IOG.L Regulatory News (IOG)

25 August 2022

1H 2022 Interim Results

IOG plc ("IOG" or the "Company" or "Group") (AIM: IOG.L), the Net Zero UK gas and infrastructure operator focused on high return projects, announces its unaudited results for the six months ended 30 June 2022.

Andrew Hockey, CEO of IOG, said:

"In March, IOG became the UK's newest gas producer when we brought Saturn Banks Phase 1 onstream - a major milestone that is testament to many years of hard work across the whole team and our robust partnership with CalEnergy Resources. Generating our first revenues and profit in this period is an important step forward for the business.

The current energy crisis amply demonstrates the importance of low carbon intensity domestic gas production in delivering secure, affordable and sustainable energy supply. Our high-margin Phase 1 gas production can help to meet this challenge and enable further investment in our next phases of growth.

With high salinity fluids currently being received onshore, we are temporarily producing the Blythe and Elgood wells independently to establish the source of these fluids and optimise the operating plans. In view of this, we have revised our 2H 2022 guidance to a more conservative 30-50 mmscf/d.

Our two other key priorities this year are delivering Southwark first gas and progressing our Phase 2 plans. We also aim to open up further synergistic gas hubs with the two exciting appraisal wells at Goddard and Kelham. We look forward to the rest of 2022 and beyond with a firm focus on maximising shareholder value."

1H 2022 Operating and Financial Summary

1H 2022 Highlights

· Blythe and Elgood successfully brought onstream in mid-March 2022

o  Gross aggregate production of 34.0 mmscf/d from First Gas to 30 June 2022, at 59% uptime

· Strengthening gas market conditions during the period and particularly since period end

o  Volume weighted average gas price of 149 p/therm in 1H 2022

o  Rising to 254 p/therm over 2H 2022 to date⁴

o  UK NBP gas Winter-22 contract currently >600 p/therm and Summer-23 >500 p/therm

· Generating cash flow and profit from production operations

o  Total revenue of £30.2 million (30 June 2021: £nil), split 94% gas and 6% condensate

o  Opex of 13.7 p/therm for the period (1H 2021: N/A)

o  EBITDAX of £25.9 million for the period (1H 2021: £0.1 million)

o  Post-tax profit of £11.4 million (30 June 2021: £0.2 million)

o  Unrestricted cash balance at period end of £12.3 million (31 December 2021: £31.3 million)

· New long-term gas sales agreement (GSA) executed with BP Gas Marketing Ltd (BPGM)

o  Covering Blythe, Elgood, Southwark, Nailsworth and Elland fields up to at least September 2023

· Further progress towards first gas at Southwark, the third Phase 1 field, targeted for Q4 2022

o  Southwark A2 (East) well drilled by Noble Hans Deul rig in Q2 2022

o  Successful installation in Q2 2022 of 6km extension of 24" Saturn Banks Pipeline System to Southwark field location by Seven Borealis S-lay vessel

· €100 million senior secured bond maturing September 2024 ("Bond") remains in place, with closing market price of 100.5 (0.5% premium to par) as at 30 June 2022

· Total Reportable Incident Rate (TRIR) of 4.8 per 200,000 manhours for 1H 2022

Post-Period End and Outlook

· One week planned shutdown completed in July 2022 for Blythe platform chemical injection modifications

· Gross average production of 34.4 mmscf/d for 2H 2022 to date, with 76% uptime and VWAP of 254 p/therm

· High salinity fluids (MEG/water) being received onshore - Blythe and Elgood wells are being produced individually for periods to establish the source

· 2.7 mmscf/d fixed for August 2022 at 310 p/therm and September 2022 at 444 p/therm via BPGM

· Gross 2H 2022 gas production guidance adjusted to 30-50 mmscf/d range (from 45-60 mmscf/d)

· 2022 capex guidance reiterated at £70-85 million net to IOG

· Opex guidance revised from 10-15 p/therm to 10-20 p/therm (~$8-15/boe) to account for additional costs of onshore fluids management and the revised production guidance 

· Southwark A1 (West) production well drilling resumed in early Q3 2022; significant delays experienced to date due to drilling fluid losses, primarily in the Bunter Sandstone Formation

· Southwark subsea, hook-up and commissioning works ongoing in parallel targeting first gas in Q4 2022

· Goddard and Kelham North/Central appraisal wells to be drilled in direct continuation after Southwark 

· Continued Phase 2 planning and engineering, and engagement with partner and regulators 

· Panther/Grafton area seismic re-evaluation expected to be completed by year end

· New licence applications planned for the next (33rd) UK Offshore Licensing Round 

· 2022 Scope 1&2 emissions intensity projected to be among the lowest in the UK North Sea

1 From First Gas on 13 March 2022 to 30 June 2022

2 EBITDAX is defined as earnings from continuing activities before interest, foreign exchange gains and losses, tax, DD&A, impairment of PP&E and intangibles, and other exploration expenditure

3 Net debt is defined as restricted cash (£3.5 million) plus cash & cash equivalents (£12.3 million), less outstanding loans (£94.1 million)

4 2H 2022 to date refers to the period 1 July 2022 - 21 August 2022 inclusive

This announcement contains inside information for the purposes of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with the company's obligations under Article 17 of MAR.

