TIDMEOG
Europa Oil & Gas (Holdings) plc / Index: AIM / Epic: EOG / Sector: Oil & Gas
10 October 2019
Europa Oil & Gas (Holdings) plc ('Europa' or 'the Company')
Final Results for the year to 31 July 2019
Europa Oil & Gas (Holdings) plc, the UK and Ireland focussed oil and gas
exploration, development and production company, announces its final results
for the 12 month period ended 31 July 2019.
The full Annual Report and Accounts will be available shortly on the Company's
website at www.europaoil.com and will be mailed in November 2019 to those
shareholders who have requested a paper copy.
Operational highlights
Offshore Ireland
* LO 16/20, which holds Inishkea, Europa's flagship gas prospect, converted
to 15 year exploration licence FEL 4/19
* 1.5 trillion cubic feet ('tcf') gross mean un-risked prospective gas
resources and 1 in 3 chance of success assigned to Inishkea
* Progressing regulatory consent for site surveys over Inishkea, Kiely East
and Edgeworth as part of drill site preparations
* Continuing farm-out discussions with respect to Frontier Exploration
Licence ("FEL") 4/19, FEL 1/17 and FEL 3/13. FEL 4/19 now expected to be
prioritised
* Secured a 12 month extension to the first phase of FEL 2/13 to 4 July 2020
UK
* Average of 91 barrels of oil equivalent per day ('boepd') (2018: 94 boepd)
recovered from three UK onshore fields
* Workover of the West Firsby 6 well utilising a drain hole jetting technique
- the well is currently producing 7 boepd net to Europa having previously
produced nothing
* Wressle planning appeal scheduled for 5 November 2019 - subject to a
positive outcome, development would more than double Europa's net
production to around 240 bopd
* Sold interest in PEDL143 to UK Oil & Gas PLC
Financial
* 6% increase in Group revenue to GBP1.7m (2018: GBP1.6m)
* Zero exploration write-off (2018: GBP1.3m)
* Narrowing of pre-tax loss to GBP0.7m (2018: loss GBP2.3m)
* Post-tax loss of GBP0.7m (2018: loss GBP2.6m)
* 16% reduction in administrative expenses to GBP811,000 (2018: GBP967,000)
* Cash used in operating activities GBP0.66m (2018: cash used GBP0.48m)
* Net cash balance as at 31 July 2019 GBP2.9m (31 July 2018: GBP1.8m)
Post reporting date events
* Award of Inezgane Offshore licence on Atlantic coast of Morocco.
* Irish Government announced intent to phase out future licensing for oil
exploration, but not gas exploration; later confirmed that all existing
exploration licences for both oil and gas remain valid.
Europa's CEO, Hugh Mackay, said "Having de-risked multiple hundred million
barrel plus prospects offshore Ireland and embarked on farm-out discussions
with suitable partners, we have been keen to add a third territory to Europa's
portfolio, specifically one that complements the team's technical
capabilities. The post period end award of the Inzeghane Permit offshore
Morocco represents the culmination of an extensive process and considerable
work over the course of the year. Similar to Atlantic Ireland, Europa's entry
into Morocco is low cost and early stage. Like Ireland, with 250 million plus
barrel prospects already identified, Inzeghane has the potential to move the
needle in the event of drilling success.
"Inzeghane does not represent the sum of our new venture activity. Our aim is
to build a full cycle oil and gas company and our priority is to add a late
stage appraisal/development project to our licence base. At the same time, we
are working hard to advance our existing assets, specifically securing funding
to drill wells offshore Ireland and supporting the operator's efforts to obtain
planning consent for the development of the Wressle oil field, which promises
to more than double our UK onshore production to around 240bopd. At this rate
and based on current oil prices, Europa's revenue profile would leap to GBP
3-4million a year, a figure that represents almost half our current market
capitalisation. Together with a low cost base, Europa would be transformed into
a profitable oil and gas company, at least at the underlying level, with a
prospect inventory that has significant company-making potential."
Chairman's statement
New Ventures
Our portfolio currently comprises two main business areas:
* Very high impact exploration offshore Atlantic margin in Ireland and (as
recently announced) Morocco, and
* Oil development and production onshore UK.
It is a priority for the Board to add a third area in the appraisal/development
part of the business cycle. Following a strategy review in October 2018 a
dedicated Board Strategy Committee was set up, meeting monthly to track
progress and review new venture opportunities against a continuously evolving
business environment. We are seeking projects in different stages of the
business cycle, in new basins, in countries with low political and regulatory
risk. Our approach is to review many candidates and progress only those which
meet strict suitability criteria. Our target is to have identified and likely
added this third area within the next period.
Ireland - Inishkea
Inishkea is our flagship prospect in Ireland. This is "infrastructure-led"
exploration next to the 1tcf Corrib gas field in the Slyne basin and is
unaffected by well results in the South Porcupine basin.
We reported gross unrisked prospective resources of 1.5tcf and an estimated
geological chance of success of 1 in 3. LO 16/20 was converted to a 15 year
Frontier Exploration Licence FEL 4/19 effective 1 August 2019. We have
submitted a site survey application for a drilling location. The process began
on 31 January and we hope to obtain regulatory approval during Q4 2019. As a
consequence of the time taken by the regulatory authorities, site survey
operations will be in 2020 subject to regulatory approval. We believe that
there is a compelling technical and commercial case for gas exploration in the
vicinity of the Corrib gas infrastructure and there are positive signs for a
farmout.
