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LONDON (Alliance News) - Europa Oil & Gas (Holdings) PLC on Thursday said the fall in oil prices and a drop in production made its operations unprofitable in the first half of the year, but said the Wressle discovery will more than double production and lower costs in the second half of the year.
The European-focused oil and gas company operating in the UK, Ireland and France reported a GBP577,000 pretax loss in the six months to the end of January, narrowing from the GBP1.4 million loss reported in the same period a year earlier.
That result came despite revenue in the first half dropping to GBP624,000 from GBP1.3 million, as the absence of a GBP1.1 million impairment booked a year earlier and the fact that administrative costs almost halved year-on-year led to Europa's pretax loss shrinking.
Notably, Europa's operations remained unprofitable, delivering a gross loss of GBP141,000 compared to the GBP759,000 gross loss a year earlier.
Although that gross loss in the most recent half came simply because its cost of sales were higher than its revenue, the wider gross loss the prior year was driven by impairments and would have been a gross profit of GBP341,000 if no impairments were booked - demonstrating its operations were profitable before exceptional items last year.
Europa was no exception to the downturn in oil prices in the period, but also reported lower production of 124 barrels of oil equivalent per day compared to the 145 barrels per day a year earlier. All of its production currently comes from three onshore fields in the UK, which are suffering from natural decline, causing that 14% year-on-year fall in production.
However, the second half of the year should be considerably better, as Europa Chief Executive Hugh McKay said production is expected to double in the second half of the year, implying second half production will run at around 250 barrels of oil equivalent per day.
The growth in production is coming from Europa's UK Wressle discovery, which is operated by fellow London-listed Egdon Resources PLC, with Europa holding a 33% stake. Wressle will join the existing producing fields in Europa's portfolio: West Firsby, Crosby Warren and Whisby-4.
Europa wholly owns and operates two of those producing fields, and holds a 65% stake in Whisby-4, which it does not operate.
Once Wressle is producing, Europa will have interests in five exploration-stage licenses in the UK, boosted by three new onshore licenses secured under the recently held licensing round, three exploration licenses in Ireland and three further licenses in France.
Europa has decided to progress the development of Wressle, and also has secured planning permission for the Holmwood licence in the UK, where it is preparing to drill in search of the 5.6 million barrels of oil equivalent that have been classed as unrisked prospective resources.
"As well as providing a significant boost to our revenues, we expect that Wressle will reduce our break-even oil price to approximately USD30 per barrel," said Europa.
To put that into perspective, Brent was trading a touch under USD40 a barrel on Thursday.
When four tests were carried on Wressle, the discovery flowed at an aggregate rate of 710 barrels of oil equivalent per day from three conventional sandstone reservoirs.
Europa said it expects Wressle to deliver production of around 500 barrels of oil equivalent per day, which Europa believes is sufficient to return the company to positive cashflow. Importantly, only around 167 barrels per day would be net to Europa based on its stake in the licence that holds the discovery.
That implies Wressle will push the company's production rate up to around 290 to 291 barrels of oil equivalent per day from the 124 barrels a day reported in the first half, suggesting the production rate will be around 1.3 times higher than current rates.
However, Europa has still not secured planning permission to drill Wressle, meaning it is still waiting for approval before drilling can commence.
"In the UK, with Wressle moving from prospect to discovery, we are poised to see an increase in production, revenue and cash-flow, which should coincide with work preparing for the exploration well at Holmwood," said Chairman Colin Bousfield.
Europa reported a cash balance of GBP1.8 million at the end of January, falling from GBP3.2 million at the end of July 2015. However, Europa remains debt free and said its position will allow for "excellent cashflow generation" to fund the development of its vast array of exploration licenses.
On the exploration front, Europa plans to focus on its three licenses offshore Ireland, the Holmwood prospect which lies near to the Horse Hill prospect which is nearing commercial production, as well as the three new UK licenses secured under the recent licensing round, two of which have already be proven to hold hydrocarbons.
Europa shares were trading up 2.9% to 6.30 pence per share on Thursday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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