REG - Enwell Energy PLC - Quarterly Operations Update

Enwell EnergyAnnouncement

28/04/2023 11:30

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RNS Number : 8968X  Enwell Energy PLC  28 April 2023

28 April 2023

 

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.

 

Production - Q1 2023

 

The average daily production of gas, condensate and LPG from the MEX-GOL, SV
and VAS fields over the period from 1 January 2023 to 31 March 2023 was as
follows:

 

 Field             Gas               Condensate        LPG               Aggregate

                   (MMcf/d)          (bbl/d)           (bbl/d)           boepd
                   Q1 2023  Q1 2022  Q1 2023  Q1 2022  Q1 2023  Q1 2022  Q1 2023  Q1 2022

 MEX-GOL & SV      9.9      11.6     394      487      434      286      2,449    2,730
 VAS               1.7      2.2      19       24       -        -        338      434
 Total             11.6     13.8     413      511      434      286      2,787    3,164

 

The ongoing war in Ukraine continues to cause disruption to operations at the
Company's fields, where issues with the supply of equipment and fuel and
interruptions to the supply of electricity are affecting field activity.
Production volumes were lower when compared with Q1 2022 due to natural field
decline, with the exception of LPG recoveries, which improved significantly
following the completion of upgrade works to the gas processing facilities at
the MEX-GOL and SV fields in mid-2022. The comparative average production
figures for Q1 2022 are based on the days that the respective fields were
actually in production as there were periods of suspension of production from
these fields immediately following the Russian invasion of Ukraine in February
2022 (namely, 76 days of production from the MEX-GOL and SV fields and 55 days
of production from the VAS field in Q1 2022).

 

Operations

 

Production operations are continuing at the MEX-GOL and SV fields, and,
currently, the production rate is approximately 2,400 boepd. Field operations
are currently continuing relatively normally, but the supply of equipment and
fuel has been significantly disrupted, which has caused delays to the progress
of some activities. In general, the operating environment in Ukraine remains
challenging.

 

In December 2022, the GOL-107 well was spudded. This well has a target depth
of 5,190 metres and is a development well, aiming to achieve production from
the V-20 and V-23 horizons in the Visean formation. Drilling operations are
scheduled to be completed by the end of Q3 2023, and, subject to successful
testing, production hook-up is scheduled during Q4 2023.

 

At the VAS field, production operations are continuing, and the current
production rate is approximately 310 boepd.

 

The Company continues to be cautious and vigilant in continuing with its
operations and is taking the appropriate 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.

 

Cash Holdings

 

At 31 March 2023, the Company's cash resources were approximately $90.7
million, comprised of $8.8 million equivalent in Ukrainian Hryvnia and the
balance of $81.9 million equivalent in a combination of US Dollars, Pounds
Sterling and Euros.

 

Gas Sales and Sales Receivables

 

While the Company has continued to supply gas to its existing ultimate
off-takers, the volumes ordered by such off-takers have reduced during the
war, which has meant that the Company has been selling a higher proportion of
its gas through the Ukrainian electronic gas trading market. The situation in
Ukraine has meant that it has been necessary for the Company to allow some
flexibility in the recovery of gas sales receivables from certain ultimate
off-takers, while sales through the Ukrainian electronic market are made on a
prepayment basis. The Company's gas sales receivables have built up to
approximately $36.8 million, and as a result, the Company is taking action to
restructure its contractual relationships relating to the sale of its gas.
This restructuring involves ceasing to sell gas to LLC Smart Energy, and, in
the future, selling its gas directly to its off-takers, and assigning the
receivable liabilities so that these are directly recoverable from the
relevant debtors. Documentation to achieve this restructuring is currently
being finalised.

 

Change of Broker

 

On 26 January 2023, the Company announced that Zeus Capital Limited had
assumed the role of the Company's broker with immediate effect.