Ireland - Porcupine
Though the Iolar exploration well on the western flank of the South Porcupine
was unsuccessful, we believe that the geological fundamentals of the undrilled
eastern flank are different and better. New technical work on FEL 1/17 and FEL
3/13 has enhanced our appreciation and understanding of the Edgeworth, Ervine,
Egerton prospect complex and we will be presenting this to the industry at the
Atlantic Ireland conference in October 2019. We have secured a 12-month
extension for FEL 2/13 and await a similar extension for FEL 3/13. We have a
site survey application in process for a location on the Edgeworth prospect in
FEL 1/17. We hope to obtain regulatory approval during Q4 2019. As a
consequence of the time taken, any site survey operations will be in 2020 and
subject to regulatory approval.
Ireland - general
Two headwinds have adversely affected the oil and gas industry in Ireland:
* The Climate Emergency Measures Bill. Though the Bill did not proceed, it
threatened substantial investments in Atlantic Ireland and was a
significant concern.
* The time taken to obtain regulatory approvals for licence renewals and
conversions, and for operational activities such as site surveys, has been
extended substantially.
These factors have slowed the pace of industry activity and the farmout market
and it is against this backdrop that our work continues with operations and
farmouts.
The previously flagged farmout discussions continue, but given the time elapsed
and the changing local market conditions the Board now considers it more likely
that the farmin for the Inishkea licence FEL 4/19 will be concluded first
rather than three licenses simultaneously as originally envisaged.
Morocco
Post the reporting date, we announced the award of the Inezgane licence
offshore Morocco. This licence is in an under-explored basin with the key
elements of a working hydrocarbon system in the Lower Cretaceous. Morocco has
an active oil and gas industry and a supportive Government, with a desire to
grow the sector. Offshore, ENI and Genel are exploring just to the south of our
licence. Shell, Repsol, Sound and SDX Energy are amongst the companies active
onshore. Morocco has good fiscal terms. Entry costs, political, regulatory and
security risks are all low.
During the initial two-year phase of the licence, Europa will reprocess 1,300
km2 of 3D seismic data. This continues a workflow process that we thoroughly
understand having reprocessed 3,500 km2 in three seismic surveys offshore
Ireland with very positive results. The forward plan is to reprocess,
interpret, build a prospect inventory and farmout to drill.
Our decision to enter Morocco was predicated on using the skills which our
technical team have developed in working up prospects in areas covered with
modern 3D seismic in a prospective offshore setting and presenting these to the
industry in order to attract capital investment from larger industry players.
We looked for a country where the entry costs were low, 3D was available at low
cost, and the prospectivity, and consequential industry interest was high. We
are delighted to have secured a large and prospective block, in an area which
is of keen interest to the industry, as the presence of major oil and gas
companies in adjacent acreage demonstrates. Given the sometimes difficult
operating environment in other jurisdictions, it is a pleasure for us to be
operating in an area where the Government and the regulators are keen to work
with industry in making progress for the country.
UK - Wressle
Our focus is on getting the Wressle oil discovery into production. The Wressle
oil development Planning Inquiry takes place in November 2019 and the news that
North Lincolnshire Council have withdrawn from the inquiry is positive. The
operator Egdon is working hard to present a strong case to the planning
inspector and we are more hopeful than ever that we will have the well, which
was drilled in 2014, producing oil in 2020.
Gross oil production on Wressle startup is forecast to be 500 bopd and Europa's
30% share will more than double our current production providing an important
part of our financial resilience.
UK - Production
We are trying to maximise our existing production from fields that we operate.
At West Firsby a workover of well WF6 was successful and achieved oil
production from a reservoir interval which has never previously produced. We
gained invaluable insights into the practicalities of deploying drain-hole
jetting technology and this will enable us to exploit other opportunities in
our portfolio.
Conclusions
This has been a challenging year for the company in Ireland where there have
been delays beyond our control in both farmout and operational activities. On
the positive side our further studies on Inishkea confirm it to be a potential
company maker which fits well with the existing gas producing infrastructure
and importantly with Ireland's short to medium term energy and environmental
requirements. I am optimistic that the Wressle development in the UK will
finally be completed and brought on stream within the next period. I am also
confident that adding a new venture in the appraisal/development part of the
business will diversify the asset portfolio and provide greater protection for
the company from extraneous delays and unforeseen events.
I would like on behalf of the Board to thank the management, employees and
consultants for their work and commitment throughout the year.
Finally, may I thank our shareholders for their support and confidence in the
company going forward.
Simon Oddie
Chairman
Operations
Offshore Ireland: Exploration
Slyne Basin: FEL 4/19 (Inishkea)
The Inishkea gas prospect in FEL 4/19 has been the focus of substantial
technical, commercial and operations work during the year and remains the
Company's flagship project. Inishkea is a large, low risk gas prospect close to
gas infrastructure and in a country with a robust demand for gas.
