Half-year Report

RNS Number : 6398Z
Coro Energy PLC
22 September 2020
 

22 September 2020

 

Coro Energy plc

("Coro" or the "Company")

 

Interim Results

 

Coro Energy plc , the Southeast Asian focused energy company , announces a revised regional strategy, including renewables, and releases its unaudited interim results for the six month period ended 30 June 2020.

 

Highlights

 

Strategy

 

· Revised Southeast Asian strategy to include renewables and other low carbon energy sources and related technologies, with select opportunities already under review

 

South East Asia

 

· Significant resource upgrade for the Mako gas field, located on the Duyung PSC (Coro: 15% non-operated interest). Gross (full field) 2C resources have increased from 276 Bcf to 495 Bcf following an updated resource audit by Gaffney, Cline and Associates, on the back of a successful drilling campaign in Q4 2019

 

Corporate

 

· Significant reduction in corporate overheads aimed at preserving end of period cash balance of $3.3m

· Continued discussions with interested parties regarding

 

Certain of the information communicated within this announcement is deemed to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

 

For further information please contact:

 

Coro Energy plc

James Parsons

 

 

Via Vigo Communications Ltd

 

 

Cenkos Securities plc (Nominated Adviser)

Ben Jeynes

Katy Birkin

 

Tel: 44 (0)20 7397 8900

Vigo Communications Ltd (IR/PR Advisor)

Patrick d'Ancona

Chris McMahon

 

Tel: 44 (0)20 7390 0230

Mirabaud Securities Ltd (Broker)

Peter Krens

Ed Haig-Thomas

 

Tel: 44 (0)20 3167 7221

 

 

STATEMENT FROM THE CHAIRMAN: Revised Strategy to include Renewables and other Low Carbon Energy Sources

 

The first half of 2020 saw unprecedented challenges for junior exploration & production companies, with the COVID-19 pandemic and other factors causing a significant and rapid fall in oil prices. In response, the Board acted quickly and decisively to reduce overheads and preserve cash, including reducing executive staffing, with Andrew Dennan stepping aside as the Company's CFO but remaining as a Non-Executive Director and the Company's former CEO leaving the Company. I am pleased to report that as a consequence the Company now runs on an annualised corporate overhead cost budget of $1.3m, a fraction of its 2019 level of $4.0m.

While commodity prices have partially rebounded from the lows seen in April 2020, headwinds remain and the Company is not immune from the challenges that continue to be felt across the sector and the overarching macroeconomic picture.  Notwithstanding those challenges, the Company has a 15% interest in the now proven Duyung PSC, which contains the Mako gas field, and provides an excellent platform for renewed growth in South East Asia now that at least the initial phase of the pandemic is behind us. 

 

The Company made good progress on the Duyung PSC during the first half of 2020, including reporting a significant resource upgrade following an updated resource audit performed by Gaffney, Cline and Associates ("GCA"). 2C (contingent) recoverable resource estimates increased to 495 Bcf (gross, full field), an increase of approximately 79% compared with the previous audit undertaken by GCA in 2019. In the upside case, the 3C (contingent) resources increased by approximately 108% to 817 Bcf compared with the previous audited figures. With GCA's confirmation of the latest upgrade, the Mako Gas Field has, on a 2C (contingent) resource basis, been shown to be one of the largest gas fields ever discovered in the West Natuna Basin and is, so the Company believes, currently the largest confirmed undeveloped resource in the surrounding area. The Board is still confident that opportunities in the oil and gas sector remain in the longer term, albeit they may well be confined to special situations, including the strong regional gas markets in Asia. Notwithstanding this strong progress at Duyung and belief in the long term opportunity set, the Company has not seen a recent material improvement in the market conditions required to finance the acquisition of the additional producing oil and gas assets needed to build a balanced, cash generative upstream E&P company.

 

The Directors continue to strongly believe in the potential of Southeast Asian energy markets where primary energy demand is forecast to continue increasing and where coal remains the primary source of electricity generation. The expected reduction in coal's share of the energy mix in these growth markets, to be replaced by gas and cleaner renewable sources, remains a key driver of the Company's strategy. 

 

Against this backdrop of growth in primary energy demand/a transition to cleaner energy and the prevailing market conditions limiting the Company's ability to pursue a purely hydrocarbon-focussed Southeast Asian energy strategy in the near term,  the Company has decided to broaden its strategic focus beyond solely hydrocarbons. The Board, given its extensive regional energy industry network, sees the potential for significant growth opportunities through also seeking to pursue the acquisition and development of alternative, low carbon energy sources and related technologies alongside gas opportunities as part of a wider Southeast Asian energy growth strategy which will now explicitly include renewables and potentially other sectors.

