REG - Independent Oil &Gas - Interim Results
27 August 2020
Independent Oil and Gas plc
1H 2020 Interim Results
Independent Oil and Gas plc ("IOG" or the "Company") (AIM: IOG.L), the development and production company focused on becoming a substantial UK gas producer, is pleased to present its unaudited interim results for the six months ended 30 June 2020.
Operational Highlights
· Core Project Phase 1 development maintaining schedule towards First Gas target of Q3 2021
· Field Development Plan ("FDP") approved by the UK Oil and Gas Authority ("OGA")
· Extensive design, engineering, procurement and fabrication progress achieved on the two Phase 1 normally unmanned platforms for the Southwark and Blythe fields
· Awarded sizeable Engineering, Procurement, Construction and Installation ("EPCI") contract for Subsea, Umbilicals, Risers and Flowlines ("SURF") to Subsea 7 S.A.
· Awarded Phase 1 well management contract to Petrofac, covering planning, execution and close-out of the five Phase 1 wells at the Southwark, Blythe and Elgood fields
· Preparation and procurement processes advanced for refurbishment of the co-owned Thames Reception Facilities ("TRF") at the Bacton Gas Terminal ("BGT")
· 3D Seismic reprocessing projects progressed on Vulcan Satellites area, Harvey-Redwell area, Goddard and Abbeydale, to improve subsurface imaging, update volumetric estimates, inform development plans and optimise well designs
Corporate and Financial Highlights
· Cash balance at period end of £104.1 million (31 December 2019: £98.3 million), including restricted cash of £72.6 million (31 December 2019: £82.0 million)
· Post-tax loss for the period of £3.7 million (30 June 2019: £4.6 million)
· Group net cash1 at period end of £9.2 million (31 December 2019: £8.0 million)
· Further £36.7 million of uncalled development carry available at period end from partner CalEnergy Resources (UK) Ltd ("CER")
· €11.7 million (£10.4 million equivalent) drawn down from senior secured bond ("Bond") escrow account for development expenditure, leaving €66.0 million (£60.2 million equivalent) remaining to be drawn at three further operational milestones
· Addition of key technical, operational and financial personnel to help execute Phase 1 and deliver further stages of corporate growth
Post-Period End Highlights
· Award of substantial EPCI contract with HSM Offshore B.V. ("HSM") for the two Phase 1 normally unmanned platforms at Southwark and Blythe
· Several awards made and orders placed for services and tangibles for the Phase 1 drilling programme due to start in 1H 2021
Expected Future Activity
· Award of jack-up rig contract for the five-well Phase 1 drilling campaign in the coming weeks
· Completion of offshore pipelay campaign for the 12-inch and 6-inch Blythe and Elgood export lines in late Q3 2020
· Outcome of targeted applications made in 32nd Offshore Licensing Round results anticipated to be released by the OGA later in 2020
· Results of 3D seismic reprocessing on Vulcan Satellites area, Harvey-Redwell area, Goddard and Abbeydale from Q4 2020 onwards
· Commencement of Phase 1 drilling programme in 1H 2021, leading to first gas in Q3 2021
Net cash is defined as restricted cash (£72.6 million) plus cash and cash equivalents (£31.6 million) plus financial assets (£1.2 million), less outstanding loans (£96.2 million)
Andrew Hockey, CEO of IOG, said:
"The first half of 2020 was an important period of development progress for IOG, in which we advanced all critical Phase 1 workstreams while navigating the challenges of the Covid-19 pandemic. Besides signing major contracts with leading contractors and consolidating our strong partnership with CalEnergy Resources, we secured clear government endorsement for Phase 1. We also continued to invest in the organisation itself, adding several high-quality new hires to help safely and successfully execute Phase 1 and progress the valuable upside opportunities in our sights. I would like to thank all our staff and contractors for all their hard work and commitment in continuing to deliver our project whilst adapting to these unusual times.
"We are overseeing a rapid transformation in our business with several exciting milestones to come on the path to first gas next year, including the start of development drilling and Southwark and Blythe platform installation. Our extensive technical and portfolio development work aimed at incremental opportunities in the wider Thames Pipeline catchment area should also start to bear fruit. All told, we are taking great strides towards our goal of becoming a valuable UK gas producer. I look forward to updating the market on further progress."
Certain information communicated in this announcement was, prior to its publication, inside information for the purposes of Article 7 of Regulation 596/2014.
Enquiries:
Independent Oil and Gas plc
Andrew Hockey (CEO)
Rupert Newall (CFO)
James Chance (Head of Corporate Finance & IR)
+44 (0) 20 7036 1400
finnCap Ltd
Christopher Raggett
Simon Hicks
+44 (0) 20 7220 0500
Peel Hunt LLP
Richard Crichton
David McKeown
+44 (0) 20 7418 8900
Vigo Communications
Patrick d'Ancona
Chris McMahon
Simon Woods
+44 (0) 20 7390 0230
Notes
About IOG:
IOG owns and operates a 50% stake in substantial low risk, high value gas reserves in the UK Southern North Sea. The Company's Core Project targets a gross 2P peak production rate of 140 MMcfe/d (c. 24,000 Boe/d) from gross 2P gas Reserves of 302 Bcfe¹ + 2C gas Contingent Resources of 108 Bcfe², via an efficient hub strategy. In addition to the independently verified 2P reserves at Blythe, Elgood, Southwark, Nailsworth and Elland and 2C Contingent Resources at Goddard, IOG also has independently verified best estimate gross unrisked prospective gas resources of 73 Bcfe² at Goddard. Alongside this, IOG has management estimated mid-case recoverable gas volumes of 40 Bcfe and 100 Bcfe at the Harvey and Redwell licences and continues to pursue value accretive acquisitions to generate significant shareholder returns.
