Corporate and Operational Update

Seascape Energy Asia

29/05/2024 07:00

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RNS Number : 1737Q  Longboat Energy PLC  29 May 2024

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
REGULATION 596/2014 AS AMENDED AND TRANSPOSED INTO UK LAW IN ACCORDANCE WITH
THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("UK MAR").

 

29 May 2024

 

Longboat Energy plc

(the "Company", "Longboat Energy" or "Longboat")

 

Corporate and Operational Update

 

Longboat Energy, an emerging full-cycle E&P company currently active in
Norway and Malaysia, announces the following corporate and operational update.

 

Norway

 

Although there were good grounds to believe that the production ramp up from
the Equinor operated Statfjord Satellites (comprised of a 4.80% unitised
interest in the Statfjord Øst Unit and a 4.32% unitised interest in the Sygna
Unit) would be delivered, actual performance has been disappointing to date
despite an increase in production from 2023.

 

Production has averaged approximately 544 barrels of oil equivalent per day
("boepd") during the prior four weeks and 401 boepd for the period from
January to April this year, significantly below both Longboat's internal and
operator forecasts.

 

The underperformance relates to operational issues associated with well
completions on Statfjord Øst, leaving two out of the five redevelopment wells
drilled in 2023 still off-line. The operator, Equinor, is working to rectify
these multiple issues utilising an offshore vessel during Q2 and Q3 2024.

 

The Sygna asset continues to perform in-line with expectations, albeit at
relatively low levels.

 

Owing to these delays and uncertainty regarding the commissioning of the final
two wells on Statfjord Øst, Longboat now anticipates average production of
between 575- 625 boepd for the full year 2024 net to the Longboat Japex Norge
AS ("LJN") joint venture (in which Longboat is a 50.1% owner).

 

In addition to lower-than-forecast production, as a result of these ongoing
operational issues LJN has now been informed by the operator that the
Statfjord Øst 2024 gross capex budget has almost doubled to 685 million
Norwegian Kroner (~$64 million) having already suffered a 25% gross capex
budget increase of 586 million Norwegian Kroner (~$55 million) in 2023.

 

Progress has been frustratingly slow on moving the Kveikje discovery (LJN,
10%) towards development due to diverging views from partners in the wider
area on the best offtake solution. As has been reported in the press, the
Norwegian regulator SoDir (previously NPD) has now become involved in the
situation in an attempt to unlock the development plans for the significant
resources (~350 mmboe) already identified in Kveikje and the surrounding
fields.

 

Based on the value of discoveries which have traded hands in the area over the
past few years, Longboat believes that Kveikje continues to hold significant
value for shareholders but recognises that this is likely to take longer to
realise than previously anticipated.

 

On the exploration front, the Kjøttkake (aka Lotus) exploration well (LJN,
15%) is anticipated to spud in Q4 2024. Based on the internal estimates at the
time of the original licence application, the prospect contains gross mean
prospective resources of 27 mmboe with a chance of success of 54% with the key
risk being hydrocarbon retention.

 

Following a farm-out announced in late 2023, LJN is fully carried on the
Kjøttkake well costs up to cap greater than the currently forecast dry hole
budget. Kjøttkake is located directly to the south of Kveikje and could
potentially form part of an integrated development once the area-wide issues
are resolved.

 

Malaysia

 

Progress continues to be made on the Company's Block 2A (52.5%, op) located
offshore Sarawak in eastern Malaysia.

 

Detailed mapping of the giant Kertang prospect is nearly complete to support
the of identification of an optimal well location to safely test the multiple
horizons with hydrocarbon potential. It is anticipated that a final well
decision will be made in late 2024 or early 2025.

 

Due to its importance to Longboat, the Company has recently commissioned ERCE
to undertake a competent persons report to confirm the potential size and risk
associated with the giant Kertang prospect, which is believed to be one of the
largest undrilled structures in Malaysia. Longboat intends to publish the
results of the CPR when available in the next few months.

 

In addition to Kertang, Longboat has recently completed a key exploration
review gate with PETRONAS where additional, significant prospectivity on Block
2A has been identified. Two areas of interest have been delineated: firstly
surrounding the Kertang structure, where several large structural closures
analogous to Kertang have been mapped and secondly in shallow water, in the
southwest of the block, where the continuation of a play that has seen several
notable recent gas discoveries made in younger, shallower horizons to the
south of 2A.