 

The Company is already reviewing select low carbon opportunities in Southeast Asia as part of its growth strategy. To support this strategic development and related ongoing activity, the Company has also engaged a renewables expert consultancy team to assist the Company with its review of opportunities in the clean energy sector in the region. This will complement the Board's extensive experience in the energy, M&A and fundraising space.

 

As we look to broaden our reach within the energy sector, we continue to focus on and believe in our 15% interest in the now proven Duyung PSC where we remain an active participant as the project moves toward a Final Investment Decision. In addition, the Company will continue to prioritise the divestment of its non-core Italian operations. Our new strategic approach will look to build on the platform provided by these activities. 

 

We wish our shareholders, stakeholders and their families a safe journey through what continue to be turbulent times.

 

 

James Parsons

Chairman

 

 

FINANCIAL REVIEW

 

Results from continuing operations

The Group made a loss after tax from continuing operations of $4.9m for the period (H1 2019: $4.7m). The increased loss compared to the comparative period was due to a $1.3m increase in finance expenses. This is primarily due to a full 6 months amortisation charge on the Group's €22.5m Eurobond, with the bonds issued part-way through the comparative period, in April 2019. Consistent with the comparative period, we also saw another large unrealised foreign exchange loss on the Eurobond due to appreciation of the Euro against the British Pound Sterling ("GBP") during the period, resulting in an unrealised loss in the parent company, which uses GBP as its functional currency. G&A expenses from continuing operations were $1.0m lower in the period compared to H1 2019, which largely offset the increased finance expenses. This follows a significant cost cutting exercise undertaken in Q2 2020 which has seen reductions in corporate overhead costs in the region of $2.7m on an annualised basis. G&A for the second half of 2020, excluding non-cash share based payments and G&A from the non-operated Duyung venture is estimated at approximately $650k.

 

Following the successful Q4 2019 drilling campaign by the Duyung venture, the first half of 2020 saw the Duyung venture focus on key commercial workstreams including negotiations for a definitive Gas Sales Agreement and preparation of a revised Plan of Development which will take into account the significant resource upgrade announced in May 2020. As a result, there was minimal capital expenditure in the period, with Exploration and Evaluation assets on the balance sheet decreasing slightly due to the reversal of overaccrued capex relating to the 2019 drilling campaign. The Group's share of non-operated Duyung G&A costs for the period was $92k (H1 2019: $79k).

 

Results from discontinued operations

In December 2019, we announced that we entered into a binding conditional SPA with Zenith Energy Ltd ("Zenith") to dispose of our Italian business through the sale of our wholly owned subsidiary, Coro Europe Limited. Completion of the transaction was conditional on, inter alia, regulatory approvals from the Italian authorities by a long stop date of 31 July 2020. The SPA allowed for a possible extension of the long stop date to 31 October 2020 upon written request by Zenith and supported by reasonable documentation or other reasonable evidence demonstrating that Zenith had promptly throughout filed all necessary applications and related supporting documents and taken all other actions necessary to obtain all necessary approvals. Both parties agreed that the likelihood of successfully completing the Disposal prior to 31 October 2020 was low, and the SPA was terminated by mutual agreement between the parties.

 

The Company continues to prioritise the divestment of its non-core Italian operations and has had discussions with several interested parties since the termination of the Zenith SPA. Accordingly, our Italian business continues to be classified as a disposal group held for sale on the balance sheet and the losses attributable to this disposal group are classified as discontinued in the income statement. The loss from discontinued operations for the period was $1.8m (H1 2019: loss $7.7m).

 

Operationally, gas prices in Italy in H1 2020 were significantly lower than the corresponding period in 2019 due largely to the impact of COVID-19. As a result, the Company took the decision in early April 2020 to temporarily suspend production on its Sillaro, Bezzecca and Casa Tiberi fields. This resulted in lower revenues for the period of $623k (H1 2019: $1.7m). However, the suspension of production and other cost mitigating actions undertaken had a positive impact on our Italian cost base and reduced the net cash outflow from operating activities from our Italian business from $438k in H1 2019 to $278k in H1 2020. We continue to maintain the fields to allow the swift resumption of production when external conditions improve.

 

The accounting loss for the period of $1.8m was particularly impacted by a deferred tax charge of $848k due to a write-down of deferred tax assets, as well as non-cash impairments of $517k. The deferred tax assets write-down reflects lower forecast future profitability due to a lower gas price outlook. The impairments arose largely because non-current assets are not depreciated under IFRS 5.

