million. The impairment review
performed at 31 December 2019 did not result in any impairment.
Cash generating units (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, South and
Scotland was prepared on a fair value less costs of disposal basis
using discounted future cash flows based on 2P reserve profiles.
The future cash flows were estimated using the following key
assumptions:
31 December 2020 30 June 2020 31 December 2019
Oil Price (Brent) $50-$55/bbl for the years $45-55/bbl for the years $60/bbl for the years
2021-2022 and $60/bbl 2020-2022 and $60/bbl 2020-2024 and $70/bbl
thereafter thereafter thereafter
USD/GBP foreign exchange rate $1.37:GBP1.00 for 2021 and $1.32:GBP1.00 $1.35:GBP1.00
$1.35:GBP1 thereafter
Post-tax discount rate 8.3% 8.3% 8.5%
--------------------------- ---------------------------- ----------------------------
Outcome of impairment reviews
The reduction in oil price in 2020 resulted in an impairment
charge of GBP21.9 million in the North CGU, GBP11.9 million in the
South CGU and GBP0.9 million in the Scotland CGU giving a total
impairment charge of GBP34.6 million for the period to 30 June
2020. At 31 December 2020, although oil prices had improved, an
additional GBP3.9 million impairment charge was recognised on the
North CGU at 31 December 2020 primarily due to the weakening of the
US Dollar compared to British Pound Sterling in the second half of
2020 offset by an increase in 2P reserves based on the latest
Competent Persons Report ("CPR"). This resulted in a total
impairment of GBP38.5 million in the year (2019: 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. The additional impairment that would
result from changes to the key assumptions are shown below for the
North CGU. There is no additional impairment in any of these
scenarios in the South CGU and Scotland CGU:
CGU 10% reduction 10% reduction USD/GBP foreign Discount
in price in production exchange rate @
rate @1.4 9.3%
GBP'million GBP'million GBP'million GBP'million
-------------- --------------- ---------------- ------------
North (9.6) (9.8) (3.2) (2.3)
-------------- --------------- ---------------- ------------
The sensitivity analysis above does not take into account any
mitigating actions available to management should these changes
occur.
In addition, management considered the impact of climate change
on the value of the Group's conventional assets. Assessing the
impact is difficult and very subjective. However, management have
assumed that this might result in lower oil prices or increased
costs in the medium term and have therefore calculated a
sensitivity based on a reduced price of GBP50/bbl from 2030 onwards
and a cessation of production after 2050. This would result in an
additional impairment of GBP4.1 million for the North CGU, nil for
the South CGU and nil for the Scotland CGU (2019: GBP7.9 million
for the North CGU, GBP1.3 million for the South CGU and GBP0.1
million for the Scotland CGU).
Transfers from assets held for sale
In May 2018, the Group announced the potential sale of certain
non-core assets to Onshore Petroleum Limited (OPL) subject to OGA
consent. The OGA did not give their consent to the proposed
transaction and the Group has not agreed an alternative transaction
with OPL. Assets and liabilities which were recognised as held for
sale in 2018 have therefore been re-classified back to their
respective balance sheet categories during the prior year.
9 Cash and cash equivalents
31 December 31 December
2020 2019
GBP000 GBP000
------------------------- ----------- -----------
Cash at bank and in hand 2,438 8,194
------------------------- ----------- -----------
The cash and cash equivalents do not include restricted
cash.
Restricted cash
31 December 31 December
2020 2019
GBP000 GBP000
------------ ----------- -----------
Non-current 410 410
------------ ----------- -----------
The restricted cash represents restoration deposits paid to
Nottinghamshire County Council which serve as collateral for the
restoration of drilling sites at the end of their life. The
restoration deposits are subject to regulatory and other
restrictions and are therefore not available for general use of the
Group.
