18 April 2019
G3 Exploration LTD.
("G3E", "G3 Exploration" or the "Company")
Audited Annual Results for the Year Ended 31 December 2018
G3 Exploration Ltd. (LSE: G3E), an independent specialist in the exploration and development of coal bed methane gas (CBM) with roots in China and a focus on international expansion, today announces its annual results for the full year ended 31 December 2018.
Financial Highlights
· Reported revenue includes assets held for sale within Green Dragon Gas (GDG).
· Revenue of US$28.6m (2017: US$25.7m) an 11% increase on 2017 mainly attributed to a slight increase in average gas selling prices.
· EBITDA of GDG of US$ 16.3m (2017: US$15.2 m) at a constant margin.
· Cash generated from group total operating activities during the year of US$3.4m (2017: US$17.5m).
· Net loss for the year of US$9.1m (2017: net loss of US$24.6m), a 170% improvement mainly attributed to the profit for the year from discontinued operations.
Operational Highlights
· China National Petroleum Corporation (CNPC) approved the Overall Development Plan on GCZ producing block.
· Total gross sales of 5.66 Bcf compared to 5.72 Bcf, a marginal decline.
· GSS gross sales of 3.39 Bcf compared to 2.88 Bcf, an 18% increase mainly due to the increase in CNOOC operated wells.
· GCZ, which is operated by CNPC, had gross sales of 2.27 Bcf (2017: 2.84 Bcf), a 20% decline on the previous period reflecting the absence of new wells in the year.
2019 OUTLOOK
Recapitalize balance sheet and drive development program for G3 Exploration
· Conclude evolution to exploration and development business with the completion of the GDG dividend.
· Repay two bond creditors from the GDG sales proceeds.
· Deliver first gas in Guizhou Block (GGZ).
The Company's audited Report and Accounts for the Full Year Ended 31 December 2018 will be available at the Company's website www.g3-ex.com. For further information on the Company and its activities, please refer to the website at www.g3-ex.com or contact:
FTI Consulting
Ben Brewerton/Genevieve Ryan/Tom Pigott
Tel: +44 20 3727 1000
CHAIRMAN'S STATEMENT
The year started with several challenges and ended with constructive conclusions that are being currently implemented.
Of the decisions taken, that to transform the business into an exploration and appraisal company was the most significant in providing a clear direction to the group; it focuses G3E on its specialty and takes us back to our roots and strengths.
Having brought two fields into viable commercial production we believe that producing fields are better operated by significantly larger enterprises which are specialist in doing so. As such, we engaged Citibank and Credit Suisse to explore possible monetization options for our producing assets. This process is on-going and is expected to conclude with trade sales for the GDG assets, enabling G3 Exploration shareholders to receive our third dividend in specie through the distribution of the proceeds. The fall-back of proceeding with a Hong Kong listing remains an option.
On completion of the dividend in specie of GDG, the Group's receivable from GDG of US$341 million is expected to be paid in full. G3 Exploration shall in turn use these receipts to settle its outstanding debt, including to its Nordic Bond holders and Convertible Bond holders, and to fund ongoing working capital and an accelerated exploration and development programme in its remaining exploration blocks.
After our monetization plan is concluded, G3 Exploration expects to be debt free with six exploration blocks and an exciting future ahead. We believe we can add material shareholder value in capitalizing on our decades of technical aptitude in appraising Coal Bed Methane assets for development. G3 Exploration shareholders can expect to benefit from a monetization event on a recurring basis as we progress other assets through the appraisals stage. The most advanced of these, the Guizhou exploration block (GGZ), is expected to commence test gas sales this year.
Our Jincheng, Shanxi based team has worked closely with CNPC-PetroChina on progressing the GCZ production block to further development. The block continued its commercial gas sales while the collaborative Joint Operating Team concluded its Overall Development Plan. The plan approved by NDRC in September, commits to the drilling of 147 wells by yearend 2019 with a collective US$54 million investment divided according to the partners' participating interests in the Block. GCZ's expected gas production following this ODP execution is 6 BCFPY which will counter the current decline curve as no wells have been drilled on the block since 2010.
The GSS block met its objective of increasing gas sales from the 460 gas sales wells. The CNOOC-CUBCM team increased with gas sales well from 324 to 354 of the total 1,128 wells drilled which resulted in a yearend exit rate of 2.25 BCFPY. This was complemented by our own operated wells which maintained a 2.19 BCFPY exit gas sales rate. This provides for GSS attaining an annual gas sales rate of 3.39 BCFPY exiting the year. We expect gas sales to continue increasing as the balance of the drilled wells are placed on line and from the resulting de-watering of the basin which will assist gas flow.
In addition to the GSS producing block, the CNOOC/CUCBM partnership spreads across five exploration blocks namely; GSN, GFC, GPX, GQY-A and GQY-B. Our exploration team has been re-structured to efficiently progress each of these assets onto development and have been diligently concluding programs which could be executed following recapitalization.
In addition to our CNOOC & CNPC partnership on the two producing blocks, we continued to progress our CNPC partnership in the Guizhou (GGZ) exploration block. This gas block is a focused and prioritized asset which is expected to have Chinese reserves certified in 2019. Furthermore, we expect to commence test gas sales this year so as to progress the asset into development.
We are very appreciative of the continuous support extended by our Bondholders who continuously acknowledge the Company's accomplishments with our Chinese partners. The Bondholders have been very cooperative and constructive in supporting the Company to conclude its re-capitalization plan which would fundamentally include payment to the debt holders in full and facilitate continued growth in capex.
We have a well-established track record and demonstrated perseverance in going the distance to monetize shareholder value through core basic principles:
o Focus on core intellectual aptitude in developing Coal Bed Methane gas
o Develop assets in an environmentally and socially prudent manner
o Protect accreted shareholder value
Emerging markets have been a challenge for many pioneers and we have certainly had ours. Notwithstanding, our core principles have guided us through these challenges and we look forward to delivering material value to our shareholders and employees who have persevered through our twenty-two year journey so far.
I look forward to the upcoming years where we expect to monetize value in our producing assets, develop our exploration assets and search for incremental geographies where our deep knowledge in CBM is of accretive value.