Enquiries:

Notes

About IOG:

IOG is a Net Zero UK gas and infrastructure operator focused on high-return projects. The Company's operations are currently concentrated around its offshore and onshore Saturn Banks infrastructure in the UK Southern North Sea. Phase 1 of its Saturn Banks Project, which started production in March 2022, entails the commercialisation of the Blythe, Elgood and Southwark gas fields through this infrastructure. Phase 2 of the Saturn Banks Project entails the Nailsworth, Goddard and Elland gas discoveries, which are subject to future investment decisions and expected to be commercialised through the same export infrastructure. The Company also holds further licences with additional resources including the Abbeydale, Panther and Grafton gas discoveries, the Kelham North, Kelham Central, Thornbridge and Thornbridge Deep prospects, and part of the Orrell gas discovery. Currently, all IOG's licences are held 50:50 with its joint venture partner CalEnergy Resources (UK) Limited (CER) and operated by IOG. In addition, the Company continually evaluates further opportunities for accretive portfolio additions to help generate additional shareholder returns. Further details are available at www.iog.co.uk.

The Directors present their interim report of operations and unaudited consolidated financial statements of IOG plc ("the Company") and its subsidiaries ("the Group") for the six months ended 30 June 2022. All amounts are shown in Pounds Sterling, unless otherwise stated.

This interim financial report is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the Interim Report which has been reviewed, but not audited by the Company's external auditor. In addition to the results for the first six months of 2022 ("1H 2022"), comparative information is provided for the six months ended 30 June 2021 ("1H 2021"), which was not audited or reviewed by the Company's external auditor. Comparative information for the Group's financial position is also provided for the year ended 31 December 2021 ("FY 2021").

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use in the UK.

Competent Person's Statement

In accordance with the AIM Note for Mining and Oil and Gas Companies, IOG discloses that Andrew Hockey, IOG's CEO, is the qualified person that has reviewed the technical information contained in this document. Andrew Hockey has an MSc in Petroleum Geology and has been a member of the Petroleum Exploration Society of Great Britain since 1983. He has 40 years of operating experience in the upstream oil and gas industry. Andrew Hockey consents to the inclusion of the information in the form and context in which it appears.

Website publication

Financial information is published on the Company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial information, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the ongoing integrity of the financial information contained therein.

Chief Executive Review

The first half of 2022 was a breakthrough period for IOG, when we achieved our major strategic milestone of bringing Saturn Banks Phase 1 onstream. I am hugely proud of my team for transforming IOG over the past few years from an unfunded micro-cap start-up to becoming the UK's newest gas producer, with the potential to generate significant cashflow. Our collective values of resourcefulness, innovation, drive, efficiency, resilience and safety have helped us to deliver this challenging target within two and a half years of the Final Investment Decision (FID).

I am very grateful for the constructive efforts of our joint venture partner CalEnergy Resources (UK) Limited (CER) and the collaboration of our many contractors and commercial partners on this journey. I would also like once again to thank our shareholders, bondholders and regulators for their support.

I have always said that Phase 1 First Gas is just the first step on a bigger journey. It gives us the operational platform and financial capacity to progress multiple further phases of growth. By delivering further domestic gas resources through our co-owned infrastructure on a Scope 1 and 2 Net Zero basis we can generate strong and sustainable returns for shareholders.

In the current energy crisis, security of supply has returned to the top of the global agenda, which in turn is fuelling government plans for new licensing. Developing further low carbon UK gas resources is the right thing to do both from an energy security and environmental perspective. Saturn Banks gas is projected to have only a small fraction of the emissions intensity of the LNG imports on which the UK now relies.

Prior to First Gas in mid-March, we signed a more comprehensive GSA with BPGM, a highly credible counterparty with whom we have already enjoyed a long relationship. The agreement has been working seamlessly and we look forward to continued collaboration. In early H2 2022 we started implementing our hedging strategy, fixing 30,000 therms/day (2.7 mmscf/d) for the months of August and September 2022 at 310 p/therm and 444 p/therm respectively.

Since First Gas our primary focus has been to work with our Duty Holder ODE Asset Management (ODEAM) and Bacton terminal operator Perenco (UK) Limited (PUK) to ensure production stability. Being a small company puts an even greater emphasis on addressing early operational challenges. Onshore liquids handling issues at Bacton required a week of downtime in late May, after which gross production was increased from 30 mmscf/d to 60 mmscf/d over June. A planned shutdown in July resolved the Blythe chemical injection fault. However, production over 2H 2022 (up to 21 August) has been limited to an average of 34.4 mmscf/d by unexpectedly high and saline produced water. The Blythe and Elgood wells are currently being alternated to assess the water source and inform next steps, and at the time of release we are temporarily producing only from Elgood, at c.20 mmscf/d.

In that context we have adjusted our 2H 2022 gross production guidance to 30-50 mmscf/d to account for a range of planned and unplanned downtime scenarios as well as potential variation in Southwark first gas timing. Southwark first gas will be another major milestone for the business, being the largest Phase 1 field with the longest production profile. Important progress was made during 1H 2022 with the installation of the Saturn Banks Pipeline System extension to Southwark, the resumption of drilling in April after seabed remediation, plus extensive other subsea work. This has continued in 2H 2022 to date with the Noble Hans Deul now drilling the second production well, albeit progress has been slower than planned due to drilling fluid losses particularly in the Bunter Sandstone Formation.

After Southwark, we plan to commence our exciting appraisal campaign. First we will target a potential south-eastern extension of the Goddard discovery in the north of our portfolio, to assess the potential for a larger field development. The Noble Hans Deul rig will then return south to target the Kelham North and Central structures through a dual lateral well, aiming to prove up a potential three-field gas hub with the existing Abbeydale discovery. In parallel with this we will be progressing our Phase 2 plans, including Nailsworth and potentially other nearby assets. Once Southwark is onstream, the two appraisals are drilled and Phase 2 progressed, we will have a clearer view of development scale and sequencing for the current portfolio. This in turn will inform the refinancing strategy for our €100 million bond which matures in September 2024.

