REG - IOG PLC - Corporate Update

IogAnnouncement

07/06/2023 07:00

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RNS Number : 9302B  IOG PLC  07 June 2023

7 June 2023

 

IOG plc

 

Corporate Update

 

IOG plc ("IOG", or "the Company"), (AIM: IOG.L) provides an operational and
financial update following well clean-up and testing operations at the Blythe
H2 well over 4-7 June.

 

Blythe H2 clean-up and testing

·      The H2 well was drilled to a total depth of 13,400 ft MD and
initial data indicated better reservoir quality (permeability and porosity) in
the H2 wellbore versus H1

·      The well has flowed at a maximum dry gas rate of 22.8 mmscf/d and
280-336 bbl/d condensate at the export pipeline pressure of 1250psi, with no
formation water observed

·      This is an improvement on current H1 rate, but below the expected
initial H2 gas rate of 30-40 mmscf/d

·      There is evidence that a potential mechanical blockage downhole
is constraining flow. Equipment is being mobilised in the coming weeks to
assess and rectify this potential blockage.

·      No faults or fractures were encountered in the H2 reservoir
section, unlike at H1 where a sub-seismic fracture appears to be causing
formation water production

Blythe H2 next steps

·      H2 will now be handed over for final hook-up and commissioning
("HUC") and remains expected to be brought onstream this month, despite the 34
days lost to the well control event

·      Safely completing the H2 HUC is expected to require approximately
one week of planned downtime

·      The remedial downhole equipment will be mobilised in the coming
weeks and run in the well with the rig alongside, with H2 well shut in during
these operations

·      Once H2 production is on, H1 is planned to be shut in; in a
higher gas price environment it could be possible to reopen H1 at lower rates
to minimise water production

Blythe H1 production operations

·      The current gross unconstrained H1 production rate is
approximately 15.5 mmscf/d

·      Average 2023 gross production year to date to 31 May was 13.9
mmscf/d, factoring in shutdowns and liquid letdowns alongside other Bacton gas
streams

·      Operating Efficiency over that period has been 93.9% and
Production Efficiency 84.6%

 

Financial Update

·      Final H2 well costs are expected to be approximately £15m net to
IOG, consistent with guidance provided on 2 May

·      The gas market environment has become increasingly challenging
over recent months. In January 2023, the Company's average realised gas price
was 214 p/therm. When the 2022 Annual Report and Accounts ("ARA") was released
on 16 March 2023, the UK NBP Day-ahead gas price was 126 p/therm. This then
fell to 64 p/therm by 6 June 2023. The average realised price for May 2023 was
72 p/therm and 2023 realised average to the end of May was 112 p/therm.

·      The forward curve for 2H 2023 has also dropped considerably with
near term prices at a 20-month low and less than half the level in February
2022 before the Ukraine war. Given the complex dynamics involved, there is
also considerable uncertainty about the outlook for future gas prices.

·      The going concern section of the ARA highlighted the evolution of
gas prices as a key risk facing the business. The recent substantial further
falls in gas prices means the Company is now likely to breach one or more of
the covenants under the terms of its €100 million senior secured bond at the
next covenant test date of 30 June 2023.

·      The ARA also highlighted the importance to the Company of the
Blythe H2 well. The Company is assessing the impacts of potentially lower than
expected H2 production rates.

·      The Board has been proactively taking mitigating actions to
address balance sheet risks, including appointing an independent corporate
finance firm, Smith Square Partners, which has considerable experience in
advising companies in similar situations

·      The Company has also engaged in preliminary discussions with an
ad-hoc group of bondholders representing c. 40% of the bonds. The purpose of
these discussions, which the Board views as constructive to date, is:

a)   to secure pre-emptive waivers of potential covenant breaches

b)   to agree measures to enable the Company to withstand short term
consequences of recent gas price developments

c)   to explore the most effective means of addressing the maturity of the
bond in September 2024

·      In this context, the Board remains highly focused on maximising
near-term production and reducing operating costs, as well as minimising
capital expenditure, as reflected in the Goddard farm-out process

·      Cash at bank as at 31 May 2022 was £21.5 million, including
restricted funds of £6.8 million

 

Rupert Newall, CEO, commented:

 

"The Blythe H2 well has tested at a maximum gas rate of 22.8 mmscf/d at the
pipeline export pressure, appearing to be constrained by a suspected downhole
mechanical blockage. H2 has been executed safely and efficiently considering
that 34 days were lost to the well control event and remains on track to come
onstream later this month following final hook-up and commissioning.

 

Meanwhile, the Company has come under increased pressure from severe gas
market volatility, with UK NBP Day-ahead gas prices falling by over 85% from
August 2022 to June 2023. In that context, we have initiated constructive
discussions with an ad-hoc group of our largest bondholders around potential
short and longer-term solutions. We will keep all stakeholders updated as
appropriate on the progress of these discussions."

 

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014 as it forms part of UK domestic law
by virtue of the European Union (Withdrawal) Act 2018 ("MAR"), and is
disclosed in accordance with the company's obligations under Article 17 of
MAR.

 

Enquiries:

 

 IOG plc                                            +44 (0) 20 7036 1400

 Rupert Newall (CEO)

 Dougie Scott (COO)

 James Chance (Head of Capital Markets & ESG)

 finnCap Ltd                                        +44 (0) 20 7220 0500

 Christopher Raggett / Simon Hicks

 Peel Hunt LLP                                      +44 (0) 20 7418 8900

 Richard Crichton / David McKeown

 Vigo Consulting                                    +44 (0) 20 7390 0230

 Patrick d'Ancona / Finlay Thomson

About IOG:

 

IOG is a UK developer and producer of indigenous offshore gas. The Company
began producing gas in March 2022 via its offshore and onshore Saturn Banks
production infrastructure. In addition to its production assets, IOG operates
several UK Southern North Sea licences containing gas discoveries and
prospects which, subject to future investment decisions, may be commercialised
through the Saturn Banks infrastructure. All its assets are co-owned 50:50
with its joint venture partner CalEnergy Resources (UK) Limited. Further
details of its portfolio can be found at www.iog.co.uk (http://www.iog.co.uk)
.

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