26 Sep 2017 07:00
26 September 2017
Eland Oil & Gas PLC
("Eland" or the "Company" and, together with its subsidiaries, the "Group")
Interim results for the six months to 30 June 2017
Eland Oil & Gas PLC (AIM: ELA), an oil & gas development and exploration company operating in West Africa with an initial focus on Nigeria, today announces its financial results for the six-month period to 30 June 2017 (the "Period").
George Maxwell, CEO of Eland, commented:
"The first half of 2017 has been very positive for Eland with the restart of production resulting in increased cashflows to further grow the business. Our development of diversified export routes is testament to the hard work and skill of our team and de-risks the business going forward. The successful placing raising $19.5 million means we are fully funded for our near-term drilling programme and we are excited to continue the development of our outstanding resource base.
"The outlook for the remainder of 2017 and beyond is very positive with the current drilling of the Opuama-7 workover expected to deliver increased revenue for operations on Gbetiokun-1 and Ubima-1 and infill drilling on Opuama. We look forward to updating all stakeholders on our drilling programme in the second half of the year."
H1 2017 HIGHLIGHTS
Operational
· Production of oil from OML 40 recommenced in January 2017 with total gross production of 954,728 barrels of crude oil (429,627 bbls net).
· OML 40 crude was initially exported via shipping until 24th May, whereupon pipeline exports to the previously shut-in Forcados terminal resumed.
· Production during shipping operations was constrained to a single well, Opuama-3. Following the return to Forcados, an additional Opuama well, Opuama-1, was brought back on stream increasing production capacity from approximately 8,000 bopd gross (3,600 bopd net) to about 11,500 bopd gross (5,175 bopd net).
· Average production in the Period was 5,275 bopd gross (2,374 bopd net). Average production in June following recommencement of export to Forcados was 11,571 bopd gross ( 5,207 bopd net).
· Updated Competent Persons Report (CPR) for four wells in OML 40 in April 2017 trebled the estimate of gross 2P reserves that will be produced by these wells to 33 mmbbl gross (15.1 mmbbl net).
Financial
· Cash balance at 30th June was $22.4 million, strengthened by a successful equity placing of GBP 15.2 million (about $19.5 million) in June 2017. The current cash balance is $27.3 million.
· Total liftings were 23,000 barrels of oil from Forcados in June 2017 following recommencement of operations at the terminal (H1 2016: 38,200 bbls), generating revenues of $0.8 million (H1 2016: $1.1 million).
· There were no physical liftings of crude from the shipping operation in the Period. The value attributable to production derived from shipping operations in the Period was $25.6 million, with $18.1 million received as an early cash payment for crude delivered to the FPSO in the Period. The discrepancy between production/liftings and revenues is explained by accounting rules on revenue recognition and is simply a timing issue which will be reconciled in H2 2017.
· The borrowing base amount at end June stood at $23.9 million. Drawdowns to date remain at $15 million.
· Continued focus on working capital management to reduce period-end Net Current Liability position
Post-Period End
· From 1st July - 24th September 2017, there have been over 85 days of production from OML 40, at an average rate for producing days of over 11,875 bopd (5,344 bopd net). More than 1,020,000 barrels of oil (459,000 net) were produced during this period into the Forcados terminal, with only 1.0% downtime for maintenance.
· A further 355,500 barrels have been lifted by Elcrest from Forcados since the Period end, with revenues of $16.8 million received for these lifted barrels. An additional 171,000 barrels expected to be lifted by early October with payment also expected in October.
· Since 24 July 2017, further revenue receipts from export through shipping of $3.5 million have been received and settlement of associated $3.8 million to a shipping contractor has also been completed by Elcrest. All remaining Elcrest crude has now been lifted from the FPSO and final amounts due to Elcrest and for offtake costs are expected to be concluded in the second half of the year.
· As described in the Financial Review section, as a result of the excellent production and uptime post-period end, the working capital position of the Group continues to improve beyond the 30 June 2017 reported Balance Sheet date (even allowing for the planned capital programme).
· Appointment of Ronald Bain as CFO and Director of the Eland Board and appointment of Brian O'Cathain as Non-Executive Director.
Outlook
· A workover and sidetrack well on Opuama-7 is currently underway with completion expected in October. We expect this well to increase production by approximately 5,900 bopd of oil gross (2,655 bopd net to Elcrest). This would take total OML 40 production to around 18,000 bopd gross (8,100 bopd net) from current gross levels of 12,000 bopd.
· Following the completion of the Opuama-7 well in early October, Elcrest expect to maintain the OES rig to re-enter and complete Gbetiokun-1 or carry out infill drilling on Opuama.
· Civil works will commence during late Q4 2017 in preparation for the re-entry and completion of Ubima-1 in early 2018. Ubima-1 will be completed in four reservoirs, with the objectives of establishing early production, appraising the field in advance of full field development and moving Contingent Resources to Reserves.
For further information:
Eland Oil & Gas PLC (+44 (0)1224 737300)
www.elandoilandgas.com
George Maxwell, CEO
Ronald Bain, CFO
Finlay Thomson, IR
Canaccord Genuity Limited (+44 (0)20 7523 8000)
Henry Fitzgerald O'Connor / James Asensio
Panmure Gordon (UK) Limited (+44 (0)20 7886 2500)
Adam James / Atholl Tweedie
Tom Salvesen
Camarco (+44 (0) 203 757 4980)
Billy Clegg / Georgia Edmonds / Tom Huddart
Notes to editors:
Eland Oil & Gas is an AIM-listed independent oil and gas company focused on production and development in West Africa, particularly the highly prolific Niger Delta region of Nigeria.
Through its joint venture company Elcrest, Eland's core asset is OML 40 which is located in the Northwest Niger Delta approximately 75km northwest of Warri and has an area of 498km². In addition, the Company has a 40% interest in the Ubima Field, onshore Niger Delta, in the northern part of Rivers State.
The entire OML 40 licence holds gross 2P reserves of 80.7 mmbbls (NSAI Competent Person's Report of 30 June 2015, adjusted for production to date), gross 2C contingent resources of 41.2 mmbbls and a best estimate of 254.5 mmbbls of gross unrisked prospective resources. The Ubima field holds gross 2P reserves of 2.4 mmbbls of oil and gross 2C resource estimates of 31.1 mmbbl.
