TIDMPPP
RNS Number : 2548C
Pennpetro Energy PLC
28 September 2018
For immediate release 28 September 2018
Pennpetro Energy PLC
("Pennpetro" or the "Group")
Results for the 6 months ended 30 June 2018
London, 28 September 2018 - Pennpetro, an independent oil and
gas company focusing on production in the Gonzales Oil Field in
Texas, USA, today announces its Results for the six months ended 30
June 2018.
Chairman's Statement
I am pleased to advise that the Company has made steady progress
during the first half of the financial year in bringing the first
well COG#1-H into production, and assessing the potential of the
Buda formation in addition to the Austin Chalk.
During the 6 months ended 30 June 2018 the Company has
successfully completed construction of the tankerage farm
consisting of three water disposal tanks and four oil recovery
tanks with pipeline connections to the adjacent located wellhead
(COG#1-H). This includes a newly installed jet pumping unit and
electrical hook-up to the Gonzales power systems.
The testing of this infrastructure is ongoing and test oil is
being delivered into the tanks and the salt water is being disposed
by a daily tanker pickup from site.
The Operator pursuant to the State of Texas petroleum reporting
requirements has formally advised the Texas Railroad Commission
that the COG#1-H is completed as a producer initially to the Buda
formation, with initial Buda oil having been delivered into the
tanks.
Testing of the Austin Chalk horizontal formation, which
delivered oil over the shakers during drilling, will be initiated
once a full longer-term test of the Buda has been finalised. The
Buda limestone reserves were not included in our evaluation of our
reserves or in the Competent Persons Report (CPR) that accompanied
the prospectus. We are aware that the Buda has been, and is
currently, a successful target for vertical completions in the
Gonzales area. Generally, the Buda limestone formation has an EUR
of between 140,000 - 175,000 bbls, and, having been proved as a
flowing production formation within the Company's acreage, can now
be included within the Company's future technical evaluations and
further vertical infill drilling locations on reduced spacing
parameters.
As previously reported, Nobel Petroleum UK Limited, the
Company's wholly owned subsidiary, through its US-based
subsidiaries owns a portfolio of leasehold petroleum mineral
interests centred on the City of Gonzales, in southeast Texas,
comprising the undeveloped central portion of the Gonzales Oil
Field. The petroleum assets include approximately 1,000 leases
covering 2,500 acres of land and contain proven oil condensates.
The CPR prepared in advance of the acquisition estimated that, as a
result of the acquisition, Pennpetro Group would have a Working
Interest in the portfolio of petroleum mineral leases of 2,000 MBBL
of oil and 1,000 MMcf of gas.
Also, as previously reported in the December 2017 Accounts and
Reports, the acquisition of Noble Petroleum UK Limited by Pennpetro
fell outside the Scope of IFRS 3 ("Business Combinations"). As a
result, the Consolidated Financial Statements have been treated as
being a continuation of the Consolidated Financial Statements of
Nobel UK, with Pennpetro being treated as the acquired entity for
accounting purposes. Further acquisitions are expected to be
accounted for within the Scope of IFRS 3.
The period under review has been one of real progress and the
Company is now well placed to capitalise on the recovery in
sentiment within the US and global petroleum sectors.
We remain confident in our petroleum assets, our US operations
and the Board will continue to build upon what has been a
successful and busy first year for the Group.
Keith Edelman
Non-Executive Director, Chairman
28 September 2018
Executive Director's Statement
As prior reported we have begun completion operations which
under the reporting period entailed the construction of a new
tankerage farm and the Operator is pump testing to remove
accumulated water from the reservoirs, while at the same time
recovering oil as the oil-cut progressively increases. To date test
oil has been sold in limited quantities, the most recent sale being
at a premium to WTI. Under the terms of our agreements with the
other non-participating parties, Av-Tech Oil & Gas LLC, Landex
Petroleum LLC and Sunrise Energy LLC, all parties now contribute
towards their proportionate share of ongoing expenses with regard
to COG#1-H.
Our operator has now filed formal completion certificates with
the Texas Railroad Commission confirming that the COG#1-H well is
being completed as a producer, albeit full testing is ongoing. In
addition, the Operator has also filed the requisite Divisional
Orders necessary.
Our land management team has continued to acquire contiguous
acreage with our total position now approaching 3,000 acres. We
also agreed with the Gonzales County to reposition certain of our
petroleum leases by amending certain boundaries and at the same
time we have been able to extend our drilling time-lines for those
particular leases by another initial twelve months. This
re-programming has enabled the revisions that will be necessary for
the 3-D seismic operations over which we are in current
discussions. We are also in discussions with proposed two additions
to our technical staff in the form of an additional geologist and a
geophysicist to assist in these operations and geo-drilling
requirements of the next horizontal well which is now designated as
COG#3-H. Permitting for this well is ongoing and is expected to be
completed within the next quarter.
