REG - IOG PLC - Half-year Report
25/08/2022 07:00
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RNS Number : 1466X IOG PLC 25 August 2022
25 August 2022
1H 2022 Interim Results
IOG plc ("IOG" or the "Company" or "Group") (AIM: IOG.L), the Net Zero UK gas
and infrastructure operator focused on high return projects, announces its
unaudited results for the six months ended 30 June 2022.
Andrew Hockey, CEO of IOG, said:
"In March, IOG became the UK's newest gas producer when we brought Saturn
Banks Phase 1 onstream - a major milestone that is testament to many years of
hard work across the whole team and our robust partnership with CalEnergy
Resources. Generating our first revenues and profit in this period is an
important step forward for the business.
The current energy crisis amply demonstrates the importance of low carbon
intensity domestic gas production in delivering secure, affordable and
sustainable energy supply. Our high-margin Phase 1 gas production can help to
meet this challenge and enable further investment in our next phases of
growth.
With high salinity fluids currently being received onshore, we are temporarily
producing the Blythe and Elgood wells independently to establish the source of
these fluids and optimise the operating plans. In view of this, we have
revised our 2H 2022 guidance to a more conservative 30-50 mmscf/d.
Our two other key priorities this year are delivering Southwark first gas and
progressing our Phase 2 plans. We also aim to open up further synergistic gas
hubs with the two exciting appraisal wells at Goddard and Kelham. We look
forward to the rest of 2022 and beyond with a firm focus on maximising
shareholder value."
1H 2022 Operating and Financial Summary
Operating 1H 2022 1H 2021 FY 2021
Gross gas production¹ mmscf/d 34.0 Nil nil
Net gas sales mmscf 1,849.3 Nil nil
Volume weighted average gas price p/therm 148.7 N/A N/A
Net condensate sales MT 2,558.3 Nil nil
Average condensate price $/MT 890.1 N/A N/A
Financial
Revenue £m 30.2 Nil nil
Opex p/therm 13.7 N/A N/A
Profit/(loss) £m 11.4 0.2 (4.3)
EBITDAX² £m 25.9 0.1 (3.7)
Capex spend (net to IOG) £m 21.6 42.0 59.1
Cash (excl. restricted) £m 12.3 55.6 31.3
Net debt³ £m 78.3 32.2 56.6
Basic EPS £p 2.2 0.0 (0.0)
1H 2022 Highlights
· Blythe and Elgood successfully brought onstream in mid-March 2022
o Gross aggregate production of 34.0 mmscf/d from First Gas to 30 June 2022,
at 59% uptime
· Strengthening gas market conditions during the period and
particularly since period end
o Volume weighted average gas price of 149 p/therm in 1H 2022
o Rising to 254 p/therm over 2H 2022 to date⁴
o UK NBP gas Winter-22 contract currently >600 p/therm and Summer-23
>500 p/therm
· Generating cash flow and profit from production operations
o Total revenue of £30.2 million (30 June 2021: £nil), split 94% gas and
6% condensate
o Opex of 13.7 p/therm for the period (1H 2021: N/A)
o EBITDAX of £25.9 million for the period (1H 2021: £0.1 million)
o Post-tax profit of £11.4 million (30 June 2021: £0.2 million)
o Unrestricted cash balance at period end of £12.3 million (31 December
2021: £31.3 million)
· New long-term gas sales agreement (GSA) executed with BP Gas
Marketing Ltd (BPGM)
o Covering Blythe, Elgood, Southwark, Nailsworth and Elland fields up to at
least September 2023
· Further progress towards first gas at Southwark, the third Phase
1 field, targeted for Q4 2022
o Southwark A2 (East) well drilled by Noble Hans Deul rig in Q2 2022
o Successful installation in Q2 2022 of 6km extension of 24" Saturn Banks
Pipeline System to Southwark field location by Seven Borealis S-lay vessel
· €100 million senior secured bond maturing September 2024
("Bond") remains in place, with closing market price of 100.5 (0.5% premium to
par) as at 30 June 2022
· Total Reportable Incident Rate (TRIR) of 4.8 per 200,000 manhours
for 1H 2022
Post-Period End and Outlook
· One week planned shutdown completed in July 2022 for Blythe platform
chemical injection modifications
· Gross average production of 34.4 mmscf/d for 2H 2022 to date, with
76% uptime and VWAP of 254 p/therm
· High salinity fluids (MEG/water) being received onshore - Blythe and
Elgood wells are being produced individually for periods to establish the
source
· 2.7 mmscf/d fixed for August 2022 at 310 p/therm and September
2022 at 444 p/therm via BPGM
· Gross 2H 2022 gas production guidance adjusted to 30-50 mmscf/d range
(from 45-60 mmscf/d)
· 2022 capex guidance reiterated at £70-85 million net to IOG
· Opex guidance revised from 10-15 p/therm to 10-20 p/therm
(~$8-15/boe) to account for additional costs of onshore fluids management and
the revised production guidance
· Southwark A1 (West) production well drilling resumed in early Q3
2022; significant delays experienced to date due to drilling fluid losses,
primarily in the Bunter Sandstone Formation
· Southwark subsea, hook-up and commissioning works ongoing in parallel
targeting first gas in Q4 2022
· Goddard and Kelham North/Central appraisal wells to be drilled in
direct continuation after Southwark
· Continued Phase 2 planning and engineering, and engagement with
partner and regulators
· Panther/Grafton area seismic re-evaluation expected to be
completed by year end
· New licence applications planned for the next (33(rd)) UK
Offshore Licensing Round
· 2022 Scope 1&2 emissions intensity projected to be among the
lowest in the UK North Sea
( )
(1) (From First Gas on 13 March 2022 to 30 June 2022)
(2) (EBITDAX is defined as earnings from continuing activities before
interest, foreign exchange gains and losses, tax, DD&A, impairment of
PP&E and intangibles, and other exploration expenditure)
(3) (Net debt is defined as restricted cash (£3.5 million) plus cash &
cash equivalents (£12.3 million), less outstanding loans (£94.1 million))
(4) (2H 2022 to date refers to the period 1 July 2022 - 21 August 2022
inclusive)
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
Andrew Hockey (CEO)
Rupert Newall (CFO)
James Chance (Head of Capital Markets and 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
Notes
About IOG:
IOG is a Net Zero UK gas and infrastructure operator focused on high-return
projects. The Company's operations are currently concentrated around its
offshore and onshore Saturn Banks infrastructure in the UK Southern North Sea.