In addition to developing our existing assets, we have a consistent portfolio development strategy focused on our competitive advantages in the wider Saturn Banks catchment area. We continually evaluate existing and emerging opportunities across this area with a view to adding in low-risk discovered resources or step-out exploration and appraisal opportunities that can lead to high-return developments. Owned export infrastructure and producing assets in the area are important differentiators in this respect.

This year has seen extraordinary upheavals in European and global gas markets, with very volatile UK NBP day-ahead gas prices and a notable upward shift in the forward curve, particularly over the past two months. Our weighted average realised price in 1H 2022 was 149 p/therm, which has risen to 254 p/therm over 2H 2022 to date. Gas still plays a fundamental role in the UK economy: it heats around 85% of UK homes, generates around 40% of UK electricity and fuels a wide range of industrial activities. The significant price escalation over 2021-22 stems from several factors, including reduced upstream investment over previous years, strong demand recovery following the Covid-19 lockdowns and curtailment in Russian supply amid the Ukraine conflict. In 2H 2022 to date UK NBP prices have continued to escalate, with day-ahead prices in the second half of August 2022 reaching over 450 p/therm and forward prices for the coming winter exceeding 600 p/therm at the time of this release. Such elevated levels will present a significant tailwind if they persist, albeit curtailed by recent fiscal changes.

In late May 2022 the UK government introduced the Energy Profits Levy (EPL), which was substantially enacted in July 2022. The effect of this additional tax and any investment allowance offset will depend on production volumes, realised gas prices and the size and nature of future investments. Maximising the value of our domestic resources, ensuring greater energy security for our import-dependent market, and continuing to reduce energy emissions will require a stable fiscal environment for companies to re-invest cash flows. Before the EPL was approved, we submitted proposals to mitigate some of the potential unintended consequences. These included reviving the small oil and gas fields allowance or introducing a small companies or low emissions allowance to ensure qualifying companies are best placed to continue to invest in domestic supply. With the new legislation now in place, the relief on future capital expenditure encapsulated within it will also influence our investment decisions going forward.

In conclusion, as a developer and now also a producer, our strategy remains consistent: seeking to deliver shareholder value from a focused portfolio of UK gas assets with room for organic and inorganic growth, complemented by ownership of key offshore and onshore infrastructure, operating capability and a strong, aligned partner in CER. Supplying very low emissions intensity gas in an unprecedented gas market into the import-dependent UK is an excellent strategic position for IOG. Drawing on our core values and key competitive advantages, we remain focused on steady execution of this clear and differentiated strategy to continue unlocking value for all stakeholders.

Andrew Hockey

Chief Executive Officer

24 August 2022

Operational Review

Saturn Banks Project Phase 1

Blythe & Elgood (P1736 & P2260)

After final commissioning of the Saturn Banks Reception Facilities (SBRF) at Bacton terminal, the Blythe well was first to be opened up on 13 March. This was swiftly followed on 15 March by Elgood, which is a subsea tie-back to the Blythe platform.

Some initial operational challenges have been encountered both offshore and onshore. This included a chemical injection fault on the Blythe platform which necessitated an early period of Blythe downtime. Onshore liquids processing of the relatively high Saturn Banks liquids flows alongside other streams going through the Perenco Bacton terminal's Condensate Stabilisation Unit (CSU) has also presented some challenges. A drainage system deficiency in the CSU's two recycle compressors necessitated a week of unplanned downtime in late May.

By early June, Saturn Banks production was restored, initially at 30 mmscf/d gross, rising incrementally to 60 mmscf/d gross by the end of June, with 93% uptime over the month. Since then there has been a continued focus on implementing the necessary production resilience measures to improve facilities uptime and minimise restart times after unplanned outages. From First Gas to 30 June 2022, gross production averaged 34.0 mmscf/d, with overall uptime of 59%.

The entire Saturn Banks offshore system, including the platforms, pipelines, associated subsea equipment and production wells, is intended to be normally unmanned with remote operation from the Bacton terminal control room at Bacton terminal, helping to minimise operating costs and carbon intensity over time. Achieving this as a steady state will require further modification work over the course of 2H 2022, including a one week planned shutdown completed in July.

IOG's condensate sales amounted to 2,558.3 metric tonnes over 1H 2022, at an average sales price of $890.1 /MT. Condensate rates fluctuated considerably in the period. Blythe and Elgood condensate yields per unit of gas produced are expected to decline relatively rapidly during the first year of production. In June, gross condensate production was forecast to average in the 250-350 bbl/d range in 2H 2022, based on reservoir analysis at the time and projected uptime rates. Southwark is expected to have far lower condensate yield than Blythe or Elgood.

Blythe and Elgood - Post-period End

In early July, aqueous liquids first arrived at the Saturn Banks Reception Facilities (SBRF). These liquids include water and mono-ethylene glycol (MEG). MEG is intended to be used in a closed-loop system to inhibit free water and prevent hydrate formation in the pipeline. It is injected at the Blythe and Elgood wells as an MEG/water mix, recovered at Bacton and then regenerated and shipped back offshore for reinjection at the wells. 

The timing of aqueous liquids production was in line with expectations, however the volume of water and salinity levels have been considerably higher than expected. At the current time the salinity of the returned fluids is higher than the maximum allowable for processing at Bacton. In order to prevent these high salinity fluids contaminating the other MEG users at Bacton, an alternating regime of batch slugcatcher liquid let down has been implemented.

