REG - Star Energy Group - Interim Results
13/09/2023 07:15
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RNS Number : 2342M Star Energy Group PLC 13 September 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
13 September 2023
Star Energy Group plc (AIM: STAR)
("Star Energy" or "the Company" or "the Group")
Unaudited Interim results for the six months ended 30 June 2023
Star Energy announces its unaudited interim results for the six months to 30
June 2023.
Commenting today Chris Hopkinson, Chief Executive Officer, said:
"We have delivered a strong operating performance in the first half with
average net production of 2,071 boepd compared to 1,865 in 2022. We are
working hard to reduce our operating costs where possible, in the face of
general cost inflation and ever-increasing regulatory overburden.
Maximising returns from our conventional oil and gas business remains a key
focus for us, given its free cash generation, particularly with improving
commodity prices. That, coupled with decades of experience of sub-surface
analysis, onshore drilling, well management and environmental control from our
portfolio will play a key role in our geothermal development.
The global potential for geothermal, as a zero carbon source of energy, is
clear.
In the UK we are building a material pipeline of business opportunities in
both the private and public sector. The recently released Government
commissioned white paper, produced by the British Geological Survey (BGS) and
ARUP, highlights the significant opportunity that exists to decarbonise the
NHS estate and we have already won tenders for two NHS Trusts in Manchester
and Salisbury.
The recent acquisition in Croatia represents a significant opportunity to
accelerate our development and enables us to diversify into geothermal
electricity generation. The Croatian Government is highly supportive and the
electricity market is liberalised and well established offering an attractive
market premium (CfD) for a 12 year period.
This is an important next step in our strategy to transition, over time, into
a significant player in the geothermal market and to deliver future value for
our shareholders."
Results Summary
Six months to 30 June 2023 Six months to
£m 30 June 2022
£m
Revenues 23.8 30.5
Adjusted EBITDA* 9.4 10.7
Operating cash flow before working capital movements and realised hedges* 8.5 16.4
Net debt* (excluding capitalised fees) 4.0 9.7
Cash and cash equivalents 1.5 2.7
*these are alternative performance measures which are further detailed in the
financial review
Corporate & Financial Summary
· Company rebranding complete.
· Strategic acquisition of Croatian geothermal development business
o Geological characteristics are well suited for electricity generation with
a geothermal gradient proven to be 60% higher than the European average and
electricity can be sold bi-laterally throughout the EU.
· Consistently strong production in H1 2023 offset by lower commodity
prices compared to H1 2022. Brent prices averaged $79.8/bbl in H1 2023
compared to $107.6/bbl in H1 2022.
· Cash balances as at 30 June 2023 were £1.5 million (31 December
2022: £3.1 million) with net debt of £4.0 million (31 December 2022: £6.1
million). We had headroom of US$4.7 million (£3.7 million) under our RBL as
at 31 August 2023.
· Operating cash flow before working capital movements and realised
hedges in H1 2023 of £8.5 million (H1 2022: £16.4 million).
· £4.4 million of net cash capex incurred during six months to 30 June
2023. Net cash capex for FY 2023 expected to be £10.0 million, primarily
relating to our conventional assets including expenditure on near-term
incremental projects, our Corringham development, as well as costs related to
complying with and reducing the regulatory burden at some of our sites.
· The Group benefited from its hedging policy with 60,000 bbls hedged
in the period at an average of $95.0/bbl resulting in a realised gain of £0.7
million.
· Profit after tax of £0.5m (H1 2022 £19.4 million) was after
deducting a tax charge of £3.7 million (H1 2022 tax credit of £13.2
million). The tax charge relates primarily to non-cash deferred tax. The
estimated Energy Profits Levy for the period ended 30 June 2023 is c.£0.9
million which is payable in October 2024.
· Ring fence tax losses of £259 million.
Operational Summary
· Net production averaged 2,071 boepd in H1 2023 (H1 2022: 1,865
boepd).
· Full year net production remains on track. Underlying cash operating
costs per boe anticipated to be c.$39.5/boe (based on an average exchange rate
of £1:$1.26).
· Planning permission granted for Glentworth oil project.
· Corringham site construction nearing completion, securing planning.
· Awarded two NHS hospital trust geothermal projects in Manchester and
Salisbury
o 2D seismic survey for Salisbury project planned.
· Two Government sponsored geothermal reports published, endorsing its
potential as a future renewable energy source and highlighting the potential
for geothermal in the decarbonisation of the NHS estate.
· There is no update on the status of the grant funding for the
Stoke-on-Trent geothermal project at this time.
A results presentation will be available at
https://www.starenergygroupplc.com/investors/reports-publications-presentations
(https://www.starenergygroupplc.com/investors/reports-publications-presentations)
Qualified Person's Statement
Marie Dransfield, Technical Director of Star Energy Group plc, and a qualified
person as defined in the Guidance Note for Mining, Oil and Gas Companies, June
2009 as updated 21 July 2019, of the London Stock Exchange, has reviewed and
approved the technical information contained in this announcement. Mrs
Dransfield has 19 years' oil and gas exploration and production experience.
For further information please contact:
Star Energy Group plc
Tel: +44 (0)20 7993 9899
Chris Hopkinson, Chief Executive Officer
Frances Ward, Chief Financial Officer
Ann-marie Wilkinson, Chief of Staff
Investec Bank plc (NOMAD and Joint Corporate Broker)
Tel: +44 (0)20 7597 5970
Virginia Bull/Chris Sim
Canaccord Genuity (Joint Corporate Broker)
Tel: +44 (0)20 7523 8000
Henry Fitzgerald-O'Connor/James Asensio
Vigo Consulting
Tel: +44 (0)20 7390 0230
Patrick d'Ancona/Finlay Thomson/Kendall Hill
Introduction
The first half of the year has been a busy one for the Company with strong
production from its conventional assets, development of new oil and gas
projects, progress on the abandonment programme and a number of new geothermal
contracts won, specifically with the NHS.
The streamlining of the management structure and rebranding of the Company
from IGas Energy plc to Star Energy Group plc, which is now complete, were
important steps in refocussing resource and redefining the Company's strategic
direction.
The Group has significant intrinsic value in its oil and gas portfolio, from
the existing producing assets, where the focus is optimisation, from the
portfolio of near term development opportunities that can give rise to a step
change in production and from the significant ring fenced tax loss position.
Whilst our focus is on delivering this value from our existing conventional
assets, the Group is fast developing its geothermal portfolio, deploying our
decades of expertise in developing subsurface energy sources. Our geothermal
portfolio benefits directly from our geoscience, well engineering, drilling
and operational expertise, a factor that is allowing us to develop a market
leading position in the provision of geothermal heat in the UK.
Globally, the move to geothermal as a zero carbon source of energy continues
to grow apace. There is a significant opportunity in the UK, in particular
in decarbonising energy sources throughout the public sector estate. Whilst
the Company spearheads the industry in the UK, it is keen to widen its
footprint, diversify into electricity generation and accelerate its
transition, as evidenced by the recent acquisition of A14 Energy Ltd (A14) in
Croatia.
Board Changes
In January 2023, Doug Fleming joined the Board as an Independent Non-executive
Director and became a member of the audit committee. Doug was most recently
Chief Financial Officer at private equity backed Siccar Point Energy, an
E&P company with assets in the UK sector of the North Sea.
In June, Chris Hopkinson was appointed as Chief Executive Officer of the
Company. Chris joined Star Energy in January 2022 and, since September 2022,
had assumed the role of Interim Executive Chairman.
Also in June, Philip Jackson was appointed as Non-executive Chairman. Philip
has been a Non-executive Director of the Company since 2017.
Production Operations
Net production for the period averaged 2,071 boepd (H1 2022: 1,865 boepd),
with maximum uptime from wells and we anticipate net production will remain,
as forecast, at around 2,000 boepd for the full year.
We continue to focus our technical and operational expertise on maintaining
and increasing our production, whilst reducing operating costs where we can.
This is achieved through the execution of incremental production opportunities
that demonstrate commercial benefit via our delivery assurance processes and
streamlining our operations. This allows decision making within the
operational assets and has resulted in the execution of a successful well
stimulation campaign, at low cost and high return, and increased well uptime
across the portfolio. Operating costs per barrel of oil equivalent produced
have reduced despite general inflation, increasing regulation and excessive
delays in obtaining regulatory approval for relatively standard environmental
permits.
Operating cash flow before working capital movements is expected to be
c.£13.0 million in 2023 based on a forecast average oil price of $85/bbl for
the remainder of the year.
Reserves and resources
CPR
In February 2023, Star Energy announced the publication of the full and final
results of the Competent Persons Report (CPR) by DeGolyer & MacNaughton
(D&M), a leading international reserves and resources auditor.
The report comprised an independent evaluation of Star Energy's conventional
oil and gas interests as of 31 December 2022. The full report can be found
here:
https://www.starenergygroupplc.com/investors/reports-publications-presentations
(https://www.starenergygroupplc.com/investors/reports-publications-presentations)
Star Energy Group Net Reserves & Contingent Resources as at 31 Dec 2022
(MMboe).