1ERC Equipoise Competent Persons Report: October 2017, adjusted by Management to account for updated project timing and compression
2ERC Equipoise Competent Persons Report: October 2018
Further information can be found at www.iog.co.uk
The Directors present their interim report of operations and unaudited consolidated financial statements of Independent Oil and Gas plc ("the Company") and its subsidiaries ("the Group") for the six months ended 30 June 2020. All amounts are shown in Pounds Sterling, unless otherwise stated.
This interim financial report is the responsibility of and has been approved by the Directors. The Directors are responsible for preparing the Interim Report which has been reviewed, but not been audited by the Company's auditors. In addition to the results for the first six months of 2020 ("1H 2020"), comparative information is provided for the six months ended 30 June 2019 ("1H 2019"). Comparative information for the Group's financial position is also provided for the year ended 31 December 2019 ("FY 2019").
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted by the European Union.
Chief Executive Review
The first half of 2020 was a significant period of progress for IOG as operator of Phase 1 of our Southern North Sea ("SNS") Core Project, following last year's project funding processes that led to the announcement of Final Investment Decision ("FID") at the end of October 2019. The Core Project is designed to create material shareholder value through the monetisation of domestic UK gas resources to be delivered into the import-reliant UK market safely and at a low unit cost. As an innovative low-carbon project using previously decommissioned infrastructure to develop formerly stranded domestic gas resources, we believe it will contribute towards the UK government's twin objectives of Maximising Economic Recovery and achieving Net Zero, whilst generating material cash flows for the Company. In that context, OGA approval of the Phase 1 FDP at the end of April 2020 was a key milestone for IOG and an important government endorsement of our strategy.
With funding and a high-calibre partner in place, following our farm-out agreement ("Farm-out") with CER first announced in July 2019, this half-year was a busy period of activity particularly on Phase 1. It saw key contracts signed for major elements of the Phase 1 development, notably a sizeable SURF contract with Subsea 7, a globally recognised leader in offshore energy services who will play an important role in ensuring safe and efficient Phase 1 execution. At the end of Q3 we will be executing an important element of this SURF scope, namely the offshore pipelay campaign for the 12-inch export line from the Blythe platform location to the Thames Pipeline (PL370) and the 6-inch export line and umbilical from Elgood to Blythe.
In June this year we were also pleased to award the Phase 1 well management contract to Petrofac, another strong industry partner for this project. Petrofac have the right credentials and expertise for this role and are working very closely with our drilling and subsurface teams to help deliver a safe and efficient drilling campaign next year.
Post period-end, IOG also signed a substantial EPCI contract with the very experienced Dutch fabrication contractor HSM for the Southwark and Blythe normally unmanned platforms. These two installations will be vital infrastructure, not only for the safe and efficient execution of Phase 1, but also for the potential addition of further value-adding investments. Platform design and engineering work had been ongoing since FID under pre-contractual arrangements and fabrication activities have been ramping up to be ready for completion and installation in the first half of 2021. We expect shortly to award a significant contract for the provision of a jack-up drilling rig for the five-well Phase 1 development drilling campaign due to start in the first half of 2021.
Alongside progress on the offshore workscopes, design and engineering work progressed during the half-year for the onshore scope to refurbish and recommission the Thames Reception Facilities at the Bacton Gas Terminal, where the Company's gas will land onshore. The necessary revision of operating protocols at Bacton due to Covid-19 has presented challenges, but we have adapted working practices and mobilised additional resources to help mitigate the impact and stay on track for first gas in Q3 2021.
For all key elements of this development - including Platforms, SURF, drilling and onshore TRF refurbishment - our core focus remains to deliver Phase 1 in a safe, effective and cost-efficient way. In that respect, progress has been satisfactory to date, however there is still much ground to cover. Final outturn costs for Phase 1 will depend to a significant extent on the execution of the drilling campaign, for which each element is being rigorously negotiated and planned in detail.
More broadly, we have been able to manage the disruptive impact of Covid-19 on the wider business with reasonable success to date. The safety of our staff, suppliers and their families has remained our top priority throughout and we have continually reviewed and upgraded our procedures to ensure they reflect government guidance. We have worked with suppliers to ensure relevant guidelines have been followed at all relevant sites to maintain safe working environments for project delivery. The communication systems we have implemented to ensure efficient internal and external collaboration have proved robust and reliable. Despite the inevitable restrictions, the team has functioned well and most importantly we were able to continue to build the planned post-FID organisation, selectively adding a number of excellent new hires in technical and financial roles to ensure the Company is best placed to deliver its focused development and production strategy.