Phase 1 of its Saturn Banks Project, which started production in March 2022,
entails the commercialisation of the Blythe, Elgood and Southwark gas fields
through this infrastructure. Phase 2 of the Saturn Banks Project entails the
Nailsworth, Goddard and Elland gas discoveries, which are subject to future
investment decisions and expected to be commercialised through the same export
infrastructure. The Company also holds further licences with additional
resources including the Abbeydale, Panther and Grafton gas discoveries, the
Kelham North, Kelham Central, Thornbridge and Thornbridge Deep prospects, and
part of the Orrell gas discovery. Currently, all IOG's licences are held 50:50
with its joint venture partner CalEnergy Resources (UK) Limited (CER) and
operated by IOG. In addition, the Company continually evaluates further
opportunities for accretive portfolio additions to help generate additional
shareholder returns. Further details are available at www.iog.co.uk
(http://www.iog.co.uk) .
The Directors present their interim report of operations and unaudited
consolidated financial statements of IOG plc ("the Company") and its
subsidiaries ("the Group") for the six months ended 30 June 2022. 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 audited by the Company's external
auditor. In addition to the results for the first six months of 2022 ("1H
2022"), comparative information is provided for the six months ended 30 June
2021 ("1H 2021"), which was not audited or reviewed by the Company's external
auditor. Comparative information for the Group's financial position is also
provided for the year ended 31 December 2021 ("FY 2021").
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with International Financial Reporting Standards
("IFRSs") as adopted for use in the UK.
Competent Person's Statement
In accordance with the AIM Note for Mining and Oil and Gas Companies, IOG
discloses that Andrew Hockey, IOG's CEO, is the qualified person that has
reviewed the technical information contained in this document. Andrew Hockey
has an MSc in Petroleum Geology and has been a member of the Petroleum
Exploration Society of Great Britain since 1983. He has 40 years of
operating experience in the upstream oil and gas industry. Andrew Hockey
consents to the inclusion of the information in the form and context in which
it appears.
Website publication
Financial information is published on the Company's website in accordance with
legislation in the United Kingdom governing the preparation and dissemination
of financial information, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company's website is the
responsibility of the Directors. The Directors' responsibility also extends to
the ongoing integrity of the financial information contained therein.
Chief Executive Review
The first half of 2022 was a breakthrough period for IOG, when we achieved our
major strategic milestone of bringing Saturn Banks Phase 1 onstream. I am
hugely proud of my team for transforming IOG over the past few years from an
unfunded micro-cap start-up to becoming the UK's newest gas producer, with the
potential to generate significant cashflow. Our collective values of
resourcefulness, innovation, drive, efficiency, resilience and safety have
helped us to deliver this challenging target within two and a half years of
the Final Investment Decision (FID).
I am very grateful for the constructive efforts of our joint venture partner
CalEnergy Resources (UK) Limited (CER) and the collaboration of our many
contractors and commercial partners on this journey. I would also like once
again to thank our shareholders, bondholders and regulators for their support.
I have always said that Phase 1 First Gas is just the first step on a bigger
journey. It gives us the operational platform and financial capacity to
progress multiple further phases of growth. By delivering further domestic gas
resources through our co-owned infrastructure on a Scope 1 and 2 Net Zero
basis we can generate strong and sustainable returns for shareholders.
In the current energy crisis, security of supply has returned to the top of
the global agenda, which in turn is fuelling government plans for new
licensing. Developing further low carbon UK gas resources is the right thing
to do both from an energy security and environmental perspective. Saturn Banks
gas is projected to have only a small fraction of the emissions intensity of
the LNG imports on which the UK now relies.
Prior to First Gas in mid-March, we signed a more comprehensive GSA with BPGM,
a highly credible counterparty with whom we have already enjoyed a long
relationship. The agreement has been working seamlessly and we look forward to
continued collaboration. In early H2 2022 we started implementing our hedging
strategy, fixing 30,000 therms/day (2.7 mmscf/d) for the months of August and
September 2022 at 310 p/therm and 444 p/therm respectively.
Since First Gas our primary focus has been to work with our Duty Holder ODE
Asset Management (ODEAM) and Bacton terminal operator Perenco (UK) Limited
(PUK) to ensure production stability. Being a small company puts an even
greater emphasis on addressing early operational challenges. Onshore liquids
handling issues at Bacton required a week of downtime in late May, after which
gross production was increased from 30 mmscf/d to 60 mmscf/d over June. A
planned shutdown in July resolved the Blythe chemical injection fault.
However, production over 2H 2022 (up to 21 August) has been limited to an
average of 34.4 mmscf/d by unexpectedly high and saline produced water. The
Blythe and Elgood wells are currently being alternated to assess the water
source and inform next steps, and at the time of release we are temporarily
producing only from Elgood, at c.20 mmscf/d.
In that context we have adjusted our 2H 2022 gross production guidance to
30-50 mmscf/d to account for a range of planned and unplanned downtime
scenarios as well as potential variation in Southwark first gas timing.
Southwark first gas will be another major milestone for the business, being
the largest Phase 1 field with the longest production profile. Important
progress was made during 1H 2022 with the installation of the Saturn Banks
Pipeline System extension to Southwark, the resumption of drilling in April
after seabed remediation, plus extensive other subsea work. This has continued
in 2H 2022 to date with the Noble Hans Deul now drilling the second production
well, albeit progress has been slower than planned due to drilling fluid
losses particularly in the Bunter Sandstone Formation.
After Southwark, we plan to commence our exciting appraisal campaign. First we
will target a potential south-eastern extension of the Goddard discovery in
the north of our portfolio, to assess the potential for a larger field
development. The Noble Hans Deul rig will then return south to target the
Kelham North and Central structures through a dual lateral well, aiming to
prove up a potential three-field gas hub with the existing Abbeydale
discovery. In parallel with this we will be progressing our Phase 2 plans,
including Nailsworth and potentially other nearby assets. Once Southwark is
onstream, the two appraisals are drilled and Phase 2 progressed, we will have
a clearer view of development scale and sequencing for the current portfolio.
This in turn will inform the refinancing strategy for our €100 million bond
which matures in September 2024.
In addition to developing our existing assets, we have a consistent portfolio
development strategy focused on our competitive advantages in the wider Saturn
Banks catchment area. We continually evaluate existing and emerging
opportunities across this area with a view to adding in low-risk discovered
resources or step-out exploration and appraisal opportunities that can lead to
high-return developments. Owned export infrastructure and producing assets in
the area are important differentiators in this respect.
This year has seen extraordinary upheavals in European and global gas markets,
with very volatile UK NBP day-ahead gas prices and a notable upward shift in
the forward curve, particularly over the past two months. Our weighted average
realised price in 1H 2022 was 149 p/therm, which has risen to 254 p/therm over
2H 2022 to date. Gas still plays a fundamental role in the UK economy: it
heats around 85% of UK homes, generates around 40% of UK electricity and fuels
a wide range of industrial activities. The significant price escalation over
2021-22 stems from several factors, including reduced upstream investment over
previous years, strong demand recovery following the Covid-19 lockdowns and
curtailment in Russian supply amid the Ukraine conflict. In 2H 2022 to date UK
NBP prices have continued to escalate, with day-ahead prices in the second
half of August 2022 reaching over 450 p/therm and forward prices for the
coming winter exceeding 600 p/therm at the time of this release. Such elevated
levels will present a significant tailwind if they persist, albeit curtailed
by recent fiscal changes.
