PPC.L Regulatory News (PPC)

PRESIDENT ENERGY PLC

("President", "the Company", or "the Group")

Audited Results for the year ended 31 December 2021

2022 update and outlook

Green House Capital, a new Alternative Energy Vehicle

AGM date

President (AIM: PPC), the upstream oil and gas company with a diverse portfolio of production and exploration assets focused primarily on Argentina, is pleased to announce its audited results for the year ended 31 December 2021 and a 2022 update and outlook.

Peter Levine, Chairman, commented:

"The year under report was very significant for President and has resulted in a welcome return to net profit after tax after considering all depreciation and impairments as well as the spin-out of Atome Energy from the Group.

"Excluding depreciation, the core business in Argentina delivered significantly increased operational profits year on year with adjusted EBITDA multiplying nearly four-fold together with materially increased Group free and net cash generation.

"Strategically major events occurred in the year. The farm-out of our Paraguay exploration asset to the State energy Company of Taiwan was closed and we will be drilling the first high impact exploration well there later in the year. The spin out and IPO of Atome Energy, our green energy company was successfully completed at the very end of the year with some £20 million of added value generated for our shareholders from both a dividend in specie and the subsequent healthy rise in Atome's share price where its market capitalisation is more than President's despite the latter still owning approximately 28% of Atome.

"With the benefit of new drilling in Argentina just starting to be felt, oil prices rising in our core activity areas and the prospect of continued new strategic initiatives in both our core hydrocarbon businesses and new alternative energies through our new subsidiary, Green House Capital, we view the future with quiet confidence".

The Company's Annual Report will be posted to shareholders by the end of June. 

Highlights FY2021

Financial

· Profit after tax of US$4.6 million (2020 loss US$11.3 million), after depreciation, depletion, and amortisation of US$11.5 million (2020: US$10.3 million)

· Group revenue increased by 23% to US$34.1 million (2020: US$27.8 million) due to recovery in realised commodity prices in Argentina to US$40.6 per boe (2020: US$30.0 per boe 2020) and US$43.1 (2020: US$29.9 per boe) in the US

· Adjusted EBITDA* increased by 257% to US$7.5 million (2020: US$2.1 million) with the Adjusted EBITDA contribution from Argentina US$10.5 million (2020: US$2.9 million)

· Free cash generation from core operations* (excluding workovers) increased by 106% to US$12.8 million (2020: US$6.2 million)

· Net cash generated by operating activities increased by 250% to US$11.1 million (2020: US$4.4 million)

· Borrowings at year end increased to US$29.3 million (2020: US$17.7 million). Of this, US$18 million is third party financial debt with the balance owed to IYA, an affiliate company of Peter Levine. The increase in third party debt relates to the heavy capex programme last year totalling just over US$ 14.8 million.

Corporate

· Argentina bond issue of US$8.95 million at interest rate of only 1.24% with credit rating of A- investment grade (included in third party debt above)

· Atome Energy PLC spin off with an IPO on the AIM market in late December 2021 with an initial market capitalisation of £26 million

· Paraguay farm-out to CPC the State Energy Company of Taiwan successfully completed

· Matorras and Ocultar licences in Salta relinquished

Operations

· Group net average production 2,473 boepd (2020: 2,714 boepd)

· Three new wells drilled in Rio Negro, Argentina in H1 2021. Three new well drilling programme in Salta, Argentina commenced late 2021 and now successfully completed

· Continued improvement in Argentina core operating performance with well operating costs per boe in 2021, excluding royalties and workovers*, reduced by 3% to US$17.0 per boe (2020: US$17.6)

· Group-wide administrative costs per barrel* US$4.8 per boe (2020: US$4.7 per boe) excluding directly attributable Atome expenses.

Production and reserves

· Net 2P (proven and probable) reserves in Argentina at year end, as confirmed by an independent reserves audit, increased to 24.4 mmboe (2020: 24.3 mmboe)

· Louisiana 1P current proven producing reserves estimated at 724 mboe (2020: 724 mboe)

* Calculation of all quoted metrics not directly corresponding to GAAP measures are detailed in the Alternative Performance Measure glossary and cross referenced to the Notes where applicable

Peter Levine's full Chairman's Statement in the Annual Accounts and Report is set out below:

The year under report was very significant for President and has resulted in a welcome return to net profit after tax after considering all depreciation and impairments as well as the spin-out of Atome Energy from the Group.

