REG - Empyrean Energy PLC - Final Results
01/09/2023 12:30
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RNS Number : 1455L Empyrean Energy PLC 01 September 2023
This announcement contains inside information
Empyrean Energy PLC / Index: AIM / Epic: EME / Sector: Oil & Gas
1 September 2023
Empyrean Energy PLC ('Empyrean' or 'the Company')
Final Results
Empyrean Energy is pleased to announce its final results for the year ended 31
March 2023 ("Report and Accounts"). The full Report and Accounts will be made
available on the Company's website in the coming days.
Highlights
Block 29/11, Pearl River Mouth Basin, China (EME 100% reverting to 49% upon commercial discovery)
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. As a result, Empyrean has provided for impairment against Jade
prospect costs and the dry hole costs associated with the Jade drilling
program.
· Empyrean decided to enter the second phase of exploration with the aim to drill the larger Topaz prospect following post-well analysis at Jade that confirmed the reservoir quality to be better than pre-drill estimate and an initial CNOOC-assisted migration pathways assessment.
Post-Reporting period
· Joint regional oil migration study with CNOOC team to be
completed which will map oil migration from the proven source rock south-west
of Block 29/11 that charges the four CNOOC oil discoveries (immediately west
of Block 29/11 and Topaz) and extend this into Block 29/11 and map these
potential migration pathways to Topaz.
· Simultaneous 3D seismic inversion project to determine whether
light oil pay in the target reservoir can be discriminated from a water
bearing reservoir to be completed at Topaz with a specialist seismic
consultancy with expertise in seismic inversion.
· Topaz Drill Program targeted to commence in 2024.
Duyung PSC Project, Indonesia (EME 8.5%)
Reporting period
· Updated Plan of Development ("Mako POD") submitted to the Indonesian Ministry of Energy and Mineral Resources for approval in September 2022 and subsequently approved in November 2022.
· Updated Mako PoD based upon Contingent Duyung PSC Resources of 384 billion cubic feet gross within the Duyung PSC area which represents some 297 billion cubic feet net attributable* to 100% of the Duyung PSC Joint Venture.
· The operator, Conrad Asia Energy Ltd ("Conrad"), has continued to advance Gas Sales Agreement ("GSA") negotiations. Prevailing strong gas prices in the region are expected to influence the ultimate terms reached in the binding agreement.
Post-Reporting period
· Negotiation of key terms of the Mako GSA between a Singaporean buyer and the Indonesian regulator (SKKMIGAS) are expected to be finalised in the near term.
· Conrad engaged a global investment bank to lead a farm-down process for the divestment of a portion of its interest in the Duyung Production Sharing Contract. Bids are expected to be received shortly after a binding terms sheet for the GSA is consummated.
· 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%)
· No work was conducted on the project during the year.
Corporate
Reporting period
· Placement to raise US$2.25 million (£1.83 million) completed in
May 2022.
· Convertible Loan Note Debt restructured.
Post-Reporting period
· Placement to raise US$1.88 million (£1.52 million) completed in
May 2023.
· Convertible Loan Note Debt restructured to reduce face value of
the note and secure extended moratorium on interest.
Empyrean CEO Tom Kelly said, "Following the disappointing result at Jade
earlier in reporting year, Empyrean's post well analysis has been able to
combine our excellent quality 3D seismic data with the confirmed well data
from Jade to improve the validity of the Topaz prospect as a robust and large
drilling target of approximately 891 million barrels in place (P10). Based
on this work, in June 2022 Empyrean 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.
Empyrean now intends to conduct two further key projects that capitalise on
the excellent quality 3D seismic acquired by the Company over the permit,
shared regional 3D seismic that CNOOC has and additional physical well data of
both Empyrean and CNOOC. These projects, consisting of a regional oil
migration study and a simultaneous 3D seismic inversion project, are designed
to help address and mitigate the remaining primary geological risk at Topaz,
being oil migration into the Topaz trap.
In Indonesia, Empyrean welcomed the approval by the Indonesian Ministry of
Energy and Mineral Resources of the updated Plan of Development for the Mako
Gas Project within the Duyung PSC. This was a significant milestone on the
pathway to developing this significant pipeline quality methane gas resource
at the project. We now look forward to the conclusion of GSA negotiations and
to developments on the sell down process of the Mako Gas Field. The macro
environment for gas in South East Asia, and Singapore in particular, is
expected to continue trending favourably with the region transitioning from
coal to gas as the preferred energy source.
On the corporate front, the Company has successfully raised funds as needed
during and post year end and was pleased to renegotiate the Convertible Note
post year end, which resulted in a reduction in the face value of the Note and
secured an extended moratorium on interest.
The Company continues to assess 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, as well as further equity funding.
The Board and management of Empyrean are excited about the prospects of the
Company, having secured recent funding and with some important value catalysts
on the horizon from both the projects in Indonesia and China. In 2024 the
Company hopes to take the learnings from the Jade well and the studies it is
now conducting to further de-risk and ultimately drill the Topaz Prospect,
which in itself could be a transformational result for Empyrean and its
shareholders."
Chairman's Statement
While we were all disappointed with the Jade well outcome, work continued at
Empyrean and extensive post well analysis led to the Company electing to
proceed with planning and further de-risking work with the aim to ultimately
drill the Topaz prospect in 2024. These activities, largely focused on oil
migration into Topaz, continue and are expected to be concluded during the
2023 calendar year.
In parallel the Company awaits two key events in Indonesia, firstly the
conclusion of the GSA negotiations and secondly the completion of the sell
down process of the Mako Gas Field. With a strong underlying macro environment
for gas in South-East Asia, and Singapore in particular, Empyrean is
optimistic of favourable outcomes that will strengthen the Company's balance
sheet and support the planned drilling at Topaz.
On the corporate front, the Company has raised equity funds to support the
activities above and provide working capital, and it was pleasing to
renegotiate the Convertible Note to hopefully allow for the completion of the
GSA and sell down processes and timely repayment of the Note.
I would like to thank the Board, management and staff for their persistence
during the year, following the setback at Jade. The Company now eagerly
awaits good news from Indonesia and is enthusiastic about its plans to drill
the Topaz Prospect in China.