 

Following recent increased interest levels in exploration for world-scale
fields, multiple large companies have approached Longboat regarding Block 2A
and the Company is currently planning on running a farm-out process later in
2024 to identify potential partners for the block.

 

In addition to its exploration efforts in Malaysia, earlier this year,
Longboat executed an Area of Mutual Interest agreement with another E&P
company active in Malaysia to pursue discovered resource opportunities
("DROs") being offered by PETRONAS. The companies subsequently made an
application for acreage in shallow water offshore Sarawak and should the
partnership be successful, the DROs are anticipated to add significant
hydrocarbon resources capable of near-term development to Longboat's growing
Asian portfolio.

 

Finance

 

As reported in the Company's full year accounts for the period to 31 December
2023, production performance issues and the related cost overruns at the
Statfjord Satellites have had a significant negative impact on LJN's working
capital position. To date, this shortfall has been funded through a total of
$17 million drawdown on the $100 million Acquisition Finance Facility
("Acquisition Facility") provided to the joint venture by Japan Petroleum
Exploration Co. Ltd ("JAPEX").

 

As detailed in the original LJN joint venture announcement in May 2023, the
Acquisition Facility is available to LJN for the sole purpose of financing
acquisitions and associated development costs and Longboat's partner has
reiterated that the Acquisition Facility is not available to finance working
capital shortfalls post-acquisition completion.

 

In the event Longboat cannot meet its share of additional working capital
shortfalls at LJN in a timely fashion, the terms of the Shareholder Agreement
and Acquisition Facility could result in Longboat forfeiting some-or-all of
its shares in LJN.

 

Despite these financial challenges, due to its existing asset base in Norway
and strong market positioning of LJN, Longboat strongly believes that the
joint venture has significant remaining value and is currently exploring all
options available to fully realise that value for shareholders.

 

In order to preserve liquidity, Longboat has begun a detailed review of its
cost base and is already taking measures to ensure its overheads are in-line
with the current size and scale of the business and ensure its capital is
being directed towards the areas with the greatest value-creation potential.

 

It is anticipated that Longboat will give a further update to the market
around the time of its AGM at the end of June.

 

Related Party Transaction

 

Pursuant to its joint venture arrangements in Norway, JAPEX provides LJN with
the Acquisition Facility out of which an amount of $10 million was made
available for the Statfjord Satellites acquisition.

 

Due to adverse working capital movements in the period between signing and
completion of the transaction, the Company required drawing $17 million to
fund the acquisition. As a result, LJN required an amendment to the
Acquisition Facility which was entered into on 19 January 2024 (the "Amended
Acquisition Facility").

 

The Amended Acquisition Facility, which replaced the Acquisition Facility, was
on materially similar terms as regards to:

·    Total facility size: $100 million;

·    Term: five-years;

·    Purpose: finance LJN acquisitions and associated development costs.

·    Interest: all-in cost over the term of <10%

 

The Amended Acquisition Facility had several additional features including:

·    Increase in availability totalling $17 million (retaining a $100
million maximum); and

·    A flat interest rate of 10% for the drawn amounts over $10 million

·    Final repayment: 31 December 2024

 

At the time of the entry into the Amended Acquisition Facility, JAPEX was a
Related Party of the Company and therefore the entry into the amended facility
is deemed a Related Party Transaction under Rule 13 of the AIM Rules. The
Company's directors consider, having consulted with Stifel, the Company's
Nominated Adviser, that the terms of Amended Acquisition Facility are fair and
reasonable insofar as shareholders are concerned.

 

Nick Ingrassia, CEO of Longboat commented:

"While Longboat faces a series of near-term financial challenges, I am
confident that the steps we are currently taking will allow the slimmed down
business to create significant shareholder value from our high-quality
positioning in Norway and our emerging portfolio in Malaysia."

