REG - Empyrean Energy PLC - Final Results
16/09/2022 07:16
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RNS Number : 7329Z Empyrean Energy PLC 16 September 2022
This announcement contains inside information
Empyrean Energy PLC / Index: AIM / Epic: EME / Sector: Oil & Gas
16 September 2022
Empyrean Energy PLC ('Empyrean' or 'the Company')
Final Results
Empyrean Energy is pleased to announce its final results for the year ended 31
March 2022 ("Report and Accounts"). The full Report and Accounts will be made
available on the Company's website in the coming days.
As announced on 2 September 2022, the Company was unable to publish the
Company's 2022 Report and Accounts together with the Notice of Annual General
Meeting ("AGM"). Given that the Company is required to hold an AGM each year
within six months of its financial year end, the Company's 2022 AGM will be
held on 27 September 2022.
An announcement confirming the posting of the Report and Accounts and Notice
of General Meeting to approve the Report and Accounts will be made in due
course.
Highlights
Block 29/11, Pearl River Mouth Basin, China (EME 100% reverting to 49% upon commercial discovery)
Reporting period
· Empyrean and its partner China National Offshore Oil Corporation
("CNOOC"), along with its technical service providers CNOOC Enertech and China
Oilfield Services Limited ("COSL") completed significant pre-drilling
operational, technical and permitting work throughout the year to enable the
safe drilling of the Jade prospect post reporting year end.
Post-Reporting period
· LH 17-2-1 Jade well spudded and reached final total depth of
2,849 metres Measured Depth ("MD") during April 2022. No oil pay was
encountered in the target reservoir and demobilisation operations were
completed.
· Post-well analysis at Jade confirmed reservoir quality better
than pre-drill estimate with regional seal confirmed and depth conversion
approach validated. Based on post-drill technical evaluation, and
CNOOC-assisted migration pathways assessment, Empyrean decided to enter the
second phase of exploration with the aim to drill the larger Topaz prospect.
· Topaz Drill Program targeted to commence in 2023.
Duyung PSC Project, Indonesia (EME 8.5%)
Reporting period
· Prevailing strong gas prices have enabled the operator Conrad
Petroleum Ltd ("Conrad") to advance Gas Sales Agreement ("GSA") negotiations
with multiple interested parties.
· Conrad has also been working with SKK Migas to enable an upgrade
to the Plan of Development ("POD") that was approved following the discovery
of Mako. Following the successful appraisal of Mako, Gaffney Cline and
Associates ("GCA") upgraded its resource assessment for Mako and the new POD
is expected to be finalised once Ministerial approval is obtained.
· Mako is one of the largest gas discoveries in the West Natuna Sea
and the largest undeveloped resource in the area.
Sacramento Basin, California USA (EME 25-30%)
· Evaluation on the project is ongoing and the Company will
continue to work with its joint venture partners in reviewing and assessing
any further technical and commercial opportunities in Sacramento, particularly
in light of strong gas prices.
Corporate
Reporting period
· Placement and Convertible Note funding of US$10.14 million
(£7.62 million) secured in December 2021 to partially fund Jade Prospect
drilling.
· Placement to raise US$6.92 million (£5.02 million) completed in
July 2021.
Post-Reporting period
· Placement to raise US$2.25 million (£1.83 million) completed in
May 2022.
Empyrean CEO Tom Kelly said, "Empyrean's key focus during the year was
completing the necessary activities required in preparation for the drilling
of the initial exploration well at Jade under the PSC terms.
While the end result was not the one we had hoped for at Jade, the achievement
of safely drilling the well on time and on budget was a credit to Empyrean's
team and a great reflection of the excellent teamwork, expertise,
professionalism and cooperation between the Company, its partner CNOOC, and
its technical service providers CNOOC Enertech and COSL.
Importantly, post the drilling at Jade, Empyrean has been able to combine our
excellent quality 3D seismic data with the confirmed well data from Jade
resulting in post well analysis that has improved the validity of the Topaz
prospect as a robust and large drilling target of approximately 891 million
barrels in place (P10). We have therefore made the decision to enter into an
agreement for the second phase of exploration on Block 29/11 with the aim to
drill Topaz before June 2024.
In Indonesia, Empyrean looks forward to maximising the value from its interest
in the Mako Gas Field which would strengthen the Company's balance sheet and
help fund the drilling of Topaz.
In California, while activity and expenditure was limited during the year, the
operator Sacgasco continues to evaluate the project and Empyrean will review
and assess any further technical and commercial opportunities as they come to
hand, particularly in light of strong gas prices for gas sales in the
Sacramento Basin.
As always, the Company continually assesses other financing and strategic
alternatives to provide it with additional working capital as and when
required, including through the sale or partial sale of existing assets,
through joint ventures of existing assets or through further equity or debt
funding. The Company has also successfully restructured its convertible note.
In addition to its existing projects, Empyrean continues to assess a number of
additional oil and gas projects that it believes may enhance a balanced
portfolio of opportunity and will update shareholders as required.
While the Board and management share the disappointment of the Jade well
result with its shareholders, it moves forward with renewed optimism, with
good news due from Indonesia and the learnings from Jade further de-risking
Topaz which standalone has the potential to be a Company changer."
Chairman's Statement
It was another busy year for Empyrean on its portfolio of exploration projects
during the year, primarily in China.
After an enormous amount of hard work preparing for the drilling of the Jade
prospect in China, the Company was clearly disappointed that the drilling
program post year end did not result in the discovery of commercial
hydrocarbons at the Jade Prospect. Unfortunately, this is the nature of
exploration and we take the good with the bad.
Nevertheless, post-well evaluation in conjunction with CNOOC has provided
invaluable further interpretation of the critical elements of effective
regional oil migration pathways, with positive implications for the second
target on Block 29/11, the Topaz prospect.
We also expect good news in the near term from Indonesia with GSA negotiations
advanced and the prospect of Empyrean realising significant value from its
interest there to follow the conclusion of the GSA process.
As always, I would like to thank the Board, management and staff for their
efforts during the year. Empyrean retains a positive outlook for the future
and is setting its sights on value creation from Indonesia and the further
de-risked drill opportunity in China.
Patrick Cross
Non-Executive Chairman
15 September 2022
Extract from Strategic Report
Business Overview and Likely Future Developments
The Company and its partners continued to progress exploration and development
activities at its projects during the year. Empyrean and its partner CNOOC,
along with its technical service providers CNOOC Enertech and COSL, completed
significant pre-drilling operational, technical and permitting work throughout
the reporting period to enable to safe drilling, although ultimately
unsuccessful drilling of the Jade prospect post reporting year end.
Post-well analysis at Jade however has confirmed reservoir quality is better
than pre-drill estimates with regional seal confirmed and the depth conversion
approach validated. As a part of post-well evaluation, CNOOC geochemical and
basin modelling experts together with Empyrean have interpreted the critical
elements of effective regional oil migration pathways leading to positive
implications for the Topaz prospect, and ultimately the decision to proceed
with the second phase of exploration at Block 29/11, being the drilling of the
Topaz Prospect before June 2024.
Following the exploration success that was achieved in Indonesia and the
significant resource upgrade of the Mako gas field, the operator is in the
process of negotiating a gas sales agreement which would enable Empyrean to
maximise shareholder value from its interest in the project. Recent strong gas
prices and a solid demand forecast in the south-east Asian region provides
additional momentum and urgency.
In California operator Sacgasco continues to evaluate the project(s) in light
of strong gas prices for gas sales in the Sacramento Basin. Empyrean is
content to work with its joint venture partners in reviewing and assessing any
further technical and commercial opportunities as they are presented, while
keeping expenditures to a minimum, currently consisting mainly of meeting cash
calls for joint venture overheads.
Further details on these activities are provided in the Operations and Outlook
section below.
The Company raised funds through a series of placements during the year and
post year end, and also through the entering of a Convertible Note Agreement
pursuant to which the Company received gross proceeds of US$5.4 million (£4.0
million) (the "Convertible Note"). The funds raised were to support the
current exploration programs and for working capital purposes.
The Board and management recognise that exploration for hydrocarbons is a
risky venture and there will be failures and challenges along with successes.
As a result, the Company's strategy is to continue to add value for
shareholders by building a diverse portfolio of drilling opportunities in
commercially attractive jurisdictions. The Company has a team with a proven
track record of finding hydrocarbons and advancing projects through
exploration, appraisal and into production. Oil and Gas prices have steadily
risen since the negative impact of the COVID-19 outbreak and the current
business strategy of the Company remains sound and value accretive.
Management continually evaluate project opportunities that meet strict
investment guidelines with an aim of adding value for all shareholders.
Operations and Outlook
As at 31 March 2022 the Company has the following interests:
The Company has an interest in Block 29/11 offshore China (100% during
exploration and 49% upon any commercial discovery). Empyrean is the operator
with 100% of the exploration rights of the 1800km(2) permit during the
exploration phase of the project. Empyrean completed a 608km(2) 3D seismic
acquisition survey in August 2017 and comprehensive processing and
interpretation of the 3D seismic data, in addition to further geological work,
has confirmed the structural viability and substantial prospective (un-risked)
resources at the three key prospects ("Jade, Topaz and Pearl"). These internal
estimates were subsequently independently audited and revised upwards.
Migration studies, seismic inversion work and the identification of
well-defined gas clouds over the three prospects further enhanced the
technical merits of the Jade and Topaz prospects in 2019 and during the
current year the Company, along with CNOOC and its service providers,
completed the substantial pre-drilling operational, technical and permitting
work to enable to safe drilling of the Jade prospect post reporting year end.
Post the financial year end, the Company completed drilling at the Jade
prospect, which reached final total depth of 2,849 metres MD on 27 April 2022.
The interpretation from logging while drilling ("LWD") and mud logging
equipment indicated no oil pay in the target reservoir and the demobilization
activities were then completed.
Post Jade well evaluation work confirmed reservoir quality and the regional
seal and following a CNOOC assisted oil migration pathways assessment, the
Company has committed to enter this second phase of exploration with the aim
to drill Topaz.
Topaz remains a world class conventional oil target in the Jade prospect, to
which GCA assigned a Geological Chance of Success ("GCoS") of 30%. The Topaz
prospect has a GCA audited mean in place potential of 506 MMbbl and a P10 in
place upside of 891 MMbbl. Following the Jade prospect, Topaz prospect is the
second of the three identified prospects within Block 29/11, which also
contains the Pearl prospect. The combined 2018 audited mean in place potential
of the Topaz and Pearl prospects is 659 MMbbl and a P10 in place upside of
1,193 MMbbl.
The Company holds a 8.5% direct interest in the 1,100km(2) Duyung PSC,
offshore Indonesia, operated by Conrad.
