Preliminary Results

30th Sep 2008 18:00



Enegi Oil Plc 

('Enegi' or 'the Company')

Maiden unaudited preliminary results for the year ended 30 June 2008 

Enegi, the western Newfoundland focused oil and gas company, today announces its maiden unaudited preliminary results for the year ended 30 June 2008.

Highlights:

Listed on AIM and Bourse de Luxembourg raising £15 million during difficult market conditions

Successfully extended license and lease to allow for further investment in exploration and exploitation

Through farm-out arrangements on Shoal Point, reduced risks and costs in the portfolio and funded the acquisition of the remaining working interests in the Garden Hill discovery and leads

Shoal Point exploration drilling did not locate commercial hydrocarbons; review under way to determine remaining prospectivity

Drilling of a horizontal appraisal well at 100% owned Garden Hill South has commenced

Significantly strengthened Board and management team

Net current assets of £8.0 million as at 30 June 2008

Outlook:

Anticipated production at Garden Hill South later in 2008 should provide cash flow

Seismic survey on Garden Hill Central and Garden Hill North will provide greater clarity on prospects

Exploration activity over acreage will provide a number of drilling targets

Continuing to appraise new opportunities, new licenses, farm-ins and asset acquisitions 

Alan Minty, Chief Executive, commented:

"This has been a landmark year for the Company, achieving a successful listing and fund raising in what were undoubtedly difficult times for the market in March of this year.

Operationally we have re-balanced our portfolio, increasing our interest in Garden Hill South appraisal and production at little cost to shareholders. We will continue to focus on our strategy of delivering prospects which provide near term production opportunities and thus cash flow. Garden Hill South, currently being drilled, is one such opportunity and has the ability to make Enegi self-financing if the forecast levels of production are achieved.

With our existing portfolio, the strengthened team and our strategy and focus on near term production, Enegi is in a great position to deliver real growth in value for shareholders in the year ahead."

30 September 2008

Enquiries:

Enegi Oil	Tel: + 44 161 817 7460
Alan Minty, CEO
Kevin McNair, CFO
Cenkos Securities	Tel: + 44 207 397 8900
Joe Nally
Stephen Keys
Fox-Davies Capital	Tel: + 44 207 936 5200
Daniel Fox-Davies
Richard Hail
College Hill	Tel: + 44 207 457 2020
Nick Elwes
Paddy Blewer

CHIEF EXECUTIVE'S STATEMENT

Introduction

This is the Company's first year reporting as a public company, following the listing of its shares on the Alternative Investment Market of the London Stock Exchange and the Bourse de Luxembourg in March of this year, and I am pleased to report on the significant progress we have made during the last twelve months.

During the year, the Group raised £19.5 million to fund its operations and increase our interest in the Garden Hill discovery and leads, including an IPO in which we raised £15 million during very difficult market conditions. We also obtained extensions on both our onshore and offshore assets, giving us a number of additional years to execute our investment plans and ensure that the company is able to gain a full understanding of its assets prior to undertaking drilling.

Our already strong team was bolstered by a number of new recruits. These include the appointments of Clive Fowler as non-executive chairman, and Alex Lamb and Atholl Turrell as non-executive directors. PDI Production, Enegi Oil's wholly owned subsidiary, has also been strengthened with a number of technical and commercial hires, and is well positioned to capitalize on the opportunities in eastern Canada. These appointments highlight the quality of the people on the team at Enegi Oil. Each member brings a specific set of skills and experience, whether technical, strategic, risk management, commercial or financial, to ensure that they can have an immediate, positive impact on our business. I would like to take this chance to thank everyone who works within the group for all their effort and commitment. It is through them that we have been able to achieve so much in the short history of the business.

The team, as it stands now, is extremely capable and ready to deliver our development plans, including the highly exciting appraisal well currently underway at Garden Hill South.

