Half-year Report

RNS Number : 2974Q
Diversified Gas & Oil PLC
11 September 2017
 

11 September 2017

Diversified Gas & Oil PLC

("DGO", the "Company" or the "Group")

 

 Interim Results for the six-month period ended 30 June 2017

 

Diversified Gas & Oil PLC (AIM: DGOC), the US based gas and oil producer, is pleased to announce the publication of its interim results for the six-month period ended 30 June 2017.

 Highlights:

•       Successful float on AIM in February 2017 raising $50m

•       First post-IPO acquisition in April of a package of 1,300 producing wells which added approximately 743 barrels of oil equivalent per day ("boepd") to the DGO portfolio.

•       $84.2m reverse takeover and readmission to AIM through the acquisition of additional assets from Titan Energy LLC ("Titan Energy") in June 2017, increasing production by 6,800 boepd, an increase of 161% over legacy production. The acquisition was financed through an oversubscribed $35m secondary share placing and with a $64m draw on our $110m debt facility

•       Increased Proved Developed Producing reserves to approximately 59.4mmboe

•       Operating costs reduced 6.4% to $7.73 per barrel of oil equivalent ("boe") in 1H17 vs $8.26 per boe in our readmission document for the last three months of 2016

•       Adjusted EBITDA (a) increase of 209% to $4.1m (2016: $1.3m); Pro forma for the Titan acquisition, Adjusted EBITDA increased nearly 900% to $12.9m

•       Adjusted EBITDA (a) per share increase of 33% to $0.04 (2016: $0.03)

•       Proforma Adjusted EBITDA (c) increase of 878% to $12.9m (2016: $1.3m)

•       Reduced net debt by 17.3% with a leverage ratio of Net debt / Pro forma adjusted EBITDA of just 1.4x, a significant improvement over the 16.2x as at 30 June 2016

•       Paid a dividend to shareholders of $0.0199 per ordinary share or $2.9m on 31 July 2017

•       Declared a dividend of $0.0199 per ordinary share to be paid on 20 December 2017

•       Strong balance sheet with $4.6m cash, $24.9m in our AIM offering equity placing receivable and $64m debt with $46m undrawn on the $110m credit facility (d)

•       Enhanced liquidity position totaling $75.4m including $29.5m cash and near cash equivalent ($4.6m cash plus the $24.9m in our AIM offering equity placing receivable) and $46m undrawn on our $110m credit facility

These objectives have been delivered with the assistance of a strengthened management team as the Company continues to progress its acquisitive growth strategy.

Financial Summary:

 

 

 

 

 

 

 

 

Change

 

 

Explanation

 

H1 2017

 

H1 2016

 

$'000

 

%

 

 

 

 

$'000

 

$'000

 

 

 

 

Financial highlights continuing operations results:

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

11,541

 

 

7,653

 

 

3,888

 

 

50.8

%

Adjusted EBITDA

 

a

 

4,065

 

 

1,314

 

 

2,751

 

 

209.4

%

Adjusted EBITDA margin

 

b

 

35.2

%

 

17.2

%

 

18.0 points

 

104.7

%

Adjusted EBITDA per share - Diluted ($)

 

 

 

0.04

 

 

0.03

 

 

0.01

 

 

33.3

%

 

 

 

 

 

 

 

 

 

 

 

Refer to the Outlook Section of this document for pro forma results

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Statutory results for continuing operations:

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

9,738

 

 

23,936

 

 

(14,198

)

 

(59.3

)%

Profit before tax

 

 

 

3,940

 

 

36,491

 

 

(32,551

)

 

(89.2

)%

Diluted earnings per share ($)

 

 

 

0.04

 

 

0.91

 

 

(0.87

)

 

(95.6

)%

 

 

a)

 

Adjusted EBITDA is derived from the reported Operating Profit adjusted for depreciation and depletion, non-cash gains on bargain purchase and on disposal of property and equipment, losses on derivative financial instruments and non-recurring costs associated with acquisitions and certain other administrative expenses

 

 

 

 

b)

 

Adjusted EBITDA margin is calculated as Adjusted EBITDA divided by total revenue.

 

 

 

c)

 

The calculation of proforma Adjusted EBITDA is based on the Adjusted EBITDA for DGO together with the actual operating results for the assets acquired from Titan Energy for the period from 1 January 2017 to 30 June 2017 as reported to DGO by Titan Energy and as were included in the transaction's closing statement.  These figures are for illustrative purposes only and have not been reported upon by the Company's auditors.

 

 

 

d)

 

DGO drew $64m on the $110m credit facility to close the Titan asset acquisition on 30 June 2017. Of the $46m undrawn, $11m is reserved to close on the Titan assets held in public partnership structures. The remaining $35m availability can be used within the first twelve months of the facility's life to finance additional acquisitions, of which $25m, would require an additional underwriting process by the lender.

 

 

Commenting on the results, CEO Rusty Hutson said:

 

"The DGO team has been incredibly active and highly focused in 1H17, delivering on a number of important corporate and strategic objectives for the benefit of our shareholders. Following our successful listing on AIM at the beginning of the year, we continue to concentrate on delivering the stated objectives included within our IPO admission document. Importantly, we returned nearly $3m through our inaugural dividend paid in July, which is strong evidence of our successful business model and a major differentiating factor of our investment proposition. DGO is now one of only two AIM companies amongst the 90 constituent companies in the Oil & Gas Production sector that pays a dividend to its shareholders.