 

New Auditor

 

The Company is currently finalising the appointment of a new Auditor and a
further announcement will be made shortly.

 

New Natural Resources Legislation in Ukraine

 

As announced on 4 January 2023, new legislation, Law No. 2805-IX, relating to
the natural resources sector has been enacted in Ukraine, which came into
force on 28 March 2023. This legislation is a substantial package of new
procedures and reforms designed to improve the regulatory process relating to
the exploration and development of natural resources in Ukraine. However, the
legislation includes provisions that if the ultimate beneficial owner of a
mineral or hydrocarbon licence becomes the subject of sanctions in Ukraine,
then the Ukrainian State Authorities may suspend or revoke that licence. In
light of the imposition of the restrictive measures (sanctions) by the
Ukrainian Authorities, as announced on 9 December 2022, against Vadym
Novynskyi, who previously held a major indirect shareholding interest in the
Company, the Company had been investigating whether the Company's hydrocarbon
extraction licences may be adversely affected by these provisions in the new
law. However, as announced on 17 and 26 January 2023, Vadym Novynskyi notified
the Company that he had ceased holding any indirect shareholding interest in
the Company on 1 December 2022, and therefore, it appeared that the new law
would not affect the Company's hydrocarbon licences. Subsequently, the
Ukrainian authorities have nevertheless taken certain regulatory actions
against various Group companies in Ukraine as referred to below.

 

Regulatory Actions by Ukrainian Authorities

 

As announced on 12 April 2023, Ukrainian authorities have recently undertaken
a number of regulatory actions against certain of the Company's subsidiary
companies in Ukraine,  including conducting a search at the Group's Yakhnyky
office, from where the MEX-GOL and SV fields are operated, and placing certain
physical assets of two subsidiary companies (which respectively hold the
MEX-GOL and SV fields and the SC exploration licence) under seizure, thereby
restricting any actions that would change registration of the property rights
relating to such assets. However, the use of such assets is not restricted and
therefore the Company is able to continue to operate and produce gas and
condensate from the MEX-GOL and SV fields. In addition, the Ministry of
Justice of Ukraine has made an Order cancelling the registration entry made on
behalf of a subsidiary of the Company named LLC Regal Petroleum Corporation
(Ukraine) Limited in the Unified State Register of Legal Entities,
Individuals-entrepreneurs and Civil Institutions of Ukraine relating to the
ultimate beneficial owners of such company, thereby restoring the
previous entry in such Register, being Vadym Novynskyi. Furthermore, the
State Geologic and Subsoil Survey of Ukraine has issued an Order to the
Ukrainian branch (representative) office of Regal Petroleum Corporation
Limited requiring that additional information be provided and/or violations be
eliminated by 1 June 2023 in the disclosures relating to the ultimate
beneficial owners of the MEX-GOL and SV licences respectively. The Company
does not consider that any of these regulatory actions are justified and is
consulting with its legal advisers in relation to legal action to challenge
these unjustified actions.

 

SC Licence Order for Suspension

 

As announced on 4 November 2022, there has been a further legal challenge
relating to the SC exploration licence, which is held by LLC Arkona Gas-Energy
("Arkona"). Since the Company completed the acquisition of Arkona in March
2020, there have been a number of legal challenges relating to the SC licence.
As announced on 3 July 2020, PJSC Ukrnafta ("Ukrnafta"), as claimant, brought
legal proceedings against Arkona, as defendant, in which Ukrnafta made claims
asserting that irregular procedures were followed in the grant of the SC
licence to Arkona in May 2017. Ukrnafta also brought these proceedings against
the State Geologic and Subsoil Survey of Ukraine ("SGS"). Both Arkona and SGS
disputed these claims. In these proceedings, the First Instance Court in
Ukraine made a ruling in favour of Ukrnafta, determining that the grant of the
SC licence was irregular, and accordingly, the SC licence would be invalid.
Arkona filed an appeal of this decision in the Appellate Administrative Court
in Kyiv, and on 29 September 2020, the Appellate Administrative Court ruled in
favour of Arkona, overturning the earlier decision of the First Instance
Court. Ukrnafta filed a further appeal in the Supreme Court in Kyiv, and in
February 2021, the Supreme Court ruled that the arguments raised by Ukrnafta
in the appeal were not substantiated, and that the proceedings against Arkona
should be dismissed. The decision of the Supreme Court represented the final
appeal procedure in respect of these legal proceedings, and accordingly, these
proceedings against Arkona were exhausted.

