Longboat Energy Regulatory News (LBE)

Longboat Energy plc

 ("Longboat Energy", the "Company" or "Longboat")

Interim Results to 30 June 2023

London, 27 September 2023 - Longboat Energy, the emerging full-cycle E&P company, is pleased to announce its unaudited interim results for the period to 30 June 2023.

Helge Hammer, Chief Executive Officer of Longboat Energy, commented:

"Earlier this year, Longboat announced a transaction with Japan Petroleum Exploration Co, Ltd ("JAPEX") to form a joint venture company in Norway which involved JAPEX making a substantial investment in our Norwegian subsidiary and providing a financing facility, thereby significantly strengthening the Company's financial position. The transaction completed in mid-July and the now jointly controlled company was renamed Longboat JAPEX Norge AS ("Longboat JAPEX").

Longboat JAPEX will pursue a growth-led strategy on the Norwegian Continental Shelf to create value predominantly through the acquisition of production and development projects and growing 2P reserves to reach a significant production level within three to five years. Furthermore, the joint venture will continue to pursue exploration and appraisal opportunities with the target of drilling one to three wells per year.

In early August the drilling of the OMV operated Velocette well commenced targeting a large gas-condensate prospect on the eastern flank of the Utgard High in the Norwegian Sea. In mid-September we announced a minor gas discovery where the well encountered hydrocarbons in the primary target in Cretaceous turbidite sands in the Nise formation. While the discovery is not considered to be a commercial prospect, the licence contains numerous other prospects which have been de-risked by the presence of gas in good quality reservoir in the Velocette well.

Earlier this month we announced an expansion of our operations in SE Asia through the acquisition of privately held Topaz Number One Limited, thereby increasing our interest in Malaysian 2A PSC to 52.5% which includes the giant Kertang target, with James Menzies and Pierre Eliet also joining the Company to lead our growth in the region."

Operational Highlights

Financial Summary

Standard

Estimates of reserves and resources have been prepared in accordance with the June 2018 Petroleum Resources Management System ("PRMS") as the standard for classification and reporting with an effective date of 31 December 2020.

Review by Qualified Person

The technical information in this release has been reviewed by Hilde Salthe, Managing Director Longboat JAPEX Norge AS, who is a qualified person for the purposes of the AIM Guidance Note for Mining, Oil and Gas Companies. Ms Salthe is a petroleum geologist with more than 20 years' experience in the oil and gas industry. Ms Salthe has a Masters Degree from Faculty of Applied Earth Sciences at the Norwegian University of Science and Technology in Trondheim

Glossary

Mmboe Millions of barrels of oil equivalent

NCS Norwegian Continental Shelf

scf Standard cubic feet

stb Stock tank barrel

LONGBOAT ENERGY PLC

STRATEGIC REPORT

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023

CEO Introductory Statement

In early May we announced a transaction with Japan Petroleum Exploration Co, Ltd ("JAPEX") to form a joint venture company in Norway which involved JAPEX making a significant investment in our Norwegian subsidiary and providing a financing facility, thereby significantly strengthening the Company's financial position. 

The transaction completed in mid-July, just after the period end, and the now jointly controlled company was renamed Longboat JAPEX Norge AS ("Longboat JAPEX"). As part of the arrangements, JAPEX committed to make an initial cash investment of US$16 million, which was paid on completion, with a further contingent consideration of US$4 million, payable on the successful completion of the acquisition of the Statfjord satellites. Following the results of the Velocette well, the further related contingent consideration has fallen away.

From the initial US$16 million, US$4.6 million was utilised by Longboat JAPEX to repay the intercompany loan owed to Longboat Energy plc.

In addition to these investments, JAPEX has also provided the joint venture with a five-year US$100 million Acquisition Bridge Facility to finance acquisitions and associated development costs in Norway. Longboat JAPEX will pursue a growth-led strategy on the Norwegian Continental Shelf to create value predominantly through the acquisition of development projects, growing 2P reserves and reaching a significant production level within three to five years. Furthermore, the joint venture will continue to pursue exploration and appraisal opportunities with the target of drilling one to three wells per year.

The Statfjord satellite acquisition was announced in early-July and is yet to complete. This is a significant acquisition as it represents not only Longboat's first production acquisition but also demonstrates the ability of the Longboat JAPEX joint venture to access and transact opportunities. The 4.80% unitised interest in the Statfjord Øst Unit and 4.32% unitised interest in the Sygna Unit represent long-term cash flow with the fields expected to produce until the late 2030s. Initial production of ~300 boepd net to Longboat JAPEX is anticipated to approximately double in 2024 following a five well in-fill drilling programme, which is currently underway, and gas-lift installation which is complete. The cash consideration of $12.75 million is anticipated to be paid back in under two years and will be fully funded by JAPEX's initial investment in Longboat JAPEX and by drawing on the JAPEX facility.