1P 2P 2C
Reserves & Resources as at 31 Dec 2021 10.57 15.79 20.34
Production during the period (0.68) (0.68) -
Additions & revisions during the period 1.28 1.93 (1.64)
Reserves & Resources as at 31 Dec 2022 11.17 17.04 18.70
*Oil price assumption of c.$75/bbl for 5 years, then inflated at 2% p.a. from
2031 (capped at $118/bbl)
1P NPV10 of $144 million(2021: $139 million): 2P NPV10 of $215 million (2021:
$190 million)*
Development Assets
Oil and Gas
In April, Lincolnshire County Council granted planning consent for the
Glentworth development.
The development is for an initial appraisal well and up to six horizontal
development wells in Phase II.
Phase I has the potential to add c.200 bbls/d and development of c.1.0 mmstb
2P reserves (currently 2P undeveloped). If Phase I is successful, this will be
followed by further development drilling with the subsequent development
having the potential to add an additional 500 bbls/d and the addition of
c.2mmstb 2P reserves from 2C. Phase I of the project has a mid-case NPV of
£17.5 million.
Environmental permit applications for the project which are required before
development can commence, were submitted to the Environment Agency in October
2022 and are expected to be issued before the end of 2023.
The extensive site upgrades required to drill an additional well at Corringham
are nearing completion. Phase 1 of the Corringham project is now able to be
executed immediately, subject to funding, developing c.350 Mstb of 2P
undeveloped reserves. Initial production is expected to be 110 bopd. The
success of Phase 1 of the project unlocks Phase 2 which would develop c.935
Mstb of current 2C resources.
Our gas to wire project at Bletchingley, which has full planning consent and a
secured grid connection, awaits its environmental permits from the Environment
Agency. The permit application was submitted in July 2022 and we expect that
these will be issued in 2023.
All of these projects have very strong economics, both increasing production
and bringing field wide operational efficiencies. The further progress of
these projects remains subject to overcoming the excessive delays in obtaining
environmental permits from the Environment Agency for what are relatively
straightforward permits, similar to many others already in place, the
availability of free cash flow, capital allocation decisions and the
availability of additional financing, and we continue to assess our options in
this regard.
In the first half of 2023, we have fully abandoned three wells and
geologically abandoned a further three. We will be moving to abandon the
Springs Road well in the second half of the year. Despite cost inflation on
specific materials, services and labour, through a three well abandonment
campaign we have seen well on well cost reduction nearing 10%.
Geothermal
UK
We have made significant progress in bringing our vision for decarbonisation
of large-scale heat using geothermal energy in the UK closer to fruition,
working closely with the Government, academia and commercial partners to
accelerate support for, and understanding of, this proven technology.
In June 2023, the BGS in collaboration with Arup, produced a White Paper 1
which highlighted that the public sector estate is one of the main emitters of
greenhouse gases (for heating) in the UK. The estate has large buildings
(for example hospitals, prisons, army barracks) with predictable and
continuous heating requirements, ideal for geothermal heating. Developing
geothermal projects for NHS hospitals with high heat demand that overlie
potential geothermal targets could save emissions between 1.3-22.7 kt CO2
equivalent per year for individual hospital sites in England. Developing
geothermal projects for the 30 top-ranking hospital sites (based on heat
demand) could save emissions of 281 kt CO2 equivalent per year.
Star Energy has developed a market leading position in this area, having been
successful in both of the two tenders awarded to conduct detailed feasibility
studies into supplying renewable heat to NHS Trusts. These were awarded
following five tenders run by the Carbon and Energy Fund (CEF). A further
three bids were submitted and the results are awaited. These feasibility
studies are the first phase of partnerships with the respective NHS Trusts,
which, if successful, will see the hospitals being supplied with deep
geothermal heat on long-term offtake agreements.
The tenders successfully awarded are:
- Salisbury NHS Foundation Trust - to deliver a geothermal heat
solution for Salisbury District Hospital. Work has already begun to de-risk
and develop the geothermal project from initial geological feasibility with a
2D seismic survey planned. Once data is analysed and models constructed, the
project will move through consenting, to construction of the wells and energy
centre. It is expected that heat supply will begin in early 2026 subject to
normal planning, regulatory permitting and procurement cycles. It is
envisaged that Star Energy will own and operate the facility.
- Manchester University NHS Foundation Trust - to undertake a
feasibility study of supplying the Wythenshawe Hospital with heat from a deep
geothermal system. An Innovation Partnership with the Trust and the CEF will
be created to provide a framework for the parties to work together through the
project development phases.
In June 2023, Dr Kieran Mullan MP released a geothermal report for the UK
Government recommending long term financial incentives for the industry. His
recommendations were endorsed by both the Prime Minister, Rishi Sunak, and the
Secretary of State for Energy, Grant Shapps MP. His report can be found
here: https://lnkd.in/eqMqQtQU (https://lnkd.in/eqMqQtQU) .
Croatia
In August 2023, we announced our first overseas investment in geothermal,
acquiring a 51% interest in A14 Energy that owns, via its Croatian subsidiary,
IGeoPen d.o.o. (IGeoPen), the Ernestinovo exploration licence in the highly
prospective Pannonian Basin. The licence covers 76.7km(2) with a commitment
to re-enter an existing well, by early April 2024. A conceptual programme for
the Ernestinovo-3 workover well has been submitted and the work programme is
on schedule to be completed as planned, satisfying the licence commitment.
The licence has excellent data from three deep exploration wells drilled
nearby in the 1990s.
Based on preliminary heat reserves and well productivity estimates, the
Company's internal assessment forecasts the potential for a first phase
development of a 10MW electricity generation plant utilising five to six
wells producing and re-injecting geothermal brine.
The proposed plant would connect into the Ernestinovo HOPS substation - a
major substation with 400kV transmission lines to Zagreb, Hungary, Serbia and
Bosnia, and local distribution lines at 110 kV and 85kV - and sell electricity
on either a market premium arrangement (CfD) or bilaterally.
There is upside potential for plant extension (an additional 5 to 10 MW) upon
permit area extension (subject to tender) and potential for heat for
green-houses and milk processing plants as the area is predominantly
agricultural.
In addition to the Ernestinovo Licence, bids have been submitted, through
IGeoPen, for three further highly prospective licence areas in the Drava
depression geological region, located in the southwestern area of the
Pannonian basin. Licensing is through the Croatian Hydrocarbon Agency. An
initial five-year exploration licence is granted, followed by the development
licence (subject to fulfilling licence obligations during the exploration
phase).
The Croatian Hydrocarbon Agency has communicated that it has received 16
offers from a total of 11 companies (including our bids) and the results of
the round are expected by the end of 2023.
Interest in geothermal exploration and the development of geothermal projects
in Croatia is growing fast, driven by government support and promotion of the
sizable resource potential. The Croatian Government is highly supportive and
is actively promoting the sector internationally. The Croatian electricity
market is liberalised and well established and it offers an attractive market
premium (CfD) for a 12-year period.
The vast Croatian geothermal resource is well understood, with extensive data
available from over 4,000 exploration and appraisal wells drilled during a
period of hydrocarbon exploration in Croatia. In addition, 2D and 3D seismic
surveys have been accessible, that cover c.20,000km(2), including the
Ernestinovo licence and the three licence areas that the parties have applied
for in the current licensing round.
The geological characteristics are well suited for electricity generation with
a geothermal gradient proven to be 60% higher than the European average and
electricity can be sold bi-laterally throughout the EU.
The acquisition brings a small team of highly regarded geothermal and
geological experts with a recognised track record in the Croatian energy
sector, with key personnel having led the development of Croatia's first
geothermal power plant (Velika 1).
Financial review
Income Statement
The Group generated revenue of £23.8 million in the first six months of 2023
from sales of 361,549 barrels of oil, including sales of third party oil,
4,870 Mwh of electricity and 988,421 therms of gas (H1 2022: revenue £30.5
million, sales of 316,171 barrels of oil, 6,231 Mwh of electricity and 938,203
therms of gas).
Brent prices decreased compared to the first half of 2022 averaging $79.8/bbl
in H1 2023 compared to $107.6/bbl during H1 2022.
