RBD Reabold Resources Plc

31 May 2024

Reabold Resources plc

("Reabold" or the "Company")

Full Year Results for the year ended 31 December 2023

Reabold Resources plc, the investing company focussed on developing strategic gas projects for European energy security, today announces its audited financial results for the year ended 31 December 2023 and the Annual Report is publicly available at www.reabold.com/investors/reports-presentations/.

Reporting period ended 31 December 2023 Highlights

Portfolio developments

·    Acquisition of a 26.1% interest in LNEnergy Limited ("LNEnergy"), built in stages throughout 2023 for a total consideration of £4.3m (£1.9 million of which was in cash and the balance in 1,297,297,298 new Reabold shares). LNEnergy's primary asset is an exclusive option over a 90% interest in the Colle Santo gas field, a highly material gas resource with an estimated 65bcf of 2P reserves, with two production wells already drilled and a development-ready field, subject to approvals and permits. Financing and approvals are progressing well for the liquified natural gas ("LNG") field development.

Reabold has a 42% shareholding in Daybreak Oil and Gas Inc ("Daybreak"). Daybreak is an OTC traded oil and gas company engaged in the exploration, development and production of onshore crude oil and natural gas, primarily in California. Further details on Daybreak can be found on its website at www.daybreakoilandgas.com/.

Financial review          

Group Income Statement

The Group's loss for the year ended 31 December 2023 was £7.2 million (2022: £45,000).

The Group incurred a loss of £2.7 million on financial assets (2022: £1.9 million) The loss primarily arose from a decline in the market value of Daybreak's shares (£3.5 million), partly offset by an increase in the fair value of contingent consideration receivable (£0.8 million) from the sale of Corallian in 2022.

Reabold's share of loss of associates was £0.6 million (2022: £1.6 million). The decrease was largely due to the absence of non-cash impairment charges which Corallian had incurred in 2022. See Note 15 for more information.

Reabold received cash proceeds of £5.2 million in 2023 related to the sale of Corallian to Shell in 2022, however the gain on this sale was recorded in 2022, when the sale completed, and as such no gains were recorded in the income statement in 2023.  In 2022, the net gains on sale of businesses of £5.0 million related to the gain on sale of Corallian (£7.3 million) offset by a loss on disposal of Reabold California (£2.3 million).

Exploration expenses of £1.6 million were incurred in 2023 (2022: £74,000). The increase in 2023 was principally related to exploration expenditure written off as a result of the relinquishment of several North Sea licences. See Notes 7 and 13 for further details.

Administrative expenses for the year were £2.2 million (2022: £1.7 million). The increase was mainly driven by an increase in legal fees in relation to the step acquisitions of LNEnergy, as well as inflationary impacts across the majority of suppliers.

In 2023, Reabold incurred £190,000 (2022: £191,000) in legal and professional fees, which Rebold has classified as non-underlying items, in relation to the successful defence from a second attempt, from a group of beneficial shareholders, to remove the entire Board of Directors of Reabold and replace them with four new directors. All resolutions proposed by the requisitioning shareholders were rejected at a general meeting held in January 2024 (2022: rejected at a general meeting held in November 2022).

Group Balance Sheet

Exploration and evaluation assets increased by £0.2 million from £6.8 million at 31 December 2022 to £7.0 million at 31 December 2023. Additions at West Newton of £0.3 million and the acquisition of four Southern North Sea licences for £1.2 million as part of the acquisition of Simwell Resources were offset by exploration write-offs of £1.4 million.   

Investments in associates increased from £22.3 million at year end 2022 to £26.1 million at year end 2023, primarily as a result of the step acquisitions of LNEnergy during the year. See Note 15 for further information.

Other long-term investments decreased by £3.5 million as a result of the decline in value of Daybreak's shares. Other short-term investments decreased from £8.7 million to £4.4 million following the receipt of £5.2 million of contingent consideration for the sale of Corallian to Shell in 2022. The movement in short-term investments also included favourable movements of £0.8 million due to the fair value accounting of contingent consideration. See Note 16 for further information.