In late May 2022 the UK government introduced the Energy Profits Levy (EPL),
which was substantially enacted in July 2022. The effect of this additional
tax and any investment allowance offset will depend on production volumes,
realised gas prices and the size and nature of future investments. Maximising
the value of our domestic resources, ensuring greater energy security for our
import-dependent market, and continuing to reduce energy emissions will
require a stable fiscal environment for companies to re-invest cash flows.
Before the EPL was approved, we submitted proposals to mitigate some of the
potential unintended consequences. These included reviving the small oil and
gas fields allowance or introducing a small companies or low emissions
allowance to ensure qualifying companies are best placed to continue to invest
in domestic supply. With the new legislation now in place, the relief on
future capital expenditure encapsulated within it will also influence our
investment decisions going forward.
In conclusion, as a developer and now also a producer, our strategy remains
consistent: seeking to deliver shareholder value from a focused portfolio of
UK gas assets with room for organic and inorganic growth, complemented by
ownership of key offshore and onshore infrastructure, operating capability and
a strong, aligned partner in CER. Supplying very low emissions intensity gas
in an unprecedented gas market into the import-dependent UK is an excellent
strategic position for IOG. Drawing on our core values and key competitive
advantages, we remain focused on steady execution of this clear and
differentiated strategy to continue unlocking value for all stakeholders.
Andrew Hockey
Chief Executive Officer
24 August 2022
Operational Review
Saturn Banks Project Phase 1
Blythe & Elgood (P1736 & P2260)
After final commissioning of the Saturn Banks Reception Facilities (SBRF) at
Bacton terminal, the Blythe well was first to be opened up on 13 March. This
was swiftly followed on 15 March by Elgood, which is a subsea tie-back to the
Blythe platform.
Some initial operational challenges have been encountered both offshore and
onshore. This included a chemical injection fault on the Blythe platform which
necessitated an early period of Blythe downtime. Onshore liquids processing of
the relatively high Saturn Banks liquids flows alongside other streams going
through the Perenco Bacton terminal's Condensate Stabilisation Unit (CSU) has
also presented some challenges. A drainage system deficiency in the CSU's two
recycle compressors necessitated a week of unplanned downtime in late May.
By early June, Saturn Banks production was restored, initially at 30 mmscf/d
gross, rising incrementally to 60 mmscf/d gross by the end of June, with 93%
uptime over the month. Since then there has been a continued focus on
implementing the necessary production resilience measures to improve
facilities uptime and minimise restart times after unplanned outages. From
First Gas to 30 June 2022, gross production averaged 34.0 mmscf/d, with
overall uptime of 59%.
The entire Saturn Banks offshore system, including the platforms, pipelines,
associated subsea equipment and production wells, is intended to be normally
unmanned with remote operation from the Bacton terminal control room at Bacton
terminal, helping to minimise operating costs and carbon intensity over time.
Achieving this as a steady state will require further modification work over
the course of 2H 2022, including a one week planned shutdown completed in
July.
IOG's condensate sales amounted to 2,558.3 metric tonnes over 1H 2022, at an
average sales price of $890.1 /MT. Condensate rates fluctuated considerably in
the period. Blythe and Elgood condensate yields per unit of gas produced are
expected to decline relatively rapidly during the first year of production. In
June, gross condensate production was forecast to average in the 250-350 bbl/d
range in 2H 2022, based on reservoir analysis at the time and projected uptime
rates. Southwark is expected to have far lower condensate yield than Blythe or
Elgood.
Blythe and Elgood - Post-period End
In early July, aqueous liquids first arrived at the Saturn Banks Reception
Facilities (SBRF). These liquids include water and mono-ethylene glycol (MEG).
MEG is intended to be used in a closed-loop system to inhibit free water and
prevent hydrate formation in the pipeline. It is injected at the Blythe and
Elgood wells as an MEG/water mix, recovered at Bacton and then regenerated and
shipped back offshore for reinjection at the wells.
The timing of aqueous liquids production was in line with expectations,
however the volume of water and salinity levels have been considerably higher
than expected. At the current time the salinity of the returned fluids is
higher than the maximum allowable for processing at Bacton. In order to
prevent these high salinity fluids contaminating the other MEG users at
Bacton, an alternating regime of batch slugcatcher liquid let down has been
implemented.
These high salinity aqueous liquids and slugcatcher letdown constraints have
required gross production to be curtailed over recent weeks, initially to
around 40 mmscf/d and subsequently to 30 mmscf/d in mid-August in order to
isolate the source of the produced water. Tests are currently being run to
establish the source of the water, which requires switching off either Blythe
or Elgood for periods of time.
With Saturn Banks fluids currently being high salinity and greater water
content, an alternative processing or replenish regime is required. Storage
capacity of approximately 3,000 cubic metres and a disposal route has been
established for the aqueous fluids. Processing options are being evaluated to
confirm the most economical future operating regime. Consequently, unit
operating costs are now likely to be higher than initially budgeted for the
year.
Over 2H 2022 to date (1 July - 21 August inclusive), gross average production
has been 34.4 mmscf/d with uptime of 76%. A week of planned downtime in
mid-July addressed the early Blythe platform MEG injection issues, enabling
the Blythe and Elgood wells to be operated independently of each other. The
gas VWAP over that period has been 254 p/therm (including the impact of fixing
30,000 therms/day for August with offtaker BPGM at 310 p/therm).
Southwark (P1915)
At Southwark, the subsea and pipelay activities planned for Q2 2022 were duly
executed, continuing progress towards First Gas which is targeted for Q4 2022.
Notably, the 6km 24" extension section from the Saturn Banks Pipeline System
(SBPS) to the Southwark platform was successfully installed by the Seven
Borealis S-lay vessel. The Seven Kestrel diving support vessel (DSV) also
installed the necessary mechanical connectors at both ends of SBPS outer
section as well as the spools to connect the 6km extension to the Southwark
platform. The final closing spools and pipeline dewatering will be undertaken
in the final DSV campaign due to commence in September.
Upon resumption in mid-April after seabed remediation, the Southwark east well
remained in good condition with no further rig stability issues encountered,
enabling drilling to continue as planned. By the end of Q2 2022 the Southwark
A2 (East) well had been drilled, with Total Depth at 14,330ft MD, and the
Noble Hans Deul skidded across to resume drilling the Southwark A1 (West) well
in early July.
Southwark Post-Period End
At the time of release, the Southwark A1 well was in the 12¼" section in the
Bunter sandstone formation. Drilling progress to date has been hindered by
drilling fluid losses both in this section and higher up in the well. Losses
of this nature are not uncommon for wells in this area, however the severity
in this well to date has been greater than anticipated, causing extended
periods of Non-Productive Time (NPT). At the current time, the drilling team
and contractors have been working through mitigations for the losses and are
continuing to execute the well plan.
