31st Mar 2009 07:00
ENEGI OIL PLC
Trading symbols:
London Stock Exchange: ENEG
Bourse de Luxembourg: GB00B29T9605
31st March 2009
Enegi Oil Plc
('Enegi' or 'the Company')
Interim results for the six months ended 31 December 2008 and board change
Enegi, the western Newfoundland focused oil and gas company, announces its interim results for the six months ended 31 December 2008.
Key Points:
Re-entered well on Garden Hill South: - encountered both oil and gas - 6,146 barrels of high quality oil was produced and associated gas - preliminary flow test proved to be sub-economic, well temporarily shut-in on extended well test - well proved presence of producible oil on identified trend containing a number of untested leads - follow up options being considered
New exploration rights gained for an offshore parcel, adjacent to existing acreage
Post Balance Sheet Events:
Strategic options across the Company's portfolio being reviewed, cost cutting programme complete
New Board structure implemented: - Alan Minty becomes Executive Chairman, replacing Clive Fowler - Thom Board appointed as CEO as from 1 April 2009 - Kevin McNair to step down as CFO
Outcome of the review and forward strategy to be announced shortly
Alan Minty, Executive Chairman of Enegi Oil commented:
"This has been a difficult period for the Company where there have been disappointments and factors which have impacted the Company's performance, some of which have been beyond the Company's control. However, whilst we expect the next few months to be testing, we must not lose sight of what we have already achieved as well as our vision for the future."
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Enegi Oil |
Tel: + 44 161 817 7460 |
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Alan Minty, Chairman |
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Cenkos Securities |
Tel: + 44 207 397 8900 |
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Joe Nally |
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Stephen Keys |
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College Hill |
Tel: + 44 207 457 2020 |
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Nick Elwes |
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Paddy Blewer |
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www.enegioil.com
The Company
Enegi Oil Plc is an independent oil and gas group whose objective is the identification, development and operation of hydrocarbon opportunities. The Group's current operations are focused on assets on and around the Port au Port Peninsula in western Newfoundland, which, although lightly explored, is in an active petroleum system with light oil having previously been discovered there. The Group's assets include a proven discovery, Garden Hill South, and four leads: Shoal Point, Garden Hill Central, Garden Hill North and Lourdes.
Chairman's Statement
I am pleased to be able to report on the progress made by Enegi Oil during the six months ended 31 December 2008. This was a period of intense activity encompassing the drilling programme at Garden Hill South as well as a successful bid for a new license.
Operational Review
Enegi's principal business activities include the development and operation of hydrocarbon assets in Atlantic Canada. The Company holds the hydrocarbon rights to an onshore petroleum lease, PL 2002-01 (the "lease"), and two offshore exploration licenses, EL1070 and EL1116 (the "licenses"), in western Newfoundland. The Company was established to exploit prospects identified within the lease and licenses.
The lease was issued in April 2002 and has been extended until August 2012 upon the satisfaction of certain conditions, those which have fallen to date having been met. It covers an area of approximately 160km2. It contains the discovered field, Garden Hill South, as well as two other leads, Garden Hill Central and Garden Hill North.
The license EL1070 was issued in January 2002 for a total period of nine years and covers an area of approximately 1,000km2. The license contains the Shoal Point prospect and an unmapped lead, Lourdes. The license EL1116 was issued in January 2009 for a total period of nine years and covers an area of approximately 2,120km2.
Garden Hill South
PDI Production Inc. ('PDIP'), the Company's wholly owned Canadian operating subsidiary, took delivery of Nabors Rig 45 during the summer and commenced the re-entry of the PAP#1 well in August 2008, the main objective being the completion of a horizontal sidetrack. In so doing, PDIP met the other condition of the lease extension set by the Department of Natural Resources.
During the drilling, which lasted into December, both oil and gas were encountered. PDIP commenced a flow test on the PAP#1-ST#3 well at Garden Hill South on 21 January 2009. During the drilling of the well and the subsequent flow test, 6,146 barrels of high quality crude oil (and 3100 boe of associated gas) were produced. The Board however concluded, from the preliminary results of the flow test, that the well was sub-economic due to inadequate support from the surrounding oil and is currently shut in on extended well test.
The Company is examining the flow and shut in test data to determine various options for improving the flow rate. The data indicates the well will produce on an interval basis whereby the well may be flowed then shut-in to recharge the in-contact reservoir pressure before repeating the process. The period between each interval and the expected production is currently not known. Further, the Company is reviewing re-entering the sidetrack to physically stimulate the well. At this time it is too early to determine whether these or any other options will be technically effective or economically justifiable.
The well has however proved the presence of producible oil at the southern end of an identified trend. This trend contains a number of potentially drillable untested leads, including Garden Hill Central and Garden Hill North, within the lease acreage to the north east.
Garden Hill Central and North
Garden Hill Central and North are 100% owned and operated by PDIP. TRACS International has estimated that Garden Hill Central and North have net mean unrisked resources of 24.6 mmboe and 8.3 mmboe respectively.
