REG - Empyrean Energy PLC - Final Results
01/10/2024 07:00
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RNS Number : 4132G Empyrean Energy PLC 01 October 2024
This announcement contains inside information
1 October 2024
Empyrean Energy PLC / Index: AIM / Epic: EME / Sector: Oil & Gas
Empyrean Energy PLC ('Empyrean' or 'the Company')
Final Results
Empyrean Energy is pleased to announce its final results for the year ended 31
March 2024 ("Report and Accounts"). The full Report and Accounts is now
available on the Company's website at
www.empyreanenergy.com/annual-reports-accounts and will be posted to
Shareholders shortly.
Key Activities
Block 29/11, Pearl River Mouth Basin, China (EME 100% reverting to 49% upon
commercial discovery)
Reporting period
· Joint regional oil migration study with China National Offshore Oil Company ("CNOOC") team conducted to 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 extends this into Block 29/11 to map these potential migration pathways to Topaz. Comprehensive study also included potential migration pathways from a new source/kitchen identified by Empyrean 3D data.
· Simultaneous 3D seismic inversion project conducted in two phases to firstly assess whether light oil pay in the target reservoir can be discriminated from a water bearing reservoir by seismic inversion and secondly to invert the entire 3D seismic data to generate several datasets for the elastic properties.
Post-Reporting period
· On 13 June 2024 the Company announced that as it had not
commenced the drilling of the Topaz prospect by 12 June 2024 as required under
the second phase of exploration on Block 29/11 and therefore has not met the
requirements to continue the cooperation on Block 29/11 with CNOOC. The permit
therefore formally terminated on 12 June 2024. On 24 August 2024 Empyrean
received a letter of demand from CNOOC alleging that Empyrean has outstanding
obligations under the PSC. The Company disputes the letter and is
endeavouring to settle the matter amicably under the dispute resolution
clauses provided for in the PSC. Separately, Empyrean has put forward a
submission to CNOOC for further cooperation on Block 29/11.
Duyung PSC Project, Indonesia (EME 8.5%)
Reporting period
· Key Terms agreed for Long-Term export Gas Sales Agreement ("GSA")
between Conrad Asia Energy Ltd ("Conrad") subsidiary, West Natuna Exploration
Ltd ("WNEL"), operator of the Duyung PSC, the petroleum upstream regulator in
Indonesia ("SKK Migas") and Sembcorp Gas Pte Ltd. The parties are nearing
finalisation of a definitive export GSA, which was signed subsequent to
year-end on 31 August 2024.
· Conrad engaged a global investment bank to lead a sell-down
process for the divestment of a portion of its interest in the Duyung
Production Sharing Contract. This process is well advanced and it is expected
that the completion of the export GSA (signed 31 August 2024) is a necessary
precursor to any sell down negotiations being completed.
Post-Reporting period
· On 24 June 2024 the Company announced that the Mako JV partners
had entered into a binding domestic Gas Sales Agreement for the sale and
purchase of the domestic portion of Mako gas with PT Perusahaan Gas Negara Tbk
("PGN"), the gas subsidiary of PT Pertamina (Persero), the national oil
company of Indonesia.
· The domestic GSA will be subject to the construction of a
pipeline connecting the West Natuna Transportation System ("WNTS") with the
domestic gas market in Batam and it forms part of Mako JV's Domestic Market
Obligation ("DMO") as set out in the Mako's revised Plan of Development
("POD").
· The Total Contracted Gas volume under the PGN GSA is up to 122.77
trillion British Thermal Units ("TBtu") with estimated plateau production
rates of 35 billion British thermal units ("Bbtud") per day. The remainder of
the Mako sales gas volumes are targeted to be sold to Singapore via the export
GSA signed in August 2024.
· On 2 September 2024 the Company announced that the Mako Joint
Venture partners and Sembcorp signed a binding GSA for the export of gas
produced from the Mako field to Singapore. The contract term is until the end
of the Duyung PSC in January 2037 and allows for the sale of up is 76 billion
Bbtud, which is equivalent to around 76.9 million standard cubic feet per day
("mmscfd").
Sacramento Basin, California USA (EME 25-30%)
· No work was conducted on the project during the year.
Corporate
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.
· Placement to raise US$0.90 million (£0.70 million) completed in February 2024.
Empyrean CEO Tom Kelly said, "Empyrean has conducted systematic and thorough
exploration on Block 29/11 since commencing its cooperation on the block with
CNOOC in late 2016. This included 608km(2) of 3D seismic, the drilling of the
Jade exploration well and various post well analyses including regional oil
migration and simultaneous seismic inversion studies. Despite these works, and
due in part to various market challenges, including COVID, Empyrean has not
been able to fund a second exploration well on Block 29/11. As announced on
13 June 2024, Empyrean has not commenced the drilling of the Topaz prospect
and therefore has not met the requirements to continue the cooperation on
Block 29/11 with CNOOC and the permit therefore formally terminated on 12 June
2024. On 24 August 2024 Empyrean received a letter of demand from CNOOC
alleging that Empyrean has outstanding obligations under the PSC. The
Company disputes the letter and is endeavouring to settle the matter amicably
under the dispute resolution clauses provided for in the PSC. Separately
Empyrean has put forward a submission to CNOOC for further cooperation on
Block 29/11.
During 2023, Empyrean engaged LAB Energy Advisors (London) with respect to
broadening the reach for possible risk sharing alternatives and farm out
opportunities for the Topaz prospect. Despite strong interest in the technical
merit of the Topaz prospect, no farm out deal has been reached.
Empyrean's immediate focus is to maximise the value in its 8.5% interest in
the Mako gas field discovery on the Duyung permit in Indonesia. The sell down
process being coordinated by the operator of the Duyung permit through
Jefferies International Bank has taken longer than expected. Empyrean expects
that completion of the export GSA, which was pleasingly signed on 31 August
2024, was the necessary precursor to the completion of any sell down
transaction.