In this stronger oil price environment, Pennpetro has emerged
from the downturn as a low-cost, asset-backed US onshore oil and
gas business. Subject to oil prices, market conditions and
sentiment, I remain confident that we can deliver our strategy by
acquiring leases in active and producing US onshore plays and
proving up the reserves by drilling new wells. In furtherance of
this agenda, we have incorporated a further Delaware entity,
Pennpetro USA, Inc., with a mandate to seek out additional
conventional producing petroleum assets only, possessing the
ability to be upscaled with the adoption of unconventional
horizontal drilling techniques. A number of opportunities are being
examined which will be fully reported on when progressed.
This platform is one that has, at its core, the active
management of all types of risk associated with the oil and gas
industry. Broadly speaking, development risk is managed by focusing
on proven formations, whilst execution risk is managed by
participating in drilling activities alongside established industry
partners and operators, such as our joint venture partners, Av-Tech
Oil & Gas, LLC, who have an extensive history in South Texas
operations, as well as our operations offsetting those of major
industry players, including EOG Resources, Inc., a $67.5 billion
goliath. Individual well risk is managed by building a diversified
portfolio of leases and wells and limiting the amount of interest
the Group holds in any one well. Meanwhile, oil price risk is
managed by focusing on areas that require relatively low oil prices
to breakeven and ensuring our cost base, capital commitments and
financing costs remain low, manageable and flexible.
EOG Resources has now also turned its full attention to the
Austin Chalk formations both in Texas and its continuance into
Louisiana with recent acquisitions by Conoco-Phillips, Marathon Oil
Corp, alongside the recent formation of Magnolia by TPG Pace Energy
and EnerVest to specifically focus on the Austin Chalk, as the
Austin Chalk has a higher oil content then Permian drilled
completions. Gonzales County sits right in the middle of the Austin
Chalk trend.
Pennpetro's Board currently comprises four Directors, who
collectively have extensive international experience and a proven
track record in investment, corporate finance and business
acquisition, operation and development and are well placed to
implement the Company's business objectives and strategy.
We believe the Company's Board and US management team is strong
in terms of having the right mix of industry expertise covering all
key areas of the business, including lease acquisition, geology,
engineering, and finance.
Oil Price
West Texas Intermediate ("WTI") has continued its strength
throughout the period under review averaging US$68.01/bbl. The
value of WTI as at 27 September 2018 was US$72.27/bbl (source:
Bloomberg Markets).
Outlook
In line with our strategy, all our operations are in highly
active plays where the economics of drilling and producing remain
attractive at sub-US$30 oil prices. This highlights the success we
have had in taking advantage of the prior industry downturn to
accelerate the positioning of our South Texas leasehold position in
favour of the Austin Chalk and Eagleford Shale. To this we can now
add the unexpected bonus of the Buda Limestone formation reserves
which we can now confidently state will increase our overall proved
oil reserves, albeit we await a formal new CPR to be prepared in
this regard.
With a strategic foothold in these prolific, low-cost plays
established and a proven management team in place, we will look to
further expand our position in this US onshore sweet spot, as and
when management considers it most advantageous to do so.
For the remainder of 2018, our main Gonzales County objectives
are to commence full production of the COG#1-H well, acquire
additional land leases and to carry out a 3-D seismic survey of our
land interests. I look forward to providing updates on our progress
in the year ahead.
Finally, I would like to thank the Board, management team and
all our advisers for their hard work over the period under review
and also to our shareholders for their continued support.
Thomas Evans
Executive Director
28 September 2018
Operational Review
Summary
As previously reported, Nobel Petroleum USA, Inc., has
operational teams on the ground working from its offices in the
City of Gonzales. During the period under review, one new
horizontal well in which the Group has an interest was confirmed by
the Operator to the Texas Railroad Commission as being completed as
an initial producer to the Buda formation. Further to this, the
Operator has also filed Divisional Orders pursuant to the delivery
of production interests. Additionally, Nobel USA commenced the
initiation and construction of the tankerage facilities and laid
pipeline to the COG#1-H wellhead, implementing the pumping of
liquids from the reservoirs. The Group is currently in discussions
to initiate an encompassing 3D seismic survey, during the latter
part of 2018, with Dawson Geophysical Company to complement its
comprehensive well logs geological analysis, together with an
enhanced programme of additional new petroleum leasing contiguous
to the area, with proposed planning to provide additional permitted
drilling locations by year end.
South Texas
The Company, through its indirect wholly-owned subsidiary, Nobel
Petroleum USA, Inc., holds interests in acreage within active oil
and gas plays within the County of Gonzales, State of Texas: The
Austin Chalk, and Eagleford Shale horizontal development and
vertical development of the Buda formation. Nobel Petroleum USA,
Inc. has observed an increase in the value of its interests within
its project acreage, due in part to higher energy price parameters
and increased consolidation of its acreage positions.
Austin Chalk
The play covers an extensive area with over a million acres yet
to be developed and runs all the way from the Pearsale Field south
of Gonzales to the giant Giddings Oil Field, the largest oilfield
found in Texas in the past 50 years to the north of Gonzales, and
further north onto the North Rayou Jack Field. The Austin Chalk
overlays the oil-rich Eagleford Shale, with both formations capable
of interacting with each other, and is a low permeability fractured
reservoir that has been the target for horizontal drilling since
the mid-1980s and consists of interbedded chalks, volcanic ash and
marls. It is located at drill depths from 7,000 to 8,000 feet. It
can be a liquids-rich play, yielding high volumes of oil and
condensate. Initial production rates can range over 1,000 bopd with
ultimate reserves exceeding 500 MBO per well.