Ireland has a growing economy and its demand for energy and electricity is
forecast to rise. The Government has announced its firm commitment to phase out
coal from the Irish generating mix by 2025, and the 915 MW currently generated
by coal at the Moneypoint power station is likely to be replaced by gas-fired
power generation. Gas will be a key part of the Irish energy transition
providing baseload and back up to renewables. As Minister Bruton said on 25
July 2019 in www.thejournal.ie "There's no doubt if we had a gas find beside
Corrib and could continue to supply from Corrib that would be of immense
benefit to us in that transition, it would allow us to have gas as a transition
fuel because when the wind doesn't blow and the sun doesn't shine you need a
transition fuel".
The Irish Government approved the Company's application to convert Licensing
Option 16/20 in the Slyne basin in Atlantic Ireland to FEL 4/19. The 100% owned
licence has a 15-year term commencing from 1 August 2019.
During the year, substantial technical work was undertaken to further de-risk
and quantify prospective resources for Inishkea. This work included Pre-Stack
Depth Migration ('PSDM') reprocessing of 770 km2 of 3D seismic data over
Inishkea and the Corrib gas field. The geophysical interpretation arising from
the PSDM data has been benchmarked and calibrated against newly released Ocean
Bottom Cable 3D seismic data over Corrib. That work assigned the Inishkea
prospect an estimated Gross Mean Un-Risked Prospective Resource ('GMUPR') of
1.5 tcf.
Licence Prospect Play Gross Un-risked Prospective
Resources
(billion cubic feet)
Low Best High Mean
FEL 4/19 Inishkea Triassic gas 244 968 3,606 1,528
Inishkea is a large fault bounded Triassic structure that lies northwest of the
Corrib gas field. The reservoir is Triassic age sandstone sourced from the
underlying Carboniferous. The trap is provided by a combination of Triassic
Uilleann Halite top seal and fault seal. Engineering studies demonstrate strong
positive economics for a range of porosity outcomes, including outcomes
significantly poorer than Corrib. Europa's view of porosity at Inishkea is
supported by velocity data from the new PSDM data. Given the Company's
confidence in trap and reservoir quality and the nearby Corrib gas field, the
Company assigned Inishkea a one-in-three chance of success.
Inishkea is in relatively shallow water in a proven gas play 18km from the
Corrib infrastructure connecting it to the 350 million cubic feet of gas per
day Bellanaboy gas processing plant. Corrib field production is in decline.
During Q2 2019 average production was 245 mmscf/d and there is growing spare
capacity in the infrastructure that a new discovery could potentially take
advantage of. Inishkea offers a low risk, high impact exploration prospect that
can be potentially fast tracked to commercialisation.
A drilling location for a first exploration well on Inishkea (18/20-H) has been
identified and the well engineering design is completed. There is a robust, low
risk seismic tie for the Corrib Sandstone reservoir back to the Corrib gas
field. Europa intended to acquire a site survey in summer 2019 and began the
regulatory consent process in January 2019. We remain hopeful that regulatory
consent will be obtained during Q4 2019. Unfortunately, the delay in granting
permission for this survey means that site survey operations will likely take
place in 2020 and that any drilling will be from 2021 at the earliest.
Elsewhere on FEL 4/19 the Corrib North structure containing the 18/20-7 gas
discovery well drilled by Shell in 2010 may be upgraded to contingent resources
pending further engineering evaluation. Discovered Gas Initially In Place
("GIIP") is provided in the table below:
Licence Prospect Play Gross discovered GIIP
(billion cubic feet)
Low Best High
FEL 4/19 Corrib North Triassic gas 5 41 208
South Porcupine Basin: FELs 1/17, 2/13 and 3/13
Europa holds four licences in the South Porcupine Basin. These include three
operated licences, FELs 1/17, 2/13 and 3/13, which are estimated to hold gross
mean un-risked prospective resources of 4.3 billion barrels of oil equivalent
('boe') across our top nine prospects, including firm drilling targets
Edgeworth in FEL 1/17, Wilde in 3/13 and Kiely East in 2/13. The volumetrics
are based on prospect mapping utilising the 2017 and 2018 reprocessed PSDM 3D
seismic data that we originally acquired in 2013. This has resulted in a marked
improvement in seismic quality and a substantial de-risking of the prospect
inventory.
The table below summarises the GMUPR across selected prospects in FELs 1/17, 2/
13 and 3/13:
Licence Prospect Play Gross Un-risked Prospective
Resources
(mmboe) *
Low Best High Mean
FEL 1/17 Ervine Pre-rift 63 159 363 192
FEL 1/17 Edgeworth Pre-rift 49 156 476 225
FEL 1/17 Egerton Syn-rift 59 148 301 167
FEL 3/13 Beckett mid-Cretaceous 111 758 4,229 1,719
Fan
FEL 3/13 Shaw + mid-Cretaceous 20 196 1,726 747
Fan
FEL 3/13 Wilde Early 45 241 1,082 462
Cretaceous Fan
FEL 2/13 Kiely East + Pre-rift 52 187 612 280
FEL 2/13 Kiely West + Pre-rift 23 123 534 225
FEL 2/13 Kilroy + Cret. Slope 37 177 734 312
Apron
Total 4,329
*million barrels of oil equivalent. The hydrocarbon system is considered an
oil play and mmboe is used to take account of associated gas. However, due to
the significant uncertainties in the available geological information, there
is a significant possibility of gas charge.