Excluding depreciation, the core business in Argentina delivered significantly increased operational profits year on year. Three wells were drilled in Rio Negro Province, Argentina in the first part of the year. The three well drilling campaign in Salta, Argentina commenced late in Q4 for which we now are starting to see the beneficial impact.

The new oil treatment plant in Rio Negro was completed delivering a US$4 per barrel in savings and meaning we were no longer dependent on a third-party pipeline to deliver oil. 

Louisiana was unfortunately shut-in and under reduced production for much of 2021 but following the successful workover at the start of 2022, the US assets should overall show a creditable contribution to profits.

On the strategic front, the long-mooted farm-out of our Paraguay exploration asset was completed in favour of CPC, the State Energy Company of Taiwan, a reputable and strong international partner, with President remaining operator and retaining 50% interest. We are due to commence drilling of the first exploration well later this year.

Atome Energy, President's green energy business, was spun out and successfully completed its Initial Public Offering at the end of 2021. This resulted in a very significant dividend in specie being declared in favour of President's shareholders, whilst the Company retained some 28% of Atome whose share price has increased over 40% in value since the IPO. The result is that, on a mark to market basis, President has within the space of 12 months generated for its shareholders as at current prices, approximately £20 million of value in and/or through Atome (on basis that the dividend shares in Atome are still held).

It is regrettable, that President, due to the location of its main operations, has not been able to really benefit significantly from the highly inflated current hydrocarbon prices. However, prices in Argentina are slowly increasing and with our ability to periodically export oil, as well as production in Louisiana recommenced, it does mean that this year will show benefits to us from the current oil price boom.

 Production

Reserve revisions in Argentina reflect the results of production performance, drilling and workovers in the year and the subsequent independent auditor's reserve report by Claudio N. Larriestra. It is important to note that the reserves as at 31 December 2021 do not represent the total of what is present and/or recoverable in the respective fields in Rio Negro but only rather what are present and/or recoverable over the term of President's current licenses as at the audit date.

Impact of COVID-19 on our operations

The first priority throughout 2021 remained the welfare and health of our employees and families as well as our contractors working in the field. Throughout the year, President continued to monitor and check on the health of all its employees and follow strict guidelines. Measures included restricting numbers travelling to fields in vehicles, monitoring health of operatives daily and social distancing. Production from operations has not been affected and there have been no shut-in wells or choke back of our wells.

The Company continued with social distancing measures, both in the office and in the fields, and maintained a "flexible" work schedule for the BA office, with employees still not back 100% in the office but equipped with all necessary IT infrastructure when working remotely. Morale remains excellent with a strong sense of togetherness throughout and there has been no decrease in efficiency. President has no offices in the UK or Louisiana so the Company is well used to working remotely and economically.

Climate Change

President acknowledges and takes due regard to the increasing emphasis on climate change around the World as evidenced by the activities regarding Atome Limited, an entity we created to focus on green hydrogen and ammonia. With regards to our core non renewables business, we acknowledge climate change as a risk facing President that will continue to be considered regularly by the Board.

Current Trading 

In relation to trading in the year to date

• Current realised oil prices in Argentina are showing a small month by month increase. Prices in Salta province are up 12% since the start of the year with July realisations expected at US$66 per barrel. The average Rio Negro oil price for the first five months of this year to date, considering quantities we have been able to export during the period has been US$63 per barrel

• Oil prices received in Louisiana for May production were approximately US$109 per barrel

• Of the new wells drilled in Salta, all three are successful oil producers. The two in Dos Puntitas Field are slowly increasing towards optimum production levels, targeting after a final acid treatment and increase in pump capacity, some 190 bopd each. The third new well has come on strongly from the outset and already without need of fine tuning or stimulation is achieving over 200 bopd. Whilst capex was over budget due to unforeseen issues, the programme has demonstrated it has been economically worthwhile

• Daniel Musri, our new CEO, has started to implement a rigid ground up review of well, field and infrastructure management to mitigate the downtime and declines we have suffered in the past. This is accompanied by an internal management realignment

• In Louisiana, considering the volume of oil we have been advised is still to be recovered in the Triche well, it has been decided to install a form of artificial lift to maximise and stabilise production levels, which to date have flowed naturally without any support. This should enable the wells to be produced consistently over a prolonged period and capitalise on the prevailing oil prices. The installation of the new system is now proceeding but in the view of the Louisiana management is necessary to optimise the Triche well potential and take advantage of current high oil prices