-- EOG also continued delineation of the South Texas Austin
Chalk, completing five wells in the second quarter 2018.
Eagleford Shale
This play is classified as a petroleum system in that it is a
self-sourced reservoir with seals. Migration of Eagleford
hydrocarbons was primarily along bedding planes during the
expulsion phase. Absent of traps, hydrocarbons migrated up-dip or
north where vertical natural fractures were encountered. These
natural fractures were associated with the regional fault trends.
Here, the hydrocarbons migrated into the extensively fractured
Austin Chalk. Initial production rates with laterals exceed 1,000
bopd. Listed below are examples of recent wells drilled by EOG:
-- Notable wells in the second quarter included the Sandies
Creek A-F 1H-6H, a six-well package in DeWitt County, which is
immediately to the South of Gonzales, with an average treated
lateral length of 6,500 feet per well and average 30-day initial
production rates per well of 3,205 Boed, or 2,320 Bopd, 450 Bpd of
NGLs and 2.6 MMcfd of natural gas.
-- In Karnes County, TX, EOG completed the Hickok 5H-8H, a
four-well package with an average treated lateral length of 5,000
feet per well and average 30-day initial production rates per well
of 2,685 Boed, or 2,020 Bopd, 340 Bpd of NGLs and 2.0 MMcfd of
natural gas.
Buda Formation
The Buda is a biomicritic limestone lying below the Eagleford
Shale and above the Del Rio Shale. There has been an increase in
the focus on, and the development of, the Buda formation by a
number of independent US operators in South Texas, with a number of
horizontal wells having been completed.
While the Buda has always been acknowledged as a resource play
in South Texas, it sits at the bottom of our drilling prognosis, as
whilst it has been a producer in the acreage surrounding our
leasehold interests it could not be included within our proven
resource categorization as no completions had occurred within our
acreage. The Buda can be drilled as a separate vertical completion
and added to our overall horizontal programme. Furthermore, its
unit spacing can be brought significantly down to 40 acres, thereby
fulfilling a separate in-fill operation alongside our horizontal
drilling focus.
With the successful completion of the COG#1-H well, as stated
above, initial test oil flowing into tanks has been from the Buda
formation thereby advancing the Groups proved reserve allocations
as it has now been proved through the drill-bit that the underlying
Buda formation attributable to the Groups petroleum lease holdings
can be developed as an additional reservoir.
Thomas Evans
Executive Director
28 September 2018
Enquiries
Pennpetro Energy Plc
88 Whitfield Street
First Floor
London
W1T 4EZ
tme@pennpetroenergy.co.uk
Instinctif
+44 (0)20 7457
David Simonson david.simonson@instinctif.com 2020
+44 (0)20 7457
George Yeomans george.yeomans@instinctif.com 2020
NOTES TO EDITORS
Pennpetro Energy is an independent oil and gas company focusing
on production in the Gonzales Oil Field in Texas, USA. Shares in
the company were admitted to the Official List of the London Stock
Exchange by way of a Standard Listing on 21 December 2017.
Further information on the Company can be found at
www.pennpetroenergy.co.uk
IMPORTANT NOTICE - FORWARD-LOOKING STATEMENTS
This announcement may include statements that are, or may be
deemed to be, "forward-looking statements". These forward-looking
statements may be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"projects", "anticipates", "expects", "intends", "may", "will" or
"should" or, in each case, their negative or other variations or
comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These
forward-looking statements include all matters that are not
historical facts and involve predictions. Forward-looking
statements may and often do differ materially from actual results.
In addition, even if results or developments are consistent with
the forward-looking statements contained in this announcement,
those results or developments may not be indicative of results or
developments in subsequent periods. Any forward-looking statements
reflect the Group's current view with respect to future events and
are subject to risks relating to future events and other risks,
uncertainties and assumptions relating to the Group's business,
results of operations, financial position, liquidity, prospects,
growth or strategies and the industry in which it operates.
Forward-looking statements speak only as of the date they are made
and cannot be relied upon as a guide to future performance.
Strategic report and business review
To the members of Pennpetro Energy plc
Cautionary statement
This business review has been prepared solely to provide
additional information to shareholders to assess the Company's
strategies and the potential for those strategies to succeed.
The business review contains certain forward looking statements.
These statements are made by the Directors in good faith based on
the information available to them up to the time of their approval
of this report and such statements should be treated with caution
due to the inherent uncertainties, including both economic and
business risk factors, underlying any such forward looking
information.
This business review has been prepared for the Group as a whole
and therefore gives greater emphasis to those matters which are
significant to Pennpetro Energy plc and its subsidiary undertakings
when viewed as a whole.
The Group's business model
Pennpetro's intention is to become an active independent North
American development production company.