+prospect extends outside licence, volumes are on-licence
FEL 3/13 and FEL 1/17 are considered our most prospective licences in the South
Porcupine and our top ranked prospects are the Edgeworth Ervine fault block
complex in FEL 1/17. The application process for a site survey on Edgeworth
commenced in February 2019 and remains ongoing.
The Government approved the Company's application for a 12 month extension to
the First Phase of FEL 2/13 to 4 July 2020. The Company's application for a 12
month extension to the First Phase of FEL 3/13 remains under Government
consideration.
The next steps for FEL 2/13 include integration of recently purchased CREAN 3D
seismic data with particular focus on mapping the extension of Kiely East into
open acreage to the south of the licence. The application process for a site
survey on Kiely East commenced in February 2019 and remains ongoing.
South Porcupine Basin: LO 16/19
Europa holds a 30% interest in the Cairn-operated LO 16/19 on the west side of
the South Porcupine. 3D seismic was acquired in mid-2017 and a final processed
product was delivered in Q4 2018. Following the farmout in April 2017, Europa
is carried on this work programme by Cairn Energy up to a cap of US$6 million.
Prospect mapping is in progress and the prospect inventory is expected later in
2019.
The Iolar well
The South Porcupine basin is a large basin (circa 50,000 km2) with only four
exploration wells drilled since 1988. The most recent well is the CNOOC
operated Iolar well in FEL 3/18 on the west flank of the basin and drilled
during summer 2019. On 22 August 2019 CNOOC advised that the well had been
plugged and abandoned as a dry hole. The pre-drill public domain information
indicated the well was to be drilled in 2,162 m water depth, with a forecast TD
of 6,174 mtvdss and with a primary target of Middle Jurassic sandstones. The
well was drilled as a "tight hole" which means that the partners have not
released any detailed information on its results post drilling. Consequently,
there is no information available as yet regarding actual stratigraphy,
formation tops, source rocks, reservoir and hydrocarbon indications encountered
in the well.
Europa believes that its Middle Jurassic prospects in FEL 3/13 and FEL 1/17 on
the undrilled east flank of the South Porcupine are more prospective, and lower
risk than prospects on the west flank of the basin. Whilst the 417 mmbo
Edgeworth Ervine fault block complex is also targeting marine Middle Jurassic
sandstone reservoirs crucially at this location we expect to encounter top seal
provided by Upper Jurassic mudstones, and the basinward dipping fault blocks
are likely to be in communication with mature, oil prone Upper Jurassic source
rocks.
Farmout
As previously announced, we have negotiated farmout agreements in respect of
FEL 4/19, FEL 1/17 and FEL 3/13 with the NW Europe division of a major oil
company (the 'Major'). Europa is in regular contact with the Major and
continues to await a final investment decision from the Major's head office.
However, owing to the length of time it has taken to complete the farmout
agreement, we have continued to market the licences to other potential
partners. We are focused on being in a position to drill Inishkea at the
earliest opportunity and farmout discussions are ongoing with a number of
parties, including the Major. We believe that the 'Major' is considering
prioritising conclusion of the FEL 4/19 Inishkea farmout and in advance of the
South Porcupine licences FEL 1/17 and FEL 3/13.
The Future of Exploration in Ireland
On 23 September 2019 at the UN Climate Action Summit in New York An Taoiseach
Leo Varadkar stated the Irish Government's intention to phase out oil
exploration licences in the future, but not gas exploration. The Irish Offshore
Operators Association (IOOA), the representative organisation for the
Irish offshore oil and gas industry, sought clarification from the Government
on behalf of its members. On 24 September the Government confirmed to IOOA that
its proposals 'will relate to future applications' and that its 'existing
licences will remain valid'.
All of Europa's existing licences in Atlantic Ireland are therefore valid, and
will continue to be valid, irrespective of whether exploration is for oil or
gas.
IOOA are awaiting a meeting with Government to outline their proposals on how
future licensing rounds will be implemented. We understand that future
applications for gas exploration licences may be permitted.
Our flagship project in Atlantic Ireland is the 1.5 tcf Inishkea gas prospect
and we note in the letter of 20 September from Ireland's Climate Change
Advisory Council and tweeted by Minister Bruton at the UN on 23 September the
comment that "Recovery of newly discovered gas reserves may lead to improved
energy security, lower energy costs, and facilitate reductions in greenhouse
gas emissions during the transition to a low carbon economy". We consider this
a positive statement for Irish gas exploration.
UK - Onshore Production
Our oil production in onshore UK and the revenue streams that it generates is
an important part of the company's portfolio. We are actively maximising
production from our existing fields and most importantly we are finally making
positive progress towards obtaining planning approval for the Wressle oil
development.
East Midlands: West Firsby; Crosby Warren; Whisby-4
During the period, initiatives were undertaken to maximise production at the
West Firsby oil field including a workover of the WF6 well utilising a drain
hole jetting technique for the first-time onshore UK. The workover involved
jetting sixteen 90m length drain holes and setting a new record for hole angle.