Once the A1 well is completed, both the A1 and A2 wells will undergo hydraulic
stimulation before being brought onstream. In parallel, a number of Southwark
platform modifications are due to be implemented, informed by Blythe platform
operating experience to date, along with planned hook-up and commissioning
activities. Based on the latest planning schedule, Southwark First Gas remains
targeted in Q4 2022.
Pre-Development Portfolio
Through rigorous technical analysis and judicious de-risking of our portfolio
we seek to establish the optimal development concepts and execution plans to
ensure suitable capital allocation on further phases, from the perspective of
risked internal rate of return (IRR).
Appraisal Campaign: potential Northern Hub (P2438)
IOG is planning to drill two appraisal wells at Goddard and Kelham
North/Central in direct continuation from the Southwark east and west
development wells, using the Noble Hans Deul rig and with Petrofac continuing
as Well Operator. The purpose of these wells is to prove up two incremental
gas hubs and obtain sufficient subsurface data to fully optimise the
developments.
The geophysical and geotechnical site surveys for both appraisal wells were
completed during the half year period, with the Nailsworth area also
incorporated. Basis of designs for the two appraisal wells are complete and
detailed well planning, contracting and long-lead procurement is well underway
in preparation to start the appraisal campaign in Q4 2022 in direct
continuation after the Noble Hans Deul rig leaves Southwark.
IOG North Sea Limited has a 50% working interest and is operator of licence
P2438, which contains the Goddard field, an undeveloped gas discovery, and the
Southsea gas exploration prospect. CER is the 50% non-operating partner on the
licence.
IOG currently estimates gross 1C/2C/3C contingent resources to be 52/115/169
billion cubic feet (BCF) in the main Goddard discovery and prospective
resources of Low/Mid/High 16/27/42 BCF and 30/50/73 BCF in the two Goddard
Flank structures respectively, both 71% Geological Chance of Success (GCos).
If successfully appraised, Goddard can become the core asset in a potential
Northern Hub which could include the flanks and potentially Southsea and other
undeveloped resources in the surrounding area. The Southsea prospect as mapped
indicates a gross unrisked Low/Mid/High prospective resource range of 13/31/76
BCF (48% GCoS). Further technical work will be required to confirm these
initial estimates.
Appraisal Campaign: potential Southern Hub
IOG North Sea Limited has a 50% working interest and is operator of licence
P2442, which contains the Abbeydale undeveloped gas discovery, the Kelham
North and Kelham Central structures, part of the Orrell gas discovery and the
Thornbridge and Thornbridge Deep prospects. CER is the 50% non-operating
partner on the licence.
Over 1H 2022 IOG's technical team has been further refining its subsurface
mapping and assessment of geological risks in preparation for drilling the
Kelham North/Central appraisal well. As noted above, detailed well planning is
continuing in collaboration with Petrofac, who are the designated Well
Operator.
IOG management's deterministic estimate of gross 1C/2C/3C contingent resources
at Abbeydale is 19/23/27 BCF. Gross recoverable Low/Mid/High gas volumes at
Kelham North and Kelham Central are assessed by IOG management as 30/48/67 BCF
(72% GCoS) and 12/21/32 BCF (72% GCoS) respectively. The key geological risk
in this area is considered to be the quality of the Zechstein salt seal.
The technical work to date on the P2442 licence has identified the potential
for a "Southern Hub" development that could be tied back to the Saturn Banks
Pipeline. To establish commerciality, a dual-lateral appraisal well is planned
in direct continuation from the Goddard appraisal well to prove up the
resource estimates at both Kelham North and Kelham Central.
Phase 2
IOG UK Limited has a 50% working interest and is operator of the P130, P2342
and P039 licences, which contain the Nailsworth and Elland gas discoveries.
CER is the 50% non-operating partner on these licences. In their 2017
Competent Persons Report (CPR), ERC Equipoise assessed gross 1P/2P/3P gas
reserves to be 40/55/73 billion cubic feet in Elland, and 60/99/147 BCF in
Nailsworth. Under the Nailsworth licences, the IOG-CER JV is committed to the
submission and approval of a Field Development Plan prior to the end of 2022.
IOG's subsurface team are currently finalising updates to the static and
dynamic modelling over Nailsworth and Elland, incorporating updates to
geophysics, petrophysics and completion designs. The work has been
independently peer reviewed and final results are expected towards the end of
Q3 2022.
IOG's development and engineering functions have been progressing concept
select work, in consultation with the joint venture partner CER and with
continuous engagement with regulatory bodies including the North Sea
Transition Authority (NSTA). Subject to these dialogues, the intention remains
to proceed through concept select and reach FID on a Phase 2 development at
the earliest feasible time, which is targeted to be before the end of 2022.
Panther-Grafton Area
IOG North Sea Limited has a 50% working interest and is operator of licence
P2589, which contains the Panther and Grafton gas discoveries. CER is the 50%
non-operating partner on the licence. The licence was awarded in the 32nd
Licensing Round, formally commencing on 1 December 2020, with a firm work
programme commitment to reprocess 79 km2 of seismic data within three years,
and to drill and complete a well on the licence by 30 November 2025 or to
surrender the licence.
Prior to the 3D seismic reprocessing programme, IOG's initial estimates of
gross 2C contingent gas resources remain 46 BCF at Panther and 35 BCF at
Grafton.
The seismic reprocessing is on schedule and due for delivery in late Q3 2022.
Once the data is received a block wide interpretation will be conducted with
results expected before year end 2022.
David Gibson
Chief Operating Officer
24 August 2022
Financial Review
In the first half of 2022, IOG delivered its first revenues and income,
following Saturn Banks Phase 1 First Gas in March. Total revenue for the
period was £30.2 million, with gas sales contributing £28.4 million and
condensate sales £1.8 million. Cost of sales totalled £10.0 million
consisting of £2.9 million of operating running costs, depletion of £6.6
million and other operating expenditure of £0.7 million, offset by an
increase in inventories of £0.2 million. This resulted in a gross profit for
the first six months of £20.2 million and a net profit of £11.4 million.
Gross unit operating costs (excluding one-off and exceptional items) for the
period were 13.7 p/therm.
The Company started the period with a cash balance of £31.3 million plus
£3.4 million of restricted cash, and a net debt position of £56.6 million.
It ended the period with a cash balance of £12.3 million plus restricted cash
of £3.5 million. With total long-term loans of £94.1 million, this resulted
in a closing net debt position of £78.3 million.
The gas sales VWAP was 148.7 p/therm over the 1H 2022 period. This has
increased to 254 p/therm for 2H 2022 to date (1 July - 21 August 2022
inclusive) and at the current time the UK NBP forward curve is pricing the
Winter-22 contract in excess of 700 p/therm and both the Summer-23 and
Winter-23 contracts in excess of 650 p/therm, albeit it should be noted that
these prices are subject to a high degree of volatility.