The signing of the export GSA between Sembcorp, the Indonesian Government and
the Mako Joint Venture partners marks the next significant milestone in the
pathway from discovery of Mako towards development and production. This
follows the signing of the domestic GSA announced in June 2024 for the Mako
gas field development and means that all contingent resources at Mako are now
under binding contracts for sale. 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.
We anticipate that these GSA's will greatly assist parties interested in the
Mako project to assess value and timelines with more clarity and certainty.
Completion of both GSAs is also a significant milestone on the path to a Final
Investment Decision ("FID") for the Mako project.
From a corporate perspective, the Company successfully raised funds in May
2023 and at the same time renegotiated the existing Convertible Note. In
February 2024 the Company raised further working capital as the Company
awaited the signing of the export GSA and conclusion of the Duyung PSC
sell-down process.
The Company continues to assess other financing and strategic alternatives to
provide it with additional working capital as and when required.
I would like to thank the Board, management and staff for their patience and
perseverance during another challenging year. In particular I'd like to
re-iterate my gratitude to Dr Patrick Cross for serving as our Chairman over
the past 20 years. We now await a positive conclusion to the sell down process
from Indonesia which we hope will provide the platform for the Company to
pursue its strategic objectives in earnest.
Chairman's Statement
The Company was restricted in its progress during the year as it awaited the
advancement of the two key events in Indonesia, being the conclusion of the
GSA negotiations and secondly the completion of the sell down process of the
Mako Gas Field. While progress has been made subsequent to year end and we are
optimistic of a successful conclusion in the near future, the delayed timing
of these events has inhibited the Company's ability to meet its obligations in
China.
The Company has pleasingly raised the necessary equity funds during the
financial year to support its activities and provide working capital while we
wait on the completion of the GSA and sell down processes. A successful sell
down of our 8.5% interest in the Duyung PSC will enable the Company to reset
and move forward with its exploration objectives as well as make repayment of
the Convertible Note.
I would like to thank the Board, management and staff for their efforts during
this frustrating year. As noted in August 2024, I have assumed the
Chairmanship of the Company and I would like to extend my gratitude, on behalf
of the entire Board, to Dr Patrick Cross for serving in this role for the past
20 years and for the significant contribution he made in that time. We now
eagerly await the conclusion of the sell down process at which point in time
the Company will be able to set its objectives for the 2024/2025 period and
beyond.
For further information please visit www.empyreanenergy.com
(http://www.empyreanenergy.com/) or contact the following:
Empyrean Energy plc Tel: +61 (8) 6146 5325
Tom Kelly
Cavendish Capital Markets Limited (Nominated Advisor and Broker) Tel: +44 (0) 207 220 0500
Neil McDonald
Pearl Kellie
Novum Securities Limited (Joint Broker) Tel: +44 (0) 207 399 9400
Colin Rowbury
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 entered the second phase of exploration in China with the aim to drill
the Topaz prospect.
Comprehensive technical work has been conducted to this end, 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.
The Company did not drill the Topaz well by 12 June 2024 and the permit
terminated on that date.
Empyrean remains optimistic about the significant value potential of its
interest in Indonesia, which will be reflected in the current sell down
process and the very recent execution of the export GSA between the Mako JV
partners and Sembcorp as announced on 2 September 2024. 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.
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 have now been
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.
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.
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%
Activities during the reporting period
Empyrean conducted two further key technical 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 were designed to help address and mitigate the remaining
primary geological risk at Topaz - oil migration into the Topaz trap.
Firstly, joint with CNOOC, Empyrean is completing a regional oil migration
study. CNOOC bring excellence in 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 maps 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 was conducted from a new source/kitchen located
entirely within Block 29/11 and oil migration pathways will be mapped to
Topaz.
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.
This project was conducted in two phases. The aim of Phase I is to assess
whether an oil bearing reservoir case can be distinguished from water bearing
reservoir in the elastic property domain of seismic inversion. Phase 2
involves inverting the entire 3D seismic data and will generate several
datasets for the elastic properties.
Block 29/11 PSC Status
As announced on 4 May 2022, in order to proceed with the second phase of
exploration on Block 29/11 Empyrean's work program included drilling the Topaz
project by 12 June 2024. As of that date, Empyrean has not commenced the
drilling of the Topaz prospect and therefore has not met the requirements to
continue the cooperation on Block 29/11 with CNOOC, and the permit therefore
formally terminated on 12 June 2024.
During 2023, Empyrean engaged LAB Energy Advisors (London) with respect to
broadening the reach for possible risk sharing alternatives and farm out
opportunities for the Topaz prospect. Despite strong interest in the technical
merit of the Topaz prospect, no farm out deal has been reached as of today's
date.
Empyrean has put forward a submission to CNOOC for further cooperation on
Block 29/11.
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. 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.
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.
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.
Figure 1: Mako Gas field, Duyung PSC, Indonesia
Current Activities
Post year end, Empyrean announced that it, and the Mako JV partners had
entered into a binding gas sales agreement for the sale and purchase of the
domestic portion of Mako gas with PGN, the gas subsidiary of PT Pertamina
(Persero), the national oil company of Indonesia.
The domestic gas sale agreement with PGN for gas from the Mako gas field is an
important step in the commercialisation of the Mako gas field (the largest
undeveloped gas field in the West Natuna Sea). PGN is Indonesia's largest gas
company. The Total Contracted Gas volume under the PGN GSA is up to 122.77
trillion TBtu with estimated plateau production rates of 35 billion Bbtud per
day.