• In Paraguay, work continues in preparation for spudding later this year. Our partner is fully compliant with its obligations and the main focus is not only agreeing with service segment providers costs and timing which is ongoing but finalising agreement with the rig contractor, who is undergoing an internal reorganisation. Whilst this is out of our hands as to timing, we are assured that we will be able to move forward with them in a concrete manner within the next three months which would still be in line with targeting commencement of drilling in the latter part of this year. I remind all actual or potential investors of the risks involved in exploration in such a context as we are in Paraguay and to measure expectations both as to timing and results accordingly

• As announced previously, we have within the Puesto Guardian licence a significant gas exploration project at the Martinez del Tineo field. We are launching a farm out process in Q3 2022, and whilst this may well roll over into 2023 the size of the prize and the increase in value in gas has made in our view the prospect more enticing, with initial interest already being shown. Further announcements will be made in due course.

Oil and gas business acquisition strategy 

President remains committed to growing its oil and gas business by acquisition where appropriate and material efforts continue to be made in this regard, including considering opportunities outside of its present areas. 

Atome 

As I have stated, those shareholders who have stayed with their dividend in specie shares in Atome have seen a very healthy benefit. To date, assuming all shareholders would have held their shares, the benefit would have been some £20 million to members as a whole.

The full market value of the Group's share in Atome is not shown in the balance sheet for reasons relating to accounting standards for investments in associates. Currently the holding of the Company in Atome is considered an investment and will be reviewed as such at all relevant times. President is very encouraged by Atome's progress and remains supportive of its green objectives and exciting business case.

Alternative Energies - Green House Capital

Following the successful creation, spin off and IPO of Atome, bringing material value creation for shareholders of President, the Company views similar steps as a fertile way of demonstrating to the market its value as a company.

As part of the stated object of diversification of the Company's interests and/or migration to businesses seemingly more appreciated by the stock market, President has become a 75% beneficial shareholder in the UK registered private limited company, Green House Capital ("Green House") joining Alpha Oil Invest GmbH of Zug, Switzerland, an investment fund beneficially owned by myself, also a shareholder in Atome.

Green House is intended to become an incubator/ investor in alternative energy related businesses capitalising, as with Atome, on the capacity to identify and develop business opportunities through, inter alia, the value creating experience of President and Alpha as well as the formers' status as a public company. For the avoidance of doubt to avoid conflict, Green House will not be involved in any business that directly or indirectly competes with Atome now, or in the future. 

Further announcements in relation to Green House will be made at the appropriate time.

President Energy is to become a 75% beneficial shareholder in the UK registered private limited company, Green House Capital ("Green House") joining Alpha Oil Invest GmbH of Zug ("Alpha"), Switzerland, an investment fund beneficially owned by Peter Levine, CEO of President Energy.

President Energy is to pay nil consideration for its interest.

The issuance of the shares in Green House to President is considered a related party transaction pursuant to Rule 13 of the AIM Rules for Companies. The Independent Directors of the Company, being Alex Moody-Stuart, Rob Shepherd, and Jorge Dario Bongiovanni, having consulted with the Company's nominated adviser, finnCap, consider that the terms of the transaction are fair and reasonable insofar as the Company's shareholders are concerned.

Annual General Meeting and Investor Q&A

The Annual General Meeting will be held on Friday 22 July 2022 at 11 a.m. BST at The Army and Navy Club, 36-39 Pall Mall, London, SW1Y 5JN.

Contact:

Detailed financial review

2021 saw the recovery from the economic shock of the Covid-19 pandemic progress and attention shift back onto the challenges arising from climate change. The need to develop new environmentally friendly energy solutions was reflected in the rapid and noteworthy emergence of Atome Energy. Under the stewardship of President, Atome Energy has become an independent AIM listed international green energy business. It has also had a significant impact on President financial results at both Group and Company level in 2021.

As a result of the dividend in specie of Atome Energy shares in December 2021, a gain of US$13.1 million has been recognised at Group and Company level which represents the market value returned to shareholders by way of that dividend. In addition, the market value of the investment retained by President is now shown on the Company Balance Sheet resulting in a US$10.2 million gain in the Company financial statements, although this is not reflected in the Group Balance Sheet. With the accounting rules governing consolidation of investments in associate undertakings with significant influence, shareholders will need to look to the Company Balance Sheet going forward to see the changes in the market value of the investment. We have introduced a new note to the Group accounts to highlight and explain the impact of Atome Energy on the financial statements of the Group and Company (Note 33).