In August 2007, the Company commenced preparations for a 2D seismic programme covering the Garden Hill Central and Garden Hill North structures. This survey will provide additional information to better understand the two structures and determine initial drilling targets. Due to its size, Garden Hill Central is likely to be the first of these two structures to be drilled.
Although this survey was originally scheduled to take place in the fourth quarter of 2008, weather and technical delays have pushed the programme back. As part of the larger review which the Company is currently undertaking, the timing of this seismic work is now being reconsidered.
New exploration license award
In December, PDIP was informed that it had been awarded further hydrocarbon exploration rights in the 2008 Call for Bids offered by the Canada - Newfoundland Offshore Petroleum Board (C-NLOPB). The successful bid was for an offshore parcel comprising 211,985 hectares which is adjacent to PL 2002-01 which PDIP currently holds.
The successful bid was based upon the Company committing to work expenditure of CAD$600,000 in exploring the parcel during the initial five-year period of a nine-year Exploration License. PDIP has lodged a deposit equal to 25% of this work commitment with the C-NLOPB which will be offset against future expenditure. If significant quantities of petroleum resources are discovered as a result of exploration work, PDIP may then seek a Significant Discovery License from the C-NLOPB. Any Significant Discovery Licenses issued in respect of lands resulting from the Exploration License will be subject to rentals which will escalate over time.
As stated in Enegi's Competent Persons Report at the time of the IPO, TRACS International believes that two of the structures that it has identified under Petroleum Lease 2002-01, Garden Hill South and Garden Hill Central, extend offshore.
As described in the prospectus issued at the Company's flotation, the award of the license triggered a payment of C$500,000 to CIVC Creditor Corp. PDIP has renegotiated this payment into minimum monthly payments of C$10,000 which it has continued to meet. The Company is required to have repaid the full C$500,000 by 31st July 2010. The non-payment of these amounts is governed by a mortgage on EL1116 in favour of CIVC Creditor Corp.
PDIP
In February, we announced that the financial position of PDIP had deteriorated significantly. Weather delays, technical issues and logistical problems led to significant delays in the drilling programme on Garden Hill South. As a result, PDIP now has current liabilities in excess of its current assets. PDIP has entered into discussions with its creditors to reschedule its liabilities. As soon as the outcome of those discussions is known, the Company will update the market.
Financial review
The accounts for the period have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union.
The Company reported a loss of £2,533k for the period, an increase of £1,246k over the corresponding period in 2007. This is mainly due to increased general and administrative costs in response to the drilling programme at Garden Hill South and operational costs which cannot be capitalised.
Additionally, we have taken a provision of £1,000k in relation to the outstanding debtor described in the consolidated financial statements for the year ended 30 June 2008. Since the publication of those accounts, the value of the underlying collateral which the Company had secured has deteriorated significantly. As a result, the Directors believe it is prudent to provide an additional amount against the underlying debtor balance.
Board changes
As previously announced, the Company is undertaking an operational and financial review with its advisors. One of the preliminary conclusions is that, without production from Garden Hill South, the operational and administrative demands of the business are much lower than the directors originally anticipated. As a result of this, Enegi has undertaken to streamline its operational and board capacity.
Clive Fowler has stepped down as Non-executive Chairman. Alan Minty will become Executive Chairman, working on a part time basis, and relinquish his role as Chief Executive Officer. Alan's focus will be on the Company's strategic direction and assessing new opportunities in Atlantic Canada.
Thom Board will take over as Chief Executive Officer, as from 1 April 2009. Thom has worked for over fifteen years in the oil and gas business and his experience entails operational management, business development, mergers and acquisitions, and extensive fundraising.
Kevin McNair has also agreed to step down as Chief Financial Officer. This will be effective immediately and his role will be taken over by the finance team.
I would personally like to thank Kevin, Clive and Atholl, who also stood down recently, for their contributions to the business both in the run up to our IPO last March and during our first year as a public company.
Following on from this Enegi's board now consists of three executive directors and one non-executive director, a more affordable cost structure.
Outlook
The next six months will be a testing time for Enegi. The results of the well at Garden Hill South thus far have been on the disappointing side and the well, in its current state, despite encountering both oil and gas will not sustain the production levels for which we had originally hoped. There are a number of options for potentially improving the well's performance and these are currently being assessed. The Board expects the outcome of this assessment to be known shortly and it will then become clearer which course of action is the most appropriate for the Company and its shareholders.
The outcome of the drilling programme does not change the Company's on-going strategy. Enegi is focused on creating value for shareholders through capital growth and achieving that by constructing a portfolio of oil and gas assets ranging from exploration through appraisal, development and production, but weighted towards appraisal and development. Our area of focus remains in western Newfoundland and we will continue to look for new opportunities there.