Following this, the Company announced the signing by the Mako JV partners and
Sembcorp of the export GSA for the remainder of the Mako gas resource, which
is targeted to be exported to Singapore. The contract term is until the end of
the Duyung PSC in January 2037 and allows for the sale of up to 76 billion
Bbtud, which is equivalent to around 76.9 mmscfd.
The export GSA also contains provisions for the sale of up to an additional 35
Bbtud (around 35.4 mmscfd) should a tie-in pipeline not be built to the
Indonesian domestic market in Batam and DMO sales do not therefore eventuate.
The possible export of these additional volumes is recognised in the Mako POD.
The West Natuna Sea gas gathering system is already connected to Singapore.
PGN will now proceed with planning a smaller tie line to the island of Batam
across the Malacca Straight that will connect the Natuna Sea to the Indonesian
market.
Indonesia, the fourth most populated country on earth has a stated objective
of doubling its gas production by 2030 in order to deliver a cleaner energy
source to fuel its rapidly growing economy. PGN will play a significant role
in this Indonesian energy transition.
The Mako field contains 2C Contingent Resources (100%) of 376 billion cubic
feet ("Bcf"), (of which 21 Bcf are net attributable to Empyrean ) and is
scheduled to begin production in 2026 subject to completing a formal GSA with
a Singapore buyer (completed in August 2024). The West Natuna Sea has been
supplying Singapore with natural gas for more than two decades and Mako is
expected to continue this supply for at least another decade.
Production Sharing Contractors in Indonesia are subject to a DMO requirement
for any produced gas as set out under the terms of each PSC, and Government of
Indonesia Regulation No. 35 of 2004 on Upstream Oil and Gas Activity, as
amended from time to time (GR 35/2004). Contractors are required to supply c
25% of their share of the oil and gas produced to meet domestic needs. The
Contractor has no obligation to construct infrastructure (e.g. pipelines) to
allow the delivery of any DMO.
The combination of the executed domestic and export GSAs means now that all
contingent resources at Mako are under binding contracts for sale.
Conrad continues to advance the sell down process with a global investment
bank in order to fund the development of Mako. The signing of a binding export
GSA is seen by Empyrean as being a likely requirement or precursor to the
completion of any sell down transaction.
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%)
No work has been completed on the project in the year and no budget has been
prepared for 2024/25 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)
No work has been completed on the project in the year and no budget has been
prepared for 2024/25 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.
Statement of Comprehensive Income
For the Year Ended 31 March 2024
2024 2023
Notes US$'000 US$'000
Revenue - -
Expenses
Administrative expenses (355) (382)
Compliance fees (326) (263)
Directors' remuneration 4 (416) (362)
Foreign exchange (loss)/gain 3 (123) 197
Impairment - exploration and evaluation assets 8 (6,595) (17,030)
Total expenses (7,815) (17,840)
Operating loss 3 (7,815) (17,840)
Finance expense 5 (1,770) (2,955)
Loss from continuing operations before taxation (9,585) (20,795)
Tax expense 6 (1) (1)
Loss from continuing operations after taxation (9,586) (20,796)
Total comprehensive loss for the year (9,586) (20,796)
Loss per share from continuing operations (expressed in cents)
- Basic 7 (0.98)c (2.71)c
- Diluted (0.98)c (2.71)c
The accompanying accounting policies and notes form an integral part of these
financial statements.
Statement of Financial Position
As at 31 March 2024
Company Number: 05387837 2024 2023
Notes US$'000 US$'000
Assets
Non-Current Assets
Exploration and evaluation assets 8 5,355 10,635
Total non-current assets 5,355 10,635
Current Assets
Trade and other receivables 9 17 38
Cash and cash equivalents 981 83
Total current assets 998 121
Liabilities
Current Liabilities
Trade and other payables 10 2,929 4,224
Provisions 189 159
Convertible loan notes 11 7,594 4,076
Total current liabilities 10,712 8,459
Net Current Liabilities (9,714) (8,338)
Net (Liabilities)/Assets (4,359) 2,297
Shareholders' Equity
Share capital 13 3,405 2,170
Share premium reserve 46,891 45,319
Warrant and share-based payment reserve 123 73
Retained losses (54,778) (45,265)
Total Equity (4,359) 2,297
The accompanying accounting policies and notes form an integral part of these
financial statements.
Statement of Cash Flows
For the Year Ended 31 March 2024
2024 2023
Notes US$'000 US$'000
Operating Activities
Payments for operating activities (827) (1,126)
Net cash outflow for operating activities 12 (827) (1,126)
Investing Activities
Payments for exploration and evaluation 8 (964) (1,227)
Net cash outflow for investing activities (964) (1,227)
Financing Activities
Issue of ordinary share capital 2,790 2,268
Proceeds from exercise of warrants - 233
Payment of finance costs (29) (8)
Payment of equity issue costs (72) (76)
Net cash inflow from financing activities 2,689 2,417
Net increase in cash and cash equivalents 898 64
Cash and cash equivalents at the start of the year 83 19
Forex gain/(loss) on cash held - -
Cash and Cash Equivalents at the End of the Year 981 83
The accompanying accounting policies and notes form an integral part of these
financial statements.
Statement of Changes in Equity
For the Year Ended 31 March 2024
Share Capital Share Premium Reserve Warrant and Share-Based Payment Reserve Retained Losses Total Equity
Notes US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 April 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 13 307 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 1 April 2023 2,170 45,319 73 (45,265) 2,297
Loss after tax for the year - - - (9,586) (9,586)
Total comprehensive loss for the year - -
- (9,586) (9,586)
Contributions by and distributions to owners
Shares issued in the period 13 1,179 1,611 - - 2,790
Expiry of warrants - - (73) 73 -
Equity issue costs 7 (123) 44 - (72)
Share-based payment expense 49 84 79 - 212
Total contributions by and distributions to owners 1,235 50 73 2,930
1,572
Balance at 31 March 2024 3,405 46,891 123 (54,778) (4,359)
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 2024
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.