 

Going concern

The Group ended the period with cash of $3.3m (excluding cash recorded within assets of the Italian disposal group held for sale). As explained further in the notes below, whilst the Board considers that its existing cash resources will provide sufficient working capital to meet the Group's requirements until April 2021, when the second annual coupon payment becomes due on Tranche A of the Company's €22.5m Eurobond, the Group will likely need to raise additional funds thereafter, during the going concern forecast period, in order to remain a going concern. The directors have a reasonable expectation that additional funding will be available in the equity markets when required and therefore the financial statements have been prepared on the going concern basis.

 

The ability of the Group to secure additional funding is not guaranteed and significant uncertainty has been created by the ongoing COVID-19 pandemic which could impact market conditions for longer than the Directors' currently expect. However, based on the above, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing the interim financial statements for the six period ended 30 June 2020, while acknowledging a material uncertainty concerning the success of future fundraising activities. Should the Group be unable to continue trading, adjustments would have to be made to reduce the value of the assets to their recoverable amounts, to provide for further liabilities which might arise and to classify fixed assets as current.

 

 

Peter Christie

Interim CFO

Condensed Consolidated Statement of Comprehensive Income

For the Six Months Ended 30 June 2020

 

Notes

30 June 2020

$'000

30 June 2019

$'000

Continuing operations

 

 

 

General and administrative expenses

4

(1,903)

 (2,930)

Depreciation expense

 

(73)

(63)

Impairment losses

 

-

(37)

Loss from operating activities

 

(1,976)

 (3,030)

Finance income

 

25

-

Finance expense

4

(2,966)

 (1,709)

Net finance expense

 

(2,941)

(1,709)

Loss before income tax expense

 

(4,917)

 (4,739)

Income tax benefit/(expense)

 

-

-

Loss for the period from continuing operations

 

(4,917)

 (4,739)

Discontinued operations

 

 

 

Loss for the period from discontinued operations

11

(1,795)

 (7,725)

Total loss for the period

 

(6,712)

 (12,464)

Other comprehensive income/loss

 

 

 

Items that may be reclassified to profit and loss

 

 

 

Exchange differences on translation of foreign operations

 

1,042

 175

Total comprehensive loss for the period

 

(5,670)

 (12,289)

Loss attributable to:

 

 

 

Owners of the company

 

(6,712)

 (12,464)

Total comprehensive loss attributable to:

 

 

 

Owners of the company

 

(5,670)

 (12,289)

Basic loss per share from continuing operations ($)

5

(0.006)

 (0.006)

Diluted loss per share from continuing operations ($)

5

(0.006)

 (0.006)

 

The above condensed consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

Condensed Consolidated Balance Sheet
As at 30 June 2020

 

 

Notes

30 June 2020

$'000

31 December 2019

$'000

Non-current assets

 

 

 

Inventory

 

35

 -

Trade and other receivables

 

-

150

Property, plant and equipment

6

38

 50

Intangible assets

7

17,191

 17,277

Right of use assets

 

31

259

Total non-current assets

 

17,295

 17,736

Current assets

 

 

 

Cash and cash equivalents

 

3,250

6,374

Trade and other receivables

 

374

 226

Derivative financial instruments

 

-

15

Total current assets

 

3,624

 6,615

Assets of disposal group held for sale

11

12,447

 14,313

Total assets

 

33,366 

 38,664

Liabilities and equity

 

 

 

Current liabilities

 

 

 

Trade and other payables

 

367

 1,046

Derivative financial instruments

 

8

-

Provisions

 

12

 -

Lease liabilities

 

27

90

Borrowings

8

630

632

Total current liabilities

 

1,044

 1,768

Non-current liabilities

 

 

 

Provisions

 

-

 13

Lease liabilities

 

-

158

Borrowings

8

20,387

19,211

Total non-current liabilities

 

20,387

 19,382

Liabilities of disposal group held for sale

11

11,812

12,332

Total liabilities

 

33,243

 33,482

Equity

 

 

 

Share capital

9

1,085

 1,080

Share premium

9

45,755

 45,679

Merger reserve

 

9,708

 9,708

Other reserves

10

4,957

 3,978

Accumulated losses

 

(61,382)

 (55,263)

Total equity

 

123

5,182

Total equity and liabilities

 

33,366

 38,664

 

The above condensed consolidated balance sheet should be read in conjunction with the accompanying notes.

