1 November 2016 Embargoed for 7.00am
EGDON RESOURCES PLC
("Egdon" or "the Group" or "the Company")
Final Results for the Year Ended 31 July 2016
Egdon Resources plc (AIM: EDR), a UK-based exploration and production company primarily focused on the hydrocarbon-producing basins of onshore UK, today announces its audited results for the year ended 31 July 2016.
Overview and Highlights
Operational and Corporate Highlights
• Production up 2% to 64,604 barrels of oil equivalent ("boe") equating to 177 barrels of oil equivalent per day ("boepd") and in line with guidance (2015: 63,149 boe; 173 boepd)
• Decision to proceed with Wressle field development with anticipated first production of 125 bopd net to Egdon in early 2017, subject to receipt of all required consents
• Successful in the 14th Onshore Licensing Round with the award of nine new licences within Egdon's core focus areas increasing our net unconventional resources acreage by 43% to 200,000 acres
• Submission of Springs Road planning application in PEDL139/140 by operator IGas. Egdon is carried on up to two wells by Total and a planning decision is now expected during November
• Positive Holmwood planning decision received (PEDL143), operator Europa making preparations to drill the prospect located immediately to the west of and analogous to the Horse Hill oil discovery. Egdon is carried on the initial well by UK Oil and Gas Investments plc
• Farm-outs concluded for PEDL005R (Keddington), PEDL209 (Laughton) and PEDL182 (Broughton North Prospect)
• Completed drilling of sidetrack development well at Keddington-5 and exploration well at Laughton-1 (dry hole) fulfilling earn-in obligation to PEDL209
• Oil and gas revenues during the period of £1.59 million (2015: £2.07 million)
• Loss for the period of £2.69 million for the year ended 31 July 2016 after net write downs and impairments of £0.72 million (2015: loss of £4.47 million after net write downs and impairments of £3.62 million)
• Basic loss per share of 1.21p (31 July 2015: basic loss per share of 2.02p)
• Cash at bank £2.68 million as at 31 July 2016 (31 July 2015: £5.18 million)
• Net current assets as at 31 July 2016 of £4.18 million (31 July 2015 : £7.18 million)
• Net assets as at 31 July 2016 of £29.43 million (31 July 2015: £32.05 million)
• Completed the acquisition of a further 20% in PEDL068 in the Cleveland Basin
• Completed the acquisition of additional interests in two new 14th Round licences, (PEDL306 and PEDL334) in the Company's core East Midlands area
• Independent assessment reported an addition of mean undiscovered Gas Initially in Place ("GIIP") of 20 Trillion Cubic Feet ("TCF") to the Company's previously assessed resource base primarily as a result of success in 14th Licensing Round, resulting in 71% increase to a new total mean undiscovered GIIP of 48TCF
Commenting on the results, Philip Stephens, Chairman of Egdon said;
"Although the past year has been particularly challenging for the energy sector, I am pleased to report that during the year we have continued to expand our areas of interest in terms of both conventional and unconventional resources assets whilst carefully and successfully managing both our cash resources and our exposure to exploration risk. We remain debt-free and on course to achieve our strategic objectives. I am particularly pleased to note the UK Government's support for the important role that shale-gas could play in the UK's future energy mix and feel confident in the quality of our portfolio of assets and our ability to achieve our objectives for the benefit of shareholders."
For further information please contact:
Egdon Resources plc
Mark Abbott 01256 702 292
Buchanan
Richard Darby, Anna Michniewicz 020 7466 5000
Nominated Adviser and Broker - Cantor Fitzgerald Europe
David Porter, Sarah Wharry (Corporate Finance) 020 7894 7000
Mark Westcott (Sales)
Joint Broker - VSA Capital Limited
Andrew Monk (Corporate Broking) 020 3005 5000
Andrew Raca (Corporate Finance)
Notes to Editors:
Egdon Resources plc (AIM: EDR) is an established UK-based exploration and production company primarily focused on onshore exploration and production in the hydrocarbon-producing basins of the UK.
Egdon currently holds interests in 43 licences in the UK and France and has an active programme of exploration, appraisal and development within its balanced portfolio of oil and gas assets. Egdon is an approved operator in both the UK and France.
Egdon was formed in 1997 and listed on AIM in December 2004.
In accordance with the AIM Rules - Note for Mining and Oil and Gas Companies, the information contained in this announcement has been reviewed and signed off by the Managing Director of Egdon Resources plc Mark Abbott, a Geoscientist with over 27 years' experience.
Evaluation of hydrocarbon Reserves, Prospective and Contingent Resources and undiscovered Gas Initially In Place have been assessed in accordance with 2007 Petroleum Resources Management System prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers (SPE) and reviewed and jointly sponsored by the World Petroleum Council (WPC), the American Association of Petroleum Geologists (AAPG) and the Society of Petroleum Evaluation Engineers (SPEE).
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.
Chairman's Statement
Against a challenging industry backdrop, characterised by continuing weakness in the oil price and reduced investment across the sector, I am pleased to be able to report that we have continued to make careful progress across all areas of the business whilst managing our available resources. Highlights during the period have included:
14th Round Success: Egdon was very successful in this highly competitive licensing round with the award of nine new licences, of which four are operated. The new licences contain a mixture of conventional and unconventional resource potential. Subsequent to year-end we have also increased our equity in two of these new licences. Overall, Egdon's net unconventional resources acreage has increased by over 43% to approximately 200,000 acres (809 km2). Egdon has thereby further consolidated its position as the second largest publicly quoted company in terms of UK unconventional resources acreage.