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
At the year end the Company had a cash balance of US$981,000 (2023: US$83,000)
and made a loss after income tax of US$9.59 million (2023: loss of US$20.80
million).
The Directors have prepared cash flow forecasts for the Company covering the
period to 30 September 2025 and these demonstrate that the Company will
require further funding within the next 12 months from the date of approval of
the financial statements. 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
Company has not met the requirements under the PSC to drill the Topaz well by
12 June 2024 and therefore the permit terminated on 12 June 2024. Empyrean has
put forward a submission to CNOOC for further cooperation on Block 29/11.
As detailed in Note 19, post year end on 24 August 2024, the Company received
a letter of demand from CNOOC's lawyers, King Wood & Mallesons, in
relation to Block 29/11. The letter of demand alleges, inter alia, that
Empyrean has outstanding obligations under the relevant Petroleum Contract
entered into with CNOOC and that Empyrean has failed to pay certain amounts
that CNOOC consider due and payable under the Petroleum Contract relating to
the prospecting fee and exploration work . The Company rejects the outstanding
amounts claimed, which total $12m, and has responded to the letter of demand
requesting clarification of the basis for the demands made in the letter. At
this time, (and as disclosed in Note 19), it is too early for the Company to
form any opinion on the merits of any demands made therein and the Company
intends to continue dialogue with CNOOC and, in line with the provisions of
the Petroleum Contract, to settle amicably through consultation any dispute
arising in connection with the performance or interpretation of any provision
of the Petroleum Contract. However, it is acknowledged that, in the event that
the amounts claimed are called, further funding would be required, over and
above that required to meet the day to day cash demand of the business for the
foreseeable future.
In May 2023 US$1.88 million was raised through an equity placement, with a
further US$0.90 million raised in February 2024. Funds raised are being 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.
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 any potential further costs of cooperation on Block
29/11, any potential amounts payable to CNOOC that may crystalise as detailed
in Note 19, to meet the repayment terms of the Convertible Note, any further
commitments at the Mako Gas Field and working capital requirements 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 remain optimistic that its funding commitments will be met
should it be able to monetise its interest in Mako through the current sell
down process. Post year end the Company announced that the Mako JV partners
had entered into a domestic gas sales agreement for the sale and purchase of
the domestic portion of Mako gas with PGN. The Company then announced that the
Mako Joint Venture partners and Sembcorp had signed the binding GSA for the
export of gas produced from the Mako field to Singapore.
It is the belief of the Board that the completion of the export GSA is a
significant value catalyst that is a necessary precursor to maximising the
value of its interest at the Mako Gas field through the current sell down
process. Completion of these has the potential to enhance Empyrean's chances
of negotiating a revised arrangement with CNOOC for the drilling of the Topaz
prospect.
The Company therefore requires additional funding to fund the ongoing cash
needs of the business for the foreseeable future and may require further
funding should it be required to settle amounts claimed by CNOOC. The
Directors acknowledge that this funding is not guaranteed. These conditions
indicate that there is the existence of a material uncertainty which may cast
significant doubt over the Company's ability to continue as a going concern
and, therefore, the Company may be unable to realise its assets and discharge
its liabilities in the normal course of business.
Given the above and the Company's proven track record of raising equity funds
and advanced Mako sell-down process, , which the Directors believe would be
sufficient to meet all possible funding needs as set out above, the
Directors have therefore concluded that it is appropriate to prepare the
Company's financial statements on a going concern basis and they have
therefore prepared the financial statements on a going concern basis.
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 2023 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 2023 or 31 March 2024.
(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) The Company has not met the requirements under the PSC to drill
the Topaz well by 12 June 2024 and, post year end, the permit formally
terminated on 12 June 2024. Empyrean has put forward a submission to CNOOC for
further cooperation on Block 29/11,. As at 31 March 2024 it was clear that the
above requirements would not be able to be met in time due to lack of funding
and the delays to the completion of the export GSA and sell down processes in
Indonesia. This was deemed to be an impairment indicator. Given the licence
requirements have not been met and the post year end termination of the PSC,
the Company has, in accordance with IFRS 6, provided for impairment against
all remaining capitalised costs associated with Block 29/11, together being
US$6.6 million as at 31 March 2024.
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
as at 31 March 2024.
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 2024/25 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 as at 31 March
2024.
(b) Share based payments (estimate)
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.
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 13.