Cautionary statement regarding forward-looking statements
This Results Statement may contain forward-looking statements which are made in good faith and are based on current expectations or beliefs, as well as assumptions about future events. You can sometimes, but not always, identify these statements by the use of a date in the future or such words as 'will', 'anticipate', 'estimate', 'expect', 'project', 'forecast', 'intend', 'plan', 'should', 'may', 'assume' and other similar words. By their nature, forward-looking statements are inherently predictive and speculative and involve risk and uncertainty because they relate to events, and depend on circumstances that will occur in the future. You should not place undue reliance on these forward-looking statements, which are not a guarantee of future performance and are subject to factors that could cause actual results to differ materially from those expressed or implied by these statements. The Company undertakes no obligation to update any forward-looking statements contained in this Results Statement, whether as a result of new information, future events or otherwise.
The information contained within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.
Net production figures relate to Elcrest Exploration and Production Nigeria Ltd ("Elcrest"), Eland's joint venture company. Production rates, when oil is exported via Forcados, are as measured at the Opuama PD meter, are subject to reconciliation and will differ from sales volumes.
REVIEW OF H1 ACTIVITIES
Strong production growth
There were two distinct phases of oil production from OML 40 in H1. Firstly, crude exports recommenced in January 2017, with the oil being exported by ship to a floating storage vessel (FPSO) located offshore. This continued until 24th May, when export by pipeline to the Forcados oil terminal resumed. Total gross production from OML 40 in the first six months of 2017 was 954,728 barrels of crude oil (429,627 bbls net). Average production in the Period was 5,275 bopd gross (2,374 bopd net).
Since period end, from 1st July - 24th September 2017 there have been over 85 days of production from OML 40, at an average rate for producing days of over 11,875 bopd (5,344 bopd net). More than 1,020,000 barrels of oil (459,000 net) were produced in this into the Forcados terminal, with only 1.0% downtime for maintenance, which is our most sustained and successful production performance to date.
Successful diversification of export routes, delivering increased production security
Following an eleven-month shut-in of production due to the Forcados Terminal being unavailable for crude oil exports, in January 2017 Elcrest recommenced production from the Opuama field in OML 40 via an alternative export route utilising shipping. Crude was transported from the wellhead to an 80,000 barrel capacity storage tanker and then onto one of two shuttle tankers, each holding 40,000 barrels of oil. These tankers then transferred the crude on a continuous basis to a 300,000 barrel capacity FPSO moored offshore Nigeria. During the period, over 515,000 barrels of oil were successfully delivered using this route. We believe it is a testament to our staff and partners to have achieved such a rapid solution to Forcados being taken offline.
Exports via shipping continued until May 2017 whereupon Elcrest resumed pipeline transfers to the Shell-operated Forcados terminal. Hence shipping operations have now been suspended, but are available to be utilised in the future as an alternate export option if required, providing diversification of risk for the Company and its stakeholders.
A Lease Automatic Custody Transfer unit ("LACT unit") has arrived in Nigeria and will be installed at OML 40's custody transfer point with the Trans Escravos Pipeline ("TEP"). It is anticipated that the unit will be operational by year-end, providing more accurate measurement of the volume of crude oil transferred to Shell Petroleum Development Company of Nigeria Limited (SPDC) at the custody transfer point.
Asset Overview
OML 40 - Opuama
With the successful implementation of the shipping operations in January 2017, the Opuama field recommenced production from the Opuama-3 well only. This high productivity well stabilised at a rate of about 8,500 bopd gross. In late May, well Opuama-1 was brought back on-stream, increasing total production to about 11,500 bopd gross. The production rate increased to about 12,000 bopd gross in late June and to about 12,300 bopd gross (5,535 bopd net) in late July as the size of the Opuama-3 chokes were progressively increased. We are delighted with the outstanding production from these wells, whose performance to date has met or slightly exceeded expectations.
Since the period end, Eland accelerated the commencement of the workover and side-tracking of the Opuama-7 well and in August 2017 the OES Teamwork Rig was mobilised to the field. The well commenced operations mid-September and is forecast to begin production in October at an initial rate of 5,900 bopd gross (2,655 bopd net) taking anticipated total production at OML 40 to over 18,000 bopd (8,100 bopd net). The gross capex associated with Opuama-7 is $10.2 million.
Opuama infill drilling
Eland/Elcrest has worked up detailed plans for three Opuama infill wells and is discussing the appropriate time to drill these wells with NPDC and the regulator. One well would produce the same D1000 and D2000 reservoirs as well Opuama-3, currently producing at about 9,000 bopd. A second would produce both the D5000 reservoir, currently producing in Opuama-1, and the undeveloped D4000 and D3500 reservoirs. A third would produce the D1000 reservoir and, in addition, would test for the presence of oil in the shallow 'C' reservoirs over the crest of the Opuama structure and would be deepened to determine the present depths of the gas-oil and oil-water contacts in the E2000 reservoir, allowing the merits of a future horizontal well draining the E2000 oil leg to be assessed.
OML 40 - Gbetiokun
Eland's current plan is to commence a workover of well Gebtiokun-1 in the near future diversifying the Company's production base from one to two fields and further de-risking its portfolio. It is anticipated that the OES Teamwork Rig will move to Gbetiokun to commence re-entry, completion and production of the Gbetiokun-1 well via an Early Production System (EPS), costing a total of $16.9 million gross and expected to deliver initial production of about 8,000 bopd (3,600 bopd net). Gbetiokun-1 is located near the Benin River and it is planned to transport the oil down the river to an existing tie-in point into the Opuama-Otumara pipeline to Forcados. As announced on the 27 April 2016 and further reviewed in April 2017, NSAI forecasts that Gbetiokun-1 will produce 2P Reserves of 10.8 mmbbl (4.9 mmbbl net).
Ubima
In early 2018, the Company, together with its partner, AllGrace Energy, intends to re-enter and complete Ubima-1, producing via an early production system in early 2018. This operation has the dual objectives of a) establishing early production at a forecast rate of 2,000 to 2,500 bopd (1,760 to 2,200 bopd net) and b) gathering information on reservoir and oil properties to optimise the full field development and allow Contingent Resources to be re-classified as Reserves. Production from the Ubima Field will further diversify the Eland portfolio and is an exciting opportunity for the Company.