The main asset in the permit is the Mako shallow gas discovery, which has
Gross 2C (contingent) resources of 495 Bcf (87.5 MMboe) of recoverable dry gas
and 3C resources of 817 Bcf (144.4 MMboe), as upgraded by an independent audit
conducted during 2020. The appraisal well, Mako South-1, was spudded in June
2017 with results exceeding expectations encountering excellent reservoir
quality rock with high permeability sands. Following approval from the
Indonesian regulator of a detailed Plan of Development the JV partners
conducted a successful drilling campaign comprising two wells, Tambak-1 and
Tambak-2 wells, which demonstrated the presence of well developed, high
quality reservoir sandstones with a common gas water contact across the Mako
structure. Following the successful drilling campaign the operator engaged GCA
to complete an independent resource audit for the Mako Gas Field, which
resulted in a significant resource upgrade in May 2020 and confirmed Mako as
one of the largest gas fields ever discovered in West Natuna Basin.
An updated Plan of Development has been approved by SKK Migas and is awaiting
Ministerial Approval, and includes uplifted GIIP estimates. The expected
conclusion of GSA negotiations will mark a further important step toward the
final investment decision to develop and commercialise the field, and for
Empyrean to maximise value from its interest.
In 2017 the Company entered into an agreement with ASX-listed Sacgasco Limited
("Sacgasco"), a Sacramento Basin focused natural gas developer and producer,
to test a group of projects in the Sacramento Basin California, including two
mature, multi-TcF gas prospects in Dempsey (EME 30%) and Alvares (EME up to
25%) and further identified follow up prospects along the Dempsey trend (EME
up to 30%).
Following completion of an appraisal and exploration well, Dempsey 1-15, the
operator tested multiple gas zones with comprehensive testing of selected
zones failing to sustain gas flow. Following the Demspey drilling campaign,
the joint venture integrated the subsurface data with regional geology and
seismic data to evaluate additional targets with thicker reservoir units for
future drilling along the "Dempsey trend", in which Empyrean could earn a 30%
interest.
The operator matured Borba prospect was the next drilling opportunity at the
project. In October 2020 Empyrean notified Sacgasco that it would not be
participating in the proposed drilling of the Borba prospect under the
timeframes and terms proposed by Sacgasco.
The Company will continue to work with its joint venture partners in reviewing
and assessing any further technical and commercial opportunities as they
relate to the project, particularly in light of strong gas prices for gas
sales in the Sacramento Basin.
The Company also has a 58.084% working interest in the Eagle Oil Pool
Development Project asset in California and a 10% working interest in the
Riverbend Project in Texas. Further detailed analysis on all projects is
provided in the Operational Review on page 15.
Cyber Fraud Incident
As announced to the market, in December 2021 the Company made a payment
totalling US$1.98 million to COSL, representing a 10% deposit on the dry hole
cost component of the Integrated Drilling Contract ("IDC") signed with COSL;
however, the Company was subsequently informed that this payment was not
received by COSL and had been paid to a fraudulent third party as a result of
an impersonation fraud perpetrated against the Company.
The Company then worked with its bank, the recipient bank and the police
authorities in three jurisdictions to initiate actions including the freezing
of the recipient bank account and the commencement of recovery actions.
Empyrean commenced legal proceedings in the Singapore courts against the
company believed to have committed the fraud and obtained an injunction order
on 21 January 2022 to freeze its assets and obtain further banking
information. Empyrean will continue to take the necessary steps and is taking
legal advice for the purpose of pursuing recovery of the funds involved in the
fraud. Empyrean continues to cooperate with the Singapore Police investigation
into the fraud. Empyrean has taken the steps above, upon legal advice, in
order to escalate the recovery process.
Empyrean has also reviewed its internal control policies including overseas
and domestic payment processes and has added further authority approvals and
procedures for all material payments.
Operational Review
For much of the 2022 financial year Empyrean was focused on completing the
necessary technical, operational and permitting work required for the
commencement of drilling operations at the first of its targets at Block
29/11, offshore China, being the Jade Prospect. The drilling of the Jade
Prospect followed several years of methodical, targeted technical evaluation
and de-risking activities. However disappointingly, the Jade well proved to be
unsuccessful with no oil pay encountered.
The Company's corporate objective remains to build a significant asset
portfolio across the Asian region and with the Jade well evaluation work
confirming reservoir quality and the regional seal and following a CNOOC
assisted oil migration pathways assessment, the Company has committed to the
second phase of exploration in China with the aim to drill the large-scale
Topaz prospect.
Empyrean is excited about the significant value potential of its interest in
Indonesia. Following the discovery of high quality gas in the first
exploration well and successful appraisal program, the project has been
further supported by increasingly strong gas prices in the Asian region. As a
result, the Company anticipates that the operator will conclude the current
negotiations of the GSA in the near term. Execution of the GSA would enable
Empyrean to maximise shareholder value from its interest in the project.
Empyrean also has a 25-30% working interest in a package of gas projects in
the Sacramento Basin, onshore California. The Company remains an active joint
venture partner and will assess the technical and commercial merits of other
prospects or proposals as they are presented.
Empyrean has retained an interest in the Riverbend Project (10% WI) located in
the Tyler and Jasper counties, onshore Texas and a 58.084% WI in the Eagle Oil
Pool Development Project, located in the prolific San Joaquin Basin onshore,
Southern California. No technical work has been undertaken on these projects
during the year.
China Block 29/11 Project (100% WI)
Background
Block 29/11 is located in the prolific Pearl River Mouth Basin, offshore China
approximately 200km Southeast of Hong Kong. The acquisition of this block
heralded a new phase for Empyrean when it became an operator with 100% of the
exploration rights of the permit during the exploration phase of the project.
In the event of a commercial discovery, CNOOC will have a back in right to 51%
of the permit.
Following the completion and interpretation of the 3D seismic data acquired on
Block 29/11, the prospective resources (un-risked) of all three prospects on
the Block (Jade, Topaz and Pearl) were independently validated, by GCA, who
completed an audit of the Company's oil in place estimates in November 2018.
Prior to the drilling of the Jade Prospect in April 2022, the total mean oil
in place estimates on the three prospects was 884 MMbbl on an un-risked basis.
Jade Prospect Drill Program
Subsequent to year end, the Company commenced the drilling of the LH 17-2-1
well to test the first of the three prospects noted above, the Jade Prospect
in Block 29/11, offshore China.
On 10 April 2022 LH 17-2-1 spudded and on 27 April 2022 reached final total
depth of 2,849 metres in Zhuhai Sandstone formation. The interpretation from
LWD and mud logging data indicated no oil pay in the target reservoir. The
wireline logs confirmed the initial interpretation of no oil pay seen on LWD.
Post Well Jade Well Analysis and Implications for Topaz Prospect
Following the Jade drilling program, comprehensive post well analysis by
Empyrean and CNOOC confirmed the Jade well intersected carbonate reservoir as
prognosed with better parameters than pre-drill estimates with total thickness
of 292m and porosity in the range of 25 to 27%. In addition, the Jade well
penetrated thick and effective regional seal facies and the reservoir top was
encountered within the depth conversion range. These parameters can now be
more confidently mapped across Empyrean's 3D data set. Jade well failed due to
access to effective migration pathways.
As a result, reservoir, seal and trap validity of the Topaz prospect has been
enhanced by the Jade well data.
As a part of post-well evaluation, CNOOC geochemical and basin modelling
experts provided excellent assistance in assessing the critical elements of
effective regional oil migration pathways, leading to positive implications
for the Topaz prospect. Based on several oil discoveries in the area, CNOOC
has identified the following three key elements for effective regional oil
migration.
1. Presence of a deep sag for oil generation
2. Presence of a deep fault for efficient vertical migration that has
reactivated at the peak time of oil expulsion (10Ma)
3. Presence of a carrier bed for lateral migration to the prospect
Implications for the Topaz Prospect
Post-well evaluation indicates the Topaz prospect has the potential for oil
charge from two kitchen/source rocks, the Baiyun North and Baiyun East sags.
Topaz prospect has an additional oil migration pathway from Baiyun East Sag.
This sag has been bio-marked as the proven source rock for all four CNOOC
light oil discoveries to the immediate West of Block 29/11.
Baiyun North Sag was mapped by the 2017 3D seismic data and is located within
Block 29/11 immediately south and down dip of the Topaz prospect and it has
all three key elements required for successful oil migration. It is a deep sag
that is in the timing and depth window for oil generation, and Empyrean has
identified a suitable deep fault for efficient vertical migration that
reactivated at the peak time of oil expulsion approximately 10 million years
ago (10Ma). Finally, a thick carrier bed exists for lateral migration to the
Topaz prospect. This carrier bed has been confirmed during the drilling of the
Jade well and is mapped on Empyrean's 3D data set.
The Topaz prospect has an additional oil migration pathway from Baiyun East
Sag. This sag has been bio-marked as the proven source rock for all four CNOOC
light oil discoveries to the immediate West of Block 29/11.
Post well analysis indicates that the gas shows within the "gas cloud" zone in
the overburden at the Jade well are now interpreted have migrated from Baiyun
North Sag via reactivation of a nearby fault, approximately 800m away rather
than coming from basinal faults extending into Baiyun East Sag which is
approximately 20km away. The identification of this nearby fault that extends
into the Baiyun North Sag is now the most likely explanation for the gas shows
in the Jade well.
This interpretation enhances the prospects of Baiyun North Sag as a
potentially valid additional source rock and, in turn, the likelihood of the
Topaz prospect having access to two mature source rocks/kitchens.
Conclusions and the Entering of Second Phase of Exploration
Being able to combine excellent quality 3D seismic data with the confirmed
well data and post well analysis has resulted in the improved validity of the
Topaz prospect as a robust and large drilling target (approximately 891
million barrels in place (P10) per below table). Based on post drill
technical evaluation, and CNOOC-assisted migration pathways assessment,
Empyrean decided to enter the second phase of exploration and drill the larger
Topaz prospect, estimated to occur in 2023.
Block 29/11 Oil in place (MMbbl) audited by GCA
Prospect P90 P50 P10 Mean GCoS
Topaz 211 434 891 506 30%
Pearl 38 121 302 153 15%
Figure 1: Block 29/11, Pearl River Basin, Offshore China
Cautionary Statement: The volumes presented in this announcement are STOIIP
estimates only. A recovery factor needs to be applied to the undiscovered
STOIIP estimates based on the application of a future development project. The
subsequent estimates, post the application of a recovery factor, will have
both an associated risk of discovery and a risk of development. Further
exploration, appraisal and evaluation is required to determine the existence
of a significant quantity of potentially movable hydrocarbons.