Since taking Phase 1 FID in October 2019 we have also further cemented a strong working relationship with our joint venture partner CER. The two companies have developed a strong understanding and appreciation of each other's strengths and respective corporate strategies. As expected, CER has proven to be a reliable and helpful partner, and the £60 million Phase 1 development carry arrangement has been working very effectively.
Beyond Phase 1, during the period we continued to progress a number of further portfolio development activities which should start to come to fruition in the second half of the year. Further seismic reprocessing work is ongoing to improve the subsurface imaging of the Vulcan Satellites assets (Southwark, Nailsworth and Elland), Goddard and Abbeydale. This work will enhance the Company's subsurface imaging and help to optimise field developments and well designs.
We have also been progressing our 3D seismic reprocessing work on Harvey and Redwell, integrating the dataset acquired in the Harvey appraisal well drilled in 2H 2019. The objective is to generate new reservoir models with updated interpretations and estimates of recoverable gas volumes, which are currently approximately 40 Bcfe mid-case for Harvey and 100 Bcfe mid-case for Redwell. This in turn is intended to support plans for high-return incremental developments using the same Thames Pipeline export route, benefiting from lower capex requirements and commerciality thresholds to integrate with the Core Project assets.
In parallel, we made a number of targeted licence applications in the UK Offshore 32nd Round process, results of which are anticipated to be released by the OGA in the relatively near future. Finally, we continue to evaluate other nearby growth opportunities through the disciplined lens of whether they can add scale, create material value and increase the overall returns from our portfolio.
In conclusion, amid the turbulent environment of Covid-19 and commodity price volatility, we have remained firmly focused on delivering Phase 1 on time and on budget while ensuring continued forward momentum on the wider value creation strategy of the business. Importantly, we have also strengthened the organisation through the careful addition of highly experienced specialists across several technical areas. As we move the business forward we continue to leverage our core strengths: proven resource base, experienced team, excellent partner, infrastructure ownership, funding in place to first production next year with low unit costs and a low carbon footprint.
Andrew Hockey
Chief Executive Officer
26 August 2020
Operational Review
Core Project Phase 1
During the half-year the Company has taken significant strides in developing the Core Project Phase 1, following FID in October 2019. Phase 1 comprises the development of the Southwark, Blythe and Elgood fields through a total of five wells, and the recommissioning of the Thames Pipeline and onshore TRF. Importantly, the Phase 1 FDP was approved by the OGA at the end of April 2020, representing a clear government endorsement of the Company's plans. Furthermore, key contracts have been awarded to well-established industry counterparts for the Phase 1 project's subsea infrastructure, platform fabrication and installation, and well management.
The first of these contract awards was to Subsea 7, who will handle the project management, engineering, procurement, construction and installation of our SURF scope. This includes the laying of a 25km 12-inch line connecting the Blythe platform to the Thames Pipeline, a 9km 6-inch pipeline and umbilical connecting the Elgood field to the Blythe platform, a 6km 24-inch extension of the Thames Pipeline to the Southwark platform location, as well as associated subsea structures and tie-ins. At the time of writing, fabrication and delivery of the line pipe has been completed, and welding and spooling operations have been progressing at Subsea 7's base in Leith. The Company has also completed the relevant route surveys ahead of planned installation operations for the various lines.
For Phase 1 well management services, a competitive tendering process led to the signing of a contract in early June with Petrofac, who are an experienced and respected provider in this field. With their assistance, we have been progressing further tendering processes for the jack-up drilling rig and numerous other offshore drilling services and tangibles for the five-well Phase 1 development drilling campaign scheduled to start in the first half of 2021. Detailed well planning, design and relevant regulatory processes are also making good progress, with a view to ensuring that the drilling campaign is as safe, efficient and productive as possible. During the period, IOG also acquired two unused subsea trees and wellheads which have undergone extensive testing. One of these is intended for use at the Elgood field with the other reserved for a future subsea tie-back development.
Post period-end, IOG awarded the EPCI platform contract to Dutch contractor HSM, covering the design, engineering, procurement, construction and installation of the Southwark and Blythe normally unmanned installation platforms. Since Q4 2019, IOG has worked extensively to advance the design and engineering scopes, and HSM are making steady progress with procurement and fabrication activities despite the challenges of Covid-19 restrictions.
Such restrictions have also applied to the refurbishment works for the TRF, which sit within Bacton Gas Terminal, a site of national strategic importance. Our onshore team have been collaborating diligently with the terminal operator and relevant contractors, and are making tangible progress to accelerate our TRF refurbishment activities. This work has included a full clean-out and inspection of existing TRF slugcatchers which encountered less residues than initially expected. Preparations also are progressing for tie-in activities planned during a scheduled BGT shutdown later this year.
Pre-Development Assets
Harvey and Redwell
IOG North Sea Limited has a 100% working interest in Licence P2085 to the east of Blythe (Blocks 48/23c & 48/24b), which was awarded in the 27th Licensing Round, and in Licence P2441, awarded in the 30th Licensing Round, which contains the Redwell (previously Wherry) discovery.