 

In April, we closed on the acquisition of nearly 1,300 additional oil and natural gas wells, and after quickly and successfully integrating these assets into our continuing operations, we maintained the momentum by closing on a much larger, transformational acquisition of nearly 8,240 producing natural gas and oil wells. Collectively, these 1H17 acquisitions more than doubled our high-quality, long-life and low-decline asset base, while significantly enhancing DGO's production base and operating cash flows. DGO enters 2H17 owning a portfolio capable of producing a net 11,000 boepd of highly predictable and profitable volumes of gas and oil, which places DGO amongst the largest producers on AIM, and underpins our stable business model.  The integration of the Titan assets is progressing well and 2H17 will see a material step-change in revenue and Adjusted EBITDA as we reap the full benefit of that acquisition, the cost of which has largely been taken in the first half of the year."

 

Strategic Report

 

Delivering on our strategic objectives

 

These 1H17 results reflect DGO's solid performance, delivering on our stated objectives and builds upon our already strong platform for additional growth. When we came to market in February 2017, we communicated a clear strategic vision for DGO: leverage our established position in the Appalachian Basin to capitalise on unique market conditions and acquire complementary producing assets on attractive valuation metrics to in turn grow production and cash flow, which DOG will use to fund a bi-annual dividend to shareholders.  We are proud to say that we have already delivered on these objectives and have rapidly transformed the business to become what we believe to be a unique investment proposition on AIM: a low-risk, cash flow positive, dividend paying Exploration and Production Company ("E&P").

 

Results summary

 

DGO's first financial results since becoming a listed company reflect solid growth in numerous key financial metrics.  Revenues are up more than 50% to $11.5m (2016: $7.7m) while adjusted EBITDA was up more than 200% to $4.1m (2016: $1.3m). Similarly, Adjusted EBITDA margin is significantly improved at 35.2% (2016: 17.2%), up 18 points over the corresponding period in 2016.

 

Whilst these half-year results demonstrate the Company's steady progress through to 30 June, they do not reflect the significantly enhanced financial and operational capabilities that we expect to report in 2H17, following the completion of our transformational acquisition of certain Titan Energy Appalachian Basin assets.  The acquisition closed on the final day of the period and as such no contribution is reflected in our reported results although the costs associated with that transaction are included.  To illustrate the significance of this acquisition, we have included below within the Outlook discussion a pro-forma table which that illustrates what DGO's financial results would have been had the Titan Energy acquisition occurred at the start of the period.

 

The Company's balance sheet and liquidity position have been transformed following the recent acquisitions together with the new $110m debt facility ($64m drawn at 30 June) and two share placings which raised gross proceeds of $85m.  As at 30 June DGO had cash, and near cash equivalents, of $29.4m (2016: $0.02m) while total net assets stood at $87.1m (2016: $9.2m).

 

Consistent with the Board's stated policy, DGO paid a maiden dividend of 1.55 pence per ordinary share (1.99 cents) on 31 July, and the Board is pleased to announce that the Company will pay an interim dividend of 1.99 cents per ordinary share on 20 December 2017.

 

The Appalachian Basin opportunity

 

The prevailing market conditions in our regional focus on the Appalachian Basin, both before and increasingly more so following our IPO, have created a compelling buyer's market for well-capitalised, credible, local operators wishing to expand their portfolio of mature, producing assets.  The Appalachian Basin, the oldest producing basin in the US with an abundance of existing infrastructure, has seen a rapid expansion of unconventional activity as large players focus their operations on the prolific Utica and Marcellus shale reservoirs located throughout the basin.  This industry shift towards unconventional assets, the rights to which are held by production ("HBP"), means the mature, often conventional producing assets which routinely retain the rights to the unconventional assets, have become non-core to the larger industry players.  As such, these parties are keen to offload these assets to buyers who can maintain the production while allowing them to retaining the rights to the unconventional reservoirs.  With the maintenance of production and rights to the undeveloped, unconventional reservoirs being the main priority for the seller, this market dynamic creates particularly attractive valuation metrics for the appropriate buyers as price consideration is not always the seller's principal factor in completing transactions.

 

Having operated in the Appalachian Basin since 2001, DGO has developed a strong network and regional reputation as a proven and credible operator, providing it with a first-mover advantage in a small band of appropriate companies competing to capitalise on these unique buying opportunities.  Furthermore, our proven ability to raise capital through the equity and debt markets puts us in an even smaller peer group capable of executing the material transactions of larger packages being offloaded.

 

Reducing operating costs

 

The conventional producing assets that represent the focus of DGO's operations are characterised as low-cost and long-life, capable of producing steady volumes of natural gas and oil for decades with minimal pressure decline and requiring limited operational management.  The assets DGO seeks to acquire have often been managed inefficiently by larger operators, and present a unique opportunity for DGO to utilise its operational skillset and complementary regional footprint to reduce operating costs and improve the asset's profitability.  DGO has a proven track record for driving down its unit operating costs as the Company expands its scale in the region, which enhances its resilience and profitability in a low-cost commodity environment.  Accordingly, DGO's operating expenses in 1H17 were 6.4% lower at $7.73 per boe compared with $8.26 per boe reported in our readmission document for the last three months of 2016. We estimate that these costs will fall further as we begin to realize the benefit from various operational synergies and increased production from the Titan assets acquired on the last day of the 1H17 reporting period.