Duyung PSC, Indonesia (8.5% WI)
Background
In April 2017, Empyrean acquired a 10% shareholding in WNEL from Conrad
Petroleum, which held a 100% Participating Interest in the Duyung Production
Sharing Contract ("Duyung PSC") in offshore Indonesia and is the operator of
the Duyung PSC.
In early 2019, both the operator, Conrad Petroleum, and Empyrean divested part
of their interest in the Duyung PSC to AIM-listed Coro Energy Plc. Following
the transaction, Empyrean's interest reduced from 10% to 8.5% interest in May
2020, having received cash and shares from Coro. As part of this completion
process WNEL made a direct transfer of its interest in the Duyung PSC to
Empyrean and the other owners, who now hold their interest in the Duyung PSC
directly.
The Duyung PSC covers an offshore permit of approximately 1,100km2 in the
prolific West Natuna Basin. The main asset in the permit is the Mako shallow
gas field that was discovered in 2017, and comprehensively appraised in 2019.
Figure 2: Mako Gas field, Duyung PSC, Indonesia
During October and November 2019, a highly successful appraisal drilling
campaign was conducted in the Duyung PSC. The appraisal wells confirmed the
field-wide presence of excellent quality gas in the intra-Muda reservoir sands
of the Mako Gas Field. However, testing of the deeper Tambak prospect in the
Lower Gabus interval found these sandstones to have low gas saturations and
attempts to collect fluid samples and pressure data demonstrated low
permeabilities.
Following on from the highly successful appraisal drilling campaign, Conrad
engaged GCA to complete an independent resource audit for the Mako Gas Field
which confirmed a significant resource upgrade for the Mako Gas Field and
confirmed Mako to be one of the largest undeveloped gas fields in the West
Natuna Basin and is currently by far the largest undeveloped resource in the
immediate area.
The GCA estimates of gross (full field) recoverable dry gas audited in the
2020 GCA Audit are:
Contingent Resource Estimates 2020 GCA Audit
Bcf
1C (Low Case) 287
2C (Mid Case) 495
3C (High Case) 817
The full field resources above are classified in the 2020 GCA Audit as
contingent. Gas volumes are expected to be upgraded to reserves when certain
commercial milestones are achieved, including execution of a Gas Sale
Agreement ("GSA") and a final investment decision ("FID").
SKK Migas (the Indonesian regulator) accepted the significantly uplifted
estimates of GIIP, which are broadly in line with the independent resource
audit by GCA.
The SKK Migas Accepted Mako Gas in Place estimates are:
GROSS (100%) GIIP (BSCF) Updated
Reservoir Low Best High
Upper Sand 358 525 687
Lower Sand 26 41 78
Total 384 566 766
3C (High Case) 392 817 108
The Mako Gas Field is located close to the West Natuna pipeline system and gas
from the field can be marketed to buyers in both Indonesia and in Singapore.
Current Status
During the current year regional gas prices in Europe and South East Asia have remained strong and that macro environment is creating incentive for the negotiations of the current Heads of Agreements for gas offtake at Mako to be negotiated to a binding GSA.
Multi Project Farm-in in Sacramento Basin, California (25%-30% WI)
Background
In May 2017, Empyrean agreed to farm-in to a package of opportunities
including the Dempsey and Alvares prospects in the Northern Sacramento Basin,
onshore California. The rationale for participating in this potentially
significant gas opportunity was a chance to discover large quantities of gas
in a relatively 'gas hungry' market. Another attractive component of the deal
was the ability to commercialise a potential gas discovery using existing gas
facilities that are owned by the operator.
The first prospect that was drilled in 2018 was the Dempsey Prospect. Whilst
several potentially gas bearing zones were intersected in the well,
comprehensive testing of selected zones failed to sustain gas flow. Following
the Dempsey drilling campaign, the joint venture integrated the subsurface
data with regional geology and seismic data to evaluate additional targets
with thicker reservoir units for future drilling along the "Dempsey trend", in
which Empyrean could earn a 30% interest.
The operator matured Borba prospect was the next prospect drilled however in
2020 Empyrean notified Sacgasco that it would not be participating in this
drilling campaign.
The Company will continue to work with its joint venture partners in reviewing
and assessing any further technical and commercial opportunities as they
relate to the project but given the current status and presence of impairment
indicators the Company took the conservative measure of fully impairing
expenditure incurred at the project as at the reporting date.
Riverbend Project (10%)
Located in Jasper County, Texas, USA, the Cartwright No.1 re-entry well
produces gas and condensate from the arenaceous Wilcox Formation.
The Cartwright No.1 well is currently virtually suspended producing only
nominal amounts of gas condensate.
Little or no work has been completed on the project in the year and no budget
has been prepared for 2022/23 whilst the Company focuses on other projects.
The Company previously fully impaired the carrying value of the asset and any
subsequent expenditure, mainly for license fees, has been expensed through the
profit and loss statement.
Eagle Oil Pool Development Project (58.084% WI)
The Eagle Oil Pool Development Projects is located in the prolific San Joaquin
Basin onshore, southern California.
No appraisal operations were carried out during this period. It is anticipated
that, should there be a sustained improvement in the oil price, a vertical
well test of the primary objective, the Eocene Gatchell Sand, followed by a
horizontal appraisal well, would be the most likely scenario.
Little or no work has been completed on the project in the year and no budget
has been prepared for 2022/23 whilst the Company focuses on other projects.
The Company previously fully impaired the carrying value of the asset and any
subsequent expenditure, mainly for license fees, has been expensed through the
profit and loss statement.
The information contained in this report was completed and reviewed by the
Company's Executive Director (Technical), Mr Gajendra (Gaz) Bisht, who has
over 30 years' experience as a petroleum geoscientist.
Definitions
2C: Contingent resources are quantities of petroleum estimated, as of a given
date, to be potentially recoverable from known accumulations by application of
development projects, but which are not currently considered to be
commercially recoverable. The range of uncertainty is expressed as 1C (low),
2C (best) and 3C (high).
Bcf: Billions of cubic feet
MMbbl: Million Barrels of Oil
*Cautionary Statement: The estimated quantities of oil that may potentially be
recovered by the application of a future development project relates to
undiscovered accumulations. These estimates have both an associated risk of
discovery and a risk of development. Further exploration, appraisal and
evaluation is required to determine the existence of a significant quantity of
potentially movable hydrocarbons.
Extract from Director's Report
Going Concern
The Company's principal activity during the year has been the acquisition and
development of its exploration projects. At the year end the Company had a
cash balance of US$19,000 (2021: US$150,000) and made a loss after income tax
of US$8.11 million (2021: loss of US$ 0.95 million).
The Directors have prepared cash flow forecasts for the Company covering the
period to 31 December 2023 and these demonstrate that the Company will require
further funding within the next 12 months. In June 2022, the Company entered
into an agreement with CNOOC to drill an exploration well on the Topaz
prospect in China, by 12 June 2024, which includes a payment of US$250,000 to
CNOOC. It is estimated that the cost of drilling this well would be
approximately US$12 million. In addition, the Company is required to repay the
principal owing on the Convertible Note prior to 1 December 2022, being £3.3
million as at the date of this report, in accordance with the restructured
terms announced to the market on 10 May 2022. The Convertible Note is secured
by a senior first ranking charge over the Company, including it's 8.5%
interest in the Duyung PSC and Mako Gas Field.
In May 2022 US$2.25 million was raised through an equity placement to complete
further post well analysis of the Jade well, satisfy any further costs
associated with the Jade drill, conduct a comprehensive oil migration study in
conjunction with CNOOC for potential oil charge to the Topaz prospect, and for
the Company's general working capital requirements. However, in order to meet
the well commitment at Topaz and also to meet the repayment terms of the
Convertible Note, the Company is required to raise further funding either
through equity or the sale of assets and as at the date of this report the
necessary funds are not in place.
The Directors are however optimistic that the full funding commitments for the
Topaz well and the Convertible Note will be met, having a successful track
record of equity (and debt) funding including funding the recently drilled
Jade well.
It is the belief of the Board that there are likely value catalysts throughout
the next 12 months leading up to drilling - including maximising the value of
its interest at the Mako Gas field and activities leading into the intended
drilling of the Topaz Prospect. There are a number of key milestones for the
Project, each of which brings the Project closer to production. Each milestone
reduces risk and increases the value of the Project. The major milestones are
approval by the Indonesian Government of a revised Plan of Development that is
currently before them, signing of the GSA(s), completion of front-end
engineering design, final investment decision and production. Empyrean's
interest can be sold at any stage but with two of these major milestones due
imminently without any further funding required, it is the Board's current
intention to at least achieve those milestones before considering a sale
versus funding through to production.
The Directors note that if the well commitment is not met in the timeframe
advised then either a renegotiation of the commitment timing will be required
or the licence could be relinquished.
The Directors have therefore concluded that it is appropriate to prepare the
Company's financial statements on a going concern basis; however, in the
absence of additional funding being in place at the date of this report, these
conditions indicate the existence of a material uncertainty which may cast
significant doubt over the Company's ability to continue as a going concern
and, therefore, that it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
The financial statements do not include the adjustments that would result if
the Company was unable to continue as a going concern.
Post Balance Sheet Events
Significant events post reporting date were as follows:
On 1 April 2022, the Company issued 18,750,000 Ordinary Shares at a conversion
price of 8.0p per share under the existing Convertible Loan Note Agreement, as
announced on 28 March 2022. The partial conversion reduced the amount owing on
the Convertible Note by US$1.97 million (£1.5 million).
In April 2022, Empyrean announced that the Jade well had reached a final total
depth of 2,849 metres MD and the interpretation from logging while drilling
(LWD) and mud logging equipment indicated no oil pay in the target reservoir.
As a result of the unsuccessful well at Jade, Empyrean has, in accordance with
applicable accounting standards, written off all historical expenditure
incurred on Block 29/11 and also the dry hole costs associated with the Jade
drilling program subsequent to year end, together being US$22.04 million.
In May 2022, Empyrean completed a Placing to raise US$2.25 million (£1.83
million) with funds raised under this Placing to primarily be used to complete
further post well analysis of the Jade well, satisfy any further costs
associated with the Jade drilling, conduct a comprehensive oil migration study
in conjunction with CNOOC for potential oil charge to the Topaz prospect, and
for the Company's general working capital requirements.