Financial Review
Following a successful equity placing raising gross proceeds of GBP 15.2 million ($19.5 million) in June 2017 the Group ended the Period with a cash balance of $22.4 million. Reported revenues in H1 17 were $0.8 million, although cash receipts totalled $18.1 million, the difference due to accounting rules on revenue recognition. During our shipping operations, total production volumes of 515,223 barrels were delivered to the FPSO. However, as the barrels had not been discharged to an offtake vessel, the title had not transferred to the crude buyer and therefore we have not recognised this in revenue. The difference has now been recognised as revenue post Period end and will be shown in the Full Year 2017 accounts following delivery to the offtake vessel in H2 2017.
The total value attributable to shipping operations including both cash receipts of $18.1 million stated above and amounts receivable of $7.5 million at the Period end totalled $25.6 million. In August 2017 a further $3.5 million was received in cash in relation to the shipping production. We anticipate final amounts due to Elcrest and any remaining balance payable for offtake costs will be settled in the second half of the year. Shipping operations were terminated in May following the reopening of Forcados. A lifting of 23,000 barrels from Forcados was delivered in June generating the above revenue of $0.8 million.
The prolonged Forcados disruption placed a significant strain on the working capital of the Group with net current liabilities peaking at $49.0 million in May. However, following the return of production to Forcados the Group has achieved record production rates, with high uptime at enhanced margins compared to shipping. This combined with the equity raise in June 2017 has enabled the Group to begin to unwind the working capital deficit position which stood at $35.7 million by 30 June 2017. Since the Period end, the Group has already made significant strides in unwinding this position including settlement of the aforementioned offtake cost balances, repayment in full of outstanding balances to Shell in relation to a $3 million prepayment received in May 2016, combined with funding NPDC on the side-tracking of the Opuama-7 well. As set forth in the Going Concern note in the notes to the accounts, there remains risks to mitigate and material uncertainties which could affect the ability of the Company to manage its working capital position or remain compliant with its loan covenants, such as the sustained access to export routes and careful management regarding the timing of the collection/settlement of receivables/payables.
The loss after tax was $22.4 million in the period to June 2017 (1H 2016 $9.1 million loss) with the financial performance impacted by the downtime experienced at the FPSO which consequently restricted production and cashflows. The borrowing base review was concluded in April 2017 which was agreed at $23.9 million (previously $25.4 million) based upon only two wells and shipping profiles. As at 30 June 2017 $15 million of the facility is drawn down. With agreement of the Lender the next redetermination of the borrowing base has been deferred into Q4 2017 in order to incorporate the results of the value accretive Opuama-7 side-track. The Group is fully funded to execute a two-well programme on OML40 in 2H 2017.
After the Period end the Company concluded a competitive tender process for the provision of external audit services. Following completion of this process the Company's Board of Directors, on the recommendation of the Audit Committee, appointed PricewaterhouseCoopers LLP as its statutory auditor for the current financial year.
Strengthening of the Eland team
Post Period end, on 1st August Ronald Bain joined Eland Oil and Gas as CFO and Board Director and the Company announced the appointment of Brian O'Cathain as Non-Executive Director effective 1st October 2017.
Ron is a qualified Chartered Accountant with over 25 years of experience in financial management and control and recently led the Financial Integration Planning for the Baker Hughes / GE Oil & Gas merger. Prior to this Ron was the Regional Accounting Director of Europe, Africa and Russia/Caspian for Baker Hughes, responsible for all financial reporting, financial management and compliance activities in over 40 countries. He has a depth of experience with roles of increasing scope and responsibility including Controllership, Company Secretarial, Treasury and FP&A with companies such as Baker Hughes, BJ Services, Donside Paper Company and Vetco Gray. Olivier Serra stepped down from the Board and remains a consultant to the Company, concentrating on its strategic debt structure and options for the Company.
Brian is a geologist and petroleum engineer with over 30 years' experience in senior technical and commercial roles in upstream oil and gas E&P companies, including Shell International, Enterprise Oil and Tullow Oil plc. He was the Managing Director of Tullow Oil's International Business during the Energy Africa acquisition, and served as Chief Executive of Afren plc from 2005 to 2007. He was also the Chief Executive of Petroceltic International plc from 2007 to 2016. During this period Petroceltic discovered the Ain Tsila gas condensate field in Algeria, and concluded a nil-premium merger with Melrose Energy. Brian holds a first-class honours degree in Geology from the University of Bristol.
CONDENSED CONSOLIDATED INCOME STATEMENT
| Note | 6 monthsto 30 June 2017 Unaudited | 6 monthsto 30 June 2016 Unaudited | Year to 31 December 2016 Audited |
|
| $'000s | $'000s | $'000s |
|
|
|
|
|
Revenue | 2 | 844 | 1,112 | 2,373 |
Operating expenses | 3 | (17,464) | (5,072) | (8,197) |
Shareholder management fee | 3&13 | (3,275) | - | (17,250) |
Gross loss |
| (19,895) | (3,960) | (23,074) |
|
|
|
|
|
Administrative expenses | 4 | (1,732) | (4,195) | (5,832) |
Operating loss |
| (21,627) | (8,155) | (28,906) |
|
|
|
|
|
Finance income | 5 | - | 118 | 306 |
Finance costs | 5 | (1,831) | (1,425) | (2,842) |
Loss before tax Loss before tax | 6 6 | (23,458) | (9,462) | (31,442) |
|
|
|
|
|
Tax | 7 7 | 1,088 | 364 | 1,030 |
|
|
|
|
|
Loss after tax for the period/year from continuing operations |
| (22,370) | (9,098) | (30,412) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the company Owners of the Company |
| 7,214 | 9,752 | 16,881 |
Non-controlling interests |
| (29,584) | (18,850) | (47,293) |
|
| (22,370) | (9,098) | (30,412) |
There were no items of comprehensive income in the current or prior period/year, other than the loss for the period/year. Accordingly, no statement of comprehensive income is presented.