 

Prior to the Company's acquisition of Arkona, Ukrnafta had previously issued
legal proceedings in 2018, raising substantially the same claims, which
proceeded through the First Instance Court and Appellate Administrative Court,
before a final appeal was determined by the Supreme Court in October 2019, in
which Ukrnafta's claims were denied. In April 2021, an entity named JV
Boryslav Oil Company ("Boryslav"), which is 25.0999% owned by Ukrnafta, issued
a further legal claim, also claiming that irregular procedures were followed
in the grant of the SC licence, which claim was denied by the First Instance
Court in July 2021 and by the Appellate Administrative Court in October 2021.
There was no further appeal in this case and so the decision of the Appellate
Administrative Court in these legal proceedings is final. In September 2021,
Boryslav issued a further legal claim, again claiming that irregular
procedures were followed in the grant of the SC licence, against the SGS, the
State Commission of Ukraine for Mineral Resources ("SCP") and Arkona, as
defendants, with Ukrnafta named as a third party. In this claim, the First
Instance Court made a ruling in January 2022 in favour of Boryslav. This
ruling was appealed to the Appellate Administrative Court, and on 2 November
2022, the Appellate Administrative Court made a ruling in favour of Boryslav,
to uphold the decision of the First Instance Court, with the effect that the
SC licence is now ruled invalid. The effect of this latest ruling is that the
Company cannot conduct any field activities on the SC licence area. The
Company has filed an appeal of the decision of the Appellate Administrative
Court to the Supreme Court.

 

VAS Licence Order for Suspension

 

As announced on 3 March 2023, the legal proceedings relating to the Order for
suspension (the "Order") in respect of the production licence for the VAS
field, announced on 12 March 2019 and 19 March 2019 respectively, have been
finally resolved in the Company's favour after the Supreme Court, by a
decision dated 23 February 2023, upheld the Company's appeal and cancelled the
Order. The Supreme Court is the final appellate court in these legal
proceedings and therefore this decision is final. Accordingly, the licence
continues to be valid.

 

Sergii Glazunov, Chief Executive Officer, said: "Although the situation in
Ukraine continues to be extremely challenging, we are pleased to be able to
continue our production operations at both of our producing fields, as well as
undertaking some development activities at the MEX-GOL field, where drilling
of the GOL-107 well is progressing on schedule. We are also pursuing our
appeal of the adverse Court ruling relating to the SC licence and are hopeful
of a successful outcome of this appeal in due course."

 

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 by virtue of
the Market Abuse (Amendment) (EU Exit) Regulations 2019.

 

 

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

 Zeus Capital Limited                           Tel: 020 7614 5900
 Alexandra Campbell-Harris (Corporate Finance)
 Simon Johnson (Corporate Broking)

 Citigate Dewe Rogerson                         Tel: 020 7638 9571
 Ellen Wilton

 

Dr Gehrig Schultz, BSc Geophysical Engineering, PhD Geophysics, Member of the
European Association of Geophysical Engineers, Member of the Executive
Coordinating Committee of the Continental European Energy Council, and a
Non-Executive Director of the Company, has reviewed and approved the technical
information contained within this announcement in his capacity as a qualified
person, as required under the AIM Rules for Companies.

 

 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
 MMcf/d  million cubic feet per day
 %       per cent.
 $       US Dollars

 

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