In May 2022, following the announcement regarding the Jade well on 27 April
2022, the Company and the Lender proactively entered discussions to amend the
key repayment terms of the Convertible Note, which included the right by the
Lender to redeem the Convertible Note within five business days of the
announcement of the results of the Jade well. The parties agreed the following
key amendments to the terms of the Convertible Note:
1. The face value of the Convertible Note is increased
to £3.3 million;
2. The Company may, at its sole and absolute
discretion, redeem the Convertible Note at any time;
3. The Lender will not redeem the Notes prior to 31
July 2022;
4. If a binding GSA is entered into with regard to the
Mako Gas Discovery in Indonesia on or before 31 July 2022, the Lender will not
redeem the Convertible Note prior to 1 December 2022, with interest accruing
thereafter at a rate of £330,000 per calendar month;
5. If a binding GSA is not entered into with regard to
the Mako Gas Discovery in Indonesia on or before 31 July 2022, the Lender may
redeem the Convertible Note at any time thereafter, in which circumstances the
face value of the Convertible Note will be reduced to £2.67 million;
6. If the Company completes a sale of its interest in
the Mako Gas Discovery, it will redeem the Convertible Note contemporaneously
with that agreement; and
7. The Company will not execute any agreement in
respect of a sale of its interest in the Mako Gas Discovery if the proceeds
are less than the expected value of the Convertible Note on the date of
completion of that agreement.
In June 2022, Empyrean announced that following the completion of post well
analysis at Jade it would be entering the second phase of exploration with the
aim to drill the Topaz prospect at its 100% owned Block 29/11 permit, offshore
China. The second phase of exploration requires the payment to CNOOC of
US$250,000 and the work obligation is the drilling of an exploration well
within 2 years.
In September 2022, the Company announced that the partners in the Duyung PSC
had approved the updated POD and have secured alignment with SKK Migas on the
plan. The POD has been submitted to the Indonesian Ministry of Energy and
Mineral Resources for approval and an Operator commissioned Competent Persons
Report has been prepared by GCA for the Mako development.
No other matters or circumstances have arisen since the end of the financial
year which significantly affected or could significantly affect the operations
of the Company, the results of those operations, or the state of affairs of
the Company in future financial years.
Statement of Comprehensive Income
For the Year Ended 31 March 2022
2022 2021
Notes US$'000 US$'000
Revenue - -
Expenses
Administrative expenses (377) (351)
Compliance fees (302) (225)
Directors' remuneration 4 (402) (387)
Foreign exchange differences 3 (518) 20
Impairment - exploration and evaluation assets 8 (4,127) (3)
Cyber fraud loss 3 (1,981) -
Total expenses (7,707) (946)
Operating loss 3 (7,707) (946)
Finance expense 5 (402) (7)
Loss from continuing operations before taxation (8,109) (953)
Tax expense in current year 6 (1) -
Loss from continuing operations after taxation (8,110) (953)
Total comprehensive loss for the year (8,110) (953)
Loss per share from continuing operations (expressed in cents)
- Basic 7 (1.43)c (0.20)c
- Diluted (1.43)c (0.20)c
The accompanying accounting policies and notes form an integral part of these
financial statements.
Statement of Financial Position
As at 31 March 2022
Company Number: 05387837 2022 2021
Notes US$'000 US$'000
Assets
Non-Current Assets
Exploration and evaluation assets 8 24,907 14,643
Total non-current assets 24,907 14,643
Current Assets
Trade and other receivables 9 36 36
Corporation tax receivable 6 - 358
Cash and cash equivalents 19 150
Total current assets 55 544
Liabilities
Current Liabilities
Trade and other payables 10 1,299 667
Provisions 140 111
Convertible loan notes 11 4,125 -
Derivative financial liabilities 12 722 -
Total current liabilities 6,286 778
Net Current Liabilities (6,231) (234)
Net Assets 18,676 14,409
Shareholders' Equity
Share capital 14 1,809 1,398
Share premium reserve 41,285 29,408
Warrant and share-based payment reserve 576 487
Retained losses (24,994) (16,884)
Total Equity 18,676 14,409
The accompanying accounting policies and notes form an integral part of these
financial statements.
Statement of Cash Flows
For the Year Ended 31 March 2022
2022 2021
Notes US$'000 US$'000
Operating Activities
Payments for operating activities (1,240) (831)
Receipt of corporation tax 358 -
Net cash outflow for operating activities 13 (882) (831)
Investing Activities
Payments for exploration and evaluation 8 (14,391) (1,159)
Payments due to cyber fraud (1,981) -
Net cash outflow for investing activities (16,372) (1,159)
Financing Activities
Issue of ordinary share capital 11,805 2,094
Proceeds from exercise of warrants 623 -
Proceeds from borrowings 11 5,412 -
Payment of finance costs (271) -
Payment of equity issue costs (463) (163)
Net cash inflow from financing activities 17,106 1,931
Net decrease in cash and cash equivalents (148) (59)
Cash and cash equivalents at the start of the year 150 189
Forex gain/(loss) on cash held 17 20
Cash and Cash Equivalents at the End of the Year 19 150
The accompanying accounting policies and notes form an integral part of these
financial statements.
Statement of Changes in Equity
For the Year Ended 31 March 2022
Share Capital Share Premium Reserve Warrant & Share- Based Payment Reserve Retained Losses Total Equity
Notes US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 April 2020 1,291 27,811 153 (15,931) 13,324
Loss after tax for the year - - - (953) (953)
Total comprehensive loss for the year - - - (953) (953)
Contributions by and distributions to owners
Shares issued in the period 14 107 1,760 227 - 2,094
Equity issue costs - (163) - - (163)
Share-based payment expense - - 100 - 100
Finance expense (share-based) - - 7 - 7
Total contributions by and distributions to owners 107 1,597 334 - 2,038
Balance at 1 April 2021 1,398 29,408 487 (16,884) 14,409
Loss after tax for the year - - - (8,110) (8,110)
Total comprehensive loss for the year - -
- (8,110) (8,110)
Contributions by and distributions to owners
Shares issued in the period 14 378 11,427 - - 11,805
Partial conversion of convertible note 23 896 - - 919
Exercise of warrants 10 613 - - 623
Equity issue costs - (463) - - (463)
Issue of placement warrants - (596) - - (596)
Share-based payment expense - - 66 - 66
Finance expense (share-based) - - 23 - 23
Total contributions by and distributions to owners 411 89 - 12,377
11,877
Balance at 31 March 2022 1,809 41,285 576 (24,994) 18,676
The accompanying accounting policies and notes form an integral part of these
financial statements.
Notes to the Financial Statements
For the Year Ended 31 March 2022
Note 1. Statement of Significant Accounting Policies
Basis of preparation
The Company's financial statements have been prepared in accordance with
United Kingdom adopted International Accounting Standards ("UK adopted IAS")
and Companies Act 2006. The principal accounting policies are summarised
below. The financial report is presented in the functional currency, US
dollars and all values are shown in thousands of US dollars (US$'000), unless
otherwise stated.
The preparation of financial statements in compliance with UK adopted IAS
requires the use of certain critical accounting estimates. It also requires
Company management to exercise judgment in applying the Company's accounting
policies. The areas where significant judgments and estimates have been made
in preparing the financial statements and their effect are disclosed below.
Basis of measurement
The financial statements have been prepared on a historical cost basis, except
for derivative financial instruments, which are measured at fair
value through profit or loss.
Nature of business
The Company is a public limited company incorporated and domiciled in England
and Wales. The address of the registered office is 2(nd) Floor, 38-43
Lincoln's Inn Fields London, WC2A 3PE. The Company is in the business of
financing the exploration, development and production of energy resource
projects in regions with energy hungry markets close to existing
infrastructure. The Company has typically focused on non-operating working
interest positions in projects that have drill ready targets that
substantially short cut the life-cycle of hydrocarbon projects by entering the
project after exploration concept, initial exploration and drill target
identification work has largely been completed.
Going concern
The Company's principal activity during the year has been the acquisition and
development of its exploration projects. At the year end the Company had a
cash balance of US$19,000 (2021: US$150,000) and made a loss after income tax
of US$8.11 million (2021: loss of US$0.95 million).
The Directors have prepared cash flow forecasts for the Company covering the
period to 31 December 2023 and these demonstrate that the Company will require
further funding within the next 12 months. In June 2022, the Company entered
into an agreement with CNOOC to drill an exploration well on the Topaz
prospect in China, by 12 June 2024, which includes a payment of US$250,000 to
CNOOC. It is estimated that the cost of drilling this well would be
approximately US$12 million. In addition, the Company is required to repay the
principal owing on the Convertible Note prior to 1 December 2022, being £3.3
million as at the date of this report, in accordance with the restructured
terms announced to the market on 10 May 2022. The Convertible Note is secured
by a senior first ranking charge over the Company, including it's 8.5%
interest in the Duyung PSC and Mako Gas Field.
In May 2022 US$2.25 million was raised through an equity placement to complete
further post well analysis of the Jade well, satisfy any further costs
associated with the Jade drill, conduct a comprehensive oil migration study in
conjunction with CNOOC for potential oil charge to the Topaz prospect, and for
the Company's general working capital requirements. However in order to meet
the well commitment at Topaz and also to meet the repayment terms of the
Convertible Note, the Company is required to raise further funding either
through equity or the sale of assets and as at the date of this report the
necessary funds are not in place.
The Directors are however optimistic that the full funding commitments for the
Topaz well and the Convertible Note will be met, having a successful track
record of equity (and debt) funding including funding the recently drilled
Jade well.
It is the belief of the Board that there are likely share price catalysts
throughout the next 12 months leading up to drilling - including maximising
the value of its interest at the Mako Gas field and activities leading into
the intended drilling of the Topaz Prospect. There are a number of key
milestones for the Project, each of which brings the Project closer to
production. Each milestone reduces risk and increases the value of the
Project. The major milestones are approval by the Indonesian Government of a
revised Plan of Development that is currently before them, signing of the
GSA(s), completion of front-end engineering design, final investment decision
and production. Empyrean's interest can be sold at any stage but with two of
these major milestones due imminently without any further funding required, it
is the Board's current intention to at least achieve those milestones before
considering a sale versus funding through to production.
The Directors note that if the well commitment is not met in the timeframe
advised then either a renegotiation of the commitment timing will be required
or the licence could be relinquished.
The Directors have therefore concluded that it is appropriate to prepare the
Company's financial statements on a going concern basis, however, in the
absence of additional funding being in place at the date of this report, these
conditions indicate the existence of a material uncertainty which may cast
significant doubt over the Company's ability to continue as a going concern
and, therefore, that it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
The financial statements do not include the adjustments that would result if
the Company was unable to continue as a going concern.
Adoption of new and revised standards
(a) New and amended standards adopted by the Company:
There were no new standards effective for the first time for periods beginning
on or after 1 April 2021 that have had a significant effect on the Company's
financial statements.
(b) Standards, amendments and interpretations that are not yet effective and
have not been early adopted:
Any standards and interpretations that have been issued but are not yet
effective, and that are available for early application, have not been applied
by the Company in these financial statements. International Financial
Reporting Standards that have recently been issued or amended but are not yet
effective have been assessed by the Company and are not considered to have a
significant effect on the Company's financial statements.