We thank our employees' relentless hard work and the Board for guiding the company through its evolution into an exciting CBM exploration and development globally-focused business.
Randeep S. Grewal
Founder & Chairman
About G3 Exploration Ltd.
An independent specialist in the exploration and development of coal bed methane gas (CBM); G3 Exploration has accumulated a unique wealth of experience through its significant 25 year track record of technology-led exploration and drilling success in CBM, across different geographies.
G3 Exploration's intention is to leverage its expertise, monetise its current 7112km² acreage position in mainland China and widen its asset portfolio into other prospective geographies across Africa, Europe and Asia, utilising its proprietary knowledge and experience in exploiting CBM resources. Furthermore, G3 Exploration has interests in Green Dragon Gas, which comprises of two producing assets with an acreage of 455km2 in Shanxi province, China.
G3 Exploration is listed on the main market of the London Stock Exchange (LSE: G3E).
STRATEGIC REPORT
UPSTREAM
The upstream operational focus for 2018 was on the further development and optimisation of production and gathering infrastructure in the GSS Block. The current focus on infrastructure reflects the Group's commitment to deliver value from investments through increased production and sales volumes.
ASSETS HELD FOR SALE
GREEN DRAGON GAS - Producing Assets (GSS & GCZ)
Financial
· Balance sheet movement owing to Dividend in Specie of $341 million to sell the GDG assets at their Net Equity Amount.
· Revenue of $25.5m with EBITDA of $16.3m are contributed by upstream producing blocks.
DIVIDEND IN SPECIE
Shizhuang South (GSS)
| G3E: 60% (op) CNOOC: 40% 388 km2 | 2018 | 2017 | +/- |
|
| Net, Bcf | Net, Bcf |
|
| 1P | 77.2 | 77.5 | (0.30%) |
| 2P | 274.6 | 275.5 | (0.36%)
|
Location: Shanxi Province
Our primary focus in our operated GSS area in 2018 was the continued development of infrastructure to deliver gas volumes from investments already made. The infrastructure programme is aimed at increasing the number of well connections and making specific enhancements to surface production facilities to optimise the recovery of gas.
Up to 2018, the number of producing LiFaBriC wells is 58 at the year end. This brings the total number of wells connected to infrastructure and producing gas for sale in the GDG operated area of the block to 106 from a total stock of 130 wells.
As part of the infrastructure programme, we have also continued a compression upgrade project for the gathering system since 2015. The compression project is focused on realising the full production potential of the connected wells and improving the sales to production ratio by optimising gas flow and pressures across the gathering network. A total of 51 compressors have been installed resulting in an improvement in the sales to production ratio at year-end 2018. The compression project will continue into 2019.
In 2018, our partner, CNOOC, completed the construction and commissioning of two additional gathering stations in the GSS Block. This increases the total gas processing capacity at GSS to 22.7 Bcf per annum.
In addition to supporting the GSS development activities, the installation of further pipeline and processing infrastructure across GSS is important for the development of the contiguous GSN Block situated directly north of GSS.
Coal Seam 15
Coal Seam 15 lies deeper than Coal Seam 3, at approximately 890 metres below the surface. Where Coal Seam 3 is capped by non-permeable shale rock, Coal Seam 15 is situated directly beneath a significant water-bearing limestone cap. In 2015, we successfully drilled the GSS 036-R well into Coal Seam 15. The well is the first LiFaBriC well drilled into the seam. The 036-R well encountered a four-metre thick section of coal and was successfully completed with no penetration of the limestone cap. Intersecting the limestone while drilling could cause water ingress into the coal section of the well, significantly hampering gas recovery. GSS 036-R is currently showing well head casing pressure consistent with gas desorption. Applying in-house drilling experience and proprietary technologies, we were able to successfully navigate in the lateral portion of the well, avoiding the limestone layer. This is a key success in terms of the future development of Coal Seam 15.
The successful drilling result in Coal Seam 15 is an important step in the development of GSS and brings forward the prospect of developing this seam concurrently with Coal Seam 3. Significant production infrastructure already exists across the GSS Block and it is expected that this will reduce the full cycle development cost of Coal Seam 15.
We continued to strengthen our relationships with our partner CNOOC, the establishment of the Joint Operations Team (JOT) collocated in the Jincheng field office. The team comprises technical and financial representatives of both parties. The JOT is focused on the joint development of operations in the GSS Block. Together with our partner we intend to seek Overall Development Plan (ODP) approval in 2019. Approval of ODP is expected to widen available funding opportunities.
Chengzhuang (GCZ)
| G3E: 47% CNPC: 53% (op) 67km2 | 2018 | 2017 | +/- |
|
| Net, Bcf | Net, Bcf |
|
| 1P | 13.9 | 14.0 | (0.19%) |
| 2P | 31.0 | 31.1 | (0.28%) |
Location: Shanxi Province
GCZ is the smallest of our acreage, positions at 67 km2 and has been on production for the longest period. In 2015 CNPC successfully drilled an initial lateral well into Coal Seam 15 and after routine de-watering; the well is now producing gas at commercial rates. This is an important milestone on the route to full development of the GCZ Block, as all required infrastructure is already in place. Using the same infrastructure in a Coal Seam 15 development scenario will result in significant capex efficiencies.
We continue to work together with CNPC through the GCZ Joint Operations Team, focusing on potential infill drilling in Coal Seam 3 and the continued exploitation of Coal Seam 15.
On 7 September 2018, NDRC has approved the ODP, consistent with its policy to accelerate CBM development in China, boost green energy supply, and improve coal mine safety production and to reduce CO2 emissions. This final NDRC approval facilitates the permits for the Company and its partner to further develop the acreage.
GCZ ODP highlights
· The ODP area of 33 km² has 294 Bcf of gas in place with estimates of recoverable proved reserves of 176 Bcf.
· 114 wells have been drilled on the acreage of which 86 wells are selling gas.
· The development plan includes the drilling of an additional 147 production wells.
· Acreage contains coal seam #3 & #15 gas bearing reservoirs.
· Gross production capacity from the ODP is estimated to be 180 million cubic meters per year (6.35 Bcf per year).