The key elements of Pennpetro's strategy for achieving this goal
are:
-- The creation of value through production development success
and operational strengths, commencing with the Group's COGLA
assets.
-- Focusing on commercialisation and monetisation of oil and gas
discoveries, and potentially utilising cash flows from initial
projects to fund the acquisition or development of future
projects.
-- Active asset portfolio management.
-- Positioning the Company as a competent partner of choice to
maximise opportunities and value throughout the E&P
lifecycle.
The total proved future Net Revenue interest after costs as at 1
December 2017:
Undiscounted $62,000,000
Based on the information provided in the CPR, the Directors have
determined that the Company's oil properties have not been impaired
as at the 30 June 2018.
Results for the 2018 interim financial period
A summary of the key financial results is set out in the table
below:
30.6.2018
$'000
--------------------- -------------------------
Revenue -
Operating expenses (321)
--------------------- -------------------------
Operating loss (321)
Finance costs (136)
--------------------- -------------------------
Loss before tax (457)
Taxation -
Loss for the period (457)
Interest
The net interest cost for the Group for the period was $0.1m
(2017: $nil).
Loss before tax
Loss before tax for the period was $0.5m (2017: $0.2m).
Taxation
Taxation charge was $nil for the period (2017: $nil).
Earnings per share
Basic and diluted earnings per share for the period were 0.64c
loss (2017: 0.3c loss).
Financial position
The Group's balance sheet as at 30 June 2018 can be summarised
as set out in the table below:
Assets Liabilities Net assets
GBP'm GBP'm GBP'm
$'000 $'000 $'000
-------------------------------- ------- ------------ -----------
Non-current assets 3,864 - 3,864
Current assets and liabilities 2,521 (107) 2,414
Loans and provisions - (6,021) (6,021)
Total as at 30 June 2018 6,385 (6,128) 257
-------------------------------- ------- ------------ -----------
Total as at 31 December 2017 7,033 (6,303) 730
-------------------------------- ------- ------------ -----------
Cash flow
Net cash inflow for 2018 was $nil (2017: $nil).
Condensed Consolidated Income Statement
6 months ended 30 June 2018
(Audited)
Half year Full year Half year
ended ended ended
30.06.18 31.12.2017 30.6.2017
$'000 $'000 $'000
Revenue - - -
Cost of sales - - -
--------------------- ---------- ----------- ----------
Gross profit - - -
Operating expenses (321) (708) (324)
--------------------- ---------- ----------- ----------
Operating loss (321) (708) (324)
Finance income - 562 -
Finance expense (136) (7) -
Loss before tax (457) (153) (324)
Taxation - - -
--------------------- ---------- ----------- ----------
Loss for the period (457) (153) (324)
--------------------- ---------- ----------- ----------
Earnings per share expressed
in cents per share
From continuing and total operations:
Basic and diluted (0.64) (0.3) (1.7)
Condensed Consolidated Statement of Comprehensive Income
6 months ended 30 June 2018
(Audited)
Half year Full year Half year
ended ended ended
30.06.18 31.12.2017 30.6.2017
$'000 $'000 $'000
-------------------------------------- --------- ---------- ---------
Loss for the period (457) (153) (324)
Currency translation differences (16) 20 16
Total comprehensive loss attributable
to the Group (473) (133) (308)
Condensed Consolidated Balance Sheet
As at 30 June 2018
(Audited)
30.06.18 31.12.2017 30.6.2017
$'000 $'000 $'000
Assets
Non-Current Assets
Property, plant & equipment 1,267 1,227 1,112
Intangible assets 2,597 2,173 1,005
Total non-current assets 3,864 3,400 2,117
Current Assets
Trade and other receivables 1,703 1,538 877
Short term investments 796 2,073 609
Cash 22 22 21
------------------------------- ---------- ------------ -----------
Total Current Assets 2,521 3,633 1,507
------------------------------- ---------- ------------ -----------
Total Assets 6,385 7,033 3,624
=============================== ========== ============ ===========
Equity and Liabilities
Share capital 908 908 908
Share premium 625 625 625
Convertible reserve 6,022 6,022 6,022
Reorganisation reserve (6,578) (6,578) (6,578)
Foreign exchange reserve 4 20 17
Retained losses (724) (267) (437)
------------------------------- ---------- ------------ -----------
Total Equity 257 730 557
------------------------------- ---------- ------------ -----------
Non - current liabilities
Borrowings 6,021 6,093 2,782
------------------------------- ---------- ------------ -----------
Total Non-Current Liabilities 6,021 6,093 2,782
------------------------------- ---------- ------------ -----------
Current liabilities
Trade and other payables 107 210 285
------------------------------- ---------- ------------ -----------
Total Current Liabilities 107 210 285
------------------------------- ---------- ------------ -----------
Total Equity and Liabilities 6,385 7,033 3,624
=============================== ========== ============ ===========
Condensed Consolidated statement of changes in equity
6 months ended 30 June 2018
Foreign
Share Share Convertible Re-organisation exchange Retained Total
capital premium reserve reserve reserve losses equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000
----------------------- -------- -------- ----------- --------------- ---------- -------- ----------