(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 2024
Unallocated corporate expenses - - - (1,220) (1,220)
Operating loss - - - (1,220) (1,220)
Finance expense - - - (1,770) (1,770)
Impairment of oil and gas properties (6,562) - (33) - (6,595)
Loss before taxation (6,562) - (33) (2,990) (9,585)
Tax expense in current year - - - (1) (1)
Loss after taxation (6,562) - (33) (2,991) (9,586)
Total comprehensive loss for the financial year (6,562) - (33) (2,991) (9,586)
Segment assets - 5,355 - - 5,355
Unallocated corporate assets - - - 998 998
Total assets - 5,355 - 998 6,353
Segment liabilities - - - - -
Unallocated corporate liabilities - - - 10,712 10,712
Total liabilities - - - 10,712 10,712
Details China Indonesia USA Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000
31 March 2023
Unallocated corporate expenses - - - (810) (810)
Operating loss - - - (810) (810)
Finance expense - - - (2,955) (2,955)
Impairment of oil and gas properties (16,998) - (32) - (17,030)
Cyber fraud loss - - - - -
Loss before taxation (16,998) - (32) (3,765) (20,795)
Tax expense in current year - - - (1) (1)
Loss after taxation (16,998) - (32) (3,766) (20,796)
Total comprehensive loss for the financial year (16,998) - (32) (3,766) (20,796)
Segment assets 5,958 4,677 - - 10,635
Unallocated corporate assets - - - 121 121
Total assets 5,958 4,677 - 121 10,756
Segment liabilities - - - - -
Unallocated corporate liabilities - - - 8,459 8,459
Total liabilities - - - 8,459 8,459
Note 3. Operating Loss
2024 2023
US$'000 US$'000
The operating loss is stated after charging:
Foreign exchange (loss)/gain (123) 197
Impairment - exploration and evaluation assets (6,595) (17,030)
Auditor's Remuneration
Amounts paid to BDO LLP in respect of both audit and non-audit services:
Audit fees payable to the Company's auditor for the audit of the Company (91) (102)
annual accounts
Non-audit fees payable to the Company's auditor in respect of:
- Other services relating to taxation compliance (15) (13)
Total auditor's remuneration (106) (115)
Note 4. Directors' Emoluments
Fees and Salary Share Based Payments in lieu of Fees Social Security Contributions Short-Term Employment Benefits (Total)
2024 2023 2024 2023 2024 2023 2024 2023
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Non-Executive Directors:
Patrick Cross 23 22 - - 2 2 25 24
John Laycock 14 13 - - 1 1 15 14
Executive Directors:
Thomas Kelly((a)) 216 269 64 - - - 280 269
Gajendra Bisht((b)) 165 220 55 - - - 220 220
Total 418 524 119 - 3 3 540 527
Capitalised to E&E((b))
(124) (165) - - - - (124) (165)
Total expensed
294 359 119 - 3 3 416 362
(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. Mr
Kelly was issued 7,312,500 salary sacrifice shares in lieu of cash
remuneration totalling US$64,000.
(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). Mr Bisht was issued 6,324,608 salary sacrifice shares in
lieu of cash remuneration totalling US$55,000.
The average number of Directors was 4 during 2024 and 2023. The highest paid
director received US$280,000 (2023: US$269,000).
Note 5. Finance Expense
2024 2023
US$'000 US$'000
Convertible loan notes - interest and finance costs (Notes 10 and 11) (1,115) (2,308)
Convertible loan notes - loss on substantial modification (Note 11) (655) (1,369)
Fair value adjustment - derivative financial liabilities - 722
Total finance expense (1,770) (2,955)
Note 6. Taxation
2024 2023
US$'000 US$'000
Opening balance - -
Total corporation tax receivable - -
Factors Affecting the Tax Charge for the Year
Loss from continuing operations (9,585) (20,795)
Loss on ordinary activities before tax (9,585) (20,795)
Loss on ordinary activities at US rate of 21% (2023: 21%) (2,013) (4,367)
Non-deductible expenses 1,567 3,429
Movement in provisions 6 4
Carried forward losses on which no DTA is recognised 439 933
(1) (1)
Analysed as:
Tax expense on continuing operations (1) (1)
Tax expense in current year (1) (1)
Deferred Tax Liabilities
Temporary differences - exploration 1,691 1,679
Temporary differences - other 4 4
1,695 1,683
Offset of deferred tax assets (1,695) (1,683)
Net deferred tax liabilities recognised - -
Unrecognised Deferred Tax Assets 2024 2023
US$'000 US$'000
Tax losses((a)) 2,601 2,622
Temporary differences - exploration 4,310 4,110
Temporary differences - other 943 968
7,854 7,700
Offset of deferred tax liabilities (1,695) (1,683)
Net deferred tax assets not brought to account 6,159 6,017
(a) If not utilised, carried forward tax losses of approximately US$10.43
million (2023: US$10.53 million) begin to expire in the year 2033. Deferred
income tax assets are only recognised to the extent that it is probable that
future tax profits will be available against which deductible temporary
differences can be utilised.
Deferred tax assets and deferred tax liabilities are offset only if applicable
criteria to set off is met.
Note 7. Loss Per Share
The basic loss per share is derived by dividing the loss after taxation for
the year attributable to ordinary shareholders by the weighted average number
of shares on issue being 973,223,181 (2023: 767,981,222).
2024 2023
Loss per share from continuing operations
Loss after taxation from continuing operations US$(9,586,000) US$(20,796,000)
Loss per share - basic (0.98)c (2.71)c
Loss after taxation from continuing operations adjusted for dilutive effects
US$(9,586,000) US$(20,796,000)
Loss per share - diluted (0.98)c (2.71)c
For the current and prior financial years, the exercise of the options is
anti-dilutive and as such the diluted loss per share is the same as the basic
loss per share. Details of the potentially issuable shares that could dilute
earnings per share in future periods are set out in Note 14.
Note 8. Exploration and Evaluation Assets
2024 2023
US$'000 US$'000
Balance brought forward 10,635 24,907
Additions((a)) 1,315 2,758
Impairment((b)(c)(d)) (6,595) (17,030)
Net book value 5,355 10,635
(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) The Company has not met the requirements under the PSC to drill the
Topaz well by 12 June 2024 and, post year end, the permit formally terminated
on 12 June 2024. Empyrean has put forward a submission to CNOOC for further
cooperation on Block 29/11. As at 31 March 2024 it was clear that the above
requirements would not be able to be met in time due to lack of funding and
the delays to the completion of the export GSA and sell down processes in
Indonesia. This was deemed to be an impairment indicator. Given the licence
requirements have not been met and the post year end termination of the PSC,
the Company has, in accordance with IFRS 6, provided for impairment against
all remaining capitalised costs associated with Block 29/11, together being
US$6.6 million as at 31 March 2024. In the prior year, as a result of the
unsuccessful well at the Jade prospect in April 2022, Empyrean provided for
impairment against Jade prospect costs and the dry hole costs associated with
the Jade drilling program, together being US$17.0 million as at 31 March 2023.