These high salinity aqueous liquids and slugcatcher letdown constraints have required gross production to be curtailed over recent weeks, initially to around 40 mmscf/d and subsequently to 30 mmscf/d in mid-August in order to isolate the source of the produced water. Tests are currently being run to establish the source of the water, which requires switching off either Blythe or Elgood for periods of time.

With Saturn Banks fluids currently being high salinity and greater water content, an alternative processing or replenish regime is required. Storage capacity of approximately 3,000 cubic metres and a disposal route has been established for the aqueous fluids. Processing options are being evaluated to confirm the most economical future operating regime. Consequently, unit operating costs are now likely to be higher than initially budgeted for the year.

Over 2H 2022 to date (1 July - 21 August inclusive), gross average production has been 34.4 mmscf/d with uptime of 76%. A week of planned downtime in mid-July addressed the early Blythe platform MEG injection issues, enabling the Blythe and Elgood wells to be operated independently of each other. The gas VWAP over that period has been 254 p/therm (including the impact of fixing 30,000 therms/day for August with offtaker BPGM at 310 p/therm).

Southwark (P1915)

At Southwark, the subsea and pipelay activities planned for Q2 2022 were duly executed, continuing progress towards First Gas which is targeted for Q4 2022. Notably, the 6km 24" extension section from the Saturn Banks Pipeline System (SBPS) to the Southwark platform was successfully installed by the Seven Borealis S-lay vessel. The Seven Kestrel diving support vessel (DSV) also installed the necessary mechanical connectors at both ends of SBPS outer section as well as the spools to connect the 6km extension to the Southwark platform. The final closing spools and pipeline dewatering will be undertaken in the final DSV campaign due to commence in September.

Upon resumption in mid-April after seabed remediation, the Southwark east well remained in good condition with no further rig stability issues encountered, enabling drilling to continue as planned. By the end of Q2 2022 the Southwark A2 (East) well had been drilled, with Total Depth at 14,330ft MD, and the Noble Hans Deul skidded across to resume drilling the Southwark A1 (West) well in early July.

Southwark Post-Period End

At the time of release, the Southwark A1 well was in the 12¼" section in the Bunter sandstone formation. Drilling progress to date has been hindered by drilling fluid losses both in this section and higher up in the well. Losses of this nature are not uncommon for wells in this area, however the severity in this well to date has been greater than anticipated, causing extended periods of Non-Productive Time (NPT). At the current time, the drilling team and contractors have been working through mitigations for the losses and are continuing to execute the well plan.

Once the A1 well is completed, both the A1 and A2 wells will undergo hydraulic stimulation before being brought onstream. In parallel, a number of Southwark platform modifications are due to be implemented, informed by Blythe platform operating experience to date, along with planned hook-up and commissioning activities. Based on the latest planning schedule, Southwark First Gas remains targeted in Q4 2022.

Pre-Development Portfolio

Through rigorous technical analysis and judicious de-risking of our portfolio we seek to establish the optimal development concepts and execution plans to ensure suitable capital allocation on further phases, from the perspective of risked internal rate of return (IRR).

Appraisal Campaign: potential Northern Hub (P2438)

IOG is planning to drill two appraisal wells at Goddard and Kelham North/Central in direct continuation from the Southwark east and west development wells, using the Noble Hans Deul rig and with Petrofac continuing as Well Operator. The purpose of these wells is to prove up two incremental gas hubs and obtain sufficient subsurface data to fully optimise the developments.

The geophysical and geotechnical site surveys for both appraisal wells were completed during the half year period, with the Nailsworth area also incorporated. Basis of designs for the two appraisal wells are complete and detailed well planning, contracting and long-lead procurement is well underway in preparation to start the appraisal campaign in Q4 2022 in direct continuation after the Noble Hans Deul rig leaves Southwark.

IOG North Sea Limited has a 50% working interest and is operator of licence P2438, which contains the Goddard field, an undeveloped gas discovery, and the Southsea gas exploration prospect. CER is the 50% non-operating partner on the licence.

IOG currently estimates gross 1C/2C/3C contingent resources to be 52/115/169 billion cubic feet (BCF) in the main Goddard discovery and prospective resources of Low/Mid/High 16/27/42 BCF and 30/50/73 BCF in the two Goddard Flank structures respectively, both 71% Geological Chance of Success (GCos). If successfully appraised, Goddard can become the core asset in a potential Northern Hub which could include the flanks and potentially Southsea and other undeveloped resources in the surrounding area. The Southsea prospect as mapped indicates a gross unrisked Low/Mid/High prospective resource range of 13/31/76 BCF (48% GCoS). Further technical work will be required to confirm these initial estimates.

Appraisal Campaign: potential Southern Hub 

IOG North Sea Limited has a 50% working interest and is operator of licence P2442, which contains the Abbeydale undeveloped gas discovery, the Kelham North and Kelham Central structures, part of the Orrell gas discovery and the Thornbridge and Thornbridge Deep prospects. CER is the 50% non-operating partner on the licence.

Over 1H 2022 IOG's technical team has been further refining its subsurface mapping and assessment of geological risks in preparation for drilling the Kelham North/Central appraisal well. As noted above, detailed well planning is continuing in collaboration with Petrofac, who are the designated Well Operator.

IOG management's deterministic estimate of gross 1C/2C/3C contingent resources at Abbeydale is 19/23/27 BCF. Gross recoverable Low/Mid/High gas volumes at Kelham North and Kelham Central are assessed by IOG management as 30/48/67 BCF (72% GCoS) and 12/21/32 BCF (72% GCoS) respectively. The key geological risk in this area is considered to be the quality of the Zechstein salt seal.