 

Growing through acquisition

 

Our successful share placing to raise gross proceeds of $50m and admission to AIM in February 2017 enabled us to significantly strengthen our balance sheet and liquidity and positioned us to transact on the opportunities stated above. We were pleased to complete our first post-IPO transaction only weeks after coming to market, as we acquired a package of 1,300 producing wells for $1.75m.  The acquisition added production of 3,800 mcfd and 110bopd. We completed field operation integration for these wells in May, and more fully completed the integration of accounting operations in June.

 

In March 2017, DGO identified the opportunity to acquire certain Appalachian Basin gas and oil assets from Titan Energy that were consistent with our acquisition criteria and that had the potential to significantly enhance the Company's scale and profile in the region. DGO successfully raised an additional $35m through a further share placing and negotiated a new $110m senior secured credit facility to fund the $84.2mTitan Energy asset acquisition. The Company closed on $72.8m of the related assets on 30 June 2017 and continues to anticipate closing on the remaining $11.4m of assets by 30 September 2017 that are held within public partnership structures and that require regulatory approval within the US to close.

 

Inclusive of all Titan Energy assets, the Company's gross oil and gas production increases to approximately 18,300 boepd (11,000 BEOPD net) with total gross gas production increasing more than 260% to approximately 104,200 mcfpd and gross oil production increasing by 69% to approximately 931 bopd. These production levels position DGO as one of the largest producers on AIM. At these production levels, and even with the existing cost structure that Management is actively working to lower, the acquired wells are immediately accretive to Adjusted EBITDA. Importantly, the acquisition also increased PDP reserves to approximately 59.4mmboe.

 

Management continues to screen a pipeline of complementary and value accretive opportunities in the Appalachian Basin and DGO is well funded to execute on additional transactions should they be compelling and in the best interest of the Company and its shareholders.

 

Integration process

 

On the day of closing the Titan acquisition, we added 104 field operation employees from Titan Energy to our team.  Led by newly appointed Senior Vice President of Operations, Bob Cayton, we restructured our field operations management team to reflect our scale and geographical size. Our legacy employees combined with these new additions to our team are unified in their focus to ensure a smooth and effective integration of the new assets into our operations processes.  As part of this process, the now larger team is working to enhance production and strive to generate cost savings.  The addition of many talented, experienced employees from Titan Energy was an important rationale in our strategy to acquire these assets, and we are very pleased to report that we are already seeing tangible benefits from their expertise.

 

As a part of the acquisition, we entered into a six-month transitional services agreement ("TSA") for accounting and other administrative services from Titan Energy. The TSA is operating as we anticipated and has proven to be an effective strategy to integrate the operations.  In addition to the TSA, we engaged an energy consulting firm based in Houston, Texas to work with our teams on further integration strategies including accounting and technology needs.   Our engagement with the consulting firm is producing favourable results and is helping prepare us for a post-TSA operating model.

 

Organic opportunity

 

Whilst DGO's growth strategy this year has focused on successfully achieving scale through acquisition, the Company's portfolio provides significant organic growth opportunities.  As we complete the full integration of the newly acquired assets, our field management team will focus on maximising production by enhancing operational techniques.  Our extensive leasehold, which now covers approximately 1.6m surface acres, has been sparsely drilled to date and therefore provides material running room for infill drilling to increase the production throughout the portfolio.  Development wells are both low-risk and low-cost, ranging from $250k - $350k per well drill and placed on production.  Management intends to initiate a development programme when drilling economics become more favourable and offer the Company higher rates of return than are currently provided through the compelling acquisition opportunities available at present valuations from which we have recently benefitted.

 

Enhancing the DGO team

 

An important aspect of successfully executing our strategy is ensuring we have leadership and management teams with the kills and experience necessary to oversee our rapid expansion. As such, we have placed a significant focus on adding depth to our team in the past six months through the hire of several highly quality professionals.  With the acquisition of the Titan Energy assets, we added Bob Cayton as our Senior Vice President of Operations and John "Jack" Crook as our Senior Vice President of Environmental, Health & Safety.  Both Bob and Jack each have over 30 years of experience operating in the Appalachian Basin and we have entrusted them with the responsibility of managing our entire Appalachian operations.  We also extended our capital markets, accounting and financial reporting capabilities with the addition of Eric Williams as our new Chief Financial Officer.  Eric's experience includes working with numerous SEC companies in the US, and was most recently the head of the investor relations function for a Permian based SEC oil and gas company.  Eric will lead our investor relations, financial reporting and accounting operations. We were also pleased to enhance our middle management teams in both field operations and administrative functions.

 

Outlook

 

The second half of 2017 promises to represent a step-change in DGO's financial and operational profile as we reap the benefits from the transactions that we closed out in the first half of the year.  Our growth trajectory has been rapid as we have grown the Company's gross production by nearly 240% over the past year. Near term, Management will remain highly focused on the successful integration of the acquired Titan Energy assets with a particular emphasis on the work required to ensure we maximise production whilst lowering our operating expenses.

 

After assuming control on 30 June 2017 of the Titan Energy assets, we have been working diligently to deliver improved operating results through initiatives to enhance asset performance while simultaneously reducing costs. The Company is pleased to report that in just the first month following the integration of Titan Energy's assets, operating margins have meaningfully improved and we believe we will continue to drive additional improvement.