Earnings per share | Note | 6 monthsto 30 June 2017 Unaudited | 6 months to 30 June 2016 Unaudited | Year to 31 December 2016 Audited |
|
|
|
|
|
From continuing operations |
| $ | $ | $ |
Basic and diluted | 8 | 0.04 | 0.06 | 0.09 |
CONDENSED CONSOLIDATED BALANCE SHEET
| Note | At 30 June 2017 Unaudited | At 30 June 2016 Unaudited | At 31 December 2016Audited |
|
| $'000s | $'000s | $'000s |
Non-current assets |
|
|
|
|
Intangible oil and gas assets | 9 | 11,831 | 11,398 | 12,200 |
Property, plant and equipment | 10 | 188,635 | 186,135 | 190,005 |
Deferred tax asset | 7 | 6,651 | 3,961 | 4,195 |
|
| 207,117 | 201,494 | 206,400 |
Current assets |
|
|
|
|
Inventory |
| 353 | 353 | 353 |
Trade and other receivables | 11 | 10,225 | 3,971 | 1,213 |
Current tax |
| - | - | 426 |
Cash and cash equivalents |
| 22,352 | 20,613 | 11,144 |
|
| 32,930 | 24,937 | 13,136 |
|
|
|
|
|
Total assets |
| 240,047 | 226,431 | 219,536 |
|
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables | 12 | (64,278) | (26,448) | (23,156) |
Other payable - shareholder management fee | 13 | - | - | (17,250) |
Bank loan | 15 | (4,381) | - | - |
|
| (68,659) | (26,448) | (40,406) |
|
|
|
|
|
Net current liabilities |
| (35,729) | (1,511) | (27,270) |
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Decommissioning provision | 14 | (10,262) | (9,945) | (10,120) |
Bank Loan | 15 | (9,197) | (13,110) | (13,334) |
|
| (19,459) | (23,055) | (23,454) |
|
|
|
|
|
Total liabilities |
| (88,118) | (49,503) | (63,860) |
|
|
|
|
|
Net assets |
| 151,929 | 176,928 | 155,676 |
Equity |
|
|
|
|
Share capital | 16 | 257,034 | 253,497 | 253,497 |
Share premium | 17 | 27,493 | 12,452 | 12,452 |
Other reserve |
| (10,542) | (10,542) | (10,542) |
Retained earnings |
| 53,688 | 39,238 | 46,429 |
Translation reserve |
| 1,429 | 1,429 | 1,429 |
Equity attributable to the owners of the Company |
| 329,102 | 296,074 | 303,265 |
Non-controlling interests |
| (177,173) | (119,146) | (147,589) |
Total equity |
| 151,929 | 176,928 | 155,676 |
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
| Share capital | Share Premium | Other reserve | Retained profits | Translation reserve | Total | Non-controlling interest | Total equity |
| $'000s | $'000s | $'000s | $'000s | $'000s | $'000s | $'000s | $'000s |
At 1 January 2016 | 248,039 | - | (10,542) | 29,412 | 1,429 | 268,338 | (100,296) | 168,042 |
Profit/(loss) for the period | - | - | - | 9,752 | - | 9,752 | (18,850) | (9,098) |
Share based payments | - | - | - | 74 | - | 74 | - | 74 |
Issue of share capital | 5,458 | 12,452 | - | - | - | 17,910 | - | 17,910 |
At 30 June 2016 (unaudited) | 253,497 | 12,452 | (10,542) | 39,238 | 1,429 | 296,074 | (119,146) | 176,928 |
|
|
|
|
|
|
|
|
|
Profit/(loss) for the period | - | - | - | 7,128 | - | 7,128 | (28,443) | (21,315) |
Share based payments | - | - | - | 63 | - | 63 | - | 63 |
At 31 December 2016 (audited) | 253,497 | 12,452 | (10,542) | 46,429 | 1,429 | 303,265 | (147,589) | 155,676 |
|
|
|
|
|
|
|
|
|
Profit/(loss) for the period | - | - | - | 7,214 | - | 7,214 | (29,584) | (22,370) |
Share based payments | - | - | - | 45 | - | 45 | - | 45 |
Issue of share capital | 3,537 | 15,041 | - | - | - | 18,578 | - | 18,578 |
At 30 June 2017 (unaudited) | 257,034 | 27,493 | (10,542) | 53,688 | 1,429 | 329,102 | (177,173) | 151,929 |
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
| Note | 6 monthsto 30 June 2017 Unaudited | 6 monthsto 30 June2016Unaudited | Year to 31 December 2016 Audited |
|
| $'000s | $'000s | $'000s |
|
|
|
|
|
Cash (used)/provided by in operating activities | 18 | (4,834) | 233 | (5,057) |
|
|
|
|
|
Interest and financing fees paid |
| (1,116) | (1,474) | (2,449) |
Income tax received |
| 430 | - | - |
Net cash used in operating activities |
| (5,520) | (1,241) | (7,506) |
|
|
|
|
|
Investing activities |
|
|
|
|
Development expenditure |
| (1,922) | (2,373) | (5,122) |
Exploration and evaluation expenditure | 9 | (131) | (1,097) | (1,758) |
Purchase of fixtures and equipment | 10 | - | (9) | (25) |
|
|
|
|
|
Net cash used in investing activities |
| (2,053) | (3,479) | (6,905) |
|
|
|
|
|
Financing activities |
|
|
|
|
Net proceeds on issue of shares | 16 | 18,578 | 17,908 | 17,910 |
Net cash from financing activities |
| 18,578 | 17,908 | 17,910 |
|
|
|
|
|
Net increase in cash and cash equivalents |
| 11,005 | 13,188 | 3,499 |
|
|
|
|
|
Cash and cash equivalents at the beginning of the period/year |
| 11,144 | 8,461 | 8,461 |
Effect of foreign exchange rate changes |
| 203 | (1,036) | (816) |
Cash and cash equivalents at the end of the period/year |
| 22,352 | 20,613 | 11,144 |
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
General information
Eland Oil & Gas PLC is a limited liability company incorporated in Scotland and listed on the AIM Market of the London Stock Exchange. The address of the registered office is 34 Albyn Place, Aberdeen, AB10 1FW, United Kingdom. The principal activities of the Company are oil and gas exploration and development, with a focus on West African opportunities for acquisition and development.