(c) While the Company will continue to work with its joint venture
partners in reviewing and assessing any further technical and commercial
opportunities as they relate to the Sacramento Basin project, particularly in
light of strong gas prices for gas sales in the region, it has not budgeted
for further substantive exploration expenditure. Whilst the Company maintains
legal title it has continued to fully impair the carrying value of the asset
at 31 March 2024.
(d) In light of current market conditions, little or no work has been
completed on the Riverbend or Eagle Oil projects in the year and no
substantial project work is forecast for either project in 2024/25 whilst the
Company focuses on other projects. Whilst the Company maintains legal title it
has continued to fully impair the carrying value of the asset at 31 March
2024.
2024 2023
Project Operator Working Interest Carrying Value Carrying Value
US$'000 US$'000
Exploration and evaluation
China Block 29/11 Empyrean Energy 100%(1) - 5,958
Sacramento Basin Sacgasco 25-30% - -
Duyung PSC Conrad Asia Energy 8.5% 5,355 4,677
Riverbend Huff Energy 10% - -
Eagle Oil Pool Development Strata-X 58.084% - -
5,355 10,635
1. In the event of a commercial discovery, and subject to the Company
entering PSC, CNOOC Limited will have a back in right to 51% of the permit. As
at the date of these financial statements no commercial discovery has been
made.
Note 9. Trade and Other Receivables
2024 2023
US$'000 US$'000
Accrued revenue - 30
VAT receivable 17 8
Total trade and other receivables 17 38
Note 10. Trade and Other Payables
2024 2023
US$'000 US$'000
Trade payables 2,599 2,245
Accrued expenses 330 349
Accrued interest - 1,630
Total trade and other payables 2,929 4,224
Note 11. Convertible Loan Notes
2024 2023
US$'000 US$'000
(a) Convertible Loan Note - Original
Opening balance - 4,125
Drawdowns - -
Conversions - (1,970)
Costs of finance - 121
Foreign exchange loss - (133)
Extinguishment on substantial modification((c)) - (2,143)
Total original convertible loan note - current - -
(b) Convertible Loan Note - Modification 1
Opening balance 4,076 -
Recognition of modified liability 1 - 2,637
Loss on substantial modification - 1,369
Costs of finance - 185
Foreign exchange gain/(loss) 12 (115)
Extinguishment on substantial modification (4,088) -
Total Convertible Loan Note - Modification 1 - 4,076
(c) Convertible Loan Note - Modification 2
Opening balance - -
Recognition of modified liability 2 6,544 -
Loss on substantial modification 655 -
Costs of finance 261 -
Foreign exchange gain 134 -
Total Convertible Loan Note - Modification 2 7,594 -
(a) In December 2021, the Company announced that it had entered into a
Convertible Loan Note Agreement with a Melbourne-based investment fund (the
"Lender"), pursuant to which the Company issued a convertible loan note to the
Lender and received gross proceeds of £4.0 million (the "Convertible Note").
(b) As announced in May 2022, the Company and the Lender then amended the
key repayment terms of the Convertible Note, which at that time included the
right by the Lender to redeem the Convertible Note within 5 business days of
the announcement of the results of the Jade well at Block 29/11. The face
value of the loan notes was reset to £3.3m with interest to commence and
accrue at £330,000 per calendar month from 1 December 2022.
(c) In May 2023, it was announced that the Company and the Lender have, in
conjunction with and conditional upon the completion of the Subscription, now
reached agreement 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 parties have agreed a moratorium of accrual interest on the
Convertible Note until 31 December 2023 - interest will accrue thereafter at a
rate of 20% p.a.;
2. The conversion price on the Convertible Note has been reduced from
8p to 2.5p per Share;
3. The face value of the Convertible Note has been reduced from
£5.28m (accrued to the end of May 2023) to £4.6 million (to be repaid from
Empyrean's share of the proceeds from Mako sell down process); and
4. Empyrean will pay the Lender the greater of US$1.5 million or 15%
of the proceeds from its share in the Mako sell down process.
Note 12. Reconciliation of Net Loss
2024 2023
US$'000 US$'000
Loss before taxation (9,585) (20,795)
Share-based payments 212 22
Finance expense (non-cash) 1,770 2,955
Impairment - exploration and evaluation assets 6,595 17,030
Foreign exchange loss/(gain) 123 (197)
Decrease/(increase) in trade receivables relating to operating activities 21 (2)
Increase/(decrease) in trade payables relating to operating activities 8 (158)
Increase in provisions 29 19
Net cash outflow from operating activities before taxation (827) (1,126)
Receipt of corporation tax - -
Net cash outflow from operating activities (827) (1,126)
Note 13. Share Capital
2024 2023
US$'000 US$'000
1,280,801,707 (2023: 788,431,892) ordinary shares of 0.2p each 3,405 2,170
2024 2023
No. No.
a) Fully Paid Ordinary Shares of 0.2p each - Number of Shares
At the beginning of the reporting year 788,431,892 646,070,780
Shares issued during the year:
· Placements((a)) 469,753,783 121,750,001
· Salary sacrifice shares 19,728,532 -
· Advisor shares (equity issue cost) 2,887,500 -
· Partial conversion of Convertible Note - 18,750,000
· Exercise of warrants - 1,861,111
Total at the end of the reporting year 1,280,801,707 788,431,892
2024 2023
US$'000 US$'000
b) Fully Paid Ordinary Shares of 0.2p each - Value of Shares
At the beginning of the reporting year 2,170 1,809
Shares issued during the year:
· Placements((a)) 1,179 307
· Salary sacrifice shares 49 -
· Advisor shares (equity issue cost) 7 -
· Partial conversion of Convertible Note - 49
· Exercise of warrants - 5
Total at the end of the reporting year 3,405 2,170
a) In May 2023 US$1.88 million was raised through an equity placement,
with a further US$0.90 million raised in February 2024. Funds raised are being
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.