Net debt reconciliation
31 December 31 December
2020 2019
GBP000 GBP000
--------------------------------------------------------------------- ---------------------- -------------------
Cash and cash equivalents 2,438 8,194
Borrowings - including capitalised fees (13,695) (13,071)
--------------------------------------------------------------------- ---------------------- -------------------
Net debt (11,257) (4,877)
Capitalised fees (937) (1,272)
Net debt excluding capitalised fees (12,194) (6,149)
--------------------------------------------------------------------- ---------------------- -------------------
2020 2019
----------------------- -------------------------------------------- -------------------------------------------
Cas h and cash Cas h and cash
equivalents Borrowings Total equivalents Borrowings Total
----------------------- ---------------------- ---------- -------- ---------------------- ---------- -------
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
At 1 January 8,194 (13,071) (4,877) 15,112 (20,980) (5,868)
Repayment of bond - - - (21,355) 21,355 -
Interest paid on
borrowings (940) - (940) (2,021) - (2,021)
Drawdown of RBL (note
10) 5,544 (5,544) - 19,319 (19,319) -
Capitalised fees - - - (1,059) 1,308 249
Repayment of RBL (note
10) (4,645) 4,645 - (4,639) 4,639 -
Foreign exchange
adjustments (836) 610 (226) (307) 645 338
Other cash flows (4,879) - (4,879) 3,144 - 3,144
Other non-cash
movements - (335) (335) - (719) (719)
At 31 December 2,438 (13,695) (11,257) 8,194 (13,071) (4,877)
----------------------- ---------------------- ---------- -------- ---------------------- ---------- -------
10 Borrowings
31 December 2020 31 December 2019
------------------------------ ------------------------------
Current Non-current Total Current Non-current Total
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------------------------------------------- ------- ----------- -------- ------- ----------- --------
Reserve Based Lending Facility (RBL) - secured - (13,695) (13,695) - (13,071) (13,071)
----------------------------------------------- ------- ----------- -------- ------- ----------- --------
Reserve Based Lending facility
On 3 October 2019, the Company announced that it had signed a
$40.0 million RBL Facility with BMO Capital Markets (BMO). In
addition to the committed $40.0 million RBL, a further $20.0
million is available on an uncommitted basis, and can be used for
any future acquisitions or new conventional developments. The RBL
has a five-year term, an interest rate of LIBOR plus 4.0%, matures
in September 2024 and is secured on the Company's assets. The RBL
is subject to a semi-annual redetermination in May and November
when the loan availability will be recalculated taking into account
forecast commodity prices, remaining field reserves (assessed by an
independent reserves auditor annually) and the latest forecast of
operating and capital costs. As at 31 December 2020, the Group had
successfully completed the November 2020 redetermination which
confirmed an available facility limit of $31.7 million.
Under the terms of the RBL, the Group is subject to a financial
covenant whereby, as at 30 June and 31 December each year, the
ratio of Net Debt at the period end to Earnings before Interest,
Tax, Depreciation, Amortisation and Exceptional items (the
"EBITDAX" as defined in the RBL agreement) for the previous 12
months shall be less than or equal to 3.5:1.
A loss of GBP0.7 million arising from debt re-financing was
recognised for the year ended 31 December 2019.
Collateral against borrowing
A Security Agreement was executed between BMO and IGas Energy
plc and some of its subsidiaries, namely; Island Gas Limited,
Island Gas Operations Limited, Star Energy Weald Basin Limited,
Star Energy Group Limited, Star Energy Limited, Island Gas
(Singleton) Limited, Dart Energy (East England) Limited, Dart
Energy (West England) Limited, IGas Energy Development Limited,
IGas Energy Enterprise Limited, Dart Energy (Europe) Limited and
IGas Energy Production Limited.
Under the terms of this Agreement, BMO have a floating charge
over all of the assets of these legal entities, other than
property, assets, rights and revenue detailed in a fixed charge.
The fixed charge encompasses the Real Property (freehold and/or
leasehold property), the specific petroleum licences, all
pipelines, plant, machinery, vehicles, fixtures, fittings,
computers, office and other equipment, all related property rights,
all bank accounts, shares and assigned agreements and rights
including related property rights (hedging agreements, all assigned
intergroup receivables and each required insurance and the
insurance proceeds).
11 Provisions
2020 2019
-------------------------------------------- --------------------------------------------
Decommissioning Contingent Decommissioning Contingent
provisions consideration Total provisions consideration Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ---------------- --------------- --------- ---------------- --------------- ---------
At 1 January (55,101) - (55,101) (37,946) - (37,946)
Acquisitions (note
6) - (2,784) (2,784) - - -
Utilisation of
provision 946 - 946 1,760 - 1,760
Unwinding of discount
(note 3) (1,466) (60) (1,526) (1,310) - (1,310)
Reassessment of
decommissioning
provision (note
7 and note 8) (6,198) - (6,198) (7,683) - (7,683)
Changes in fair
value of contingent
consideration - (180) (180) - - -
Transfer from
liabilities
held for sale - - - (9,922) - (9,922)
---------------------- ---------------- --------------- --------- ---------------- --------------- ---------
At 31 December (61,819) (3,024) (64,843) (55,101) - (55,101)
---------------------- ---------------- --------------- --------- ---------------- --------------- ---------
Decommissioning provision
The Group spent GBP0.9 million on decommissioning activities
during the year (2019: 1.8 million).
