REG - Enwell Energy PLC - Quarterly Operations Update

Enwell EnergyAnnouncement

13/04/2022 07:00

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RNS Number : 1868I  Enwell Energy PLC  13 April 2022

13 April 2022

 

 

Enwell Energy plc

("Enwell" or the "Company")

 

Quarterly Operations Update

 

Enwell Energy plc (AIM: ENW), the AIM-quoted oil and gas exploration and
production group, provides an update on its operational activities in Ukraine,
where it operates the Mekhediviska-Golotvshinska (MEX-GOL), Svyrydivske (SV)
and Vasyschevskoye (VAS) gas and condensate fields, as well as the
Svystunivsko-Chervonolutskyi (SC) exploration licence.

 

In light of the Russian military action in Ukraine, on 24 February 2022,
Enwell shut-in and made safe its production and drilling operations at all of
its fields. Subsequently, on 11 March 2022, having taken a number of measures
to ensure safe operations, Enwell commenced the partial restart of production
operations at its MEX-GOL and SV fields. Further details can be found in the
Company's announcements dated 24 February 2022 and 15 March 2022.

 

The Company continues to be cautious and vigilant in continuing these partial
production operations and is taking all measures available to protect and
safeguard its personnel and business. The safety and wellbeing of its
personnel and contractors is paramount and the Company will continue to take
all possible steps to ensure their safety.

 

Production - Q1 2022

 

The average daily production of gas, condensate and LPG for the 76 days that
the MEX-GOL and SV fields were producing and for the 55 days that the VAS
field was producing, during the period from 1 January 2022 to 31 March 2022,
was as follows:-

 

 

 

 Field              Gas               Condensate        LPG               Aggregate

                    (MMcf/d)          (bbl/d)           (bbl/d)           boepd
                    Q1 2022  Q1 2021  Q1 2022  Q1 2021  Q1 2022  Q1 2021  Q1 2022  Q1 2021

                    11.6     18.2     487      635      286      336      2,730    4,079

 MEX-GOL & SV

                    2.2      2.5      24       27       -        -        434      497

 VAS

                    13.8     20.7     511      662      286      336      3,164    4,576

 Total

 

The average daily production of gas, condensate and LPG from the MEX-GOL, SV
and VAS fields over the entire period from 1 January 2022 to 31 March 2022
(inclusive of shut-in periods) was as follows:-

 

 Field              Gas               Condensate        LPG               Aggregate

                    (MMcf/d)          (bbl/d)           (bbl/d)           boepd
                    Q1 2022  Q1 2021  Q1 2022  Q1 2021  Q1 2022  Q1 2021  Q1 2022  Q1 2021

                    9.8      18.2     412      635      241      336      2,305    4,079

 MEX-GOL & SV

                    1.3      2.5      15       27       -        -        265      497

 VAS

                    11.1     20.7     427      662      241      336      2,570    4,576

 Total

 

The disruption to production operations and the shut-in of the fields during
Q1 2022 meant that production volumes were materially lower, both compared
with Q1 2021 and the previous quarter. In addition, drilling and remedial work
on existing wells has been stopped until there is an improvement in the
situation in Ukraine.

 

Notwithstanding the disruption to production operations, the continuing high
gas prices in Europe have fed through to Ukrainian gas prices, which has
benefited the sales prices being achieved by the Company for its gas, as well
as condensate and LPG. These continued high hydrocarbons sales prices have
helped to offset the impact on revenues during the quarter due to the lower
production volumes.

 

Operations

 

Partial production operations are ongoing at the MEX-GOL and SV fields, where
a proportion of the wells have been put on production, and currently the
production rate is approximately 2,500 boepd. Other field operations,
including the testing of the SV-29 development well, the drilling of the SV-31
development well and the workovers of the SV-2 and MEX-109 wells have been
suspended. In addition, construction work on the upgrades to the gas
processing facilities at the MEX-GOL and SV fields has also been suspended.

 

Drilling of the SC-4 appraisal well at the SC licence and all field operations
at the VAS field have also been suspended.

 

Gas Price Regulation to Support Social Initiatives

 

The temporary and partial gas price regulation imposed by the Ukrainian
Government to support the production of certain food products through the
supply of gas at regulated prices to the producers of such products is
continuing to operate. Under this scheme, all independent gas producers in
Ukraine are required to sell up to 20% of their natural gas production for the
period until 30 April 2022 at a price set as the cost of sales of the relevant
gas producer (based on established accounting rules) for such gas, plus a
margin of 24%, plus existing subsoil production taxes (the "Regulated Price").
This gas is then sold to specified producers of designated socially important
food products at the Regulated Price, so as to reduce the energy costs of such
producers during the period through to 30 April 2022. The designated products
are certain types of flour, milk (with up to 2.5% fat), bread, eggs, chicken
and sunflower oil, for sale in the Ukrainian domestic market. Further details
are set out in the Company's announcement dated 17 January 2022.

 

Subsoil Production and Excise Tax Changes

 

The Ukrainian Government has enacted changes to the subsoil production tax
rates applicable to gas production by modifying the applicable rates based on
gas prices, extending the incentive rates for new wells for a further 10 years
and making improvements to the regulatory environment. These changes took
effect on 1 March 2022, and the legislation includes provisions that these
rates will not be increased for 10 years.