Balance at 1 January
2017 - - - - - (18) (18)
Loss for the period - - - - - (324) (324)
Currency translation
differences - - - - 17 - 16
Total comprehensive
loss - - - - 17 (324) (308)
----------------------- -------- -------- ----------- --------------- ---------- -------- ----------
Reverse merger 687 303 6,022 (6,578) - (96) 338
Shares issued in
period 191 - - - - - 191
Shares issued for
cash 30 333 - - - - 363
Cost of share issue - (11) - - - - (11)
Balance at 30 June
2017 908 625 6,022 (6,578) 17 (437) 557
Profit for the period - - - - - 170 170
Currency translation
differences - - - - 3 - 3
Total comprehensive
profit - - - - 3 170 173
Balance at 31 December
2017 908 625 6,022 (6,578) 20 (267) 730
Loss for the period - - - - - (457) (457)
Currency translation
differences - - - - (16) - (16)
Total comprehensive
loss - - - - (16) (457) (473)
----------------------- -------- -------- ----------- --------------- ---------- -------- ----------
Balance at 30 June
2018 908 625 6,022 (6,578) 4 (724) 257
======================= ======== ======== =========== =============== ========== ======== ==========
Condensed Consolidated Cash Flow Statement
6 months ended 30 June 2018
(Audited)
Half year Full year Half year
ended ended ended
30.06.18 31.12.17 30.06.17
$'000 $'000 $'000
-------------------------------------- --------- ---------- ---------
Loss for the period (457) (153) (324)
Adjustment for:
Depreciation - 3 -
Amortisation 55 5 -
(Increase)/decrease in receivables (219) (439) (309)
Increase/(decrease) in payables (103) 168 243
Trade and other payables on reverse
merger - (9) (9)
Finance income - (562) -
Finance expenditure 136 7 -
Shares issued to settle professional
fees - 191 -
-------------------------------------- --------- ---------- ---------
Net cash used in operating activities (588) (789) (399)
-------------------------------------- --------- ---------- ---------
Cash flows from investing activities
-------------------------------------- --------- ---------- ---------
Purchase of development expenditure (481) (2,979) (696)
Purchase of property, plant &
equipment - (65) (1,112)
Net interest (136) (7) -
Net cash used in investing activities (617) (3,051) (1,808)
-------------------------------------- --------- ---------- ---------
Cash flows from financing activities
-------------------------------------- --------- ---------- ---------
Shares issued - 363 -
Cost of shares issued - (11) -
Short term investments 1,277 (2,073) -
(Repayment)/proceeds from borrowings (72) 5,469 1,597
Borrowing arrangement fees - (270) -
Short term investments on reverse
merger - 348 609
Net cash generated from financing
activities 1,205 3,826 2,206
-------------------------------------- --------- ---------- ---------
Net increase/(decrease) in cash
and cash equivalents - (14) (1)
-------------------------------------- --------- ---------- ---------
Cash and cash equivalents brought
forward 22 21 21
-------------------------------------- --------- ---------- ---------
Exchange gain on cash and cash
equivalents - 15 1
-------------------------------------- --------- ---------- ---------
Cash and cash equivalents carried
forward 22 22 21
-------------------------------------- --------- ---------- ---------
General Information
The Consolidated Financial Statements of Pennpetro Energy plc
("the Company") consists of the following companies (together "the
Group"):
Pennpetro Energy plc UK registered company
Nobel Petroleum UK Limited UK registered company
Nobel Petroleum USA Inc US registered company
Nobel Petroleum LLC US registered company
The Company is a public limited company which is listed on the
standard market of the London Stock Exchange and incorporated and
domiciled in England and Wales. Its registered office address is
First Floor, 88 Whitfield Street, London, W1T 4EZ.
The Group is an oil and gas developer with assets in Texas,
United States. The Company's US-based subsidiaries own a portfolio
of leasehold petroleum mineral interests centred on the City of
Gonzalez, in southeast Texas, comprising the undeveloped central
portion of the Gonzales Oil Field.
Summary of significant accounting policies
The principal accounting policies adopted in the preparation of
these financial results are set out below. These policies have been
consistently applied to all financial periods presented, unless
otherwise stated.
Basis of preparation and going concern basis
Pennpetro Energy plc (the Company) is a public limited company
which is listed on the standard market of the London Stock Exchange
and incorporated and domiciled in England and Wales. Its registered
office address is First Floor, 88 Whitfield Street, London W1T 4EZ.
The consolidated financial results of the Company comprise the
Company and its subsidiaries (together referred to as the Group).
The accounting policies of the Company are the same as for the
Group except where separately disclosed.
The unaudited Condensed Financial Statements should be read in
conjunction with the Annual Report and Financial Statements for the
year ended 31 December 2017, which have been prepared in accordance
with International Financial Reporting Standards (IFRS) as adopted
by the European Union. The Company has adopted IAS 34 in preparing
the Condensed Financial Statements.