Patrick Cross
Non-Executive Chairman
1 September 2023
For further information please visit www.empyreanenergy.com
(http://www.empyreanenergy.com/) or contact the following:
Empyrean Energy plc
Tom Kelly Tel: +61 6146 5325
Cenkos Securities plc (Nominated Advisor and Broker)
Neil McDonald Tel: +44 (0) 20 7397 8900 / + 44 (0)131 220 6939
Pearl Kellie
First Equity (Joint Broker)
Jason Robertson Tel: +44 (0) 20 7330 1883
Extract from Strategic Report
Business Overview and Likely Future Developments
Following the unsuccessful drilling of the Jade prospect in April 2022,
post-well analysis at Jade confirmed that the reservoir quality is better than
pre-drill estimates with regional seal confirmed and the depth conversion
approach validated. As 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.
Empyrean is now conducting two further key projects (as detailed in the
Operations Report) that capitalise on the excellent quality 3D seismic
acquired by the Company over the permit, shared regional 3D seismic that CNOOC
has and additional physical well data of both Empyrean and CNOOC. These
projects are designed to help address and mitigate the remaining primary
geological risk at Topaz - oil migration into the Topaz trap.
In Indonesia, Conrad, operator and 76.5% partner in Mako has progressed a sell
down process with a global investment bank in order to fund the development of
Mako. During the year Mako received government approval for a Plan of
Development. A GSA is also currently in advanced stages of negotiation and a
binding agreement is expected between the partners, a Singaporean buyer and
SKKMIGAS (the Indonesian regulator) in the near term.
There were no material activities conducted in California during the year.
Further details on these activities are provided in the Operations and Outlook
section below.
The Company raised funds through a placement during the year and also post
year end, and subsequent to year end renegotiated the Convertible Note. The
funds raised from the placements are being used 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 2023 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. 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.
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.
In April 2022, the Company commenced the drilling of the LH 17-2-1 well to
test the Jade Prospect in Block 29/11, offshore China. It was the first of the
three prospects high graded by the 2017 3D seismic survey.
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
logging whilst drilling ("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 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 is a world class conventional oil target, to which Gaffney Cline &
Associates ("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. 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 received Ministerial Approval during the year
and Conrad is progressing a sell down process with a global investment bank in
order to fund the development of Mako. Conrad have confirmed that industry
interest in the project and sell down process is encouraging. A GSA is
currently in advanced stages of negotiation and a binding agreement is
expected between the partners, a Singaporean buyer and SKKMIGAS (the
Indonesian regulator) in the near term.
There were no activities in California during the year but 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. Both had no activity during the year. Further
detailed analysis on all projects is provided in the Operational Review on
page 15.
Operational Review
The Company's corporate objective remains to build a significant asset
portfolio across the Asian region. Post well studies of the Jade evaluation
work confirmed excellent reservoir quality and the presence of the regional
seal. 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 material Topaz prospect.
Comprehensive technical work is now being conducted, consisting of a regional
oil migration study and a 3D simultaneous seismic inversion project, which are
designed to help address and mitigate the remaining primary geological risk at
Topaz, being oil migration into the Topaz trap.
Empyrean remains excited about the significant value potential of its interest
in Indonesia, which will be reflected in the current sell down process and the
advanced stage of the GSA negotiations between the partners, a Singaporean
buyer and SKKMIGAS. The project has been further supported by strong gas
prices in the Asian region.
Empyrean also has a 25-30% working interest in a package of gas projects in
the Sacramento Basin, onshore California. While no activity occurred during
the year Empyrean 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
In April 2022, 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.
As a result, Empyrean has provided for impairment against Jade prospect costs
and the dry hole costs associated with the Jade drilling program.
The Company successfully operated an offshore exploration and drilling program
without any operational or environmental issues.
Post 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.
The Jade well failed due to lack of access to effective migration pathways.
Given oil migration to the Topaz Prospect is now identified as the key risk,
the Company's pre drill exploration efforts are focusing on mitigating this
risk.
Reservoir, seal and trap validity of the Topaz prospect have 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.
The Baiyun East 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.
Post well analysis indicates that the gas shows within the "gas cloud" zone in
the overburden at the Jade well are now interpreted to 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, which is targeted to occur in 2024.
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
Post Year End Work
Empyrean is conducting two further key projects that capitalise on the
excellent quality 3D seismic acquired by the Company over the permit, shared
regional 3D seismic that CNOOC has and additional physical well data of both
Empyrean and CNOOC. These projects are designed to help address and mitigate
the remaining primary geological risk at Topaz - oil migration into the Topaz
trap.
Firstly, jointly with CNOOC, Empyrean is completing a regional oil migration
study. CNOOC bring excellence in local basin modelling expertise along with
crucial regional data that augments the data Empyrean has on Block 29/11. The
regional data includes temperature, pressure, timing of oil maturation, and
successful oil migration pathway mapping. The project will map oil migration
from the proven source rock south west of Block 29/11 that charges the four
CNOOC oil discoveries (immediately west of Block 29/11 and Topaz) and extend
this into Block 29/11 and map these migration pathways to Topaz. In addition,
similar work will be conducted from a new kitchen located entirely within
Block 29/11 and oil migration pathways will be mapped to Topaz. This project
is expected to be completed in the second half of 2023.
Secondly, Empyrean is conducting a 3D simultaneous seismic inversion project
focussing on Topaz. This project is utilising the oil properties, reservoir
temperature, reservoir pressure and water salinity data from CNOOC oil
discovery wells combined with reservoir porosity and mineralogical data from
Empyrean well logs and core to maximise the effectiveness of the inversion
project outcomes. The aim of the 3D simultaneous seismic inversion project is
to assess whether Topaz has different elastic properties to that of three
water bearing wells in Block 29/11 and whether these properties can
discriminate between water and light oil in the high porosity carbonate
reservoir rocks on the high quality Topaz 3D seismic. The 3D seismic inversion
project is expected to be completed in the second half of 2023.
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 (now Conrad Asia Energy Ltd), 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, 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.
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.
Figure 2: Mako Gas field, Duyung PSC, Indonesia
Revised Plan of Development
In September 2022, Empyrean announced that the partners in the Duyung PSC have
approved the revised PoD and have secured alignment with SKK Migas on the
plan. The PoD was then submitted to the Indonesian Ministry of Energy and
Mineral Resources for approval, which was duly received in November 2022,
marking a major milestone on the pathway to developing this significant
pipeline quality methane gas resource. This allowed the operator Conrad to
focus on its stated objective of working with the Government of Indonesia to
complete GSA negotiations at the earliest opportunity.
