IGAS.L Regulatory News (IGAS)

12 September 2018

IGas Energy plc (AIM: IGAS)

Unaudited results for the six months ended 30 June 2018

IGas Energy plc ("IGas" or "the Company" or "the Group"), one of the leading producers of hydrocarbons onshore in Britain, announces its unaudited half year results for the six months to 30 June 2018.

Results Summary

Operational Summary

· Net production averaged c.2,300 boepd in H1 2018 (H1 2017: 2,335 boepd) and we are expecting average net production for the year to be c.2,200 - 2,300 boepd, with operating expenditure anticipated to be on budget at $32.5/boe in 2018 (assuming an average exchange rate of £1:$1.35)

· Stockbridge production recovery programme ongoing - the STK-16y water injection well has been successfully worked over and is now back online

· Albury gas-to-grid project remains on track for Q4 2018

Shale Appraisal & Development

· Tinker Lane appraisal well is on track to spud in Q4 2018

· Ellesmere Port appeal - we are now awaiting a date for the public inquiry

· Interim injunction granted covering Springs Road, Tinker Lane and Ellesmere Port sites

· Carried work programme of up to £182 million ($242 million at 30 June 2018 exchange rates) as at 30 June 2018

· Having gained consent in July 2018, Cuadrilla is expected to commence hydraulic fracturing at Preston New Road in the next few weeks

Corporate & Financial Summary

· Cash balances as at 30 June 2018 were £14.5 million (H1 2017: £16.3 million) with net debt (excluding capitalised fees) of £7.4 million (H1 2017: £7.2 million)

· Improved hedging position in 2019 using a mixture of puts and zero-cost collars. 300,000 barrels hedged for H2 2018 with a floor price of $46/bbl - $55/bbl and 375,000 bbls hedged for 2019 with a floor price of $55/bbl - $64/bbl

· Improved net cash from operating activities of £6.0m (H1 2017: £0.4m) principally due to improved commodity prices

· The sale of certain non-core assets to Onshore Petroleum Limited is progressing with completion still anticipated in 2018. Following completion net production will reduce by c.120 boepd, although this will have minimal impact on the 2018 net production average

Commenting today Stephen Bowler, Chief Executive Officer, said:

"Momentum in the UK onshore shale industry continues to build. We will commence our drilling campaign in the East Midlands shortly, Cuadrilla will begin hydraulic fracturing of their wells in Lancashire in the next few weeks and INEOS have been successful in appealing planning decisions on their exploration programme.

We are making good progress on our production projects and as cash generation continues to improve, given the higher oil price, we will be able to invest back into the business."

A results presentation will be available at www.igasplc.com/investors/presentations.

John Blaymires, Chief Operating Officer of IGas Energy plc, and a qualified person as defined in the Guidance Note for Mining, Oil and Gas Companies, March 2006, of the London Stock Exchange, has reviewed and approved the technical information contained in this announcement. Mr. Blaymires has 35 years oil and gas exploration and production experience.

For further information please contact:

IGas Energy plc

Tel: +44 (0)20 7993 9899

Stephen Bowler, Chief Executive Officer

Julian Tedder, Chief Financial Officer

Ann-marie Wilkinson, Director of Corporate Affairs

Investec Bank plc (NOMAD and Joint Corporate Broker)

Tel: +44 (0)20 7597 5970

Sara Hale/Jeremy Ellis/Neil Coleman

Canaccord Genuity (Joint Corporate Broker)

Tel: +44 (0)20 7523 8000

Henry Fitzgerald-O'Connor/James Asensio

Vigo Communications

Tel: +44 (0)20 7830 9700

Patrick d'Ancona/Chris McMahon

Introduction and Market Backdrop

During the first half of the year, we have progressed the delivery of sanctioned projects including Albury gas-to-grid, Stockbridge production recovery, Welton waterflood enhancement and the ongoing construction at our two shale appraisal sites in North Nottinghamshire. 

It has been an encouraging period for the UK shale gas industry with the Government's support and commitment to our industry laid out in the Written Ministerial Statement from the Department of Business, Energy and Industrial Strategy and the Department for Housing, Communities and Local Government announced on 17 May 2018.

The statement itself constitutes a material consideration in local planning decisions and reiterates that shale gas development is of national importance. On 19 July 2018, the Government launched two consultations: one that will consider allowing exploration wells to be drilled under permitted development (i.e. without the requirement of a planning application); and another on the inclusion of shale production projects into the Nationally Significant Infrastructure Projects regime. We will be responding to those consultations ahead of the 25 October 2018 deadline.