 

For example, immediately upon closing, we lowered operating costs with a more than 22% reduction in the number of Titan Energy employees servicing the assets. To accomplish this reduction without a detrimental effect on operations, we leveraged our existing employees in the region resulting in more efficient allocation of responsibilities in the region to lower non-productive time. Additionally, we took steps to reduce chart expenses by implementing a better process for taking readings, and we reduced workover expense by utilizing a recently acquired service rig. Recognizing that costs are only half of the equation to improve margins, we also took steps to improve asset performance. For example, with de minimis investments, we returned wells to production that were previously left shut-in and non-producing. Additionally, we've enhanced production by properly sizing compressors to the wells they support.

 

The following table illustrates DGO's pro forma results assuming that the Titan Energy acquisition occurred at the beginning of the period on 1 January 2017. The pro forma results reflect Titan Energy's actual operating results for the acquired assets, and therefore reflect none of the synergies DGO expected upon the integration of the assets. Further, the pro forma results include substantially no contribution from our EnerVest Energy Acquisition.

 

 

 

As Reported

 

Unadjusted

 

 

 

 

 

 

 

 

 

 

 

 

Unaudited

 

Unaudited

 

Unaudited

 

 

 

Pro forma vs H1 2016

 

Unaudited

 

 

DGO

 

Titan Energy

 

Pro Forma

 

 

 

Change

 

Consolidated

 

 

H1 2017

 

H1 2017

 

H1 2017

 

H1 2016

 

$'000

 

%

 

July 2017

 

 

$'000

 

$'000

 

$'000

 

$'000

 

 

 

 

 

$'000

See Note 9 for details regarding the Titan Energy acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,541

 

 

24,548

 

 

36,089

 

 

7,653

 

 

28,436

 

 

371.6

%

 

5,186

 

 

3,090

 

 

7,681

 

 

10,771

 

 

919

 

 

9,852

 

 

1,072.0

%

 

1,567

 

 

4,065

 

 

8,787

 

 

12,852

 

 

1,314

 

 

11,538

 

 

878.1

%

 

2,087

 

 

35.2

%

 

35.8

%

 

35.6

%

 

17.2

%

 

18.4 points

 

107.0

%

 

40.2

%

 

0.04

 

 

0.10

 

 

0.14

 

 

0.03

 

 

0.11

 

 

366.7

%

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

0.0199

 

 

-

 

 

0.0199

 

 

100

%

 

 

 

 

 

 

 

35,177

 

 

42,539

 

 

(7,362

)

 

(17.3

)%

 

 

Net Debt (Cash + Equity Receivable - Debt) / Pro forma Annualized Adjusted EBITDA

 

 

 

 

 

1.4

x

 

16.2

x

 

(14.8

)x

 

(91.4

)%

 

 

 

The sector backdrop continues to be challenging and we are in a highly fortunate position to be operating in a safe jurisdiction, benefit from a strong balance sheet and have an effective business model that provides significant downside protection against the variables of commodity prices.  Our low-cost operations ensure we are profitable in the current environment, and able to withstand a further decrease in commodity prices.  We also take a prudent approach to the way the business is run in terms of cash management and hedging out our production to ensure visibility on predictable earnings.  Ironically, we are uniquely positioned to benefit from the challenging sector backdrop as it creates very compelling acquisition opportunities as distressed companies seek to rationalise their portfolio.

 

Over the longer-term, we continue to work on our existing portfolio to seek in-fill opportunities and maximise the efficiency, production and longevity of our assets, activities that are a key aspect of company reputation and expertise.  Further, we continue to seek attractive acquisition opportunities arising out of current market conditions that have already resulted in a number of strategic purchases for DGO in the past 18 months. As our acquisitive momentum has increased over the years, we seek to continue to deliver valuable additions to our portfolio in the Appalachian Basin and other suitable mature, hydrocarbon basins in the US.

 

Conclusion

 

In summary, the first six months of 2017 has been truly transformational for the Company.  We have delivered on the strategic, corporate and operational objectives that we defined at the time of obtaining our admission to AIM in February 2017.  We enter the second half of the year in a strong position.  I wish to extend my gratitude to our shareholders who have demonstrated confidence in our defined strategy, management team and our focus on additional growth.  I would also like to thank my colleagues for their hard work and commitment, without which we would not have been able to deliver such impressive growth.  We are wholly focused on delivering value for all our stakeholders as we leverage the strong platform that we have created.

 

 

Rusty Hutson Jr

Chief Executive Officer

 

 

 

Financial Review

 

Revenue

 

Total revenues from natural gas and oil sales in 1H17 were $10.2m, a 48.9% increase over $6.8m for 1H16.The increase in this revenue was primarily attributable to a 45.6% increase in barrel of oil equivalent sales. DGO ended the first six months of 2017 with net boe sales of approximately 581,000 vs. the prior year sales of approximately 399,000.  The increase in boe sales was driven by the successful acquisitions of the assets from Seneca Resources and Eclipse Resources. 