 

Condensed Consolidated Statement of Changes in Equity

For the Six Months Ended 30 June 2019

 

 

Share capital

$'000

Share premium

$'000

Merger Reserve

$'000

Other Reserves

$'000

Accumulated Losses

$'000

Total

$'000

At 1 January 2019

 988

 43,619

 9,708

 2,059

 (39,154)

 17,220

Total comprehensive loss for the period:

 

 

 

 

 

 

Loss for the period

-

-

-

-

 (12,464)

 (12,464)

Other comprehensive income

-

-

-

 175

-

 175

Total comprehensive loss for the period

-

-

-

 175

 (12,464)

 (12,289)

Transactions with owners recorded directly in equity:

 

 

 

 

 

 

Issue of share capital

 79

 1,771

-

-

-

 1,850

Share based payments for services rendered

 13

 289

-

 694

-

 996

Lapsed share options

-

-

-

(526)

526

-

Issue of warrants

-

-

-

 2,007

-

 2,007

Balance at 30 June 2019

 1,080

 45,679

 9,708

 4,409

 (51,092)

 9,784

 

Condensed Consolidated Statement of Changes in Equity

For the Six Months Ended 30 June 2020

 

 

Share capital

$'000

Share premium

$'000

Merger Reserve

$'000

Other Reserves

$'000

Accumulated Losses

$'000

Total

$'000

Balance at 1 January 2020

 1,080

 45,679

 9,708

 3,978

 (55,263)

 5,182

Total comprehensive loss for the period:

 

 

 

 

 

 

Loss for the period

-

-

-

-

 (6,712)

 (6,712)

Other comprehensive income

-

-

-

 1,042

-

1,042

Total comprehensive loss for the period

-

-

-

 1,042

 (6,712)

 (5,670)

Transactions with owners recorded directly in equity:

 

 

 

 

 

 

Issue of share capital

 5

 76

-

-

-

 81

Share based payments for services rendered

 -

 -

-

530

-

 530

Lapsed share options

-

-

-

 (593)

593

-

Balance at 30 June 2020

 1,085

45,755

 9,708

 4,957

 (61,382)

 123

 

Condensed Consolidated Statement of Cash Flows

For the Six Months Ended 30 June 2020

 

 

30 June 2020

$'000

30 June 2019

$'000

Cash flows from operating activities

 

 

Receipts from customers

756

 1,882

Payments to suppliers and employees

(3,265)

 (5,925)

Interest received

28 

 12

Interest paid

(622)

-

Net cash used in operating activities

(3,103)

 (4,031)

Cash flow from investing activities

 

 

Payments for property, plant & equipment

-

 (647)

Payments for exploration & evaluation assets

(16)

 (12,092)

Payments for rehabilitation costs

(43)

-

Net cash used in investing activities

(59)

 (12,739)

Cash flows from financing activities

 

 

Proceeds from borrowings

 19,211

Principal element of lease payments

(120)

-

Net cash (used in) / provided by financing activities

(120)

 19,211

Net (decrease) / increase in cash and cash equivalents

(3,282) 

 2,441

Cash and cash equivalents brought forward

6,526

 9,361

Effects of exchange rate changes on cash
and cash equivalents

195

 (363)

Cash and cash equivalents carried forward

3,439

 11,439

 

Cash and cash equivalents carried forward at 30 June 2020 in the condensed consolidated statement of cash flows includes $190k relating to discontinued operations (30 June 2019: $401k). Refer to note 11.

Notes to the Condensed Consolidated Financial Statements

For the Six Months Ended 30 June 2020

 

Note 1: Basis of preparation of the interim financial statements

 

The condensed consolidated interim financial statements of Coro Energy plc (the "Group") for the six month period ended 30 June 2020 have been prepared in accordance with Accounting Standard IAS 34 Interim Financial Reporting.

 

The interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this report is to be read in conjunction with the annual report for the year ended 31 December 2019, which was prepared under International Financial Reporting Standards (IFRS) as adopted by the European Union (EU), and any public announcements made by Coro Energy plc during the interim reporting period.

 

These condensed consolidated interim financial statements do not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2019 prepared under IFRS have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain a statement under Section 498(2) of the Companies Act 2006. These condensed consolidated interim financial statements have not been audited.

 

The accounting policies adopted are consistent with those of the previous financial year and corresponding interim reporting period, except as set out below.

 

Basis of preparation - going concern

 

The interim financial statements have been prepared under the going concern assumption, which presumes that the Group will be able to meet its obligations as they fall due for the foreseeable future.