On 24 July 2018, Cuadrilla received final hydraulic fracture consent from the Department for Business, Energy & Industrial Strategy ("BEIS") for its first horizontal shale gas exploration well at its Preston New Road site in Lancashire. In addition, they have submitted an application to BEIS for consent to conduct hydraulic fracturing operations in its second horizontal shale gas exploration well at the Preston New Road site.

With over 80% of UK households using gas for heating and industry using it to make vital products, it is not a case of whether we need to use gas but where we should source it from. The price of gas in the UK continues to be more than double that in the US making it more difficult for British Industry to compete in these challenging times. It is also having an impact on consumers as suppliers increase prices.

Britain needs a diverse supply of energy which protects and secures UK jobs and UK taxes. Imported gas currently costs over £13 million a day - money that is not generating jobs or tax revenues in this country.

Operating review

Production assets

Production for the first five months of the year was ahead of budget. Operational activity remains high as we continue to execute the 2018 work programme, including optimisation of existing facilities and systems alongside the routine maintenance and integrity programs, as well as the two incremental production projects.

The aim of the Stockbridge production recovery programme was to debottleneck the water management constraints at the field to create additional capacity, whilst also returning existing wells to production. The workovers of the production wells progressed positively, with the STK-18 and STK-14 wells successfully completed. The sidetrack of STK-19, to provide additional water injection capacity was successfully drilled, however the results did not provide us with the additional disposal capacity we had anticipated. As a consequence of the reduced water disposal capacity this has impacted our full year production average by c. 100 boepd. The STK-16y water injection well has been successfully worked over and is now back online and we are considering additional options for increasing water disposal capacity. We continue to progress the Welton water injection project building upon the success of the pilot results. As part of this initiative, various studies were conducted to look at the broader issue of water management in the East Midland fields and how production and recovery could be optimised whilst lowering opex costs across the portfolio. Similar capacity constraints as to those existing in the Weald exist in the East Midlands and we have embarked upon an investment programme to address this to ensure that oil production targets are unaffected.

The Albury gas-to-grid and power generation project remains on track. The well has been worked over and is available for production. Gas has flowed through the site facilities into the generator and electricity is being exported to the local electrical network as part of the on-site commissioning process. The pipeline construction is complete and has been successfully pressure tested. Delivery of the remaining surface facility packages are scheduled for September 2018 with commissioning and full production start-up and gas export to the grid (of up to 170 boepd, dependent on demand) still anticipated for late Q4 2018.

Since the restructuring in April 2017, we have been undertaking a systematic review of our production portfolio, both fields and the associated infrastructure, in order to ascertain any performance or capacity issues and how these might be mitigated. We have also focused on identifying optimisation opportunities to enhance production and reserves and reduce operating expenditure. To aid this exercise we have carried out a series of field studies. These scoping studies have highlighted a number of opportunities with the most promising opportunities requiring a more detailed engineering evaluation and assessment before they are potentially FID ready. We will continue to advance these over the next 6-12 months. All of this is designed to ensure we have a robust suite of attractive investment opportunities underpinning the business.

Disposal of Non-core Fields

In May 2018, we signed a Sale and Purchase Agreement ("SPA") for the sale of certain non-core production assets (the IGas group's entire interest in PL220, ML3, ML6, ML7, PEDL70 and PL205 and a 50% interest in PEDL158 and P1270) and 25% interest in conventional development assets PEDL257 and PEDL235 (the "Conventional Development Licences") to Onshore Petroleum Limited ("OPL") for a consideration of £3.14 million.

The consideration will be satisfied by the provision of oil field services to IGas by OPL in consideration for the non-core production assets and the funding of a carried work programme in respect of the Conventional Development Licences. Completion of the transaction is still on track for H2 2018 and is conditional, inter alia, upon partner pre-emption rights on PEDL 70 and receipt of consent from the Oil and Gas Authority and the Environment Agency. The non-core production assets included in the SPA currently produce at a rate of c.120 boepd.

At completion, OPL will become the operator of the Conventional Development Licences and it is expected that OPL will become the operator of PEDL158 and P1270 in the first quarter of 2019, conditional upon, inter alia, consent from the Oil and Gas Authority. OPL will also have the right to acquire a further 25% interest in the Development Licences subject to payment of an agreed net profit interest of 75% of total field profits on the Development Licences and further oil field services to IGas in the sum of £500,000.

