1 Jul 2019 07:00
THE INFORMATION CONTAINED WITHIN THIS ANNOUNCEMENT IS DEEMED TO CONSTITUTE INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014. UPON THE PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.
1 July 2019
Highlands Natural Resources plc
("Highlands" or the "Company")
Trading Update
Highlands, the London-listed natural resources company, provides the following trading update on the progress regarding its wholly owned subsidiary Zoetic and the Company's East Denver project.
Zoetic
In a timetable that has become faster than originally expected, Zoetic will now be commencing retail sales in the United Kingdom (UK) in July. Its initial shipment of products has already been despatched from the United States.
The first product lines in the UK will be CBD tinctures. These will be available in four flavours - natural, peppermint, melon and blood orange - and two strengths - 500mg and 1,000mg. Sales will be online and the Company is also in discussions with a specialist distributor with access to retail stores.
The acceleration of the UK launch means that Zoetic products will be available in the UK at the same time as they go on sale in the United States (US). This will open up revenue streams from two markets.
Considerable progress also continues to be made in the US with 26 convenience stores (previously 18) now agreeing to stock products from the Chill brand. Chill smokables should be available in all of these stores this week and the initial delivery of products has now been invoiced. In conjunction with the commencement of retail sales, Zoetic will be launching a social media campaign to build awareness of its brands in the US and UK markets.
Zoetic has also reached agreement with LeafyQuick, a specialist Chicago-based online retailer of CBD products. LeafyQuick will stock products from both the Chill and Zoetic ranges. It ships across the US but, significantly, has the capability to provide a same day delivery service in Chicago, the third largest city in the US with a population of more than 2.7 million people.
Development of Chill's follow-on products remains on track with vapes expected to be available in the US by the end of July and chew packs shortly thereafter. Chill's website (www.thechillway.com) has been live for just two weeks and has already generated considerable traffic.
East Denver
During June, two of the new wells were taken offline for workovers, during which time a gas lift was applied to assist production. The operations were completed successfully and both wells are now back on production.
This is an entirely normal occurrence for wells in the Denver region. However, the time taken for the workovers does mean that production in June has temporarily fallen below expectations. The operator is likely to take the opportunity to install artificial lifting on the remaining four wells during July, but it is anticipated this can be achieved through a rod pump. There may be some further disruption to production whilst these procedures are carried out but it is not expected to be significant.
Operating costs over recent months at the site have also been higher than initially forecast. These largely relate to the workovers and establishing the gas pipeline. Although Highlands is carried on capital expenditure, it is obliged to meet its 7.5% share of operating expenditure. These higher costs are largely one-off in nature and not expected to continue. Management has received confirmation from the operator that future monthly costs will be considerably reduced.
These recent events have meant that Highlands' objective of covering its overheads from East Denver's cashflow has not been realised over this time. However, the return to production of all wells and the reduced operating costs means that the project's financials will recover.
East Denver also remains a very valuable source of revenue for the Company as it establishes Zoetic. The nature of oil & gas wells is that they inevitably decline but, in light of the operator's policy of managing a conservative production strategy, the Board is comfortable that East Denver will continue to be a significant contributor of cashflow to the Company for some time. However, given the news set out above, the Board's expectation is that Zoetic will become an increasingly important part of Highlands' business in the coming months.
During the month of June, production at East Denver averaged approximately 2,000 Bopd and approximately 4,900 Mcfpd.
Notice of results
Highlands will be announcing its full year results for the twelve months ended 31 March 2019 on Thursday 25 July 2019. At the time of its results, the Company will provide a further update on progress on Zoetic, East Denver and all of its other projects.
Robert Price, Executive Chairman and CEO of Highlands, said: "Since we established Zoetic, it has been our stated ambition to commence product sales in the US. We are therefore delighted that this has accelerated beyond expectations and to have opened up new opportunities in a new market at the same time. To begin building a retail presence in the country of our listing is a significant step forward for Highlands.
"East Denver has also remained a very valuable source of revenue for Highlands. Zoetic, however, will become an increasingly important part of the business as we move forward."
**ENDS**
Enquiries
Highlands Natural Resources plc +1 (0) 303 322 1066
Robert Price
Nick Tulloch
Cantor Fitzgerald Europe +44 (0) 20 7894 7000
David Porter
Newgate Communications +44 (0) 20 3757 6880
Elisabeth Cowell highlands@newgatecomms.com
Ian Silvera
Fiona Norman