ADV.L Regulatory News (ADV)

Andalas Energy and Power Plc - Final Results

PR Newswire

London, October 27

28 October 2016

Andalas Energy and Power Plc(‘Andalas’ or the ‘Company’)Final Results

Andalas Energy and Power Plc, the AIM listed Indonesian focused upstream oil and gas and power company (AIM: ADL), is pleased to announce its preliminary results for the year ending 30 April 2016.

The Company’s Annual General Meeting will be held at 1.00 p.m. on 24 November at the Company’s registered office, IOMA House, Hope Street, Douglas, Isle of Man, IM1 1AP. The Annual Report and Accounts and Notice of AGM will be made available on the Company’s website: http://www.andalasenergy.co.uk/.

Highlights:

Andalas Chairman, Paul Warwick, said: “With the signing of a transformational agreement with Pertamina and the assembly of a truly industry leading team to deliver our strategy, we are successfully transitioning into a leading Indonesian-focused energy company. The commencement of the identification of proven stranded gas fields for IPPs from Pertimina’s portfolio, in tandem with considerable progress being made towards advancing the TOE work programme, has created a clear path to sustainable cash flow generation and long term shareholder value creation.”

Chairman's Statement

Andalas Energy & Power Plc is an AIM traded energy company. The Company has a clearly defined strategy to commercialise existing Indonesian gas discoveries by developing independent power projects (‘IPP’).

On 1 September 2016, the Company executed a cooperation agreement with Pertamina Persero (‘Pertamina’), Indonesia’s national oil company and member of the Global Fortune 500 list of most valuable companies. Under the terms of the agreement, Andalas and Pertamina will utilise Pertamina’s unrivalled position and in-depth knowledge of Indonesia’s oil and gas sector to identify at least five undeveloped gas fields in the Sumatran provinces of Riau, Jambi and South Sumatra that may be suitable for an IPP gas to power development. Both parties will then work together to prepare IPP development and commercialisation plans for each identified field. It is envisaged that this work will culminate in both parties signing exclusive joint development agreements to design, construct, fund and operate these IPPs.

The Company has an industry leading board and management team who have a very good track record, knowledge of and contacts in Indonesia. Members of the board and the team have long-term, direct experience in Indonesia and have played a key role in the development of its gas and energy industry. By investing in its people Andalas has created a team capable of delivering its projects and significant intellectual property that is capable of delivering long term shareholder value.

Prior to their involvement with the Company, Andalas personnel have been involved in major gas field and infrastructure developments within Indonesia over the past 25 years, including adding incremental production of over 1 Bcf per day of gas (166,667 BOE per day) and overseeing a total investment of more than US$4 billion in the country which led to major infrastructure developments including the construction of 1,663 km of major gas transmission pipelines. Key achievements of various team members include:

• executing Indonesia’s first major non-LNG gas development following the commencement of first gas sales from the Corridor Block, South Sumatra totalling 450 MMscfd via a new facility and pipeline;

• negotiating gas sales to Singapore, Batam, and West Java, delivering some 750 MMscfd of gas;

• representing Pertamina in unitisation negotiations for the Suban gas field, returning US$200+M pa to Pertamina over a 14 year period; and

• delivering the first ever export pipeline from South Sumatra to Batam and Singapore via the establishment in February 2002 of PT Transportasi Gas Indonesia (TGI or Transgasindo).

The Indonesian energy sector represents a rich opportunity. Indonesia is a member of OPEC and the world’s 11th largest gas producer. It is also the seventh largest producer of LNG, exporting the majority of its liquefied gas to the likes of Japan, Korea and, more recently, China. However, there is an energy crisis within Indonesia with industry and large swathes of the population having to live their daily lives without access to electricity. As recently as 2013, the national electrification rate in Indonesia was 81%, which equated to over 60 million people without power nationwide. Such low electrification rates and frequent power outages are widely believed to be hindering the country’s economic growth. As part of his 2014 election platform, President Joko Widodo promised to increase electrification through the addition of 35,000 MW in electricity power generation capacity by 2019 – a 60% increase in total domestic power generation at that time.