The increase in share capital from £9.0 million to £10.6 million arose from shares issued as consideration for the acquisition of Simwell Resources Limited (£0.2 million) and shares issued as part of the investment into LNEnergy (£1.3 million). The decrease in the share premium account from £29.0 million to £1.1 million relates to a capital reduction of £29.4 million, offset by the premium on shares issued as part of the consideration for Simwell Resources Limited (£0.4 million) and the premium on shares issued as part of the investment in LNEnergy (£1.1 million). The capital reduction ensures the Company has sufficient distributable reserves to make distributions to shareholders.

Overall, net assets decreased from £46.5 million at 31 December 2022 to £42.2 million at 31 December 2023.

Group cash flow statement

Net cash used in operating activities was £2.2 million in 2023, compared with £1.8 million in 2022. The net cash used in operating activities was primarily driven by administration expenses of £2.2 million.

Cash flow from investing activities was an inflow of £2.3 million, compared with an inflow of £2.4 million in 2022. The cash flow from investing activities in 2023 included cash capital expenditure of £2.9 million (compared with cash capital expenditure of £0.7 million in 2022). The increase in cash capital expenditure was primarily driven by the acquisition of Simwell Resources Limited and the step acquisitions of LNEnergy. Divestment proceeds in 2023 were £5.2 million compared with £3.2 million in 2022 - both amounts relate to cash receipts from the sale of Corallian to Shell in 2022.  

Cash flow from financing activities in 2023 was an outflow of £0.3 million, compared with nil in 2022, due to the repurchase of shares in 2023.

Liquidity

Cash and cash equivalents were £5.4 million at 31 December 2023 (2022: £5.5 million). The Group has no debt.

Commitments

The Group does not have any signed contractual capital commitments as at 31 December 2023 (2022: nil), however the group does have obligations to carry out defined work programmes on its licences, under the terms of the award of rights to these licences. The Company is not obliged to meet other joint venture partner shares of these programmes.

PEDL 183

The joint operation between Rathlin, Reabold and Union Jack have a commitment to drill and test a new Kirkham Abbey deviated or horizontal appraisal well by June 2024. The joint venture has also committed to recomplete or sidetrack and test one of the WNA-1, WNA-2 or WNB-1Z wells in that same timeframe. The Company estimates its 16.67% share of costs for these commitments to be c.£2.2 million. Rathlin, the operator of PEDL183, is working with the NSTA to defer these commitments to allow the time necessary for Rathlin to obtain sufficient funding for its share of the commitments.

UK North Sea

Reabold estimates its share of firm exploration and appraisal work commitments on its North Sea portfolio to be c.£50,000 over the course of 2024. The Company has not yet taken a decision on whether to drill on any of its North Sea licences.

Principal risks and uncertainties

Reabold operates in an environment subject to inherent risks and uncertainties. The Board regularly considers the principal risks to which the Group is exposed and monitors any agreed mitigating actions. The overall strategy for the protection of shareholder value against these risks is to carry a broad portfolio of assets with varied risk/reward profiles, and to retain adequate working capital. The risks faced by the Company can, and are likely to, change with progress in the Company's strategy and developments in the external business environment.

The risks discussed below, separately or in combination, could have a material adverse effect on the implementation of our strategy, our business, financial performance, liquidity, prospects, shareholder value and returns and reputation.

Environmental, Social and Governance (ESG) Statement

Reabold is committed to the highest standards of environmental, social and governance processes and we incorporate these responsibilities into our operational decision-making and investments. We regularly review our approach, policies, and processes across key areas.

At present Reabold does not 'operate' any of the assets in its portfolio. Our operational assets are managed by our associate companies who are responsible for the adequacy of standards, operations and compliance. The Group does not have any assets that are yet in the development or production stage and therefore the business has no scope 1 or scope 2 greenhouse gas emissions.

Environment

Reabold is committed to preserving and protecting our natural environment for future generations.

Reabold complies with the standards of the international oil industry, environmental laws and regulations. We recognise and support the basis of the Paris Agreement to strengthen the global response to the threat of climate change.