Tax
The major components of tax on profit or loss include current and deferred
tax.
(a) Current tax
Tax is recognised in the income statement. The current tax charge is
calculated on the basis of the tax laws enacted at the statement of financial
position date in the countries where the Company operates.
(b) Deferred tax
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the statement of financial position differs to its
tax base. Recognition of deferred tax assets is restricted to those instances
where it is probable that taxable profit will be available, against which the
difference can be utilised. The amount of the asset or liability is
determined using tax rates that have been enacted or substantively enacted by
the reporting date and are expected to apply when the deferred tax
liabilities/(assets) are settled/(recovered). The Company has considered
whether to recognise a deferred tax asset in relation to carried-forward
losses and has determined that this is not appropriate in line with IAS 12 as
the conditions for recognition are not satisfied.
Foreign currency translation
Transactions denominated in foreign currencies are translated into US dollars
at contracted rates or, where no contract exists, at average monthly rates.
Monetary assets and liabilities denominated in foreign currencies which are
held at the year-end are translated into US dollars at year-end exchange
rates. Exchange differences on monetary items are taken to the Statement of
Comprehensive Income. Items included in the financial statements are measured
using the currency of the primary economic environment in which the Company
operates (the functional currency).
Oil and gas assets: exploration and evaluation
The Company applies the full cost method of accounting for Exploration and
Evaluation ("E&E") costs, having regard to the requirements of IFRS 6
Exploration for and Evaluation of Mineral Resources. Under the full cost
method of accounting, costs of exploring for and evaluating oil and gas
properties are accumulated and capitalised by reference to appropriate cash
generating units ("CGUs"). Such CGUs are based on geographic areas such as a
concession and are not larger than a segment. E&E costs are initially
capitalised within oil and gas properties: exploration and evaluation. Such
E&E costs may include costs of license acquisition, third party technical
services and studies, seismic acquisition, exploration drilling and testing,
but do not include costs incurred prior to having obtained the legal rights to
explore an area, which are expensed directly to the income statement as they
are incurred, or costs incurred after the technical feasibility and commercial
viability of extracting a mineral resource are demonstrable, which are
reclassified as development and production assets.
Property, Plant and Equipment ("PPE") acquired for use in E&E activities
are classified as property, plant and equipment. However, to the extent that
such PPE is consumed in developing an intangible E&E asset, the amount
reflecting that consumption is recorded as part of the cost of the intangible
E&E asset. Intangible E&E assets related to exploration licenses are
not depreciated and are carried forward until the existence (or otherwise) of
commercial reserves has been determined. The Company's definition of
commercial reserves for such purpose is proven and probable reserves on an
entitlement basis.
The ultimate recoupment of the value of exploration and evaluation assets is
dependent on the successful development and commercial exploitation, or
alternatively, sale, of the exploration and evaluation asset.
Impairment tests are carried out on a regular basis to identify whether the
asset carrying values exceed their recoverable amounts. There is significant
estimation and judgement in determining the inputs and assumptions used in
determining the recoverable amounts.
The key areas of judgement and estimation include:
· Recent exploration and evaluation results and resource estimates;
· Environmental issues that may impact on the underlying tenements;
and
· Fundamental economic factors that have an impact on the planned
operations and carrying values of assets and liabilities.
Financial instruments
Financial assets and liabilities are recognised in the statement of financial
position when the Company becomes party to the contractual provision of the
instrument.
(a) Financial assets
The Company's financial assets consist of financial assets at amortised cost
(trade and other receivables, excluding prepayments, and cash and cash
equivalents) and financial assets classified as fair value through profit or
loss. Financial assets at amortised cost are initially measured at fair value
and subsequently at amortised cost and attributable transaction costs are
included in the initial carrying value. Financial assets designated as fair
value through the profit or loss are measured at fair value through the profit
or loss at the point of initial recognition and subsequently revalued at each
reporting date. Attributable transactions costs are recognised in profit or
loss as incurred. Movements in the fair value of derivative financial assets
are recognised in the profit or loss in the period in which they occur.
(b) Financial liabilities
All financial liabilities are classified as fair value through the profit and
loss or financial liabilities at amortised cost. The Company's financial
liabilities at amortised cost include trade and other payables and its
financial liabilities at fair value through the profit or loss include the
derivative financial liabilities. Financial liabilities at amortised cost, are
initially stated at their fair value and subsequently at amortised cost.
Interest and other borrowing costs are recognised on a time-proportion basis
using the effective interest method and expensed as part of financing costs in
the statement of comprehensive income. Derivative financial liabilities are
initially recognised at fair value of the date a derivative contract is
entered into and subsequently re-measured at each reporting date. The method
of recognising the resulting gain or loss depends on whether the derivative is
designated as a hedging instrument, and if so, the nature of the item being
hedged. The Company has not designated any derivatives as hedges as at 31
March 2021 or 31 March 2022.
(c) Impairment for financial instruments measured at amortised cost
Impairment provisions for financial instruments are recognised based on a
forward looking expected credit loss model in accordance with IFRS 9. The
methodology used to determine the amount of the provision is based on whether
there has been a significant increase in credit risk since initial recognition
of the financial asset. For those where the credit risk has not increased
significantly since initial recognition of the financial asset, twelve month
expected credit losses along with gross interest income are recognised. For
those for which credit risk has increased significantly, lifetime expected
credit losses along with the gross interest income are recognised. For those
that are determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
Convertible loan notes ("CLNs")
The component parts of convertible loan notes issued by the Company are
classified separately as financial liabilities and equity in accordance with
the substance of the contractual arrangements and the definitions of a
financial liability and an equity instrument, where material.
At the date of issue, the fair value of the liability component is estimated
using the prevailing market interest rate for a similar non-convertible
instrument. This amount is recorded as a liability on an amortised cost basis
using the effective interest method until extinguished upon conversion or at
the instrument's maturity date.
The conversion option is determined by deducting the amount of the liability
component from the fair value of the compound instrument as a whole. Where
material, this is recognised and included as a financial derivative where the
convertible loan notes are issued in a currency other than the functional
currency of the Company because they fail the fixed for fixed criteria in IAS
32. The conversion option is recorded as a financial liability at fair value
through profit or loss and revalued at each reporting date.
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Share-based payments
The Company issues equity-settled share-based payments to certain employees.
Equity-settled share-based payments are measured at fair value at the date of
grant. The fair value determined at the grant date of the equity-settled
share-based payments is expensed over the vesting period, based on the
Company's estimate of shares that will eventually vest. The fair value of
options is ascertained using a Black-Scholes pricing model which incorporates
all market vesting conditions. Where equity instruments are granted to persons
other than employees, the income statement is charged with the fair value of
goods and services received.
The Company has also issued warrants on placements which form part of a unit.
These warrants do not fall into the scope of IFRS 2 Share Based Payments
because there is no service being provided and are assessed as either a
financial liability or equity. If they fail the fixed for fixed criteria in
IAS 32 Financial Instruments: Presentation, they are classified as financial
liability and measured in accordance with IFRS 9 Financial Instruments.
Critical accounting estimates and judgements
The Company makes judgements and assumptions concerning the future that impact
the application of policies and reported amounts. The resulting accounting
estimates calculated using these judgements and assumptions will, by
definition, seldom equal the related actual results but are based on
historical experience and expectations of future events. The judgements and
key sources of estimation uncertainty that have a significant effect on the
amounts recognised in the financial statements are discussed below.
Critical estimates and judgements
The following are the critical estimates and judgements that management has
made in the process of applying the entity's accounting policies and that have
the most significant effect on the amounts recognised in the financial
statements.
(a) Carrying value of exploration and evaluation assets (judgement)
The Company monitors internal and external indicators of impairment relating
to its exploration and evaluation assets. Management has considered whether
any indicators of impairment have arisen over certain assets relating to the
Company's exploration licenses. Management consider the exploration results to
date and assess whether, with the information available, there is any
suggestion that a commercial operation is unlikely to proceed. In addition,
management have considered the likely success of renewing the licences, the
impact of any instances of non-compliance with license terms and are
continuing with the exploration and evaluation of the sites. After considering
all relevant factors, management were of the opinion that no impairment was
required in relation to the costs capitalised to exploration and evaluation
assets except for the below:
i) Empyrean and its China Block 29/11 partner CNOOC, along with
its technical service providers CNOOC Enertech and COSL, completed significant
pre-drilling operational, technical and permitting work throughout the
reporting period to enable to safe drilling, although ultimately unsuccessful
drilling of the Jade prospect post reporting year end. As a result of the
unsuccessful well at Jade, Empyrean has, in accordance with applicable
accounting standards, written off all historical expenditure incurred on Block
29/11 and also the dry hole costs associated with the Jade drilling program
subsequent to year end, together being US$22.04 million. At 31 March 2022,
there were no conditions, facts or circumstances present which lead the
Company to believe the Jade well would be dry, therefore it does not
constitute an adjusting event under the requirements of IAS 10 Events after
the Reporting Period.
ii) While the Company will continue to work with its joint venture
partners in reviewing and assessing any further technical and commercial
opportunities as they relate to the Sacramento Basin project, particularly in
light of strong gas prices for gas sales in the region, it has not budgeted
for further substantive exploration expenditure. As this is an impairment
indicator under IFRS 6, management has taken the decision to impair all
expenditure incurred on the project to date as at 31 March 2022.
iii) In light of current market conditions, little or no work has been
completed on the Riverbend or Eagle Oil projects in the year and no
substantial project work is forecast for either project in 2022/23 whilst the
Company focuses on other projects. Whilst the Company maintains legal title it
has continued to fully impair the carrying value of the asset at 31 March
2022.
(b) Share based payments (judgement)
The Company has made awards of options and warrants over its unissued share
capital to certain employees as part of their remuneration package. Certain
warrants have also been issued to shareholders as part of their subscription
for shares and suppliers for services received.
The valuation of these options and warrants involves making a number of
critical estimates relating to price volatility, future dividend yields,
expected life of the options and forfeiture rates. These assumptions have been
described in the more detail in Note 14.
Note 2. Segmental Analysis
The Directors consider the Company to have three geographical segments, being
China (Block 29/11 project), Indonesia (Duyung PSC project) and North America
(Sacramento Basin project), which are all currently in the exploration and
evaluation phase. Corporate costs relate to the administration and financing
costs of the Company and are not directly attributable to the individual
projects. The Company's registered office is located in the United Kingdom.