The island of Sumatra is the ‘engine room’ of the country’s oil and gas industry. Over 70 oil and gas companies are exploring, developing and operating permits with some 5.1 trillion cubic feet of discovered gas resources across 204 undeveloped gas fields - 59 of these fields are owned by Pertamina. Despite an abundance of unexploited energy resources, the regions of Jambi, Riau and South Sumatra have some of the lowest electrification rates across the Indonesian archipelago. It has been estimated that there are 5.8 million people without power in these three provinces, out of a combined population of over 20 million people.

It is Andalas’ belief that developing these gas fields to supply IPPs is a very sound value proposition that will make a significant contribution towards addressing the country’s power crisis at a local level. The recent signing of our agreement with Pertamina is a key component in the Board’s strategy.

For Andalas this represents a low risk/low cost route to material cash flow generation in a short to medium time frame. Importantly, the IPP strategy involves monetising existing discovered gas thereby reducing project cycle times through a reduction of geological risk; the deployment of established technologies to reduce execution risk; and the minimisation of market risk by only selecting gas projects that are close to market and infrastructure and can produce high quality gas on plateau for 10-15 years. Furthermore, the Indonesian market currently has a robust pricing regime with estimated gas sales priced at US$6/MMBtu (compared to US 2015 average of approximately US$3/MMBtu) and base load power selling for up to US$8.62 cents/kWh (compared to US 2015 average of approximately US$3.6 cents/kWh). Andalas has performed a desktop study that highlights the potential returns of a generic 25MW IPP at these pricing levels; assuming gross capex of $24million and 70% non-dilutive project finance the project becomes cash flow generative by the end of year two and generates gross free cash flow, based on project level direct costs only, of circa $4.2million for up to 15 years. Cash flows from any future project are expected to assist in securing non-dilutive financing for the project and later in funding the roll-out of additional IPP projects, both as part of the Pertamina agreement and on a standalone basis. The strategy being pursued by the Company is both repeatable and scalable.

On 8 March 2016, Andalas signed a farm-in agreement with the operator of the Tuba Obi East (‘TOE’) Technical Assistance Contract – our first stand-alone opportunity. A Gaffney Cline & Associates review commissioned by Andalas estimates 43.7 Bcf of prospective recoverable gas is contained in the Air Benekat Formation (‘ABF’) at TOE. From a strategic perspective a resource of this size at TOE would represent sufficient gas to support a 25MW IPP for a 15 year period. The field is also strategically located immediately adjacent to a number of Pertamina owned, undeveloped gas discoveries as well as being within economic reach of power infrastructure and demand. Since signing the agreement Andalas has completed the work necessary to prepare for the execution of a low cost gas production test of the existing TOE-1 well. It is anticipated that the workover test result is expected to allow Andalas to upgrade the resource from prospective to contingent resources. The updated gas reserves assessment will be used in the gas processing and power plant front-end engineering and design (‘FEED’) studies, as well as gas and power sales negotiations, which once completed would allow the reserves to be further upgraded from contingent resources to proven reserves.

The TOE-1 well test will be our first material activity on the ground but our relationship with Pertamina creates further opportunities for Andalas to develop a series of integrated gas to power projects beyond TOE that are capable of transforming Andalas into a substantial energy business over the next few years.

The Company continues to assess oil opportunities. It will consider assets capable of complementing our gas-to-power strategy, which can be acquired at attractive levels, demonstrate strong cash returns and have upside that makes them accretive to shareholders.

Financial Review 

During the period under review the Group made a loss of $4,673,000 (2015: $122,000). Included in the loss for the period was a non-cash charge of $347,000 (30 April 2015: $Nil) in respect of the cost of the share consideration and options granted to Corsair Petroleum (Singapore) Pte Ltd ("Corsair") pursuant to the agreement between Corsair and Andalas to pursue oil and gas opportunities in Indonesia announced on June 2015.

During the period the Group incurred expenditure evaluating a number of assets in Indonesia, which culminated in the farm-in agreement on TOE, and in developing its integrated gas to power business that has resulted in an increase in the costs of the business in the year. The work in connection with the evaluation of such projects totalled $2,044,000 during the year whilst the work in connection with the developing the integrated gas to power business resulted in costs of $1,151,000. This work has ongoing value to the Group. However, in accordance with the Group’s IFRS accounting policies these costs are required to be expensed as this work was completed before the Group was awarded any licences.