We support a balanced energy transition where the world maintains a secure and affordable supply of energy, while building the clean energy system of the future. Our focus is on minimising carbon emissions and the environmental footprint of the projects we invest in, whilst continuing to contribute positively to the demand for energy and products that require hydrocarbons in the supply chain. The pace of transition to a lower carbon economy and cleaner fuels is uncertain, and will be heavily influenced by government policy, but oil and natural gas demand is expected to remain a key element of the energy mix for many years based on stated government policies, commitments and announced pledges to reduce emissions. The challenge is to meet the world's energy needs sustainably and efficiently, which requires managing and reducing harmful emissions.

Reabold actively encourages and expects its investee companies / operators of its oil and gas interests to respond to this by continuously striving to minimise the potential environmental impact of operations by:

·      Implementing controls to identify and prevent potential environmental risks

·      Implementing controls during operations to avoid accidental spills, or leaks of polluting materials

·      Managing water with due consideration

·      Targeting high energy efficiency levels in drilling and other activities

·      Limiting unnecessary wastage

·      Handling waste products in an environmentally responsible manner

·      Regularly assessing the environmental consequences of operations

The operators have developed systems, controls and processes to integrate climate related considerations, in order to meet these objectives. For example one can read the approach and policies of Rathlin Energy, operator of the West Newton PEDL 183 licence, on its website at www.rathlin-energy.co.uk, and of LNEnergy, operator of the Colle Santo project in Italy, on its website at https://www.sviluppocollesanto.it/.

Focus on energy efficient extraction and drilling to reduce carbon intensity

Reabold's assets are primarily small to medium sized, proven oil and gas fields at relatively shallow depth. As such, the intensity of drilling required is considered low relative to industry standards and we do not conduct energy intensive prospecting activities, reducing the impact on the environment. We encourage the operators of our assets to use the most energy efficient drilling methods.  As the energy mix evolves towards a higher percentage of renewables in the countries in which we operate, we anticipate a greater share of our energy consumption will be purchased from green sources.

United Kingdom

Our investee company sites in the United Kingdom are located close to areas with a high demand for energy. Consequently, we expect that hydrocarbons produced locally and consumed locally will displace imported hydrocarbons thereby resulting in lower carbon emissions overall. This will provide greater security of supply to the UK as well as providing jobs and supporting UK industry, compared to the alternative of importing fuel. The COVID-19 pandemic highlighted the importance of our critical national infrastructure and, more recently, the war in Ukraine has been a stark reminder that energy security cannot be taken for granted.

We believe that natural gas has an important role to play in the energy transition, bridging the gap on the journey from fossil fuels to a renewable, zero-carbon future and helping to supply stable and affordable energy to UK homes and businesses as part of a lower-carbon energy supply mix. To that end, we continue to explore ways to invest in gas projects such as the Victory project, which was subsequently sold to Shell in November 2022, and the Colle Santo gas project in Italy.

Reabold takes its commitment to responsible hydrocarbon production very seriously. In May 2024, Reabold commissioned GaffneyCline to perform a carbon intensity study for the West Newton field. The GaffneyCline study highlighted the following:

·      The West Newton project has an AA rating for Carbon Intensity for its potential upstream gas and condensate production, the lowest possible carbon intensity rating category on GaffneyCline's scale

·      The West Newton field has a Carbon Intensity significantly lower than the UK average and onshore and offshore analogues. It is also significantly lower than the average imported LNG, based on the NSTA Natural Carbon Footprint Analysis published in July 2023

·      Based on the study, GaffneyCline estimates that West Newton could produce the equivalent of just 2.87 grams of CO2 per megajoule of energy developed (gCO2eq./MJ)

·      As the development proceeds and project knowledge increases, there is potential to improve the Carbon Intensity by further reducing fugitive, flaring and venting emissions and by gas-to-grid development, reducing on site gas and condensate processing, and using the shortest possible route to the National Grid

The AA rating demonstrates the low carbon credentials of the West Newton project and is an example of the opportunities available in the UK to power the country through lower carbon, home grown energy, rather than relying on expensive and more carbon intensive imports.

We believe West Newton is an important strategic asset to the UK as the country looks to secure domestic energy supply for secure and affordable energy, at a time when the country is exposed to potentially significant gas supply disruptions. The study proves that the operator, Rathlin, is a responsible hydrocarbon producer complying with best environmental practice to produce much needed UK hydrocarbons in the most efficient and environmentally friendly way possible.