Adjusted EBITDA for H1 2023 was £9.4 million (H1 2022: £10.7 million). The
profit after tax from continuing activities was £0.5 million (H1 2022: £19.4
million) and the main factors explaining the movements between H1 2023 and H1
2022 were as follows:
· Revenues of £23.8 million (H1 2022: £30.5 million) as strong
production levels and a stronger US dollar were offset by the impact of lower
prices. The Group benefited from its hedging policy with 60,000 bbls hedged in
the period at an average of $95.0/bbl resulting in a realised gain of £0.7
million;
· DD&A increased to £3.3 million (H1 2022: £2.7 million) as a
result of higher production in the period;
· Operating costs increased to £12.3 million (H1 2022: £10.8 million)
mainly as a result of increased workover and maintenance activity carried out
during the period as part of the Group's production drive. Higher
transportation costs reflected the higher volumes. The Group also experienced
inflationary increases in staff, materials and equipment costs;
· Administrative expenses reduced to £2.6 million (H1 2022: £2.8
million) as we continue to focus on efficiencies to offset inflationary
pressures;
· Nil write-offs in exploration and evaluation assets (H1 2022: £6.5
million was written off in the first half of FY 2022 relating to PEDL 184
following the rejection of planning consent on appeal for a well test of the
Ellesmere Port-1 well);
· No impairment charge or reversal in the period (H1 2022: an impairment
reversal of £10.5 million recognised on oil and gas assets as a result of the
higher oil prices. An impairment charge of £1.5 million recorded in respect
of past costs on our Lybster licence);
· A realised gain was recognised on oil price derivatives of £0.7
million as 60,000 bbls were hedged at an average price of $95.0/bbl (H1 2022:
loss of £5.8 million). In addition, there was an unrealised loss on hedges of
£0.3 million (H1 2022: £1.7 million);
· Net finance costs reduced to £1.9 million (H1 2022: £2.9 million). A
reduction in amounts drawn under our RBL facility was partially offset by
higher interest rates. Movements in the USD/GBP exchange rates resulted in a
foreign exchange gain on our US$ denominated debt in the current period
compared to a loss in the previous period. This was partially offset by an
increase in the unwinding of discount on decommissioning provision as a result
of an increase in the discount rates; and
· A tax charge of £3.7 million was recognised in the period (H1 2022:
tax credit of £13.2 million) relating to a current Energy Profits Levy charge
of £0.9 million and a deferred tax charge of £2.7 million principally due to
reduction in the amount of recognised tax losses due to lower forecast oil
prices.
Cash Flow
Net cash generated from operations after realised hedge losses and before
working capital movements was £9.2 million for the period (H1 2022: £10.6
million). The Group invested £4.4 million across its asset base during the
period (H1 2022: £2.9 million). £3.7 million (H1 2022: £2.5 million) was
invested in conventional assets, primarily on site preparation for our
development project at Corringham and in smaller projects to generate
near-term production. We also continued to offset field declines by upgrading
facilities and systems and optimising production at a number of sites. £0.3
million (H1 2022: £0.3 million) was invested in working up additional
exploration opportunities on conventional assets. We also invested £0.4
million (H1 2022: £0.1 million) in further developing our UK geothermal
projects.
We repaid £3.3 million ($4.0 million) on borrowings under our RBL facility
(H1 2022: £4.6 million ($6.0 million)) and paid £0.4 million ($0.5 million)
in interest (H1 2022: £0.4 million ($0.5 million)). The impact of lower
amounts drawn under the facility was offset by higher interest rates and a
stronger US$. Repayment of obligations under operating leases was £0.8
million (H1 2022: £0.9 million).
Cash and cash equivalents were £1.5 million at the end of the period (31
December 2022: £3.1 million).
Balance Sheet
Net assets were £59.3 million at 30 June 2023 (31 December 2022: £58.3
million). Strong operating cash flows enabled a reduction in net debt by £2.1
million. Trade and other payables reduced by £2.2 million mainly due to the
timing of capital and abandonment expenditure. A reduction in the
decommissioning provision due to wells being abandoned in the period and a
reassessment of the timing of abandonments was partially offset by the
unwinding of the discount. There was a reduction of £2.7 million in the
deferred tax asset recognised at the end of the period following a reduction
in forecast oil prices. We have also recognised a current tax charge of £0.9
million related to the Energy Profits Levy.
Non-IFRS Measures
The Group uses non-IFRS measures of performance that are not specifically
defined under IFRS or other generally accepted accounting principles. The
non-IFRS measures include net debt, adjusted EBITDA, underlying cash operating
costs and operating cash flow before working capital movements and realised
hedges, which are considered by the Group to be useful additional measures to
help understand underlying performance. These non-IFRS measures are used by
the Directors for planning and reporting and should not be considered an IFRS
replacement.
Net Debt
Net debt, being borrowings excluding capitalised fees less cash and cash
equivalents, decreased to £4.0 million at 30 June 2023 (31 December 2022:
£6.1 million; 30 June 2022: £9.7 million). The Group's definition of net
debt does not include the Group's lease liabilities.
Six months ended Six months ended Year ended
30 June 2023 30 June 2022 31 December 2022
£m £m £m
Debt (nominal value excluding capitalised expenses) (5.5) (12.4) (9.2)
Cash and cash equivalents 1.5 2.7 3.1
Net Debt (4.0) (9.7) (6.1)
Adjusted EBITDA
Adjusted EBITDA includes adjustments in relation to non-cash items such as
share-based payment charges and unrealised gain/loss on hedges along with
other one-off exceptional items, and after deducting lease rentals capitalised
under IFRS 16.
Six months ended Six months ended Year ended 31 December 2022
30 June 2023 30 June 2022
£m £m £m
Profit/(loss) before tax 4.2 6.2 (18.4)
Net finance costs 1.9 2.9 5.1
Depletion, depreciation & amortisation 3.3 2.7 6.3
Oil and gas assets net impairment (reversal)/charge - (9.0) -
Exploration and evaluation assets impairment charge - 6.5 30.0
EBITDA 9.4 9.3 23.0
Lease rentals capitalised under IFRS 16 (0.9) (0.9) (1.7)
Share-based payment charges 0.4 0.6 1.0
Unrealised loss/(gain) on hedges 0.3 1.7 (1.9)
Redundancy costs (net of capitalisation) 0.2 - 0.7
Adjusted EBITDA 9.4 10.7 21.1
Underlying cash operating costs
Six months ended Six months ended Year ended 31 December 2022
30 June 2023 30 June 2022
£m £m £m
Other cost of sales* 12.3 10.9 24.0
Lease rentals capitalised under IFRS 16 0.9 0.9 1.7
Underlying cash operating costs 13.2 11.8 25.7
* this represents total cost of sales less depletion, depreciation and
amortisation.
Operating cash flow before working capital movements and realised hedges
Six months ended Six months ended Year ended 31 December 2022
30 June 2023 30 June 2022
£m £m £m
Operating cash flow before working capital movements 9.2 10.6 19.4
Realised (gain)/loss on oil price derivatives (0.7) 5.8 8.0
Operating cash flow before working capital movements and realised hedges 8.5 16.4 27.4
Principal risks and uncertainties
The Group constantly monitors the Group's risk exposures and management
reports to the Audit Committee and the Board on a regular basis. The Audit
Committee receives and reviews these reports and focuses on ensuring that the
effective systems of internal financial and non-financial controls including
the management of risk are maintained. The results of this work are reported
to the Board which in turn performs its own review and assessment.
The principal risks for the Group remain as previously detailed on pages 20-21
of the 2022 Annual Report and Accounts and can be summarised as:
· Political risk such as change in Government or the effect of local
or national referendums which can result in changes to the regulatory or
fiscal regime;
· Strategy, and its execution, fails to meet shareholder
expectations;
· Climate change risks that causes changes to laws, regulations,
policies, obligations and social attitudes relating to the transition to a
lower carbon economy which could have a cost impact or reduced demand for
hydrocarbons for the Group and could impact our Strategy;
· Cyber security risk that gives exposure to a serious cyber-attack
which could affect the confidentiality of data, the availability of critical
business information and cause disruption to our operations;
· Planning, environmental, licensing and other permitting risks
associated with its operations and, in particular, with drilling and
production operations;
· Oil or gas production, as no guarantee can be given that they can
be produced in the anticipated quantities from any or all of the Group's
assets or that oil or gas can be delivered economically;
· Loss of key staff;
· Pandemic that impacts the ability to operate the business
effectively;
· Oil market price risk through variations in the wholesale price in
the context of the production from oil fields it owns and operates;
· Gas and electricity market price risk through variations in the
wholesale price in the context of its future unconventional production
volumes;
· Exchange rate risk through both its major source of revenue and its
major borrowings being priced in US$ while most of the Group's operating and
G&A costs are denominated in UK pounds sterling;
· Liquidity risk through its operations; and
· Capital risk resulting from its capital structure, including
operating within the covenants of its RBL facility.
Going concern
The Group continues to closely monitor and manage its liquidity risks. Cash
flow forecasts for the Group are regularly produced based on, inter alia, the
Group's production and expenditure forecasts, management's best estimate of
future oil prices and foreign exchange rates and the Group's available loan
facility under the RBL. Sensitivities are run to reflect different scenarios
including, but not limited to, possible further reductions in commodity
prices, strengthening of sterling and reductions in forecast oil production
rates.
Crude oil prices saw a decline in H1 2023 compared to 2022. The higher prices
prevailing during the first half of 2022 were primarily as a result of a spike
following Russia's invasion of Ukraine in February 2022 which led to disrupted
Russian supply and global concerns over energy security. Oil prices softened
in the second half of 2022 and the first half of 2023. Prices have increased
in H2 2023 but uncertainty remains with cost of living and recession concerns
in many economies increasing risks on the demand side whereas OPEC supply
reductions and geopolitical concerns are supporting prices.