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
2024 2024 2023 2023
Outstanding at the beginning of the year £0.137 6,558,333 £0.116 65,890,916
Issued during the year £0.044 164,833,333 - -
Expired during the year £0.137 (6,558,333) £0.114 (57,471,472)
Exercised during the year - - £0.096 (1,861,111)
Outstanding at the end of the year £0.044 164,833,333 £0.137 6,558,333
Incentive Warrants Incentive Warrants Advisor Warrants Advisor Warrants Placement Warrants
Number of options remaining 5,000,000 5,000,000 2,833,333 12,000,000 140,000,000
Grant date 29/05/23 29/05/23 29/05/23 13/02/24 13/02/24
Expiry date 30/05/26 30/05/26 30/05/24 26/02/26 26/02/26
Share price £0.010 £0.010 £0.010 £0.0044 N/A
Exercise price £0.015 £0.020 £0.015 £0.0025 £0.005
Volatility 100% 100% 100% 94% N/A
Option life 3.00 3.00 1.00 2.00 2.50
Expected dividends - - - - -
Risk-free interest rate 4.45% 4.45% 4.45% 4.68% N/A
The options outstanding at 31 March 2024 have an exercise price in the range
of £0.0025 to £0.02 (2023: £0.075 to £0.18) and a weighted average
remaining contractual life of 2.32 years (2023: 0.37 years). None of the
outstanding options and warrants at 31 March are exercisable at period end.
The options outstanding at 31 March 2024 have an exercise price in the range
of £0.0025 to £0.02 (2023: £0.075 to £0.18) and a weighted average
remaining contractual life of 2.32 years (2023: 0.37 years). None of the
outstanding options and warrants at 31 March are exercisable at period end.
Note 14. 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 15. Related Party Transactions
Directors are considered Key Management Personnel for the purposes of related
party disclosure.
In the May 2023 equity placement that raised US$1.88 million, Mr Tom Kelly
subscribed for 6,250,000 new ordinary shares for a total consideration of
US$64,000. Mr Gaz Bisht subscribed for 1,850,000 new ordinary shares for a
total consideration of US$19,000.
In the February 2024 equity placement that raised US$0.90 million, Mr Tom
Kelly subscribed for 12,000,000 new ordinary shares for a total consideration
of US$38,000. Mr Gaz Bisht subscribed for 8,800,000 new ordinary shares for a
total consideration of US$28,000.
There were no other related party transactions during the year ended 31 March
2024 other than those disclosed in Note 4.
Note 16. Financial Risk Management
The Company manages its exposure to credit risk, liquidity risk, foreign
exchange risk and a variety of financial risks in accordance with Company
policies. These policies are developed in accordance with the Company's
operational requirements. The Company uses different methods to measure and
manage different types of risks to which it is exposed. These include
monitoring levels of exposure to interest rate and foreign exchange risk and
assessment of prevailing and forecast interest rates and foreign exchange
rates. Liquidity risk is managed through the budgeting and forecasting
process.
Credit risk
Exposure to credit risk relating to financial assets arises from the potential
non-performance by counterparties of contract obligations that could lead to a
financial loss to the Company.
Risk is also minimised by investing surplus funds in financial institutions
that maintain a high credit rating.
Credit risk related to balances with banks and other financial institutions
are managed in accordance with approved Board policy. The Company's current
investment policy is aimed at maximising the return on surplus cash, with the
aim of outperforming the benchmark within acceptable levels of risk return
exposure and to mitigate the credit and liquidity risks that the Company is
exposed to through investment activities.
The following table provides information regarding the credit risk relating to
cash and money market securities based on Standard and Poor's counterparty
credit ratings.
2024 2023
US$'000 US$'000
Cash and cash equivalents
AA-rated 981 83
Total cash and cash equivalents 981 83
Price risk
Commodity price risk
The Company is not directly exposed to commodity price risk. However, there is
a risk that the changes in prevailing market conditions and commodity prices
could affect the viability of the projects and the ability to secure
additional funding from equity capital markets.
Liquidity risk
Liquidity risk arises from the possibility that the Company might encounter
difficulty in settling its debts or otherwise meeting its obligations related
to financial liabilities. The Company manages liquidity risk by maintaining
sufficient cash or credit facilities to meet the operating requirements of the
business and investing excess funds in highly liquid short-term investments.
The Company's liquidity needs can be met through a variety of sources,
including the issue of equity instruments and short or long-term borrowings.
Alternative sources of funding in the future could include project debt
financing and equity raisings, and future operating cash flow. These
alternatives will be evaluated to determine the optimal mix of capital
resources.
The following table details the Company's non-derivative financial instruments
according to their contractual maturities. The amounts disclosed are based on
contractual undiscounted cash flows. Cash flows realised from financial assets
reflect management's expectation as to the timing of realisation. Actual
timing may therefore differ from that disclosed. The timing of cash flows
presented in the table to settle financial liabilities reflects the earliest
contractual settlement dates.
Less than 6 months 6 months to 1 year 1 to 6 years Total
US$'000 US$'000 US$'000 US$'000
Convertible loan note (2024) 7,594 - - 7,594
Convertible loan note (2023) 4,076 - - 4,076
Trade and other payables (2024) 2,929 - - 2,929
Trade and other payables (2023) 4,718 - - 4,718
Capital
In managing its capital, the Company's primary objective is to maintain a
sufficient funding base to enable the Company to meet its working capital and
strategic investment needs. In making decisions to adjust its capital
structure to achieve these aims, through new share issues, the Company
considers not only its short-term position but also its long-term operational
and strategic objectives. The Company has a track record of successfully
securing additional funding as and when required from equity capital markets.