Operationally, the first half of 2023 has been a quiet period without exploration drilling compared to 2021 and 2022 when the Company participated in one of the most active independent exploration drilling campaigns. In early-August the drilling of the OMV operated Velocette well commenced (Longboat JAPEX 20%) targeting a large gas-condensate prospect on the eastern flank of the Utgard High in the Norwegian Sea. On 20 September 2023 we announced a minor gas discovery where the well encountered hydrocarbons in the primary target in Cretaceous turbidity sands in the Nise formation. The Velocette volumes are at the lower end of pre-drill expectations and the discovery is not considered to be commercial in isolation. However, the licence contains numerous other prospects which have been de-risked by the presence of gas in good quality reservoir in the Velocette well. The remaining prospectivity has significant size potential in multiple structures and with slightly different trapping geometries. Further assessment of the licence prospectivity together with other opportunities in the area could impact the commercial potential of the licence. High quality data and gas and fluid samples were collected in the exploration well and these will be integrated into the updated prospect evaluations.

Building our position in the prolific Kveikje area where multiple discoveries have been made this year, we announced early in the year the award in the APA licensing round of a 30% license interest in a firm well on the Lotus prospect, which lies 4km southeast of the Kveikje discovery and is expected to contain analogous injectite sands to the sand encountered in Kveikje. Based on company estimates Lotus has gross mean prospective resources of 27 mmboe with an upside of 44 mmboe. The estimated chance of success is 56%. At the end of May we announced that the Lotus prospect will be drilled using the semi-submersible Deepsea Yantai and is expected to be drilled during Q3 2024.

In February, we announced that Longboat had entered into Malaysia through the award of a production sharing agreement for Block 2A, a large exploration block covering an area of more than 12,000 km2 offshore Sarawak with material exploration opportunities including the giant 'Kertang' prospect. Longboat is operator (36.75%) of the block which already has significant 2D and 3D seismic coverage and the partnership includes PETRONAS and Petroleum Sarawak Exploration & Production. This potentially significant opportunity has been acquired without a material initial cost obligation and with three years until a drilling commitment decision has to be made. We are very excited about the opportunity set in Malaysia which in many ways resembles the North Sea a decade ago. Establishing a presence in Malaysia and building an excellent relationship with PETRONAS provides Longboat with a significantly expanded opportunity set and improved growth potential.

In September we announced a transaction to expand our business in SE Asia through the acquisition of privately-held Topaz Number One Limited, increasing our working interest to 52.5% in Block 2A. This transaction will simplify the process towards making a positive well decision on the prospect and the potential introduction of an additional funding partner prior to drilling. Consideration for this acquisition will be in three tranches: an initial $100,000 through an issue of new ordinary shares in the Company; a further US$125,000 in cash or shares payable upon an exploration well being committed on Block 2A or a farm-out; and up to US$3,000,000 in cash or shares payable upon a discovery being made on Block 2A, depending on the resource size and the growth in the price of the Company's shares over a two year period. Furthermore, the Topaz team, which comprise James Menzies and Pierre Eliet, will join Longboat Energy bringing extensive regional expertise and an established SE Asia network, thereby strengthening Longboat's team and our ability to grow a full cycle E&P business in SE Asia. 

Strategy and Outlook

Longboat is committed to building a full-cycle E&P business both in Norway and in SE Asia. The creation of the Longboat JAPEX joint venture in Norway has the potential to deliver significant value creation and growth and brings together two companies with strong complimentary qualities. The Longboat team has significant technical experience and expertise in the Norwegian E&P sector and strong local industry relationships, while JAPEX is a long-established E&P company with a strong balance sheet and significant worldwide technical competence including E&P in the North Sea. The two companies also share the ambition to have strong ESG credentials and play roles in the energy transition, where JAPEX already has experience with a Carbon Capture Utilisation and Storage (CCUS) pilot project. By joining forces, we will have greater access to opportunities and financing. We believe that this agreement has laid the foundations for exciting growth in Norway in the coming years.

In a situation where access to energy is becoming increasingly important and particularly gas in North West Europe, Norway plays a critical role as the country continues to offer attractive opportunities for E&P companies. Exploration results in Norway remain good and the country continues to offer high quality acreage in regular licensing rounds. According to the latest Resource Report by the Norwegian Petroleum Directorate, only half of the total estimated resources of 100 billion boe have so far been produced and sold. Longboat, with its highly skilled geological and geophysical team and extensive industry network, is uniquely positioned to find business opportunities and exploration prospects.

Norway also continues to offer an attractive regulatory framework. A new Norwegian Petroleum Tax System was introduced during 2022, which was generally positive for Longboat. The main elements of the updated tax system are an unchanged marginal rate at 78%, a move to immediate expensing of investments, 71.8% repayment of all losses in the following year (compared to previously 72% of exploration losses only) with corporate tax at 6.2% carried forward against future profits. In early 2023, Longboat JAPEX increased its exploration finance facility ("EFF") to NOK 800 million from NOK 600 million and extended the availability period for drawing by one year through to 31 December 2024. Longboat JAPEX will use these EFF credit facilities to assist with the working capital requirement for future exploration expenditure.