Achievements

Twelve months ago, we were a private company that owned a 60% interest in both the Garden Hill prospects and Shoal Point, with upcoming drilling deadlines for all of our assets. The last year has been transformational for the Company in many respects. Enegi Oil is now a publicly listed company, quoted in both London and Luxembourg, has a fully-owned subsidiary that owns a 100% interest in a discovery that is expected to be put on production by the end of this calendar year and has further time to explore and exploit its land position in western Newfoundland.

Early in the financial year, the Petroleum Lease that contains the Garden Hill discovery and leads was extended to August 2008, giving the Company time to plan the program and share a rig with operations at Shoal Point. This was followed, in early 2008, by a comprehensive deal to acquire full ownership of the newly-extended lease covering the Garden Hill discovery and leads.

The funds saved through a previously executed farm-out on the high-risk, high-impact Shoal Point prospect allowed us to acquire an additional 40% interest in the Garden Hill South discovery and the Garden Hill North and Central leads, adding to both contingent and prospective resources, rebalancing the portfolio towards appraisal at little cost to the Company. The Shoal Point farm-out reduced the Company's cost exposure on the drilling operation from 60% to 17.5%, and our working interest to 32%.

Following an extension of offshore Exploration License 1070, containing the Shoal Point prospect, further funds were saved by the sharing of a rig between operations at Garden Hill South and Shoal Point.

In March of this year, despite very tough market conditions, Enegi completed its IPO, raising £15m to invest in its assets in western Newfoundland. We believe that this represents a significant amount of confidence in not only the assets that the Company owns, but also in the strength of the team in Enegi and its subsidiaries.

Exploration drilling was undertaken at Shoal Point in the first half of 2008. Unfortunately, the Shoal Point well did not encounter commercial hydrocarbons in the target formations, although the result supported the Company's decision to reduce its exposure to the operation. The Company is reviewing the data collected during the drilling operation, and it is currently unclear whether the operator's prognosis for the well was correct. If the prognosis was incorrect, the Shoal Point prospect will still remain a viable target worthy of future exploration. In light of this, the well was abandoned in a manner that will allow re-entry at a future date. The directors believe that future exploration of Shoal Point is likely to be conducted via the existing Shoal Point well. The information gathered during the drilling will be immensely valuable in refining our views on the geological model for the prospect. Additionally, by participating in the well we maintained our working interest in the larger exploration license and extended the term of the license until 15 January 2011.

Following the completion of operations at Shoal Point, the rig was moved to Garden Hill South for appraisal drilling, which commenced after the end of the financial year.

Outlook

The next year will provide the Company with a variety of opportunities, the most exciting of which is the opportunity to "prove up" the commerciality of Garden Hill South. At the time of going to press, drilling operations were underway and preliminary results are expected towards the end of November. Achieving production will put the company in an enviable position of having significant cash flow and further development drilling opportunities.

A 2D seismic survey at Garden Hill Central and Garden Hill North, to be conducted in early 2009, will give us greater clarity of the nature and size of those two prospects and identify exploration drilling targets which could potentially be funded out of Garden Hill South cash flow.

Additionally, we are regularly looking at new opportunities in the form of participation in licensing rounds, through farm-ins, and acquisitions of properties. We will update shareholders in the event that we successfully pursue an opportunity that meets the Company's strict investment criteria.

In summary, the Company's second year of development has been one of real achievement but we are determined to deliver even more. Our focus on near term production opportunities, commitment to planning, and our strong experience and relationships in Canada put us in a great position to drive real growth in value for shareholders.

Alan Minty

Chief Executive Officer

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 PL 2002-01 (the "lease"), and an offshore exploration license, EL 1070 (the "license"), in western Newfoundland. The Company was established to exploit prospects identified within the lease and license.

The lease was issued in April 2002 and has been extended until August 2012 upon the satisfaction of certain conditions all of which the company expects to meet, or has already 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 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.

Garden Hill South

Garden Hill South is an onshore oil field that is 100% owned and operated by the Group's principal operating subsidiary, PDI Production Inc. ("PDIP"). Production tests from Garden Hill South to date have produced over 24,000 barrels of high quality crude with a gravity of approximately 51° API. TRACS International, the company which produced the Competent Person's Report for our listing prospectus, has estimated that Garden Hill South contains mean net unrisked resources of 8.6 mmboe.