Net expenditures of £20.8 million plus an additional £1.6 million of
capitalised interest and £14.9 million of capitalised leases, less £6.8
million of depletion and depreciation, made up the £30.5 million increase in
PP&E assets. The Group's intangible assets increased by £1.5 million in
the period.
Two €2.4 million quarterly interest payments were made in the period under
the €100 million Bond, which remained in place with a maturity date in
September 2024. At the end of the period the Bond had a market price of
€100.5, a small premium to par.
The €5 million working capital facility was undrawn at 30 June 2022 and
remains undrawn at the time of this release. This facility was executed with a
reputable international bank in December 2021 with a one-year tenor.
Prior to first production the Company executed a new GSA with BPGM covering
its equity gas from the Blythe, Elgood, Southwark, Nailsworth and Elland
fields, on a long-term basis with break clauses after September 2023. This
replaced the original February 2014 Blythe only GSA with BPGM, on improved
terms. Under the new GSA, gas is sold on a day-ahead daily nomination basis at
a price linked to the National Balancing Point (NBP, the UK traded gas
benchmark). Condensate is sold to a petrochemical offtaker at prices linked to
naphtha and gasoil.
The GSA with BPGM incorporates the potential, subject to credit approval, to
fix forward prices for up to 50% of forecast production over various periods
up to 12 months. The Company's hedging strategy envisages a prudent
wedge-shaped hedging programme, using simple structures, to reduce near-term
cashflow volatility whilst allowing shareholders to retain appropriate gas
price exposure. Over time and subject to debt facility restrictions, this
would entail a higher proportion of forecast production hedged over earlier
periods reducing to a lower proportion hedged over later periods, on a rolling
basis.
IOG did not undertake any price-fixing or hedging either prior to production
or during the 1H 2022 period. Post-period end, the Company undertook its first
near-term gas fixed price transactions for 30,000 therms/day at 310p/therm for
the month of August and 444p/therm for the month of September, with BPGM. This
amount equates to 2.7 mmscf/d, a relatively modest proportion of net
entitlement production, and did not require any mark-to-market collateral.
Income statement
Profit for the first six months of 2022 was £11.4 million (2.2p per share
undiluted, 1.8p per share fully diluted) compared to a profit of £0.2 million
for the first six months of 2021 (0.0p per share undiluted, 0.0p per share
fully diluted).
Gas revenues for the 1H 2022 period were £28.4 million (1H 2021: £nil) and
condensate revenues were £1.8 million (1H 2021: £nil). Total cost of sales
was £10.0 million, consisting of operating expenditure (opex) of £2.9
million (1H 2021: £nil), depletion of £6.6 million (1H 2021: £nil), £0.7
million of other operating costs offset by an increase in inventory of £0.2
million. Opex included £1.9 million of production opex and £0.8 million of
onshore tariffs, National Transmission System entry charges and SBRF operating
costs.
Profit for the period includes £0.9 million of net administration expense (1H
2021: £0.1 million), foreign exchange losses of £3.3 million (1H 2021: £1.9
million gain) and other finance expenses of £4.6 million (1H 2021: £1.8
million). €4.8 million (£4.0 million equivalent) was paid in two bond
interest payments in the period. The foreign exchange loss of £3.3 million
for the period reflects a strengthening in the value of non-GBP denominated
balances.
Finance expenses of £4.6 million include £1.7 million of finance fees and
charges, which consist of £0.5 million unwinding of convertible loan from
London Oil and Gas Ltd ("LOG"), £0.2 million unwinding of a decommissioning
provision and £1.0 million unwinding of a lease finance charge. The £4.6
million finance expenses also include £0.3 million amortisation of bond
issuance fees, £2.4 million of the bond interest expensed in the period and
£0.1 million in costs associated with the Bond Debt Service Reserve Account
and €5 million working capital facility.
Statement of financial position
Non-current assets at 30 June 2022 of £177.6 million (31 December 2021:
£144.3 million) predominantly relate to development and production assets of
£161.3 million (31 December 2021: £138.4 million), representing capital
expenditures attributable to the Saturn Banks Phase 1 assets (Saturn Banks
Pipeline and Reception Facilities, Southwark development asset, Blythe and
Elgood production assets); exploration and evaluation assets of £2.4 million
(31 December 2021: £1.0 million), representing capital expenditures
attributable to the various pre-development assets in the Group's portfolio;
other property, plant and equipment of £12.5 million (31 December 2021: £4.9
million), predominantly representing capitalised finance lease assets engaged
to support the Group's development assets; and other intangible assets of
£0.0 million (31 December 2021: £0.1 million).
Current assets as at 30 June 2022 of £26.4 million (31 December 2021: £36.4
million) include cash and cash equivalents of £12.3 million (31 December
2021: £31.3 million), restricted cash of £2.1 million (31 December 2021:
£3.4 million), and trade and other receivables of £11.8 million (31 December
2021: £1.7 million).
Current liabilities of £51.8 million (31 December 2021: £44.9 million)
comprise trade and other payables of £14.9 million (31 December 2021: £19.8
million), accruals of £18.3 million (31 December 2021: £13.3 million), lease
liabilities of £17.9 million (31 December 2021: £11.1 million), and
contingent consideration of £0.7 million (31 December 2021: £0.7 million).
Non-current liabilities of £112.0 million (31 December 2021: £107.5 million)
include £84.8 million due on the Bond maturing in September 2024 (31 December
2021: £82.4 million), abandonment provisions of £16.6 million (31 December
2021: £15.8 million), £9.3 million representing the debt element of the LOG
convertible loan (31 December 2021: £8.8 million) and long-term lease
liabilities of £1.3 million (31 December 2021: £0.4 million).
Cash flow
After adjustment for non-cash items, cash generated from operations, including
working capital movements, for the first six months of 2022 was £16.1 million
(1H 2021: £19.0 million). Cash used in investing activities amounted to
£21.6 million (1H 2021: generated £21.7 million). Cash used in financing
activities, which predominantly represents lease liability payments, bond
interest payments and financing fees, amounted to £13.6 million (1H 2021:
£4.4 million). The cash balance at the end of the period was £12.3 million
(31 December 2021: £31.3 million).
Funding and liquidity
The Directors have given careful consideration to the Group's ability to
continue as a going concern through a review and challenge of cash flow
forecasts prepared by management for the going concern period. The Group has
reported cash of £12.3 million and net debt of £78.3 million as of 30 June
2022, with no drawn debt maturing until the second half of 2024. The financial
position of the Group, its cash flows and capital commitments are described in
the Financial Review above.
The Group evaluates its financial position, cash flow forecasts and its
compliance with financial covenants by considering multiple combinations of
gas price, production profiles and volumes, project execution, capital and
operational spend sensitivities, including several downside scenarios. The
forecasts are regularly updated to enable continuous monitoring and management
of the Group's cash flow and liquidity risk.