The technical work to date on the P2442 licence has identified the potential for a "Southern Hub" development that could be tied back to the Saturn Banks Pipeline. To establish commerciality, a dual-lateral appraisal well is planned in direct continuation from the Goddard appraisal well to prove up the resource estimates at both Kelham North and Kelham Central.

Phase 2

IOG UK Limited has a 50% working interest and is operator of the P130, P2342 and P039 licences, which contain the Nailsworth and Elland gas discoveries. CER is the 50% non-operating partner on these licences. In their 2017 Competent Persons Report (CPR), ERC Equipoise assessed gross 1P/2P/3P gas reserves to be 40/55/73 billion cubic feet in Elland, and 60/99/147 BCF in Nailsworth. Under the Nailsworth licences, the IOG-CER JV is committed to the submission and approval of a Field Development Plan prior to the end of 2022.

IOG's subsurface team are currently finalising updates to the static and dynamic modelling over Nailsworth and Elland, incorporating updates to geophysics, petrophysics and completion designs. The work has been independently peer reviewed and final results are expected towards the end of Q3 2022.

IOG's development and engineering functions have been progressing concept select work, in consultation with the joint venture partner CER and with continuous engagement with regulatory bodies including the North Sea Transition Authority (NSTA). Subject to these dialogues, the intention remains to proceed through concept select and reach FID on a Phase 2 development at the earliest feasible time, which is targeted to be before the end of 2022.

Panther-Grafton Area

IOG North Sea Limited has a 50% working interest and is operator of licence P2589, which contains the Panther and Grafton gas discoveries. CER is the 50% non-operating partner on the licence. The licence was awarded in the 32nd Licensing Round, formally commencing on 1 December 2020, with a firm work programme commitment to reprocess 79 km2 of seismic data within three years, and to drill and complete a well on the licence by 30 November 2025 or to surrender the licence.

Prior to the 3D seismic reprocessing programme, IOG's initial estimates of gross 2C contingent gas resources remain 46 BCF at Panther and 35 BCF at Grafton.

The seismic reprocessing is on schedule and due for delivery in late Q3 2022. Once the data is received a block wide interpretation will be conducted with results expected before year end 2022.

David Gibson

Chief Operating Officer

24 August 2022

Financial Review 

In the first half of 2022, IOG delivered its first revenues and income, following Saturn Banks Phase 1 First Gas in March. Total revenue for the period was £30.2 million, with gas sales contributing £28.4 million and condensate sales £1.8 million. Cost of sales totalled £10.0 million consisting of £2.9 million of operating running costs, depletion of £6.6 million and other operating expenditure of £0.7 million, offset by an increase in inventories of £0.2 million. This resulted in a gross profit for the first six months of £20.2 million and a net profit of £11.4 million. Gross unit operating costs (excluding one-off and exceptional items) for the period were 13.7 p/therm.

The Company started the period with a cash balance of £31.3 million plus £3.4 million of restricted cash, and a net debt position of £56.6 million. It ended the period with a cash balance of £12.3 million plus restricted cash of £3.5 million. With total long-term loans of £94.1 million, this resulted in a closing net debt position of £78.3 million.

The gas sales VWAP was 148.7 p/therm over the 1H 2022 period. This has increased to 254 p/therm for 2H 2022 to date (1 July - 21 August 2022 inclusive) and at the current time the UK NBP forward curve is pricing the Winter-22 contract in excess of 700 p/therm and both the Summer-23 and Winter-23 contracts in excess of 650 p/therm, albeit it should be noted that these prices are subject to a high degree of volatility.

Net expenditures of £20.8 million plus an additional £1.6 million of capitalised interest and £14.9 million of capitalised leases, less £6.8 million of depletion and depreciation, made up the £30.5 million increase in PP&E assets. The Group's intangible assets increased by £1.5 million in the period.

Two €2.4 million quarterly interest payments were made in the period under the €100 million Bond, which remained in place with a maturity date in September 2024. At the end of the period the Bond had a market price of €100.5, a small premium to par.

The €5 million working capital facility was undrawn at 30 June 2022 and remains undrawn at the time of this release. This facility was executed with a reputable international bank in December 2021 with a one-year tenor.

Prior to first production the Company executed a new GSA with BPGM covering its equity gas from the Blythe, Elgood, Southwark, Nailsworth and Elland fields, on a long-term basis with break clauses after September 2023. This replaced the original February 2014 Blythe only GSA with BPGM, on improved terms. Under the new GSA, gas is sold on a day-ahead daily nomination basis at a price linked to the National Balancing Point (NBP, the UK traded gas benchmark). Condensate is sold to a petrochemical offtaker at prices linked to naphtha and gasoil.

The GSA with BPGM incorporates the potential, subject to credit approval, to fix forward prices for up to 50% of forecast production over various periods up to 12 months. The Company's hedging strategy envisages a prudent wedge-shaped hedging programme, using simple structures, to reduce near-term cashflow volatility whilst allowing shareholders to retain appropriate gas price exposure. Over time and subject to debt facility restrictions, this would entail a higher proportion of forecast production hedged over earlier periods reducing to a lower proportion hedged over later periods, on a rolling basis.

IOG did not undertake any price-fixing or hedging either prior to production or during the 1H 2022 period. Post-period end, the Company undertook its first near-term gas fixed price transactions for 30,000 therms/day at 310p/therm for the month of August and 444p/therm for the month of September, with BPGM. This amount equates to 2.7 mmscf/d, a relatively modest proportion of net entitlement production, and did not require any mark-to-market collateral.

Income statement

Profit for the first six months of 2022 was £11.4 million (2.2p per share undiluted, 1.8p per share fully diluted) compared to a profit of £0.2 million for the first six months of 2021 (0.0p per share undiluted, 0.0p per share fully diluted).