The North Sea M&A market for production and development remains highly competitive. We believe the establishment of the Longboat JAPEX joint venture will bring more access to financeable opportunities. To make use of our highly skilled team and to accelerate growth Longboat expanded its activities to include Southeast Asia. Longboat identified the Malaysian market as having many of the characteristics required to fast track the development of a full cycle E&P Company, including a large and active E&P industry, significant existing infrastructure, stable regulatory framework, supportive authorities and an active M&A market. Accordingly, in February 2023, Longboat announced its first licence award in Malaysia which has many similarities to what the Norwegian North Sea had 15-20 years ago, and Longboat is in a strong position to exploit this opportunity due to our subsurface and M&A expertise and industry relationships. In order to accelerate this ambition, James Menzies and Pierre Eliet will join Longboat Energy to help grow a full cycle E&P business in SE Asia. 

Financial Results

On 14 July 2023, our Norwegian subsidiary became a joint venture with JAPEX. At 30 June 2023, the completion of this transaction was considered highly probable and as this would result in Longboat Energy plc sharing control of its subsidiary, it would be deemed a sale in the parent company accounts. Therefore, the results of our Norwegian subsidiary are classified as discontinued operations in the Income Statement, with comparatives restated to be consistent with this approach. The assets and liabilities of our Norwegian subsidiary are disclosed as held for sale in the Balance sheet. These calculations and disclosures are in line with IFRS 5 "Non-current assets held for sale and discontinued operations". 

Longboat Energy plc had gross cash at 30 June 2023 of £2.1 million (30 June 2022: £22.5 million), which excludes cash of £2.2 million in Longboat Energy Norge AS, that was shown on the balance sheet as held for sale. Longboat Energy Norge AS had EFF drawings of £33.7 million (30 June 2022: £15.7million) resulting in a net debt position of £31.5 million. The EFF drawings disclosed in Note 21 are shown net of prepaid loan fees of £0.5 million, which are being amortised over the life of the facility. The majority of EFF drawings (£32.0 million) will be repaid from the Norwegian Government's tax rebate of £35.5 million, due in November 2023. Longboat Energy plc's post-tax loss for the period was £6.2 million (30 June 2022: £1.6 million), total comprehensive loss for the period of £7.9 million (30 June 2022: £1.7 million). During the period our Norwegian subsidiary had a much less active drilling campaign compared to the prior period with £0.4 million (30 June 2022: £14.6 million) of exploration drilling costs and £0.3 million (30 June 2022: £14.2 million) of exploration carry costs. In the period, Egyptian Vulture was relinquished and the intangible asset of £10.5 million pre-tax and £2.3 million post tax was written off. The post-tax write off is included in the loss from discontinued operations of £4.1 million. 

On 20 September we announced Velocette (PL1016) as a small non-commercial gas discovery. The failure of the Velocette well to find commercial hydrocarbons means that the Velocette Tranche under the JAPEX investment agreement will not be payable. The results and follow up potential are being evaluated. As at the 30 June 2023 the intangible asset in relation to licence PL1016 was £1.6 million with anticipated net pre-tax drilling and carry cost estimates of £19.9 million (net post tax costs of £5.6), based on operator pre-drill estimates. The intangible carrying value will be updated as the operator's invoices are issued and the ability to carry these amounts will be assessed again at the year end.

Longboat Energy plc's continuing operations administrative expenses in the period were £2.0 million (30 June 2022: £1.3 million). Wages and salaries for continuing operations in the period were £0.7 million (30 June 2022: £0.8 million).

On behalf of the board

…………………………………………..

Helge Ansgar Hammer

Director

26 September 2023

LONGBOAT ENERGY PLC

DIRECTORS' RESPONSIBILITES STATEMENT

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023

The directors are responsible for preparing the interim report in accordance with applicable law and regulations.

The directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the United Kingdom. The directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and of the profit or loss of the Group for that period. The directors are also required to prepare the financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

In preparing these financial statements, the directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgements and accounting estimates that are reasonable and prudent;

· state whether they have been prepared in accordance with IFRSs as adopted by the United Kingdom, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the company. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Website publication

The directors are responsible for ensuring the annual and interim reports and financial statements are made available on a website. Financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, 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 statements contained therein.

LONGBOAT ENERGY PLC

INDEPENDENT REVIEW REPORT

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023

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 2023 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 2023 which comprises consolidated statement of comprehensive income, consolidated statement of financial position, consolidated statement of changes in equity, consolidated statement of cash flows and notes to the consolidated interim financial information.

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. The condensed set of financial statements included in this half-yearly financial report has been 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.

Material uncertainty related to going concern

We draw attention to note 1.2 to the condensed set of financial statements which indicates that the Group requires additional funding which is not secured. These events or conditions, along with other matters as set out in note 1.2, indicate that a material uncertainty exists which may cast significant doubt over the Group's ability to continue as a going concern. Our conclusion is not modified in respect of this matter.

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.

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.

Directors' responsibility for the interim financial statements

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

26 September 2023

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

LONGBOAT ENERGY PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023

LONGBOAT ENERGY PLC

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023

LONGBOAT ENERGY PLC

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023

LONGBOAT ENERGY PLC

CONSOLIDATED STATEMENT OF CASHFLOWS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023

LONGBOAT ENERGY PLC

NOTES TO THE FINANCIAL STATEMENTS

FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2023