The condensed financial statements for the six months ended 30 June 2017 were authorised for issue in accordance with a resolution of the Board of Directors on 25 September 2017.
The information for the 6 months ended 30 June 2017 contained within the condensed financial statements does not constitute statutory accounts within the meaning of section 435 of the Companies Act 2006 but has been derived from those accounts. Statutory accounts for the year ended 31 December 2016 were approved by the Board of Directors on 6 June 2017 and delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified, however did include an emphasis of matter. Refer to the 2016 annual report for further details. The report did not contain any statement under section 498(2) or 498(3) of the Companies Act 2006.
The financial information contained in this report is unaudited.
Basis of preparation
The condensed financial statements for the six months ended 30 June 2017 have been prepared in accordance with IAS 34, "Interim financial reporting", as adopted by the European Union ("EU"), on a going concern basis. The condensed set of financial statements included in this half-yearly financial report have been prepared in accordance with the accounting policies the Group intends to use in preparing its next annual financial statements and should be read in conjunction with the annual financial statements for the year ended 31 December 2016.
Whilst the working capital position of the Group continues to improve after the period end, the Directors are of the view that some material uncertainties still exist and therefore refer you to the Going Concern disclosures below which highlight those uncertainties.
The Group incurred a net loss of $22.4 million during the period to 30 June 2017 and had net assets of $151.9 million as at that date.
Going Concern
In assessing its conclusion on going concern, the Group has prepared cash, funding and liquidity forecasts through this year and next, and has appropriate plans in place to maintain its access to funding when required and that it is compliant with its covenants. In making this assessment, the Directors note that following the return to Forcados in May 2017 and the share placement in June 2017, the Group has cash balances of $22.4 million at the end of the period.
The prolonged closure of the Forcados Oil Terminal from February 2016 to May 2017 placed significant pressure on the working capital of the Group as it was unable to generate revenues during this period until the commencement of shipping operations in January 2017. The working capital peaked in May 2017 at which point the Group had net current liabilities of $49.0 million. Following the equity raise in June the net current liabilities improved to $35.7 million by 30 June 2017 and we anticipate further improvement as production ramps up in the second half of 2017.
As such, the Directors have concluded that material uncertainties exist any of which could lead to a liquidity shortfall or the Company becoming non-compliant with its loan covenants in the near term, including:
1) Operational performance - in order to give the Group time to unwind the working capital position it is necessary for a prolonged period of operational uptime from the Forcados Oil Terminal, particularly as the Group has committed the capex spend to drill Opuama-7 in the latter part of 2017. The Group has demonstrated active mitigation of this risk by executing an alternative export solution via shipping in H1 2017. Nonetheless, the Directors recognise in the event Forcados Oil Terminal was unavailable again this would reduce cash flows significantly in the short-term and exert additional working capital pressure on the Group to re-commence shipping operations.
2) Working capital management - careful working capital management will continue to be necessary to unwind the net current liability position through to the end of 2017. In particular the timing and potential settlement of the key current liabilities noted below is critical:
i) NPDC accruals; the Group currently holds liabilities to NPDC of $15.9 million (at August 2017), and the intention is to settle this liability through funding NPDC's share of current and future capital projects. In addition, there are rejected cash call amounts in issue, as disclosed in note 33 of the 2016 Annual Report, which are subject to JV audit. As such, there is a risk that NPDC seek payment for amounts, or the JV audit does not support Elcrest's position, and funding might not be available to Elcrest to settle amounts then being called. However, we feel the risk of this liability being demanded in the short-term has reduced with OP-7 being funded by Elcrest;
ii) Shareholder Management Fees; the Group currently holds liabilities to Elcrest's indigenous shareholder of $15.25 million, although it does not anticipate payment of such amounts until adequate resources are available within Elcrest to settle this liability. There is a risk that the local shareholder of Elcrest will request from Elcrest an acceleration of payments beyond the funding available to Elcrest.
3) Covenant compliance - the Group's historic and forecast covenant calculations exclude the Elcrest shareholder management fee, overlift position and NPDC liabilities. The details and assumptions used in the covenant calculations are disclosed and discussed with the lender, Standard Chartered Bank. Maintaining covenant compliance through the coming 12 months will be reliant on increased production and cashflow, and agreement to exclude these liabilities from covenant calculations. At the date of the last completed borrowing base review, the covenant calculations as at 31 December 2016 were submitted prior to recognition of the Shareholder Management Fee noted above, and therefore excluded this amount. Maintaining covenant compliance therefore requires the lender to accept the adjustments to the calculation, in addition to continuing production and cashflows. There is a risk the lender would not approve the covenant calculation at the time it is made.
The directors recognise the above items are material uncertainties that could cast significant doubt on the Group's ability to continue as a Going Concern. However, the directors believe that mitigating actions are available and indeed have undertaken such mitigating actions over the course of the last 12 months including capital market funding, ongoing discussions with SCB regarding the debt facility and executing the shipping solution as an alternative export route. If necessary, similar mitigating actions could be undertaken again should a single or a combination of the above risks materialise.
Having regard to the matters above, and after making reasonable enquiries and taking account of uncertainties and reasonably possible changes in operating performance, the Directors have a reasonable expectation that the Group has adequate resources to continue operations for the foreseeable future. For that reason, they continue to adopt the going concern basis in the preparation of the accounts.
The financial statements do not include the adjustments that would result if the Company does not continue as a going concern.
1. BASIS OF PREPARATION (CONTINUED)
Accounting policies
The accounting policies applied in these condensed financial statements are consistent with those of the annual financial statements for the year ended 31 December 2016, as described in the 2016 Annual Report.
There are no new IFRS or IFRS Interpretation Committee ("IFRIC") interpretations that are effective for the first time for the financial year beginning on or after 1 January 2017 that would be expected to have a material impact on the group.
2. REVENUE
An analysis of the group's revenue is as follows:
| 6 monthsto 30 June 2017 Unaudited | 6 monthsto 30 June 2016 Unaudited |
Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Sale of oil | 844 | 1,112 | 2,373 |
| 844 | 1,112 | 2,373 |
Revenue derives from an offtake contract with its partner, Shell Western Supply and Trading Limited. The oil produced during the shipping period has been included in underlift within operating expenses as all the criteria to be recognised as revenue has not been met. Specifically, the crude delivered to the FPSO Trinity Spirit by Elcrest had not been lifted by the crude purchaser due to operational constraints on the third-party owned, FPSO. As a result, Elcrest still held title to the crude, albeit $18.1 million had been received in cash with a further $7.5m payable to Elcrest at the period end. In August 2017, Elcrest's crude was lifted from the FPSO and the shipping volumes will therefore be recognised within revenue in the 2017 full year financial statements.
The Directors believe that the Group has only one reportable operating and geographic segment, which is the exploration and production of oil and gas reserves in Nigeria. Please refer to the 2016 annual report for further details.
3. OPERATING EXPENSES
The analysis of operating expenses is as follows:
| 6 monthsto 30 June 2017 Unaudited |
6 monthsto 30 June 2016 Unaudited | Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Shareholder management fee | 3,275 | - | 17,250 |
Depreciation | 3,741 | 643 | 1,083 |
Foreign exchange loss/(gain)
| 2,507 | (2,809) | (8,001) |
Timewriting recharges | (606) | (1,453) | (1,360) |
OML40 operating expenses | 6,805 | 7,837 | 12,992 |
Shipping operations | 19,628 | - | - |
Amortisation of intangible assets | 500 | 751 | 1,500 |
Royalties | 4,300 | 474 | 609 |
(Underlift)/overlift | (19,411) | (371) | 1,374 |
| 20,739 | 5,072 | 25,447 |
Following the prolonged unavailability of the Forcados terminal, a decision was made to implement a shipping solution whereby crude was exported from the Opuama field to a storage vessel moored at the Benin River in the Niger Delta. The crude was then shipped to an offshore FPSO. The shipping operations continued for a period of four months during the first half of the year and the costs of these operations are separately noted above. The costs are non-recurring as production resumed to the Forcados terminal in late May 2017.
4. ADMINISTRATIVE EXPENSES
The analysis of administrative expenses is as follows:
| 6 monthsto 30 June 2017 Unaudited |
6 monthsto 30 June 2016 Unaudited |
Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Office depreciation | 90 | 130 | 237 |
Foreign exchange (gain)/loss | (150) | 950 | 1,491 |
Salaries and general support costs | 1,792 | 3,115 | 4,104 |
| 1,732 | 4,195 | 5,832 |
5. FINANCE INCOME AND COSTS
| Note | 6 monthsto 30 June 2017 Unaudited | 6 monthsto 30 June 2016 Unaudited | Year to 31 December 2016 Audited |
|
| $'000s | $'000s | $'000s |
|
|
|
|
|
Interest and fees charged on JV billings |
| - | 118 | 306 |
Total finance income | 18 | - | 118 | 306 |
|
|
|
|
|
RBL interest and fees | 15 | (1,181) | (1,165) | (2,366) |
Unwinding of discount on decommissioning provision | 14 | (142) | (136) | (311) |
Interest on unpaid preference shares dividend |
| (14) | (101) | (115) |
Other interest and charges |
| (494) | (23) | (50) |
Total finance costs | 18 | (1,831) | (1,425) | (2,842) |
6. LOSS BEFORE TAX
| Note | 6 monthsto 30 June 2017 Unaudited | 6 monthsto 30 June 2016 Unaudited | Year to 31 December 2016 Audited |
|
| $'000s | $'000s | $'000s |
The loss before taxation for the period/year has been arrived at after charging/ (crediting): |
|
|
|
|
|
|
|
|
|
Depreciation on property, plant and equipment | 10 | 3,830 | 773 | 1,320 |
Amortisation of intangible assets | 9 | 500 | 751 | 1,500 |
Net foreign exchange losses/(gains) |
| 2,358 | (1,859) | (6,511) |
Royalties |
| 4,300 | 474 | 609 |
Wages, salaries and other employment costs |
| 4,374 | 5,167 | 9,722 |
Shareholder management fee | 13 | 3,275 | - | 17,250 |
7. TAXATION
| 6 monthsto 30 June 2017 Unaudited | 6 monthsto 30 June 2016 Unaudited | Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Current tax charge | - | - | 431 |
Deferred tax credit | 2,457 | 364 | 599 |
Irrecoverable withholding tax | (1,369) | - | - |
Total tax credit for the year | 1,088 | 364 | 1,030 |
The Group has recognised a deferred tax asset of $6.65 million as at 30 June 2017 in relation to the temporary difference that arises between the net book value and the tax written down value of the oil and gas assets. Capital allowances can be deferred during the Pioneer tax relief period and will be available following the tax relief period, whilst the book value of the asset is depreciated following commencement of production in July 2014.
As at 30 June 2017, the Group has taxable losses of $340,758,000 (31 December 2016: $284,293,000) for which no deferred tax asset has been recognised as there is not sufficient certainty at this time regarding the utilisation of these losses. In particular, Elcrest accounts for the majority of these tax losses totalling $315,193,000 (31 December 2016: $262,124,000). On expiry of Pioneer tax status, and following the full utilisation of available tax losses and capital allowances of $190,702,000 (31 December 2016: $188,241,000) Elcrest is expected to be paying tax at 65.75% for five years and at 85% thereafter. There is no time limit to the utilisation of these losses although the quantum of the losses are subject to agreement with the Nigerian tax authorities.