Gas revenues for the 1H 2022 period were £28.4 million (1H 2021: £nil) and condensate revenues were £1.8 million (1H 2021: £nil). Total cost of sales was £10.0 million, consisting of operating expenditure (opex) of £2.9 million (1H 2021: £nil), depletion of £6.6 million (1H 2021: £nil), £0.7 million of other operating costs offset by an increase in inventory of £0.2 million. Opex included £1.9 million of production opex and £0.8 million of onshore tariffs, National Transmission System entry charges and SBRF operating costs.

Profit for the period includes £0.9 million of net administration expense (1H 2021: £0.1 million), foreign exchange losses of £3.3 million (1H 2021: £1.9 million gain) and other finance expenses of £4.6 million (1H 2021: £1.8 million). €4.8 million (£4.0 million equivalent) was paid in two bond interest payments in the period. The foreign exchange loss of £3.3 million for the period reflects a strengthening in the value of non-GBP denominated balances.

Finance expenses of £4.6 million include £1.7 million of finance fees and charges, which consist of £0.5 million unwinding of convertible loan from London Oil and Gas Ltd ("LOG"), £0.2 million unwinding of a decommissioning provision and £1.0 million unwinding of a lease finance charge. The £4.6 million finance expenses also include £0.3 million amortisation of bond issuance fees, £2.4 million of the bond interest expensed in the period and £0.1 million in costs associated with the Bond Debt Service Reserve Account and €5 million working capital facility.

Statement of financial position

Non-current assets at 30 June 2022 of £177.6 million (31 December 2021: £144.3 million) predominantly relate to development and production assets of £161.3 million (31 December 2021: £138.4 million), representing capital expenditures attributable to the Saturn Banks Phase 1 assets (Saturn Banks Pipeline and Reception Facilities, Southwark development asset, Blythe and Elgood production assets); exploration and evaluation assets of £2.4 million (31 December 2021: £1.0 million), representing capital expenditures attributable to the various pre-development assets in the Group's portfolio; other property, plant and equipment of £12.5 million (31 December 2021: £4.9 million), predominantly representing capitalised finance lease assets engaged to support the Group's development assets; and other intangible assets of £0.0 million (31 December 2021: £0.1 million).

Current assets as at 30 June 2022 of £26.4 million (31 December 2021: £36.4 million) include cash and cash equivalents of £12.3 million (31 December 2021: £31.3 million), restricted cash of £2.1 million (31 December 2021: £3.4 million), and trade and other receivables of £11.8 million (31 December 2021: £1.7 million).

Current liabilities of £51.8 million (31 December 2021: £44.9 million) comprise trade and other payables of £14.9 million (31 December 2021: £19.8 million), accruals of £18.3 million (31 December 2021: £13.3 million), lease liabilities of £17.9 million (31 December 2021: £11.1 million), and contingent consideration of £0.7 million (31 December 2021: £0.7 million).

Non-current liabilities of £112.0 million (31 December 2021: £107.5 million) include £84.8 million due on the Bond maturing in September 2024 (31 December 2021: £82.4 million), abandonment provisions of £16.6 million (31 December 2021: £15.8 million), £9.3 million representing the debt element of the LOG convertible loan (31 December 2021: £8.8 million) and long-term lease liabilities of £1.3 million (31 December 2021: £0.4 million).

Cash flow

After adjustment for non-cash items, cash generated from operations, including working capital movements, for the first six months of 2022 was £16.1 million (1H 2021: £19.0 million). Cash used in investing activities amounted to £21.6 million (1H 2021: generated £21.7 million). Cash used in financing activities, which predominantly represents lease liability payments, bond interest payments and financing fees, amounted to £13.6 million (1H 2021: £4.4 million). The cash balance at the end of the period was £12.3 million (31 December 2021: £31.3 million).

Funding and liquidity 

The Directors have given careful consideration to the Group's ability to continue as a going concern through a review and challenge of cash flow forecasts prepared by management for the going concern period. The Group has reported cash of £12.3 million and net debt of £78.3 million as of 30 June 2022, with no drawn debt maturing until the second half of 2024. The financial position of the Group, its cash flows and capital commitments are described in the Financial Review above.

The Group evaluates its financial position, cash flow forecasts and its compliance with financial covenants by considering multiple combinations of gas price, production profiles and volumes, project execution, capital and operational spend sensitivities, including several downside scenarios. The forecasts are regularly updated to enable continuous monitoring and management of the Group's cash flow and liquidity risk. 

After making enquiries and having taken into consideration the above factors, the Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Risks and Uncertainties

The Company operates in the upstream and midstream gas industry, seeking to generate shareholder returns by developing and producing its portfolio of gas and operating its infrastructure assets. This primarily entails construction, installation and operation of production, transportation and processing infrastructure and drilling of production wells. Undertaking these activities within the upstream and midstream gas industry entails exposure to a range of financial, operational, regulatory, legal, commercial, human resource, HSE and sustainability related risks and uncertainties, any one of or a combination of which may have a material impact on performance.

Financial risks include access to capital, cost escalation, breach of financing terms, volatility in gas prices, fiscal changes and fluctuation in asset values. Operational risks include changes in recoverable volumes and/or reservoir characteristics, variation from schedule and budget, single point infrastructure failure, weather and cyber security. Legal and regulatory risks include access to necessary consents, approvals and permits and corporate governance deficiencies. Commercial risks include stakeholder misalignment and gas market access. HSE and Sustainability risks include harm or injury to people or the environment and environmental releases. Human Resources risks including maintenance of a fit for purpose team and Covid-19 disruption. Detail on the mitigating factors for these risks was set out in the 2021 Annual Report.