Details China Indonesia USA Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000
31 March 2022
Unallocated corporate expenses - - - (1,599) (1,599)
Operating loss - - - (1,599) (1,599)
Finance expense - - - (402) (276)
Impairment of oil and gas properties - - (4,127) - (4,127)
Cyber fraud loss - - - (1,981) (1,981)
Loss before taxation - - (4,127) (3,982) (8,109)
Tax expense in current year - - - (1) (1)
Loss after taxation - - (4,127) (3,983) (8,110)
Total comprehensive loss for the financial year - - (4,127) (3,983) (8,110)
Segment assets 20,662 4,245 - - 24,907
Unallocated corporate assets - - - 55 55
Total assets 20,662 4,245 - 55 24,962
Segment liabilities - - - - -
Unallocated corporate liabilities - - - 6,286 6,286
Total liabilities - - - 6,286 6,286
Details China Indonesia USA Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000
31 March 2021
Unallocated corporate expenses - - - (943) (943)
Operating loss - - - (943) (943)
Finance expense - - - (7) (7)
Impairment of oil and gas properties - - (3) - (3)
Loss before taxation - - (3) (950) (953)
Tax benefit in current year - - - - -
Loss after taxation - - (3) (950) (953)
Total comprehensive loss for the financial year - - (3) (950) (953)
Segment assets 6,537 4,052 4,054 - 14,643
Unallocated corporate assets - - - 544 544
Total assets 6,537 4,052 4,054 544 15,187
Segment liabilities - - - - -
Unallocated corporate liabilities - - - 778 778
Total liabilities - - - 778 778
Note 3. Operating Loss
2022 2021
US$'000 US$'000
The operating loss is stated after charging:
Audit and tax fees (94) (97)
Foreign exchange differences (518) 20
Impairment - exploration and evaluation assets (4,127) (3)
Cyber fraud loss((a)) (1,981) -
Auditor's Remuneration
Amounts paid to BDO LLP and their associates in respect of both audit and
non-audit services:
Fees payable to the Company's auditor for the audit of the Company annual 73 45
accounts
Fees payable to the Company's auditor and its associates in respect of:
- Other services relating to taxation 12 14
Total auditor's remuneration 85 59
(a) In December 2021, the Company announced a payment totalling US$1.98
million to COSL, representing a 10% deposit on the dry hole cost component of
the Integrated Drilling Contract ("IDC") signed with COSL; however, the
Company was subsequently informed that this payment was not received by COSL
and had been paid to an unknown third party as a result of an impersonation
fraud perpetrated against the Company.
The Company then worked with its bank, the recipient bank and the police
authorities in three jurisdictions to initiate actions including the freezing
of the recipient bank account and the commencement of recovery actions.
Empyrean has commenced legal proceedings in the Singapore courts against the
company believed to have committed the fraud and has obtained an injunction
order on 21 January 2022 to freeze its assets and obtain further banking
information. Empyrean will take the necessary steps and is taking legal advice
for the purpose of pursuing recovery of the funds involved in the fraud.
Empyrean continues to cooperate with the Singapore Police investigation into
the fraud. Empyrean has taken the steps above, upon legal advice, in order to
escalate the recovery process.
Empyrean has also reviewed its internal control policies including overseas
and domestic payment processes and has added further authority approvals and
procedures for all material payments.
Note 4. Directors' Emoluments
Fees and Salary Bonus Payment Social Security Contributions Short-Term Employment Benefits (Total)
2022 2021 2022 2021 2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Non-Executive Directors:
Patrick Cross 25 24 - - 2 2 27 26
John Laycock 15 14 - - 1 1 16 15
Executive Directors:
Thomas Kelly((a)) 304 291 - - - - 304 291
Gajendra Bisht((b)) 220 220 - - - - 220 220
Total 564 549 - - 3 3 567 552
Capitalised to E&E((b))
(165) (165) - - - - (165) (165)
Total expensed
399 384 - - 3 3 402 387
(a) Services provided by Apnea Holdings Pty Ltd, of which Mr Kelly is a
Director. In addition to the Director fees above, Apnea Holdings Pty Ltd was
paid US$95,000 for capital raising services for the July 2021 Placement which
raised US$6.92 million. Mr Kelly has not sold any shares during the reporting
period.
(b) Services provided by Topaz Energy Pty Ltd, of which Mr Bisht is a
Director. 75% of Mr Bisht's fees are capitalised to exploration and evaluation
expenditure (Note 7).
The average number of Directors was 4 during 2022 and 2021. The highest paid
director received US$304,000 (2021: US$291,000).
Note 5. Finance Expense
2022 2021
US$'000 US$'000
Interest - convertible loan notes (Note 11) (253) -
Finance expense - equity facility options (Note 14) (23) (7)
Fair value adjustment - derivative financial liabilities (Note 12) (126) -
Total finance expense (402) (7)
Note 6. Taxation
2022 2021
US$'000 US$'000
Opening balance (358) (358)
AMT Federal Credit received during year 358 -
Total corporation tax receivable - (358)
Factors Affecting the Tax Charge for the Year
Loss from continuing operations (8,109) (953)
Loss on ordinary activities before tax (8,109) (953)
Loss on ordinary activities at US rate of 21% (2021: 21%) (1,703) (200)
Non-deductible expenses 1,328 23
Movement in provisions 6 7
Carried forward losses on which no DTA is recognised 368 170
(1) -
Analysed as:
Tax expense on continuing operations (1) -
Tax expense in current year (1) -
Deferred Tax Liabilities
Temporary differences - exploration 1,669 1,657
Temporary differences - other 4 4
1,673 1,661
Offset of deferred tax assets (1,673) (1,661)
Net deferred tax liabilities recognised - -
Unrecognised Deferred Tax Assets
Tax losses((a)) 3,609 3,555
Temporary differences - exploration 4,101 2,946
Temporary differences - other 1,054 824
8,764 7,325
Offset of deferred tax liabilities (1,673) (1,661)
Net deferred tax assets not brought to account 7,091 5,664
(a) If not utilised, carried forward tax losses of approximately US$9.87
million (2021: $9.63 million) begin to expire in the year 2033.
Deferred tax assets and deferred tax liabilities are offset only if applicable
criteria to set off is met.
Note 7. Loss Per Share
The basic loss per share is derived by dividing the loss after taxation for
the year attributable to ordinary shareholders by the weighted average number
of shares on issue being 565,853,821 (2021: 479,537,844).
2022 2021
Loss per share from continuing operations
Loss after taxation from continuing operations US$(8,110,000) US$(953,000)
Loss per share - basic (1.43)c (0.20)c
Loss after taxation from continuing operations adjusted for dilutive effects
US$(8,110,000) US$(953,000)
Loss per share - diluted (1.43)c (0.20)c
For the current and prior financial years, the exercise of the options is
anti-dilutive and as such the diluted loss per share is the same as the basic
loss per share. Details of the potentially issuable shares that could dilute
earnings per share in future periods are set out in Note 14.
Note 8. Exploration and Evaluation Assets
2022 2021
US$'000 US$'000
Balance brought forward 14,643 9,850
Additions((a)(b)) 14,391 847
Transfers - 3,949
Impairment((c)(d)) (4,127) (3)
Net book value 24,907 14,643
(a) The Company was awarded its permit in China in December 2016. Block
29/11 is located in the Pearl River Mouth Basin, offshore China. Empyrean is
operator with 100% of the exploration right of the Permit during the
exploration phase of the project. In May 2017 the Company acquired a working
interest in the Sacramento Basin, California. Empyrean entered into a joint
project with ASX-listed Sacgasco Limited, to test a group of projects in the
Sacramento Basin, California, including two mature, multi-TcF gas prospects in
Dempsey (EME 30%) and Alvares (EME 25%) and also further identified follow up
prospects along the Dempsey trend (EME 30%). Please refer to the Operational
Review for further information on exploration and evaluation performed during
the year.
(b) Empyrean and its China Block 29/11 partner CNOOC, along with its
technical service providers CNOOC Enertech and COSL, completed significant
pre-drilling operational, technical and permitting work throughout the
reporting period to enable to safe drilling, although ultimately unsuccessful
drilling of the Jade prospect post reporting year end. As a result of the
unsuccessful well at Jade, Empyrean has, in accordance with applicable
accounting standards, written off all historical expenditure incurred on Block
29/11 and also the dry hole costs associated with the Jade drilling program
subsequent to year end, together being US$22.04 million. At 31 March 2022,
there were no conditions, facts or circumstances present which lead the
Company to believe the Jade well would be dry, therefore it does not
constitute an adjusting event under the requirements of IAS 10 Events after
the Reporting Period. Post-well analysis at Jade however has confirmed
reservoir quality is better than pre-drill estimates with regional seal
confirmed and the depth conversion approach validated. As a part of post-well
evaluation, CNOOC geochemical and basin modelling experts together with
Empyrean have interpreted the critical elements of effective regional oil
migration pathways-leading to positive implications for the Topaz prospect,
and ultimately the decision to proceed with the second phase of exploration at
Block 29/11, being the drilling of the Topaz Prospect before June 2024.
(c) While the Company will continue to work with its joint venture
partners in reviewing and assessing any further technical and commercial
opportunities as they relate to the Sacramento Basin project, particularly in
light of strong gas prices for gas sales in the region, it has not budgeted
for further substantive exploration expenditure. As this is an impairment
indicator under IFRS 6, management has taken the decision to impair all
expenditure incurred on the project to date as at 31 March 2022.
(d) In light of current market conditions, little or no work has been
completed on the Riverbend or Eagle Oil projects in the year and no
substantial project work is forecast for either project in 2022/23 whilst the
Company focuses on other projects. Whilst the Company maintains legal title it
has continued to fully impair the carrying value of the asset at 31 March
2022.
2022 2021
Project Operator Working Interest Carrying Value Carrying Value
US$'000 US$'000
Exploration and evaluation
China Block 29/11 Empyrean Energy 100%(1) 20,662 6,537
Sacramento Basin Sacgasco 25-30% - 4,054
Duyung PSC Conrad Petroleum 8.5% 4,245 4,052
Riverbend Huff Energy 10% - -
Eagle Oil Pool Development Strata-X 58.084% - -
24,907 14,643
1. In the event of a commercial discovery, and subject to the Company
entering PSC, CNOOC Limited will have a back in right to 51% of the permit. As
at the date of these financial statements no commercial discovery has been
made.
Note 9. Trade and Other Receivables
2022 2021
US$'000 US$'000
Accrued revenue 30 30
VAT receivable 6 6
Total trade and other receivables 36 36
Note 10. Trade and Other Payables
2022 2021
US$'000 US$'000
Trade payables 293 504
Accrued expenses((a)) 1,006 163
Total trade and other payables 1,299 667
(a) Accrued expenses includes expenditure incurred pre-31 March 2022 in
relation to drilling the China Block 29/11 Jade prospect post-year end.