In Q3 2019, IOG drilled the Harvey appraisal well 48/24b-6 with the Maersk Resilient jack-up rig. The well reached a total depth of 7,537 ft Measured Depth in the Permian Leman Sandstone reservoir, meeting the Initial Term work commitment for Licence P2085. The top of the Leman Sandstone was encountered at 7,086 ft MD. Two 90 ft cores were acquired in the reservoir along with a full suite of wireline logs, including pressure test and fluid samples, as well as Vertical Seismic Profiling ("VSP"). Initial analysis of the wireline data demonstrated the presence of a 49 ft gas column at the top of the reservoir. Initial seismic remapping and technical assessment of gas volumes was completed by December 2019 and has indicated that the Harvey structure as described on the pre-stack depth migration ("PSDM") map prior to the well being drilled is likely to be compartmentalised into more than one structure. The updated mapping based on the well data also indicates the presence of a larger structure at Harvey up-dip to the northeast of the previous 48/23-2 well, i.e. the northern part of the pre-well PSDM Harvey structure. The size of this structure implies mid-case recoverable volumes of approximately 40 Bcfe, analogous in size to Blythe.
The Harvey appraisal well results have also been integrated into the seismic data covering the P2441 licence, to the immediate east of P2085. This indicates that Redwell extends further to the northwest than previously estimated, incorporating both the Redwell discovery and what was considered the Woodforde prospect into a single structure with management estimated mid-case recoverable resource volumes in the region of 100 Bcfe. The wells drilled at Redwell by previous operators prior to 2006 demonstrated a low-relief discovery of good reservoir quality.
Using the dataset from the Harvey well, further seismic reprocessing has progressed during the first half of 2020, to generate more accurate estimates of gas in place and recoverable volumes in both Harvey and Redwell. Further reservoir modelling on this basis may support plans for high-return incremental developments benefitting from direct tie-in to the Thames Pipeline export route or tie-back to Phase 1 infrastructure such as the Southwark or Blythe platforms. Results of this work are expected during Q4 2020.
Nailsworth and Elland
IOG UK Limited has a 50% operated working interest (with CER holding the remaining 50%) in the P130, P2342 and P039 licences, which contain the undeveloped Nailsworth and Elland gas discoveries. Together with Southwark, these fields comprise the Vulcan Satellites, with reservoirs in the Rotliegend Leman sandstone. Nailsworth and Elland are planned to be developed as part of Phase 2 of the Core Project, with three and two development wells respectively.
Further 3D seismic reprocessing is currently being undertaken over the Vulcan Satellite fields to further improve subsurface imaging, to further refine field development plans and optimise well designs. This is due to be completed in Q4 2020.
Goddard
IOG North Sea Limited has a 50% operated working interest (with CER holding the remaining 50%) in Licence P2438 which contains Goddard, an undeveloped gas discovery. Goddard is intended to be developed as part of Phase 2 of the Core Project with a total of three wells. Under the licence a firm commitment was made to reprocess 175 km2 of 3D seismic to PSDM and drill an appraisal well on Goddard to 3,140m.
As part of the FDP planning for Phase 2, the Goddard field is currently undergoing 3D seismic reprocessing and reinterpretation, which is expected to complete in H1 2021.
Abbeydale
IOG North Sea Limited also has a 50% operated working interest (with CER holding the remaining 50%) in Licence P2442 which contains the Abbeydale undeveloped gas discovery. Under the four-year Licence, a commitment was made to reprocess 150 km2 3D seismic data to PSDM and drill a well to 1,960m TD or drop the licence. As with Goddard, Abbeydale is currently undergoing 3D seismic reprocessing and interpretation with an expected completion date in H1 2021.
Mark Hughes
Chief Operating Officer
26 August 2020
Financial Review
The first half of 2020 saw continued use of the various funding sources put in place in 2019, as investment in the Phase 1 development ramped up. These included the proceeds of the Farm-out to CER, which incorporates a £60 million Phase 1 development carry arrangement, and the €100 million senior secured Bond. Additionally, a £65m carry for Phase 2, making total development carries of £125m under the Farm-out agreement.
The Company started the period with a cash balance of £16.2 million plus £82.1 million of restricted cash, and a net cash1 position of £8.0 million. It ended the period with a cash balance of £31.6 million plus restricted cash of £72.6 million, and a net cash position of £9.2 million.
Over the period the Company invested £43.9 million on gross Phase 1 capital expenditures, of which £4.4 million was net to IOG. In the period the Company also received £42.3 million in partner cash calls against Phase 1 capital expenditures, including £19.0 million of development carry, from CER. The net expenditures for the Company of £5.0 million plus an additional £4.6 million of capitalised interest totalled the £9.6 million increase in intangible assets and PP&E.
At period end the remaining available uncalled Phase 1 development carry amount was £36.7 million.
During the half-year the Company also drew down €11.7 million (£10.4 million equivalent) from the Bond escrow account, ending the period with a further €66.0 million (£60.2 million equivalent) to be drawn at three further Phase 1 operational milestones over the next 12 months. It also drew down a total of €4.8 million (£4.6 million equivalent) during the period from the Debt Service Reserve Account ("DSRA") to make two quarterly interest payments, leaving a further €12.0 million (£11.0 million equivalent) in the DSRA, representing another five quarterly interest payments.