 

Operating profit

 

DGO's operating profit in 1H17 was $9.7m compared to $23.9m in 1H16.  The decrease of $14.2m reflects the decrease in non-recurring bargain purchase gains of $13.8m between the two periods.  The Company recorded gains on bargain purchases of $24.2m in 1H16 as a result of the acquisitions of Seneca Resources and Eclipse Resources while recording gains on bargain purchases of $10.4m in 1H17 resulting from the Titan Energy and EnerVest Energy acquisitions.

 

The operating expenses incurred of $3.17m were significantly higher than the $0.89m for same period last year, due to the various costs of acquisition and corporate transactions in the period, but also reflecting the investment made in staff and systems to support the Company's growth.

 

Finance costs

 

DGO's finance costs include interest expense on borrowings, non-cash amortization of deferred financing costs and gains/losses on the early retirement of debt.  In 1H17 and using the proceeds from our successful AIM IPO, DGO repaid its publicly traded bonds and the then other outstanding debt. Accordingly, DGO incurred a non-recurring loss on the early extinguishment of debt, which primarily included a $3.8m charge for the accelerated amortization of the remaining deferred financing costs and $0.6m in premiums paid to redeem convertible bonds prior to DGO's admission to AIM.

 

Hedging

 

To manage its cash flows in a volatile commodity price environment, DGO uses a combination of physical and financial derivative instruments. As required by its Senior Secured Credit Facility, DGO executed a combination of fixed price physical contracts, price swap financial contracts and two-way collar financial contracts equal to approximately 75% of the Company's forecasted production volumes for a 36-month rolling period. Please refer to note 13 to our interim financial statements for additional information regarding DGO's hedge portfolio.

 

EPS and Adjusted EBITDA

 

DGO reported 1H17 statutory earnings per diluted ordinary share of $0.04 compared to $0.91 per diluted ordinary share in 1H16. However, when adjusted for certain non-cash items such as gains on bargain purchases and similar items, DGO reported Adjusted EBITDA per diluted ordinary share of $0.04 per diluted ordinary share, a 33% increase over the prior year's $0.03 Adjusted EBITDA per diluted ordinary share.

 

Dividend

 

The Board has announced an interim dividend of 1.99 cents per ordinary share to be paid on 20 December 2017 to those shareholders in the register on 17 November 2017, and follows the dividend of 1.99 cents per ordinary share paid to shareholders on 31 July 2017.

 

Enquiries:

Diversified Gas & Oil PLC

Rusty Hutson Jr., Chief Executive Officer

Brad Gray, Finance Director / Chief Operating Officer

Eric Williams, Chief Financial Officer / Investor Relations

www.diversifiedgasandoil.com

+001 205 408 0909

 

 

Smith & Williamson Corporate Finance Limited

(Nominated Adviser & Joint Broker)

Russell Cook, Katy Birkin

+44 (0)20 7131 4000

 

 

Mirabaud Securities Limited (Lead Broker)

Peter Krens, Edward Haig-Thomas

+44 (0)20 3167 7221

 

 

Buchanan (Financial Public Relations)

Ben Romney, Chris Judd, Henry Wilson

dgo@buchanan.uk.com

+44 (0)20 7466 5000

 

 

IMPORTANT NOTE REGARDING THE BASIS OF PRESENTATION --

 

The Company is pleased to present its interim consolidated financial statements. As discussed below in note 3, "Basis of Presentation," please be aware that unless otherwise stated, the all information included within the financial statements, including the notes to the financial statements, is presented in US Dollars, which is the currency of the primary economic environment in which the Company operates, and all values, including those in sentences, are rounded to the nearest thousand dollars except per unit amounts and where otherwise indicated.

 

 

 

Interim Consolidated Statements of Comprehensive Income

(Amounts in thousands, except per-share amounts)

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

Note

 

30 June 2017

 

30 June 2016

 

31 December 2016

 

 

 

 

 

 

 

 

 

Revenue

 

4

 

$

11,541

 

 

$

7,653

 

 

$

18,279

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

5

 

(6,225

)

 

(6,227

)

 

(12,767

)

Depreciation and depletion

 

5

 

(2,226

)

 

(507

)

 

(4,039

)

 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

$

3,090

 

 

$

919

 

 

$

1,473

 

 

 

 

 

 

 

 

 

 

Administrative expenses

 

5

 

(3,167

)

 

(887

)

 

(2,540

)

Gain on disposal of property and equipment

 

 

 

4

 

 

-

 

 

34

 

Loss on derivative financial instruments

 

 

 

(540

)

 

(308

)

 

(810

)

Gain on bargain purchase

 

9

 

10,351

 

 

24,212

 

 

24,293

 

 

 

 

 

 

 

 

 

 

Operating profit

 

 

 

$

9,738

 

 

$

23,936

 

 

$

22,450

 

 

 

 

 

 

 

 

 

 

Finance costs

 

 

 

(745

)

 

(1,371

)

 

(3,291

)

Accretion of decommissioning provision

 

 

 

(585

)

 

(223

)

 

(797

)

(Loss)/Gain on early retirement of debt

 

 

 

(4,468

)

 

14,149

 

 

14,149

 

 

 

 

 

 

 

 

 

 

Income before taxation

 

 

 

$

3,940

 

 

$

36,491

 

 

$

32,511

 

 

 

 

 

 

 

 

 

 

Taxation on income

 

 

 

(262

)

 

-

 

(14,829

)

 

 

 

 

 

 

 

 

 

Income after taxation available to ordinary shareholders

 