 

 

The new subsoil production tax rates are as follows:

 

(i)         when gas prices are up to $150/Mm(3), the rate for wells
drilled prior to 1 January 2018 ("old wells") is 14.5% for gas produced from
deposits at depths shallower than 5,000 metres and 7% for gas produced from
deposits deeper than 5,000 metres, and for wells drilled after 1 January 2018
("new wells") is 6% for gas produced from deposits at depths shallower than
5,000 metres and 3% for gas produced from deposits deeper than 5,000 metres;

 

(ii)      when gas prices are between $150/Mm(3) and $400/Mm(3), the rate
for old wells is 29% for gas produced from deposits at depths shallower than
5,000 metres and 14% for gas produced from deposits deeper than 5,000 metres,
and for new wells is 12% for gas produced from deposits at depths shallower
than 5,000 metres and 6% for gas produced from deposits deeper than 5,000
metres;

 

(iii)       when gas prices are more than $400/Mm(3), for the first
$400/Mm(3), the rate for old wells is 29% for gas produced from deposits at
depths shallower than 5,000 metres and 14% for gas produced from deposits
deeper than 5,000 metres, and for new wells is 12% for gas produced from
deposits at depths shallower than 5,000 metres and 6% for gas produced from
deposits deeper than 5,000 metres, and for the difference between $400/Mm(3)
and the actual price, the rate for old wells is 65% for gas produced from
deposits at depths shallower than 5,000 metres and 31% for gas produced from
deposits deeper than 5,000 metres, and for new wells is 36% for gas produced
from deposits at depths shallower than 5,000 metres and 18% for gas produced
from deposits deeper than 5,000 metres.

 

Prior to the changes, the tax rate for old wells was 29% for gas produced from
deposits at depths shallower than 5,000 metres and 14% for gas produced from
deposits deeper than 5,000 metres, and for new wells was 12% for gas produced
from deposits at depths shallower than 5,000 metres and 6% for gas produced
from deposits deeper than 5,000 metres. The tax rates applicable to condensate
production were unchanged and remain at 31% for condensate produced from
deposits shallower than 5,000 metres and 16% for condensate produced from
deposits deeper than 5,000 metres, for both old and new wells.

 

In addition, the excise tax of €52/ML applicable to LPG sales was cancelled
entirely with effect from 24 February 2022, and the VAT rate applicable to
condensate and LPG sales was reduced to 7% (from 20%) with effect from 18
March 2022.

 

Cash Holdings

 

At 31 March 2022, the Company's cash resources were approximately $81.3
million, comprised of $21.8 million equivalent in Ukrainian Hryvnia and the
balance of $59.5 million equivalent in a combination of US Dollars, Pounds
Sterling and Euros.

 

The Company has contributed funds and is intending to allocate further funds
to certain humanitarian aid organisations to assist with the valuable work
that such organisations are undertaking in Ukraine.

 

 

VAS Licence Order for Suspension

 

The Company does not have any further information to report in relation to the
Order for suspension relating to the production licence for the VAS field
since the announcements made on 12 March 2019 and 19 March 2019 respectively,
other than to report that the legal proceedings issued in the Ukrainian Courts
to challenge the validity of the Order are ongoing, and the Company remains
confident that it will ultimately be successful in such legal proceedings.

 

COVID-19 Pandemic

 

The Group continues to monitor the situation relating to the COVID-19
pandemic, and to take any steps necessary to protect its staff and operations.
The Group remains acutely aware of the risks, and is taking action to mitigate
them where possible, with the safety of individuals and communities continuing
to be the priority.

 

Sergii Glazunov, Chief Executive Officer, said: "The situation in Ukraine is
extremely challenging at present, but we continue to focus on taking all
available measures to protect our business and ensure the safety and wellbeing
of our personnel."

 

This announcement contains inside information for the purposes of Article 7 of
EU Regulation 596/2014, which forms part of United Kingdom domestic law by
virtue of the European Union (Withdrawal) Act 2018, as amended.

 

 

For further information, please contact:

 

 Enwell Energy plc                                 Tel: 020 3427 3550
 Chris Hopkinson, Chairman
 Sergii Glazunov, Chief Executive Officer
 Bruce Burrows, Finance Director

 Strand Hanson Limited                             Tel: 020 7409 3494
 Rory Murphy / Matthew Chandler

 Arden Partners plc                                Tel: 020 7614 5900
 Ruari McGirr / Elliot Mustoe (Corporate Finance)
 Simon Johnson (Corporate Broking)

 Citigate Dewe Rogerson                            Tel: 020 7638 9571
 Ellen Wilton

 

 

Dmitry Sazonenko, MSc Geology, MSc Petroleum Engineering, Member of AAPG, SPE
and EAGE, Director of the Company, has reviewed and approved the technical
information contained within this press release in his capacity as a qualified
person, as required under the AIM Rules.

 

 

 

 Definitions

 bbl/d   barrels per day
 boepd   barrels of oil equivalent per day
 cf      cubic feet measured at 20 degrees Celsius and one atmosphere
 LPG     liquefied petroleum gas
 ML      thousand litres
 Mm(3)   thousand cubic metres
 MMcf/d  million cubic feet per day
 %       per cent
 $       US Dollars

 

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