The Group has generated strong operating cashflows in the first half of 2023
following the successful production drive and reorganisation undertaken in Q4
2022, putting the business on a resilient and sustainable footing, able to
withstand a wider range of commodity prices. However, the ability of the Group
to operate as a going concern is dependent upon the continued availability of
future cash flows and on the Group not breaching its
current RBL covenants.
The Group's base case cash flow forecast was run with average oil prices of
$85/bbl for the remainder of 2023, falling to an average of $83/bbl in 2024
and $75/bbl in Q1 25 based on the forward curve, and a foreign exchange rate
of an average $1.27/£1 for the 18-month period. We also assumed that our
existing RBL facility is amortised in line with its terms, but is not
refinanced or extended, resulting in a reduction in the facility to $nil
million from 30 June 2024. Our forecasts show that the Group will have
sufficient financial headroom to meet its financial covenants based on the
existing RBL facility up to the date of its maturity in June 2024.
Management has also prepared a downside case with average oil prices of
$75/bbl for Q4 2023; $73/bbl for H1 2024, falling to $68/bbl and $65/bbl for
Q3 and Q4 2024, respectively, and $62/bbl for Q1 2025. We used an average
exchange rate of $1.27/£1 for the remainder of 2023 and $1.30/£1 for 2024
and Q1 2025. Our downside case also included an average reduction in
production of 5% over the period. In the event of the downside scenario,
management would take mitigating actions including delaying capital
expenditure and reducing costs, in order to remain within the Group's debt
liquidity covenants over the remaining facility period, should such actions be
necessary. All such mitigating actions are within management's control. We
have not assumed any extensions or refinancing to the RBL. In this downside
scenario, our forecast shows that the Group will have sufficient funds to meet
the liabilities as they fall due over the going concern assessment period. The
Group will also have adequate financial headroom to meet its
financial covenants based on the existing RBL facility up to the date of its
maturity in June 2024. Management remains focused on maintaining a strong
balance sheet and funding to support our strategy. As part of this financial
policy, management continues to assess funding options for both the near and
longer term .
Based on the analysis above, the Directors have a reasonable expectation that
the Group has adequate resources to continue in existence for the foreseeable
future and have concluded it is appropriate to adopt the going concern basis
of accounting in the preparation of the half year financial statements.
Statement of Directors' responsibilities
The Directors confirm that these Condensed Interim Consolidated Financial
Statements have been prepared in accordance with UK-adopted International
Accounting Standard 34, 'Interim Financial Reporting' ("IAS 34") and the AIM
Rules for Companies; and these Unaudited Interim results include:
a) a fair review of the information required (i.e., an indication of
important events and their impact during the first six months and a
description of the principal risks and uncertainties for the remaining six
months of the financial year); and
b) a fair review of the information required on related party
transactions.
By order of the Board,
Chris Hopkinson
Chief Executive Officer
13 September 2023
Independent review report to Star Energy Group plc (formerly IGas Energy plc)
Report on the condensed interim consolidated financial statements
Our conclusion
We have reviewed Star Energy Group plc's (formerly IGas Energy plc) condensed
interim consolidated financial statements (the "interim financial
statements") in the Unaudited Interim Results of Star Energy Group plc for the
6 month period ended 30 June 2023 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the AIM Rules for Companies.
The interim financial statements comprise:
· the Condensed Interim Consolidated Balance Sheet as at
30 June 2023;
· the Condensed Interim Consolidated Income Statement and Condensed
Interim Consolidated Statement of Comprehensive Income for the period then
ended;
· the Condensed Interim Consolidated Cash Flow Statement for the
period then ended;
· the Condensed Interim Consolidated Statement of Changes in Equity
for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Unaudited Interim Results of
Star Energy Group plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
AIM Rules for Companies.
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' issued by the Financial Reporting
Council for use in the United Kingdom ("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.
We have read the other information contained in the Unaudited Interim Results
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
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 for the interim financial statements and the review
Our responsibilities and those of the Directors
The Unaudited Interim Results, including the interim financial statements, is
the responsibility of, and has been approved by the Directors. The Directors
are responsible for preparing the Unaudited Interim Results in accordance with
the AIM Rules for Companies which require that the financial information must
be presented and prepared in a form consistent with that which will be adopted
in the Company's annual financial statements. In preparing the Unaudited
Interim Results, including the interim financial statements, the Directors are
responsible for assessing the Group'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 Group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Unaudited Interim Results based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. This report, including the
conclusion, has been prepared for and only for the Company for the purpose of
complying with the AIM Rules for Companies and for no other purpose. We do
not, in giving this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
13 September 2023
Condensed Interim Consolidated Income Statement
Notes Unaudited Unaudited Audited
6 months ended 6 months ended year ended
30 June 2023 30 June 2022 31 December 2022
£000 £000 £000
Revenue 4 23,781 30,456 59,171
Cost of sales
Depletion, depreciation and amortisation (3,324) (2,651) (6,302)
Other costs of sales (12,252) (10,850) (24,019)
Total cost of sales (15,576) (13,501) (30,321)
Gross profit 8,205 16,955 28,850
Administrative expenses (2,566) (2,849) (6,329)
Exploration and evaluation assets written off 9 - (6,517) (30,018)
Oil and gas assets impairment 10 - (1,512) (10,457)
Reversal of oil and gas assets impairment 10 - 10,489 10,489
Gain/(loss) on derivative financial instruments 474 (7,458) (6,027)
Other income - - 159
Operating profit/(loss) 6,113 9,108 (13,333)
Finance income 5 254 3 8
Finance costs 5 (2,168) (2,877) (5,091)
Profit/(loss) from continuing activities before tax 4,199 6,234 (18,416)
Income tax (charge)/credit 6 (3,665) 13,187 6,638
Net profit/(loss) for the period/year attributable to shareholders' equity 534 19,421 (11,778)
Earnings/(loss) attributable to equity shareholders from
operations:
Basic earnings/(loss) per share 8 0.42p 15.45p (9.35p)
Diluted earnings/(loss) per share 8 0.39p 14.33p (9.35p)
Condensed Interim Consolidated Statement of Comprehensive Income
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
30 June 2023 30 June 2022 31 December 2022
£000 £000 £000
Profit/(loss) for the period/year 534 19,421 (11,778)
Total comprehensive profit/(loss) for the period/year 534 19,421 (11,778)
Condensed Interim Consolidated Balance Sheet
Notes Unaudited Unaudited Audited
at 30 June 2023 at 30 June 2022 at 31 December 2022
£000 £000 £000
Assets
Non-current assets
Intangible assets 9 9,814 32,337 9,268
Property, plant and equipment 10 73,599 84,010 74,731
Right-of-use assets 7,204 6,980 7,383
Restricted cash 410 410 410
Deferred tax asset 6 42,081 51,362 44,813
133,108 175,099 136,605
Current assets
Inventories 1,499 1,414 1,667
Trade and other receivables 7,260 7,701 7,098
Cash and cash equivalents 13 1,493 2,681 3,092
Derivative financial instruments 11 270 - 525
10,522 11,796 12,382
Total assets 143,630 186,895 148,987
Liabilities
Current liabilities
Trade and other payables (6,111) (6,948) (8,264)
Borrowings 13 (5,239) - (3,325)
Derivative financial instruments 11 - (3,112) -
Lease liabilities (977) (831) (738)
Provisions 12 (3,378) (5,798) (6,840)
(15,705) (16,689) (19,167)
Non-current liabilities
Borrowings 13 - (11,817) (5,418)
Other payables (1,304) (586) (369)
Lease liabilities (6,674) (6,265) (7,042)
Provisions 12 (60,613) (63,016) (58,716)
(68,591) (81,684) (71,545)
Total liabilities (84,296) (98,373) (90,712)
Net assets 59,334 88,522 58,275
Equity
Capital and reserves
Called up share capital 14 30,334 30,333 30,334
Share premium account 14 103,131 103,035 103,068
Foreign currency translation reserve 3,799 3,799 3,799
Other reserves 38,079 36,699 37,617
Accumulated deficit (116,009) (85,344) (116,543)
Total equity 59,334 88,522 58,275
Condensed Interim Consolidated Statement of Changes in Equity
Called up Share Foreign Other Accumulated deficit Total
share premium currency reserves** £000 equity
capital account translation £000 £000
£000 £000 reserve*
£000
At 1 January 2022 (audited) 30,333 102,992 3,799 36,257 (104,765) 68,616
Profit for the period - - - - 19,421 19,421
Share options issued under the employee share plan - - - 442 - 442
Issue of shares (note 14) - 43 - - - 43
At 30 June 2022 (unaudited) 30,333 103,035 3,799 36,699 (85,344) 88,522
Loss for the period - - - - (31,199) (31,199)
Share options issued under the employee share plan - - - 918 - 918
Issue of shares (note 14) 1 33 - - - 34
At 31 December 2022 (audited) 30,334 103,068 3,799 37,617 (116,543) 58,275
Profit for the period - - - - 534 534
Share options issued under the employee share plan - - - 462 - 462
Issue of shares (note 14) - 63 - - - 63
At 30 June 2023 (unaudited) 30,334 103,131 3,799 38,079 (116,009) 59,334
* The foreign currency translation reserve represents
exchange gains and losses on translation of net assets and results, and
intercompany balances, which formed part of the net investment of the Group,
in respect of subsidiaries which previously operated with a functional
currency other than UK pound sterling.