 

 

$

3,678

 

 

$

36,491

 

 

$

17,682

 

 

 

 

 

 

 

 

 

 

Other comprehensive income - gain on foreign currency conversion

 

 

 

202

 

 

603

 

 

901

 

 

 

 

 

 

 

 

 

 

Total comprehensive income for the year

 

 

 

$

3,880

 

 

$

37,094

 

 

$

18,583

 

 

 

 

 

 

 

 

 

 

Earnings per ordinary share - basic & diluted

 

7

 

$

0.04

 

 

$

0.91

 

 

$

0.42

 

 

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding - Basic & Diluted

 

7

 

94,971

 

 

40,100

 

 

42,011

 

 

 

Interim Consolidated Statements of Financial Position

(Amounts in thousands)

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

Note

 

30 June 2017

 

30 June 2016

 

31 December 2016

ASSETS

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

 

 

 

 

 

Oil and gas properties, net

 

11

 

$

176,536

 

 

$

79,864

 

 

$

76,793

 

Property and equipment, net

 

12

 

5,668

 

 

2,798

 

 

3,348

 

Other non-current assets

 

 

 

1,011

 

 

817

 

 

998

 

Restricted cash

 

 

 

117

 

 

117

 

 

117

 

     Total non-current assets

 

 

 

$

183,332

 

 

$

83,596

 

 

$

81,256

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Trade receivables

 

 

 

5,085

 

 

2,519

 

 

3,084

 

Other current assets

 

 

 

417

 

 

118

 

 

1,311

 

Equity placing receivable

 

 

 

24,864

 

 

-

 

 

-

 

Cash and cash equivalents

 

 

 

4,574

 

 

20

 

 

224

 

     Total current assets

 

 

 

$

34,940

 

 

$

2,657

 

 

$

4,619

 

 

 

 

 

 

 

 

 

 

Total Assets

 

 

 

$

218,272

 

 

$

86,253

 

 

$

85,875

 

 

 

 

 

 

 

 

 

 

EQUITY AND LIABILITIES

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Share capital

 

14

 

$

1,940

 

 

$

630

 

 

$

669

 

Share premium

 

 

 

76,015

 

 

-

 

 

313

 

Merger reserve

 

 

 

(478

)

 

(478

)

 

(478

)

Dividends declared

 

 

 

(2,887

)

 

-

 

 

-

 

Retained earnings

 

 

 

12,538

 

 

27,587

 

 

8,658

 

     Total Equity

 

 

 

$

87,128

 

 

$

27,739

 

 

$

9,162

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

Decommissioning liability

 

15

 

$

31,630

 

 

$

14,798

 

 

$

12,265

 

Capital lease

 

 

 

440

 

 

115

 

 

274

 

Borrowings

 

16

 

61,316

 

 

9,592

 

 

10,113

 

Deferred tax liability

 

 

 

15,408

 

 

-

 

 

15,148

 

Other non-current liabilities

 

10

 

5,038

 

 

457

 

 

414

 

     Total non-current liabilities

 

 

 

$

113,832

 

 

$

24,962

 

 

$

38,214

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Trade and other payables

 

 

 

$

3,032

 

 

$

3,537

 

 

$

4,627

 

Borrowings

 

16

 

305

 

 

29,194

 

 

27,181

 

Capital lease

 

 

 

250

 

 

113

 

 

169

 

Dividends payable

 

 

 

2,887

 

 

-

 

 

-

 

Other current liabilities

 

10

 

10,838

 

 

708

 

 

6,522

 

     Total current-liabilities

 

 

 

$

17,312

 

 

$

33,552

 

 

$

38,499

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

 

$

131,144

 

 

$

58,514

 

 

$

76,713

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Equity

 

 

 

$

218,272

 

 

$

86,253

 

 

$

85,875

 

 

 

Interim Consolidated Statements of Changes in Equity

(Amounts in thousands)

 

 

 

Share

 

Share

 

Merger

 

 

 

Retained

 

Total

 

Note

 

Capital

 

Premium

 

Reserve

 

Dividends

 

Earnings

 

Equity

Balance as of 1 January 2017

 

 

$

669

 

 

$

313

 

 

$

(478

)

 

$

-

 

 

$

8,658

 

 

$

9,162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after taxation

 

 

-

 

 

-

 

 

-

 

 

-

 

 

3,678

 

 

3,678

 

Gain on foreign currency conversion

 

 

-

 

 

-

 

 

-

 

 

-

 

 

202

 

 

202

 

     Total comprehensive income

 

 

-

 

 

-

 

 

-

 

 

-

 

 

3,880

 

 

3,880

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of share capital, initial offering

14

 

768

 

 

43,550

 

 

-

 

 

-

 

 

-

 

 

44,318

 

Issuance of share capital, secondary offering

9

 

503

 

 

32,152

 

 

-

 

 

-

 

 

-

 

 

32,655

 

Dividends authorized and declared

8

 

-

 

 

-

 

 

-

 

 

(2,887

)

 

-

 

 

(2,887

)

     Transactions with shareholders

 

 

1,271

 

 

75,702

 

 

-

 

 

(2,887

)

 

-

 

 

74,086

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 30 June 2017

 

 

$

1,940

 

 

$

76,015

 

 

$

(478

)

 

$

(2,887

)

 

$

12,538

 