Ends

 Enquiries:
 Longboat Energy                                   via FTI
 Nick Ingrassia Chief Executive Officer

 Stifel (Nomad and Joint Broker)                   Tel: +44 20 7710 7600
 Callum Stewart                                    SNELLongboatEnergy@Stifel.com

 Jason Grossman

 Ashton Clanfield

 Cavendish Capital Markets Limited (Joint Broker)  Tel: +44 20 7397 8900
 Neil McDonald

 Pete Lynch

 Leif Powis

 FTI Consulting (PR adviser)                       Tel: +44 20 3727 1000
 Ben Brewerton                                     longboatenergy@fticonsulting.com (mailto:longboatenergy@fticonsulting.com)

 Rosie Corbett

 Catrin Trudgill

 

 Company Background

 Longboat Energy was established at the end of 2019 to create a full-cycle
 E&P company through value accretive M&A and near-field exploration.
 Longboat's initial focus has been in Norway where the Company has drilled nine
 exploration wells resulting in six hydrocarbon discoveries, representing a 66%
 technical success rate.

  In July 2023, Longboat completed a transaction with Japan Petroleum
 Exploration Co., Ltd ("JAPEX") to form a new joint venture company in Norway
 named Longboat JAPEX Norge AS in return for a cash investment of US$20 million
 and a US$100 million Acquisition Financing Facility. Longboat retains 50.1%
 ownership in Longboat JAPEX Norge AS.

 Longboat JAPEX Norge AS holds interests in multiple discoveries on the
 Norwegian Continental Shelf and has a 4.80% interest in Statfjord Øst and
 4.32% unitised interest in Sygna producing fields.

 Longboat entered Malaysia in February 2023 through the award of a Production
 Sharing Contract for Block 2A, offshore Sarawak where it holds a 52.5%
 operated interest. Block 2A covers approx. 12,000km2 and is located in water
 depths of between 100-1,400 metres and contains the giant 'Kertang' prospect
 which has volume potential of multiple trillions of cubic feet of gas.

 Longboat's activities remain focused on creating a portfolio with a clear
 low-cost route to monetisation and low-carbon drilling and development
 opportunities, well aligned to Longboat's ESG targets which includes a
 corporate 'Net Zero' on a Scope 1 and 2 basis by 2050.

 

 

Company Background

 

Longboat Energy was established at the end of 2019 to create a full-cycle
E&P company through value accretive M&A and near-field exploration.
Longboat's initial focus has been in Norway where the Company has drilled nine
exploration wells resulting in six hydrocarbon discoveries, representing a 66%
technical success rate.

 

 In July 2023, Longboat completed a transaction with Japan Petroleum
Exploration Co., Ltd ("JAPEX") to form a new joint venture company in Norway
named Longboat JAPEX Norge AS in return for a cash investment of US$20 million
and a US$100 million Acquisition Financing Facility. Longboat retains 50.1%
ownership in Longboat JAPEX Norge AS.

 

Longboat JAPEX Norge AS holds interests in multiple discoveries on the
Norwegian Continental Shelf and has a 4.80% interest in Statfjord Øst and
4.32% unitised interest in Sygna producing fields.

 

Longboat entered Malaysia in February 2023 through the award of a Production
Sharing Contract for Block 2A, offshore Sarawak where it holds a 52.5%
operated interest. Block 2A covers approx. 12,000km2 and is located in water
depths of between 100-1,400 metres and contains the giant 'Kertang' prospect
which has volume potential of multiple trillions of cubic feet of gas.

 

Longboat's activities remain focused on creating a portfolio with a clear
low-cost route to monetisation and low-carbon drilling and development
opportunities, well aligned to Longboat's ESG targets which includes a
corporate 'Net Zero' on a Scope 1 and 2 basis by 2050.

Standard

Estimates of reserves and resources have been prepared in accordance with the
June 2018 Petroleum Resources Management System ("PRMS") as the standard for
classification and reporting with an effective date of 31 December 2020.

 

Review by Qualified Person

The technical information in this release has been reviewed by Hilde Salthe,
Managing Director Norge, who is a qualified person for the purposes of the AIM
Guidance Note for Mining, Oil and Gas Companies. Ms Salthe is a petroleum
geologist with more than 20 years' experience in the oil and gas industry. Ms
Salthe has a Master's Degree from Faculty of Applied Earth Sciences at the
Norwegian University of Science and Technology in Trondheim.

Glossary

"mmboe" Million barrels of oil equivalent

"Prospective Resources" those quantities of petroleum which are estimated, on
a given date, to be potentially recoverable from undiscovered accumulations

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