Key performance indicators

The Group's main business is the acquisition, development and production of gas reserves and resources in a safe, efficient and environmentally responsible manner. This is undertaken by assembling and managing a carefully selected portfolio of licence interests containing a range of prospective, contingent and proven reserves, working these up from a technical perspective, planning, designing and executing appropriate appraisal, pre-development and development activities and ensuring effective ongoing production operations.

The Company monitors its performance against its primary HSE and ESG KPIs, which are the Total Reportable Incident Rate (Lost Time Incidents per 200,000 manhours worked) and Scope 1 and 2 emissions (and/or emissions intensity from full year 2022 onwards whereby relevant emissions are measured against total annual production). Other HSE performance indicators include securing all relevant environmental permits, consent and approvals, maintaining a verified Environmental Management System.

The main operational KPIs include the total reserves and resources in the portfolio and, going forward, the production rate as compared with annual guidance (which was issued in June 2022, three months after First Gas). Other operational performance indicators include successfully meeting all licence commitments relating to the Company's asset portfolio during the year, maintaining effective relationships at all levels with JV partners in compliance with Joint Operating Agreements (JOAs), operating within appropriate governance and HR policies, ensuring the Company has adequate in-house capability to manage its operations and third-party providers, and ensuring all corporate legal obligations are met.

Financial performance is tracked against established metrics and budgets which are set according to carefully assessed cost estimates and the availability of funds, whether raised from capital providers or delivered from operations, with the overriding objective of creating value per share. The main financial KPIs include unit operating cost (opex, measured primarily in pence per therm), operating cash flow and net debt. Financial performance indicators also include maintaining full compliance with terms of debt facilities, maintaining constructive relationships with debt providers and equity investors, being adequately resourced for all corporate and JV-related financial matters, maintaining suitable fit-for-purpose finance systems, delivering approved annual budgets and adhering to updated financial and corporate operating policies.

Rupert Newall

Chief Financial Officer

24 August 2022

INDEPENDENT REVIEW REPORT TO IOG PLC

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 is not prepared, in all material respects, in accordance with the London Stock Exchange AIM Rules for Companies.

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2022 which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity and the Consolidated Cash Flow Statement and the related explanatory notes.

Basis for conclusion

We conducted our review in accordance with International Standard on Review Engagements (UK) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" ("ISRE (UK) 2410"). 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.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with UK adopted international accounting standards.

Conclusions relating to going concern

Based on our review procedures, which are less extensive than those performed in an audit as described in the Basis for conclusion section of this report, nothing has come to our attention to suggest that the directors have inappropriately adopted the going concern basis of accounting or that the directors have identified material uncertainties relating to going concern that are not appropriately disclosed.

This conclusion is based on the review procedures performed in accordance with ISRE (UK) 2410, however future events or conditions may cause the group to cease to continue as a going concern.

Responsibilities of directors

The directors are responsible for preparing the half-yearly financial report in accordance with the London Stock Exchange AIM Rules for Companies which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.

In preparing the half-yearly financial report, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Auditor's responsibilities for the review of the financial information

In reviewing the half-yearly report, we are responsible for expressing to the Company a conclusion on the condensed set of financial statement in the half-yearly financial report. Our conclusion, including our Conclusions Relating to Going Concern, are based on procedures that are less extensive than audit procedures, as described in the Basis for Conclusion paragraph of this report.

Use of our report

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange AIM Rules for Companies for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

BDO LLP

Chartered Accountants

London, UK

24 August 2022

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Unaudited consolidated statement of comprehensive income

for the six months ended 30 June 2022

The profit for the period arose from continuing activities.

Unaudited consolidated statement of financial position

as at 30 June 2022

Unaudited consolidated statement of changes in equity

as at 30 June 2022

Share capital

Amounts subscribed for share capital at nominal value.

Share premium

Amounts received on the issue of shares, more than the nominal value of the shares, less issue costs.

Share-based payment reserve

Amounts reflecting fair value of options and warrants issued.

Accumulated losses

Cumulative net losses recognised in the Statement of Comprehensive Income net of amounts recognised directly in equity.

Unaudited consolidated cash flow statement

for the six months ended 30 June 2022

Notes to the financial statements

for the six months ended 30 June 2022

Basis or preparation

The financial information contained in this announcement does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006. The financial information for the six months ended 30 June 2022 has been prepared using accounting policies consistent with UK-adopted international accounting standards ("IFRS"). Except as described below, the same accounting policies, presentation and methods of computation are followed in the financial information as were applied in the Group's latest annual audited financial statements for the year ended 31 December 2021. While the financial figures included in this financial information have been computed in accordance with IFRS, this financial information does not contain sufficient information to constitute an interim financial report as that term is defined in IAS 34 'Interim Financial Reporting'.

The comparatives for the full year ended 31 December 2021 are not the Company's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did contain an emphasis of matter paragraph relating to the material uncertainty in respect of going concern and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.

Going concern

The Directors have given careful consideration to the Group's ability to continue as a going concern through a review and challenge of cash flow forecasts prepared by management for the going concern period. The Group has reported cash of £12.3 million and net debt of £78.3 million, with no debt maturing until the second half of 2024.

The Group evaluates its financial position, cash flow forecasts and its compliance with financial covenants by considering multiple combinations of gas price, production profiles and volumes, project execution, capital and operational spend sensitivities, including several downside scenarios. The forecasts are regularly updated to enable continuous monitoring and management of the Group's cash flow and liquidity risk. 

After making enquiries and having taken into consideration the above factors, the Directors have reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.