Development assets

We are on track to spud our first shale appraisal well in North Nottinghamshire at Tinker Lane in Q4 2018 with final preparations now underway. 

At our other site at Springs Road construction works are nearing completion. We have satisfied Condition 21 through the ongoing monitoring of site noise and this allowed us to resume works through the bird breeding season.

In the North West, we submitted a planning application to carry out some further tests at our existing site at Ellesmere Port in July 2017. Environmental permits were issued by the Environment Agency in November 2017 and on 25th January 2018, Cheshire West and Chester Council ("CWaCC") refused planning permission, contrary to their officer's recommendations and despite receiving no objections from any statutory or non-statutory technical consultees.

We have now made an application to appeal the decision which has been accepted by the Planning Inspectorate. The appeal will follow the public inquiry procedure and a date is yet to be determined.

As announced previously, whilst the application for a new well at our existing site at Ince Marshes is now complete, we have taken the decision not to submit to CWaCC until the outcome of the Ellesmere Port appeal is known.

Injunction

We were granted an interim injunction by Mr Justice Morgan in the High Court in London on 3 September 2018, covering our operations at Springs Road, Tinker Lane and Ellesmere Port.

The interim injunction was granted against three categories of 'Persons Unknown', prohibits conduct including trespass on IGas' land, unlawful interference with access to IGas' land and obstruction of the highway (including by slow-walking, lock-ons and lorry surfing).

The court order states that any breach of the injunctions is a contempt of court which could lead to imprisonment, fines or seizure of assets. The interim injunction does not prevent anyone effectively exercising their rights to freedom of assembly and freedom of expression. The interim injunction will remain in force until a return hearing which is due to be held on 2 October 2018.

Financial review

The Group generated revenue of £21.1m in the first six months of 2018 from sales of 415,632 barrels of oil, including sales of third party oil, and 5,240 mwh of electricity (H1 2017: revenue £16.8m, sales 444,023 barrels of oil and 4,100 mwh of electricity). Brent prices increased compared to the first half of 2017, averaging $70.6/bbl during H1 2018 compared to $51.8/bbl in H1 2017. The impact of higher oil prices was partially offset by a strengthening of sterling versus the US dollar with an average USD/GBP rate $1.37/£1 in H1 2018 compared to $1.27/£1 in H1 2017.

Adjusted EBITDA for H1 2018 was £6.0m (H1 2017: £2.5 m) and the loss after tax from continuing activities was £1.2m (H1 2017: profit of £8.0m). The main factors explaining the movements between H1 2018 and H1 2017 were as follows:

· Increased revenues of £21.1m (H1 2017: £16.8m) principally due to higher oil prices offset by the strengthening of sterling versus the US dollar and lower volumes;

· Operating costs decreased to £10.3m (H1 2017: £10.9m) mainly due to lower costs for purchasing and transporting third party barrels in line with a reduction in third party volumes;

· Administrative expenses decreased to £2.8m (H1 2017: £3.9m) mainly due to less corporate activity and increased timewriting to capital projects as we invested in our conventional assets and increased our activity in our shale programme;

· Loss on oil price derivatives of £3.5m (H1 2017: £1.0m gain) due to the movement in realised Brent prices and in the forward oil price curve;

· Decreased finance costs of £1.9m (H1 2017: £5.1m) principally due to lower interest on borrowings following the capital restructuring in April 2017; and

· A tax charge of £0.3m (H1 2017: credit £8.8m) principally due to an increase in deferred tax relating to the value of ring fence tax losses available for offset against future taxable profits.

Income statement

The Group recognised revenues of £21.1m in the period (H1 2017: £16.8m). Group production in the period was 2,292 boepd (H1 2017: 2,326 boepd). Oil sales were 398,618 barrels (excluding third party sales), with 5,240 mwh of electricity sold (H1 2017: 403,223 barrels; 4,100 mwh of electricity). Revenues for the period also included £0.8m (H1 2017: £1.6m) relating to the sale of third party oil, the bulk of which is processed through our gathering centre at Holybourne in the Weald Basin. 

The average realised price for the period pre hedge (excluding third party sales) was $68.3/bbl (H1 2017: $46.8/bbl) and post hedge $57.7/bbl (H1 2017: $46.8). The average exchange rate for the period was £1:$1.37 (H1 2017: £1:$1.27) which had a negative impact on revenues compared to H1 2017.