The unaudited Condensed Financial Statements do not constitute
statutory Financial Statements within the meaning of the Companies
Act 2006. They have been prepared in accordance with the
recognition and measurement criteria of IFRSs as adopted by the
European Union. Statutory Financial Statements for the year ended
31 December 2017 were approved by the Board of Directors on 30
April 2018. The Report of the Auditor on those Financial Statements
was unqualified.
The same accounting policies, presentation and methods of
computation are followed in these Condensed Financial Statements as
were applied in the audited Financial Statements for the year ended
31 December 2017.
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in this review. The financial position of the Group,
its cash flows and liquidity position are described in this
business review. In addition, the below notes to the financial
results include the Group's objectives, policies and processes for
managing its capital; its financial risk management objectives;
details of its financial instruments; and its exposure to credit
risk and liquidity risk. As highlighted in below, the Group meets
its day to day working capital requirements through its on-going
cash flows.
Basis of consolidation
The Consolidated Financial Statements consolidate the Financial
Statements of Pennpetro Energy plc and the Financial Statements of
its subsidiary undertaking made up to 30 June 2018.
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the investee
and has the ability to affect those returns through its power over
the investee. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are deconsolidated
from the date that control ceases.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies used
into line with those used by other members of the Group. All
inter-company transactions and balances between Group entities are
eliminated on consolidation.
Acquisition
On 17 May 2017 Pennpetro Energy plc ("Pennpetro") acquired 100%
of the issued capital of Nobel Petroleum UK Limited ("Nobel UK") in
a share for share exchange with the shareholders of Nobel UK's
parent company at that time, Nobel Petroleum Ireland Limited
("Nobel Ireland"). Due to the relative size of the companies, Nobel
Ireland's shareholders became the majority shareholders in the
enlarged share capital. Pennpetro's shares were later listed on the
London Stock Exchange in December 2017.
The transaction fell outside the scope of IFRS 3 ("Business
Combinations") and as such has been treated as a group
reconstruction and has been accounted for using the reverse merger
accounting method. Accordingly, the consolidated financial
statements have been treated as being a continuation of the
consolidated financial statements of Nobel UK, with Pennpetro being
treated as the acquired entity for accounting purposes.
Accordingly, the financial information for the current period and
comparatives has been presented as if Noble UK had been owned by
Pennpetro throughout the current and prior period.
Reason for the reverse merger
Pennpetro was incorporated with the intention of obtaining a
Listing on the LSE shortly after completing a reverse merger with
Nobel UK Limited by way of a share swap with Nobel UK's parent
company Nobel Ireland. Nobel Ireland's shareholders retained a
majority interest in the listed Pennpetro after the
transaction.
Going concern
The Group's business activities, together with the factors
likely to affect its future development and performance are set out
in the Executive Director's Statement.
The Group has prepared cashflow forecasts for 12 months from the
date of signing the Financial Statements. The forecast includes
consideration as to the date when oil and gas are expected to flow
and revenues generated and the cost of the delays incurred due to
the adverse weather experienced by the US operation.
The Directors have considered these forecasts and have a
reasonable expectation that the Company and Group has adequate
resources to continue in operational existence through 30 June 2019
as projected; however subject to material adverse unforeseen events
that may occur, including but not limited to oil and gas prices and
non-operational control of wells. For this reason, the Directors
continue to adopt the going concern basis of accounting in
preparing the Financial Statements.
Property, plant and equipment
Following evaluation of successful exploration of wells, if
commercial reserves are established and the technical feasibility
of extraction demonstrated, and once a project is sanctioned for
commercial development, then the related capitalised exploration
costs are transferred into a single field cost centre within
'producing properties' within property, plant and equipment after
testing for impairment. Where results of exploration drilling
indicate the presence of hydrocarbons which are ultimately not
considered commercially viable, all related costs are written off
to the Statement of Comprehensive Income.
The net book values of 'producing properties' are depreciated on
a unit of production basis at a rate calculated by reference to
proven and probable reserves and incorporating the estimated future
cost of developing and extracting those reserves once production
has commenced.
All costs incurred after the technical feasibility and
commercial viability of producing hydrocarbons has been
demonstrated, are capitalised within 'drilling costs and equipment'
on a well by well basis. Subsequent expenditure is capitalised only
where it either enhances the economic benefits of the
development/producing asset or replaces part of the existing
development/producing asset. Any costs remaining associated with
the part replaced are expensed.
Net proceeds from any disposal of an exploration asset are
initially credited against the previously capitalised costs. Any
surplus proceeds are credited to the Statement of Comprehensive
Income.
All property, plant and equipment other than oil and gas assets
are stated at historical cost less depreciation. Historical cost
includes expenditure that is directly attributable to the
acquisition of the items.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance are charged to the
Statement of Comprehensive Income during the financial period in
which they are incurred.
Depreciation is charged so as to allocate the cost of assets,
over their estimated useful lives, on a straight line basis as
follows:
Office equipment - 4 years
Oil and gas producing properties held in property, plant and
equipment are mainly depreciated on a unit of production basis at a
rate calculated by reference to proven and probable reserves and
incorporating the estimated future cost of developing and
extracting those reserves.