 

At 30 June 2020 the Group had cash reserves of $3.3m (excluding cash recorded within assets of the Italian disposal group held for sale). While the Group has significantly reduced UK overheads to an annualised cost of approximately $1.2m, additional cash outflows will be realised in relation to the Duyung project and the next Eurobond coupon, which is due in April 2021. Management have prepared a consolidated cash flow forecast for the period to 31 October 2021 which shows that the Group is likely to face a cash deficit in mid-2021, within the going concern forecast period. Accordingly, the Group will need to raise additional funds during the forecast period in order to remain a going concern. The directors have a reasonable expectation that additional funding will be available in the equity markets when required and therefore the financial statements have been prepared on the going concern basis.

 

The ability of the Group to secure additional funding is not guaranteed and significant uncertainty has been created by the ongoing COVID-19 pandemic which could impact market conditions for longer than the Directors' currently expect. However, based on the above, the Directors consider it appropriate to continue to adopt the going concern basis of accounting in preparing the interim financial statements for the period ended 30 June 2020, while acknowledging a material uncertainty concerning the success of future fundraising activities. Should the Group be unable to continue trading, adjustments would have to be made to reduce the value of the assets to their recoverable amounts, to provide for further liabilities which might arise and to classify fixed assets as current.

 

a)  New and amended standards adopted by the group

 

A number of new or amended standards became applicable for the current reporting period. These new/amended standards do not have a material impact on the Group, and the Group did not have to change its accounting policies or make retrospective adjustments as a result of adopting these standards.

 

b)  New accounting policies adopted by the Group

 

There were no new accounting policies adopted by the Group during the period, nor any amendments to existing accounting policies.

 

Note 2: Significant changes

 

The financial position and performance of the Group was particularly affected by the following events and transactions during the six months to 30 June 2020:

 

− Suspension of production at the beginning of April from the Sillaro, Bezzecca and Casa Tiberi fields in Italy, due to a significant fall in domestic gas prices following the COVID-19 pandemic and its associated economic damage. This resulted in lower revenues from our Italian operations (presented as discontinued in the income statement). The reduction in revenue was largely offset by the resultant reduction in variable operating costs; 

 

− Large foreign exchange loss on the Group's €22.5m Eurobond due to appreciation of the Euro against the British Pound Sterling ("GBP") during the period, resulting in an unrealised loss of $1.3m in the parent company, which uses GBP as its functional currency. This was partly offset by foreign exchange gains due to the appreciation of the United States Dollar ("USD") against GBP, resulting in unrealised gains on cash held in USD by the parent company when translated into its GBP functional currency;

 

For further discussion of the Group's performance and financial position refer to the Chairman's Statement.

 

The Group's results are not materially impacted by seasonality.

 

Note 3: Segment information

 

The Group's reportable segments as described below are based on the Group's geographic business units. This includes the Group's upstream gas operations in Italy and South East Asia, along with the corporate head office in the United Kingdom. This reflects the way information is presented to the Group's Chief Operating Decision Maker, which is currently the Board of Directors, following the departure of the Chief Executive Officer during the period. Results from the Group's Italian business are classified as a discontinued operation in the income statement, and reflected as such in the table below. Refer to further disclosure in note 11.

 

 

Italy

Asia

UK

Total

30 June

2020

$'000

30 June

2019

$'000

30 June

2020

$'000

30 June

2019

$'000

30 June

2020

$'000

30 June

2019

$'000

30 June

2020

$'000

30 June

2019

$'000

Depreciation and amortisation

-

-

-

-

(73)

(63)

(73)

(63)

Impairment losses

-

-

-

-

-

(37)

-

(37)

Interest expense

-

-

-

-

(1,798)

(701)

(1,798)

(701)

Segment loss before tax from continuing operations

-

-

(169)

(79)

(4,748)

 (4,660)

(4,917)

 (4,739)

Segment loss before tax from discontinued operations

1,795

 (6,432)

-

-

-

-

(1,795)

 (6,432)

 

 

Italy

Asia

UK

Total

30 June

2020

$'000

31 Dec

2019

$'000

30 June

2020

$'000

31 Dec

2019

$'000

30 June

2020

$'000

31 Dec

2019

$'000

30 June

2020

$'000

31 Dec

2019

$'000

Segment assets

12,447

14,313

17,598

18,297

3,321 

6,054

33,366

38,664

Segment liabilities

(11,812)

(12,332)

(7)

(579)

(21,424)

 (20,571)