Having previously produced zero oil, WF6 is currently producing 7 bopd net to
Europa. Whilst a comparatively small quantum of oil at $60 per barrel oil price
it is an increase of around 8% in our UK production. Most importantly we have
gained unique insights into utilisation and deployment of the technology and we
are seeking other opportunities where the quantum increase in production will
be more substantial.
An average of 91 boepd (2018: 94 boepd) was recovered from the three UK onshore
fields. Production was down as a result of natural decline, but partially
offset by the contribution from the WF6 well.
East Midlands: PEDL180 (Wressle); PEDL182 (Broughton North)
Europa has a 30% working interest in licence PEDL 180 in the East Midlands
which holds the Wressle oil discovery, alongside Egdon (operator, 30%), Union
Jack Oil (27.5%), and Humber Oil & Gas Limited (12.5%).
An inquiry to hear the Company's appeal against the refusal of planning consent
for the development of the Wressle oil field by the planning committee of North
Lincolnshire Council ('NLC') is scheduled to commence on 5 November 2019.
Following a closed meeting held on 17 July 2019, we learnt that NLC will not
present evidence at the inquiry and has withdrawn its case following agreement
of acceptable planning conditions.
We welcome the NLC decision and look forward to continuing to support the
operator Egdon, as it seeks to obtain planning permission via the appeal and
prepares to present the case for the development of the Wressle oil field to
the independent professional Planning Inspector.
The Wressle oil field was discovered in 2014 by the Wressle-1 well. During
testing, a total of 710 boepd were recovered from three separate reservoirs,
the Ashover Grit, the Wingfield Flags and the Penistone Flags. In September
2016, a Competent Person's Report ('CPR') provided independent estimates of
reserves and contingent and prospective oil and gas resources for the Wressle
discovery of 2.15 million stock tank barrels classified as discovered (2P+2C).
Under the proposed development plan, Wressle is anticipated to produce at an
initial gross rate of 500 bopd. If that were achieved, Europa would receive a
net 150 bopd from Wressle and Europa's UK production would increase to around
240 bopd. Most importantly our revenue from production would more than double
and make an important contribution to the financial stability of the company.
East Midlands: PEDL181
PEDL181 provides exposure to the hydrocarbon potential of the Humber basin. The
licence has technical synergy with the adjacent PEDL334 which was awarded to an
Egdon Resources-led group in the 14th Round for the purpose of conventional and
unconventional exploration.
East Midlands: PEDL299 (Hardstoft)
PEDL299 contains the Hardstoft oil field which was discovered in 1919 by the
UK's first ever exploration well. Hardstoft produced 26,000 barrels of oil
from Carboniferous limestone reservoirs in the 1920s. We believe there is more
oil to be recovered from the Hardstoft structure. Gross 2C contingent resources
of 3.1 mmboe and gross 3C contingent resources of 18.5 mmboe were identified in
a CPR issued by joint operation partner Upland Resources. We believe that
application of modern production testing and drilling methodologies could well
lead to commercial oil flowrates being achieved. Europa's interest in PEDL299,
which is restricted to the conventional prospectivity including Hardstoft, is
25%, alongside Upland 25% and INEOS, the operator, 50%.
Cleveland Basin: PEDL343 (Cloughton)
PEDL343 contains the Cloughton gas discovery, which was drilled by Bow Valley
in 1986 and flowed gas to surface on production test from conventional
Carboniferous sandstone reservoirs. Europa regards Cloughton as a gas appraisal
opportunity with the critical challenge being to obtain commercial flowrates
from future production testing operations. Europa holds a 35% interest in
PEDL343 alongside Arenite 15%, Third Energy 20% (operator), Egdon Resources
17.5% and Petrichor Energy 12.5%.
Weald Basin: PEDL143 (Holmwood)
We completed the sale of our 20% interest in the UK onshore PEDL143 exploration
licence to AIM-traded UK Oil & Gas PLC ('UKOG') for a consideration of GBP
300,000, satisfied through the issue of 25,951,557 shares ('Consideration
Shares') in UKOG. The Consideration Shares are subject to a six-month orderly
market provision.
New Ventures
In Morocco we have signed the Inezgane Offshore exploration permit with ONHYM
(The National Office of Hydrocarbons and Mines) on 17 September. Inezgane is on
the Atlantic Margin of Morocco and represents a new high impact exploration
component to our portfolio of licences.
The next step is formal ratification by the Ministry of Energy and Ministry of
Finance. This is expected to be obtained during November and the eight-year
licence will formally be given its start date. In the interim period work has
already started. ONHYM is already providing Europa with the relevant 3D, 2D,
well data and regional geological information.
The first phase of the licence is for two years during which time we will
reprocess 1,300 km2 3D seismic, build the prospect inventory, define a
drillable prospect and farmout to drill in Phase 2. The cost of the first phase
programme is expected to be around GBP500,000.