The revised Mako PoD amends an initial Mako Gas Project PoD approved in 2018
to reflect, inter alia, previously announced increases in Contingent Resources
following a successful 2019 drilling campaign. The award of the revised PoD
represents a material event in progressing the Mako Gas Project and is a
significant milestone on the critical path to developing this significant
resource, which is currently the largest undeveloped gas field in South Natuna
Sea.
The revised Mako PoD is based on field Contingent Resources of 297 billion
cubic feet (net attributable to 100% of the Duyung PSC Joint Venture) and a
daily production of 120 MMscf/d, consistent with the GCA competent persons
report dated 26 August 2022, details of which were also announced by the
Company on 9 September 2022.
Current Activities
Conrad has advanced a sell down process with a global investment bank in order
to fund the development of Mako. In addition, a GSA is currently in advanced
stages of negotiation and a binding agreement is expected between the
partners, a Singaporean buyer and SKKMIGAS (the Indonesian regulator) in the
near term.
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.
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.
There were no significant activities conducted during the year however 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.
Riverbend Project (10%)
Little or no work has been completed on the project in the year and no budget
has been prepared for 2023/24 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)
Little or no work has been completed on the project in the year and no budget
has been prepared for 2023/24 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 34 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.
Gajendra (Gaz) Bisht M.Sc. (Tech) in Applied Geology
Executive Director (Technical)
1 September 2023
Extract from Directors' 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$83,000 (2022: US$19,000) and made a loss after income tax
of US$20.80 million (2022: loss of US$8.11 million).
The Directors have prepared cash flow forecasts for the Company covering the
period to 30 September 2024 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. 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.
In May 2023 US$1.88 million was raised through an equity placement for the
completion of joint regional oil migration and 3D seismic inversion studies at
Topaz, ongoing prospect, licensing fees and permit costs, post Jade well
consultancy, analysis and residual exploration costs, front-end engineering
design ("FEED"), studies and surveys at Mako - including gas processing and
export gas tie in at the Kakap KF Platform and for general working capital
requirements.
The Company has also renegotiated the terms of the Convertible Note as
detailed in the AIM announcement dated 30 May 2023. 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.
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 repayment of the Convertible Note will be met, having a successful track
record of equity (and debt) and in particular with the prospect of monetising
its interest in Mako through the current sell down process.
It is the belief of the Board that there are likely value catalysts throughout
the next 12 months leading up to the intend drilling of the Topaz Prospect in
2024 - including maximising the value of its interest at the Mako Gas field
through the current sell down process and the completion of the GSA and also
through the conclusion of important de-risking activities currently being
conducted prior to the drilling of the Topaz Prospect.
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:
In May 2023, the Company advised that Conrad has engaged a global investment
bank to lead a farm-down process for the divestment of a portion of its
interest in the Duyung PSC. Bids were expected to be received during the
second quarter of 2023 with sell down news expected in the third quarter of
2023.
In May 2023, the Company advised that it had reached agreement with the Lender
on amended key terms to the Convertible Note to allow the sales process for
Mako to complete. The key terms of the amendment are as follows:
1. The face value of the Convertible Note has been reduced from
£5.28m (accrued to the end of May 2023) to £4.6 million;
2. No interest shall accrue on the Convertible Note until 31 December
2023, with interest accruing thereafter at a rate of 20% p.a.;
3. The conversion price on the Convertible Note has been reduced from
8p to 2.5p per Share;
4. Unless otherwise required by the joint operating agreement entered
into with Empyrean's licence partners (the "JOA") or with the prior written
consent of the Lender (such consent not to be unreasonably withheld or
delayed), Empyrean may only execute agreements for the sale of its interest in
Mako (in whole or in part) if the terms of the sale provide for a payment to
Empyrean at completion of immediately available funds and for a sale price of
an amount that is at least the amounts owed to the Lender (as described in 5
and 6 below);
5. On a successful sale of the Company's interest in Mako, Empyrean
must redeem the face value of the Convertible Note and pay the Lender the
greater of (a) US$1.5 million or (b) 15% of the proceeds such sale;
6. In the event that the Company repays the Convertible Note from
sources other than a sale of its interest in Mako, Empyrean must also pay the
Lender US$1.5 million on redemption of the Convertible Note together with a
further payment based on either (a) the actual valuation achieved on any sale
within 2 years or (b) an updated valuation of the Company's interest in Mako
if not sold within that 2 year period, in each case so that the total proceeds
paid to the Lender are 15% of the valuation of the Company's interest in Mako;
and
7. In the event that the sale process being run on behalf of the
operator, Conrad, does not result in an offer being made to acquire all or
part of the Company's interest in Mako, then Empyrean must work with the
Lender in good faith to sell the Mako Interest as soon as reasonably possible
and, subject to applicable laws and the terms of the JOA, may grant rights to
the Lender to market this interest on its behalf.
In June 2023, Empyrean completed a Placing to raise US$1.88 million (£1.52
million) ("Placing") with funds raised under this Placing to primarily be used
for the completion of joint regional oil migration and 3D seismic inversion
studies at Topaz, ongoing prospect, licensing fees and permit costs, post Jade
well consultancy, analysis and residual exploration costs, front-end
engineering design ("FEED"), studies and surveys at Mako - including gas
processing and export gas tie in at the Kakap KF Platform and for general
working capital requirements.
In June 2023, the Company issued warrants in respect of 2,833,333 Shares to
advisors of the Company, for consultancy and advisory services provided over
the last 12 months (the "Advisor Warrants"). The exercise price of the Advisor
Warrants is 1.5p each and they will expire on 30 May 2024. The Company also
issued incentive warrants in respect of 10,000,000 ordinary shares of 0.2
pence in the Company to the Company Secretary, Jonathan Whyte, or his nominee
(the "Incentive Warrants"). The Incentive Warrants were granted as part of the
Company's strategy to retain and incentivise directors and management of the
Company. The Incentive Warrants will expire on 30 May 2026. The Incentive
Warrants were issued in two equal tranches of 5,000,000. The exercise price of
the first tranche of Incentive Warrants is 1.5p each and the exercise price of
the second tranche of Incentive Warrants is 2.0p each.
