(Sharecast News) - Igas Energy updated the market on its operations on Thursday, as well as measures being implemented to further materially reduce its cost base.
The AIM-traded firm said that on 1 May, when the oil price was trading at around $25 per barrel, it took the "prudent decision" to temporarily shut-in a number of sites during May and June, as that had a positive impact on cash flow.
It said the shut-in sites had continued to be under review, with the company deciding, in light of the recent oil price improvement and further clarity on furlough, to return nine fields to production and effect a reduction in the numbers of employees on furlough.
The remaining six shut-in fields, alongside the Albury gas-to-grid asset, accounted for around 320 barrels of oil equivalent per day.
Igas said it would continue to keep those sites under review in light of commodity prices, among other things.
Additionally, during the ongoing Covid-19 lockdown period, the board said the firm had been and continued to be impacted by supply chain interruptions, resource availability constraints and well servicing issues.
Igas estimated that the resulting project delivery delays, and lower productivity levels, would have an annualised impact of around 150 barrels of oil equivalent per day.
Taking those elements into consideration, the company said its current expectation for 2020 production was in the range of 1,850 to 2,050 barrels of oil equivalent per day.
Igas said that, in light of the ongoing uncertainty and difficulty in its markets, it had undertaken an in-depth review of costs.
During the first five months of the year, cost reductions of around £0.6m were achieved on an annualised basis, compared to the year ended 31 December.
Igas said it was now undertaking further cost reduction measures, including a redundancy programme, salary replacement for the board and senior executives, and a proposed reduction in benefits across the organisation.
While those measures reduced its costs, the board said it was also seeking to ensure the retention of key capabilities and experience in the business.
The salary replacement initiative would consist of a 15% reduction in monthly salary paid, with a replacement to be awarded in nil cost options, save for one of the non-executive directors, whose entire monthly fee would be replaced with the issue of shares on a quarterly basis, for the rest of 2020, to Unconventional Energy - the relevant shareholder of Igas.
It said the options would be granted and exercised on a monthly basis, with the exception of persons discharging managerial responsibility who would exercise less frequently.
The temporary salary replacement would be reviewed by the board "periodically".
Igas said those measures were expected to reduce costs by a further £1m so that from the end of September, its gross cash savings as compared to 2019 were expected to be around £1.6m per year.
It said the one-off cost of implementing the measures was around £0.55m, which would be incurred in 2020.
In addition to those measures, particularly given the way in which the business had been able to react with a number of staff working effectively from home, the company said it would exercise the break notice in the lease agreement for its London office at the earliest opportunity, which would be towards the end of September.
"I am extremely pleased with how all the teams have pulled together in these challenging times and how we have reacted to rapidly changing working practices and market conditions," said chief executive officer Stephen Bowler.
"I would like to thank each and every one of our staff for their professionalism and hard work in these exceptional and difficult circumstances, and it is with regret that we have had to conduct a redundancy exercise.
"Like many other organisations across all sectors of the economy, we need to preserve cash and however difficult the decision, these are unfortunately very necessary steps which we need to take to be as well placed as possible for the future."
At 1223 BST, shares in Igas Energy were up 0.28% at 21.56p.
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