Wressle Development: A Competent Person's Report has been completed, a Field Development Plan lodged with the Oil and Gas Authority, and planning and Environmental Permit consents are awaited for the development of the Wressle oil field. Production is expected to commence in early 2017 at initial rates of c. 500 bopd from the Ashover Grit (125 bopd net to Egdon).
Springs Road Planning: Egdon holds a 14.5% carried interest in IGas operated PEDL139 and PEDL140 where a planning application for a vertical stratigraphic well and subsequent horizontal well at Springs Road is to be decided by Nottinghamshire County Council in November following the adjournment of a meeting on 5 October 2016 to consider legal representations.
Holmwood Prospect: Planning permission was granted during the period for the drilling of the Holmwood conventional oil prospect in PEDL143 where Egdon holds an 18.4% carried interest. Operator Europa Oil & Gas has advised that it intends to drill the well during 2017.
Portfolio Management: In a tight market, we have carefully managed our cash resources and exposure to risk through farm-outs, with deals concluded for the Keddington-5 (PEDL005R) and Laughton-1 (PEDL209) wells which were drilled during the period, and for PEDL182. We have taken a conservative approach to cash management and have delayed certain activity subject to farm-outs or a recovery in cash-flow from production.
Financial and Statutory Information
Revenue from oil and gas production during the year was down 23.3% to £1.59 million (2015: £2.07 million) on production of 64,604 barrels of oil equivalent ("boe"), a 2% increase from 2015 (63,149 boe).
The Group recorded a loss of £2.69 million for the year ended 31 July 2016, reduced by 40% compared to 2015, after write downs, pre-licence costs and impairments of £0.72 million on Keddington and Waddock Cross (2015: loss of £4.47 million after write downs, pre-licence costs and impairments of £3.62 million).
The Group has maintained a focus on managing cash resources and at year-end had net current assets of £4.18 million (2015: £7.18 million) of which £2.68 million was cash (2015: £5.18 million).
The Group remains debt free.
In line with last year, the Directors do not recommend the payment of a dividend.
UK Regulation
The UK government remains supportive of the potential role of shale-gas in the country's future energy mix and important progress has been made with oil and gas regulation during the period.
UK
The Company relinquished one licence during the period (PEDL237) and at year end held interests in 32 UK Licences (2015: 33). Following the post year-end issue of the 14th Round licence documentation, Egdon holds interests in a total of 41 UK licences at the date of this report.
UK Unconventional Resources
Egdon has built a significant unconventional resources acreage position in Northern England through a series of targeted acquisitions, farm-ins and success in the 14th Round. Egdon now holds a material interest in a number of key prospective basins including the Gainsborough Trough, the Widmerpool Gulf, the Cleveland Basin and the Humber Basin.
We have also published the results of an independent assessment of our estimated shale-gas resources for the new 14th Round licence awards and other selected licences. This assessment reports a mean of 20 Trillion Cubic Feet ("TCF") of undiscovered Gas Initially In Place ("GIIP") which, when added to the existing 28 TCF assessed in 2014, represents an increase of 71 % to a total of 48 TCF.
We await a decision on planning permission to drill the potentially play-opening Springs Road -1 and 2 wells (Egdon interest 14.5%, carried) in the Gainsborough Trough in Nottinghamshire. Subject to receipt of the necessary consents, 2017 could see the drilling of these key shale-gas exploration wells for Egdon.
In line with our stated strategy, we will look to introduce a funding partner or partners into some of our Northern England licensed acreage during the coming year. We have confidence that the investment case for unconventional resource exploration in the UK remains strong.
More widely in the sector, Cuadrilla has received planning permission, following a public enquiry, to drill and fracture four wells at the Preston New Road site in Lancashire, and Third Energy was granted planning permission to undertake fracturing and testing at Kirby Misperton in North Yorkshire, although the latter is currently subject to a judicial review.
Conventional Resources Exploration and Appraisal
There is significant potential for growth via exploration and appraisal drilling within our existing exploration portfolio. The lower capital and operating costs associated with onshore UK developments mean that new projects remain commercially attractive even with lower commodity prices. However, the pace of our exploration drilling activity is in part dependent upon successful farm-outs as we look to manage carefully our cash resources and technical risk.
In Weald Basin licence PEDL143, the Company's interest in the Holmwood well is fully carried. The operator Europa Oil & Gas has advised that this well could be drilled during 2017 and will target a prospect that is adjacent and analogous to that successfully tested by the 2015 Horse Hill discovery well.
Following reductions in offshore costs, we are reviewing offshore appraisal and development options for the "A" Prospect gas discovery offshore from the North Yorkshire Coast, before deciding whether to seek planning consent for an onshore-to-offshore well from the Staintondale location where a 14th Round licence has now been awarded.
Egdon's operated exploration drilling activity will be focused in Northern England during the coming period with potential wells at Biscathorpe and North Kelsey (partly subject to further farm-out or funding) forming the next phase of our planned conventional drilling programme after both licences were extended to the end of June 2017.
Production
Production during the period was from Ceres, Keddington and Avington and, at 177 boepd (2015: 173 boepd), was in line with our guidance of 180 boepd .
Subject to receipt of all consents, Wressle is expected to add 125 bopd to Egdon's daily production during the second half of the 2016-17 financial year.
France
We have further reduced our commitments in France as we focus resources on our high potential UK assets.