In August 2007, the Company obtained an extension to the lease until 12 August 2012, upon the satisfaction of certain conditions. A condition of this extension was that we commence a drilling program at Garden Hill South by 12 August 2008. In late July 2008, the Company commenced operations at Garden Hill South, meeting one of the key conditions of the extension. The PAP#1-ST#3 horizontal sidetrack will be drilled to a Total Measured Depth of 4,448 metres, equal to a True Vertical Depth of 3,450 metres. 

The PAP#1-ST#3 well is targeting the Aguathuna Formation, a dolomitized limestone formation of the Early Ordovician St. George Group. Following completion of the well, the Company intends to put it on production. Independent geophysical reports suggest that the well should produce between 2,000 and 2,500 boed plus associated gas. We then intend to complete a transition zone 3D survey of Garden Hill South to better understand the structure and develop additional drilling targets.

Garden Hill Central and North

Garden Hill Central and North are onshore structures that 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, we commenced preparations for a seismic program which will be a 2D survey covering the Garden Hill Central and Garden Hill North structures. Although this was originally scheduled to take place in the fourth quarter of 2008, weather and technical delays have pushed the program back until the first half of 2009.

This survey should give us sufficient 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. 

Shoal Point

Shoal Point is an offshore structure in which the Company has a 32% working interest. TRACS International has estimated that Shoal Point has net (to the Company) mean unrisked prospective resources of 9.4 mmboe. The Company is not the operator.

The Shoal Point well was drilled in the first half of this year but failed to encounter commercial hydrocarbons in the target formations. The well was logged and suspended in such a way to allow the well to be used in the future for further drilling operations.

Previous studies of Shoal Point indicated two substantially different interpretations of the seismic data available and the Company is evaluating the results of the drilling program to determine whether the operator's prognosis was correct. If the prognosis was incorrect, Shoal Point will still remain an attractive, high-impact exploration opportunity and the Company is pleased that the license extension provides the additional time necessary to conduct further evaluation and exploration. Following a review on the data, the Company will make a decision as to whether to proceed with further exploration of the Shoal Point prospect.

Through the drilling of this well, the partners have fulfilled the obligations of Exploration License EL1070 and the license will now be extended until 15 January 2011. There is at least one other identified lead within the license area, Lourdes, which lies in a portion of the license area in which Enegi has a 60% working interest. 

Financial Highlights

Losses before tax for the year were £3,447k (2007: £1,404k). The increase in losses in 2008 is due to several factors. Staff costs rose from £94k to £568k as additional team members were recruited and some people shifted from contractors to employees in anticipation of our operational plans for the year. 

Legal and professional fees increased from £184k to £482k as a result of the acquisition of additional working interests, preparation for the Company's initial public offering and tax planning.

Lastly, general and administrative costs increased as the Group's planning and development activities geared up in anticipation of drilling programs at Shoal Point and Garden Hill South. 

Group net assets at 30 June 2008 were £17,654k (2007: £3,265k).

Cash outflow from operations during the year was £3,716k (2007: £408k). This is a result of increased operational costs as well as the drilling program at Shoal Point. Cash inflow from financing activities was £14,913k (2007: £4,677k). This inflow relates to the issue of new shares both prior to the IPO and at the time of listing, net of expenses.

At the time of Enegi's IPO in March this year, one institutional investor subscribed for 1.5m shares with a value of £2.75 million. This institution sought to defer payment and discussions have taken place between the Company, its advisors and the institution to ensure that the amount is paid in due course. As a result of these discussions, this institution has undertaken to meet its obligations by 31 October 2008 and has provided security to Enegi over certain assets which could be realised in the event that payment is not forthcoming by this date. The Board has taken advice with regard to the valuation and liquidity of these assets. Taking into account this advice, the Board considers that it would be inappropriate to make any provision against the amount. In the event that payment is not forthcoming by 31 October, an update will be issued detailing the steps being taken by the Company to recover this debt.