· The total development cost for GCZ is expected to be c. US$54 million over the next two years starting from fourth quarter 2018. Each party is expected to invest according to its participating interest in the Block, and work towards the completion of the work program by yearend 2019.
· GCZ is a commercial gas producing block which has been profitable since September 2015 and continues to be so.
The GCZ Block is jointly operated by CNPC and the Company through a joint management team based in Jincheng, Shanxi. In addition to the above, NDRC approval has emphasized on strengthening the health, safety and environment (HSE) management systems to fulfil the objective of no accidents and zero pollution to the environment. Regarding HSE, the Company has since inception, along with its Chinese partners, been committed to working to the highest standards of HSE in all of its operations. Our teams have diligently been committed to safety at all times with zero lost time incidents recorded year-on-year.
G3E - EXPLORATION ASSETS
The GGZ Block located in Guizhou Province remains the focus of exploration activity. 12 CBM production wells were successfully drilled in three major coal seams; namely Coal Seam 17, 19 and 29 in 2017. More than 10,000 metres were drilled in these 12 wells with the fastest speed recorded of 431 metres per day of drilling accomplished by Greka Drilling Limited. In addition to the current seven production wells on stream, these 12 newly drilled wells in 2017 will be brought online in H2 2019, commencing initial test gas sales from the GGZ Block.
On the three additional blocks - GFC, GPX and GQY, geological dynamic models will be updated, well deployment and geological field surveys will be carried out, land leases were acquired with civil work now ongoing to kick-off the 2019 work plan for each block in 2019.
Shizhuang North (GSN)
| GDG: 50% CNOOC: 50% (op) 375 km2 | 2018 | 2017 | +/- |
|
| Net, Bcf | Net, Bcf |
|
| 1P | 4.7 | 4.5 | 4.95% |
| 2P | 16.3 | 16.3 | (0.03%) |
Location: Shanxi Province
GSN is an important block for the Group given its geographic position relative to GSS. Coal Seams 3 and 15, present in GSN, are a continuous extension of the same coal seams in GSS. The nature and behaviour of Coal Seam 3 has been well defined through the extensive exploration and development work undertaken by the Group and its partner on GSS, experience that can be transferred to the development of GSN.
In addition, the pipelines and production facilities in place at GSS can be used to evacuate gas for sale from the GSN Block. The GSN area is currently being developed by CNOOC under the terms of the 2014 Framework Agreement and 2017 supplementary agreement (SA) where we exchanged a 10% interest for an additional US$100 million investment commitment from CNOOC.
Boatian-Quingshan (GGZ)
| G3E: 60% (op) CNPC: 40% 870 km2 | 2018 | 2017 | +/- |
|
| Net, Bcf | Net, Bcf |
|
| Unrisked prospective resources, best estimate | 339 | 494 | (31%) |
Location: Guizhou Province
The GGZ Block continued to be a major area of exploration focus in 2018, with well performance testing continued through 2017 as part of the reserve compilation process with 9 wells currently on production. Six of these 9 wells have reached commercial rates of production which fulfil the per‐well commercial production requirement for reserve certification. The objective of the exploration work undertaken in 2017 and 2018 was to better define and understand the coal resource in place. Exploration wells were targeted to give sufficient well coverage and production data over the seam in preparation for the submission of the Chinese Reserve Report (CRR) in 2019. Submission of the CRR is an important exploration milestone and a precursor to the ODP in 2019.
In 2017, 12 CBM production wells were successfully drilled in three major coal seams and were brought on line; namely Coal Seam 17, 19 and 29.
While still at a relatively early stage, the Group sees significant potential in GGZ, which forms an important part of our strategy to develop the exploration portfolio into fully producing assets. This is building a tangible route to further long-term organic growth.
Other Exploration
The other exploration areas have been re-evaluated during the year, and work plans on exploration have been established for implementation in 2019.
| PSC | Location (province) | Area km2 | G3E share (op) | Unrisked prospective resource - best estimate |
|
|
|
|
|
|
| GQY A |
|
| 10% |
|
| GQY B |
|
| 60% |
|
| GQY Total | Shanxi | 3,665 | 70% | 682 |
| GFC | Jiangxi | 1,541 | 49% | 196 |
| GPX | Anhui | 584 | 60% | 15 |
REVIEW OF OPERATIONS
RESERVES MIGRATION
The Group updated its estimates of gas reserves and resources at 31 December 2018 for each of the eight blocks that it is participant to. The estimates of reserves and resources have been prepared in accordance with definitions and guidelines set out in the 2007 Petroleum Resources Management System (PRMS) approved by the Society of Petroleum Engineers. This includes all 1,800 wells operated by G3E, CNOOC, CNPC and PetroChina across all blocks in which the Group has an equity interest.
The summary reserves report at 31 December 2018 (2017 report updated for depletion through production), with associated NPV 10 valuations, is below:
|
| GDG |
| G3E | ||
|
| (Blocks GSS and GCZ) |
| (Blocks GGZ, GSN, GQY A & B,GFC,GPX) | ||
|
| Bcf | NPV10 US$M |
| Bcf | NPV10 US$M |
| 1P | 91.2 | 425.4 |
| 5.4 | 32.5 |
| 2P | 305.7 | 1,416.6 |
| 68.5 | 826.1 |
| 3P | 1,120.9 | 4,997.8 |
| 912.2 | 7,209.0 |
| 2C | - | - |
| 596.0 | - |
The summary reserves report at 31 December 2017, with associated NPV 10 valuations, is below:
|
| GDG |
| G3E | ||
|
| (Blocks GSS and GCZ) |
| (Blocks GGZ, GSN, GQY A & B,GFC,GPX) | ||
|
| Bcf | NPV10 US$M |
| Bcf | NPV10 US$M |
| 1P | 91.5 | 440.5 |
| 5.2 | 33.7 |
| 2P | 306.6 | 1,539.2 |
| 70.5 | 879.4 |
| 3P | 1,124.6 | 5,223.1 |
| 919.8 | 7,526.7 |
| 2C | - | - |
| 762.2 | - |
The estimates in the reserve report have been prepared in accordance with definitions and guidelines set forth in the 2007 Petroleum Resources Management System (PRMS) approved by the Society of Petroleum Engineers. The information in this announcement pertaining to G3 Exploration's China reserves have been prepared by Hassan Sindhu, the Company's petroleum engineer who holds a Bachelor of Science degree from the China University of Petroleum.