1 Net cash is defined as restricted cash plus cash and cash equivalents plus financial assets, less outstanding debt.
Income statement
The loss for the first six months of 2020 was £3.7 million (0.8p per share undiluted, 0.8p per share fully diluted), compared to £4.6 million for the first six months of 2019 (2.2p per share undiluted, 2.2p per share fully diluted) and a gain of £15.0 million (3.1p per share undiluted, 2.5p per share fully diluted) in the year ended 31 December 2019.
The current period loss includes £1.5 million of net administration expenses (1H 2019: £0.7 million), finance expenses of £1.1 million (1H 2019: £2.5 million) offset by interest income of £0.1 million (1H 2019: £nil), foreign exchange losses of £0.8 million (1H 2019: £nil) and fair value losses of £0.3 million (1H 2019: £nil) on bonds held as financial assets. €4.8m of bond coupon payments were made in the period, but capitalised to the Phase 1 development assets to which they relate.
The foreign exchange losses of £0.8 million for the current period reflect fluctuations in exchange rates on the valuation of non-GBP denominated balances.
Finance expenses of £1.1 million include £0.9 million of finance fees and charges, consisting of £0.6 million unwinding of convertible loan from London Oil and Gas Ltd ("LOG") and £0.2 million of amortisation of bond issuance fees, plus £0.2 million of interest paid on the bond escrow and DSRA accounts.
Statement of financial position
Non-current assets at 30 June 2020 of £52.9 million (31 December 2019: £92.4 million) include development and production assets of £38.2 million, representing the Group's capital expenditures attributable to the Thames Pipeline infrastructure and the Southwark, Blythe and Elgood development assets; exploration and evaluation assets of £13.4 million, representing capital expenditures attributable to the Elland, Nailsworth, Harvey, Redwell, Goddard and Abbeydale pre-development assets; other property, plant and equipment of £1.1 million; and other intangible assets of £0.2 million. The decrease in non-current assets from the year ended 31 December 2019 is primarily due to a reclassification of restricted cash to current assets.
Current assets at 30 June 2020 of £106.4 million (31 December 2019: £54.1 million) include cash and cash equivalents of £31.6 million, restricted cash of £72.6 million, financial assets (IOG bonds) of £1.2 million, inventory of £0.6 million and other receivables and prepayments of £0.9 million.
Current liabilities comprise trade and other payables of £16.7 million (31 December 2019: £7.2 million). Non-current liabilities of £105.8 million include £96.2 million due on the senior secured bond issued in 2019 and the debt element of the LOG convertible loan. In addition, provisions of £9.6 million represent deferred consideration amounts payable on first gas due in 2H 2021 from both the Blythe and Southwark fields, as well as abandonment liabilities for both the Elland suspended well and the Thames Pipeline offshore infrastructure.
Cash flow
After adjustment for non-cash items, cash generated from operations, including working capital movements, for the first six months of 2020 was £15.9 million (1H 2019: used £2.1 million). Cash generated from investing activities, which include the purchase and acquisition of oil and gas properties and receipts from restricted cash funds, amounted to £9.3 million (1H 2019: used £5.6 million). Cash used in financing activities, which is primarily coupon payments on the Bonds, amounted to £4.6 million (1H 2019: generated £21.5 million primarily driven by the equity placing and open offer).The cash balance at the end of the period was £31.6 million (31 December 2019: £16.2 million).
Funding and liquidity
The Board has reviewed the Group's cash flow forecasts for the next 12 months having regard to its current financial position and operational objectives. The Board is satisfied that the Group will have sufficient financial resources available to meet its commitments based on the amount of available cash within the Group, funding pursuant to the Farm-out and drawdowns from the Bond. Accordingly, the Board continues to adopt the going concern basis for the preparation of this interim financial information.
Risks and uncertainties
The Group operates in the oil and gas industry, an environment subject to a range of inherent risks and uncertainties. Key risks and associated mitigation are set out below.
Finance: Management seeks to generate shareholder returns through monetisation of a portfolio of proven offshore gas assets. This primarily entails construction and installation of production, transportation and processing infrastructure and drilling of production wells. These activities carry several key risks.