Reabold is committed to the highest standards of environmental processes and we incorporate these responsibilities into our operational decision-making and investments.

Italy

The development plan for Colle Santo involves converting gas to LNG directly onsite using a small modular LNG processing unit. The LNG will be trucked a short distance (7 km) to an entry point into the SNAM transmission grid. There will be no new drilling due to two existing wells already drilled and tested. There will be on-site CO₂ capture of 1,400 tonnes CO₂ equivalent per year, and connected hydrogen production facilities.

LNG provides energy security and flexibility because it can be easily transported to places where it is needed most. LNG is a critical fuel in the energy transition and plays an important role as a lower-carbon alternative to coal for industry, and provides grid stability alongside wind and solar power in electricity generation. It is the lowest-carbon fossil fuel, producing around 50% less carbon emissions than coal when used to generate electricity.

Daybreak, USA

Daybreak's production sites are located in California, a state with very high renewable energy generation which feeds into the energy required for hydrocarbon extraction. By industry standards, Daybreak's oil and gas activities require a very low level of energy to extract the hydrocarbons, ensuring it is one of the most energy efficient of its type in California.

Romania

Romania has a diverse energy mix, including coal, natural gas, nuclear, hydroelectric, and renewable sources. The largest share of electricity production historically came from coal and natural gas, followed by hydroelectric and nuclear power. In recent years, there has been a shift towards increasing the share of renewable energy sources, such as wind and solar. However, Romania supports natural gas in the long-term in the European Green Deal because it forecasts that this resource will remain an important tool in changing the energy sector and transitioning to a more sustainable and carbon-free economy. By developing and producing gas from the Parta site, Danube Petroleum Limited will be able to contribute to the country's efforts to implement this energy strategy. In addition, options to exploit the geothermal potential of the Romanian part of the Pannonian Basin are under investigation with the authorities in combination with a subsurface review of the likely prospectivity.

Managing our environmental footprint and reducing our emissions are important objectives for Reabold Resources. We regularly review and revise our policies, as necessary.

Health & Safety

Reabold wishes to build value through developing sustainable relationships with partners and the community.

We comply with all applicable legislation; and design and manage our activities to prevent pollution, minimize environmental and health impact and provide workplaces free of safety hazards.

The Company is committed to high standards of health, safety and environmental protection; these aspects command equal prominence with other business considerations in the decision-making process.

Health, safety and environmental protection are responsibilities shared by everyone working for the Company and the full support of all staff, partners and contractors is vital to the successful implementation of the policy. We ensure, as far as reasonably practicable, that all personnel are aware of their delegated health, safety and environmental responsibilities and are properly trained to undertake these.

We strive for continuous improvement in our HSE performance and measure this by setting objectives and targets consistent with the aims of this policy.

HSE performance is routinely monitored and reported regularly to the Board of Directors, which will ensure that the necessary resources are provided to support this policy fully.

Governance

As an AIM-quoted company, Reabold is required to apply a recognised corporate governance code, demonstrating how the Company complies with such corporate governance code and where it departs from it.

The Directors of the Company have formally applied the 2018 QCA Code. The Board recognises the principles of the 2018 QCA Code, which focus on the creation of medium to long-term value for shareholders without stifling the entrepreneurial spirit in which small to medium sized companies, such as Reabold, have been created. Please see pages 25 to 30 for the Chair's corporate governance statement and how Reabold has applied the 10 principles of the 2018 QCA code.

Section 172(1) statement

In accordance with the requirements of Section 172 of the Companies Act 2006, the Directors consider that, during the financial year ended 31 December 2023, they have acted in a way that they consider, in good faith, would most likely promote the success of the Company for the benefit of the members as a whole, having regard to the likely consequences of any decision in the long term and the broader interests of other stakeholders, as required by the Act. The Board delegates day-to-day management of the business of the Company to the Co-CEOs, save for those matters which are reserved for the Board's approval. More information on how the Board has regard to the Section 172 factors are outlined below.