As a non-core asset to the Group the Directors have decided to impair the Group’s investment in Peelwood which has resulted in a $179,000 loss (2015: $219,000 gain) being recorded within the income statement.

During the period the Company raised £100,000 ($152,000) of equity through the issue of 50,000,000 shares on 6 May 2015, £1,500,000 ($2,335,000) of equity through the issue of 375,000,000 shares on 5 June 2015 and on 31 March 2016 it raised a further £500,000 ($704,000) by the issue of a zero coupon convertible loan note with par value of £600,000 ($845,000).

As at the year end the Group held a cash balance of US$290,000 (US$354,000 at 30 April 2015). Since the readmission to AIM, which occurred on 13 May 2016, the Group has issued a total of 1,775,020,674 shares at a price of 0.2 pence in settlement of the convertible loan note (£600,000 ($856,000)), settlement of certain share issue costs and corporate finance fees and a further placing to raise cash of £1.7million ($2.48million). This share issue resulted in an increase in net equity of £3.55million ($5.1million).

Costs associated with the AIM readmission totalling $698,760 were prepaid on the statement of financial position (2015: $Nil). These costs are carried into the next reporting period because their accounting treatment is dictated by the result of shareholder approval, which was granted post year end on 13 May 2016.

Outlook

The Company started the year as an investment Company and has since undergone fundamental change both during the year and period post year end. Andalas has changed from an investment company into a respected Indonesian focused energy company. The Company recruited leading experts in Indonesian gas monetisation, which was followed by the securing of its farm-in to TOE and the validation in September of its gas to power proposition as evidenced by its cooperation with Pertamina, Indonesia’s largest Company and the major oil and gas acreage holder in the country.

Andalas is entering an exciting period and I look forward to providing further updates on our progress in the months ahead. On behalf of the Board I would like to take this opportunity to thank our shareholders for their continued support for the Company, we recognise that transforming the company has not been straightforward but we have worked hard to position the Company to progress rapidly in the coming months and beyond.

Paul WarwickNon-Executive Chairman

27 October 2016

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME YEAR ENDED 30 APRIL 2016

The Statement of Comprehensive Income has been prepared on the basis that all operations are continuing.

CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 30 APRIL 2016

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYYEAR ENDED 30 APRIL 2016

CONSOLIDATED CASH FLOW STATEMENTYEAR ENDED 30 APRIL 2016

NOTES TO FINANCIAL STATEMENTSYEAR ENDED 30 APRIL 2016

1. General information

The principal activity of Andalas Energy and Power PLC (‘the Company’) during the year was as an oil & gas business focussed on the Republic of Indonesia. CEB Resources changed its name to Andalas Energy and Power PLC on 3 December 2015. As at the year end, the Company was domiciled in the Isle of Man and listed on the AIM market of the London Stock Exchange.

2. Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated. The Group financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards IFRSs and IFRIC interpretations, issued by the International Accounting Standards Board (IASB) as endorsed for use in the EU ('IFRSs') and those parts of the Isle of Man company law that are applicable to companies that prepare their financial statements under IFRS.

The financial information for the years ended 30 April 2016 and 30 April 2015 does not constitute statutory accounts but is extracted from the audited accounts for those years. The auditor's report on the 30 June 2015 financial statements was unqualified. The auditor's report on the 30 June 2016 financial statements was unqualified although an emphasis of matter was included in the accounts to draw attention to going concern. As at the date of these financial statements, the ability of the Company, and therefore the group, to continue as a going concern will require further funding to be raised. The Directors remain confident that the potential income stream from the development of its TOE asset, its co-operation agreement with Pertamina, together with the Directors historic ability to raise additional funds will enable the Group to finance its future working capital and development cost requirements beyond the period of twelve months from the date of this report. However, there are no confirmed funding arrangements in place at present; as such there can be no guarantee that the required funds to meet working capital and development costs will be available to the Group within the necessary timeframe.