Note 11. Convertible Loan Notes
2022 2021
US$'000 US$'000
Current
Opening balance - -
Drawdowns((a)) 5,412 -
Conversions((b)) (919) -
Costs of finance (211) -
Foreign exchange loss (157) -
Total convertible loan notes - current 4,125 -
(a) On 16 December 2021, the Company entered into a Convertible Loan Note
Agreement with a Melbourne-based investment fund pursuant to which the Company
issued a convertible loan note to the Lender and received gross proceeds of
US$5.4 million (£4.0 million). The Convertible Note has a maturity date of 16
December 2022 and the Lender can elect to convert all or part of the principal
amount of the Convertible Note into fully paid ordinary shares in the Company
at any time prior to maturity at a conversion price of 8.0p per share. The
Convertible Note bears interest at a rate of 10% per annum and is secured by a
senior first ranking charge over the Company, including its 8.5% interest in
the Duyung PSC and Mako Gas Field.
(b) On 22 March 2022 the Company advised that it had received a conversion
notice to convert 8,750,000 Ordinary Shares at a conversion price of 8.0p per
share under the existing Convertible Loan Note Agreement. The partial
conversion reduced the amount owing on the Convertible Note by US$0.92 million
(£0.7 million).
Note 12. Derivative Financial Liabilities
2022 2021
US$'000 US$'000
Current
Opening balance - -
Issue of warrants((a)(b)) 596 -
Fair value revaluation((a)(b)) 126 -
Total derivative financial liabilities - current 722 -
(a) 41,849,249 Placement Warrants were issued to subscribers of the
Placement announced on 9 July 2021. The warrants have an exercise price of
£0.12 and expire on 22 July 2022. The warrants have been valued using a
Black-Scholes model and the fair value of US$489,000 was recorded as a
derivative financial liability. As a financial liability at fair value through
profit or loss these were revalued at the year end. Refer to Note 14 for
valuations and assumptions of the warrants.
(b) As detailed in the announcement on 9 July 2021, any Placement Warrants
that were exercised by 22 October 2021 (subsequently extended to 12 November
2021) were entitled to receive replacement incentive warrants ("Substitute
Warrants" and "Bonus Warrants"), resulting in an additional 3,808,333
Substitute Warrants and 3,808,333 Bonus Warrants being issued on exercise of
Placement Warrants. The Substitute Warrants have an exercise price of £0.12
and expire on 22 October 2022. The Bonus Warrants have an exercise price of
£0.18 and expire on 22 July 2023. The Substitute and Bonus Warrants have been
valued using a Black-Scholes model and the fair value of US$109,000 was
recorded as a derivative financial liability. As a financial liability at fair
value through profit or loss these were revalued at the year end. Refer to
Note 14 for valuations and assumptions of the warrants.
Note 13. Reconciliation of Net Loss
2022 2021
US$'000 US$'000
Loss before taxation (8,109) (953)
Share-based payments 66 100
Finance expense (non-cash) 148 7
Impairment - exploration and evaluation assets 4,127 3
Cyber fraud loss 1,981 -
Forex loss/(gain) 518 (20)
Decrease/(increase) in trade receivables relating to operating activities - (1)
Increase in trade payables relating to operating activities - -
Increase in provisions 29 33
Net cash outflow from operating activities before taxation (1,240) (831)
Receipt of corporation tax 358 -
Net cash outflow from operating activities (882) (831)
Note 14. Share Capital
2022 2021
US$'000 US$'000
646,070,780 (2021: 489,430,615) ordinary shares of 0.2p each 1,809 1,398
2022 2021
No. No.
a) Fully Paid Ordinary Shares of 0.2p each - Number of Shares
At the beginning of the reporting year 489,430,615 447,597,577
Shares issued during the year:
· Placements((a)(b)) 144,081,832 -
· Partial conversion of Convertible Note((c)) 8,750,000 -
· Exercise of warrants 3,808,333 -
· Placements & Subscriptions - prior year - 41,833,038
Total at the end of the reporting year 646,070,780 489,430,615
2022 2021
US$'000 US$'000
b) Fully Paid Ordinary Shares of 0.2p each - Value of Shares
At the beginning of the reporting year 1,398 1,291
Shares issued during the year:
· Placements((a)(b)) 378 -
· Partial conversion of Convertible Note((c)) 23 -
· Exercise of warrants 10 -
· Placements & Subscriptions - prior year - 107
Total at the end of the reporting year 1,809 1,398
(a) In July 2021 the Company completed a Placing to raise US$6.92 million
(£5.02 million) before costs, issuing 83,698,498 new ordinary shares at a
price of 6.0p per Share.
(b) On 16 December 2021, the Company advised that it has secured funding
totalling US$10.14 million (£7.62 million) through an equity placing and
convertible loan note issue. Pursuant to the equity placing, the Company
issued 60,383,334 new ordinary shares at a price of 6.0p per Share to raise
US$4.89 million (£3.62 million) before costs.
(c) On 22 March 2022 the Company advised that it had received a conversion
notice to convert 8,750,000 Ordinary Shares at a conversion price of 8.0p per
share under the existing Convertible Loan Note Agreement. The partial
conversion reduced the amount owing on the Convertible Note by US$0.92 million
(£0.7 million).
The Companies Act 2006 (as amended) abolishes the requirement for a company to
have an authorised share capital. Therefore the Company has taken advantage of
these provisions and has an unlimited authorised share capital.
Each of the ordinary shares carries equal rights and entitles the holder to
voting and dividend rights and rights to participate in the profits of the
Company and in the event of a return of capital equal rights to participate in
any sum being returned to the holders of the ordinary shares. There is no
restriction, imposed by the Company, on the ability of the holder of any
ordinary share to transfer the ownership, or any of the benefits of ownership,
to any other party.
Share options and warrants
The number and weighted average exercise prices of share options and warrants
are as follows:
Weighted Average Exercise Weighted Average Exercise
Price Number Price
of Options Number
& Warrants Of Options
2022 2022 2021 2021
Outstanding at the beginning of the year £0.094 20,233,334 £0.145 5,500,000
Issued during the year((a)(b)) £0.125 49,465,915 £0.088 17,233,334
Cancelled during the year - - £0.170 (2,500,000)
Exercised during the year £0.120 (3,808,333) - -
Outstanding at the end of the year £0.116 65,890,916 £0.094 20,233,334
(a) 41,849,249 Placement Warrants were issued to subscribers of the
Placement announced on 9 July 2021. The warrants have an exercise price of
£0.12 and expire on 22 July 2022. The warrants have been valued using a
Black-Scholes model and the fair value of US$489,000 was recorded as a
derivative financial liability (Note 12).
(b) As detailed in the announcement on 9 July 2021, any Placement Warrants
that were exercised by 22 October 2021 (subsequently extended to 12 November
2021) were entitled to receive replacement incentive warrants ("Substitute
Warrants" and "Bonus Warrants"), resulting in an additional 3,808,333
Substitute Warrants and 3,808,333 Bonus Warrants being issued on exercise of
Placement Warrants. The Substitute Warrants have an exercise price of £0.12
and expire on 22 October 2022. The Bonus Warrants have an exercise price of
£0.18 and expire on 22 July 2023. The Substitute and Bonus Warrants have been
valued using a Black-Scholes model and the fair value of US$109,000 was
recorded as a derivative financial liability (Note 12).
Valuation and assumptions of options and warrants at 31 March 2022
Employee Options Employee Options Equity Facility Options Equity Facility Options Subscriber Warrants Placement Warrants Substitute Warrants Bonus Warrants
Number of Options 2,500,000 2,500,000 500,000 500,000 14,233,334 41,849,249 3,803,333 3,803,333
Grant date 17/09/19 15/09/20 24/12/19 11/09/20 11/09/20 09/07/21 12/11/21 15/11/21
Expiry date 30/09/22 10/09/23 24/12/22 17/09/23 25/09/22 22/07/22 22/10/22 22/07/23
Share price £0.098 £0.05 £0.084 £0.047 £0.047 £0.063 £0.073 £0.063
Exercise price £0.125 £0.075 £0.123 £0.1014 £0.09 £0.12 £0.12 £0.18
Volatility 79% 81% 79% 81% 81% 82% 79% 79%
Option life 3.00 3.00 3.00 3.00 2.00 1.00 1.00 1.70
Expected dividends - - - - - - - -
Risk-free interest rate (based on national government bonds) 0.49% 0.14% 0.52% 0.14% 0.14% 0.08% 0.08% 0.08%
The options outstanding at 31 March 2022 have an exercise price in the range
of £0.075 to £0.18 (2021: £0.075 to £0.125) and a weighted average
remaining contractual life of 0.95 years (2021: 1.64 years).
The options outstanding at 31 March 2022 have an exercise price in the range
of £0.075 to £0.18 (2021: £0.075 to £0.125) and a weighted average
remaining contractual life of 0.95 years (2021: 1.64 years).
Note 15. Reserves
Reserve Description and purpose
Warrant and share-based payment reserve Records items recognised as expenses on valuation of employee share options
and subscriber warrants.
Retained losses All other net gains and losses and transactions with owners not recognised
elsewhere.
Note 16. Related Party Transactions
Directors are considered Key Management Personnel for the purposes of related
party disclosure.
There were no related party transactions during the year ended 31 March 2022
other than those disclosed in Note 4.
Note 17. Financial Risk Management
The Company manages its exposure to credit risk, liquidity risk, foreign
exchange risk and a variety of financial risks in accordance with Company
policies. These policies are developed in accordance with the Company's
operational requirements. The Company uses different methods to measure and
manage different types of risks to which it is exposed. These include
monitoring levels of exposure to interest rate and foreign exchange risk and
assessment of prevailing and forecast interest rates and foreign exchange
rates. Liquidity risk is managed through the budgeting and forecasting
process.
Credit risk
Exposure to credit risk relating to financial assets arises from the potential
non-performance by counterparties of contract obligations that could lead to a
financial loss to the Company.
Risk is also minimised by investing surplus funds in financial institutions
that maintain a high credit rating.
Credit risk related to balances with banks and other financial institutions
are managed in accordance with approved Board policy. The Company's current
investment policy is aimed at maximising the return on surplus cash, with the
aim of outperforming the benchmark within acceptable levels of risk return
exposure and to mitigate the credit and liquidity risks that the Company is
exposed to through investment activities.
The following table provides information regarding the credit risk relating to
cash and money market securities based on Standard and Poor's counterparty
credit ratings.
2022 2021
US$'000 US$'000
Cash and cash equivalents
AA-rated 19 150
Total cash and cash equivalents 19 150
Price risk
Commodity price risk
The Company is not directly exposed to commodity price risk. However, there is
a risk that the changes in prevailing market conditions and commodity prices
could affect the viability of the projects and the ability to secure
additional funding from equity capital markets.