The assets' residual values and useful lives are reviewed, and
adjusted if appropriate, at each financial year-end.
Gains and losses on disposal are determined by comparing
proceeds with carrying amount. These are included in the Income
Statement.
Intangible assets
(a) Development expenditure
Expenditure on the construction, installation and completion of
infrastructure facilities such as platforms, pipelines and the
drilling of development wells, including service, is capitalized
initially within intangible fixed assets and when the well has
formally commenced commercial production, then it is transferred to
property, plant and equipment and is depreciated from the
commencement of production as described in the accounting policy
for property, plant and equipment
(b) Drilling costs and Petroleum mineral leases
The Group applies the successful efforts method of accounting
for oil and gas assets, having regard to the requirements of IFRS 6
'Exploration for and Evaluation of Mineral Resources'. Costs
incurred prior to obtaining the legal rights to explore an area are
expensed immediately to the Statement of Comprehensive Income.
Expenditure incurred on the acquisition of a licence interest is
initially capitalised within intangible assets on a licence by
licence basis. Costs are held, unamortised, within Petroleum
mineral leases until such time as the exploration phase of the
licence area is complete or commercial reserves have been
discovered. The cost of the licence is subsequently transferred
into "Producing Properties" within property, plant and equipment
and depreciated over its estimated useful economic life.
Exploration expenditure incurred in the process of determining
exploration targets is capitalised initially within intangible
assets as drilling costs. Drilling costs are initially capitalised
on a well by well basis until the success or otherwise has been
established. Drilling costs are written off on completion of a well
unless the results indicate that hydrocarbon reserves exist and
there is a reasonable prospect that these reserves are commercially
viable. Drilling costs are subsequently transferred into 'Drilling
expenditure' within property, plant and equipment and depreciated
over their estimated useful economic life. All such costs are
subject to regular technical, commercial and management review on
at least an annual basis to confirm the continued intent to develop
or otherwise extract value from the discovery. Where this is no
longer the case, the costs are immediately expensed to the
Statement of Comprehensive Income.
Trade receivables
Trade receivables are recognised initially at amortised cost,
which is the fair value of consideration receivable and is adjusted
for provision or impairment. A provision for impairment of trade
receivables is established when there is objective evidence that
the Group will not be able to collect all the monies due. The
amount of the provision is recognised in the consolidated income
statement immediately.
Short term investments
Short term investments include amounts held in bank accounts and
deposits by financial service companies that have been approved by
the Directors.
Bank borrowings and other loans
Borrowings are recognised initially at fair value. Borrowings
are subsequently carried at amortised cost; any difference between
the proceeds (net of transaction costs) and the redemption value is
recognised in the Income Statement over the period of the
borrowings, using the effective interest method.
Borrowings are classified as current liabilities unless the
Group has an unconditional right to defer settlement of the
liability for at least 12 months after the end of the reporting
period.
Borrowing costs
Arrangement fees and commissions in relation to the Loan
provided to the Group by Pennpetro Bonds II Limited have initially
been capitalised in Intangible assets and are subsequently charged
to the Comprehensive Income Statement over the period that the Loan
is available to the Group.
Reserves
The reverse merger of Pennpetro Energy plc on 17 May 2017 was
accounted for as a share-based payment transaction which should be
accounted for in accordance with IFRS 2. On the basis of the
guidance in para 13A of IFRS 2, the reverse merger has been treated
as a continuation of the Nobel Group into the Pennpetro Group. The
consideration included the issue of new share capital and the issue
of a convertible bond. The total consideration less the share
capital in Nobel UK resulted in the creation of the reorganisation
reserve.
The convertible reserve represents the principal value of a
mandatory convertible note issued by Pennpetro Petroleum plc to
Nobel Petroleum Ireland Limited in part consideration for the
acquisition of Nobel Petroleum UK under an agreement dated 17 May
2017.
The translation reserve represents effects of currency
translation in the year.
Financial risk and credit management
The Group has exposure to the following risks from its use of
financial instruments:
(a) Market risk
(b) Credit risk
(c) Liquidity risk
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risks and the Group's
management of capital. Further quantitative disclosures are
included throughout these consolidated financial results.
The Board of Directors has overall responsibility for the
establishment and oversight of the Group's risk management
framework.
The Group's risk management policies are established to identify
and analyse the risks faced by the Group, to set appropriate risk
limits and controls, and to monitor risks and adherence to limits.
Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's
activities.
The Group Audit Committee oversees how management monitors
compliance with the Group's risk management policies and procedures
and reviews the adequacy of the risk management framework in
relation to the risks faced by the Group.
(a) Market risk
The Group operates in an international market for hydrocarbons
and is exposed to risk arising from variations in the demand for
and price of the hydrocarbons. Oil and gas prices historically have
fluctuated widely and are affected by numerous factors over which
the Group has no control, including world production levels,
international economic trends, exchange rate fluctuations,
speculative activity and global or regional political events.
a) Currency risk
The majority of the Group's purchase transactions and
expenditure are denominated in US dollars. The currencies are
stable, and any exchange risk is managed by maintaining bank
accounts denominated in those currencies.
