RE: SP13 Jul 2023 09:44
Shares fell back 13% after an update confirmed first half revenues below expectations due to what one City analyst described as “a quirk in farm-out royalty terms”.
The company reported £9.5 million of revenue for the six months of 2023, as average gas sale prices reduced to £124 per therm from £201.4 per therm (FY 2022).
Gas production volumes meanwhile fell to 13.8 million cubic feet per day, from 21 million in 2022, as the company contended with interventions to restore optimal production at the Blythe field.
IOG today noted that it now expects production volumes will normalise in the range of 20-30 million cubic feet for the second half of 2023 – indeed, the present rate is marked at 32 million.
Whilst lower prices and lower production were expected in the market, IOG’s production royalty contract terms were maybe less understood by investors.
The company noted that under the royalty terms its net economic interest share of production revenues reduces during “periods of declining production and gas prices”. The total payable royalty is capped at £91 million and it has so far paid a total of £16.1 million.
IOG ended June with £20.3 million of cash, of which £7.3 million was restricted, and it said that maximising near-term cash flow is a key priority.
It added that “constructive engagement” was ongoing with bondholders regarding the company’s near-term liquidity and its longer-term capital structure.
Jonathan Wright, analyst at house broker finnCap, described the investor update as encouraging in as much as it confirmed stabilised production with IOG’s expected range.
He added: “First-half 2023 revenues came in lower than expected due to a quirk of the joint venture farmout royalty terms, but second-half production guidance points to a sharp pick-up.
“Nevertheless, IOG is far from out of the woods and sustained operational performance alongside a successful debt restructuring will be paramount for its longer-term ambitions.”
IOG shares, meanwhile, traded 13.4% lower at 3.1p valuing the company at just under £16.5 million.
At today’s price, the AIM-quoted share has lost some 81% of its value in 2023 to date.
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