Cost of sales for the period were £13.6m (H1 2017: £14.8m) including depreciation, depletion and amortisation (DD&A) of £3.3m (H1 2017: £3.8m), and operating costs of £10.3m (H1 2017: £10.9m). Operating costs include £0.7m (H1 2017: £1.5m) in relation to processing third party oil. The contribution received from processing third party oil was £0.1m (H1 2017: £0.1m). Excluding the costs of processing third party oil, operating costs were broadly similar to the prior period. Operating costs per barrel of oil equivalent were £22.7 ($31.3), excluding the third party costs (H1 2017: £22.4 ($28.5) per barrel).

Adjusted EBITDA in the period was £6.0m (H1 2017: £2.5m). Gross profit of £7.5m was recognised in the period (H1 2017: £2.0m). Administrative costs decreased by £1.1m to £2.8m (H1 2017: £3.9m) principally due to lower corporate costs and increased timewriting to capital projects.

Exploration costs written off in H1 2018 were £0.1m (H1 2017: £0.0m) in relation to licence relinquishments. As part of our ongoing active portfolio management we are continually reviewing our acreage positions and will continue to relinquish non-core or uneconomic acreage.

Net finance costs were £1.9m in the period (H1 2017: £5.0m), including interest on borrowings of £0.9m (H1 2017: £4.3m), a net foreign exchange loss of £0.4m (H1 2017: £0.2m) and unwinding of decommissioning discount £0.6m (2017: £0.5m). The decrease in interest cost is due to the significant reduction in borrowings following the capital restructuring completed in April 2017.The Group recognised a tax expense of £0.3m (H1 2017: credit £8.8m) during the period primarily relating to an increase in deferred tax assets recognised in the prior period.

Cash flow

Net cash generated from operating activities in the period amounted to £6.0m (H1 2017: £0.4m). The Group invested £5.9m across its asset base in the period (H1 2017: £1.7m). We invested £4.3m (H1 2017: £0.8m) in our conventional assets primarily to optimise existing facilities and systems, carry out routine maintenance, progress our Stockbridge water injection programme and advance the Albury gas-to-grid and power generation project. We invested £5.2m (gross) in H1 2018 (H1 2017: £2.2m gross) in progressing our shale programme of which £3.9m (H1 2017: £1.3m carried) was carried by our joint venture partners, resulting in net cash expenditure by IGas of £1.3m (H1 2017: £0.9m). We also invested £0.2m (H1 2017: £0.0m) on conventional exploration activities.

IGas repaid £0.6m ($0.8m) of principal on borrowings (H1 2017: £3.0m ($3.8m) of principal on borrowings and purchased £1.8m ($2.2m) of bonds) in accordance with the terms of the bond covenants.

IGas paid £0.9m ($1.2m) in interest (H1 2017: £5.0m ($6.1m)).

Cash and cash equivalents were £14.5m at the end of the period (31 December 2017: £15.7m).

Balance sheet

Net assets were £180.8m at 30 June 2018 (31 December 2017: £181.6m).

The decrease in provisions is due to a portion of the decommissioning provision related to the licences being sold being included in the disposal group classified as held for sale.

Net debt, being borrowings less cash, increased to £7.4m at 30 June 2018 (31 December 2017: £6.2m; 30 June 2017: £7.2m).

Shareholder's equity increased by £0.1m to £180.8m.

Adjusted EBITDA

Adjusted EBITDA is considered by the Company to be a useful additional measure to help understand underlying performance.

Principal risks and uncertainties

The Group constantly monitors the Group's risk exposures and the management reports to the Audit Committee and the Board on a regular basis. The Audit Committee receives and reviews these reports and focuses on ensuring that the effective systems of internal financial and non-financial controls including the management of risk are maintained. The results of this work are reported to the Board which in turn performs its own review and assessment.