S172(1) (a) "The likely consequences of any decision in the long term" 

The Directors understand the business and both the evolving and challenging environment in which we operate, including the challenges of the global energy transition. The Board made decisions with regard to acquisitions and investments with consideration given to key stakeholders and the likely long-term impact of any decision. During the year, the Board reflected on the challenges to be faced by Reabold given the shifting macroeconomic and geopolitical context. Our strategy is intended to transition Reabold to an energy business focused on developing strategic European gas assets to secure European gas supply and energy security. The Board of Directors is collectively responsible for the decisions made towards the long-term success of the Company and the way in which the strategic, operational and risk management decisions have been implemented throughout the business is detailed in our Strategy and business model on page 4 and throughout the Strategic Report.

S172(1) (b) "The interests of the Company's employees" 

Reabold employees are fundamental and core to our business model and the delivery of our strategic ambitions. The future success of our business depends on attracting, retaining, developing and motivating talented employees.

We ensure that:

• Health, Safety and the Environment are considered paramount throughout the organisation.

• Annual pay and benefit reviews are carried out to determine whether all levels of employees are benefitting fairly and to retain and encourage skills vital for the business.

• There are freely available Company policies and procedures.

• Personal development reviews and work appraisals are conducted.

• Employees are informed of the results and important business decisions and are encouraged to feel engaged

• Working conditions are favourable

The Remuneration Committee oversees and makes recommendations of executive remuneration and any long-term share awards. In April 2023, we launched the Reabold Resources plc long-term incentive plan for our full-time senior management team. Reabold aims to invest in competitive rewards for our people.

S172(1) (c) "The need to foster the Company's business relationships with suppliers, customers and others" 

Delivering our strategy requires strong mutually beneficial relationships with suppliers, customers, governments, and joint-venture partners. We aim to have a positive and enduring impact on the communities in which we operate, through partnering with national and local suppliers, and through payments to governments in taxes and other fees.  The Group values all of its suppliers and aims to build strong positive relationships through open communication and adherence to trade terms.  The Group is committed to being a responsible entity and doing the right thing for its customers, suppliers and business partners. The Board upholds ethical business behaviour across all of the Company's activities and encourages management to seek comparable business practices from all suppliers and customers doing business with the Company. We value the feedback we receive from our stakeholders and we take every opportunity to ensure that where possible their wishes are duly considered. The Board engages with stakeholders to understand their priorities and concerns through a range of engagement activities. Meeting commitments made to investors is critical to building trust and confidence with our external stakeholders. Back in 2022, management made a commitment to improve communication with shareholders with stakeholder engagements at least every two months. This has taken the form of corporate presentations, interviews with the Co-CEOs and investor events. In 2023, we published 12 new videos on the media section of our website, including operational updates, investor presentations and Q&As. In Q1 2023 the Company launched a new website so that shareholders and other stakeholders can more easily navigate Company updates and communications. The website includes a Q&A page which answers some of the most common investor questions.    

The Co-CEOs provide a comprehensive update to the Board on material business and external developments at each main Board meeting. This includes significant operational updates, e.g. partnerships, investments, divestments, projects, commercial highlights and political or regulatory developments.

S172(1) (d) "The impact of the Company's operations on the community and the environment" 

This aspect is inherent in our strategic ambitions, most notably on our ambitions to thrive through the energy transition and to sustain a strong societal licence to operate. As such, the Board receives information on these topics to provide relevant information for specific Board decisions.  Executive Directors conduct site visits of various investee company operations and hold external stakeholder engagements, where feasible.

At present Reabold does not 'operate' any of the assets in its portfolio. Our operational assets are managed by our associate companies who are responsible for the adequacy of standards, operations and compliance. Reabold seeks to influence how risk is managed in arrangements where we are not operator by ensuring we have a member of the executive team on the Board of our associate companies. This gives Reabold assurance that operations are and will be carried out in a sustainable and safe manner.

Further information can be found within our ESG Statement on page 15, and within the principal risks and uncertainties section on page 12. 