Main assumptions supporting the NPV10:
1. Applicable well-head gas price (before subsidies) of US$7.1/Mcf in GSS and US$7.5/Mcf in GCZ (2018), increasing to US$8.2/Mcf in GSS and US$8.7/Mcf in GCZ (2021), and escalated 5% p.a.
2. Operating costs relating to direct lease and field level costs - US$1,870 per well per month and US$0.329/Mcf of gas produced (no corporate G&A included) in GCZ; and $1,040 per well per month and US$1.275/Mcf of gas produced (no corporate G&A included) in GSS and escalated 5% p.a. from 2019.
REVIEW OF OPERATIONS
PNG
PNG sales are made directly into the national transmission network at GCZ on a volume-metered basis. The Group sells PNG gas at GSS under contract at US$7.3 per Mcf and invoices directly for sales to Shanxi Greka CBM Integrated Utilization Co., Ltd. Sales at GCZ are managed by our partner, CNPC, with our share of gross revenue distributed under normal joint operating procedures. There are de-minimis delivery quantities in the sales contracts in place for either GSS or GCZ.
Total PNG sales for the Group in 2018 amounted to 2.84 Bcf (2017: 3.21 Bcf). PNG sales from the Group's operated property on GSS were 1.75 Bcf in 2018 (2017: 1.36 Bcf). PNG sales from the GCZ were 1.10 Bcf in 2018 (2017: 1.35 Bcf). Gross PNG sales from CNOOC operated wells amounted to 1.64 Bcf (2017: 0.94 Bcf).
FINANCIAL REVIEW
Income statement - Discontinued Operations
During the year, all revenue generating assets of the Group are still classified as held for sale; their results are classified as gains or losses from discontinued operations. Therefore, there is no revenue and cost of sales in the consolidated statement of comprehensive income from continuing operations, and the results of operations of discontinued operations are presented in non-current assets held-for-sale and discontinued operation.
Total revenue increased by 11.3% in 2018 to US$28.6 million (2017: US$25.7 million) mainly attributable to an approximate 20% decrease in sales volume of GCZ operated by CNPC, 10% decrease in sales volume of GSS operated by GDG, and revenue generated from downstream business, with a slight increase in average selling prices.
Sales volumes by channel in 2018 compared to 2017 were as follows:
|
| 2018 | 2017 |
|
| Bcf | Bcf |
| PNG | 2.8 | 2.7 |
| CNG | 0.1 | 0.5 |
PNG sales volumes from our operated GSS area were 10% lower in 2018 than in 2017. Our share of sales volumes (47%) from GCZ was 20% lower than in 2017 reflecting the relative maturity of the GCZ area. The Group and CNPC have planned to drill 147 wells in the next two years. The sales price per m3 achieved on GCZ is higher than that on GSS due to the higher compression ratio of sales-gas that means it can be directly injected into the main east-west gas pipeline.
Subsidy revenue has decreased compared to 2017 as a result of the sales volume decrease. Subsidies are calculated at a flat rate based on sales volumes and hence are presented as a component of revenue.
Cost of sales has decreased by 19% in 2018 to US$13.3 million (2017: US$16.4million), as a result of the group's cost saving policy successfully implemented.
G&A cost has decreased by 27% to US$2.4 million (2017: US$3.3 million), as a result of the group's cost saving policy successfully implemented.
Income statement - Continuing Operations
Other administrative costs of US$2.4 million (2017: US$4.1 million), as a result of the group's cost saving policy successfully implemented.
Liquidity and capital resources
The Group closed the year with US$0.3 million (2017: US$1.3 million) of cash on hand and US$1.0 million (2017: US$1.0 million) of restricted cash related to a performance bond given to Petro-China in relation to the Group's exploration activities on the GGZ Block.
During the year, US$3.4 million (2017: US$17.6 million) was generated from operations with US$6.1 million (2017: US$16.7 million) invested in the exploration and production acreage. The decrease in investment in exploration and production acreage is largely due to longer than expected conclusion of the supplementary agreements, before which the parities were refrained from capital investment in the blocks.
In December 2016, the group reached an agreement with the convertible note holder, GIC, to extend the maturity of the US$50 million convertible bond. Under the agreement, the Bond remains unsecured, has a revised coupon of 10% and a maturity date extended to 31 December 2020 (subject to a one-time redemption option exercisable by GIC on the current maturity). On 23 June 2017 an extension to the note holder's one-time early redemption option was agreed with the note holder such that at any time up to 27 October 2017, the note holder could require the Company to repay the whole amount of the loan note immediately. The option to require early repayment is at the note holder's sole discretion. In 2017, the company reached agreement with the note holder to extend the period during which the put option is exercisable to 20 November 2018. In 2019, the company reached agreement with the note holder to extend the period during which the put option is exercisable to 20 November 2019. At 31 December 2018, the Company had one (2017: one) convertible note in issue. At final maturity of the Bond, GIC has the right to require the Company to purchase its conversion shares at a price based on the 90 day VWAP calculated as of 31 December 2020 and to be settled prior to 30 April 2021.
Interest in the amount of $14.1 million (2017: US$11.5 million) accrued during the year of which $nil million (2017: US$4.4 million) interest was paid in respect of the US$88.0 million bond entered in late 2014 and carrying a coupon of 10% (2017:10%) and an additional 5% on overdue amounts, and the convertible bond taken out in late 2014, with principal of US$50.0 million and a coupon of 10% (2017:10%), both of which will be repaid after dividends in specie by GDG.
Asset additions
Total additions to upstream CBM assets in 2018 amounted to US$12.2 million (2017: US$13.2 million).
Since 2017, due to the GSS and GCZ blocks being actively pursued for a divesture, the assets appropriately have been classified as held for sale.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
|
|
| Year ended 31 December 2018 | Year ended 31 December 2017 |
|
| Notes | US$'000 | US$'000 |
|
|
|
|
|
| Continuing operations |
|
|
|
| Revenue | 2 | - | - |
| Cost of sales |
| - | - |
| Gross profit |
| - | - |
| Other Income |
| 19 | 13 |
| Selling and distribution costs |
| - | - |
| Administrative expenses |
| (2,446) | (4,144) |
| Loss from operations |
| (2,427) | (4,131) |
| Finance income |
| 1,189 | 4,457 |
| Finance costs |
| (19,759) | (17,426) |
| Loss before income tax |
| (20,997) | (17,100) |
| Income tax credit |
| 48 | 46 |
| Loss for the year from continuing operations |
| (20,949) | (17,054) |
| Discontinued operations |
|
|
|
| Profit/(Loss) for the year from discontinued operations | 3 | 10,248 | (7,522) |
| Gain from Disposal | 3 | 1,545 | - |
|
|
|
|
|
| Other comprehensive income |
|
|
|
| Items that will or may be reclassified to profit or loss: |
|
|
|
| Exchange gains arising on translation of discontinued foreign operations |
| 67 | - |
|
Loss for the year attributable to owners of the company |
|
(9,089) |
(24,576) |
| Items which may be reclassified to profit and loss: |
|
|
|
| Exchange differences on translation foreign operations |
| (27,844) | 57,328 |
| Total comprehensive (loss)/income for the year attributable to owners of the company |
| (36,933) | 32,752 |
| Basic and diluted loss per share (US$) of continuing operations |
4 | (0.134) | (0.109) |
| Basic and diluted earnings/(loss) per share (US$) of discontinued operations | 4 | 0.076 | (0.048) |
| Basic and diluted loss per share (US$) | 4 | (0.058) | (0.158) |
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
|
|
| Notes | As at 31 December 2018 | As at 31 December 2017 |
|
|
|
| US$'000 | US$'000 |
| Assets |
|
|
|
|
| Non-current assets |
|
|
|
|
| Property, plant and equipment |
|
| 23 | 33 |
| Gas exploration and appraisal assets |
|
| 579,112 | 617,900 |
| Long-term prepaid expenses |
|
| - | 299 |
| Deferred tax asset |
|
| 348 | 317 |
|
|
|
| 579,483 | 618,549 |
|
|
|
|
|
|
| Current assets |
|
|
|
|
| Trade and other receivables |
|
| 10,387 | 8,167 |
| Restricted cash |
|
| 1,000 | 1,000 |
| Cash and cash equivalents |
|
| 305 | 1,347 |
|
|
|
| 11,692 | 10,514 |
| Assets of disposal group classified as held-for-sale |
| 3 | 389,506 | 380,133 |
|
|
|
| 401,198 | 390,647 |
|
|
|
|
|
|
| Total assets |
|
| 980,681 | 1,009,196 |
|
|
|
|
|
|
|
|
| Notes | As at 31 December 2018 | As at 31 December 2017 |
|
|
|
| US$'000 | US$'000 |
| Liabilities |
|
|
|
|
| Current liabilities |
|
|
|
|
| Trade and other payables |
|
| 7,783 | 10,198 |
| Convertible notes |
|
| 58,739 | 53,132 |
| Bonds |
|
| 110, 083 | 95,932 |
|
|
|
| 176,605 | 159,262 |
| Liabilities of disposal group classified as held-for-sale |
| 3 | 48,308 | 50,548 |
|
|
|
| 224,913 | 209,810 |
| Non-current liabilities |
|
|
|
|
| Deferred tax liability |
|
| 118,641 | 124,137 |
| Share buyback option liability |
|
| 2,280 | 3,469 |
|
|
|
| 120,921 | 127,606 |
|
|
|
|
|
|
| Total liabilities |
|
| 345,834 | 337,416 |
| Total net assets |
|
| 634,847 | 671,780 |
|
|
|
|
|
|
| Capital and reserves |
|
|
|
|
| Share capital |
|
| 16 | 16 |
| Share premium |
|
| 808,981 | 808,981 |
| Share redemption reserve |
|
| (8,255) | (8,255) |
| Convertible note equity reserve |
|
| 2,851 | 2,851 |
| Foreign exchange reserve |
|
| 10,537 | 38,381 |
| Retained deficit |
|
| (179,283) | (170,194) |
| Total equity attributable to owners of the parent |
|
| 634,847 | 671,780 |
|
Total equity |
|
| 634,847 | 671,780 |
The financial statements were authorised and approved by the Board on 17 April 2019 and signed on their behalf by
Mr. Randeep S. Grewal
Director
CONSOLIDATED STATEMENT OF CASH FLOWS
|
| Notes | Year ended 31 December 2018 | Year ended 31 December 2017 |
|
|
| US$'000 | US$'000 |
|
|
|
|
|
| Cash flows used in continuing operating activities |
|
|
|
| Loss after tax |
| (20,949) | (17,054) |
| Adjustments for: |
|
|
|
| Depreciation |
| 10 | 22 |
| Amortisation of intangible assets |
| - | - |
| Loss on disposal of plant, properties and equipment |
| - | - |
| Other income and finance income |
| (1,189) | (4,457) |
| Finance costs |
| 19,759 | 17,426 |
| Accelerated finance charge |
| - | - |
| Taxation |
| (48) | (46) |
| Cash generated from operating activities before changes in working capital |
|
(2,417) |
(4,153) |
| Movement in inventory |
| - | - |
| Movement in trade and other receivables |
| (2,221) | 4,690 |
| Movement in trade and other payables |
| (2,412) | 5,258 |
| Net cash generated from operations |
| (7,050) | 5,795 |
| Net cash generated from continuing operating activities |
| (7,050) | 5,795 |
| Net cash generated from discontinued operating activities | 3 | 10,426 | 11,731 |
| Net cash generated from operating activities |
| 3,376 | 17,526 |
|
|
|
|
|
|
| Notes | Year ended 31 December 2018 | Year ended 31 December 2017 |
|
|
| US$'000 | US$'000 |
|
|
|
|
|
| Investing activities |
|
|
|
| Payments for purchase of property, plant and equipment |
| - | - |
| Proceed from disposal of property, plant and equipment |
| - | - |
| Proceed from disposal of discontinued operation |
| - | - |
| Payments for exploration activities |
| （2,963) | (6,259) |
| Interest received |
| - | 4 |
| Refund of deposit received from Petro China |
| - | 1,000 |
| Net cash used in continuing investing activities |
| (2,963) | (5,255) |
| Net cash used in discontinued investing activities | 3 | (3,118) | (12,192) |
| Net cash used in investing activities |
| (6,081) | (17,447) |
|
|
|
|
|
| Financing activities |
|
|
|
| Interest paid |
| - | (4,400) |
| Payment received from investing in discontinued operations |
| - | - |
| Repayment of Loans and borrowings |
| - | - |
| Net cash used in continuing financing activities |
| - | (4,400) |
| Net cash used in discontinued financing activities | 3 | - | - |
| Net cash used in financing activities |
| - | (4,400) |
| Net decrease in cash and cash equivalents |
|
(2,705) |
(4,321) |
| Cash and cash equivalents at beginning of year |
| 3,175 | 7,324 |
|
|
| 470 | 3,003 |
| Effect of foreign exchange rate changes |
| 21 | 172 |
| Cash and cash equivalents at the end of year |
| 491 | 3,175 |
| Attributable to continuing activities |
| 305 | 1,347 |
| Attributable to discontinued activities | 3 | 186 | 1,828 |
|
|
|
|
|
NOTES FORMING PART OF THE FINANCIAL STATEMENTS
1 Going concern
These financial statements have been prepared on a going concern basis.
Included in current liabilities as at 31 December 2018 are two specific instruments;
The Company has a convertible loan note liability of $58.7 million, which is due for repayment on 31 December 2020. On the 14th of November 2018 an extension to the one-time early redemption option was agreed with the note holder such that it is now exercisable at any time up to 20 November 2019, and would require early repayment of the whole amount due no earlier than 20 November 2019. The option to require early repayment is at the note holder's sole discretion.
The Company has a bond liability of $110 million, which was due for repayment in November 2017. The bond has not been repaid, and the due date has passed. The Bond Trustee representing a majority of the outstanding bond, are in ongoing discussions with the Company regarding amongst other things negotiating the repayment of the outstanding bond amount. Furthermore, the Bond Trustee has been instructed by those majority bondholders not to take any action to recover amounts due and, until further notice, and as long as no conflicting instruction is received, they will not declare the bond to be in default or demand immediate payment.
The Company also has other payables due to third parties of approximately $12.9 million (2017: $15 million), due immediately. The Company is managing these payables through continuing negotiation with suppliers.
The Company also has certain capital expenditure requirements in some of its exploration blocks during the exploration period.
In considering the appropriateness of the going concern basis, the Board gave consideration to the following:
Subsequent to the balance sheet date, the Company has declared a dividend in-specie for its discontinued upstream operation, Green Dragon Gas (GDG). G3E shareholders on the register as of the effective date 29 March 2019 will receive a direct interest in GDG.
GDG has engaged certain banks to explore possible monetization options for GDG through trade sales. Currently, sales processes for the producing assets in GDG are underway with discussions for the sale of block GCZ with bids expected from a number of interested parties. A separate sales process is also underway for block GSS.
On completion of the dividend in-specie of GDG, the Group will have a receivable from GDG of $341 million. Proceeds from the monetization of GDG will be used to settle the debts due to the Group in due course. G3E shall in turn use those receipts to settle its outstanding debt, including to its Nordic Bond holders and Convertible Bond holders, and to fund working capital and an accelerated exploration and development programme in the blocks.
The Company's major shareholder and CEO, Randeep S. Grewal, has confirmed that he will provide sufficient financial support in respect to other current payables of $12.9 million, prior to the expected trade sales, if required.
The Directors have informed the Bondholder Trustee of the Company's intention to raise financing through the trade sales of GDG, and to use the proceeds to repay the $110 million bond. The Company notes that discussions continue with the bondholders. To date the Company is not aware of any immediate intention of the Bond Trustee to take action to recover amounts due. On the basis of the above, the Company does not expect the bondholders to put the bond into default before additional funding is received. However, the bondholders have given no written assertions that they will not put the bond into default.
The Company is not aware of any immediate intention of the note holder to exercise its early redemption option. However, the note holder has given no written assertions that they will not exercise its early redemption option.
The Company expects to use the proceeds from the trade sales to repay all of the Company's debts. Based on the above, the Company expects to be able to meet its liabilities as they fall due for a period not less than one year.
However, as at the date of this report, there were no binding trade sales agreements in place. Therefore, there can be no certainty that the trade sales will be successful, there can also be no certainty that no default notice will be issued in respect of the $110 million bond, and there can also be no certainty that no early repayment notice will be issued in respect of the convertible loan note.
Notwithstanding the confidence that the Board has, the Directors, in accordance with Financial Reporting Council guidance in this area, conclude that at this time there is material uncertainty that such finance can be procured and failure to do so might cast significant doubt upon the Group's ability to continue as a going concern and that the Group may therefore be unable to realise their assets and discharge their liabilities in the normal course of business. These Financial Statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
2 Revenue and segment information
The Group's reportable segments are as set out below. The operating results of each of these segments are regularly reviewed by the Group's chief operating decision-makers in order to make decisions about the allocation of resources and assess the performance of each segment.
The assets and liabilities relating to the carve-out of the producing blocks (GSS & GCZ) of Greka Energy (International) B.V., a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the board decision to spin off the assets of GSS & GCZ blocks. As the carve out of the GDG assets is coming to its final stage, GDG has been classified as held for sale asset.
The financial statements did not include the Group's share of CNOOC operated GSS 1,128 wells' revenue, associated costs and resulting margins. The sales revenues and volumes associated with the CNOOC operated areas of GSS and GSN will be subject to future audits.
The Group has two (2017: two) customers which account for more than 50% of its revenue for the year.
For the year ended 31 December 2018
|
| Upstream continuing operations | Upstream discontinued operations | Downstream discontinued operation | Corporate | Sub-total | Eliminations | Consolidated |
|
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
| Segment revenue: |
|
|
|
|
|
|
|
| Sales to external customers | - | 25,508 | 3,108 | - | 28,616 | (28,616) | - |
| Inter-segment sales | - |
| - | - | - | - | - |
|
| - | 25,508 | 3,108 | - | 28,616 | (28,616) | - |
| Depreciation | - | (6,513) | (330) | (10) | (6,853) | 6,843 | (10) |
| Amortisation | - | - | - | - | - | - | - |
| Impairment | - | - | - | - | - | - | - |
| Profit/(loss) from operation | - | 9,799 | (1,178) | (2,427) | 6,194 | (8,621) | (2,427) |
| Finance income | - | - | 1 | 1,189 | 1,190 | (1) | 1,189 |
| Finance cost | - | 2 | 4 | (19,759) | (19,753) | (6) | (19,759) |
| Income tax | 48 | 1,627 | (7) | - | 1,669 | (1,620) | 48 |
| Profit/(Loss) for the year | 48 | 11,428 | (1,180) | (20,997) | (10,700) | (10,248) | (20,949) |
|
|
|
|
|
|
|
|
|
| Assets | 109,985 | 389,506 | - | 481,190 | 980,681 | (389,506) | 591,175 |
| Liabilities | 118,846 | 48,308 | - | 178,680 | 345,834 | (48,308) | 297,526 |
| PPE additions | - | - | - | - | - | - | - |
| Gas exploration additions | 1,650 | 10,525 | - | - | 12,175 | (10,525) | 1,650 |
For the year ended 31 December 2017
|
| Upstream continuing operations | Upstream discontinued operations | Downstream discontinued operations | Corporate | Sub-total | Eliminations | Consolidated |
|
| US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 | US$'000 |
| Segment revenue: |
|
|
|
|
|
| |
| Sales to external customers | - | 14,618 | 11,039 | - | 25,657 | (25,657) | - |
| Inter-segment sales | - | 12,500 | 646 | - | 13,146 | (13,146) | - |
|
| - | 27,118 | 11,685 | - | 38,803 | (38,803) | - |
| Depreciation | - | (7,623) | (1,524) | (22) | (9,169) | 9,147 | (22) |
| Amortisation | - | - | 1,066 | - | 1,066 | (1,066) | - |
| Impairment | - | - | (13,095) | - | (13,095) | 13,095 | - |
| Profit/(loss) from operation | - | 7,577 | (18,195) | (4,131) | (14,749) | 10,618 | (4,131) |
| Finance income | 12 | 1 | 2 | 4,445 | 4,460 | (3) | 4,457 |
| Finance cost | - | - | 580 | (17,426) | (16,846) | (580) | (17,426) |
| Income tax | 46 | 2,347 | 166 | - | 2,559 | (2,513) | 46 |
| Profit/(Loss) for the year | 58 | 9,925 | (17,447) | (17,112) | (24,576) | (7,522) | (17,054) |
|
|
|
|
|
|
|
|
|
| Assets | 127,550 | 377,513 | 2,619 | 501,513 | 1,009,194 | (380,133) | 629,062 |
| Liabilities | 132,296 | 47,928 | 2,619 | 154,570 | 337,413 | (50,548) | 286,865 |
| PPE additions | - | - | 162 | 3 | 165 | (161) | 4 |
| Gas exploration additions | 9,261 | 3,970 | - | - | 13,231 | (3,970) | 9,261 |
3 Non-Current Assets Held-For-Sale And Discontinued Operation
The assets and liabilities relating to the carve-out of the producing blocks (GSS & GCZ) of Greka Energy (International) B.V., a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the board decision to monetise GDG with a declaration of dividend in-specie. Management expects GSS & GCZ blocks to be sold within the next 12 months.
(a) Assets of disposal group classified as held-for-sale
|
| Note | As at 31 December 2018 Upstream | As at 31 December 2018 Downstream | As at 31 December 2018 Subtotal |
|
|
| US$'000 | US$'000 | US$'000 |
|
|
|
|
|
|
| Property, plant and equipment |
| 132,947 | - | 132,947 |
| Gas exploration and appraisal assets |
| 236,601 | - | 236,601 |
| Other intangible assets |
| - | - | - |
| Long term prepaid expenses |
| - | - | - |
| Deferred tax asset |
| 5,742 | - | 5,742 |
| Inventories |
| - | - | - |
| Trade and other receivables |
| 14,030 | - | 14,030 |
| Cash and cash equivalents |
| 186 | - | 186 |
|
|
| 389,506 | - | 389,506 |
|
| Note | As at 31 December 2017 | As at 31 December 2017 | As at 31 December 2017 |
|
|
| Upstream | Downstream group | Subtotal |
|
|
| US$'000 | US$'000 | US$'000 |
| Property, plant and equipment |
| 141,445 | - | 141,445 |
| Gas exploration and appraisal assets |
| 223,713 | - | 223,713 |
| Other intangible assets |
| - | - | - |
| Long term prepaid expenses |
| - | 579 | 579 |
| Deferred tax asset |
| 4,268 | - | 4,268 |
| Inventories |
| - | - | - |
| Trade and other receivables |
| 7,478 | 822 | 8,300 |
| Cash and cash equivalents |
| 609 | 1,219 | 1,828 |
|
|
| 377,513 | 2,620 | 380,133 |
(b) Liabilities of disposal group classified as held-for-sale
|
| Note | As at 31 December 2018 Upstream Group | As at 31 December 2018 Downstream | As at 31 December 2018 Subtotal |
|
|
| US$'000 | US$'000 | US$'000 |
| Trade and other payables |
| (19,188) | - | (19,188) |
| Deferred tax liabilities |
| (29,120) | - | (29,120) |
| Current tax liabilities |
| - | - | - |
|
|
| (48,308) | - | (48,308) |
|
| Note | As at 31 December 2017 | As at 31 December 2017 | As at 31 December 2017 |
|
|
| Upstream | Downstream group | Subtotal |
|
|
| US$'000 | US$'000 | US$'000 |
| Trade and other payables |
| (19,061) | (3,340) | (22,401) |
| Deferred tax liabilities |
| (28,806) | (145) | (28,951) |
| Current tax liabilities |
| (61) | 865 | 804 |
|
|
| (47,928) | (2,620) | (50,548) |
(c) Analysis of the results of discontinued operations is as follows:
|
| Note | Year ended 31 December 2018 Upstream | Year ended 31 December 2018 Downstream | Year ended 31 December 2018 Subtotal |
|
|
| US$'000 | US$'000 | US$'000 |
|
|
|
|
|
|
| Revenue: |
| 25,508 | 3,108 | 28,616 |
| Profit/(loss) from operation |
| 9,799 | (1,178) | 8,621 |
| Finance income |
| - | 1 | 1 |
| Finance cost |
| 2 | 4 | 6 |
| Income tax |
| 1,627 | (7) | 1,620 |
| Gain/(Loss )after tax of discontinued operations attributable to owners of the company |
| 11,428 | (1,180) | 10,248 |
|
|
| As at 31 December 2017 | As at 31 December 2017 | As at 31 December 2017 |
|
| Note | Upstream | Downstream group | Subtotal |
|
|
| US$'000 | US$'000 | US$'000 |
| Revenue: |
| 14,618 | 11,039 | 25,657 |
| Profit/(loss) from operation |
| 7,577 | (18,195) | (10,618) |
| Finance income |
| 1 | 2 | 3 |
| Finance cost |
| - | 580 | 580 |
| Income tax |
| 2,347 | 166 | 2,513 |
| Gain/(Loss )after tax of discontinued operations attributable to owners of the company |
| 9,925 | (17,447) | (7,522) |
(d) Cash flow from (used in) discontinued operations:
|
| Note | Year ended Upstream | Year ended Downstream | Year ended 31 December 2018 Subtotal |
|
|
| US$'000 | US$'000 | US$'000 |
|
|
|
|
|
|
| Net cash generated in operating activities |
| 10,426 | (160) | 10,266 |
| Net cash generated from investing activities |
| (3,118) | - | (3,118) |
| Net cash generated from financing activities |
| - | - | - |
| Net cash inflow/(outflow) |
| 7,308 | (160) | 7,148 |
|
|
| As at 31 December 2017 | As at 31 December 2017 | As at 31 December 2017 |
|
|
| US$'000 | US$'000 | US$'000 |
|
|
| Upstream group | Downstream group | Subtotal |
| Net cash used in operating activities |
| 16,514 | (4,783) | 11,731 |
| Net cash generated from investing activities |
| (12,045) | (147) | (12,192) |
| Net cash generated from financing activities |
| - | - | - |
| Net cash inflow/(outflow) |
| 4,469 | (4,930) | (461) |
(e) Profit/(loss) on disposal of operations during the year:
On 31 December 2018, the Group sold its 100% interest in Greka Gas Distribution Ltd. Greka Gas Distribution Ltd was classified as held for sale at 31st December 2017. The post-tax gain on disposal of discontinued operations was determined as follows:
|
| Note | Year ended |
|
|
| US$'000 |
|
|
|
|
| Cash consideration received or receivable |
| 365 |
| Creditors assumed |
| - |
| Other Consideration received |
| - |
| Total Consideration received |
| 365 |
| Cash disposed of |
| - |
| Net cash inflow on disposal of discontinued operation |
| - |
| Net assets disposed(other than cash): |
|
|
| Property, plant and equipment |
| - |
| Intangibles |
| (456) |
| Trade and other receivables |
| (536) |
| Other financial assets |
| (438) |
| Trade and other payables |
| 3,720 |
| Other tax assets |
| (1,110) |
|
|
| 1,180 |
| Pre-tax gain on disposal of discontinued operation |
| 1,545 |
| Related tax expense |
| - |
| Gain on disposal of discontinued operation |
| 1,545 |
|
|
|
|
The downstream business was sold to a related party, Gremex Ltd.
4 Earnings and loss per share
The calculation of basic and diluted loss per share attributable to owners of the Company is based on the following data:
|
| Year Ended 31 December 2018 US$000 | Year Ended 31 December 2017 US$000 |
|
|
|
|
| Loss for the year attributable to owners of the Company used in | (9,156) | (24,576) |
|
|
|
|
| Loss for the year attributable to owners of the Company | (20,949) | (17,054) |
|
|
|
|
| Earnings/(Loss) for the year attributable to owners of the Company | 11,793 | (7,522) |
|
|
|
|
|
| Year Ended 31 December 2018 Number | Year Ended 31 December 2017 Number |
|
|
|
|
| Weighted average number of Ordinary Shares for basic and | 156,072,289 | 156,072,289 |
|
|
|
|
|
| Year Ended 31 December 2018 | Year Ended 31 December 2017 |
|
|
|
|
| Basic and diluted loss per share (US$) | (0.058) | (0.158) |
|
|
|
|
| Basic and diluted loss per share (US$)-continuing operations | (0.134) | (0.109) |
|
|
|
|
| Basic and diluted (loss)/earnings per share (US$)-discontinued operations | 0.076 | (0.048) |
(Loss)/earnings per share is based on the (loss)/earnings attributable to ordinary equity holders of the Company of divided by the weighted average of ordinary shares in issue during the corresponding period.
No separate calculation of diluted (loss)/earnings per share has been presented as, at the date of this financial information, no options, warrants or other instruments that could have a dilutive effect on the share capital of the Company were outstanding.
There have been no other transactions involving Ordinary Shares or potential Ordinary Shares between the reporting date and the date of approval of these financial statements.
5 Dividends
The Directors do not propose the payment of cash dividends until the Group is in production and generating revenue and profit.
6 Subsequent events
Subsequent to the balance sheet date, the Company has declared a dividend in-specie for its discontinued upstream operation, Green Dragon Gas (GDG). G3E shareholders on the register as of the effective date 29 March 2019 will receive a direct interest in GDG, the Company's 100% owned subsidiary which holds its producing assets. The Dividend in Specie will represent 100% of the commercial producing assets and G3 Exploration will retain all its exploration and development assets. All G3E shareholders on the effective date shall receive a GDG share deposited into their crest account holding the G3E shares. Such GDG dividend shall be deposited on or before 28 June 2019. The dividend on deposit day could be either in the form of cash or shares in GDG, depending on whether any of the producing assets have been monetized by that date.
Except as disclosed in the above, there is no other subsequent event after the balance sheet date which requires disclosure in the financial statements.