In June 2023, the Company announced that two of its Directors, Tom Kelly and
Gaz Bisht, together with its Company Secretary, Jonathan Whyte, had agreed to
take one third of their salaries in new Shares ("Salary Sacrifice Shares") in
lieu of cash remuneration in order to preserve capital and ensure more funds
are directed towards project activities. The Salary Sacrifice Shares will be
issued at the same price as the Placing Subscription Price (0.8p per New
Ordinary Share). This arrangement will conclude on the earlier of 31 December
2023 or the signing of a binding agreement for the sale (in part or whole) of
Empyrean's interest in Mako.
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 2023
2023 2022
Notes US$'000 US$'000
Revenue - -
Expenses
Administrative expenses (382) (377)
Compliance fees (263) (302)
Directors' remuneration 4 (362) (402)
Foreign exchange gain/(loss) 3 197 (518)
Impairment - exploration and evaluation assets 8 (17,030) (4,127)
Cyber fraud loss 3 - (1,981)
Total expenses (17,840) (7,707)
Operating loss 3 (17,840) (7,707)
Finance expense 5 (2,955) (402)
Loss from continuing operations before taxation (20,795) (8,109)
Tax expense 6 (1) (1)
Loss from continuing operations after taxation (20,796) (8,110)
Total comprehensive loss for the year (20,796) (8,110)
Loss per share from continuing operations (expressed in cents)
- Basic 7 (2.71)c (1.43)c
- Diluted (2.71)c (1.43)c
The accompanying accounting policies and notes form an integral part of these
financial statements.
Statement of Financial Position
As at 31 March 2023
Company Number: 05387837 2023 2022
Notes US$'000 US$'000
Assets
Non-Current Assets
Exploration and evaluation assets 8 10,635 24,907
Total non-current assets 10,635 24,907
Current Assets
Trade and other receivables 9 38 36
Cash and cash equivalents 83 19
Total current assets 121 55
Liabilities
Current Liabilities
Trade and other payables 10 4,224 1,299
Provisions 159 140
Convertible loan notes 11 4,076 4,125
Derivative financial liabilities 12 - 722
Total current liabilities 8,459 6,286
Net Current Liabilities (8,338) (6,231)
Net Assets 2,297 18,676
Shareholders' Equity
Share capital 14 2,170 1,809
Share premium reserve 45,319 41,285
Warrant and share-based payment reserve 73 576
Retained losses (45,265) (24,994)
Total Equity 2,297 18,676
The accompanying accounting policies and notes form an integral part of these
financial statements.
Statement of Cash Flows
For the Year Ended 31 March 2023
2023 2022
Notes US$'000 US$'000
Operating Activities
Payments for operating activities (1,126) (1,240)
Receipt of corporation tax - 358
Net cash outflow for operating activities 13 (1,126) (882)
Investing Activities
Payments for exploration and evaluation 8 (1,227) (14,391)
Payments due to cyber fraud - (1,981)
Net cash outflow for investing activities (1,227) (16,372)
Financing Activities
Issue of ordinary share capital 2,268 11,805
Proceeds from exercise of warrants 233 623
Proceeds from borrowings 11 - 5,412
Payment of finance costs (8) (271)
Payment of equity issue costs (76) (463)
Net cash inflow from financing activities 2,417 17,106
Net increase/(decrease) in cash and cash equivalents 64 (148)
Cash and cash equivalents at the start of the year 19 150
Forex gain/(loss) on cash held - 17
Cash and Cash Equivalents at the End of the Year 83 19
The accompanying accounting policies and notes form an integral part of these
financial statements.
Statement of Changes in Equity
For the Year Ended 31 March 2023
Share Capital Share Premium Reserve Warrant and Share-Based Payment Reserve Retained Losses Total Equity
Notes US$'000 US$'000 US$'000 US$'000 US$'000
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 11,877 89 - 12,377
Balance at 1 April 2022 1,809 41,285 576 (24,994) 18,676
Loss after tax for the year - - - (20,796) (20,796)
Total comprehensive loss for the year - -
- (20,796) (20,796)
Contributions by and distributions to owners
Shares issued in the period 14 307 1,961 - - 2,268
Partial conversion of convertible note 49 1,921 - - 1,970
Exercise/expiry of warrants 5 228 (525) 525 233
Equity issue costs - (76) - - (76)
Share-based payment expense - - 22 - 22
Total contributions by and distributions to owners 361 (503) 525 4,417
4,034
Balance at 31 March 2023 2,170 45,319 73 (45,265) 2,297
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 2023
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 judgement in applying the Company's accounting
policies. The areas where significant judgements and estimates have been made
in preparing the financial statements and their effect are disclosed below.
The financial information set out herein does not constitute the Group's
statutory financial accounts. This information has been derived from the
Group's Annual Report and full financial statements for the year ended 31
March 2023 which were approved and authorised for issue on 1 September 2023
and upon which the auditors have reported without qualification. The Group's
2023 Annual Report and financial statements will be distributed to
shareholders and made available on the Company's website in due course.
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$83,000 (2022: US$19,000) and made a loss after income tax
of US$20.80 million (2022: loss of US$8.11 million).
The Directors have prepared cash flow forecasts for the Company covering the
period to 30 September 2024 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. 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.
In May 2023 US$1.88 million was raised through an equity placement for the
completion of joint regional oil migration and 3D seismic inversion studies at
Topaz, ongoing prospect, licensing fees and permit costs, post Jade well
consultancy, analysis and residual exploration costs, front-end engineering
design ("FEED"), studies and surveys at Mako - including gas processing and
export gas tie in at the Kakap KF Platform and for general working capital
requirements. The Company has also renegotiated the terms of the Convertible
Note as detailed in the AIM announcement dated 30 May 2023. The Convertible
Note is secured by a senior first ranking charge over the Company, including
its 8.5% interest in the Duyung PSC and Mako Gas Field.
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 repayment of the Convertible Note will be met, having a successful track
record of equity (and debt) and in particular with the prospect of monetising
its interest in Mako through the current sell down process.
It is the belief of the Board that there are likely value catalysts throughout
the next 12 months leading up to the intend drilling of the Topaz Prospect in
2024 - including maximising the value of its interest at the Mako Gas field
through the current sell down process and the completion of the GSA and also
through the conclusion of important de-risking activities currently being
conducted prior to the drilling of the Topaz Prospect.
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 2022 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.
The carrying amounts of the Company's non-financial assets are reviewed at
each reporting date to determine whether there is any indication of
impairment. E&E assets are assessed for impairment if (i) sufficient data
exists to determine technical feasibility and commercial viability, or (ii)
facts and circumstances suggest that the carrying amount exceeds the
recoverable amount. If any such indication exists, then the asset's
recoverable amount is estimated.