After making enquiries and having taken into consideration the above factors,
the Directors have reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
financial statements.
Risks and Uncertainties
The Company operates in the upstream and midstream gas industry, seeking to
generate shareholder returns by developing and producing its portfolio of gas
and operating its infrastructure assets. This primarily entails construction,
installation and operation of production, transportation and processing
infrastructure and drilling of production wells. Undertaking these activities
within the upstream and midstream gas industry entails exposure to a range of
financial, operational, regulatory, legal, commercial, human resource, HSE and
sustainability related risks and uncertainties, any one of or a combination of
which may have a material impact on performance.
Financial risks include access to capital, cost escalation, breach of
financing terms, volatility in gas prices, fiscal changes and fluctuation in
asset values. Operational risks include changes in recoverable volumes and/or
reservoir characteristics, variation from schedule and budget, single point
infrastructure failure, weather and cyber security. Legal and regulatory risks
include access to necessary consents, approvals and permits and corporate
governance deficiencies. Commercial risks include stakeholder misalignment and
gas market access. HSE and Sustainability risks include harm or injury to
people or the environment and environmental releases. Human Resources risks
including maintenance of a fit for purpose team and Covid-19 disruption.
Detail on the mitigating factors for these risks was set out in the 2021
Annual Report.
Key performance indicators
The Group's main business is the acquisition, development and production of
gas reserves and resources in a safe, efficient and environmentally
responsible manner. This is undertaken by assembling and managing a carefully
selected portfolio of licence interests containing a range of prospective,
contingent and proven reserves, working these up from a technical perspective,
planning, designing and executing appropriate appraisal, pre-development and
development activities and ensuring effective ongoing production operations.
The Company monitors its performance against its primary HSE and ESG KPIs,
which are the Total Reportable Incident Rate (Lost Time Incidents per 200,000
manhours worked) and Scope 1 and 2 emissions (and/or emissions intensity from
full year 2022 onwards whereby relevant emissions are measured against total
annual production). Other HSE performance indicators include securing all
relevant environmental permits, consent and approvals, maintaining a verified
Environmental Management System.
The main operational KPIs include the total reserves and resources in the
portfolio and, going forward, the production rate as compared with annual
guidance (which was issued in June 2022, three months after First Gas). Other
operational performance indicators include successfully meeting all licence
commitments relating to the Company's asset portfolio during the year,
maintaining effective relationships at all levels with JV partners in
compliance with Joint Operating Agreements (JOAs), operating within
appropriate governance and HR policies, ensuring the Company has adequate
in-house capability to manage its operations and third-party providers, and
ensuring all corporate legal obligations are met.
Financial performance is tracked against established metrics and budgets which
are set according to carefully assessed cost estimates and the availability of
funds, whether raised from capital providers or delivered from operations,
with the overriding objective of creating value per share. The main financial
KPIs include unit operating cost (opex, measured primarily in pence per
therm), operating cash flow and net debt. Financial performance indicators
also include maintaining full compliance with terms of debt facilities,
maintaining constructive relationships with debt providers and equity
investors, being adequately resourced for all corporate and JV-related
financial matters, maintaining suitable fit-for-purpose finance systems,
delivering approved annual budgets and adhering to updated financial and
corporate operating policies.
Rupert Newall
Chief Financial Officer
24 August 2022
INDEPENDENT REVIEW REPORT TO IOG PLC
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 2022 is not prepared, in all
material respects, in accordance with the London Stock Exchange AIM Rules for
Companies.
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 2022 which comprises 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 and the related
explanatory notes.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, "Review of Interim Financial Information Performed by
the Independent Auditor of the Entity" ("ISRE (UK) 2410"). 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.
As disclosed in note 1, the annual financial statements of the Group are
prepared in accordance with UK adopted international accounting standards.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed.
This conclusion is based on the review procedures performed in accordance with
ISRE (UK) 2410, however future events or conditions may cause the group to
cease to continue as a going concern.
Responsibilities of directors
The directors are responsible for preparing the half-yearly financial report
in accordance with the London Stock Exchange AIM Rules for Companies 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.
In preparing the half-yearly financial report, the directors are responsible
for assessing the company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the company or to cease operations, or have no realistic alternative
but to do so.
Auditor's responsibilities for the review of the financial information
In reviewing the half-yearly report, we are responsible for expressing to the
Company a conclusion on the condensed set of financial statement in the
half-yearly financial report. Our conclusion, including our Conclusions
Relating to Going Concern, are based on procedures that are less extensive
than audit procedures, as described in the Basis for Conclusion paragraph of
this report.
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 AIM Rules for Companies 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, UK
24 August 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Unaudited consolidated statement of comprehensive income
for the six months ended 30 June 2022
Unaudited Unaudited
1H 2022 1H 2021
Note £000 £000
Revenue 4 30,218 -
Cost of sales 5 (10,025) -
_________ _________
Gross profit 20,193 -
Administration expenses (904) (86)
Project, pre-acquisition and exploration expenses (36) (44)
Foreign exchange (loss) / gain (3,290) 1,937
_________ _________
Operating profit 15,963 1,807
Finance expenses 6 (4,554) (1,799)
Finance income 2 14
Fair value gain - 187
_________ _________
Profit for the period before tax 11,411 209
Taxation - -
_________ _________
Total comprehensive profit for the period attributable to equity holders of 11,411 209
the parent
_________ _________
Profit for the period per ordinary share - basic 2 2.2 p 0.0 p
Profit for the period per ordinary share - diluted 2 1.8 p 0.0 p
The profit for the period arose from continuing activities.