Risk
Mitigation
Investor support may be eroded, impacting the Company's market value and potentially hindering fundraising activities
· Management has a clear strategy for value realisation and creation, which is regularly communicated to shareholders
· The Company's asset portfolio has robust inherent economics as well as substantial incremental value, as attested by third-party analyst reports
· The Company has fully funded its Phase 1 development and is therefore not anticipating raising additional capital in this regard
· CER's credit risk is low and kept under review
Volatility in macroeconomic conditions may hinder delivery of the Company's business plan
· The Company has fully funded its Phase 1 development and therefore has sufficient liquidity for its planned activities
· As a buyer of products and services, the Company faces both risks and opportunities from economic volatility
Each asset carries a range of potential values
· The Company has a healthily diversified portfolio of 6 proven gas fields in its Core Project, plus further assets which could potentially be added, therefore there is limited financial dependence on a single asset
The Company may not be able to raise funds to develop its assets
· The Company successfully undertook equity, debt and Farm-out funding from CER in 2019 which fully funded its Phase 1 activities and is anticipated to lead to production revenues from operations from 2H 2021
The Company faces the risk of a breach of its Bond terms
· The Company makes consistent efforts to be fully aware of its responsibilities and obligations under the Bond terms
· The Company makes consistent efforts to manage the business within budget
· Management calibrates key project commitments against bond conditions and covenants to ensure avoidance of any breach
The administrators of London Oil and Gas Ltd ('LOG') may be obliged to divest its holding, creating downward pressure on the Company's market value
· The administrators of London Capital & Finance ("LCF"), with respect to LOG's holding in IOG, have stated publicly in December 2019 that they saw the market value of the Company at the time as a "significant discount to IOG's estimated net asset value". Management believes the administrators intend to maximise the value of the LOG holding in IOG
Operations: Operations may not go to plan, leading to damage, pollution, cost overruns and poor outcomes
Risk
Mitigation
Reservoir and subsurface uncertainty
· Thorough subsurface mapping and reservoir modelling
· High quality well design
· Lessons learned during early wells applied to later wells
Departure from Schedule and Budget
· Ensure competent personnel are managing the project
· Award contracts to competent contractors
· Rigorous internal schedule and budget control
· Implement and maintain a Management of Change process
· Follow gate process, utilise peer reviews at appropriate project stages
Market conditions for rig and marine vessel procurement may harden.
· Platform and pipeline contracts are almost entirely lump sum
· Very competitive tender processes for rig and other offshore services and tangibles
· Where possible incentivise contracts to minimise final cost
Scope creep in Thames Reception Facilities refurbishment
· Rigorous engineering and design work
· Proactive engagement with Bacton Gas Terminal operator
· Rigorous cost and schedule controls throughout execution
Cyber Security
· Build enhanced IT security plan and procedures, with improved access to right systems and protocols
· Enhance onboarding and leaving processes
Resource estimates may be misleading curtailing actual reserves recovered
· Deployment of qualified and experienced personnel
· Commission third-party reports and studies
· Plan prudently based on the range of possible outcomes
Regulatory and Legal: The Group may be unable to meet its licence and regulatory obligations
Risk
Mitigation
Delays in obtaining required permits and consents
· Expedite timely submissions of consent processes and follow up proactively
· Close liaison with relevant bodies, including OGA and the department for Business, Enterprise and Industrial Strategy ("BEIS"), at all levels of the respective organisations
· Ensure suitable personnel are managing these processes
Deficiency in Corporate Governance
· Develop, implement and maintain a suitable suite of corporate procedures (e.g. Financial Operating Policy)
· Tender Committee to authorise contracts
Human Resources: The Company relies upon a pool of experienced and motivated personnel to identify and execute successful investment strategies
Risks
Mitigation
Key personnel may be lost to other companies
· Remuneration Committee regularly evaluates incentivisation to ensure competitiveness
Difficulty in attracting the necessary talent
· Adopt attractive packages for staff and contractors
HSE and Sustainability
Risks
Mitigation
Risk of causing personal harm
· Compliance with the UK regulatory goal setting regime for safety is established, implemented and maintained through the Company leadership HSE and Technical Committee, culture and management systems for safety
Risk of causing adverse environmental impact
· Strategic focus on natural gas as a transition fuel
· Design and operation of low carbon footprint facilities, including re-use of existing infrastructure
Commercial environment: World and regional markets continue to be volatile with fluctuations and infrastructure access issues that might hinder the Company's business success
Risk
Mitigation
Risk of stakeholder misalignment
· Regular interfacing with key stakeholders
· Understand stakeholders' priorities and drivers
· Build and maintain relationships with stakeholders
Gas price volatility
· Continue to take advice from gas market experts
· Progress plans to implement a hedging strategy at the suitable time
Brexit 'no-deal' at the end of 2020
· Major contracts for Phase 1 being awarded in 2020
· FX risks are primarily GBPEUR and GBPUSD fluctuations; exposure to adverse FX rate movements is minimised by matching denomination of cash holdings and liabilities to the extent possible. Further, EUR balances in our bond escrow account provide a natural near term hedge for substantial EUR-denominated project costs.
Risk of losing access infrastructure and product markets when required
· Explore range of off-take options and counterparties
COVID-19 Pandemic: The Covid-19 pandemic has created severe economic upheaval and unforeseeable disruptions to normal working practices around the world
Risks
Mitigation
Pandemic disrupts the Company's ability to deliver its key corporate objectives
· Logistical and organisational changes implemented to underpin resilience to Covid-19, with the key focus being protecting all personnel, minimising impact on critical workstreams and ensuring business continuity
Key performance indicators
The Company's main business is the acquisition and exploitation of oil and gas acreage. In 2020 it has adopted an updated set of Key Performance Indicators against which to track and measure its performance, each allocated to a specific member of the executive. These fall under the following headings: Health, Safety and Environment ("HSE") and Environmental, Social and Governance ("ESG"), Finance, Investor Relations, Joint Venture Management, Core Project Phase 1, Pre-Development Assets, Office and Governance.