Foreign exchange risk
The Company operates internationally and is exposed to foreign exchange risk
arising from various currency exposures. Foreign exchange risk arises from
future commitments, assets and liabilities that are denominated in a currency
that is not the functional currency of the Company. Currently there are no
foreign exchange hedge programmes in place. However, the Company treasury
function manages the purchase of foreign currency to meet operational
requirements.
As at 31 March 2024, the Company's gross exposure to foreign exchange risk was
as follows:
2024 2023
US$'000 US$'000
Gross foreign currency financial assets
Cash and cash equivalents - GBP 977 81
Total gross exposure 977 81
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$97,700 (2023:
US$8,100).
Fair value
Fair values are those amounts at which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties in an arm's length
transaction. Fair values may be based on information that is estimated or
subject to judgement, where changes in assumptions may have a material impact
on the amounts estimated. Areas of judgement and the assumptions have been
detailed below.
The following methods and assumptions are used to determine the net fair
values of financial assets and liabilities:
§ Cash and short-term investments - the carrying amount approximates fair
value because of their short term to maturity;
§ Trade receivables and trade creditors - the carrying amount approximates
fair value; and
§ Derivative financial assets and liabilities - initially recognised at
fair value through profit and loss at the date the contract is entered into
and subsequently re-measured at each reporting date, the fair value of the
derivative financial liability warrants is calculated using a Black-Scholes
Model. Measurement inputs include share price on measurement date, exercise
price of the instrument, expected volatility (based on weighted average
historic volatility adjusted for changes expected due to publicly available
information), weighted average expected life of the instruments (based on
historical experience and general option holder behaviour), expected
dividends, and the risk-free interest rate (based on government bonds).
No financial assets and financial liabilities are readily traded on organised
markets in standardised form.
Financial instruments by category are summarised below:
Financial Instruments by Category Fair Value Through Profit or Loss Amortised Cost
31 March 2024 31 March 2023 31 March 2024 31 March 2023
US$'000 US$'000 US$'000 US$'000
Financial assets
Cash and cash equivalents - - 981 83
Trade and other receivables - - 17 38
Total financial assets - - 998 121
Financial liabilities
Trade and other payables - - 2,599 2,245
Convertible loan notes - - 7,594 4,076
Total financial liabilities - - 10,193 6,321
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 17. Events After the Reporting Date
Significant events post reporting date were as follows:
On 13 June 2024 the Company announced that as it had not commenced the
drilling of the Topaz prospect by 12 June 2024 as required under the second
phase of exploration on Block 29/11 and therefore has not met the requirements
to continue the cooperation on Block 29/11 with CNOOC. The permit therefore
formally terminated on 12 June 2024. On 24 August 2024 Empyrean received a
letter of demand from CNOOC alleging that Empyrean has outstanding obligations
under the PSC. The Company disputes the letter and is endeavouring to settle
the matter amicably under the dispute resolution clauses provided for in the
PSC. Empyrean has put forward a submission to CNOOC for further cooperation on
Block 29/11.
On 24 June 2024 the Company announced that the Mako JV partners had entered
into a binding domestic Gas Sales Agreement for the sale and purchase of the
domestic portion of Mako gas with PGN, the gas subsidiary of PT Pertamina
(Persero), the national oil company of Indonesia.
On 22 August 2024 the Company announced that Dr Patrick Cross had stepped down
as Non-Executive Chairman of the Company. Existing Non-Executive Director Mr
John Laycock assumed the position of Non-Executive Chairman. Dr Cross remains
on the Board as a Non-Executive Director.
On 2 September 2024 the Company announced that the Mako Joint Venture partners
and Sembcorp had signed a binding GSA for the export of gas produced from the
Mako field to Singapore. The contract term is until the end of the Duyung PSC
in January 2037 and allows for the sale of up to 76 billion Bbtud, which is
equivalent to around 76.9 mmscfd. The export GSA also contains provisions for
the sale of up to an additional 35 Bbtud (around 35.4 mmscfd) should a tie-in
pipeline not be built to the Indonesian domestic market in Batam and DMO sales
do not therefore eventuate. The possible export of these additional volumes is
recognised in the Mako POD. Completion of both GSAs is a significant milestone
on the path to a FID for the Mako project.
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 18. Committed Expenditure
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 required the payment to CNOOC of US$250,000 and
the work obligation of drilling of an exploration well within 2 years. It is
estimated that the cost of drilling this well would be approximately US$12
million. While the Company entered the second phase of exploration, it has not
met the requirements under the PSC to drill the Topaz well by 12 June 2024 and
the permit formally terminated on 12 June 2024. Empyrean has put forward a
submission to CNOOC for further cooperation on Block 29/11.
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 19. Contingent liabilities
On 24 August 2024, the Company received a letter of demand from CNOOC's
lawyers, King Wood & Mallesons, in relation to Block 29/11. The letter of
demand alleges, inter alia, that Empyrean has outstanding obligations,
totalling $12m, under the relevant Petroleum Contract entered into with CNOOC
and that Empyrean has failed to pay certain amounts that CNOOC consider due
and payable under the Petroleum Contract relating to the prospecting fee and
exploration work. The Company rejects the outstanding amounts claimed and has
responded to the letter of demand requesting clarification of the basis for
the demands made in the letter. At this time, it is too early for the Company
to form any opinion on the merits of any demands made therein and the Company
intends to continue dialogue with CNOOC and, in line with the provisions of
the Petroleum Contract, to settle amicably through consultation any dispute
arising in connection with the performance or interpretation of any provision
of the Petroleum Contract.
Note 20. Ultimate Controlling Party
The Directors consider that there is no ultimate controlling party of the
Company.
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