(33,243)

 (33,482)

 

Assets and liabilities of the Italian segment are classified as a disposal group held for sale in the Group balance sheet

 

Note 4: Profit and loss information

 

a)  General and administrative expenses

 

General and administrative expenses in the income statement includes the following significant items of expenditure:

 

 

30 June

2020

$'000

30 June

2019

$'000

Employee benefits expense

577 

 712

Business development

182

 879

Corporate and compliance costs

303

 291

Investor and public relations

169

 198

Other G&A

96

 77

G&A - non-operated joint operations

92

 79

Share based payments (refer note 11)

484

 694

 

1,903

 2,930

 

b) Finance expense

 

 

30 June

2020

$'000

30 June

2019

$'000

Interest on borrowings

1,798

 701

Finance charge on lease liabilities

5

 18

Foreign exchange losses

1,139

 990

Unrealised loss on foreign exchange forward contracts

24

-

 

2,966

 1,709

 

Note 5: Loss per share

 

 

30 June

2020

30 June

2019

Basic loss per share from continuing operations ($)

(0.006)

 (0.006)

Diluted loss per share from continuing operations ($)

(0.006)

 (0.006)

Basic loss per share from discontinued operations ($)

(0.002)

 (0.010)

Diluted loss per share from discontinued operations ($)

(0.002)

 (0.010)

 

The calculation of basic loss per share from continuing operations was based on the loss attributable to shareholders of $4.9m (30 June 2019: $4.7m) and a weighted average number of ordinary shares outstanding during the half year of 792,641,298 (30 June 2019: 747,462,899).

 

Basic loss per share from discontinued operations was based on the loss attributable to shareholders from discontinued operations of $1.8m (30 June 2019: $7.7m).

 

Diluted loss per share from continuing and discontinued operations for the current and comparative periods is equivalent to basic loss per share since the effect of all dilutive potential ordinary shares is anti-dilutive.

 

Note 6: Property, plant and equipment

 

 

30 June

2020

$'000

31 December

2019

$'000

Office Furniture and Equipment

38

50

Reconciliation of the carrying amount for each class of property, plant and equipment is set out below:

Office Furniture and Equipment:

 

 

Carrying amount at beginning of period

50

235

Additions

-

12

Depreciation expense

(9)

(29)

Reclassification to assets of disposal group held for sale

-

(170)

Effect of foreign exchange

(3)

2

Carrying amount at end of period

38

50

 

 

Note 7: Intangible assets

 

30 June

2020

$'000

31 December

2019

$'000

Exploration and evaluation assets

17,167

17,247

Software

24

30

 

17,191

17,277

Reconciliation of the carrying amounts for each material class of intangible assets are set out below:

Exploration and evaluation assets:

 

 

Carrying amount at beginning of period

17,247

3,076

Additions

(80)

17,253

Impairment losses

-

 -

Reclassification to assets of disposal group held for sale

-

(3,005)

Impact of foreign exchange

-

 (77)

Carrying amount at end of period

17,167

 17,247

 

Exploration and evaluation assets relates to the Group's 15% interest in the Duyung PSC. Negative additions arose in the period due to reversal of overaccrued capital expenditures relating to the Duyung drilling campaign undertaken in Q4 2019.

 

Following this highly successful drilling campaign, Conrad Petroleum Ltd (the "Operator"), engaged Gaffney Cline and Associates ("GCA") to complete an independent resource audit for the Mako Gas Field.

 

Following completion of their audit, GCA confirmed a significant resource upgrade for the Mako Gas Field compared to their previous resource assessment released in January 2019 (the "2019 GCA Audit"). 2C (contingent) recoverable resource estimates were increased to 495 Bcf (gross), an increase of approximately 79% compared with the 2019 GCA Audit. In the upside case, the 3C (contingent) resources increased by approximately 108% compared with the 2019 GCA Audit, to 817 Bcf (gross).

 

As a result of the resource upgrade, which was incorporated into our own updated economic modelling for Duyung, no impairment indicators were noted.

 

Note 8: Borrowings

 

 

30 June

2020

$'000

31 December

2019

$'000

Current

 

 

Eurobond

630

632

 

630

632

Non-current

 

 

Eurobond

20,387 

19,211

 

20,387

19,211

 

Borrowings relates to €22.5m three year Eurobonds with attached warrants which were issued to key institutional investors. The bonds were issued in two equal tranches A and B, ranking pari passu, with Tranche A paying an annual 5% cash coupon and Tranche B accruing interest at 5% payable on redemption.