Revenue rose by 23% to US$34.1 million (2020: US$27.8 million) due to higher realised prices in both Argentina and the USA; the average Group product price was US$40.7/boe (2020: US$30.0/boe) due to the recovery in market prices in the year. Overall Group production fell by 9% to 2,473 boepd (2020: 2,714 boepd). Cost of sales increased to US$33.4 million (2020: US$31.8 million) due to higher depreciation and product price related royalty and tax expenses.

Free cash generation from core operations excluding changes in working capital, administrative expense, and non-recurring workovers more than doubled to US$12.8 million (2020: US$6.2 million).

After depreciation, depletion, and amortisation of US$11.5 million (2020: US$10.3 million) and administrative expenses of US$5.8 million (2020: US$4.6 million), the Group recorded an operating loss of US$5.0 million (2020: loss US$8.7 million).

Included within administrative expenses are US$1.4 million of directly attributable Atome Energy expenses largely offset by the US$1.3 million non-operating gain arising on migration to an associate investment, and directly linked to the US$1.3 million receivable ultimately recovered in 2022. The overall impact of Atome related expenses is essentially neutral in 2021.

A small impairment of US$0.1 million (2020: US$1.9 million) is related to intangible exploration assets in Argentina and the accounts show the impact of higher interest on Argentina borrowings and lower foreign exchanged related treasury income.

Profit before tax for the year was US$5.7 million (2020: loss US$10.3 million) with profit after tax totalling US$4.6 million (2020 loss: US$11.3 million).

Argentine operating performance

Production in Argentina decreased by 3% to 868,427 boe (2020: 898,704 boe) or 2,379 boepd (2020: 2,455 boepd). Average realised sales prices in Argentina rose by 35% to US$40.6 per boe (2020: US$30.0 per boe) in line with the recovery in world prices during the year.

Well operating costs in Argentina before non-recurring items* fell by 3% to US$17.0/boe (2020: US$17.6/boe) as the focus remained on cost control. Depreciation rose during the year to US$12.9/boe (2020: US$10.9/boe)* following higher future development cost estimates. The extension of the Rio Negro licence period and/or the secondary recovery project which are both under discussion with the Neuquén Province would lead to a significant reduction in depreciation rates.

Overall, following the annual independent review, proved and probable reserves in Argentina increased by 4%. There were no impairment indicators in relation to Argentine assets in the year.

USA operating performance

Production from the Group's working interest in US operations fell by 64% to 94 boepd (2020: 258 boepd) following a four-month outage of the Triche well and dislocation in production either side of the outage. A successful capital workover commenced in late 2021 perforating different reservoir zones and production resumed in 2022.

Average realised prices in the US rose by 44% on the prior year to US$43.1/boe (2020: US$29.9/boe). Well operating costs excluding royalty related expenses and non-recurring workovers* rose to US$14.3 /boe (2020: US$6.6 /boe) due to the production outage. Depreciation rose during the year to US$6.3/boe (2020: US$3.6/boe)* due to the higher capital cost while reserves remained unchanged. 

Corporate

Much of the focus in 2021 was on the value creation in bringing Atome Energy to the market, development drilling in Argentina and concluding the farm out of the Pirity Concession in Paraguay. To that end, shareholder and High Court approval was obtained for a capital reduction of Share Premium balance to facilitate the dividend in specie to shareholders at the end of December 2021. Following the reduction, there remains over US$90.0 million of distributable reserves at the end of the year.

Development drilling and working capital in Argentina was funded primarily through finance raised on the local market via the issue of a bond and a number of promissory notes. This is the first time that any member of the Group has issued a corporate bond and is notable due to it being given the credit rating of A- local investment grade by the Argentine affiliate of the worldwide credit rating agency Fitch, Fix SCR. The covenant lite Bond is secured solely on 60% of the sales proceeds from oil sales of the Puesto Flores Concession, Río Negro Province, Argentina. Production from all other Río Negro fields and the Puesto Guardian field in Salta as well as all gas production in Argentina is not subject to nor affected by this security. 

The Group completed the farmout of part of its interest in the Pirity Concession to CPC Corporation, Taiwan ("CPC"), the state-owned energy company of Taiwan in November 2021. CPC and President, through their subsidiary companies, now have an equal 50/50 interest in the Pirity Concession, Paraguay with President continuing as operator under an international form of Joint Operating Agreement. The Pirity licence was extended until September 2023 and the Hernadarias licence until November 2023. The successful conclusion of the farmout process, US$4.0 million proceeds and licence extensions clear the way for a well to be drilled to determine the potential economic value of the intangible asset. Accordingly, management consider that it is appropriate to continue to capitalise the balance of US$54 million at 31 December 2021 (2020: US$53 million).