Outlook
Production guidance for the period is 165 boepd. This will be weighted to the second six months of the financial year (225 boepd) when we anticipate that Wressle will impact on production and revenues.
Our main operational focus during the coming period will be:
· Bringing the Wressle-1 discovery into commercial production
· Progressing towards the drilling of the "A" Prospect and introducing a funding/technical partner
· Drilling of Holmwood-1 where we are fully carried
· Farming-out North Kelsey and Biscathorpe to enable drilling in H1 2017
· Progressing with the evaluation of the 14th Round licences
This period could see several unconventional resource exploration wells drilled and tested by the industry in the UK which will, if successful, focus investor attention on listed companies active in the UK such as Egdon. Amongst these will hopefully be the Springs Road wells, key to providing information towards de-risking and evaluating the potential of Egdon's unconventional resources acreage within the Gainsborough Trough.
We will continue to manage our cash resources and exposure to risk carefully through farm-outs and disposals of non-core assets and will continue the process of focussing on higher potential projects. As always, we will continue to review opportunities which could grow the business and add shareholder value.
We believe that the fundamentals of the business are robust with the Company being debt free, holding a range of assets with excellent potential for both conventional and unconventional resources in a location and jurisdiction which remains commercially attractive even under lower commodity prices, and a cash position allowing us to deliver on our near term strategy.
Finally, and as ever, I would like to thank our shareholders for their continued support and acknowledge the continuing efforts of our small, hardworking and professional team.
Philip Stephens
Chairman
31 October 2016
Managing Director's Operating Review
I am pleased to update shareholders with a more detailed review of our assets, operations and plans with a focus on progress against our strategy, key priorities, risks and potential growth drivers.
Our website (www.egdon-resources.com) provides details of all of our assets and operations.
UK Unconventional Resources
The government recognises the important role shale-gas could play in the UK's future energy mix and progress has been made with regulation during the period, including clarification on targets for planning applications, the introduction of secondary legislation in relation to protected areas under the Infrastructure Act 2015, and the announcement of a consultation on a Shale Wealth Fund. However, the timeline for gaining consents remains one of the main challenges and risks in relation to the development of our unconventional resources assets. We firmly believe that the UK has the strong regulatory regime in place to enable the many benefits of indigenous gas (security of supply, jobs, taxation, etc.) to be realised safely and with minimum environmental impact and that, as an industry, we need to continue to make our case at a local and national level.
Our strategic objective is to grow the Company's exposure to shale-gas and shale-oil exploration opportunities in Northern England. We have made good progress against this objective, increasing our total acreage by c. 43% to 200,000 net acres (2015: 140,000 net acres) and having updated the independent estimate of mean net undiscovered gas initially in place by 71% from 28 TCF to 48 TCF (ERCEquipoise reports of 2014 and 2016).
The key to this increase has been the successful award of seven new 14th Round licences which contain unconventional resource potential. The licences are located in the East Midlands Petroleum Province and the Cleveland Basin and expand the Company's acreage and opportunity base within these two core areas.
In the Gainsborough Trough Egdon was awarded a 15% interest in three new licences PEDL273, PEDL305 and PEDL316 in a consortium operated by IGas (35%) with partner Total (50%).
In the Widmerpool Basin the Company was awarded an 18.75% operated interest in PEDL306 located to the west and north-west of our existing licence PEDL201. Following the award Egdon has been able to increase its interest to 30% through the acquisition, at no cost, of an additional 11.25% interest from withdrawing party Celtique Energie Petroleum Limited ("Celtique"). The other joint venture partners are now Petrichor Energy UK Limited ("Petrichor", 20%), Hutton Energy Limited (25%) and Coronation (Oil and Gas) Limited (25%).
In the Humber Basin Egdon was awarded a 37.5% operated interest in PEDL334. Again Egdon was able to increase its interest to 60% through the acquisition, at no cost, of an additional 22.5% interest from Celtique and is now partnered solely by Petrichor (40%).
In the Cleveland Basin Egdon was awarded two new licences PEDL259 and PEDL343. PEDL259 surrounds part of PEDL068 in Teesside, which contains the Kirkleatham conventional gas field and where Egdon has increased its interest to 68% through the acquisition of a 20% interest from Dess Energy Limited (see below). Egdon will hold a 49.99% interest in the new licence which is operated by Third Energy UK Gas Limited (50.01%). PEDL343 contains the Cloughton tight gas discovery (Bow Valley, 1986) and is located around 10km north of Scarborough. Egdon has been awarded a 17.5% interest in the licence which is operated by Third Energy UK Gas Limited (20.0%) with additional consortium members Europa Oil & Gas Limited (22.5%), Shale Petroleum (UK) Limited (22.5%), Petrichor (12.5%) and Arenite Petroleum Limited (5.0%).
Initial activity on Egdon's 14th round licences will involve review and reprocessing of the existing seismic and well data with new seismic acquisition (2D and 3D) and drilling following in later years.
14th Round model terms have been adopted for licences PEDL209, PEDL169, PEDL191, PEDL201 and PEDL202 during the period which has enabled them to continue without further relinquishment.
The Gainsborough Trough is a key focus area for Egdon. We now expect Nottinghamshire County Council to determine the planning application for the potentially play-opening Springs Road-1 and 2 wells later in November. The initial well will be vertical to enable the acquisition of core and modern log data from the key shale intervals with the second horizontal well to confirm the lateral extent of the shale. Egdon's share (14.5%) of the cost of these wells is carried by Total under the terms of their farm-in to the PEDL139/140 licences originally announced in January 2014. Subject to receipt of the necessary consents, 2017 could see the drilling of these key shale-gas exploration wells.
Conventional Resources Exploration and Appraisal
Our strategy is to add additional reserves and revenues through an active UK conventional resources drilling programme, whilst managing technical risk and financial exposure through farm-out and deal-making. We have made progress during the year, although we have managed the pace of drilling to match our available resources.
The lower capital and operating costs associated with onshore UK developments means that exploration prospects remain commercially attractive even under lower commodity price assumptions.
UK
The Company has continued to execute its strategy of managing financial exposure and risk, and of focusing on fewer potential projects by means of disposals, relinquishments, or farm-outs as appropriate. Egdon concluded farm-outs on PEDL005R, PEDL182 and PEDL209 during the year. The Company relinquished one licence during the period (PEDL237) and at year end held interests in 32 UK Licences (2015: 33). Following the post year-end issue of the 14th Round licence documentation, Egdon holds interests in a total of 41 UK licences at the date of this report.
Out of the Company's total Best Estimate of Prospective and Contingent resources of 631 millions of barrels of oil equivalent ("mmboe") (2015: 459 mmboe) the conventional assets comprise 55 mmboe (2015: 103 mmboe). This reduction in conventional resources reflects the relinquishment made during the period, unsuccessful exploration at Laughton and re-evaluation of our Wessex Basin prospects.
Two operated wells were drilled by Egdon during the year; Laughton-1 and Keddington-5. The Laughton-1 exploration well (PEDL209) was drilled in the first quarter of 2016 to a total depth of 1,700m. During drilling, the well recorded hydrocarbon shows from a number of potential reservoir sequences. However, analysis indicated these were not sufficiently encouraging to warrant testing so the well was plugged and the site has subsequently been restored to farmland. The Silkstone Rock primary objective was poorly developed in the well. Keddington-5 is discussed in the Production section below.
A decision was made in late 2015 to proceed with the development of the Wressle Oil Field in PEDL180 and PEDL182 (Egdon 25%, operator) and efforts through much of the period have concentrated on gaining the required consents. A Field Development Plan has been submitted to the Oil and Gas Authority ("OGA"). A Competent Persons Report ("CPR") for Wressle published in September evaluated Gross Mean Discovered Stock Tank Oil Initially In Place ("STOOIP") of 14.18 mmbls in aggregate across three reservoir sands (Ashover Grit, Wingfield Flags and Penistone Flags) of which 2.15 mmbls is classified as discovered (2P+2C). Gross 2P reserves for the Ashover Grit and Wingfield Flags are 0.62 mmbls of oil and 0.2 bcf of gas (net Egdon 0.15mmbls and 0.05 bcf respectively) with 2C Contingent Resources of 1.53 mmbls and 2.0 bcf of gas for the Penistone Flags reservoir (net Egdon 0.38 mmbls and 0.5 bcf respectively). We expect the North Lincolnshire Council planning committee to determine the planning application during November with the variation to the Environmental Permit to follow from this. Subject to receipt of the required consents it is anticipated that installation of permanent production facilities and recompleting the well for production would commence early in 2017. The recompletion operations will include operations designed to optimise oil production from the Ashover Grit by mitigating for the skin effect observed on test. These operations may include the use of mud acid and/or a proppant squeeze. Initial production rates of c. 500 bopd are anticipated from the Ashover Grit (125 bopd net to Egdon) with oil from the Wingfield Flags reservoir to be commingled once the well is recompleted for pumped production, currently expected during 2018. Detailed plans for the development of the Penistone Flags reservoir will follow in due course.
We were advised In August 2015 of the successful planning appeal for the Holmwood-1 exploration well and in September 2015 received the final planning approval for the directional well path. Egdon has farmed out an interest in PEDL143 and the Holmwood well to UK Oil and Gas Investments plc. Holmwood is estimated by the operator, Europa Oil and Gas, to hold gross mean un-risked prospective resources of 5.6 mmbls of oil (net Egdon 1.03 mmbls) and is located just 12 kilometres from, and on trend with, the Horse Hill-1 discovery. A two year extension has been granted by the OGA extending the licence term to October 2018. Egdon is fully carried on the Holmwood well which is currently expected to be drilled during 2017.
A continued focus for the Company during the coming period will be the "A" Prospect in UK offshore licence P.1929, located adjacent to the North Yorkshire coast. Egdon's current evaluation of this 1966 Total gas discovery indicates the potential for the prospect to contain mean Prospective Resources of 164 bcf of gas. The initial term of the licence has been extended by the OGA for two years to 19 April 2019. Given the reduction in offshore costs and current onshore planning timelines and restrictions, the Company is currently reviewing offshore appraisal and development options and costs before deciding whether to seek planning consent for an onshore-to-offshore well from the Staintondale location where 14th Round licences covering the potential well site (PEDL258 and PEDL343) have now been awarded. We continue to focus on introducing a funding and technology partner for this project.
Elsewhere in the Cleveland Basin the Company has post year-end, acquired an additional 20% interest in PEDL068, which contains the currently shut-in Kirkleatham gas field, from DESS Energy Limited ("DESS") bringing our total interest in the licence to 68%. As consideration for this acquisition, Egdon will bear DESS's retained 20% share of ongoing expenditure until January 2017 and accept liability for DESS's 20% share of the existing abandonment cost for the Kirkleatham well and site. Egdon estimate that this transaction adds approximately 1.75 bcf of Best Estimate Contingent and Prospective Conventional Resources to its portfolio. Planning consent has been extended for Kirkleatham during the year and allows for drilling and production from a further two wells at the site. The licence also contains the Westerdale/Ralph Cross gas discovery where planning consent is in place for an appraisal well. Exploration to date has concentrated on Permian age limestone gas plays but PEDL068 and the surrounding 14th Round licence PEDL259 also contain prospectivity for gas in deeper Carboniferous age sandstones.
In the 14th Round Egdon was awarded a 75% operated interest in East Midlands licence PEDL339 along with partners Terrain Energy Ltd (15%) and Nautical Petroleum Ltd (10%). This licence contains an extension of the Louth Prospect from adjacent PEDL005R. As part of the farm-out announced in July 2015 Egdon will transfer a 10% interest in this licence to Union Jack Oil plc subject to OGA consent. As consideration Union Jack will carry, on behalf of Egdon, a further 10% of the cost of an exploration well to test the Louth prospect which has gross un-risked Best Estimate Prospective Resources of c.1.4 mmbls.
Egdon's planned operated conventional exploration drilling activity during 2017 comprises wells at Biscathorpe and North Kelsey. Both PEDL241 (North Kelsey) and PEDL253 (Biscathorpe) licences have been extended by the OGA to 30 June 2017. We continue to look to introduce a further funding partner at both Biscathorpe and North Kelsey where we have planning approvals in place.
France
At year-end Egdon held interests in two permits (both pending renewal) in France (2015: 3) and has completed the final plugging and restoration of the Grenade-3 well and site and awaits the final statutory approvals. Our main remaining asset in France is the Pontenx Permit which contains the Pontenx oil discovery and Mimizan Nord shut-in oil field.
Production
Our strategy of maximising production rates, revenues and profitability from existing producing assets has been impacted by the low commodity prices during the period. Production during the period from Ceres, Keddington and Avington averaged 177 boepd (2015: 173 boepd), in line with our target of 180 boepd.
Ceres continues to produce ahead of expectation at rates of around 0.7-0.8 mmcfg/d (c. 117-135 boepd) net to Egdon. The field was shut-down for annual maintenance during early September 2016. On re-start Mercury has displaced Ceres production to enable back-out gas to be recovered from Mercury with production expected to continue for the next period with Ceres production resuming on recovery of the back-out gas volume. Production rates and volumes from Ceres have exceeded expectation and additional pressure support is being observed indicating a larger GIIP may be accessed. This will be evaluated further in the coming months.
The Keddington-5 sidetrack did not add the expected increment in oil production and a full review of options to increase field production is currently underway. Keddington field rates are currently c. 25 bopd from the Keddington-3Z well. At Avington the intermittent production trials have now concluded and continuous production has resumed with rates averaging c. 60-65 bopd (c.15-17 bopd net to Egdon). As discussed production from Wressle is now targeted for 2017 with initial rates of 125 bopd net to Egdon.
The Company is actively reviewing options to re-establish production at Waddock Cross and continues to assess the long term plans for shut-in fields at Dukes Wood/Kirklington and Kirkleatham.
Outlook
Production for the coming period will be weighted to the second six months of the financial year when Wressle is expected to impact positively on production and revenues. Management production guidance for the coming financial year is 165 boepd.
In addition to bringing Wressle onto production, the main operational objectives for the coming period will include the drilling of Holmwood-1 where we are fully carried, farming-out and drilling North Kelsey-1 and Biscathorpe-2 during 2017, completing the review of onshore versus offshore drilling of the "A" Prospect, introducing a funding/technical partner and progressing with drilling plans, and progressing with the evaluation of the 14th Round licence awards.
Despite the recent improvement in oil price to around $50 /bbl, the macro-economic conditions are expected to remain challenging for the oil and gas sector for the foreseeable future. However, we remain confident in the quality of our portfolio of assets and optimistic in our ability to deliver value for our shareholders.
I would like to record my thanks for the continued efforts of the small but professional and committed team at Egdon who continue to work hard on behalf of shareholders.
31 October 2016
EGDON RESOURCES PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 JULY 2016
|
|
| 2016 | 2015 |
|
| Notes | £ | £ |
| Continuing operations |
|
|
|
| Revenue |
| 1,586,120 | 2,067,702 |
|
|
|
|
|
| Cost of sales - exploration costs written off and pre-licence costs |
| (74,523) | (4,139,657) |
| Cost of sales - impairments and impairment reversals | 6 | (643,000) | 521,333 |
| Cost of sales - depreciation |
| (1,269,155) | (973,152) |
| Cost of sales - other |
| (1,219,218) | (991,495) |
| Total cost of sales |
| (3,205,896) | (5,582,971) |
| Gross loss |
| (1,619,776) | (3,515,269) |
|
|
|
|
|
| Administrative expenses |
| (1,144,720) | (1,153,969) |
|
|
|
|
|
| Other operating income |
| 112,456 | 130,687 |
| Exceptional item - negative goodwill arising on acquisition | 7 | - | 71,880 |
|
|
| (2,652,040) | (4,466,671) |
|
|
|
|
|
| Finance income |
| 8,314 | 20,845 |
| Finance costs |
| (41,845) | (22,442) |
| Loss before taxation |
| (2,685,571) | (4,468,268) |
| Taxation | 2 | - | - |
| Loss for the year |
| (2,685,571) | (4,468,268) |
| Other comprehensive income for the year |
| - | - |
| Total comprehensive income for the year attributable to equity holders of the parent |
| (2,685,571) | (4,468,268) |
|
|
|
|
|
| Basic loss per share | 3 | (1.21)p | (2.02)p |
| Diluted loss per share |
| (1.21)p | (2.02)p |
EGDON RESOURCES PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 31 JULY 2016
|
| Notes | 2016 | 2015 |
|
|
| £ | £ |
| Non-current assets |
|
|
|
| Intangible assets |
| 18,370,375 | 17,864,269 |
| Property, plant and equipment |
| 8,682,892 | 8,838,286 |
| Total non-current assets |
| 27,053,267 | 26,702,555 |
| Current assets |
|
|
|
| Trade and other receivables |
| 2,540,987 | 2,889,466 |
| Available for sale financial assets |
| 50,000 | 50,000 |
| Cash and cash equivalents |
| 2,678,780 | 5,180,333 |
| Total current assets |
| 5,269,767 | 8,119,799 |
| Current liabilities |
|
|
|
| Trade and other payables |
| (1,085,005) | (940,761) |
| Net current assets |
| 4,184,762 | 7,179,038 |
| Total assets less current liabilities |
| 31,238,029 | 33,881,593 |
| Non-current liabilities |
|
|
|
| Provisions | 5 | (1,803,324) | (1,827,288) |
| Net assets |
| 29,434,705 | 32,054,305 |
| Equity |
|
|
|
| Share capital | 4 | 14,164,337 | 14,164,337 |
| Share premium |
| 20,619,616 | 20,619,616 |
| Share based payment reserve |
| 226,401 | 160,430 |
| Retained earnings |
| (5,575,649) | (2,890,078) |
|
|
| 29,434,705 | 32,054,305 |
EGDON RESOURCES PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 JULY 2016
|
| 2016 | 2015 |
|
| £ | £ |
| Cash flows from operating activities |
|
|
| Loss before tax | (2,685,571) | (4,468,268) |
| Adjustments for: |
|
|
| Depreciation and impairment of fixed assets | 1,918,685 | 451,819 |
| Exploration costs written off | 44,564 | 3,673,780 |
| Foreign exchange gains | (27,546) | (93,060) |
| Negative goodwill | - | (71,880) |
| Revaluation of accrued income | 103,258 | 292,729 |
| Loss on disposal of licence interest | - | 128,164 |
| Decrease in trade and other receivables | 215,698 | 2,230,130 |
| Increase/(decrease) in trade payables and other payables | 172,818 | (3,605,969) |
| Movement in provisions | - | (13,400) |
| Finance costs | 41,845 | 22,442 |
| Finance income | (8,314) | (20,845) |
| Share based remuneration charge | 65,971 | 36,931 |
| Cash used in operations | (158,592) | (1,437,427) |
| Interest paid | - | (6) |
| Taxation paid | - | - |
| Net cash flow used in operating activities | (158,592) | (1,437,433) |
| Investing activities |
|
|
| Finance income | 8,314 | 20,845 |
| Payments for exploration and evaluation assets | (2,141,571) | (3,234,775) |
| Purchase of property, plant and equipment | (237,250) | (20,300) |
| Revenue from oil well appraisal | - | 13,824 |
| Sale of intangible fixed assets | - | 78,227 |
| Net cash used in capital expenditure and investing activities | (2,370,507) | (3,142,179) |
| Financing activities |
|
|
| Issue of shares | - | - |
| Costs associated with issue of shares | - | - |
| Repayments of short-term borrowings | - | - |
| Net cash flow generated from financing | - | - |
| Net decrease in cash and cash equivalents | (2,529,099) | (4,579,612) |
| Cash and cash equivalents as at 31 July 2015 | 5,180,333 | 9,666,885 |
| Effects of exchange rate changes on the balance of cash held in foreign currencies | 27,546 | 93,060 |
| Cash and cash equivalents as at 31 July 2016 | 2,678,780 | 5,180,333 |
|
| ||
| In 2015 significant non cash transactions comprised the issue of equity share capital with a market value of £75,000 as consideration for the acquisition of Yorkshire Exploration Limited
| ||
EGDON RESOURCES PLC
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 JULY 2016
| Group |
|
| Share based |
|
|
|
| Share | Share | payment | Retained | Total |
|
| capital | premium | reserve | earnings | equity |
|
| £ | £ | £ | £ | £ |
| Balance at 1 August 2014 | 14,158,872 | 20,550,081 | 123,499 | 1,578,190 | 36,410,642 |
|
|
|
|
|
|
|
| Loss for the year | - | - | - | (4,468,268) | (4,468,268) |
| Total comprehensive income for the year | - | - | - | (4,468,268) | (4,468,268) |
| Issue of ordinary shares | 5,465 | 69,535 | - | - | 75,000 |
| Share option charge | - | - | 36,931 | - | 36,931 |
| Balance at 31 July 2015 | 14,164,337 | 20,619,616 | 160,430 | (2,890,078) | 32,054,305 |
|
|
|
|
|
|
|
| Loss for the year | - | - | - | (2,685,571) | (2,685,571) |
| Total comprehensive income for the year | - | - | - | (2,685,571) | (2,685,571) |
| Share option charge | - | - | 65,971 | - | 65,971 |
| Balance at 31 July 2016 | 14,164,337 | 20,619,616 | 226,401 | (5,575,649) | 29,434,705 |
EGDON RESOURCES PLC
Notes to the Financial Statements
FOR THE YEAR ENDED 31 JULY 2016
1. Basis of Accounting and Presentation of Financial Information
The financial information set out in this announcement does not constitute the statutory accounts of the Group for the years ended 31 July 2016 or 31 July 2015. The financial information has been extracted from the statutory accounts of the Group for the years ended 31 July 2016 and 31 July 2015. The breakdown of Cost of sales presented on the face of the Statement of Comprehensive Income has been amended to provide more useful information and the comparative results have been restated accordingly.
The Directors have prepared the accounts on the going concern basis which assumes that the Group will continue in operational existence without significant curtailment of its activities for the foreseeable future.
The auditor, Nexia Smith & Williamson, has reported on the statutory accounts for the years ended 31 July 2016 and 2015; the audit reports were unqualified and did not contain statements under either section 498(2) or 498(3) of the Companies Act 2006.
The statutory accounts for the year ended 31 July 2015 have been delivered to the Registrar of Companies; those for the year ended 31 July 2016 were approved by the Board on 31 October 2016 and will be delivered to the Registrar of Companies following the Annual General Meeting.
The Annual Report for the year ended 31 July 2016, including the auditor's report, will be posted to shareholders during the week commencing 7 November 2016 and will be available from the same date both to be downloaded from the Company's website at www.egdon-resources.com and in hard copy from Egdon Resources plc, The Wheat House, 98 High Street, Odiham, Hampshire, RG29 1LP.
There were no changes to the Group's accounting policies for the year ended 31 July 2016 as compared to those published in the statutory financial statements for the year ended 31 July 2015.
This preliminary announcement was approved by the Board on 31 October 2016.
| 2. Income tax |
|
|
| The major components of income tax expense for the years ended 31 July 2016 and 2015 are: | ||
|
| 2016 | 2015 |
|
| £ | £ |
| a) Consolidated Statement of Comprehensive Income |
|
|
| Current income tax charge | - | - |
|
b) A reconciliation between tax expense and the product of the accounting result and the standard |
| |
| rate of tax in the UK for the years ended 31 July 2016 and 2015 is as follows: |
|
|
| Accounting loss before tax from continuing operations | (2,685,571) | (4,468,268) |
| Loss on ordinary activities multiplied by the standard rate of tax of 20.00% (2015: 20.66%) | (537,114) | (923,144) |
| Expenses not permitted for tax purposes | 30,291 | 14,818 |
| Movement in unrecognised deferred tax assets | 506,823 | 908,326 |
| Income tax expense recognised in the current year relating to continuing operations | - | - |
c) Factors that may affect the future tax charge
The Group has trading losses of £42,154,178 (2015: £37,704,083) which may reduce future tax charges. Future tax charges may also be reduced by capital allowances on cumulative capital expenditure, supplementary allowances on ring-fenced exploration expenditure and the extent to which any profits are generated by any ring-fenced activities, which attract a higher rate of tax.
d) Deferred taxation
The Group has an unrecognised deferred taxation asset of £5,978,715 (2015: £5,471,891) at the year end, calculated at a rate of 20% which is an estimate of the rate anticipated to be applicable at the time the net tax losses are expected to reverse (2015: 20%). This is represented by accumulated tax losses of £42,154,178 (2015 £37,704,083) offset by accelerated capital allowances of £12,260,604 (2015: £10,344,626).
| 3. Loss per share | | ||
| | | | |
| Basic loss per share | | | |
| | 2016 | 2015 | |
| | £ | £ | |
| Loss for the financial year | (2,685,571) | (4,468,268) | |
| Basic weighted average ordinary shares in issue during the year | 221,345,811 | 221,072,587 | |
|
| Pence | Pence |
| Basic loss per share | (1.21) | (2.02) |
| Diluted loss per share |
|
| |
|
| 2016 | 2015 | |
|
| £ | £ | |
| Loss for the financial year | (2,685,571) | (4,468,268) | |
| Diluted weighted average ordinary shares in issue during the year | 221,345,811 | 221,072,587 | |
|
| Pence | Pence |
| Diluted loss per share | (1.21) | (2.02) |
For 2016 and 2015, the share options are not dilutive as a loss was incurred.
4. Share Capital and redeemable preference shares
|
|
| 1p Ordinary Shares | 1p Deferred Shares |
| |||
|
|
| Allotted, called up and fully paid | Allotted, called up and fully paid | Total | |||
|
|
|
| Number | £ | Number | £ | £ |
| At 31 July 2014 |
|
| 220,799,363 | 2,207,993 | 1,195,087,887 | 11,950,879 | 14,158,872 |
| Issue of new £0.01 ordinary shares |
|
| 546,448 | 5,465 | - | - | 5,465 |
| At 31 July 2015 |
|
| 221,345,811 | 2,213,458 | 1,195,087,887 | 11,950,879 | 14,164,337 |
| At 31 July 2016 |
|
| 221,345,811 | 2,213,458 | 1,195,087,887 | 11,950,879 | 14,164,337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Allotted, called up and partly paid |
| |||||
|
| Number | £ | |||||
| At 31 July 2015 |
|
| |||||
| - Redeemable preference shares of £1 each (classified as a liability) | 50,000 | 12,500 | |||||
| At 31 July 2016 |
|
| |||||
| - Redeemable preference shares of £1 each (classified as a liability) | 50,000 | 12,500 | |||||
On 8 December 2014 the Company issued 546,448 Ordinary 1p shares as consideration for the acquisition of Yorkshire Exploration Limited. The nominal value of the shares was £5,465. The fair value of the shares issued was £75,000.
On 6 November 2007, 50,000 redeemable preference shares of £1 each were issued and are now held by InfraStrata plc. One quarter of the nominal value of these shares is paid up and the shares are entitled to an annual dividend out of distributable profits of 0.00001% per annum on the amount for the time being paid up on each such share and do not carry any voting rights. The Company may redeem the shares at any time by giving preference shareholders one week's notice. Preference shareholders may require the Company to redeem their shares at any time by giving six months' notice. In each case, any redemption is at par and is subject to the provisions of the Companies Act. The preference shares are treated as short term liabilities and included within trade payables.
| 5. Provision for liabilities | | ||||||
| | Other | Decommissioning | Reinstatement | ||||
| | provisions | provision | provision | Total | |||
| Group | £ | £ | £ | £ | |||
| At 1 August 2014 | 30,761 | 917,715 | 339,778 | 1,288,254 | |||
| Provision created during the year | - | 645,648 | 150,037 | 795,685 | |||
| Utilisation of provision during the year | - | - | (225,283) | (225,283) | |||
| Disposals | - | - | (43,532) | (43,532) | |||
| Paid during the year | (10,236) | - | - | (10,236) | |||
| Unwinding of discount | - | 22,400 | - | 22,400 | |||
| At 1 August 2015 | 20,525 | 1,585,763 | 221,000 | 1,827,288 | |||
| Provision created during the year | - | 11,545 | 14,140 | 25,685 | |||
| Transfer of provision on reclassification to D&P assets | - | 47,000 | (47,000) | - | |||
| Disposals | - | (91,494) | - | (91,494) | |||
| Unwinding of discount | - | 41,845 | - | 41,845 | |||
| At 31 July 2016 | 20,525 | 1,594,659 | 188,140 | 1,803,324 | |||
At 31 July 2016 provision has been made for decommissioning costs on the productive fields at Keddington, Kirkleatham, Ceres, Avington, Dukes Wood/Kirklington and Waddock Cross. Provision has also been made for reinstatement costs relating to exploration and evaluation assets where work performed to date gives rise to an obligation, principally for site restoration. Assumptions, based on the current economic environment, have been made which management believe are a reasonable basis upon which to estimate the future liability. This estimate will be reviewed regularly to take into account any material change to assumptions. Actual costs will depend on future market prices, any variation in the extent of decommissioning and reinstatement to be performed, whether the works can be performed as part of a multi-well programme or in isolation and progress in the relevant technologies. Decommissioning and reinstatement costs are expected to arise between 2017 and 2021.
During the prior year an increase of £602,801 was recorded in respect of the provision for the decommissioning of the Ceres Gas Field.
Other provisions represent the amount expected to be payable to the former shareholder of Egdon Resources Avington Ltd under the Net Profit Interest agreement entered into at the time of acquisition. Of the total provision, £3,117 (2015: £4,217) is estimated to be payable within one year.
6. Exploration costs written off, impairments and pre-licence costs
Exploration costs written off, impairments and pre-licence costs for 2016 include an impairment charge of £825,000 relating to the Waddock Cross (£311,000) and Keddington (£514,000) oil fields and an impairment credit reversing impairments charged in prior periods of £182,000 relating to the Ceres Gas Field. The impairment charge has arisen primarily as a consequence of production issues and weak forward oil prices that have impacted on production and revenue expectations. In the case of the Ceres field, the impairment reversal arises as a consequence of sustained production which has resulted in a re-evaluation of remaining recoverable reserves. The recoverable amounts are based on estimated residual values of the wider licence area plus pre tax value in use assessed from forecast production, gas prices per therm of 34p-43p, oil prices per barrel of US$43 to US$70 and a discount rate of 8%.
Exploration costs written off, impairments and pre-licence costs for 2015 include an impairment charge of £478,667 relating to the Waddock Cross oil field and impairment reversals relating to the Ceres Gas field (£500,000) and the Kirkleatham Gas Field (£500,000).
7. Acquisition of Yorkshire Exploration Limited
On 2 December 2014, Egdon Resources plc completed the acquisition of Yorkshire Exploration Limited. The company, which holds an 8% interest in PEDL068 which includes the Kirkleatham gas field and the Westerdale prospect, was acquired for consideration of Egdon shares with a fair value of £75,000. The Group acquired the company in order to increase its exposure to the PEDL068 licence.
Negative goodwill arising on acquisition of the subsidiary represented the excess of the fair values of the assets less the liabilities acquired over the fair value of the consideration. The purchase was an off-market transaction offered to the Group for reasons personal to the vendor.
8. Post Balance Sheet Events
On 22 August 2016 Egdon announced the acquisition of an additional 20% interest in PEDL068 from DESS Energy Limited ("DESS") bringing the Company's total interest in the licence to 68%. As consideration for this acquisition, Egdon will bear DESS's retained 20% share of ongoing expenditure for a period of six months and in addition will accept liability for DESS's 20% share of the existing abandonment liability for the Kirkleatham site and Kirkleatham-1 well, but not for any future works.
On 26 October 2016 Egdon announced the acquisition at zero cost of additional interests in two 14th Round licences from Celtique Energie Petroleum Limited. Egdon acquired 22.5% interest in PEDL334 and 11.25% interest in PEDL306, taking the Company's total equity in the licences to 60% and 30% respectively.
9. Annual General Meeting
The Annual General Meeting will be held at the offices of Norton Rose Fulbright, 3 More London Riverside, London, SE1 2AQ at 11.00 hours on 8th December 2016.