For the purpose of impairment testing, assets are grouped together into CGU's.
The recoverable amount of an asset or a CGU is the greater of its value in use
and its fair value less costs of disposal.
In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
Value in use is generally computed by reference to the present value of the
future cash flows expected to be derived from production of proven and
probable reserves.
Fair value less costs of disposal is the amount obtained from the sale of an
asset or CGU in an arm's length transaction between knowledgeable, willing
parties, less the costs of disposal.
An impairment loss is recognised if the carrying amount of an asset or its CGU
exceeds its estimated recoverable amount. Impairment losses are recognised in
the consolidated statement of comprehensive loss.
Impairment losses recognised in respect of CGU's are allocated first to reduce
the carrying amount of any goodwill allocated to the units and then to reduce
the carrying amounts of the other assets in the unit (or group of units) on a
pro rata basis. Impairment losses recognised in prior years are assessed at
each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment loss is
reversed only to the extent that the asset's carrying amount does not exceed
the carrying amount that would have been determined, net of depletion and
depreciation or amortization, if no impairment loss had been recognised.
Reversal of impairment losses are recognised in the consolidated statement of
comprehensive loss.
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 2022 or 31 March 2023.
(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 proceeds received on issue of convertible loan notes are allocated into
their liability and equity components. The amount initially attributed to the
debt component equals the discounted cash flows using a market rate of
interest that would be payable on a similar debt instrument that does not
include an option to convert. Subsequently, the debt component is accounted
for as a financial liability measured at amortised cost until extinguished on
conversion or maturity of the CLN.
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.
In the case of a substantial modification, the existing liability is
derecognised, the modified liability is recognised at its fair value and the
difference between the carrying value of the old instrument and the modified
instrument is recognised as a gain or loss in the statement of comprehensive
income.
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 to enable the safe
drilling, although ultimately unsuccessful drilling of the Jade prospect. As a
result of the unsuccessful well at Jade, Empyrean has, in accordance with
applicable accounting standards, provided for impairment against Jade prospect
costs and the dry hole costs associated with the Jade drilling program,
together being US$17.0 million.
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. Whilst the Company maintains
legal title it has continued to fully impair the carrying value of the asset
at 31 March 2023.
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
2023.
(b) Share based payments (estimate)
In prior financial years, 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 were issued to shareholders as part of
their subscription for shares and suppliers for services received. There were
no warrants issued in the financial year ended 31 March 2023.
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 more detail in Note 14.
(c) Valuation of embedded derivative - Convertible loan notes (estimate)
The Company has made estimates in determining the fair value of the embedded
conversion feature portion of the CLN. Fair value inputs are subject to market
factors as well as internal estimates. The Company considers historical trends
together with any new information to determine the best estimate of fair value
at the date of initial recognition and at each period end. The Company has
determined that the fair value of the embedded conversion feature is not
material and therefore has not been separately recognised, in line with the
Company's accounting policy.
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 2023
Unallocated corporate expenses - - - (810) (810)
Operating loss - - - (810) (810)
Finance expense - - - (2,955) (2,955)
Impairment of oil and gas properties (16,998) - (32) - (17,030)
Loss before taxation (16,998) - (32) (3,765) (20,795)
Tax expense in current year - - - (1) (1)
Loss after taxation (16,998) - (32) (3,766) (20,796)
Total comprehensive loss for the financial year (16,998) - (32) (3,766) (20,796)
Segment assets 5,958 4,677 - - 10,635
Unallocated corporate assets - - - 121 121
Total assets 5,958 4,677 - 121 10,756
Segment liabilities - - - - -
Unallocated corporate liabilities - - - 8,459 8,459
Total liabilities - - - 8,459 8,459
Details China Indonesia USA Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000
31 March 2022
Unallocated corporate expenses - - - (1,599) (1,599)
Operating loss - - - (1,599) (1,599)
Finance expense - - - (402) (402)
Impairment of oil and gas properties - - (4,127) - (4,127)
Cyber fraud loss - - - (1,981) (1,981)
Loss before taxation - - (4,127) (3,982) (8,109)
Tax expense in current year - - - (1) (1)
Loss after taxation - - (4,127) (3,983) (8,110)
Total comprehensive loss for the financial year - - (4,127) (3,983) (8,110)
Segment assets 20,662 4,245 - - 24,907
Unallocated corporate assets - - - 55 55
Total assets 20,662 4,245 - 55 24,962
Segment liabilities - - - - -
Unallocated corporate liabilities - - - 6,286 6,286
Total liabilities - - - 6,286 6,286
Note 3. Operating Loss
2023 2022
US$'000 US$'000
The operating loss is stated after charging:
Foreign exchange gain/(loss) 197 (518)
Impairment - exploration and evaluation assets (17,030) (4,127)
Cyber fraud loss - (1,981)
Auditor's Remuneration
Amounts paid to BDO LLP in respect of both audit and non-audit services:
Audit fees payable to the Company's auditor for the audit of the Company 102 73
annual accounts
Non-audit fees payable to the Company's auditor in respect of:
- Other services relating to taxation compliance 13 12
Total auditor's remuneration 115 85
Note 4. Directors' Emoluments
Fees and Salary Bonus Payment Social Security Contributions Short-Term Employment Benefits (Total)
2023 2022 2023 2022 2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Non-Executive Directors:
Patrick Cross 22 25 - - 2 2 24 27
John Laycock 13 15 - - 1 1 14 16
Executive Directors:
Thomas Kelly((a)) 269 304 - - - - 269 304
Gajendra Bisht((b)) 220 220 - - - - 220 220
Total 524 564 - - 3 3 527 567
Capitalised to E&E((b))
(165) (165) - - - - (165) (165)
Total expensed
359 399 - - 3 3 362 402
(a) Services provided by Apnea Holdings Pty Ltd, of which Mr Kelly is a
Director. 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 8).
The average number of Directors was 4 during 2023 and 2022. The highest paid
director received US$269,000 (2022: US$304,000).