Investment in the Oil & Gas Assets component of Property, Plant and Equipment in the year amounted to US$14.7 million (2020: US$8.9 million) with a three well development drilling campaign on the Puesto Guardian licence in the northern Salta province in Argentina started in early November 2021. Drilling of the third well extended in to 2022. Investment in Rio Negro continued with the drilling and completion of a further two wells on the Las Bases and Estancia Vieja concessions in April 2021. A new oil treatment plant designed, engineered, constructed, and completed in Rio Negro is now delivering material savings of operating costs.

Overall, Trade and Other Payables increased to US$22.0 million (2020: US$13.8 million) due to US$4.0 million Paraguay drilling obligation, pre-IPO financial support for Atome (repaid post period end as detailed below) and higher period end activity levels reflected in trade creditor, accruals, and other payables. The Group has a constructive obligation to use the US$4.0 million proceeds received to drill the exploration well as defined in the farm-out agreements.

Trade and Other Receivables increased to US$11.9 million (2020: US$4.6 million). In financing Argentine drilling activity in 2021, the Group managed currency exposure by prepaying for US$3.2 million of drilling costs to be discharged on settlement in 2022. Under new borrowing arrangements, proceeds are received net of interest earned in future periods resulting in a prepayment of interest. Following the flotation of Atome Energy at the end of December 2021, the Group had a receivable of US$1.3 million in relation to the funding support provided to the Atome businesses. This amount was settled in full in 2022.

At the end of the year, the Group had a net current liability of US$9.2 million (2020: US$4.8 million). However, after deducting the liabilities on drilling and acquisition investment activity, which are periodic in nature as detailed in Note 19, the underlying net current liability from ongoing operations is significantly lower at US$3.2 million (2020: US$0.8 million). Year-end cash balances were US$2.0 million (2020: US$1.1 million).

Key Performance Indicators

Key Performance Indicators are used to measure the extent to which Directors and management are reaching key business objectives for the Group. The principal methods by which the Directors monitor the Group's performance are volumes of net production, well operating costs, and the extent of exploration success. The Directors also carry out a regular review of cash available for exploration and development and review actual capital expenditure and operating expenses against forecasts and budgets.

* Calculation of all quoted metrics not directly corresponding to GAAP measures are detailed in the Alternative Performance Measure glossary and cross referenced to the Notes where applicable

Consolidated Statement of Comprehensive Income

Year ended 31 December 2021

The accompanying accounting policies and notes form an integral part of these financial statements.

Consolidated Statement of Financial Position 

31 December 2021

Consolidated Statement of Changes in Equity

Year ended 31 December 2021

Attributable to the owners of the Company

Consolidated Statement of Cash Flows

Year ended 31 December 2021

The accompanying accounting policies and notes form an integral part of these financial statements.

Notes

1. Accounting policies and preparation

The financial information set out in this announcement does not constitute the Company's statutory accounts for the years ended 31 December 2021 or 2020 but is derived from the 2021 accounts.

A copy of the statutory accounts for the year to 31 December 2020 has been delivered to the Registrar of Companies and is also available on the Company's website. Statutory accounts for 2021 will be delivered in due course. The auditors have reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006 in respect of the accounts for 2020 nor 2021.

Whilst the financial statements from which this preliminary announcement is derived have been prepared in accordance with International Financial Reporting Standards ("IFRS") and applicable law, this announcement does not itself contain sufficient information to comply with IFRS. The Annual Report, containing full financial statements that comply with IFRS, will be sent out to shareholders by the end of June.

The Directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Therefore, in the preparation of the 20120financial statements they continue to adopt the going concern basis. 

Well operating costs include US$751,000 (2020: US$86,000) in non-recurring workover costs expensed in the period.

To allow for meaningful comparison, staff costs, share based payments and depreciation expenses are reflected gross before the effect of allocations to operating costs or balance sheet assets. Other expenses are shown net of the effect of allocations US$1.3 million (2020: US$1.5 million). 

Included with administrative expenses are US$1.4 million directly attributable to the Atome Energy businesses which are no longer part of the President Group following the flotation at the end of December 2021.

Further details on the impairments are provided in Note 14 for Intangible assets.

At 31 December 2021, 41,508,838 (2020: 32,146,921) share option and share warrant awards were in issue that, if exercised, would dilute earnings per share in the future. No dilution per share was calculated for 2020 as with the reported loss they are anti-dilutive. 

8 Segment reporting

 Segment assets can be reconciled to the Group as follows: