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The fears that the sidetrack won’t succeed are very much overdone.

On December 19th 2022, in the RNS announcing the successful fund raise, George Lucan, CEO, commented: "The sidetrack well SF-07 is now drilled and cased right up to and into the target Westphalian gas bearing reservoir. The most risky part of the drilling programme is now behind us with the section most prone to hole collapses, which has been problematic on many previous sidetracks, now fully secured and cased. We look forward to completing the final horizontal open hole section in the first two weeks of January and reporting flow tests immediately thereafter.

Not only do we have his opinion on that, but also the opinion of the investors who supported the fund raise and presumably satisfied themselves before handing over millions of pounds of their own money that Mr Lucan’s statement was correct.

Obviously it’s a nuisance that two months later we’re still on that final horizontal open hole section, but there’s always a risk that things will take longer than expected when it comes to drilling and when you invest in a company concentrating on just one asset that risk is all the greater. However, the greater the risk, the greater the reward.

Balcombe has already been drilled. They have a well and they’ve run a short term test on it (which generated oil). Now they want to run a long term test on that well, which they say will generate significant cash flow.

The tweet says, “Updated timeline for Saltfleetby drill.
-Milling window successfully completed on 13/02/2023.”

Balcombe has already been drilled. Angus having been seeking permission to carry out a long term test, which they say will generate significant cash flow.

“Angus Energy submitted a planning application to West Sussex County Council (WSCC), in 2020, to perform an Extended Well Test on the Balcombe 2Z well. The project should generate significant cash flow for the company, however the WSCC Planning Committee have refused the application. The Company has had further discussions with West Sussex County Council and has submitted an appeal to the Planning Inspectorate. The WSCC Planning Committee’s decision to reject our application was against the Planning Officers’ recommendation to approve.”

https://www.angusenergy.co.uk/what-we-do/balcombe-discovery-pedl244/

With regard to there is “the majority of the missed hedges from July and August to add”. That was the case, but the recently disclosed £3.1 million payment (half the reason for the recent fundraise) to buy out those hedges deals with most of them.

Q: A month or two ago George was talking of dividends and buybacks and here we are before Christmas surprised with another raise? Asked on 30 December 2022

A: We are still very much committed to buybacks and dividends commencing in 2023 notwithstanding this raise, the timing of which was a difficult decision for the Board. But consider the trade off.

Paying down our debt and meeting our hedge commitments are key obligations and clearly production started a couple of months late. We had hoped that the costs of rolling the late summer hedges would all seamlessly be met by higher forward prices and this was possible for the bulk of the rolls. However the lenders and hedge providers took the view that some of the costs of the rolls should be borne by shareholders this year as it is shareholders who get the bulk of the benefit.

There is according to CPR, about 18 bcf or very roughly 180 million therms of P90 reserves here and again 12 bcf or very approximately 120 million therms of C1 resources which we hope to be able to convert to P90 reserves soon. At a forward price of £1.50 per therm you have a value of around £450 million of topline value on those 300 million therms. Now some of that (less than 15%) is hedged at 41 pence per therm and some if is going back to lenders in interest and principal (although the loan is already below £10m) and some has clearly been lost in extra costs – but what are we talking about on this raise: £7 million. Shareholders get to keep several £100’s of millions. It is not a daft trade.

It is the Board’s job to make sure that the Company keeps on the right side senior lenders and hedge providers but the reward is that shareholders, for wearing the equity risk, get to keep the equity upside unmolested.

https://www.angusenergy.co.uk/media/investor-questions/

Angus is keeping the market fully updated every step of the way at Saltfleetby and whilst this is a modest delay, progress is good and should be finished soon. After that testing should be completed and success announced. At that stage the shares should rise substantially with a great deal of upside as the company grows.

From https://www.angusenergy.co.uk/media/investor-questions/

“Hi,

“Given the plans for Saltfleetby, will ANGS be adding a 3rd compressor?

“Thanks

“Dave Asked on 30 October 2022

“Mentioned in the CPR is the acquisition of a booster compressor after a year or two. Essentially the plant needs about 25-30 bar pressure of gas coming in from wells. The wells, at full pelt, presently deliver much more pressure but that pressure is expected to decline naturally. Eventually we will require a booster (a much smaller unit than the present compressor) but this depends on pressure decline rates and the success of the side track, which would add new pressure and reduce the draw on the the present two wells.”

The compressor that was ordered and built long ago, and which is due for installation in early December.

And the side track with excellent prospects of success, which has already been drilled to the target depth and which may be completed in as little as another 7 days (it may take a little longer).

Is Angus making a profit? Well they’ve stated they are (see https://www.angusenergy.co.uk/media/investor-questions/):

SFB is now producing at a stable flowrate, exceeding the hedge, and making a profit? in addition to assumed production at brockham, is Angus now making money and profit for the first time in its history? Asked on 2 October 2022

Yes. We are already meeting and exceeding the current hedge profile and already paying down debt. With the sidetrack and 2nd compressor in place around the year end, the full year to September 2023 should show a company debt free and generating great profits for shareholders.