 

The issue price was 85% of par value, with a 7% commission paid on this subscription price, resulting in net cash proceeds of €17.6m ($19.7m) before other transaction costs of €0.4m ($0.5m).

 

The bonds mature on 12 April 2022 at 100% of par value plus any accrued and unpaid coupon. Bond subscribers and undewriters were issued with a total of 47,357,500 warrants to subscribe for ten new ordinary shares in the company at an exercise price of 4p per share at any time over the three year term of the bonds. The total fair value of warrants on grant date ($2.0m) was treated as a transaction cost and will be amortised over the life of the bonds. The bonds were initially recognised at fair value and subsequently at amortised cost, with an average effective interest rate of 18.10%.

 

 

Note 9 : Share capital and share premium

 

 

30 June

2020

Number

000's

Nominal

value

$'000

Share Premium

$'000

30 June

2020

Total

$'000

As at 1 January 2020

789,586

1,080

45,679

46,759

Shares issued during the period:

 

 

 

 

Issued for services rendered

3,737

5

76

81

Closing balance - 30 June 2020

793,323

1,085

45,755

46,840

 

 

31 December 2019

Number

000's

Nominal

value

$'000

Share

Premium

$'000

31 December 2019

Total

$'000

As at 1 January 2019

718,522

988

43,619

44,607

Shares issued during the period:

 

 

 

 

Issued to Duyung PSC vendors

60,905

79

1,771

1,850

Issued for services rendered

10,159

13

289

302

Closing balance - 31 December 2019

 789,586

1,080

45,679

46,759

 

Note 10: Reserves

 

a)  Other reserves

 

Share based payments reserve

 

Dr Nick Cooper was awarded 10,000,000 options when he joined the Board in January 2020 with an exercise price of 4.38p, vesting on the third anniversary of grant date. The options were valued at 0.40p per share under the Black Scholes method. The movement in share based payments reserve in the period included $530k in relation to options granted in 2020 and prior periods (30 June 2018: $694k). This was impacted  by the accelerated vesting of options issued to two former directors who resigned during the period, Dr Cooper and James Menzies. According to Dr Cooper's option deed, his options became immediately exercisable at their original exercise price of 4.38p per share for a period of three months following his resignation on 1 April 2020. The options were not exercised and therefore have lapsed. James Menzies' options were cancelled after he left the Company during the period. This full vest of Dr Cooper's options, and cancellation of Mr Menzies options, resulted in the remaining grant date fair value of both former directors' options being expensed in the income statement in the period. The total amount expensed for Dr Cooper and Mr Menzies' options in the current and prior periods ($593k) was then recycled to accumulated losses.

 

Functional currency translation reserve

 

The translation reserve comprises all foreign currency differences arising from translation of the financial position and performance of the parent company and certain subsidiaries which have a functional currency different to the Group's presentation currency of USD. The total gain on foreign exchange recorded in other reserves for the period was $1.04m
(30 June 2019: $175k gain).

 

 

Note 11: Discontinued operations

 

The Group classifies the assets and liabilities of its Italian business as a disposal group held for sale following a decision by the Board of Directors to prioritise full divestment of the Group's Italian operations in the first half of 2019. Given the Italian business represents a separate geographical area of operation for the Group, the Italian results have also been treated as a discontinued operation. In December 2019, the Group entered into a binding, conditional sale and purchase agreement ("SPA") with Zenith Energy Ltd to dispose of the Group's interest in its wholly owned subsidiary, Coro Europe Limited, which in turn owns the entire issued capital of Apennine Energy SpA, the subsidiary holding the Group's portfolio of gas assets in Italy. The necessary Italian regulatory approvals for the disposal were not obtained prior to a long stop date of 31 July 2020 and as such the disposal was mutually terminated by the parties. The Board remains committed to divestment of our Italian portfolio and discussions have been held with other interested parties. The Board remains confident a disposal can be achieved in the next 12 months and accordingly there is no change to the classification of the Italian business as a disposal group held for sale.