One of the key influencing factors on our decisions relating to the commerciality of Garden Hill South has been the oil price. The slump of WTI price of oil after peaking at over $140 per barrel has been well documented and at the time of writing, whilst recovering slowly, is still sitting at the lowest levels for five years or so. A sustainable recovery in the WTI barrel price would have a fundamental effect on our assessment of the PAP#1 ST-3 well, which would in turn significantly improve our access to working capital.
While the implementation of the strategy would have been easier if the drilling results or oil price had been better, other external factors such as the general economic downturn have had a significant effect upon the Company's performance and are being factored into our short term strategy. The Company still possesses some very attractive assets with substantial working interests. As such this provides us with a number of options going forward. The way in which the management utilises these options will determine our performance as well as the shape of the Company over the next twelve months.
Alan Minty
Executive Chairman
31st March 2009
CONSOLIDATED INCOME STATEMENT
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Unaudited 6 months ended 31 December 2008 £'000 |
Unaudited 6 months ended 31 December 2007 £'000 |
Audited 12 months ended 30 June 2008 £'000 |
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Continuing operations |
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Operational and administrative expenses |
(2,592) |
(1,239) |
(3,390) |
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Loss from operations |
(2,592) |
(1,239) |
(3,390) |
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Finance expense |
- |
(48) |
(92) |
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Finance income |
59 |
- |
35 |
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Loss before tax |
(2,533) |
(1,287) |
(3,447) |
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Taxation |
- |
- |
- |
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Profit for the year attributable to equity shareholders |
(2,533) |
(1,287) |
(3,447) |
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Loss per share (expressed in pence per share) |
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Basic |
(8.1p) |
(13.5p) |
(15.1p) |
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Diluted |
(8.1p) |
(13.5p) |
(15.1p) |
CONSOLIDATED BALANCE SHEET
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Unaudited As at 31 December 2008 £'000 |
Unaudited As at 31 December 2007 £'000 |
Audited As at 30 June 2008 £'000 |
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Non-current assets |
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Tangible fixed assets |
13,114 |
3,470 |
7,284 |
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Intangible assets |
1,248 |
313 |
1,135 |
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Other long term assets |
910 |
898 |
1,408 |
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15,272 |
4,681 |
9,827 |
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Current assets |
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Trade and other receivables |
1,727 |
327 |
2,977 |
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Prepaid and other assets |
1,270 |
32 |
53 |
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Cash and cash equivalents |
600 |
2,889 |
6,001 |
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|
3,597 |
3,248 |
9,031 |
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Current liabilities |
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Trade and other payables |
(3,879) |
(911) |
(1,015) |
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Due to related parties |
(8) |
(859) |
(7) |
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(3,887) |
(1,770) |
(1,022) |
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Net current assets |
(290) |
1,478 |
8,009 |
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Total assets less current liabilities |
14,982 |
6,159 |
17,836 |
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Non-current liabilities |
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Provisions |
(205) |
(590) |
(182) |
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Net assets |
14,777 |
5,569 |
17,654 |
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Shareholders' equity |
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Ordinary share capital |
313 |
221 |
313 |
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Share premium |
13,695 |
8,249 |
13,695 |
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Reverse acquisition reserve |
9,364 |
- |
9,364 |
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Other reserve |
(1,539) |
- |
(1,557) |
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Warrant reserve |
646 |
- |
646 |
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Retained earnings |
(7,702) |
(2,901) |
(4,807) |
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Total shareholders' equity |
14,777 |
5,569 |
17,654 |
CONSOLIDATED CASH FLOW STATEMENT
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Unaudited 6 months ended 31 December 2008 £'000 |
Unaudited 6 months ended 31 December 2007 £'000 |
Audited 12 months ended 30 June 2008 £'000 |
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Cash flows from operating activities |
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Cash used in operations |
406 |
(1,218) |
(3,716) |
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Interest paid |
- |
(50) |
(92) |
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Net cash used in operating activities |
406 |
(1,268) |
(3,808) |
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|
|
Cash flows from investing activities |
|
|
|
|
License payments and other deposits |
498 |
(153) |
(1,266) |
|
Expenditure on tangible fixed assets |
(5,830) |
(559) |
(4,444) |
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Expenditure on intangible fixed assets |
(113) |
(93) |
(931) |
|
Interest received |
59 |
- |
35 |
|
Net cash used in investing activities |
(5,386) |
(805) |
(6,606) |
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
Share capital issued for cash, net of expenses |
- |
3,385 |
14,913 |
|
Net cash flows from financing activities |
- |
3,385 |
14,913 |
|
|
|
|
|
|
Net increase in cash, cash equivalents and bank overdrafts |
(4,980) |
1,312 |
4,499 |
|
Cash and cash equivalents at the start of year |
6,001 |
1,637 |
1,513 |
|
Exchange losses |
(421) |
(60) |
(11) |
|
Cash, cash equivalents and bank overdrafts at the end of year |
600 |
2,889 |
6,001 |
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NOTE: these statements have been prepared under International Financial Reporting Standards as adopted by the European Union using accounting policies consistent with those in the last Annual Report.
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