3. Loss per Share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

In accordance with International Accounting Standard 33 ‘Earnings per share’, no diluted earnings per share is presented as the Group is loss making. Details of potentially dilutive share instruments are detailed in the notes to the audited financial statements notes 6, 7 and 8. Details of shares issued post year end are disclosed in note 10.

4. Other receivables

The fair values are as stated above, which equate to their carrying values as at the year end. The financial assets were not past due and were not impaired and were all denominated in US$. Included in other receivables and prepayments is an amount of $698,760 (2015: $Nil) in connection with prepaid expenses relating to the publication of the AIM re-admission document.

5. Trade and other payables

6. Share based payments

The following is a summary of the share options and warrants outstanding and exercisable as at 30 April 2016 and 30 April 2015 and the changes during each year:

The above weighted average exercise prices have been expressed in pence and not cents due to the terms of the options and warrants. The following share options or warrants were outstanding and exercisable in respect of the ordinary shares:

The new options and warrants have been valued using the Black-Scholes valuation method and the assumptions used are detailed below. The expected future volatility has been determined by reference to the historical volatility:

The Group recognised $153,000 (30 April 2015: $40,509) relating to equity-settled share based payment transactions during the year arising from Option or Warrant grants, of which $153,000 (30 April 2015: $Nil) was expensed as a pre-licence acquisition cost in connection with the Corsair assignment agreement and with $Nil being expensed in relation to Directors and consultants services (30 April 2015: $40,509). There are 103,034,596 of unvested options at the year end, that are held by certain Directors and consultants, which vest in three equal tranches relating to acquiring an economic interest in a first concession, an interest in a second concession and gross production from its interest in projects exceeding 400 BOEPD. As the triggers for the grant of the tranches have not occurred at the reporting date no share based payment charge arises. A charge (30 April 2015: $Nil) may be recognised in the subsequent financial year, in relation to the above issue of options of achievement of the trigger events. Note 10 includes details of additional share consideration paid in the year.

For the share options and warrants outstanding as at 30 April 2016, the weighted average remaining contractual life is 2.02 years (30 April 2015: 2.98 years).

Please refer to the Directors’ Report for details of shares, options and warrants held by the Directors at 30 April 2015 and 2016. Details of warrants and options issued post year end are included in note 10.

7. Share capital

All shares are Nil Coupon fully paid and each ordinary share carries one vote. No warrants have been exercised at the reporting date.

* Non-cash item per the consolidated cash flow statement

On 5 June 2015 the Company issued 31,250,000 shares as consideration to Corsair Petroleum (Singapore) Pte Ltd (“Corsair”) for the assignment to Andalas of an interest in certain opportunities in Indonesia. The consideration was valued at 0.4pence per share, being the share price on completion of the transaction, and the amount expensed totalled $194,125. The Company has the obligation to issue a further 93,750,000 shares subject to further milestones being achieved but as at the reporting date the Company had not recorded these as a liability due to the uncertainty over valuing the consideration and the timing of any milestone being reached.

Prior year share capital disclosure:

On 17 February 2014 the Company issued 20,000,000 ordinary shares at a price of 0.715 pence per share as part-consideration for the purchase of 10% equity in Carbon Investment. On 14 July 2014 the Company sold its investment in Carbon Investments to Balamara. The 20,000,000 ordinary shares previously issued were cancelled and returned to the Company. The cost of USD 239,000 of these shares was removed from equity and included as a realised gain on the sale of investments.

The Company and YAGM entered into an Equity Swap Agreement on 13 March 2014 over 27,586,207 Company shares held by YAGM. The cumulative liability of £47,000 generated under the Swap Agreement up to 31 March 2015, representing a return of funds to YAGM based on the share price performance of the Company, was settled on 14 April 2015 by the issue 29,182,675 new ordinary shares in the Company a price of 0.1607 pence per share. As at 30 April 2015 YAGM held 36,079,225 ordinary shares in the Company, representing 13.78% of the issued shares. The Final settlement date of the Swap Agreement was 30 June 2015, however on 19 May 2015 it was confirmed by YAGM that the final settlement date would be changed to 30 April 2015 and the liability of £25,517 for the month of April 2015 would be waived. Subsequent to the year end YAGM have sold all their shares in the Company.