(b) Credit risk
Credit risk represents the risk of loss the Group would incur if
operators and counterparties fail to fulfil their credit
obligations. The maximum exposure to credit risk is represented by
the carrying amount of each financial asset.
Where the Group is not an operator of wells, the Group's trade
receivables and accrued income result from contractual amounts due
from third party operators. The risk is concentrated between a
relatively small group of operators given the small number of
parties involved in oil and gas exploration and production
activities. The Group seeks to mitigate this risk where possible by
assessing the credit quality of the operators and by establishing
ongoing and long-term relationships.
(c) Liquidity risk
Cash flow forecasting is performed in the operating entities of
the Group and aggregated by Group Finance. Group Finance monitors
rolling forecasts of the Group's liquidity requirements to ensure
it has sufficient cash to meet operational needs, while seeking to
maintain sufficient headroom on its undrawn committed borrowing
facilities at all times, so that the Group does not breach
borrowing limits or covenants (where applicable) on any of its
borrowing facilities. Such forecasting takes into consideration the
Group's debt financing plans, covenant compliance, compliance with
internal Statement of Financial Position ratio targets, and, if
applicable, external regulatory or legal requirements (for example,
currency restrictions).
Critical accounting estimates and judgements
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amounts of assets and liabilities within the next
financial period are discussed below.
(a) Estimated impairment of producing properties and capitalised
drilling costs & equipment
At 30 June 2018, petroleum mineral leases and capitalised
drilling costs & equipment on petroleum properties have a total
carrying value of $3,646,589 (2017: $3,127,966). Management tests
annually whether the assets have future economic value in
accordance with the accounting policies. These assets are also
subject to an annual impairment review by an independent
consultant.
The recoverable amount of each property has been determined
based on a value in use calculation which requires the use of
certain estimates and assumptions such as long-term commodity
prices (i.e. oil and gas prices), discount rates, operating costs,
future capital requirements and mineral resource estimates. These
estimates and assumptions are subject to risk and uncertainty and
therefore a possibility that changes in circumstances will impact
the recoverable amount.
The following estimates have been used by the Directors in
determining the recoverability of the Company's Petroleum
properties. The Source for these estimates is the Competent Persons
Report ("CPR") prepared in December 2017.
-- The Pennpetro Group owns approximately 1,000 leases on 2,500 acres in Gonzales, Texas
-- The Group's Net Working interests are 2,000 Mbbl of oil and 1,000 MMcf of gas
-- Base case oil sold is assumed at $55 per barrel and gas at $3.20 per thousand cubic feet
-- Oil and gas pricing held constant to depletion in 2031
The total proved future Net Revenue interest after costs as at 1
December 2017:
Undiscounted $62m
Based on the information provided in the CPR, the Directors have
determined that the Company's oil properties have not been impaired
as at the 30 June 2018.
(b) Recoverability of non-producing mineral leases and
capitalised drilling costs & equipment
Management tests annually whether non-producing mineral leases
have future economic value in accordance with the accounting
policies. This assessment takes into consideration the likely
commerciality of the asset, the future revenues and costs
pertaining and the discount rates to be applied for the purposes of
deriving a recoverable value. In the event that a lease does not
represent an economic drilling target and results indicate that
there is no additional upside, the mineral lease and drilling costs
will be impaired. The Directors have reviewed the estimated value
of the licences and have concluded that an impairment charge of $0
should be recognised.
(c) Estimated useful lives of property, plant and equipment
Useful lives are based on industry standards and historical
experience which are subjected to yearly evaluation. For producing
properties, the Group's considerations include the lease period of
the agreement, estimated levels of proven and probable reserves and
the estimated future cost of developing and extracting those
reserves. Management review property, plant and equipment at each
Statement of Financial Position date to determine whether there are
any indications of impairment. If any such indication exists, an
estimate of the recoverable amount is performed, and an impairment
loss is recognised to the extent that the carrying amount exceeds
the recoverable amount. The Directors have reviewed the estimated
value of each property and do not consider any further impairment
to be necessary
Earnings per share
Basic and diluted
Earnings per share is calculated by dividing the loss
attributable to the equity holders of the Company by the weighted
average number of Ordinary shares in issue during the period,
excluding Ordinary shares purchased by the Company and held as
treasury shares.
Half year Full year Half year
ended ended ended
30.06.18 31.12.17 30.6.17
$'000 $'000 $'000
---------------------------------- --------- --------- ---------
(Loss)/profit attributable to
equity holders of the Company
($'000) (457) (153) (324)
Weighted average number of shares
in issue (Number '000) 70,900 44,295 18,983
Earnings per share (cents) (0.64) (0.3) (1.7)
Responsibility statement
Each of the Directors of the Company confirms that to the best
of his or her knowledge:
a. the condensed set of Financial Statements has been prepared
in accordance with IAS 34 "Interim Financial Reporting";
b. the half year report includes a fair review of the
information required by DTR 4.2.7R (indication of important events
during the first six months and description of principal risks and
uncertainties for the remaining six months of the year);
c. the half year report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR LFFFLAVIDFIT
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