UNAUDITED CONSOLIDATED INCOME STATEMENT

For the year ended 30 June 2008

		2008 £'000	2007 £'000
Continuing operations
Administrative expenses		(3,390)	(1,404)
Loss from operations		(3,390)	(1,404)
Finance expense		(57)	-
Loss before tax		(3,447)	(1,404)
Taxation		-	-
Loss for the year attributable to equity shareholders		(3,447)	(1,404)
Loss per share (expressed in pence per share)
Basic		(15p)	(13p)
Diluted		(15p)	(13p)

UNAUDITED CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE

For the year ended 30 June 2008

		2008 £'000	2007 £'000
Loss for the year		(3,447)	(1,404)
Foreign exchange loss		(10)	(30)
Total recognized income and expense for the year attributable to equity shareholders		(3,457)	(1,434)

UNAUDITED CONSOLIDATED BALANCE SHEET

As at 30 June 2008

		2008 £'000	2007 £'000
Non-current assets
Tangible fixed assets		7,284	3,236
Intangible assets		1,135	204
Other long term assets		1,408	142
		9,827	3,582
Current assets
Cash and cash equivalents		6,001	1,513
Trade and other receivables		2,977	133
Prepaid and other assets		53	11
		9,031	1,657
Current liabilities
Trade and other payables		(1,015)	(583)
Due to related parties		(7)	(846)
		(1,022)	(1,429)
Net current assets		8,009	228
Total assets less current liabilities		17,836	3,810
Non-current liabilities
Provisions		(182)	(545)
Net assets		17,654	3,265
Shareholders' equity
Ordinary share capital		313	-
Share premium		13,695	4,699
Reverse acquisition reserve		9,364	-
Other reserve		(1,557)	-
Warrant reserve		646	-
Retained earnings		(4,807)	(1,434)
Total shareholders' equity		17,654	3,265

UNAUDITED CONSOLIDATED CASH FLOW STATEMENT

For the year ended 30 June 2008		2008 £'000	2007 £'000
Cash flows from operating activities
Cash used in operations		(3,716)	(408)
Interest paid		(92)	-
Net cash used in operating activities		(3,808)	(408)
Cash flows from investing activities
License payments and other deposits		(1,266)	(142)
Expenditure on tangible fixed assets		(4,444)	(2,447)
Expenditure on intangible fixed assets		(931)	(167)
Interest received		35	-
Net cash used in investing activities		(6,606)	(2,756)
Cash flows from financing activities
Share capital issued for cash, net of expenses		14,913	4,677
Net cash flows from financing activities		14,913	4,677
Net increase in cash, cash equivalents and bank overdrafts		4,499	1,513
Cash and cash equivalents at the start of year		1,513	-
Exchange losses		(11)	-
Cash, cash equivalents and bank overdrafts at the end of year		6,001	1,513

Basis of presentation

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRSs as adopted by the EU"), IFRIC interpretations and the Companies Act 1985 applicable to Companies reporting under IFRS. The consolidated financial statements have been prepared under the historical cost convention.

Basis of consolidation

On 18 March 2008, Enegi acquired PDIP via a share for share exchange. Under IFRS 3 'Business Combinations', this acquisition has been accounted for as a reverse acquisition, whereby PDIP is treated as the acquirer of Enegi. Arising from this treatment is the reverse acquisition reserve within consolidated shareholders' equity and the merger relief reserve within the legal parent Company's shareholders' equity. The consolidated financial statements, therefore, represent the consolidated financial statements of PDIP combined with Enegi. PDIP's accounts for the prior period were prepared in accordance with IFRS. For this reason, there is no restatement of the prior period figures to meet IFRS requirements.

The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. All intra-group balances, transactions, revenues, expenses and gains and losses resulting from intra-group transactions that are recognized in assets, have been eliminated on consolidation.

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

ENDFR FKKKPPBKDQCN

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