Provision has been made for the discounted future cost of
abandoning wells and restoring sites to a condition acceptable to
the relevant authorities. This is expected to take place between 1
to 37 years from year-end (2019: 1 to 35 years). The provisions are
based on the Group's internal estimate as at 31 December 2020.
Assumptions are based on the current experience from
decommissioning wells which management believes is a reasonable
basis upon which to estimate the future liability. The estimates
are reviewed regularly to take account of 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.
A risk free rate range of 1.20 % to 3.00 % is used in the
calculation of the provision as at 31 December 2020 (2019: Risk
free rate range of 1.27% to 3.03%).
Sensitivity of changes in assumptions
Management performed sensitivity analysis to assess the impact
of changes to the risk free rate on the Group's decommissioning
provision balance. A 0.5% decrease in the risk free rate assumption
would result in an increase in the decommissioning provision by
GBP3.9 million.
Contingent consideration
The carrying value of contingent consideration relates to GT
Energy acquisition as explained in note 6. The change in fair value
is primarily related to the increase in fair value of IGas plc
shares between acquisition date and year ended 31 December 2020 as
the consideration is payable in shares.
Sensitivity of changes in assumptions
The principal assumptions in calculating the fair value of
contingent consideration is the probability assigned to Milestone
payments and the share price at valuation date. Management
performed sensitivity analysis to assess the impact of changes to
the key assumptions. An increase in the probability of the scenario
which would result in the maximum pay out by 5% would result in an
increase in the contingent consideration provision by GBP0.3
million. An increase in the share price at valuation date by 10%
would result in an increase in the contingent consideration
provision by GBP0.2 million.
12 Discontinued operations
The divestment of assets acquired as part of the Dart
Acquisition, namely the Rest of the World segment, was completed in
2016. The Group still has a presence in a small number of
Australian and Singaporean registered operations and continues its
plans to exit all legal jurisdictions in the near future. During
the year ended 31 December 2020, a number of these overseas dormant
subsidiaries have been struck off or liquidated. The total loss
after tax in respect of discontinued operations was GBP11.1 million
primarily due to the recycling of the currency translation reserve
on liquidation/strike off (2019: loss after tax from discontinued
operations of GBP0.4 million, primarily relating to administration
costs). Tax on discontinued operations during the year was nil
(2019: GBPnil).
Effect of liquidation/strike off on the financial
statements:
31 December
2020
GBP000
------------------------------------------------------------------------------------- ------------
Other receivables 2
Cash and cash equivalents (9)
Other payables 56
------------------------------------------------------------------------------------- ------------
Net assets and liabilities disposed 49
------------------------------------------------------------------------------------- ------------
Disposal consideration -
------------------------------------------------------------------------------------- ------------
Translation reserve re-classification to income statement on liquidation/strike off (10,781)
------------------------------------------------------------------------------------- ------------
Loss on liquidation/strike off charged to the income statement (10,732)
------------------------------------------------------------------------------------- ------------
13 Subsequent events
On 27 January 2021, the Group issued 338,277 Ordinary GBP0.00002
shares in relation to the Group's SIP scheme. The shares were
issued at GBP0.0925 resulting in share premium of GBP31,291.
On 4 February 2021, the Parent company of the Group, IGas plc,
changed its registered address from 7 Down Street, London W1J 7AJ
to the Welton Gathering Centre, Barfield Lane Off Wragby Road,
Sudbrooke, Lincoln, England, LN2 2QX.
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
CCC Committee on Climate Change
GIIP Gas initially in place
Mbbl Thousands of barrels
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
OIIP Oil initially in place
PEDL United Kingdom petroleum exploration and development
licence.
PL Production licence
SoS Secretary of State
RoSPA Royal Society for the Prevention of Accidents
Tcf Trillions of standard cubic feet of gas
UK United Kingdom
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END
FR DKABNDBKBDQK
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April 07, 2021 02:00 ET (06:00 GMT)
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