Note 5. Finance Expense
2023 2022
US$'000 US$'000
Convertible loan notes - interest and finance costs (Notes 10 and 11) (2,308) (253)
Convertible loan notes - loss on substantial modification (Note 11) (1,369) -
Finance expense - equity facility options (Note 14) - (23)
Fair value adjustment - derivative financial liabilities (Note 12) 722 (126)
Total finance expense (2,955) (402)
Note 6. Taxation
2023 2022
US$'000 US$'000
Opening balance - (358)
AMT Federal Credit received during year - 358
Total corporation tax receivable - -
Factors Affecting the Tax Charge for the Year
Loss from continuing operations (20,795) (8,109)
Loss on ordinary activities before tax (20,795) (8,109)
Loss on ordinary activities at US rate of 21% (2022: 21%) (4,367) (1,703)
Non-deductible expenses 3,429 1,328
Movement in provisions 4 6
Carried forward losses on which no DTA is recognised 933 368
(1) (1)
Analysed as:
Tax expense on continuing operations (1) (1)
Tax expense in current year (1) (1)
Deferred Tax Liabilities
Temporary differences - exploration 1,679 1,669
Temporary differences - other 4 4
1,683 1,673
Offset of deferred tax assets (1,683) (1,673)
Net deferred tax liabilities recognised - -
Unrecognised Deferred Tax Assets
Tax losses((a)) 2,622 3,609
Temporary differences - exploration 4,110 4,101
Temporary differences - other 968 1,054
7,700 8,764
Offset of deferred tax liabilities (1,683) (1,673)
Net deferred tax assets not brought to account 6,017 7,091
(a) If not utilised, carried forward tax losses of approximately US$10.53
million (2022: $9.87 million) begin to expire in the year 2033. Deferred
income tax assets are only recognised to the extent that it is probable that
future tax profits will be available against which deductible temporary
differences can be utilised.
Deferred tax assets and deferred tax liabilities are offset only if applicable
criteria to set off is met.
Note 7. Loss Per Share
The basic loss per share is derived by dividing the loss after taxation for
the year attributable to ordinary shareholders by the weighted average number
of shares on issue being 767,981,222 (2022: 565,853,821).
2023 2022
Loss per share from continuing operations
Loss after taxation from continuing operations US$(20,796,000) US$(8,110,000)
Loss per share - basic (2.71)c (1.43)c
Loss after taxation from continuing operations adjusted for dilutive effects
US$(20,796,000) US$(8,110,000)
Loss per share - diluted (2.71)c (1.43)c
For the current and prior financial years, the exercise of the options is
anti-dilutive and as such the diluted loss per share is the same as the basic
loss per share. Details of the potentially issuable shares that could dilute
earnings per share in future periods are set out in Note 14.
Note 8. Exploration and Evaluation Assets
2023 2022
US$'000 US$'000
Balance brought forward 24,907 14,643
Additions((a)(b)) 2,758 14,391
Impairment((b)(c)(d)) (17,030) (4,127)
Net book value 10,635 24,907
(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. As a result of the unsuccessful well at Jade,
Empyrean has, in accordance with applicable accounting standards, provided for
impairment against Jade prospect costs and the dry hole costs associated with
the Jade drilling program, together being US$17.0 million. Post-well analysis
at Jade however has confirmed reservoir quality is better than pre-drill
estimates with regional seal confirmed and the depth conversion approach
validated. As a part of post-well evaluation, CNOOC geochemical and basin
modelling experts together with Empyrean have interpreted the critical
elements of effective regional oil migration pathways-leading to positive
implications for the Topaz prospect, and ultimately the decision to proceed
with the second phase of exploration at Block 29/11, being the drilling of the
Topaz Prospect before June 2024.
(c) While the Company will continue to work with its joint venture
partners in reviewing and assessing any further technical and commercial
opportunities as they relate to the Sacramento Basin project, particularly in
light of strong gas prices for gas sales in the region, it has not budgeted
for further substantive exploration expenditure. Whilst the Company maintains
legal title it has continued to fully impair the carrying value of the asset
at 31 March 2023.
(d) In light of current market conditions, little or no work has been
completed on the Riverbend or Eagle Oil projects in the year and no
substantial project work is forecast for either project in 2023/24 whilst the
Company focuses on other projects. Whilst the Company maintains legal title it
has continued to fully impair the carrying value of the asset at 31 March
2023.
2023 2022
Project Operator Working Interest Carrying Value Carrying Value
US$'000 US$'000
Exploration and evaluation
China Block 29/11 Empyrean Energy 100%(1) 5,958 20,662
Sacramento Basin Sacgasco 25-30% - -
Duyung PSC Conrad Asia Energy 8.5% 4,677 4,245
Riverbend Huff Energy 10% - -
Eagle Oil Pool Development Strata-X 58.084% - -
10,635 24,907
1. In the event of a commercial discovery, and subject to the Company
entering PSC, CNOOC Limited will have a back in right to 51% of the permit. As
at the date of these financial statements no commercial discovery has been
made.
Note 9. Trade and Other Receivables
2023 2022
US$'000 US$'000
Accrued revenue 30 30
VAT receivable 8 6
Total trade and other receivables 38 36
Note 10. Trade and Other Payables
2023 2022
US$'000 US$'000
Trade payables 2,245 293
Accrued expenses 349 850
Accrued interest - convertible loan note (Note 11) 1,630 156
Total trade and other payables 4,224 1,299
Note 11. Convertible Loan Notes
2023 2022
US$'000 US$'000
Current - original convertible loan note
Opening balance 4,125 -
Drawdowns((a)) - 5,412
Conversions((b)) (1,970) (919)
Costs of finance 121 (211)
Foreign exchange loss (133) (157)
Extinguishment on substantial modification((c)) (2,143) -
Total original convertible loan note - current - 4,125
Current - modified convertible loan note
Opening balance - -
Recognition of modified liability 2,637 -
Loss on substantial modification((c)) 1,369 -
Costs of finance 185 -
Foreign exchange loss (115) -
Total modified convertible loan note - current 4,076 -
(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). Under the terms of original Convertible Note,
the Lender could 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 in December 2022 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 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$1.97 million (£1.5 million).
(c) In May 2022, following the announcement regarding the Jade well on 27
April 2022, the Company and the Lender proactively entered discussions to
amend the key repayment terms of the Convertible Note, which included the
right by the Lender to redeem the Convertible Note within five business days
of the announcement of the results of the Jade well. The parties agreed the
following key amendments to the terms of the Convertible Note:
1. The face value of the Convertible Note is increased
to £2.9 million (£3.3 million including accrued interest);
2. The Company may, at its sole and absolute
discretion, redeem the Convertible Note at any time;
3. The Lender will not redeem the Notes prior to 31
July 2022;
4. If a binding GSA is entered into with regard to the
Mako Gas Discovery in Indonesia on or before 31 July 2022, the Lender will not
redeem the Convertible Note prior to 1 December 2022, with interest accruing
thereafter at a rate of £330,000 per calendar month;
5. If a binding GSA is not entered into with regard to
the Mako Gas Discovery in Indonesia on or before 31 July 2022, the Lender may
redeem the Convertible Note at any time thereafter, in which circumstances the
face value of the Convertible Note will be reduced to £2.67 million;
6. If the Company completes a sale of its interest in
the Mako Gas Discovery, it will redeem the Convertible Note contemporaneously
with that agreement; and
7. The Company will not execute any agreement in
respect of a sale of its interest in the Mako Gas Discovery if the proceeds
are less than the expected value of the Convertible Note on the date of
completion of that agreement.
Note 12. Derivative Financial Liabilities
2023 2022
US$'000 US$'000
Current
Opening balance 722 -
Issue of warrants - 596
(Gain)/loss on fair value revaluation((a)) (89) 126
Expired/exercised warrants((a)) (633) -
Total derivative financial liabilities - current - 722
(a) In the prior financial year, 49,465,915 warrants were issued across
multiple tranches attached to the Placement in July 2021. As a financial
liability at fair value through profit or loss these were revalued at year
end. 45,657,582 warrants were previously exercised or expired during the
current financial year. The remaining 3,808,333 warrants were revalued to nil.
Refer to Note 14 for valuations and assumptions of the warrants.
Note 13. Reconciliation of Net Loss
2023 2022
US$'000 US$'000
Loss before taxation (20,795) (8,109)
Share-based payments 22 66
Finance expense (non-cash) 2,955 148
Impairment - exploration and evaluation assets 17,030 4,127
Cyber fraud loss - 1,981
Foreign exchange (gain)/loss (197) 518
(Increase) in trade receivables relating to operating activities (2) -
(Decrease) in trade payables relating to operating activities (158) -
Increase in provisions 19 29
Net cash outflow from operating activities before taxation (1,126) (1,240)
Receipt of corporation tax - 358
Net cash outflow from operating activities (1,126) (882)
Note 14. Share Capital
2023 2022
US$'000 US$'000
788,431,892 (2022: 646,070,780) ordinary shares of 0.2p each 2,170 1,809
2023 2022
No. No.
a) Fully Paid Ordinary Shares of 0.2p each - Number of Shares
At the beginning of the reporting year 646,070,780 489,430,615
Shares issued during the year:
· Placements((a)) 121,750,001 144,081,832
· Partial conversion of Convertible Note((b)) 18,750,000 8,750,000
· Exercise of warrants 1,861,111 3,808,333
Total at the end of the reporting year 788,431,892 646,070,780
2023 2022
US$'000 US$'000
b) Fully Paid Ordinary Shares of 0.2p each - Value of Shares
At the beginning of the reporting year 1,809 1,398
Shares issued during the year:
· Placements((a)) 307 378
· Partial conversion of Convertible Note((b)) 49 23
· Exercise of warrants 5 10
Total at the end of the reporting year 2,170 1,809
(a) 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.
(b) 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).
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 Number Weighted Average Exercise Number
Price of Options Price of Options
and Warrants and Warrants
2023 2023 2022 2022
Outstanding at the beginning of the year £0.116 65,890,916 £0.094 20,233,334
Issued during the year - - £0.125 49,465,915
Expired during the year £0.114 (57,471,472) - -
Exercised during the year £0.096 (1,861,111) £0.120 (3,808,333)
Outstanding at the end of the year £0.137 6,558,333 £0.116 65,890,916
Employee Options Equity Facility Options Bonus Warrants
Number of Options 2,500,000 250,000 3,803,333
Grant date 15/09/20 11/09/20 15/11/21
Expiry date 10/09/23 17/09/23 22/07/23
Share price £0.05 £0.047 £0.063
Exercise price £0.075 £0.1014 £0.18
Volatility 81% 81% 79%
Option life 3.00 3.00 1.70
Expected dividends - - -
Risk-free interest rate (based on national government bonds) 0.14% 0.14% 0.08%
The options outstanding at 31 March 2023 have an exercise price in the range
of £0.075 to £0.18 (2022: £0.075 to £0.18) and a weighted average
remaining contractual life of 0.37 years (2022: 0.95 years). None of the
outstanding options and warrants at 31 March are exercisable at period end.
The options outstanding at 31 March 2023 have an exercise price in the range
of £0.075 to £0.18 (2022: £0.075 to £0.18) and a weighted average
remaining contractual life of 0.37 years (2022: 0.95 years). None of the
outstanding options and warrants at 31 March are exercisable at period end.
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 2023
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.
2023 2022
US$'000 US$'000
Cash and cash equivalents
AA-rated 83 19
Total cash and cash equivalents 83 19
Price risk
Commodity price risk
The Company is not directly exposed to commodity price risk. However, there is
a risk that the changes in prevailing market conditions and commodity prices
could affect the viability of the projects and the ability to secure
additional funding from equity capital markets.
Liquidity risk
Liquidity risk arises from the possibility that the Company might encounter
difficulty in settling its debts or otherwise meeting its obligations related
to financial liabilities. The Company manages liquidity risk by maintaining
sufficient cash or credit facilities to meet the operating requirements of the
business and investing excess funds in highly liquid short-term investments.
The Company's liquidity needs can be met through a variety of sources,
including the issue of equity instruments and short or long-term borrowings.
Alternative sources of funding in the future could include project debt
financing and equity raisings, and future operating cash flow. These
alternatives will be evaluated to determine the optimal mix of capital
resources.
The following table details the Company's non-derivative financial instruments
according to their contractual maturities. The amounts disclosed are based on
contractual undiscounted cash flows. Cash flows realised from financial assets
reflect management's expectation as to the timing of realisation. Actual
timing may therefore differ from that disclosed. The timing of cash flows
presented in the table to settle financial liabilities reflects the earliest
contractual settlement dates.