** Other reserves include: 1) Share plan reserves comprising
EIP/MRP/LTIP/VCP/EDRP reserve representing the cost of share options issued
under the long-term incentive plans and share incentive plan reserve
representing the cost of the partnership and matching shares; 2) treasury
shares reserve which represents the cost of shares in Star Energy Group plc
purchased in the market to satisfy awards held under the Group incentive
plans; 3) capital contribution reserve which arose following the acquisition
of IGas Exploration UK Limited; and 4) merger reserve which arose on the
reverse acquisition of Island Gas Limited.
Condensed Interim Consolidated Cash Flow Statement
Notes Unaudited Unaudited Audited
6 Months ended 6 Months ended year
30 June 30 June ended
2023 2022 31 December
£000 £000 2022
£000
Cash flows from operating activities:
Profit (loss) from continuing activities before tax for the period/year 4,199 6,234 (18,416)
Depletion, depreciation and amortisation 3,343 2,664 6,338
Abandonment costs utilised or released (951) (841) (2,579)
Share-based payment charge 401 585 934
Exploration and evaluation assets written-off 9 - 6,517 30,018
Oil and gas assets impairment reversal 10 - (10,489) (10,489)
Oil and gas assets impairment 10 - 1,512 10,457
Unrealised loss/(gain) on oil price derivatives 11 255 1,702 (1,934)
Finance income 5 (254) (3) (8)
Finance costs 5 2,168 2,877 5,091
Other non-cash adjustments - (185) -
Operating cash flow before working capital movements 9,161 10,573 19,412
Decrease/(increase) in trade and other receivables and other financial assets 58 (2,294) (1,607)
(Decrease)/increase in trade and other payables (1,996) (130) 919
Decrease/(increase) in inventories 168 (320) (575)
Net cash from operating activities 7,391 7,829 18,149
Cash flows from investing activities:
Purchase of intangible exploration and evaluation assets (317) (263) (516)
Purchase of property, plant and equipment (3,665) (2,500) (7,196)
Purchase of intangible development assets (399) (88) (202)
Interest received 14 3 8
Net cash used in investing activities (4,367) (2,848) (7,906)
Cash flows from financing activities:
Cash proceeds from issue of ordinary share capital 14 22 22 44
Repayment of Reserves Based Lending facility 13 (3,284) (4,648) (7,985)
Repayment of principal portion of lease liabilities (521) (590) (1,059)
Repayment of interest on lease liabilities (328) (307) (707)
Other interest paid 13 (384) (390) (950)
Net cash used in financing activities (4,495) (5,913) (10,657)
Net decrease in cash and cash equivalents during the period/year (1,471) (932) (414)
Net foreign exchange difference (128) 324 217
Cash and cash equivalents at the beginning of the period/year 3,092 3,289 3,289
Cash and cash equivalents at the end of the period/year 13 1,493 2,681 3,092
Notes to the Unaudited Condensed Interim Consolidated Financial Statements
1 Corporate information
The condensed interim consolidated financial statements of Star Energy Group
plc (formerly known as IGas Energy plc) and its subsidiaries (the Group) for
the six months ended 30 June 2023, which are unaudited, were authorised for
issue in accordance with a resolution of the Directors on 13 September 2023.
Star Energy Group plc is a public limited company incorporated and domiciled
in England whose shares are publicly traded on the AIM market. The Group's
principal activities are exploring for, appraising, developing and producing
oil and gas and developing geothermal projects.
2 Accounting policies
Basis of preparation
These unaudited condensed interim consolidated financial statements for the
six months ended 30 June 2023 have been prepared in accordance with UK-adopted
International Accounting Standard 34, 'Interim Financial Reporting' ("IAS 34")
and the AIM Rules for Companies. The unaudited condensed interim consolidated
financial statements should be read in conjunction with the consolidated
financial statements for the year ended 31 December 2022. The annual financial
statements of Star Energy Group plc are prepared in accordance with UK-adopted
International Accounting Standards.
The financial information contained in this document does not constitute
statutory accounts as defined by Section 434 of the Companies Act 2006
(England & Wales). The financial information as at 31 December 2022 is
based on the statutory accounts for the year ended 31 December 2022. A copy
of the statutory accounts for that year, has been delivered to the Registrar
of Companies and is available on the Company's website at
www.starenergygroupplc.com. The auditors' report in accordance with Chapter 3
Part 16 of the Companies Act 2006 in relation to those accounts was
unqualified, did not draw attention to any matters by way of emphasis and did
not contain a statement under section 498(2) or (3) of the Companies Act 2006.
The accounting policies adopted are consistent with those of the previous
financial year and corresponding interim reporting period, except for the
adoption of the new and amended standards and interpretations discussed below.
Going concern
The Group continues to closely monitor and manage its liquidity risks. Cash
flow forecasts for the Group are regularly produced based on, inter alia, the
Group's production and expenditure forecasts, management's best estimate of
future oil prices and foreign exchange rates and the Group's available loan
facility under the RBL. Sensitivities are run to reflect different scenarios
including, but not limited to, possible further reductions in commodity
prices, strengthening of sterling and reductions in forecast oil production
rates.
Crude oil prices saw a decline in H1 2023 compared to 2022. The higher prices
prevailing during the first half of 2022 were primarily as a result of a spike
following Russia's invasion of Ukraine in February 2022 which led to disrupted
Russian supply and global concerns over energy security. Oil prices softened
in the second half of 2022 and the first half of 2023. Prices have increased
in H2 2023 but uncertainty remains with cost of living and recession concerns
in many economies increasing risks on the demand side whereas OPEC supply
reductions and geopolitical concerns are supporting prices.
The Group has generated strong operating cashflows in the first half of 2023
following the successful production drive and reorganisation undertaken in Q4
2022, putting the business on a resilient and sustainable footing, able to
withstand a wider range of commodity prices. However, the ability of the Group
to operate as a going concern is dependent upon the continued availability of
future cash flows and on the Group not breaching its
current RBL covenants.
The Group's base case cash flow forecast was run with average oil prices of
$85/bbl for the remainder of 2023, falling to an average of $83/bbl in 2024
and $75/bbl in Q1 25 based on the forward curve, and a foreign exchange rate
of an average $1.27/£1 for the 18-month period. We also assumed that our
existing RBL facility is amortised in line with its terms, but is not
refinanced or extended, resulting in a reduction in the facility to $nil
million from 30 June 2024. Our forecasts show that the Group will have
sufficient financial headroom to meet its financial covenants based on the
existing RBL facility up to the date of its maturity in June 2024.
Management has also prepared a downside case with average oil prices of
$75/bbl for Q4 2023; $73/bbl for H1 2024, falling to $68/bbl and $65/bbl for
Q3 and Q4 2024, respectively, and $62/bbl for Q1 2025. We used an average
exchange rate of $1.27/£1 for the remainder of 2023 and $1.30/£1 for 2024
and Q1 2025. Our downside case also included an average reduction in
production of 5% over the period. In the event of the downside scenario,
management would take mitigating actions including delaying capital
expenditure and reducing costs, in order to remain within the Group's debt
liquidity covenants over the remaining facility period, should such actions be
necessary. All such mitigating actions are within management's control. We
have not assumed any extensions or refinancing to the RBL. In this downside
scenario, our forecast shows that the Group will have sufficient funds to meet
the liabilities as they fall due over the going concern assessment period. The
Group will also have adequate financial headroom to meet its
financial covenants based on the existing RBL facility up to the date of its
maturity in June 2024. Management remains focused on maintaining a strong
balance sheet and funding to support our strategy. As part of this financial
policy, management continues to assess funding options for both the near and
longer term .
Based on the analysis above, the Directors have a reasonable expectation that
the Group has adequate resources to continue in existence for the foreseeable
future and have concluded it is appropriate to adopt the going concern basis
of accounting in the preparation of the half year financial statements.
2 Accounting policies (continued)
New and amended standards and interpretations
During the period, the Group adopted the following new and amended IFRSs for
the first time for their reporting period commencing 1 January 2023:
IFRS 17 (including the June 2020 and December 2021 amendments to IFRS 17) Insurance Contracts
Amendments to IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting Policies
Amendments to IAS 8 Definition of Accounting Estimates
Amendments to IAS 12 Deferred Tax related to Assets and Liabilities arising from a Single
Transaction
Amendments to IAS 12 International Tax Reform - Pillar Two Model Rules
These standards do not have a material impact on the Group in the current or
future reporting periods. There are no other standards that are not yet
effective and that would be expected to have a material impact on the entity
in the current or future reporting periods.