 

$

87,128

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

Share

 

Merger

 

 

 

Retained

 

Total

 

 

 

Capital

 

Premium

 

Reserve

 

Dividends

 

Earnings

 

Equity

Balance as of 1 January 2016

 

 

$

630

 

 

$

-

 

 

$

(478

)

 

$

-

 

 

$

(8,969

)

 

$

(8,817

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after taxation

 

 

-

 

 

-

 

 

-

 

 

-

 

 

36,491

 

 

36,491

 

Gain on foreign currency conversion

 

 

-

 

 

-

 

 

-

 

 

-

 

 

603

 

 

603

 

     Total comprehensive income

 

 

-

 

 

-

 

 

-

 

 

-

 

 

37,094

 

 

37,094

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholder distributions pre-group reconstruction

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(538

)

 

(538

)

     Transactions with shareholders

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(538

)

 

(538

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 30 June 2016

 

 

$

630

 

 

$

-

 

 

$

(478

)

 

$

-

 

 

$

27,587

 

 

$

27,739

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share

 

Share

 

Merger

 

 

 

Retained

 

Total

 

 

 

Capital

 

Premium

 

Reserve

 

Dividends

 

Earnings

 

Equity

Balance as of 1 January 2016

 

 

$

630

 

 

$

-

 

 

$

(478

)

 

$

-

 

 

$

(8,969

)

 

$

(8,817

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income after taxation

 

 

-

 

 

-

 

 

-

 

 

-

 

 

17,682

 

 

17,682

 

Gain on foreign currency conversion

 

 

-

 

 

-

 

 

-

 

 

-

 

 

901

 

 

901

 

     Total comprehensive income

 

 

-

 

 

-

 

 

-

 

 

-

 

 

18,583

 

 

18,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholder distributions pre-group reconstruction

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(956

)

 

(956

)

Issuance of share capital

 

 

39

 

 

313

 

 

-

 

 

-

 

 

-

 

 

352

 

     Transactions with shareholders

 

 

39

 

 

313

 

 

-

 

 

-

 

 

(956

)

 

(604

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of 31 December 2016

 

 

$

669

 

 

$

313

 

 

$

(478

)

 

$

-

 

 

$

8,658

 

 

$

9,162

 

 

 

Interim Consolidated Statements of Cash Flow

(Amounts in thousands)

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

Note

 

30 June 2017

 

30 June 2016

 

31 December 2016

Cash flows from operating activities

 

 

 

 

 

 

 

 

Income after taxation

 

 

 

$

3,678

 

 

$

36,491

 

 

$

17,682

 

Cash flow from operations reconciliation:

 

 

 

 

 

 

 

 

     Depreciation and depletion

 

 

 

2,226

 

 

507

 

 

4,039

 

     Finance costs

 

 

 

4,045

 

 

1,371

 

 

3,291

 

     Accretion of decommissioning provision

 

15

 

585

 

 

223

 

 

797

 

     Loss on derivative financial instruments

 

13

 

687

 

 

699

 

 

957

 

     Gain on oil and gas program

 

 

 

(396

)

 

(84

)

 

(84

)

     Deferred income taxes

 

 

 

260

 

 

-

 

 

14,829

 

     Gain on bargain purchase

 

9

 

(10,351

)

 

(24,212

)

 

(24,293

)

     Gain on disposal of property and equipment

 

 

 

(4

)

 

-

 

 

(34

)

     Gain on debt cancellation

 

 

 

-

 

 

(14,149

)

 

(14,149

)

     Non-cash equity grant

 

 

 

-

 

 

-

 

 

340

 

Working capital adjustments:

 

 

 

 

 

 

 

 

     Change in trade receivables

 

 

 

(2,002

)

 

(1,145

)

 

(907

)

     Change in other current assets

 

 

 

138

 

 

(71

)

 

(269

)

     Change in other assets

 

 

 

(13

)

 

-

 

 

(652

)

     Change in trade and other payables

 

 

 

(1,595

)

 

543

 

 

2,662

 

     Change in other liabilities

 

 

 

9,733

 

 

129

 

 

920

 

Net cash provided by operating activities

 

 

 

$

6,991

 

 

$

302

 

 

$

5,129

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Expenditures on oil and gas properties

 

 

 

$

(73,585

)

 

$

(8,642

)

 

$

(7,838

)

Expenditures on property and equipment

 

 

 

(2,652

)

 

(155

)

 

(1,462

)

Increase in restricted cash

 

 

 

-

 

 

(2

)

 

(2

)

Proceeds on disposal of oil and gas properties

 

 

 

-

 

 

93

 

 

93

 

Net cash used in investing activities

 

 

 

$

(76,237

)

 

$

(8,706

)

 

$

(9,209

)

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

16

 

$

64,000

 

 

$

13,200

 

 

$

14,915

 

Repayment of borrowings

 

 

 

(40,521

)

 

(3,138

)

 

(6,794

)

Financing expense

 

 

 

(2,994

)

 

(1,244

)

 

(3,222

)

Proceeds from equity issuance, net

 

 

 

52,864

 

 

-

 

 

-

 

Proceeds from capital lease

 

 

 

319

 

 

133

 

 

435

 

Repayment of capital lease

 

 

 

(72

)

 

(79

)

 

(164

)

Dividends to shareholders pre-group reconstruction

 