Rupert Newall
Chief Financial Officer
26 August 2020
INDEPENDENT REVIEW REPORT TO INDEPENDENT OIL AND GAS
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 which comprise the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Changes in Equity and the Consolidated Cash Flow Statement.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors. The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the Company's annual accounts having regard to the accounting standards applicable to such annual accounts.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2020 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.
Use of our report
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability
BDO LLP
Chartered Accountants
London
26 August 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
Unaudited
Unaudited
1H 2020
1H 2019
Note
£000
£000
Other administration expenses
(1,530)
(703)
Project, pre-acquisition and exploration expenses
(66)
(1,356)
Foreign exchange loss
(751)
(12)
_________
_________
Total administration expenses
(2,347)
(2,071)
_________
_________
Operating loss
(2,347)
(2,071)
Finance expenses
(1,077)
(2,538)
Finance income
96
-
Fair value loss
(319)
-
_________
_________
Loss for the period before tax
(3,647)
(4,609)
Taxation
-
-
_________
_________
Total comprehensive loss for the period attributable to equity holders of the parent
(3,647)
(4,609)
_________
_________
Loss for the period per ordinary share - basic
2
(0.8) p
(2.2) p
Loss for the period per ordinary share - diluted
2
(0.8) p
(2.2) p
The loss for the period arose from continuing activities.
Unaudited
Audited
Note
30 June 2020
31 December 2019
£000
£000
Non-current assets
Intangible assets: exploration & evaluation
13,423
13,099
Intangible assets: other
176
80
Property, plant and equipment: development & production
38,181
28,921
Property, plant and equipment: other
1,122
1,071
Restricted cash
-
49,230
52,902
92,401
Current assets
Inventory
629
-
Financial asset
1,224
-
Other receivables and prepayments
896
5,092
Restricted cash
3
72,550
32,836
Cash and cash equivalents
3
31,564
16,197
106,863
54,125
Total assets
159,765
146,526
Current liabilities
Trade and other payables
(16,723)
(7,231)
16,723
(7,231)
Non-current liabilities
Loans
4
(96,183)
(89,243)
Provisions
(9,567)
(9,504)
(105,750)
(98,747)
Total liabilities
(122,473)
(105,978)
Net assets
37,292
40,548
Capital and reserves
Share capital
4,802
4,802
Share premium
49,423
49,423
Share-based payment reserve
6,743
6,352
Accumulated losses
(23,676)
(20,029)
Total equity
37,292
40,548
Share capital
Share premium
Share- based payment reserve
Accumulated
losses
Total
equity
Group
£000
£000
£000
£000
£000
At 1 January 2019
1,269
22,337
6,308
(35,690)
(5,776)
Profit for the year
-
-
-
15,029
15,029
______
_______
_______
______
_______
Total comprehensive Income attributable to owners of the parent
-
-
-
15,029
15,029
Issue of share capital
3,483
27,086
-
-
30,569
Issue of warrants
-
-
(31)
31
-
Issue of share options
-
-
676
-
676
Exercise of share options
50
-
(601)
601
50
______
_______
_______
______
_______
At 31 December 2019 (Audited)
4,802
49,423
6,352
(20,029)
40,548
______
_______
_______
______
_______
Loss for the period
-
-
-
(3,647)
(3,647)
______
_______
________
______
_______
Total comprehensive loss attributable to owners of the parent
-
-
-
(3,647)
(3,647)
Issue of share options
-
-
391
-
391
______
_______
_______
______
_______
At 30 June 2020 (Unaudited)
4,802
49,423
6,743
(23,676)
37,292
______
_______
_______
______
_______
Share capital
Amounts subscribed for share capital at nominal value.
Share premium
Amounts received on the issue of shares, more than the nominal value of the shares, less issue costs.
Share-based payment reserve
Amounts reflecting fair value of options and warrants issued.
Accumulated losses
Cumulative net losses recognised in the Statement of Comprehensive Income net of amounts recognised directly in equity.