Estimates and judgements
The preparation of the unaudited condensed interim consolidated financial
statements requires management to make judgements, estimates and assumptions
that affect the application of accounting policies and the reported amounts of
assets and liabilities, income and expense. Actual results may differ from
these estimates.
In preparing these unaudited condensed interim consolidated financial
statements, the significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation uncertainty were
the same as those applied to the consolidated financial statements for the
year ended 31 December 2022.
Financial risk management
The Group's activities expose it to a variety of financial risks; market risk
(including interest rate, commodity price and foreign currency risks), credit
risk and liquidity risk.
The unaudited condensed interim consolidated financial statements do not
include financial risk management information and disclosures required in the
annual financial statements; accordingly, the unaudited condensed interim
consolidated financial statements should be read in conjunction with the
Group's annual financial statements as at 31 December 2022.
3 Basis of consolidation
The unaudited condensed interim consolidated financial statements present the
results of Star Energy Group plc and its subsidiaries as if they formed a
single entity. The financial information of subsidiaries used in the
preparation of these unaudited condensed interim consolidated financial
statements is based on consistent accounting policies to those of the Company.
All intercompany transactions and balances between Group companies, including
unrealised profits/losses arising from them, are eliminated in full. Where
shares are issued to an Employee Benefit Trust, and the Company is the
sponsoring entity, it is treated as an extension of the entity.
4 Revenue
The Group derives revenue solely within the United Kingdom from the transfer
of control over goods and services to external customers which is recognised
at a point in time when the performance obligation has been satisfied by the
transfer of goods. The Group's major product lines are:
Unaudited Unaudited Audited
6 months ended 6 months ended year
30 June 2023 30 June 2022 ended
31 December 2022
£000 £000 £000
Oil sales 21,945 27,343 52,409
Electricity sales 696 1,394 2,645
Gas sales 1,140 1,719 4,117
Revenue for the period/year 23,781 30,456 59,171
5 Finance income and costs
Unaudited Unaudited Audited
6 months ended 6 months ended year
30 June 2023 30 June 2022 ended
31 December 2022
£000 £000 £000
Finance income:
Interest on short-term deposits 14 3 8
Net foreign exchange gain 240 - -
Finance income for the period/ year 254 3 8
Finance costs:
Interest on borrowings (433) (439) (950)
Amortisation of finance fees on borrowings (134) (134) (268)
Net foreign exchange loss - (1,181) (1,417)
Unwinding of discount on decommissioning provision (note 12) (1,273) (816) (1,749)
Interest charge on lease liability (328) (307) (707)
Finance costs for the period/ year (2,168) (2,877) (5,091)
6 Tax on profit on ordinary activities
The Group calculates the period income tax expense using the UK corporation
tax rate that would be applicable to expected total annual earnings for the 12
months ended 31 December 2023. The majority of the Group's profits are
generated by "ring-fence" business which attract UK corporation tax and
supplementary charges at a combined average rate of 40% (six months ended 30
June 2022: 40%), in addition to the Energy Profit Levy introduced in May 2022
with an expected average rate of 35% for the period (six months ended 30 June
2022: 0%). The effective tax rate for the period is 87% (six months ended 30
June 2022: -212%), reflecting the deferred tax charge of £2.7 million in the
period, primarily as a result of the reduction in the value of recognised tax
losses as oil prices softened in 2023 following a spike in 2022, and a current
tax charge of £0.9 million under the Energy Profit Levy regime. The major
components of income tax expense in the unaudited condensed interim
consolidated income statement are:
Unaudited Unaudited Audited
6 months ended 6 months ended year ended
30 June 2023 30 June 2022 31 December 2022
£000 £000 £000
UK corporation tax
Charge on profit/(loss) for the period/year 933 - -
Total current tax charge 933 - -
Deferred tax
Charge/(credit) relating to the origination or reversal of temporary 3,011 (13,187) (8,160)
differences
Credit due to tax rate changes - - 1,465
(Credit)/charge in relation to prior periods (279) - 57
Total deferred tax charge/(credit) 2,732 (13,187) (6,638)
Tax charge/(credit) on profit/(loss) on ordinary activities for the 3,665 (13,187) (6,638)
period/year
A deferred tax asset of £42.1 million (30 June 2022: £51.4 million, 31
December 2022: £44.8 million) has been recognised in respect of tax losses
and other temporary differences where the Directors believe that it is
probable that these assets will be recovered based on estimated taxable profit
forecast.
The Group has gross total tax losses and similar attributes carried forward of
£350.8 million (30 June 2022: £353.1 million, 31 December 2022: £355.3
million). Deferred tax assets have been recognised in respect of tax losses
and other temporary differences where the Directors believe it is probable
that these assets will be recovered based on a five-year profit forecast or to
the extent that there are offsetting deferred tax liabilities. Such recognised
tax losses include £117.7 million (30 June 2022: £130.7 million, 31 December
2022: £123.2 million) of ringfence corporation tax losses which will be
recovered at 30% of future taxable profits, £115.9 million (30 June 2022:
£123.8 million, 31 December 2022: £119.8 million) of supplementary charge
tax losses which will be recovered at 10% of future taxable profits and £nil
(30 June 2022: £nil, 31 December 2022: £1.9 million) of losses arising under
the EPL regime which will be recovered at 35% of future taxable profits.
7 Loss after tax from discontinued operations
The divestment of assets acquired as part of the Dart Acquisition, namely the
Rest of the World segment, was completed in 2016. The Group had a presence
in a small number of Australian, Indian and Singaporean registered operations.
During the year ended 31 December 2022, we substantially finalised the
liquidation process for the remaining of these overseas dormant subsidiaries,
with formal deregistration of the final Australian entity (Dart Energy Pty
Ltd) expected to be confirmed in the second half of 2023. The total loss after
tax in respect of discontinued operations was £nil (six months ended 30 June
2022: £nil; year ended 31 December 2022: £nil).
8 Earnings per share (EPS)
Basic EPS amounts are based on the profit from continuing operations for the
period after taxation attributable to ordinary equity holders of the parent of
£0.5 million (six months ended 30 June 2022: a profit after tax of £19.4
million; year ended 31 December 2022: a loss after tax of £11.8 million) and
the weighted average number of ordinary shares outstanding during the period
of 127.2 million (six months ended 30 June 2022: 125.7 million; year ended 31
December 2022: 125.9 million).
Diluted EPS amounts are based on the profit/ (loss) for the period/ year after
taxation attributable to the ordinary equity holders of the parent and the
weighted average number of shares outstanding during the period/ year plus the
weighted average number of ordinary shares that would be issued on the
conversion of all the potentially dilutive ordinary shares into ordinary
shares, except where these are anti-dilutive.
As at 30 June 2023, there are 9.1 million potentially dilutive employee share
options (six months ended 30 June 2022: 9.8 million, year ended 31 December
2022: 11.9 million). These are included in the calculation of diluted earnings
per share in the current period and as at 30 June 2022. These were not
included in the calculation at 31 December 2022 as their conversion to
ordinary shares would have decreased the loss per share.
9 Intangible assets
Unaudited Unaudited Audited
at 30 June 2023 at 30 June 2022 at 31 December 2022
£'000 £'000 £'000
Exploration and evaluation assets Develop- Total Exploration and evaluation assets Develop- Total Exploration and evaluation assets Develop- Total
ment costs ment costs ment costs
Cost
At 1 January 5,558 3,710 9,268 34,844 3,478 38,322 34,844 3,478 38,322
Additions 117 429 546 321 101 422 722 232 954
Changes in decommissioning - - - 110 - 110 10 - 10
Impairment - - - (6,517) - (6,517) (30,018) - (30,018)
At 30 June/ 31 December 5,675 4,139 9,814 28,758 3,579 32,337 5,558 3,710 9,268
Exploration and evaluation assets
Exploration costs written off in the period to 30 June 2023 were £nil (6
months to 30 June 2022: £6.5 million, year ended 31 December 2022: £30.0
million). The 2022 exploration costs written off related to unconventional
assets where the Board concluded it was unlikely that the Group would be able
to proceed with commercial development of these assets. This was due to the
rejection of planning consent at Ellesmere Port, and the reintroduction of the
moratorium on hydraulic fracturing for shale gas by the UK Government in
October 2022.
The Group has £5.7 million (six months ended 30 June 2022: £5.2 million,
year ended 31 December 2022: £5.6 million) of capitalised exploration
expenditure which relates to our conventional assets including PEDL 235 and PL
240. Our unconventional assets have been fully impaired.
Management has assessed the capitalised exploration expenditure for
indications of impairment under IFRS 6 Exploration for and Evaluation of
Mineral Resources and did not identify any factors indicating a need to
perform detailed impairment testing.
Development costs
The development costs relate to assets acquired as part of the GT Energy
acquisition in 2020. The costs relate to the design and development of deep
geothermal heat projects in the United Kingdom, with the principal project
being at Etruria Valley, Stoke-on-Trent.