 

The results of the Italian operations for the period are presented below:

 

 

30 June

2020

$'000

30 June

2019

$'000

Revenue

623

 1,735

Operating costs

(597)

 (977)

Depreciation and amortisation expense

-

 (275)

Gross profit/(loss)

26

 483

Other income

79

 12

General and administrative expenses

(505)

 (1,299)

Depreciation expense

-

 (84)

Change in rehabilitation provisions

27

 (263)

Impairment losses

(517)

 (5,226)

Loss from operating activities

(890)

 (6,377)

Finance income

21

-

Finance expense

(78)

 (55)

Loss before tax

(947)

 (6,432)

Income tax benefit/(expense)

(848)

 (1,293)

Loss for the period after tax

(1,795)

 (7,725)

 

The major classes of assets and liabilities of the Italian operations classified as held for sale as at 30 June 2020 are as follows:

 

 

30 June

2020

$'000

31 December 2019

$'000

Assets

 

 

Property, plant and equipment

4,322

4,759

Exploration and evaluation assets

1,970

1,978

Right of use assets

59

175

Land

1,642

2,021

Deferred tax assets

1,366

2,240

Inventories

332

306

Trade and other receivables

2,566

2,210

Other financial assets

-

472

Cash

190

152

Total assets

12,447

14,313

Liabilities

 

 

Trade and other payables

2,675

2,990

Lease liabilities

66

125

Provisions

9,071

9,217

Total liabilities

11,812

12,332

Net assets

635 

1,981

 

Due to the significant fall in gas prices during the period resulting from the COVID-19 pandemic and associated economic damage, an impairment of $341k was recorded on Oil and Gas assets (within Property, plant and equipment "PPE"), which relate to the Bezzecca Cash Generating Unit ("CGU"). No other impairments were noted on oil and gas assets. Under IFRS 5, non-current assets are not depreciated once they are designated as held for sale. As a result, impairments of $176k were recorded on other PPE (office furniture and equipment) and Right-of-Use assets, representing the amount that would have otherwise been depreciated if IFRS 5 accounting was not applied.

 

A deferred tax expense of $848k arose due to a write down of the Deferred Tax Asset recorded by the Italian segment. This is due to reductions in future forecast taxable profits caused by falling gas prices.

 

As required by IFRS 5, the entire Italian business has been fair valued at the balance sheet date to determine if any further writedowns are required in addition to the impairments discussed above. Management determined the fair value of the disposal group with reference to a corporate valuation model, prepared using a discounted cash flow methodology, which takes into account the reduction in gas prices since the deal was signed with Zenith Energy in December 2019. This showed a small amount of headroom when comparing the fair value of the Italian business with the carrying value of its net assets.

 

The net cash flows of the Italian operations were as follows:

 

30 June

2020

$'000

30 June

2019

$'000

Net cash flow from operating activities

(278)

 (438)

Net cash flow from investing activities

(59)

 (647)

Net cash flow from financing activities

374

 1,213

Net cash inflow/(outflow)

37

 128

 

Note 12: Interests in other entities

 

Asia

The Group's wholly owned subsidiary, Coro Energy Duyung (Singapore) Pte Ltd, is the owner of a 15% interest in the Duyung Production Sharing Contract ("PSC"), which contains the Mako gas field. The operator of the Duyung venture is West Natuna Exploration Ltd ("WNEL"). WNEL is a company incorporated in the British Virgin Islands and its principal place of business is Indonesia.

 

The Duyung PSC partners have entered into a Joint Operating Agreement ("JOA") which governs the arrangement. The Group accounts for its share of assets, liabilities and expenses of the venture in accordance with the IFRSs applicable to the particular assets, liabilities and expenses.

 

Italy

In June 2019, the Group enterd into an agreement with Petrorep Italiana SpA to acquire its 10% interest in the Cascina Castello production licence, which contains the Bezzecca field and the West Vitalba prospect. The deal had an economic effective date of 1 May 2019, however the necessary regulatory approvals for the acquisition were not obtained before the long stop date of the transaction passed. As a result, Petrorep continues to own 10% of the licence and has retrospectively contributed to its share of Bezzecca's losses from 1 May 2019.

 

Note 13: Contingencies and commitments

 

Commitments

 

The remaining 2020 work program for the Duyung PSC is estimated at $260k net to the Group, of which approximately $180k is capital in nature. The Group has no other capital commitments.

 

Contingencies

 

The Group has no contingent assets or liabilities.

 

 

Note 14: Related party transactions

 

During the period, the Company agreed a settlement with former CEO James Menzies. Mr Menzies received a termination/notice payment (inclusive of legal fees) of £132K ($168k). This expense is recorded within employee benefits expense in note 4.

 

 

Note 15: Subsequent events

 

As further outlined in note 11, the SPA entered into with Zenith Energy Ltd to dispose of the Group's interest in its wholly owned subsidiary, Coro Europe Limited, which in turn owns the entire issued capital of Apennine Energy SpA, was terminated by mutual agreement in July 2020.

There are no other material subsequent events.

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