Liquidity risk
Liquidity risk arises from the possibility that the Company might encounter
difficulty in settling its debts or otherwise meeting its obligations related
to financial liabilities. The Company manages liquidity risk by maintaining
sufficient cash or credit facilities to meet the operating requirements of the
business and investing excess funds in highly liquid short-term investments.
The Company's liquidity needs can be met through a variety of sources,
including the issue of equity instruments and short or long-term borrowings.
Alternative sources of funding in the future could include project debt
financing and equity raisings, and future operating cash flow. These
alternatives will be evaluated to determine the optimal mix of capital
resources.
The following table details the Company's non-derivative financial instruments
according to their contractual maturities. The amounts disclosed are based on
contractual undiscounted cash flows. Cash flows realised from financial assets
reflect management's expectation as to the timing of realisation. Actual
timing may therefore differ from that disclosed. The timing of cash flows
presented in the table to settle financial liabilities reflects the earliest
contractual settlement dates.
Less than 6 months 6 months to 1 year 1 to 6 years Total
US$'000 US$'000 US$'000 US$'000
Convertible loan note (2022) - 4,125 - 4,125
Trade and other payables (2022) 1,299 - - 1,299
Trade and other payables (2021) 667 - - 667
Capital
In managing its capital, the Company's primary objective is to maintain a
sufficient funding base to enable the Company to meet its working capital and
strategic investment needs. In making decisions to adjust its capital
structure to achieve these aims, through new share issues, the Company
considers not only its short-term position but also its long-term operational
and strategic objectives. The Company has a track record of successfully
securing additional funding as and when required from equity capital markets.
Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk
arising from various currency exposures. Foreign exchange risk arises from
future commitments, assets and liabilities that are denominated in a currency
that is not the functional currency of the Company. Currently there are no
foreign exchange hedge programmes in place. However, the Company treasury
function manages the purchase of foreign currency to meet operational
requirements.
As at 31 March 2022 the Company's gross exposure to foreign exchange risk was
as follows:
2022 2021
US$'000 US$'000
Gross foreign currency financial assets
Cash and cash equivalents - GBP 10 133
Total gross exposure 10 133
The effect of a 10% strengthening of the USD against the GBP at the reporting
date on the GBP-denominated assets carried within the USD functional currency
entity would, all other variables held constant, have resulted in an increase
in post-tax loss for the year and decrease in net assets of US$1,000 (2021:
US$13,300).
Fair value
Fair values are those amounts at which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arm's length
transaction. Fair values may be based on information that is estimated or
subject to judgement, where changes in assumptions may have a material impact
on the amounts estimated. Areas of judgement and the assumptions have been
detailed below.
The following methods and assumptions are used to determine the net fair
values of financial assets and liabilities:
§ Cash and short-term investments - the carrying amount approximates fair
value because of their short term to maturity;
§ Trade receivables and trade creditors - the carrying amount approximates
fair value; and
§ Derivative financial assets and liabilities - initially recognised at
fair value through profit and loss at the date the contract is entered into
and subsequently re-measured at each reporting date, the fair value of the
derivative financial liability warrants is calculated using a Black-Scholes
Model. Measurement inputs include share price on measurement date, exercise
price of the instrument, expected volatility (based on weighted average
historic volatility adjusted for changes expected due to publicly available
information), weighted average expected life of the instruments (based on
historical experience and general option holder behaviour), expected
dividends, and the risk-free interest rate (based on government bonds).
No financial assets and financial liabilities are readily traded on organised
markets in standardised form.
Financial Instruments Measured at Fair Value
The financial instruments recognised at fair value in the statement of
financial position have been analysed and classified using a fair value
hierarchy reflecting the significance of the inputs used in making the
measurements. The fair value hierarchy consists of the following levels:
§ Quoted prices in active markets for identical assets or liabilities
(Level 1);
§ Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (as prices) or
indirectly (derived from prices) (Level 2); and
§ Inputs for the asset or liability that are not based on observable market
data (unobservable inputs) (Level 3).
Financial instruments at fair value and methods used to estimate the fair
value are summarised below:
Financial Instruments at Fair Value 31 March 2022 31 March 2021
Fair Value Fair Value
US$'000 US$'000
Financial liabilities
Derivative financial liabilities (Level 3) 722 -
Total financial liabilities 722 -
Financial instruments by category are summarised below:
Financial Instruments by Category Fair Value Through Profit or Loss Amortised Cost
31 March 2022 31 March 2021 31 March 2022 31 March 2021
US$'000 US$'000 US$'000 US$'000
Financial assets
Cash and cash equivalents - - 19 150
Trade and other receivables - - 36 36
Total financial assets - - 55 186
Financial liabilities
Trade and other payables - - 1,299 504
Convertible loan notes - - 4,125 -
Derivative financial liabilities 722 - - -
Total financial liabilities 722 - 5,424 504
Cash and cash equivalents
Cash and short-term deposits in the Statement of Financial Position comprise
cash at bank and in hand and short-term deposits with an original maturity of
three months or less. For the purposes of the Cash Flow Statement, cash and
cash equivalents consist of cash and cash equivalents as defined above and
which are readily convertible to a known amount of cash and are subject to an
insignificant risk of change in value.
Note 18. Events After the Reporting Date
Significant events post reporting date were as follows:
On 1 April 2022 the Company issued 18,750,000 Ordinary Shares at a conversion
price of 8.0p per share under the existing Convertible Loan Note Agreement, as
announced on 28 March 2022. The partial conversion reduced the amount owing on
the Convertible Note by US$1.97 million (£1.5 million).
In April 2022, Empyrean announced that the Jade well had reached a final total
depth of 2,849 metres MD and the interpretation from LWD and mud logging
equipment indicated no oil pay in the target reservoir. As a result of the
unsuccessful well at Jade, Empyrean has, in accordance with applicable
accounting standards, written off all historical expenditure incurred on Block
29/11 and also the dry hole costs associated with the Jade drilling program
subsequent to year end, together being US$22.04 million.
In May 2022 Empyrean completed a Placing to raise US$2.25 million (£1.83
million) with funds raised under this Placing to primarily be used to complete
further post well analysis of the Jade well, satisfy any further costs
associated with the Jade drilling, conduct a comprehensive oil migration study
in conjunction with CNOOC for potential oil charge to the Topaz prospect, and
for the Company's general working capital requirements.
In May 2022, following the announcement regarding the Jade well on 27 April
2022, the Company and the Lender proactively entered discussions to amend the
key repayment terms of the Convertible Note, which included the right by the
Lender to redeem the Convertible Note within five business days of the
announcement of the results of the Jade well. The parties agreed the following
key amendments to the terms of the Convertible Note:
1. The face value of the Convertible Note is increased
to £3.3 million;
2. The Company may, at its sole and absolute
discretion, redeem the Convertible Note at any time;
3. The Lender will not redeem the Notes prior to 31
July 2022;
4. If a binding GSA is entered into with regard to the
Mako Gas Discovery in Indonesia on or before 31 July 2022, the Lender will not
redeem the Convertible Note prior to 1 December 2022, with interest accruing
thereafter at a rate of £330,000 per calendar month;
5. If a binding GSA is not entered into with regard to
the Mako Gas Discovery in Indonesia on or before 31 July 2022, the Lender may
redeem the Convertible Note at any time thereafter, in which circumstances the
face value of the Convertible Note will be reduced to £2.67 million;
6. If the Company completes a sale of its interest in
the Mako Gas Discovery, it will redeem the Convertible Note contemporaneously
with that agreement; and
7. The Company will not execute any agreement in
respect of a sale of its interest in the Mako Gas Discovery if the proceeds
are less than the expected value of the Convertible Note on the date of
completion of that agreement.
In June 2022 Empyrean announced that following the completion of post well
analysis at Jade it would be entering the second phase of exploration and
drilling the Topaz prospect at its 100% owned Block 29/11 permit, offshore
China. The second phase of exploration requires the payment to CNOOC of
US$250,000 and the work obligation is the drilling of an exploration well
within 2 years.
In September 2022 the Company announced that the partners in the Duyung PSC
had approved the updated POD and have secured alignment with SKK Migas on the
plan. The POD has been submitted to the Indonesian Ministry of Energy and
Mineral Resources for approval and an Operator commissioned Competent Persons
Report has been prepared by GCA for the Mako development.
No other matters or circumstances have arisen since the end of the financial
year which significantly affected or could significantly affect the operations
of the Company, the results of those operations, or the state of affairs of
the Company in future financial years.
Note 19. Committed Expenditure
The Company has met all commitments on all three key projects during the
current financial year.
Block 29/11 offshore China
The Company's committed work program for the GSA phase for Block 29/11
included acquisition, processing and interpretation of 500km2 for a 3D seismic
survey, and a financial commitment of US$3.0 million. The Company exceeded the
work program commitments during the 2018 financial year.
Having successfully completed the committed work program for the first phase
GSA, the Company exercised its option to enter a PSC on the Block, on
pre-negotiated terms, with CNOOC on 30 September 2018, with the date of
commencement of implementation of the PSC being 13 December 2018. In April
2022, Empyrean announced that the Jade well had reached a final total depth of
2,849 metres MD and the interpretation from logging while drilling (LWD) and
mud logging equipment indicated no oil pay in the target reservoir. In June
2022 Empyrean announced that following the completion of post well analysis at
Jade it would be entering the second phase of exploration and drilling the
Topaz prospect at its 100% owned Block 29/11 permit, offshore China. The
second phase of exploration requires the payment to CNOOC of US$250,000 and
the work obligation is the drilling of an exploration well within 2 years. It
is estimated that the cost of drilling this well would be approximately US$12
million.
Additional commitments for the 2022/23 financial year consist of an annual
assistance fee to CNOOC of US$67,000, an annual personnel representative fee
to CNOOC of approximately US$260,000 and an annual prospecting fee of
US$128,000.
Duyung PSC offshore Indonesia
As reported the joint venture partners completed a successful exploration and
appraisal well program at the Duyung PSC during 2020. Empyrean have paid all
cash calls associated with the program with no further amounts due and
payable.
Sacramento Basin assets onshore California
The Company earned a 30% interest in the Dempsey Prospect by paying
US$2,100,000 towards the costs of drilling the Dempsey 1-15 exploration well.
These drilling costs had a promoted cap of US$3,200,000 and the Company paid
its share of additional costs at Dempsey 1-15, including completion costs. At
the time of this report, the work plan, cost estimates and timing of further
expenditure for both the Borba and Alvares prospects have not been finalised.
The Company incurs quarterly cash calls of approximately US$10,000 for
overheads, geological and geophysical costs and approximately US$48,000 for
its share of associated lease obligations annually.
Note 20. Ultimate Controlling Party
The Directors consider that there is no ultimate controlling party of the
Company.
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