Inezgane Offshore is located in the Agadir Basin on the Atlantic Coast of
Morocco. Water depths vary from 600-2,000m and the licence is very large;
11,288 km2 in area. Morocco's Atlantic coastline is 1,800 km in length, only
10 deep-water wells have been drilled and only three of them have penetrated
the Lower Cretaceous reservoir interval that we are interested in, none of them
optimally. We consider the Atlantic Coast to be underexplored and that the
potential of the Lower Cretaceous play has been previously overlooked by the
industry. The Atlantic region of Morocco has already demonstrated world class
source rocks. Good quality lower Cretaceous reservoirs are exposed on the
surface in the nearby Canary Islands and in the Moroccan onshore. We believe
that there is an optimal combination of thick reservoir, source rock and trap
in our licence with potential to host prospects with resources in excess of 250
mmbo. Morocco has amongst the best fiscal terms in the world and whilst deep
water the operating environment is more benign compared to West of Shetland or
Atlantic Ireland.
We have been provided with a large volume of modern 3D seismic data and we will
be reprocessing around 1,300 km2 focused on maturing the Falcon, Sandpiper
prospects (amongst others) to drillable status.
This region of the Atlantic Coast in Morocco is already a focus for industry
interest. To the south of Inezgane Genel has acquired 3,500 km2 of 3D seismic
in Sidi Moussa Offshore and ENI have farmed out a 30% interest to Qatar
Petroleum in Tarfaya Offshore. Immediately to the north of and abutting
Inezgane is the Mogador Offshore licence which is under active negotiation. We
await with interest the announcement of an award of an exploration licence
here. We consider that in Inezgane, we have a very prospective licence in an
area that is re-emerging as an industry exploration hotspot.
We believe that the main reason that the exploration industry's major oil and
gas companies have turned their interest to offshore Morocco again is that it
shares similar geology and prospectivity to other Atlantic margin countries
like Guyana and Senegal. Like Morocco these countries also had intermittent
exploration drilling since the 1960s and were also "off radar" until very
recent discoveries changed that mindset. In offshore Guyana in excess of 5
billion barrels of oil has been discovered and in offshore Senegal/Mauritania
in excess of 50TCF and 1 billion barrels of oil has been discovered in recent
years. We are optimistic that the Moroccan offshore can become a similar
resurgence story.
Our work programme is one that plays to our technical strengths given our
previous experience reprocessing three 3D surveys in Ireland against a tight
timeframe and with excellent results. In due course we will be seeking to bring
in a farmin partner and even at this early stage there is significant industry
interest in our licence.
Non-financial Key Performance Indicators ('KPIs')
There were no reportable accidents or incidents in the year (2018: zero).
There were no new licence awards in the year, the Morocco Inezgane Offshore
exploration permit was signed post year end. (2018: zero).
Financials
Revenue was GBP1.7 million (2018: GBP1.6 million). The average oil price achieved
was US$66.7/bbl (2018: US$64.5/bbl) and the average Sterling exchange rate was
US$1.29 (2018: US$1.35). An average of 91 boepd (2018: 94 boepd) was recovered
from our three UK onshore fields. Production was down as a result of natural
decline, but partially offset by a contribution from the West Firsby WF6 well
following the workover.
Stringent cost controls continue to be implemented but additional one-off cost
was incurred during the WF6 workover. Cost of sales was GBP1,682,000 (2018: GBP
1,365,000).
Administrative expenses of GBP811,000 (2018: GBP967,000) included GBP102,000 on new
licence evaluations (2018: GBP230,000).
The placing and open offer announced in November 2018 raised combined GBP
4,299,000 gross and GBP3,962,000 after expenses (including GBP17,000 of non-cash
expenses).
Net cash spent on operating activities was GBP661,000 (2018: cash spent GBP
479,000).
Purchase of intangible fixed assets of GBP1,973,000 (2018: GBP1,336,000) was
largely spent advancing the Irish portfolio.
The Group's cash balance at 31 July 2019 was GBP2.9 million (31 July 2018: GBP1.8
million).
The Group's cash flow forecast up to 31 December 2020 considers the continuing
and forecast cash inflow from the Group's producing assets, the cash held by
the Group at the year end, less administrative expenses and planned capital
expenditure. Based on that forecast, the Directors have concluded that Group
will be able to continue as a going concern and meet its obligations as and
when they fall due. The critical assumption in reaching that conclusion is that
the Wressle planning appeal scheduled for 5 November 2019 has a positive
outcome and production commences at the forecasted rate in 2020. In the absence
of incremental production from Wressle in 2020 then additional funding by the
issuance of shares or sale of assets would be required. If additional funding
was not available there is a risk that commitments could not be fulfilled, and
assets would be relinquished.
HGD Mackay
Chief Executive Officer
The financial information set out below does not constitute the company's
statutory accounts for 2019 or 2018. The financial information has been
prepared in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union on a basis that is consistent with the
accounting policies applied by the group in its audited consolidated financial
statements for the year ended 31 July 2019. Statutory accounts for the years
ended 31 July 2018 and 31 July 2017 have been reported on by the Independent
Auditors.
The Independent Auditors' Report on the Annual Report and Financial Statements
for 2019 and 2018 were unqualified, but included a material uncertainty in
relation to going concern, and did not contain a statement under 498(2) or 498
(3) of the Companies Act 2006.
Statutory accounts for the year ended 31 July 2018 have been filed with the
Registrar of Companies. The statutory accounts for the year ended 31 July 2019
will be delivered to the Registrar in due course.