The Group reviewed the carrying value of development costs as at 30 June 2023
and assessed it for impairment indicators. The development of the
Stoke-on-Trent project has taken longer than anticipated initially due to
COVID-19 and more recently on account of delays on receiving formal approval
of the grant under the UK Government's Green Heat Network Fund. We applied for
the grant funding for the Stoke-on-Trent project jointly with SSE and we are
hoping to hear the outcome in the second half of the year. The delayed timing
does not adversely impact the overall economics of the project materially and
a successful outcome on our grant application to the GHNF will significantly
de-risk the project. On this basis, the Group has concluded that there are no
impairment indicators as at 30 June 2023 and no impairment was required for
the period (year ended 31 December 2022: £nil).
10 Property, plant and equipment
Unaudited Unaudited Audited
at 30 June 2023 at 30 June 2022 at 31 December 2022
£'000 £'000 £'000
Oil and gas assets Other fixed assets Total Oil and gas assets Other fixed assets Total Oil and gas assets Other fixed assets Total
Cost
At 1 January 220,301 2,046 222,347 215,222 2,430 217,652 215,222 2,430 217,652
Additions 2,702 - 2,702 2,773 - 2,773 7,757 79 7,836
Disposals - - - - 3 3 - (463) (463)
Changes in decommissioning (1,062) - (1,062) (206) - (206) (2,678) - (2,678)
At 30 June/31 December 221,941 2,046 223,987 217,789 2,433 220,222 220,301 2,046 222,347
Depreciation and Impairment
At 1 January 147,022 594 147,616 142,034 1,035 143,069 142,034 1,035 143,069
Charge for the period/ year 2,758 14 2,772 2,109 8 2,117 5,020 22 5,042
Disposals - - - - 3 3 - (463) (463)
Impairment - - - 1,512 - 1,512 10,457 - 10,457
Impairment reversal - - - (10,489) - (10,489) (10,489) - (10,489)
At 30 June/ 31 December 149,780 608 150,388 135,166 1,046 136,212 147,022 594 147,616
Net book value at 30 June/31 December 72,161 1,438 73,599 82,623 1,387 84,010 73,279 1,452 74,731
Impairment of oil and gas properties
The Group reviewed the carrying value of oil and gas assets as at 30 June 2023
and assessed it for impairment and impairment reversal indicators. No factors
that would have a material impact on the carrying value of the assets since
the last balance sheet date were identified. Management has therefore
concluded that there were no impairment or impairment reversal indicators at
30 June 2023.
11 Financial Instruments - fair value disclosure
The Group uses the following hierarchy for determining and disclosing the fair
value of financial instruments by valuation technique:
● Level 1: quoted (unadjusted) prices in active markets for
identical assets or liabilities;
● Level 2: other valuation techniques for which all inputs which
have a significant effect on the recorded fair value are observable, either
directly or indirectly; and
● Level 3: valuation techniques which use inputs which have a
significant effect on the recorded fair value that are not based on observable
market data.
There are no non-recurring fair value measurements nor have there been any
transfers between levels of the fair value hierarchy.
Financial assets and liabilities measured at fair value
Level Unaudited Unaudited Audited
at 30 June at 30 June at 31 December 2022
2023 2022 £'000
£'000 £'000
Financial assets:
Derivative financial instruments - oil hedges 2 270 - 525
At 30 June/31 December 270 - 525
Level Unaudited Unaudited Audited
at 30 June at 30 June at 31 December 2022
2023 2022 £'000
£'000 £'000
Financial liabilities:
Derivative financial instruments - oil hedges 2 - (3,112) -
Contingent consideration (note 12) 3 (2,731) (2,731) (2,731)
At 30 June/31 December (2,731) (5,843) (2,731)
Fair value of derivative financial instruments
Commodity price hedges
The fair values of the commodity price hedges were provided by counterparties
with whom the trades have been entered into. These consist of Asian style put
and call options and swaps to sell/buy oil. The hedges are valued using a
Black-Scholes methodology; however, certain adjustments are made to the
spot-price volatility of oil prices due to the nature of the contracts. These
adjustments are made either through Monte Carlo simulations or through
statistical formulae. The inputs to these valuations include the price of
oil, its volatility, and risk free interest rates.
Fair value of other financial assets and financial liabilities
The fair values of all other financial assets and financial liabilities are
considered to be materially equivalent to their carrying values.
12 Provisions
Unaudited Unaudited Audited
at 30 June 2023 at 30 June 2022 at 31 December 2022
£'000 £'000 £'000
Decommis-sioning provision Contingent consideration Total Decommis- sioning provision Contingent consideration Total Decommis- sioning provision Contingent consideration Total
At 1 January (62,825) (2,731) (65,556) (65,995) (2,731) (68,726) (65,995) (2,731) (68,726)
Utilisation of provision 1,635 - 1,635 632 - 632 2,251 - 2,251
Unwinding of discount (note 5) (1,273) - (1,273) (816) - (816) (1,749) - (1,749)
Reassessment of decommissioning provision 1,203 - 1,203 96 - 96 2,668 - 2,668
At 30 June/31 December (61,260) (2,731) (63,991) (66,083) (2,731) (68,814) (62,825) (2,731) (65,556)
Unaudited Unaudited Audited
at 30 June 2023 at 30 June 2022 at 31 December 2022
£'000 £'000 £'000
Decommis-sioning provision Contingent consideration Total Decommis- sioning provision Contingent consideration Total Decommis- sioning provision Contingent consideration Total
Current (3,098) (280) (3,378) (5,518) (280) (5,798) (6,560) (280) (6,840)
Non-current (58,162) (2,451) (60,613) (60,565) (2,451) (63,016) (56,265) (2,451) (58,716)
At 30 June/ 31 December (61,260) (2,731) (63,991) (66,083) (2,731) (68,814) (62,825) (2,731) (65,556)
Decommissioning provision
The Group spent £1.6 million on decommissioning activities during the period
(six months ended 30 June 2022: £0.6 million; year ended 31 December 2022:
£2.3 million).
Provision has been made for the discounted future cost of abandoning wells and
restoring sites to a condition acceptable to the relevant authorities. This is
expected to take place between 1 to 29 years from period end (30 June 2022: 1
to 39 years; 31 December 2022: 1 to 30 years). The provisions are based on the
Group's internal estimate as at 30 June 2023. Assumptions are based on the
current experience from decommissioning wells which management believes is a
reasonable basis upon which to estimate the future liability. The estimates
are based on a planned programme of abandonments but also include a provision
to be spent in 2023-2025 on preparing for the abandonment campaign, abandoning
wells and restoring sites which for regulatory, integrity or other reasons
fall outside the planned campaign. The wells to be decommissioned in 2023 and
2024 are in line with management's discussions with the regulator. The
estimates are reviewed regularly to take account of any material changes to
the assumptions. Actual decommissioning costs will ultimately depend upon
future costs for decommissioning which will reflect market conditions and
regulations at that time. Furthermore, the timing of decommissioning is
uncertain and is likely to depend on when the fields cease to produce at
economically viable rates. This, in turn, will depend on factors such as
future oil and gas prices, which are inherently uncertain.
The Group applies an inflation adjustment to the current cost estimates and
discounts the resulting cash flows using a risk free discount rate. The
provision estimate reflects a higher inflation percentage in the near term for
the period 2023 - 2024 and thereafter incorporates the long-term UK target
inflation rate for the period 2025 and beyond.
A risk free rate range of 3.0% to 5.9% is used in the calculation of the
provision as at 30 June 2023 (30 June 2022: Risk free rate range of 2.3% to
3.0%, 31 December 2022: Risk free rate range of 3.0% to 5.1%).
Management performed sensitivity analysis to assess the impact of changes to
the risk free rate and short-term inflation assumption on the Group's
decommissioning provision balance. A 0.5% decrease in the risk free rate
assumption would result in an increase in the decommissioning provision by
£3.4 million whereas a 1% increase in inflation applied until the end of 2025
would result in an increase in the decommissioning provision by £1.8 million.
Management also performed sensitivity analysis to assess the impact of changes
to the undiscounted future cost of abandoning wells and restoring sites on the
Group's decommissioning provision balance. A 10% increase in the undiscounted
future cost would result in an increase in the decommissioning provision by
£6.3 million.
Contingent consideration
The carrying value of contingent consideration relates to the acquisition of
GT Energy. The consideration is payable in shares, and is dependent on the
timing of various milestones being achieved. It is also dependent on the
inputs to an agreed-form economic model which determines the level of the
consideration for each milestone in accordance with the SPA. These inputs
relate to targets for aspects of the Stoke-on-Trent project, including
funding, amount of heat delivered, and costs and revenues achieved. The fair
value of the consideration for each milestone recognised was calculated by
determining the probability weighted value of each payment and discounted
using a WACC of 8.3%. In addition, there is a business development milestone
relating to securing and achieving targets for a second geothermal project or
generating additional capacity for the Stoke-on-Trent project. The acquisition
agreement and economic model assumed the availability of the Renewable Heat
Incentive (RHI), which closed to applications from 31 March 2021. In March
2022, the UK Government launched the GHNF and we have applied for funding for
the Stoke-on-Trent project in the first round. The change in nature of the
government support for the project is not provided for in the economic model
or the SPA. Whilst the contractual implications on the acquisition agreement
are being assessed, management believes that the current value provides the
best estimate of the contingent consideration at this time. The estimated fair
value will be reviewed as the project progresses and more information becomes
available.