Angus is profitable under the hedge - that’s the whole point of it as the lenders wanted to ensure that they’d get their money back.

Angus is super profitable on the (modest at the moment) sales after the hedge the hedge is met. And if the side track doubles production (which some seem to think a real prospect), incredibly profitable.

The answer to that question is available at https://www.angusenergy.co.uk/media/investor-questions/

For example, “What is the geological & commercial chance of success for the 2 sidetracks at SFB Asked on 1 September 2022

“Only one side track is immediately planned on well 7 and I refer you to earlier extensive answers already provided on these page – we view Chance of Success as extremely high.

“A potential further side track into the southern hemisphere from another well has been carefully considered and planning and permitting work will begin shortly. The Chance of Success here is definitely good but harder to evaluate at this stage but this further side-track would open up considerable new resources whereas the immediate side-track is merely accelerating production of known resources by re-entering a part of the reservoir which was historically highly productive ( and the old well addressing it was shut-in only due to a technical failure of the well-bore unrelated to the productivity of the reservoir itself).”

George Lucan’s salary last year was £134,000, which is pretty modest compared with the salaries of many other smallish oil and gas companies - indeed in a recent interview he said that total board remuneration was at the bottom end of the scale.

There are very generous share options, but the share price needs to close above 3p before they can be exercised (and in practice there must also be some confidence that the price will remain sufficiently above 3p to enable a sale).

The outstanding warrants amount to about 1.4% of the issued share capital and will generate extra cash for Angus (between about £400,000 and £600,000) when exercised.

So what if there are (almost) 3 billion shares in issue. The company is worth whatever it’s underlying assets/profits are worth and there’s good reason to think that’s considerably more than the current £54 million market capitalisation - especially if the side track is successful (the people who acquired just over 4% of the company earlier this week seem to think so).

Another rather inconvenient fact for those who try to insist here (and elsewhere) that the future is bleak for Angus (indeed the second in as many days).

The outstanding warrants amount to just 1.44% of the the share capital and will raise between £400,000 and £600,000 in fresh capital when exercised.

They will not hold back the share price if the side track is successful and there’s not too long to find out now (although I think it’ll be a bit longer than was hoped when drilling commenced).

What is the geological & commercial chance of success for the 2 sidetracks at SFB? Asked on 1 September 2022

Only one side track is immediately planned on well 7 and I refer you to earlier extensive answers already provided on these page – we view Chance of Success as extremely high.

Given the amount of seismic performed over the last 25 years in the field and the number of bore-holes and side-tracks drilled, providing good offset data, presumably the company and its contractors must be wholly confident of hitting the target zone. Putting that aside, what operational risks exist and could the programme be more complicated or expensive than planned? What lessons have been learned from mistakes by previous drillers in this formation? Asked on 31 May 2022

Thanks. The level of confidence about the target zone is indeed very high. We are addressing an area of the reservoir which was being produced from by an existing well, which was shut in due to a well-bore related issue.

An non-exhaustive list of risks, ever present in all drilling programmes is given in https://www.researchgate.net/publication/317248002_Downhole_Drilling_Problems

Pertinent here are 1) hole collapse – this occurred twice in the Saltfleetby field and both times in the same layer, so we have introduced mitigation measures and will approach this layer with appropriate caution and 2) differential sticking ; 3) loss of bottom hole assembly – this occurred twice at Saltfleetby and 4) lost circulation fluids with reservoir damage. Many of these issues can be managed by reducing mud weight which is easier to do when well control is not such an issue as in a depleted reservoir.

It is wrong to characterise the historical drilling programmes at Saltfleetby as being especially prone to failure. Drilling was conducted between 1984 and 2017 by a number of Operators of varying competence. This being the UK’s largest onshore gas field, a great number of the earlier side tracks were in fact wholly exploratory. Some of the later drilling programmes did encounter problems which (by the common agreement of many specialists present at the time) could have been avoided with a relatively small degree of caution by the then drilling manager.

As we have advised before, this sidetrack has been planned with the benefit of enhanced 3D seismic and the oversight of a great number of independent drilling engineers and specialists. Some of the later side-tracks did not benefit from such oversight.

Angus’ drilling programmes have generally been well executed – albeit with disappointment about the target zone at Brockham and Lidsey. Angus drilled Horse Hill-1 successfully before selling out to partners and drilling programmes at the other fields either did not encounter the sorts of issues listed above or Angus was able to rectify them swiftly.

https://www.angusenergy.co.uk/media/investor-questions/

“We have have previously announced that we have comfortably met the hedge to date – and would have announced if that had ceased to be the case.”

November 1st answer to investors’ questions - see https://www.angusenergy.co.uk/media/investor-questions/

But WG818, doesn’t the RNS indicate that their holding has most recently increased from 6.16% to 7.71%? I appreciate that Angus’ website previously provided a figure of over 8%, but a lot of warrants have been exercised since then.