8. Borrowings

The principal terms and the debt repayment schedule of the Group’s unsecured loans and borrowings during the year were as follows:

The loan notes contain a force conversion feature whereby on readmission to AIM the entirety of the outstanding loan notes would convert into shares to the value of the loan notes carried value. The settlement shares satisfying the loan notes would be valued at fair value, being the placing price of the shares being issued on readmission to AIM. In the event that the loan notes had not converted on readmission to AIM they would have been repayable on demand for cash at their carrying value. See note 10 for details of the shares that were issued in satisfaction of the loan note post year end.

9. Related party transactions

On 5 June 2015, Andalas and Corsair Petroleum (Singapore) Ptd Ltd (“Corsair”) entered into an agreement (“Assignment”) pursuant to which Andalas agreed, amongst other things, to undertake and fund due diligence in respect of certain oil and gas concessions in Indonesia with a view to making an investment. Initially, for administrative convenience, Andalas and Corsair agreed to structure the funding of the due diligence expenditures as loans ("Loans") to Corsair and, accordingly, advances pursuant to that arrangement were made on 8 May (US$25,000), 10 June (US$250,000) and 15 July 2015 (US$225,000).

On 19 August 2015, Andalas incorporated a subsidiary, Corvette Energy (Singapore) Pte Ltd (“Corvette”). On 31 January 2016, Andalas, Corsair and Corvette entered into a novation agreement pursuant to which the Loans were extinguished (for $Nil consideration) and the benefit of the loaned moneys was transferred to Corvette with effect from 30 October 2015.

During the year under review the Group incurred due diligence expenditure following the agreement with Corsair. The Group engaged with a number of individual consultants to pursue the strategy of identifying projects in Indonesia that could lead to an AIM reverse acquisition of the Group. The total value of consultants that were introduced by Corsair to the Group was $1,837,000 consisting of 14 full or part time consultants (not including Directors).

10. Events after the reporting date

On 27 April 2016 the Company entered into agreements, subject to shareholder approval to issue 1,307,584,558 Placing Shares at the Issue Price of 0.2 pence per share to raise total gross proceeds of £2.6 million (“Placing shares”).

On 4 June 2015 the Company entered into an Assignment Agreement with Corsair whereby Corsair had been granted a carried interest in oil and gas concessions introduced by it and a share of future revenues from these concessions. It was agreed that in order to avoid any future conflict of interest, the carried interest be substituted, subject to the passing of the resolutions at a shareholder meeting, for the issue of Ordinary Shares in the Company, which would, in aggregate, represent 5 per cent. of the Enlarged Share Capital following readmission (“assignment shares”). Following shareholder approval on 13 May 2016 the Company approved the issue of 122,406,940 assignment shares to be issued.

On 13 May 2016, shareholders approved all resolutions and the Company was readmitted to trading as Oil & Gas Company, meeting all conditions precedent for the aforementioned transactions, resulting in the issue of the placing shares and the approval of the assignment shares.

Furthermore on 13 May 2016, following shareholder approval the Company’s £600,000 Loan notes, per note 8, were converted into 300,000,000 new Ordinary Shares at the Issue Price of 0.2 pence per share. In connection with this transaction Cornhill Capital were issued 42,000,000 warrants exercisable at a price of 0.2pence per share.

At 2 June 2016 the Company had received notification from certain warrant holders to subscribe for 12,007,661 new ordinary shares in the Company at a price of 0.2 pence per bonus Warrant Share. In aggregate, the exercise of the bonus warrants amounts to a cash value of £24,015. Furthermore on 5 June 2016 the Company issued 631,982 shares under the Corsair settlement agreement, these shares represent the additional settlement consideration in respect of the aforementioned 12,007,661 bonus warrant shares.

On 5 July 2016 the Company agreed to issue a total of 32,389,531 new ordinary shares for a total of £64,779 in settlement of certain payables to third party consultants.

**ENDS**

For further information, please contact:

Market Abuse Regulations (EU) No. 596/2014

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 (“MAR”). Upon the publication of this announcement via Regulatory Information Service (“RIS”), this inside information is now considered to be in the public domain.