Less than 6 months 6 months to 1 year 1 to 6 years Total
US$'000 US$'000 US$'000 US$'000
Convertible loan note (2023) 4,076 - - 4,076
Convertible loan note (2022) - 4,125 - 4,125
Trade and other payables (2023) 4,718 - - 4,718
Trade and other payables (2022) 1,299 - - 1,299
Capital
In managing its capital, the Company's primary objective is to maintain a
sufficient funding base to enable the Company to meet its working capital and
strategic investment needs. In making decisions to adjust its capital
structure to achieve these aims, through new share issues, the Company
considers not only its short-term position but also its long-term operational
and strategic objectives. The Company has a track record of successfully
securing additional funding as and when required from equity capital markets.
Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk
arising from various currency exposures. Foreign exchange risk arises from
future commitments, assets and liabilities that are denominated in a currency
that is not the functional currency of the Company. Currently there are no
foreign exchange hedge programmes in place. However, the Company treasury
function manages the purchase of foreign currency to meet operational
requirements.
As at 31 March 2023, the Company's gross exposure to foreign exchange risk was
as follows:
2023 2022
US$'000 US$'000
Gross foreign currency financial assets
Cash and cash equivalents - GBP 81 10
Total gross exposure 81 10
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$8,100 (2022:
US$1,000).
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 2023 31 March 2022
Fair Value Fair Value
US$'000 US$'000
Financial liabilities
Derivative financial liabilities (Level 3) - 722
Total financial liabilities - 722
Financial instruments by category are summarised below:
Financial Instruments by Category Fair Value Through Profit or Loss Amortised Cost
31 March 2023 31 March 2022 31 March 2023 31 March 2022
US$'000 US$'000 US$'000 US$'000
Financial assets
Cash and cash equivalents - - 83 19
Trade and other receivables - - 38 36
Total financial assets - - 121 55
Financial liabilities
Trade and other payables - - 2,245 1,299
Convertible loan notes - - 4,076 4,125
Derivative financial liabilities - 722 - -
Total financial liabilities - 722 6,321 5,424
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:
In May 2023, the Company advised that Conrad has engaged a global investment
bank to lead a farm-down process for the divestment of a portion of its
interest in the Duyung PSC. Bids were expected to be received during the
second quarter of 2023 with sell down news expected in the third quarter of
2023.
In May 2023, the Company advised that it had reached agreement with the Lender
on amended key terms to the Convertible Note to allow the sales process for
Mako to complete. The key terms of the amendment are as follows:
1. The face value of the Convertible Note has been reduced from
£5.28m (accrued to the end of May 2023) to £4.6 million;
2. No interest shall accrue on the Convertible Note until 31 December
2023, with interest accruing thereafter at a rate of 20% p.a.;
3. The conversion price on the Convertible Note has been reduced from
8p to 2.5p per Share;
4. Unless otherwise required by the joint operating agreement entered
into with Empyrean's licence partners (the "JOA") or with the prior written
consent of the Lender (such consent not to be unreasonably withheld or
delayed), Empyrean may only execute agreements for the sale of its interest in
Mako (in whole or in part) if the terms of the sale provide for a payment to
Empyrean at completion of immediately available funds and for a sale price of
an amount that is at least the amounts owed to the Lender (as described in 5
and 6 below);
5. On a successful sale of the Company's interest in Mako, Empyrean
must redeem the face value of the Convertible Note and pay the Lender the
greater of (a) US$1.5 million or (b) 15% of the proceeds such sale;
6. In the event that the Company repays the Convertible Note from
sources other than a sale of its interest in Mako, Empyrean must also pay the
Lender US$1.5 million on redemption of the Convertible Note together with a
further payment based on either (a) the actual valuation achieved on any sale
within 2 years or (b) an updated valuation of the Company's interest in Mako
if not sold within that 2 year period, in each case so that the total proceeds
paid to the Lender are 15% of the valuation of the Company's interest in Mako;
and
7. In the event that the sale process being run on behalf of the
operator, Conrad, does not result in an offer being made to acquire all or
part of the Company's interest in Mako, then Empyrean must work with the
Lender in good faith to sell the Mako Interest as soon as reasonably possible
and, subject to applicable laws and the terms of the JOA, may grant rights to
the Lender to market this interest on its behalf.
In June 2023, Empyrean completed a Placing to raise US$1.88 million (£1.52
million) ("Placing") with funds raised under this Placing to primarily be used
for the completion of joint regional oil migration and 3D seismic inversion
studies at Topaz, ongoing prospect, licensing fees and permit costs, post Jade
well consultancy, analysis and residual exploration costs, front-end
engineering design ("FEED"), studies and surveys at Mako - including gas
processing and export gas tie in at the Kakap KF Platform and for general
working capital requirements.
In June 2023, the Company issued warrants in respect of 2,833,333 Shares to
advisors of the Company, for consultancy and advisory services provided over
the last 12 months (the "Advisor Warrants"). The exercise price of the Advisor
Warrants is 1.5p each and they will expire on 30 May 2024. The Company also
issued incentive warrants in respect of 10,000,000 ordinary shares of 0.2
pence in the Company to the Company Secretary, Jonathan Whyte, or his nominee
(the "Incentive Warrants"). The Incentive Warrants were granted as part of the
Company's strategy to retain and incentivise directors and management of the
Company. The Incentive Warrants will expire on 30 May 2026. The Incentive
Warrants were issued in two equal tranches of 5,000,000. The exercise price of
the first tranche of Incentive Warrants is 1.5p each and the exercise price of
the second tranche of Incentive Warrants is 2.0p each.
In June 2023, the Company announced that two of its Directors, Tom Kelly and
Gaz Bisht, together with its Company Secretary, Jonathan Whyte, had agreed to
take one third of their salaries in new Shares ("Salary Sacrifice Shares") in
lieu of cash remuneration in order to preserve capital and ensure more funds
are directed towards project activities. The Salary Sacrifice Shares will be
issued at the same price as the Placing Subscription Price (0.8p per New
Ordinary Share). This arrangement will conclude on the earlier of 31 December
2023 or the signing of a binding agreement for the sale (in part or whole) of
Empyrean's interest in Mako.
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 2023/24 financial year consist of an annual
assistance fee to CNOOC of US$60,000, an annual personnel representative fee
to CNOOC of approximately US$200,000 and an annual prospecting fee of
US$150,000.
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 are unknown. The Company
incurs quarterly cash calls of approximately US$8,000 for overheads,
geological and geophysical costs.
Note 20. Ultimate Controlling Party
The Directors consider that there is no ultimate controlling party of the
Company.
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. END FR NKDBQKBKDFCKRecent news on Empyrean Energy
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