Unaudited
Unaudited
1H 2020
1H 2019
£000
£000
Loss after tax
(3,647)
(4,609)
Adjustments for:
Depreciation and amortisation
262
9
Fair value loss
319
-
Share based payments
391
218
Movement in other receivables
2,952
(82)
Movement in trade and other payables
9,492
(194)
Movement in inventory
(629)
-
Interest received
(96)
(11)
Interest and financing fees
866
2,548
Effect of exchange rate changes on Bonds payable
6,030
-
_________
_________
Net cash generated from / (used) in operating activities
15,940
(2,121)
Cash flows from investing activities
Purchase of intangible assets and property, plant and equipment
(4,894)
(5,586)
Deferred consideration payments
(875)
-
Movement in cash and cash equivalents from restricted cash
15,048
-
Interest received
96
11
Lease liability payments
(64)
-
_________
_________
Net cash generated from / (used in) investing activities
9,311
(5,575)
Cash flows from financing activities
Proceeds from issue of equity instruments of the Group (net of costs)
-
17,652
Cash received from loans (net of costs)
-
3,925
Interest and financing fees paid
(4,605)
(80)
_________
_________
Net cash (used in) / generated from in financing activities
(4,605)
21,497
Increase in cash and cash equivalents in the period
20,646
13,801
Cash and cash equivalents at start of period
16,197
702
Effects of exchange rate changes on cash and cash equivalents
(5,279)
2
_________
_________
Cash and cash equivalents at end of period
31,564
14,505
_________
_________
1. Basis of preparation
The financial information contained in this announcement does not constitute statutory financial statements within the meaning of Section 434 of the Companies Act 2006. The financial information for the six months ended 30 June 2020 have been reviewed, not audited. The financial information for the six months ended 30 June 2020 has been prepared using accounting policies consistent with IFRS as adopted by the European Union. The same accounting policies, presentation and methods of computation are followed in the financial information as were applied in the Group's latest annual audited financial statements for the year ended 31 December 2019. While the financial figures included in this financial information have been computed in accordance with IFRS applicable to interim periods, this financial information does not contain sufficient information to constitute an interim financial report as that term is defined in IAS 34 'Interim Financial Reporting'.
The comparatives for the full year ended 31 December 2019 are not the Company's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.
The Board has reviewed the Group's cash flow forecasts for the next 12 months having regard to its current financial position and operational objectives. The Board is satisfied that the Group will have sufficient financial resources available to meet its commitments based on the amount of available cash within the Group, funding pursuant to the Farm-out and drawdowns from the Bond. Accordingly, the Board continues to adopt the going concern basis for the preparation of this interim financial information.
2. Loss per share
The calculation of loss per share is based upon the weighted average number of ordinary shares in issue during the period of 480,173,245 (30 June 2019: 204,866,723). Diluted loss per share is calculated based upon the weighted average number of ordinary shares plus the weighted average number of ordinary shares that would be issued upon conversion of potentially dilutive share options and warrants into ordinary shares. As the result for both periods presented was a loss, the calculation of the diluted LPS was anti-dilutive and therefore the potential ordinary shares were ignored for the purposes of calculating diluted LPS. The weighted average number of ordinary shares on a diluted basis at 30 June 2020 is 598,741,061 (30 June 2019: 388,027,521).
3. Restricted cash, Cash and cash equivalents
Unaudited
Audited
Group
30 June 2020
31 December 2019
£000
£000
Restricted cash
72,550
82,066
Cash and cash equivalents
31,564
16,197
Restricted cash at 30 June 2020 includes £71.2 million (31 December 2019: £80.7 million) of restricted deposits in Euro escrow and Debt Service Reserve Accounts following the Norwegian Bond issue and a £1.3 million (31 December 2019: £1.3 million) deposit secured against decommissioning provisions of the Group's infrastructure assets. All restricted cash balances are expected to become unrestricted and readily available for use within 1 year.
Cash and cash equivalents comprise cash in hand, deposits and other short-term money market deposit accounts that are readily convertible into known amounts of cash.
4. Bonds payable
On 20 September 2019, the Company issued a €100 million Norwegian Bond on the Oslo Børs, of which €100 million was drawn down to fund the Phase 1 development program.
Unaudited
30 June 2020
Audited
31 December 2019
£000
£000
Balance at the beginning of the year
82,423
-
Bonds Issued (€100m)
-
90,439
Transaction fees
-
(2,793)
Amortisation of transaction fees
(327)
-
Interest charged
4,882
2,545
Interest Paid
(4,882)
(2,545)
Currency revaluation
6,030
(5,223)
_________
_________
88,780
82,423
_________
_________
The secured callable bonds were issued on 20 September 2019 by IOG plc at an issue price of par. The bonds have a term of five years and will be repaid in full at maturity. The bonds carry a coupon of 9.5% plus 3 month EURIBOR with a EURIBOR floor of 0% and were issued at par.
The Bond is callable 3 years after issuance with an initial call premium of 50% of the coupon (i.e. repayable at a cost of €104.75 million if 3m EURIBOR is at zero or lower), declining by 10% every six months thereafter.
Included within loans payable of £96.2 million (31 December 2019: £89.2 million) are £88.8 million (31 December 2019: £82.4 million) of bonds and £7.4 million (31 December 2019: £6.8 million) of loans.
5. Post balance sheet events
On 3 August 2020, the Company announced that it had awarded the Engineering, Procurement, Construction and Installation (EPCI) contract for its Core Project Phase 1 platforms (Blythe and Southwark) to Dutch contractor HSM Offshore BV.
Country of incorporation of parent company
England & Wales
Legal form
Public limited company with share capital
Directors
Fiona MacAulay
Andrew Hockey
Mark Hughes
Rupert Newall
Esa Ikaheimonen
Neil Hawkings
General Counsel and Company Secretary
Robin Storey
Registered office
60 Gracechurch Street
London
EC3V 0HR
Company registered number
07434350
Auditors
BDO LLP
55 Baker Street
London W1U 7EU
Legal advisers
Fieldfisher LLP
Riverbank House
2 Swan Lane
London EC4R 3TT
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