13 Cash and cash equivalents and other financial assets
Unaudited Unaudited Audited
as at as at as at
30 June 2023 30 June 2022 31 December 2022
£000 £000 £000
Cash and cash equivalents 1,493 2,681 3,092
Borrowings - including capitalised fees (5,239) (11,817) (8,743)
Net debt (3,746) (9,136) (5,651)
Capitalised fees (267) (535) (401)
Net debt excluding capitalised fees at 30 June/31 December (4,013) (9,671) (6,052)
Net debt reconciliation
Cash and cash Borrowings Total
equivalents
£000 £000 £000
At 1 January 2022 3,289 (14,836) (11,547)
Interest paid on borrowings (390) - (390)
Repayment of RBL (4,648) 4,648 -
Foreign exchange adjustments 324 (1,494) (1,170)
Other cash flows 4,106 - 4,106
Other non-cash movements - (135) (135)
At 30 June 2022 2,681 (11,817) (9,136)
Interest paid on borrowings (560) - (560)
Repayment of RBL (3,337) 3,337 -
Foreign exchange adjustments (107) (130) (237)
Other cash flows 4,415 - 4,415
Other non-cash movements - (133) (133)
At 31 December 2022 3,092 (8,743) (5,651)
Interest paid on borrowings (384) - (384)
Repayment of RBL (3,284) 3,284 -
Foreign exchange adjustments (128) 354 226
Other cash flows 2,197 - 2,197
Other non-cash movements - (134) (134)
At 30 June 2023 1,493 (5,239) (3,746)
Reserve Based Lending facility
In October 2019, the Group signed a $40.0 million RBL facility with BMO
Capital Markets (BMO). In addition to the committed $40.0 million RBL, a
further $20.0 million is available on an uncommitted basis, and can be used
for any future acquisitions or new conventional developments. The RBL had a
five-year term, an interest rate of USD LIBOR plus 4.0%, matures in June 2024
and is secured on the Group's assets. USD LIBOR has ceased to be published
from 30 June 2023 and the facility was amended to replace LIBOR with the
Secured Overnight Finance Rate (SOFR) with effect from 1 July 2023. There was
no material impact on the financial position and performance of the Group
resulting from this transition.
As at 30 June 2023, we had an available facility limit of $12 million, in line
with the loan facility amortisation schedule. The current portion of the
borrowings have been assessed on the basis of the RBL loan facility amortising
in line with the contractual terms. Under the terms of the RBL, the Group is
subject to a financial covenant whereby, as at 30 June and 31 December each
year, the ratio of Net Debt at the period end to Earnings before Interest,
Tax, Depreciation, Amortisation and Exceptional items (EBITDAX as defined in
the RBL agreement) for the previous 12 months shall be less than or equal to
3.5:1. The Group complied with its covenants for the six months ended 30 June
2023.
13 Cash and cash equivalents and other financial assets (continued)
Collateral against borrowing
A Security Agreement was executed between BMO and Star Energy Group plc and
some of its subsidiaries, namely; Island Gas Limited, Island Gas Operations
Limited, Star Energy Weald Basin Limited, IGas Energy Limited (formerly Star
Energy Group Limited), Star Energy Limited, Island Gas (Singleton) Limited,
Dart Energy (East England) Limited, Dart Energy (West England) Limited, IGas
Energy Development Limited, IGas Energy Enterprise Limited, Dart Energy
(Europe) Limited and IGas Energy Production Limited. Under the terms of this
Agreement, BMO have a floating charge over all of the assets of these legal
entities, other than property, assets, rights and revenue detailed in a fixed
charge. The fixed charge encompasses the Real Property (freehold and/or
leasehold property), the specific petroleum licences, all pipelines, plant,
machinery, vehicles, fixtures, fittings, computers, office and other
equipment, all related property rights, all bank accounts, shares and assigned
agreements and rights including related property rights (hedging agreements,
all assigned intergroup receivables and each required insurance and the
insurance proceeds).
14 Share capital
Ordinary shares Deferred shares Share capital Share premium
No. Nominal value No. Nominal value Nominal value
£000 £000 £000 Value
£000
Issued and fully paid
At 1 January 2022 125,495,505 2 303,305,534 30,331 30,333 102,992
SIP issue partnership 154,872 - - - - 22
SIP issue matching 154,272 - - - - 21
Shares issued in respect of MRP issues 8,307 - - - - -
At 30 June 2022 125,812,956 2 303,305,534 30,331 30,333 103,035
SIP issue partnership 62,989 1 - - 1 21
SIP issue matching 31,348 - - - - 12
Shares issued in respect of MRP issues 575,160 - - - - -
Shares issued in respect of EDRP issues 175,000 - - - - -
Shares issued in respect of EIP issues 74,076 - - - - -
At 31 December 2022 126,731,529 3 303,305,534 30,331 30,334 103,068
SIP issue partnership 122,731 - - - - 22
SIP issue matching 225,462 - - - - 41
Shares issued in respect of MRP issues 154,014 - - - - -
Shares issued in respect of EDRP issues 150,000 - - - - -
Shares issued in respect of EIP issues 15,182 - - - - -
At 30 June 2023 127,398,918 3 303,305,534 30,331 30,334 103,131
15 Subsequent events
On 29 August 2023, Star Energy announced the acquisition of 51% of the issued
share capital of A14 Energy Limited ("A14 Energy"). A14 Energy owns, via its
Croatian subsidiary, IGeoPen d.o.o., the Ernestinovo geothermal waters
exploration licence in the highly prospective Pannonian Basin in Croatia. This
transaction further develops the Group's strategy to transition into a
geothermal developer, owner and operator, diversifying regulatory risk and
providing an entry into the electricity generation sector. The purchase was
for a total cash consideration of €1.3 million (£1.1 million), in addition
to the payment of €0.1 million (£0.1 million) relating to the provision of
cash backed guarantees to the Croatian Hydrocarbon Agency and €0.2 million
(£0.2 million) in back costs relating to the ongoing appraisal of the
Ernestinovo licence. The accounting for this transaction is in progress at the
date of approval of these unaudited condensed interim consolidated financial
statements, in light of the fact that the transaction has only closed very
recently.
Glossary
£ The lawful currency of the United Kingdom
$ The lawful currency of the United States of America
1P Low estimate of commercially recoverable reserves
2P Best estimate of commercially recoverable reserves
3P High estimate of commercially recoverable reserves
1C Low estimate or low case of Contingent Recoverable Resource quantity
2C Best estimate or mid case of Contingent Recoverable Resource quantity
3C High estimate or high case of Contingent Recoverable Resource quantity
AIM AIM market of the London Stock Exchange
Bbl(s)/d Barrel(s) of oil per day
boepd Barrels of oil equivalent per day
bopd Barrels of oil per day
CCUS Carbon capture usage and storage
Contingent Recoverable Resource - Contingent Recoverable Resource estimates
are prepared in accordance with the Petroleum Resources Management System
(PRMS), an industry recognised standard. A Contingent Recoverable Resource is
defined as discovered potentially recoverable quantities of hydrocarbons where
there is no current certainty that it will be commercially viable to produce
any portion of the contingent resources evaluated. Contingent Recoverable
Resources are further divided into three status groups: marginal,
sub‑marginal, and undetermined. Star Energy Group plc's Contingent
Recoverable Resources all fall into the undetermined group. Undetermined is
the status group where it is considered premature to clearly define the
ultimate chance of commerciality.
Drill or drop - A drill or drop well carries no commitment to drill. The
decision whether or not to drill the well rests entirely with the Licensee
being driven by the results of geotechnical analysis. The Licence will,
however, still expire at the end of the Initial Term if the well has not been
drilled.
Firm well - A firm well is classified as a firm commitment to drill a well. It
is not contingent on any further geotechnical evaluation (i.e. it is a fully
evaluated Prospect).
GIIP Gas initially in place
m Million
Mbbl Thousands of barrels
MMboe Millions of barrels of oil equivalent
MMscfd Millions of standard cubic feet per day
PEDL United Kingdom petroleum exploration and development licence
PL Production licence
Tcf Trillions of standard cubic feet of gas
UK United Kingdom
1 June 2023 - The case for deep geothermal energy - unlocking investment at
scale in the UK.
https://www.bgs.ac.uk/news/new-report-assesses-deep-geothermal-energy-in-the-uk
(https://www.bgs.ac.uk/news/new-report-assesses-deep-geothermal-energy-in-the-uk)
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