Unaudited consolidated statement of financial position
as at 30 June 2022
Unaudited Audited
Note 30 June 2022 31 December 2021
£000 £000
Non-current assets
Intangible assets: exploration & evaluation 2,413 950
Intangible assets: other 41 75
Property, plant and equipment: development & production 8 161,265 138,403
Property, plant and equipment: other 9 12,537 4,872
Restricted cash 3 1,363 -
177,619 144,300
Current assets
Inventories 184 -
Trade and other receivables 11,791 1,705
Restricted cash 3 2,109 3,429
Cash and cash equivalents 3 12,316 31,255
26,400 36,389
Total assets 204,019 180,689
Current liabilities
Trade and other payables (51,770) (44,880)
(51,770) (44,880)
Non-current liabilities
Loans 7 (94,113) (91,257)
Long-term lease liabilities (1,316) (395)
Provisions (16,563) (15,837)
(111,992) (107,489)
Total liabilities (163,762) (152,369)
Net assets 40,257 28,320
Capital and reserves
Share capital 5,241 5,238
Share premium 58,173 58,149
Share-based payment reserve 7,115 7,196
Accumulated losses (30,272) (42,263)
Total equity 40,257 28,320
Unaudited consolidated statement of changes in equity
as at 30 June 2022
Share capital Share premium Share- based payment reserve Accumulated Total
losses equity
£000 £000 £000 £000 £000
At 1 January 2021 4,882 49,989 6,154 (38,227) 22,798
Profit for the period - - - 209 209
______ _______ _______ ______ _______
Total comprehensive income attributable to owners of the parent - - - 209 209
Issue of share options - - 638 - 638
Exercise of share options 9 - (94) 94 9
______ _______ _______ ______ _______
At 30 June 2021 (Unaudited) 4,891 49,989 6,698 (37,924) 23,654
______ _______ _______ ______ _______
At 1 January 2021 4,882 49,989 6,154 (38,227) 22,798
Loss for the year - - - (4,266) (4,266)
______ _______ _______ ______ _______
Total comprehensive loss attributable to owners of the parent - - - (4,266) (4,266)
Issue of shares 338 8,112 8,450
Issue of share options - - 1,272 - 1,272
Expiry of share options - - (20) 230 210
Exercise of share options 18 48 (210) - (144)
______ _______ _______ ______ _______
At 31 December 2021 (Audited) 5,238 58,149 7,196 (42,263) 28,320
______ _______ _______ ______ _______
Profit for the period - - - 11,411 11,411
______ _______ ________ ______ _______
Total comprehensive profit attributable to owners of the parent - - - 11,411 11,411
Issue of share options - - 499 - 499
Expiry of share options - - (543) 543 -
Exercise of share options 3 24 (37) 37 27
______ _______ _______ ______ _______
At 30 June 2022 (Unaudited) 5,241 58,173 7,115 (30,272) 40,257
______ _______ _______ ______ _______
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 consolidated cash flow statement
for the six months ended 30 June 2022
Unaudited Unaudited
1H 2022 1H 2021
£000 £000
Profit after tax 11,411 209
Adjustments for:
Depletion, depreciation and amortisation 6,667 258
Fair value gain - (187)
Share based payments 499 638
Interest received (2) (14)
Interest and financing fees 4,554 1,799
Foreign exchange loss / (gain) 3,290 (4,001)
Movement in trade and other receivables (9,999) (51)
Movement in trade and other payables (124) 20,332
Movement in inventory (168) -
_________ _________
Net cash generated from operating activities 16,128 18,983
Cash flows from investing activities
Purchase of intangible assets and property, plant and equipment (21,639) (42,005)
Movement in cash and cash equivalents from restricted cash - 63,608
Interest received 2 14
Increase in financial assets - 127
_________ _________
Net cash (used in) / generated from investing activities (21,637) 21,744
Cash flows from financing activities
Proceeds from issue of equity instruments of the Group (net of costs) 27 9
Interest and financing fees paid (4,196) (4,429)
Lease liability payments (9,463) -
_________ _________
Net cash used in financing activities (13,632) (4,420)
(Decrease)/Increase in cash and cash equivalents in the period (19,141) 36,307
Cash and cash equivalents at start of period 31,255 13,389
Effects of exchange rate changes on cash and cash equivalents 202 5,938
_________ _________
Cash and cash equivalents at end of period 12,316 55,634
_________ _________
Notes to the financial statements
for the six months ended 30 June 2022
1. Basis of preparation and accounting policies
Basis or 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
2022 has been prepared using accounting policies consistent with UK-adopted
international accounting standards ("IFRS"). Except as described below, 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 2021. While the
financial figures included in this financial information have been computed in
accordance with IFRS, 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 2021 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 contain an emphasis of
matter paragraph relating to the material uncertainty in respect of going
concern and did not contain a statement under section 498(2)-(3) of the
Companies Act 2006.
Going concern
The Directors have given careful consideration to the Group's ability to
continue as a going concern through a review and challenge of cash flow
forecasts prepared by management for the going concern period. The Group has
reported cash of £12.3 million and net debt of £78.3 million, with no debt
maturing until the second half of 2024.
The Group evaluates its financial position, cash flow forecasts and its
compliance with financial covenants by considering multiple combinations of
gas price, production profiles and volumes, project execution, capital and
operational spend sensitivities, including several downside scenarios. The
forecasts are regularly updated to enable continuous monitoring and management
of the Group's cash flow and liquidity risk.
After making enquiries and having taken into consideration the above factors,
the Directors have reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
financial statements.
Significant accounting policies
a) New and amended standards adopted by the Group
A number of new or amended standards became applicable for the current
reporting period. The group did not have to change its accounting policies or
make retrospective adjustments as a result of adopting these standards.
o Covid-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS
16)
o Reference to the Conceptual Framework (Amendments to IFRS 3)
o Property, Plant and Equipment - Proceeds before Intended Use (Amendments
to IAS 16)
o Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37)
o Annual Improvements to IFRS Standards 2018-2020
b) New standards and interpretations not yet adopted
Certain new accounting standards and interpretations have been published that
are not mandatory for 30 June 2022 year end and have not been early adopted by
the Group. These standards are not expected to have a material impact on the
Group in the current or future reporting periods nor on foreseeable future
transactions.
Changes in accounting policies
During the period, the Group recognised the commencement of revenues from the
sale of gas and condensate and consequently adopted IFRS 15 Revenue from
Contracts with Customers.
The Group is principally engaged in the exploration, development and
production of natural gas. The Group has concluded that it is the principal in
its contract with customer arrangements, because it controls the goods before
transferring them to the customer.
Revenue from contracts with customers is recognised when or as the Group
satisfies a performance obligation by transferring control of a promised good
or service to a customer. The transfer of control of natural gas and natural
gas liquids coincides with title passing to the customer and the customer
taking physical possession, generally on delivery of the natural gas or
condensate to the agreed delivery point specified in the contract. In respect
of gas sales, the delivery point is when the gas is delivered into the
National Transmission System downstream of the Bacton gas terminal. Condensate
is sold on an FCA basis when it is delivered onto the buyer's rail tank car
loading manifold. The Group satisfies its performance obligations at a point
in time.
When, or as, a performance obligation is satisfied, the Group recognises as
revenue the amount of the transaction price that is allocated to that
performance obligation. The Group's contracts with customers are deemed to
contain one performance, the provision of natural gas or condensate. The
transaction price is the amount of consideration to which the Group expects to
be entitled. The transaction price is allocated to the performance obligations
in the contract based on standalone selling prices of the goods promised.
Contracts for the sale of natural gas and condensate are priced by reference
to quoted prices. All revenue from these contracts is disclosed as revenue
from contracts with customers.
Consideration payable to a customer for certain costs, claims, demands,
liabilities and/or expenses suffered or incurred by the buyer under the sales
contract are recognised as a reduction of the transaction price and,
therefore, a reduction in revenue since the payment to the customer is not in
exchange for distinct goods that the customers transfer to the Company.
The credit terms range between 20-40 days after the month-end, depending on
the customer.