The principal risks for the Group remain as previously detailed on page 29 and 30 of the 2017 Annual Report and Accounts and can be summarised as:

· Planning, environmental, licensing and other permitting risks associated with its operations and, in particular, with drilling and production operations;

· Oil or gas is not produced in the anticipated quantities from any or all of the Group's assets or that oil or gas can be delivered economically;

· Successful development of shale gas resources is not achieved;

· Exposure to market price risk through variations in the wholesale price of oil in the context of the production from oil fields it owns and operates;

· Market price risk through variations in the wholesale price of gas and electricity in the context of its future unconventional production volumes;

· Exchange rate risk through both its major source of revenue and its major borrowings being priced in US$ while most of the Group's operating and G&A costs are denominated in UK pounds sterling;

· Exposure, through its operations, to liquidity risk;

· Exposure to capital risk resulting from its capital structure, including operating within the covenants of its existing bond agreements;

· Exposure to political risk. This can include changes in Government or the effect of any local or national referendum. These political risks can result in changes to the regulatory or fiscal environment (including taxation) which could affect the Group's ability to deliver its strategy;

· Strategy fails to meet shareholder expectations; and

· Loss of key staff.

Going concern

The Group continues to closely monitor and manage its liquidity risks. Cash forecasts for the Group are regularly produced based on, inter alia, the Group's production and expenditure forecasts, management's best estimate of future oil prices (based on current forward curves, adjusted for the Group's hedging programme) and the Group's borrowings. Sensitivities are run to reflect different scenarios including, but not limited to, possible further reductions in commodity prices below the current forward curve and reductions in forecast oil and gas production rates.

The Group's working capital forecasts show that the Group will have sufficient financial headroom for the 12 months from the date of approval of the financial statements. Therefore, the Directors have a reasonable expectation that the Group has adequate resources to continue in existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in the preparation of the financial statements.

Responsibility statement

The Directors confirm that to the best of their knowledge:

a) The condensed interim consolidated set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b) The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the six months and description of principal risks and uncertainties for the remaining six months of the year); and

c) The interim finance review includes a fair review of the business and of any required related party disclosures.

By order of the Board,

Stephen Bowler Julian Tedder

Chief Executive Officer Chief Financial Officer

Independent review report to IGas Energy plc

Report on the condensed interim consolidated financial statements

We have reviewed IGas Energy plc's condensed interim consolidated financial statements (the "interim financial statements") in the unaudited results of IGas Energy plc for the six month period ended 30 June 2018. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

The interim financial statements comprise:

the Condensed Interim Consolidated Balance Sheet as at 30 June 2018;

the Condensed Interim Consolidated Income Statement and Condensed Interim Consolidated Statement of Comprehensive Income for the period then ended;

the Condensed Interim Consolidated Statement of Changes in Equity for the period then ended;

the Condensed Interim Consolidated Cash Flow Statement for the period then ended; and

the explanatory notes to the interim financial statements.

The interim financial statements included in the unaudited results for the six months ended 30 June 2018 have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

The unaudited results for the six months ended 30 June 2018, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the unaudited results for the six months ended 30 June 2018 in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

Our responsibility is to express a conclusion on the interim financial statements in the unaudited results for the six months ended 30 June 2018 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the AIM Rules for Companies and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the unaudited results for the six months ended 30 June 2018 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

11 September 2018

Condensed Interim Consolidated Income Statement

Condensed Interim Consolidated Statement of Comprehensive Income

Condensed Interim Consolidated Balance Sheet

Condensed Interim Consolidated Statement of Changes in Equity

* The foreign currency translation reserve represents exchange gains and losses arising on translation of foreign currency subsidiaries' net assets and results and on translation of those subsidiaries' intercompany balances which form part of the net investment of the Group.

** Other reserves include: 1) LTIP/VCP/EDRP/MRP/EIP reserves which represent the cost of share options issued under the long term incentive plans; 2) share investment plan reserve which represents the cost of the partnership and matching shares; 3) treasury shares reserve which represents the cost of shares in IGas Energy plc purchased in the market and held by the IGas Employee Benefit Trust to satisfy awards held under the Group incentive plans; and 4) capital contribution reserve which arose following the acquisition of IGas Exploration UK Limited.

*** The transfer on equitisation of unsecured bonds has arisen due to the unsecured bonds being equitized at 60% of par and represents the difference between the nominal value of the shares issued and the book value of the debt exchanged.

Condensed Interim Consolidated Cash Flow Statement

1 Corporate information

The condensed interim consolidated financial statements of the Group for the six months ended 30 June 2018, which are unaudited, were authorised for issue in accordance with a resolution of the Directors on 11 September 2018.

IGas Energy plc is a public limited company incorporated and domiciled in England whose shares are publicly traded. The Group's principal activity is exploring for, appraising, developing and producing oil and gas resources in Great Britain.