8. EARNINGS PER SHARE
From continuing operations
The calculation of the basic and diluted earnings per share is based on the following data:
| 6 months to 30 June 2017 Unaudited | 6 months to 30 June 2016 Unaudited |
Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Earnings |
|
|
|
Earnings for the purpose of the basic and diluted earnings per share being net profit attributable to owners of the Company | 7,214 | 9,752 | 16,881 |
Number of shares | 6 months to 30 June 2017 Unaudited | 6 months to 30 June 2016 Unaudited |
Year to 31 December 2016 Audited |
| 000's | 000's | 000's |
Weighted average number of ordinary shares for the purposes of basic and diluted loss per share | 195,065 | 168,265 | 180,540 |
9. INTANGIBLE OIL AND GAS ASSETS
| Exploration and evaluation assets | Other intangible assets | Total |
| $'000s | $'000s | $'000s |
|
|
|
|
Cost |
|
|
|
At 1 January 2017 | 11,700 | 3,929 | 15,629 |
Additions during the period | 131 | - | 131 |
At 30 June 2017 | 11,831 | 3,929 | 15,760 |
|
|
|
|
Amortisation |
|
|
|
At 1 January 2017 | - | (3,429) | (3,429) |
Charge for the period | - | (500) | (500) |
At 30 June 2017 | - | (3,929) | (3,929) |
|
|
|
|
Carrying amount |
|
|
|
At 30 June 2016 | 10,149 | 1,250 | 11,399 |
At 31 December 2016 | 11,700 | 500 | 12,200 |
At 30 June 2017 | 11,831 | - | 11,831 |
The Group's oil and gas exploration and evaluation assets at 30 June 2017 relate to the Group's interest in the Ubima marginal field in Nigeria.
The other intangible asset relates to the approval fee paid on grant of Pioneer tax status in 2014. The cost of the pioneer tax has been fully amortised as at June 2017.
10. PROPERTY, PLANT AND EQUIPMENT
| Fixtures and equipment | Motor vehicles | Oil and Gas assets | Total |
| $'000s | $'000s | $'000s | $'000s |
|
|
|
|
|
Cost |
|
|
|
|
At 1 January 2017 | 1,574 | 185 | 195,896 | 197,655 |
Additions during the period | - | - | 2,460 | 2,460 |
Disposals during the period | - | - | - | - |
At 30 June 2017 | 1,574 | 185 | 198,356 | 200,115 |
|
|
|
|
|
Accumulated depreciation |
|
|
|
|
At 1 January 2017 | (1,129) | (141) | (6,380) | (7,650) |
Charge for the period | (82) | (13) | (3,735) | (3,830) |
Disposals during the period | - | - | - | - |
At 30 June 2017 | (1,211) | (154) | (10,115) | (11,480) |
|
|
|
|
|
Carrying amount |
|
|
|
|
At 30 June 2016 | 607 | 57 | 185,471 | 186,135 |
At 31 December 2016 | 445 | 44 | 189,516 | 190,005 |
At 30 June 2017 | 363 | 31 | 188,241 | 188,635 |
The Group's oil and gas development and production assets at 30 June 2017 entirely relate to the Group's interest in OML40 in Nigeria.
11. TRADE AND OTHER RECEIVABLES
| 6 monthsto 30 June 2017 Unaudited |
6 monthsto 30 June 2016 Unaudited | Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Trade receivables | 7,425 | - | 28 |
Other receivables | 1,814 | 2,812 | 353 |
Prepayments | 986 | 1,159 | 832 |
| 10,225 | 3,971 | 1,213 |
12. TRADE AND OTHER PAYABLES
| 6 monthsto 30 June 2017 Unaudited |
6 monthsto 30 June 2016 Unaudited |
Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Trade payables | 19,609 | 725 | 1,074 |
Other payables | 14,717 | 2,245 | 4,542 |
JV creditors and JV accruals | 15,933 | 16,328 | 10,464 |
Other accruals | 5,767 | 6,829 | 5,009 |
Overlift | 8,252 | 321 | 2,067 |
| 64,278 | 26,448 | 23,156 |
Trade payables include amounts due in respect of the shareholder management fee totalling $13.5 million - see note 13 - (with a further $1.5 million in Other accruals). The shareholder management fee will only become payable as and when free cash is generated from the increasing OML40 production. Trade payables also contained outstanding offtake cost balances for $3.9 million. The offtake cost balances were settled in August following receipt of additional proceeds from the crude purchaser after delivery of crude to the nominated offtake vessel.
Other payables principally include royalties, withholding taxes, VAT and employment and other taxes of approximately $12 million, together with a further $2.3 million due to our Forcados offtake partner Shell Western Trading Supply Limited. The balance due to Shell was fully settled in July 2017.
The JV creditors and JV accruals balance of $15.9 million represents estimates due under the OML 40 Joint Operating Agreement (JOA) which includes amounts not yet invoiced or agreed with our partner on the licence. As noted in the Going Concern section the Group intends to settle these liabilities through funding NPDC's share of current and future capital projects. Currently the Group is funding the drilling of Opuama-7 sidetrack which is due to be completed in October 2017 and the purchase and installation of the OML 40 JV LACT unit.
The overlift balance of $8.2 million represents the value attributable to the volume of sales (including barrels delivered to the FPSO during shipping) in excess of entitlement production on the OML 40 licence which increased during the shipping period. We expect this position to unwind in the second half of the year as production ramps up on the OML40 licence.
13. OTHER PAYABLE - SHAREHOLDER MANAGEMENT FEE
| 6 months to 30 June 2017 Unaudited |
6 months to 30 June 2017 Unaudited |
Year to 31 December 2016 Audited |
| $000s | $000s | $000s |
Opening balance | 17,250 | - | - |
Provision in the period/year | - | - | 17,250 |
Transfer to trade payables | (17,250) | - | - |
Closing balance | - | - | 17,250 |
As at 31 December 2016 Elcrest had fully provided for the maximum liability due under the shareholder agreement with its indigenous shareholder in Nigeria for logistical and general support services. During the period Elcrest received a fee invoice for this liability from its local shareholder. As a result, the provision has been released and the balance has now been transferred to trade payables. See note 18 and 34 in the 2016 annual report for further details.
As at 30 June 2017 a balance of $13.5 million is included within Trade payables in relation to the shareholder management fee.
14. DECOMMISSIONING PROVISIONS
| Decommissioning provision$'000s |
At 1 January 2016 | 9,809 |
Unwinding of discount | 311 |
At 31 December 2016 | 10,120 |
Unwinding of discount | 142 |
At 30 June 2017 | 10,262 |
The provision for decommissioning is in respect of both OML 40 and Ubima. The provision represents the present value of amounts that are expected to be incurred to the end of licence term, discounted to the present value using a 2.75% discount rate.