2. Profit per share
The calculation of profit per share is based upon the weighted average number
of ordinary shares in issue during the period of 524,126,460 (30 June 2021:
489,082,147). Diluted profit 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. The weighted average number of
ordinary shares on a diluted basis at 30 June 2022 is 619,117,637 (30 June
2021: 604,631,191).
3. Restricted cash, cash and cash equivalents
Unaudited Audited
30 June 31 December 2021
2022
£000 £000
Long term
Restricted cash 1,363 -
Short term
Restricted cash 2,109 3,429
Cash and cash equivalents 12,316 31,255
Restricted cash at 30 June 2022 of £2.1 million (31 December 2021: £3.4
million) reflects deposits held in the Debt Service Reserve Accounts following
the Norwegian Bond issue. £1.4 million deposit secured against
decommissioning provisions of the Group's infrastructure assets has been
reclassified as the long-term restricted cash.
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. Revenue
Unaudited Unaudited
30 June 2022 30 June 2021
£000 £000
Gas sales 28,411 -
Condensate sales 1,807 -
_________ _________
Total revenue from contracts with customers 30,218 -
_________ _________
5. Cost of Sales
Unaudited Unaudited
30 June 2022 30 June 2021
£000 £000
Operating costs 2,895 -
Increase in inventory (168) -
Depletion 6,602 -
Other operating expenditure 696 -
_________ _________
Total cost of sales 10,025 -
_________ _________
Cost of sales for the six months of 2022 is £10.0 million (30 June 2021:
£nil), representing operating costs of £2.9 million (30 June 2021: £nil),
an increase in condensate inventory of £0.2 million (30 June 2021: £nil),
depletion of £6.6 million (30 June 2021: £nil) and other operating
expenditure of £0.7 million (30 June 2021: £nil).
6. Finance expenses
Unaudited Unaudited
30 June 2022 30 June 2021
£000 £000
Interest on loans 46 -
Interest on bonds 4,030 4,046
Capitalisation of interest on bonds (1,606) (4,046)
Amortisation of finance charges 277 277
Unwinding of discount on convertible loan 500 500
Unwinding of discount on deferred consideration provision 46 (124)
Unwinding of discount on lease liability 1,029 1,043
Unwinding of discount on decommissioning provision 219 10
Other finance expenses 13 93
_________ _________
Total finance expenses 4,554 1,799
_________ _________
7. 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 Audited
30 June 2022 31 December 2021
£000 £000
Balance at the beginning of the year 82,436 87,777
Amortisation of transaction fees 277 560
Interest charged 4,053 8,253
Interest Paid (4,053) (8,253)
Currency revaluation 2,079 (5,901)
_________ _________
84,792 82,436
_________ _________
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 £94.1million (31 December 2021: £91.3
million) are £84.8 million (31 December 2021: £82.4 million) of bonds and
£9.3million (31 December 2021: £8.9 million) of loans.
8. Property, plant and equipment: Development & production
Phase 1 Phase 2 Development and production assets Pipeline assets Total
Development and
production assets
Cost £000 £000 £000 £000
At 1 January 2021 33,675 7,150 12,597 53,422
Additions 33,362 107 - 33,469
Change in decommissioning provision 6,131 - 6,604 12,735
______ _______ _______ _______
At 30 June 2021 (unaudited) 73,168 7,257 19,201 99,626
______ _______ _______ _______
At 1 January 2021 33,675 7,150 12,597 53,422
Additions 57,673 263 17,274 75,210
Change in decommissioning provision 11,613 (17) (1,824) 9,772
______ _______ _______ _______
At 31 December 2021 (audited) 102,961 7,396 28,047 138,403
______ _______ _______ _______
Additions 24,575 874 3,505 28,954
Change in decommissioning provision 351 - 158 509
______ _______ _______ _______
At 30 June 2022 (unaudited) 127,887 8,270 31,710 167,867
______ _______ _______ _______
Accumulated depreciation and impairment
At 1 January 2021 - - - -
______ _______ _______ _______
At 30 June 2021 (unaudited) - - - -
______ _______ _______ _______
At 1 January 2021 - - - -
______ _______ _______ _______
At 31 December 2021 (audited) - - - -
______ _______ _______ _______
Charge for the year (6,069) - (533) (6,602)
______ _______ _______ _______
At 30 June 2022 (unaudited) (6,069) - (533) (6,602)
______ _______ _______ _______
Net book value
At 30 June 2022 (unaudited) 121,818 8,270 31,177 161,265
At 31 December 2021 (audited) 102,961 7,396 28,046 138,403
At 30 June 2021 (unaudited) 73,168 7,257 19,201 99,626
9. Property, plant and equipment: Other
Right of use assets Admin Assets Total
Cost £000 £000 £000
At 1 January 2021 18,550 637 19,187
Additions 3,909 11 3,920
______ _______ _______
At 30 June 2021 (unaudited) 22,459 648 23,107
______ _______ _______
At 1 January 2021 18,550 637 19,187
Additions 2,753 17 2,770
______ _______ _______
At 31 December 2021 (audited) 21,303 654 21,957
______ _______ _______
Additions 14,884 18 14,902
______ _______ _______
At 30 June 2022 (unaudited) 36,187 672 36,859
______ _______ _______
Accumulated depreciation and impairment
At 1 January 2021 (2,376) (270) (2,646)
Charge for the period (7,456) (203) (7,659)
______ _______ _______
At 30 June 2021 (unaudited) (9,832) (473) (10,305)
______ _______ _______
At 1 January 2021 (2,376) (270) (2,646)
Charge for the year (14,276) (163) (14,439)
______ _______ _______
At 31 December 2021 (audited) (16,652) (433) (17,085)
______ _______ _______
Charge for the period (7,168) (69) (7,237)
______ _______ _______
At 30 June 2022 (unaudited) (23,820) (502) (24,322)
______ _______ _______
Net book value
At 30 June 2022 (unaudited) 12,367 170 12,537
At 31 December 2021 (audited) 4,651 221 4,872
At 30 June 2021 (unaudited) 12,627 175 12,802
10. Post balance sheet events
On 14 July 2022, the Energy Price Levy ("EPL") became legislation in the UK.
The EPL is applicable to ring fence oil and gas profits arising on or after 26
May 2022 at a rate of 25% and based on initial assessments the Company will
have no EPL liability for the period ended 30 June 2022, although the EPL is
expected to have a financial impact on the Company going forward. Based on
current understanding of the Levy, the Group's ongoing investment in the
Southern North Sea will qualify to benefit from an investment allowance under
the EPL, with each £1 invested by IOG offering an overall tax saving of up to
91.25 pence. The full effect of the additional tax and any investment
allowance offset will depend on the details of the EPL legislation and the
size and nature of future investment.
INFORMATION & ADVISERS
Country of incorporation of parent company
England & Wales
Legal form
Public limited company with share capital
Directors
Fiona MacAulay
Andrew Hockey
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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