S172(1) (e) "The desirability of the Company maintaining a reputation for high standards of business conduct" 

The Company is incorporated in the UK and governed by the Companies Act 2006. The Company has adopted the Quoted Companies Alliance ("QCA") Corporate Governance Code 2018 (the "2018 QCA Code") and the Board recognises the importance of maintaining a good level of corporate governance, which together with the requirements to comply with the AIM Rules ensures that the interests of the Company's stakeholders are safeguarded. Please see the Chair's Corporate Governance statement on pages 25 to 30. 

Reabold aims to contribute to Europe's energy security by unlocking potential sources of near-term domestic gas supply in economically, environmentally and socially responsible ways. The Board periodically reviews and approves clear frameworks, such as Reabold's Code of Conduct, and specific Ethics & Compliance policies, to ensure that its high standards are maintained both within Reabold and the business relationships we maintain. This, complemented by the various ways the Board is informed and monitors compliance with relevant governance standards help ensure its decisions are taken, and that Reabold investee companies act, in ways that promote high standards of business conduct. 

S172(1) (f) "The need to act fairly as between members of the Company" 

The Directors consider which course of action best enables delivery of our strategy in the long-term interest of the Company. The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. The Company has close ongoing relationships with its shareholders - engaging with both retail and institutional holders during 2023. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback at meetings with the Company. All shareholders are encouraged to attend the Company's Annual General Meeting and any general meetings held by the Company, which present an opportunity for shareholders to speak with the Executive Directors in a formal environment and in more informal one to one meetings.

The primary communication tool with our shareholders is through the Regulatory News Service ("RNS") on regulatory matters and matters of material substance. The Company's upgraded website, launched in March 2023, provides details of the business, investor presentations and details of the Board, changes to major shareholder information and 2018 QCA Code disclosure updates under AIM Rule 26. Changes are promptly published on the website to enable the shareholders to be kept abreast of Company's affairs. The Company's Annual Report and Notice of Annual General Meetings are available to all shareholders. The Interim Report and investor presentations are also available on our website. 

Investor events are held with shareholders throughout the year. By providing a variety of ways to communicate with investors the Company feels that it reaches out to engage with a wide range of its stakeholders. 

Principal decisions

The Board delegates day-to-day management of the business of the Company to the Co-CEOs. The responsibility for the execution of this delegation of authority, including regularly monitoring it, is retained by the Board. We outline some of the principal decisions made by the Board over the year, and how directors have performed their duty under Section 172.

Cash allocation including shareholder distributions

Following the completion of the sale of Corallian in November 2022 along with the receipt of the first tranche payment from Shell, the board considered cash flow, the macro environment and business performance in 2023. The Directors approved a share buyback programme in April 2023 with the aim of delivering value to shareholders. The Directors considered its ordinary shares to be undervalued and at a meaningful discount to conservatively estimated per-share intrinsic value.

A number of considerations underpinned the decision to commence the buyback programme including feedback from advisors and other stakeholders, the strength of the Company's balance sheet and the need to continue to invest in our assets. 

Investment in LNEnergy

Over the course of the year, the Board considered and approved new opportunities and investments. The Board reviewed various proposals and their alignment with Reabold's strategy.  During 2023, the Board approved the accumulation of a 26.1% interest in LNEnergy, whose primary asset is an exclusive option over a 90% interest in the Colle Santo gas field onshore Italy. The Board agreed the investment was in line with Reabold's strategy to develop high quality strategic European gas assets with near-term production potential that can generate shareholder value. LNEnergy's primary asset is an option over a 90% interest in the Colle Santo gas field, onshore Italy in the Abruzzo region. The Colle Santo gas field is a highly material gas resource with 65Bcf of 2P reserves, as estimated by RPS as of 30 September 2022, and subject to the necessary approvals and permits, is development ready with no additional drilling required. LNEnergy believes that the field has the potential to generate an estimated €11-12m of gross post-tax free cash flow per annum. On 1 May 2024 a non-binding Heads of Agreement between Gunvor and LNEnergy for the purchase of LNG by Gunvor from LNEnergy from the Colle Santo gas field was executed.  First production from the LNG project expected in 2025.

Strategic Report signed on behalf of the Board

Chris Connolly

Company Secretary

May 30, 2024