Consolidated statement of comprehensive income
For the year ended 31 July 2019 2018
Note GBP000 GBP000
Revenue 1,713 1,634
Cost of sales (1,682) (1,365)
Impairment of producing fields 2 - (142)
Exploration write-back / (write-off) 1 270 (1,289)
Total cost of sales (1,412) (2,796)
-------- --------
Gross profit/(loss) 301 (1,162)
Administrative expenses (811) (967)
Finance income 43 10
Finance expense (187) (171)
-------- --------
Loss before taxation (654) (2,290)
Taxation charge - (341)
-------- --------
Loss for the year (654) (2,631)
=========== =========
Other comprehensive income
Items which will not be reclassified to profit /(loss)
Loss on investment revaluation (59) -
-------- --------
Total other comprehensive loss (59) -
=========== =========
Total comprehensive loss for the year attributable to (713) (2,631)
the equity shareholders of the parent
=========== =========
Consolidated statement of financial position
As at 31 July 2019 2018
Note GBP000 GBP000
Assets
Non-current assets
Intangible assets 1 7,818 5,959
Property, plant and equipment 2 575 668
-------- --------
Total non-current assets 8,393 6,627
-------- --------
Current assets
Investments 241 -
Inventories 19 20
Trade and other receivables 315 471
Restricted cash 251 -
Cash and cash equivalents 2,905 1,771
-------- --------
3,731 2,262
-------- --------
Total assets 12,124 8,889
======== ========
Liabilities
Current liabilities
Trade and other payables (1,086) (1,299)
-------- --------
Total current liabilities (1,086) (1,299)
-------- --------
Non-current liabilities
Long-term provisions (2,917) (2,735)
-------- --------
Total non-current liabilities (2,917) (2,735)
-------- --------
Total liabilities (4,003) (4,034)
-------- --------
Net assets 8,121 4,855
======== ========
Capital and reserves attributable to equity holders
of the parent
Share capital 4,447 3,014
Share premium 21,010 18,481
Merger reserve 2,868 2,868
Retained deficit (20,204) (19,508)
-------- --------
Total equity 8,121 4,855
======== ===========
These financial statements were approved by the Board of Directors and
authorised for issue on 9 October 2019 and signed on its behalf by:
P Greenhalgh, Finance Director
Company registration number 5217946
Consolidated statement of changes in equity
Attributable to the equity holders of the parent
Share Share Merger Retained Total
capital premium reserve deficit equity
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 August 2017 3,014 18,481 2,868 (16,888) 7,475
Comprehensive loss for the
year
Loss for the year
attributable to the equity - - - (2,631) (2,631)
shareholders of the parent
-------- -------- -------- -------- ---------
Total comprehensive loss
for the year - - - (2,631) (2,631)
-------- -------- -------- -------- ---------
Contributions by and
distributions to owners
Share based payment (note - - - 11 11
21)
-------- -------- -------- -------- --------
Total contributions by and - - - 11 11
distributions to owners
-------- -------- -------- -------- ---------
Balance at 31 July 2018 3,014 18,481 2,868 (19,508) 4,855
======== ======== ======== ======== ========
Share Share Merger Retained Total
capital premium reserve deficit equity
GBP000 GBP000 GBP000 GBP000 GBP000
Balance at 1 August 2018 3,014 18,481 2,868 (19,508) 4,855
Comprehensive loss for the
year
Loss for the year (654) (654)
attributable to the equity - - -
shareholders of the parent
Other comprehensive loss (59) (59)
attributable to the equity - - -
shareholders of the parent
-------- -------- -------- -------- ---------
Total comprehensive loss - - - (713) (713)
for the year
-------- -------- -------- -------- ---------
Contributions by and
distributions to owners
Issue of share capital 1,433 2,546 - - 3,979
Issue of share options - (17) - 17 -
(note 21)
Share based payment (note - - - - -
21)
-------- -------- -------- -------- --------
Total contributions by and 1,433 2,529 - 17 3,979
distributions to owners
-------- -------- -------- -------- ---------
Balance at 31 July 2019 4,447 21,010 2,868 (20,204) 8,121
======== ======== ======== ======== ========
Consolidated statement of cash flows
For the year ended 31 July 2019 2018
Note GBP000 GBP000
Cash flows used in operating activities
Loss after tax from continuing operations (654) (2,631)
Adjustments for:
Share based payments - 11
Depreciation 2 94 72
Impairment of producing field 2 - 142
Exploration (write back)/ write-off 1 (270) 1,289
Finance income (43) (10)
Finance expense 187 171
Taxation charge - 341
Decrease in trade and other receivables 7 69
Decrease/(increase) in inventories 1 (6)
Increase in trade and other payables 17 73
-------- --------
Net cash used in operations (661) (479)
Income taxes paid - -
-------- --------
Net cash used in operating activities (661) (479)
=========== ===========
Cash flows used in investing activities
Purchase of property, plant and equipment (1) -
Purchase of intangible assets (1,973) (1,336)
Cash guarantee re Morocco (251) -
Sale of part interest in licence - associated costs (8) -
Interest received 16 10
-------- --------