15. BORROWINGS
| At 30 June 2017Unaudited | At 30 June 2016Unaudited | Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Reserve based facility agreement with maturity date 30 June 2019 |
|
| |
Amount used | 15,000 | 15,000 | 15,000 |
Amount unused | 8,900 | 10,400 | 10,400 |
| 23,900 | 25,400 | 25,400 |
The maturity of the loan balances due for repayment can be categorised as follows:
| At 30 June 2017Unaudited | At 30 June 2016Unaudited | Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Amount due for repayment within 1 year | 4,381 | - | - |
Amount due for repayment after 1 year | 10,619 | 15,000 | 15,000 |
| 15,000 | 15,000 | 15,000 |
The reserves based lending facility with Standard Chartered Bank (SCB), which Westport (the Group's finance vehicle) entered into on 31 December 2014 (the "RBL") is available to the Group to fund, amongst other things, capital expenditure obligations in respect of Elcrest's participating interest in OML 40 and for the Group's working capital purposes up to $5 million.The RBL, to which SCB has committed an initial $35 million, has a maturity of four and a half years from 31 December 2014. Interest is payable on amounts outstanding on a quarterly basis at a rate equivalent to USD LIBOR plus a margin of 7.75%.
The amount available under the RBL is subject to a cap determined by the lower of the borrowing base amount and the committed facility amount. The borrowing base amount is calculated on OML 40 production and is re-determined every six months in accordance with the terms of the RBL.The borrowing base review covering the period to 31 December 2016 was completed in April 2017 where the borrowing base was confirmed at $23.9million. This review was under the basis of only two wells, Opuama 1 and Opuama 3, and shipping as the export solution. The Company has agreed with SCB to defer the borrowing base review scheduled for 30 June 2017, which will now be completed before the end of the year in order to accommodate the results of the Opuama 7 side-track.
The amount used under the RBL is reconciled to the carrying amount of the loan as at the Balance Sheet date as follows:
| At 30 June 2017Unaudited | At 30 June 2016 Unaudited | Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Opening balance | 13,334 | 13,367 | 13,367 |
Arrangement fees and costs amortised in period | - | (436) | (436) |
Interest charged | 1,181 | 1,165 | 2,366 |
Interest and fees paid | (937) | (984) | (1,963) |
Closing balance | 13,578 | 13,110 | 13,334 |
The carrying amount of the loan is classified as below on the balance sheet:
| At 30 June 2017Unaudited | At 30 June 2016 Unaudited | Year to 31 December 2016 Audited |
| $'000s | $'000s | $'000s |
Current liabilities | 4,381 | - | - |
Non-current liabilities
| 9,197 | 13,110 | 13,334 |
| 13,578 | 13,110 | 13,334 |
16. SHARE CAPITAL
| 2017 | 2016 |
| $ | $ |
Allotted, issued and paid: |
|
|
220,164,155 (2016: 186,319,340) voting ordinary shares of £0.10 each | 33,799 | 29,138 |
Nil (2016:6,296,815) non-voting ordinary shares of £0.10 each | - | 1,124 |
155,263,214 deferred shares of £0.90 each | 223,235 | 223,235 |
| 257,034 | 253,497 |
Allotted, issued and paid ordinary shares
|
Voting £0.10 ordinary shares | Non-voting £0.10 ordinary shares | Total £0.10 ordinary shares |
At 1 January 2016 | 145,263,214 | 10,000,000 | 155,263,214 |
Conversion of non-voting to voting
| 4,613,685
| (4,613,685)
| -
|
Issued and fully paid on equity placing | 36,442,441 | 910,500 | 37,352,941 |
At 30 June and 31 December 2016 | 186,319,340 | 6,296,815 | 192,616,155 |
Conversion of non-voting to voting
| 6,296,815
| (6,296,815)
| -
|
Issued and fully paid on equity placing | 27,548,000 | - | 27,548,000 |
At 30 June 2017 | 220,164,155 | - | 220,164,155 |
A total of 27,548,000 new ordinary shares were issued pursuant to the Share Placing announced on 14 June 2017. The company raised approximately $19.5 million (gross) through the placing at 55 pence per share. Of the net proceeds received $3,537,000 has been recorded in share capital, $15,917,000 in share premium with expenses of $875,000 also included in share premium.
17. SHARE PREMIUM
| $'000's |
As at 1 January 2016 | - |
Issue of shares at a premium | 13,099 |
Expenses related to share issue | (647) |
As at 30 June and 31 December 2016 | 12,452 |
Issue of shares at a premium | 15,917 |
Expenses related to share issue | (876) |
As at 30 June 2017 | 27,493 |
18. RECONCILIATION OF LOSS FOR THE PERIOD/YEAR TO OPERATING CASH FLOW
| Note |
6 monthsto 30 June 2017 Unaudited |
6 monthsto 30 June2016Unaudited |
Year to 31 December 2016 Audited |
|
| $'000s | $'000s | $'000s |
|
|
|
|
|
Loss before tax for the period/year |
| (23,458) | (9,462) | (31,442) |
|
|
|
|
|
Adjustments for: |
|
|
|
|
Increase in management fee |
| - | - | 17,250 |
Share based payments | 15 | 45 | 74 | 136 |
Net finance costs | 5 | 1,831 | 1,289 | 2,536 |
Amortisation of intangible assets | 9 | 500 | 751 | 1,500 |
Depreciation of property, plant and equipment | 10 | 3,831 | 773 | 1,320 |
Unrealised foreign exchange (gains)/losses on operating activities |
| (203) | 1,034 | 817 |
Non-cash movement loan liability |
| - | 181 | - |
|
| 6,004 | 4,102 | 23,559 |
Operating cash flows before movements in working capital |
| (17,454) | (5,360) | (7,883) |
|
|
|
|
|
Increase in trade and other operating payables |
| 21,636 | 4,551 | 570 |
(Increase)/decrease in trade and other operating receivables |
| (9,016) | 1,042 | 2,256 |
|
| 12,620 | 5,593 | 2,826 |
Net cash provided by/(used) in operating activities |
| (4,834) | 233 | (5,057) |
19. DIVIDENDS
No interim dividend is proposed and no dividend has been paid in the period to 30 June 2017 (Full Year 2016: $nil).