2 Accounting policies

Basis of preparation

These condensed interim consolidated financial statements for the six months ended 30 June 2018 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard ('IAS') 34 - 'Interim Financial Reporting' as adopted by the European Union. The condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2017, which have been prepared in accordance with IFRSs as adopted by the European Union.

The financial information contained in this document does not constitute statutory accounts as defined by Section 435 of the Companies Act 2006 (England & Wales). The financial information as at 31 December 2017 is based on the statutory accounts for the year ended 31 December 2017. A copy of the statutory accounts for that year, which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union up to 31 December 2016, has been delivered to the Register of Companies and is available on the Company's website at www.igasplc.com. The auditors' report in accordance with Chapter 3 Part 16 of the Companies Act 2006 in relation to those accounts was unqualified and did not contain any matters on which the auditors are required to report an exception in accordance with section 498 (2) and (3) of the Companies Act 2006.

Going concern

The strength of the Group's balance sheet has been improved significantly by the capital restructuring carried out in 2017. The Group continues to closely monitor and manage its liquidity risks. Cash forecasts for the Group are regularly produced based on, inter alia, the Group's production and expenditure forecasts, management's best estimate of future oil prices (based on current forward curves, adjusted for the Group's hedging programme) and the Group's borrowings. Sensitivities are run to reflect different scenarios including, but not limited to, possible further reductions in commodity prices below the current forward curve and reductions in forecast oil and gas production rates.

The Group's working capital forecasts show that the Group will have sufficient financial headroom for the 12 months from the date of approval of the financial statements. Therefore, the Directors have a reasonable expectation that the Group has adequate resources to continue in existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in the preparation of the financial statements.

Accounting policies

The accounting policies applied in these condensed interim consolidated financial statements are consistent with those followed in the preparation of the Group's financial statements for the year ended 31 December 2017 except for the new and amended standards and interpretations discussed below.

New and amended standards and interpretations

During the period, the Group adopted the following new and amended IFRSs which were applicable to the Group's activities as of 1 January 2018. The adoption of the standards has had no material impact on the interim results for the six months ended 30 June 2018.

IFRS 16 - Leases has been published which is mandatory for the Group's accounting periods beginning on or after 1 January 2019* and which the Group has not adopted early.

* The effective date stated above is given in the original IASB/IFRIC standards and interpretations. As the Group prepares its financial statements in accordance with IFRS as adopted by the European Union (EU), the application of the standard will be subject to it having been endorsed for use in the EU via the EU endorsement mechanism. In the majority of cases this will result in an effective date consistent with that given in the original standard or interpretation but the need for endorsement restricts the Group's discretion to early adopt the standard.

The Group is currently assessing the impact that the standard will have on its financial position. The Group does not anticipate adopting this standard ahead of its effective date.

Estimates

The preparation of the condensed interim consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2017.

Financial risk management

The Group's activities expose it to a variety of financial risks; market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The condensed interim consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2017.

In the first half of 2018 the Board approved a change in hedging policy to include hedging of the US$ currency risk.

3 Basis of consolidation

The condensed interim consolidated financial statements present the results of IGas Energy plc and its subsidiaries as if they formed a single entity. The financial information of subsidiaries used in the preparation of condensed interim consolidated financial statements are based on consistent accounting policies to those of the parent. All intercompany transactions and balances between Group companies, including unrealised profits/losses arising from them, are eliminated in full. Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, it is treated as an extension of the entity.

 4 Revenue

All revenue, which represents turnover, arises solely within the United Kingdom and relates to external parties.

5 Finance income and costs

6 Tax on profit on ordinary activities

The Group calculates the period income tax expense using the tax rate that would be applicable to expected total annual earnings. The major components of income tax expense in the condensed interim consolidated income statement are:

7 Earnings per share (EPS)

The calculation of the basic and diluted loss/profit per share is based on the following data:

Basic EPS amounts are based on the loss for the period after taxation attributable to ordinary equity holders of the parent of £1.2 million (six months ended 30 June 2017: a profit after tax of £8.1 million, year ended 31 December 2017: a profit after tax of £15.5 million) and the weighted average number of ordinary shares outstanding during the period of 121.5 million (six months ended 30 June 2017: 66.6 million, year ended 31 December 2017: 121.4 million).

Diluted EPS amounts are based on the loss/profit after taxation attributable to the ordinary equity holders of the parent and the weighted average number of shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the potentially dilutive ordinary shares into ordinary shares, except where these are anti-dilutive.