Net cash used in investing activities (2,217) (1,326)
=========== ===========
Cash flows from/(used in) financing activities
Gross proceeds from issue of share capital 4,299 -
Costs incurred on issue of share capital (320) -
Decrease in payables relating to share capital issue - (16)
costs
Finance costs (5) (3)
-------- --------
Net cash from/(used in) financing activities 3,974 (19)
=========== ===========
Net increase/(decrease) in cash and cash equivalents 1,096 (1,824)
Exchange gain on cash and cash equivalents 38 4
Cash and cash equivalents at beginning of year 1,771 3,591
-------- --------
Cash and cash equivalents at end of year 2,905 1,771
=========== ===========
Notes to the financial statements
1. Intangible assets
2019 2018
GBP000 GBP000
At 1 August 5,959 5,276
Additions 1,869 1,972
Disposal (10) -
Exploration write-off - (1,289)
-------- --------
At 31 July 7,818 5,959
========= =========
Intangible assets comprise the Group's pre-production expenditure on licence
interests as follows:
2019 2018
GBP000 GBP000
Ireland FEL 2/13 (Doyle A, B, C, Kilroy, Keane & 1,280 799
Kiely)
Ireland FEL 3/13 (Beckett, Wilde, Shaw) 1,255 1,093
Ireland FEL 1/17 636 453
Ireland LO 16/19 89 71
Ireland FEL 4/19 (Inishkea) 1,259 454
Ireland LO 16/22 213 125
UK PEDL143 (Holmwood) - 10
UK PEDL180 (Wressle) 2,867 2,745
UK PEDL181 101 95
UK PEDL182 (Broughton North) 29 26
UK PEDL299 (Hardstoft) 12 12
UK PEDL343 (Cloughton) 77 76
---------- ----------
Total 7,818 5,959
========= =========
Disposal
UK PEDL143 (Holmwood) 10 -
========= =========
Exploration write-off
UK PEDL143 (Holmwood) - 1,145
Ireland LO 16/21 - 97
UK Block 41/24 - 47
-------- --------
Total - 1,289
======== ==========
Exploration write-back
On 8 May 2019 the Group sold its interest in PEDL143 (Holmwood) to UK Oil & Gas
Plc ('UKOG') for 25,951,557 shares in UKOG at 1.156p per share.
2019 2018
GBP000 GBP000
Consideration for the PEDL143 interest 300 -
Disposal costs (20) -
Book value of remaining interest (10) -
-------- --------
Exploration write-back 270 -
========= =========
If the Group is not able to or elects not to continue in any other licence,
then the impact on the financial statements will be the impairment of some or
all of the intangible assets disclosed above.
2. Property, plant & equipment
Furniture Producing Total
& fields
computers
GBP000 GBP000 GBP000
Cost
At 1 August 2017 52 10,790 10,842
Additions - - -
--------- --------- ---------
At 31 July 2018 52 10,790 10,842
Additions 1 - 1
--------- --------- ---------
At 31 July 2019 53 10,790 10,843
======== ======== ========
Depreciation, depletion and
impairment
At 1 August 2018 49 9,911 9,960
Charge for year 2 70 72
Impairment in year - 142 142
--------- --------- ---------
At 31 July 2018 51 10,123 10,174
Charge for year 1 93 94
Impairment in year - - -
--------- --------- ---------
At 31 July 2019 52 10,216 10,268
======== ======== ========
Net Book Value
At 31 July 2017 3 879 882
======== ======== ========
At 31 July 2018 1 667 668
======== ======== ========
At 31 July 2019 1 574 575
======== ======== ========
The producing fields referred to in the table above are the production assets
of the Group, namely the oilfields at Crosby Warren and West Firsby, and the
Group's interest in the Whisby W4 well, representing the Group's three cash
generating units.
The carrying value of each producing field was tested for impairment by
comparing the carrying value with the value-in-use. The value-in-use was
calculated using a discounted cash flow model with production decline rates of
7-12%, Brent crude prices rising from US$70 per barrel in 2020 to US$74 per
barrel in 2022 increasing by inflation from 2022 onwards and a pre-tax discount
rate of 20%. The pre-tax discount rate is derived from a post-tax rate of 10%
and is high because of the applicable rates of tax in the UK. Cash flows were
projected over the expected life of the fields which is expected to be longer
than 5 years. There was no impairment in the year (2018: GBP142,000 impairment
relating to the West Firsby site).
Sensitivity to key assumption changes
Variations to the key assumptions used in the value-in-use calculation would
cause impairment of the producing fields as follows:
Further
impairment of
producing
fields
GBP000
Production decline rate (current assumption 7-12%)
12% 312
15% 602
Brent crude price per barrel (current assumption
US$70/bbl in 2020 rising to US$74/bbl in 2022)
$70 flat 168
$65 flat 392
Pre-tax discount rate (current assumption 20%)
25% 62
30% 29
* * ENDS * *
This announcement contains inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014.
For further information please visit www.europaoil.com or contact:
Hugh Mackay Europa + 44 (0) 20 7224
3770
Phil Greenhalgh Europa + 44 (0) 20 7224
3770
Matt Goode finnCap Ltd + 44 (0) 20 7220
0500
Simon Hicks finnCap Ltd + 44 (0) 20 7220
0500
Camille Gochez finnCap Ltd + 44 (0) 20 7220
0500
Frank Buhagiar St Brides Partners Ltd + 44 (0) 20 7236
1177
Susie Geliher St Brides Partners Ltd + 44 (0) 20 7236
1177
END
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