Significant accounting policies

a) New and amended standards adopted by the Group

A number of new or amended standards became applicable for the current reporting period. The group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards.

o  Covid-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)

o  Reference to the Conceptual Framework (Amendments to IFRS 3)

o  Property, Plant and Equipment - Proceeds before Intended Use (Amendments to IAS 16)

o  Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)

o  Annual Improvements to IFRS Standards 2018-2020

b) New standards and interpretations not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2022 year end and have not been early adopted by the Group. These standards are not expected to have a material impact on the Group in the current or future reporting periods nor on foreseeable future transactions.

Changes in accounting policies

During the period, the Group recognised the commencement of revenues from the sale of gas and condensate and consequently adopted IFRS 15 Revenue from Contracts with Customers. 

The Group is principally engaged in the exploration, development and production of natural gas. The Group has concluded that it is the principal in its contract with customer arrangements, because it controls the goods before transferring them to the customer.

Revenue from contracts with customers is recognised when or as the Group satisfies a performance obligation by transferring control of a promised good or service to a customer. The transfer of control of natural gas and natural gas liquids coincides with title passing to the customer and the customer taking physical possession, generally on delivery of the natural gas or condensate to the agreed delivery point specified in the contract. In respect of gas sales, the delivery point is when the gas is delivered into the National Transmission System downstream of the Bacton gas terminal. Condensate is sold on an FCA basis when it is delivered onto the buyer's rail tank car loading manifold. The Group satisfies its performance obligations at a point in time.

When, or as, a performance obligation is satisfied, the Group recognises as revenue the amount of the transaction price that is allocated to that performance obligation. The Group's contracts with customers are deemed to contain one performance, the provision of natural gas or condensate. The transaction price is the amount of consideration to which the Group expects to be entitled. The transaction price is allocated to the performance obligations in the contract based on standalone selling prices of the goods promised. Contracts for the sale of natural gas and condensate are priced by reference to quoted prices. All revenue from these contracts is disclosed as revenue from contracts with customers.

Consideration payable to a customer for certain costs, claims, demands, liabilities and/or expenses suffered or incurred by the buyer under the sales contract are recognised as a reduction of the transaction price and, therefore, a reduction in revenue since the payment to the customer is not in exchange for distinct goods that the customers transfer to the Company.

The credit terms range between 20-40 days after the month-end, depending on the customer.

The calculation of profit per share is based upon the weighted average number of ordinary shares in issue during the period of 524,126,460 (30 June 2021: 489,082,147). Diluted profit per share is calculated based upon the weighted average number of ordinary shares plus the weighted average number of ordinary shares that would be issued upon conversion of potentially dilutive share options and warrants into ordinary shares. The weighted average number of ordinary shares on a diluted basis at 30 June 2022 is 619,117,637 (30 June 2021: 604,631,191).

Restricted cash at 30 June 2022 of £2.1 million (31 December 2021: £3.4 million) reflects deposits held in the Debt Service Reserve Accounts following the Norwegian Bond issue. £1.4 million deposit secured against decommissioning provisions of the Group's infrastructure assets has been reclassified as the long-term restricted cash.

Cash and cash equivalents comprise cash in hand, deposits and other short-term money market deposit accounts that are readily convertible into known amounts of cash. 

Cost of sales for the six months of 2022 is £10.0 million (30 June 2021: £nil), representing operating costs of £2.9 million (30 June 2021: £nil), an increase in condensate inventory of £0.2 million (30 June 2021: £nil), depletion of £6.6 million (30 June 2021: £nil) and other operating expenditure of £0.7 million (30 June 2021: £nil).

On 20 September 2019, the Company issued a €100 million Norwegian Bond on the Oslo Børs, of which €100 million was drawn down to fund the Phase 1 development program.

The secured callable bonds were issued on 20 September 2019 by IOG plc at an issue price of par. The bonds have a term of five years and will be repaid in full at maturity. The bonds carry a coupon of 9.5% plus 3 month EURIBOR with a EURIBOR floor of 0% and were issued at par.

The Bond is callable 3 years after issuance with an initial call premium of 50% of the coupon (i.e. repayable at a cost of €104.75 million if 3m EURIBOR is at zero or lower), declining by 10% every six months thereafter.

Included within loans payable of £94.1million (31 December 2021: £91.3 million) are £84.8 million (31 December 2021: £82.4 million) of bonds and £9.3million (31 December 2021: £8.9 million) of loans.

On 14 July 2022, the Energy Price Levy ("EPL") became legislation in the UK. The EPL is applicable to ring fence oil and gas profits arising on or after 26 May 2022 at a rate of 25% and based on initial assessments the Company will have no EPL liability for the period ended 30 June 2022, although the EPL is expected to have a financial impact on the Company going forward. Based on current understanding of the Levy, the Group's ongoing investment in the Southern North Sea will qualify to benefit from an investment allowance under the EPL, with each £1 invested by IOG offering an overall tax saving of up to 91.25 pence. The full effect of the additional tax and any investment allowance offset will depend on the details of the EPL legislation and the size and nature of future investment.

INFORMATION & ADVISERS

Country of incorporation of parent company

England & Wales

Legal form

Public limited company with share capital

Directors

Fiona MacAulay

Andrew Hockey

Rupert Newall

Esa Ikaheimonen

Neil Hawkings

General Counsel and Company Secretary

Robin Storey

Registered office

60 Gracechurch Street

London

EC3V 0HR

Company registered number

07434350

Auditors

BDO LLP

55 Baker Street

London W1U 7EU

Legal advisers

Fieldfisher LLP

Riverbank House

2 Swan Lane

London EC4R 3TT