For the six month period ended 30 June 2018 there were 4.7 million potentially dilutive employee share options, LTIPs and warrants, which are not included in the calculation of diluted earnings per share because they were anti-dilutive as their conversion to ordinary shares would decrease the loss per share.

8 Intangible exploration and evaluation assets

Exploration costs written off in H1 2018 were £0.1m (H1 2017: £0.0m) in relation to licence relinquishments. As part of our ongoing active portfolio management we are continually reviewing our acreage positions and will continue to seek to relinquish non-core licences or impair licences where the carrying value cannot be supported. Further analysis by location of asset is as follows:

North West: The group has £74.0m of capitalised exploration expenditure which includes PEDL's 145,147, 184, 189 and 190. Work is still ongoing to assess the viability for exploration and development, and in conjunction with our JV partner, INEOS, we will agree a 2019 work programme by the end of the year.

East Midlands: The group has £35.9m of capitalised exploration expenditure which includes PEDL's 12, 139, 140 and 200. We expect to drill Tinker Lane (PEDL 12) in Q4 2018.

South: The group has £6.4m of capitalised exploration expenditure in relation to Albury and Singleton.

Under the terms of the secured bond agreement, the secured bondholders have a fixed and floating charge over these assets.

9 Property, plant and equipment

Under the terms of the secured bond agreement, the secured bondholders have a fixed and floating charge over these assets.

10 Financial Instruments - fair value disclosure

The Group uses the following hierarchy for determining and disclosing the fair value of the financial instruments by valuation technique:

· Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

· Level 2: other valuation techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

· Level 3: valuation techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

For financial instruments there are no non-recurring fair value measurements nor have there been any transfers between levels of the fair value hierarchy.

The financial assets and liabilities measured at fair value are categorised into the fair value hierarchy as at the reporting dates as follows:

Fair value of derivative financial instruments

Commodity price options

The fair values of the commodity price options were provided by counterparties with whom the trades have been entered into. These consist of Asian style put and call options to sell/buy oil. The options are valued using a Black-Scholes methodology; however, certain adjustments are made to the spot-price volatility of oil prices due to the nature of the options. These adjustments are made either through Monte Carlo simulations or through statistical formulae. The inputs to these valuations include the price of oil, its volatility, and risk free interest rates.

Foreign exchange forward contracts

The fair values of foreign exchange forward contracts were provided by counterparties with whom the trades have been entered into.

Fair value of financial assets and financial liabilities

The carrying values of the financial assets and financial liabilities are considered to be materially equivalent to their fair values.

11 Cash and cash equivalents and other financial assets

Net debt reconciliation

12 Disposal group classified as held for sale and discontinued operations

Discontinued operations

The divestment of assets acquired as part of the Dart Acquisition, namely the Rest of the World segment, was completed in 2016. The Group still has presence in a number of Australian and Singaporean registered operations and continues its plans to exit all legal jurisdictions in the near future. The total loss after tax in respect of discontinued operations was £0.02 million (six months ended 30 June 2017: profit after tax of £0.04million; year ended 31 December 2017: loss after tax of £0.4 million), primarily relating to administration costs. There was no tax charge/(credit) in any of the periods.

Disposal group classified as held for sale

During the period, the Group agreed to divest certain non-core assets to Onshore Petroleum Limited ("OPL"). A sale purchase agreement was signed on 11 May 2018 for a consideration of £3.14 million which will be satisfied by provision of oil field services to the Group by OPL. Consent from the Oil and Gas Authorities and the Environment Agency is expected in the coming months and management expects completion of this transaction in the second half of the year. The major classes of assets and liabilities included in the disposal group classified as held for sale at the balance sheet date are as follows:

13 Share capital

On 3 April 2017, the shareholders approved the subdivision of each of the 303,305,534 ordinary shares of 10p each of the Company into one new ordinary share of 0.0001p each and one deferred share of 9.9999p each. At the Annual General Meeting of the Company on 14 June 2017, the shareholders approved a consolidation and subdivision of the Company's share capital in order to reduce the number of shares in issue to that more appropriate for the size of the Company. Following the consolidation, every 200 ordinary shares of 0.0001 pence each were consolidated into one new ordinary share of 0.02 pence each and immediately sub-divided into 10 ordinary shares of 0.002 pence. The consolidation and subdivision reduced the number of shares in issue from 2.4 billion to 121 million.