 

 

-

 

 

(538

)

 

(956

)

Net cash provided by financing activities

 

 

 

$

73,596

 

 

$

8,334

 

 

$

4,214

 

 

 

 

 

 

 

 

 

 

Net increase(decrease) in cash and cash equivalents

 

 

 

4,350

 

 

(70

)

 

134

 

Cash and cash equivalents - beginning of the period

 

 

 

224

 

 

90

 

 

90

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents - end of the period

 

 

 

$

4,574

 

 

$

20

 

 

$

224

 

 

Note 1 - General Information

 

Diversified Gas & Oil PLC ("DGO" or the "Company") is a natural gas and crude oil producer that is focused on acquiring and operating mature producing wells with long lives and slow decline profiles. Presently, our assets are exclusively located within the Appalachian Basin. The Company is headquartered in Birmingham, Alabama, USA with field offices located in Pennsylvania, Ohio, West Virginia and Tennessee.  DGO was incorporated on 31 July 2014 in England and Wales as a private limited company under company number 09156132. DGO's registered office is located at 27/28 Eastcastle Street, London W1W 8DH, United Kingdom.

 

Note 2 - Business Consolidation

 

The interim consolidated financial statements reflect the following corporate structure of DGO:

 

•       Diversified Gas & Oil PLC ("PLC"), and its wholly owned subsidiary,

◦      Diversified Gas & Oil Corporation ("DGOC'), as well as its wholly owned subsidiaries,

▪      Diversified Resources, Inc.

▪      M & R Investments, LLC;

▪      M & R Investments Ohio, LLC;

▪      Marshall Gas and Oil Corporation;

▪      R&K Oil and Gas, Inc.;

▪      Fund 1 DR, LLC

▪      Diversified Oil & Gas, LLC;

▪      Diversified Appalachian Group, LLC

▪      Diversified Energy, LLC (see note 9)

 

Note 3 - Basis of Preparation

 

The interim consolidated financial statements do not represent statutory accounts within the meaning of section 435 of the Companies Act 2016. The financial information for the period ended 30 June 2017 is based on the statutory accounts for the year ended 31 December 2016. Those accounts, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

 

The interim consolidated financial information is unaudited and has been prepared on the basis of the accounting policies set out in the Group's 2016 statutory accounts in accordance with IAS 34 Interim Financial Reporting.

 

Unless otherwise stated, the financial statements are presented in US Dollars, which is the currency of the primary economic environment in which DGO operates, and all values are rounded to the nearest thousand dollars except per unit amounts and where otherwise indicated. Certain prior period amounts have been reclassified to conform with current presentation. Transactions in foreign currencies are translated into US Dollars at the rate of exchange on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange ruling at the balance sheet date. The resulting gain or loss is reflected in the income statement within Other comprehensive income - gain on foreign currency conversion.

 

The financial statements have been prepared under the historical cost convention, except for acquisitions and derivative financial instruments that have been measured at fair value through profit and loss.

 

The financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activity and the realization of assets and the settlement of liabilities in the normal course of business. The Directors have reviewed DGO's overall position and outlook and are of the opinion that DGO is sufficiently well funded to be able to operate as a going concern for at least the next twelve months from the date of approval of these financial statements. The Directors believe that the use of the going concern basis is appropriate. Accordingly, the Directors have prepared the financial statements on a going concern basis.

 

Note 4 - Revenue

 

DGO extracts and sells natural gas and crude oil to various customers. DGO also operates oil and natural gas wells for customers and other working interest owners. The following table reconciles the Company's revenues for the periods presented:

 

 

Unaudited

 

Unaudited

 

Audited

 

 

Six months to

 

Six months to

 

Year ended

 

 

30 June 2017

 

30 June 2016

 

 31 December 2016

 

 

 

 

 

 

 

Natural gas revenue

 

$

7,795

 

 

$

4,996

 

 

$

10,671

 

Oil revenue

 

2,399

 

 

1,849

 

 

4,207

 

     Total natural gas and oil revenues

 

10,194

 

 

6,845

 

 

14,878

 

Operator revenue

 

662

 

 

468

 

 

1,209

 

Oil and gas program revenue

 

403

 

 

84

 

 

1,573

 

Water disposal revenue

 

282

 

 

256

 

 

619

 

     Total revenue

 

$

11,541

 

 

$

7,653

 

 

$

18,279

 

 

Note 5 - Expenses by Nature

 

The following table provides a detail of the Company's expenses:

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

Explanation

 

30 June 2017

 

30 June 2016

 

 31 December 2016

 

 

 

 

 

 

 

 

 

Automobile

 

 

 

$

526

 

 

$

306

 

 

$

797

 

Employees and benefits

 

 

 

2,354

 

 

2,135

 

 

4,117

 

Insurance

 

 

 

117

 

 

53

 

 

162

 

Well operating expenses & taxes

 

 

 

3,228

 

 

3,733

 

 

7,691

 

     Total cost of sales

 

 

 

$

6,225

 

 

$

6,227

 

 

$

12,767

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

 

516

 

 

(567

)

 

756

 

Depletion

 

 

 

1,710

 

 

1,074

 

 

3,283

 

      Total depreciation and depletion

 

 

 

$

2,226

 

 

$

507

 

 

$

4,039

 

 

 

 

 

 

 

 

 

 

Employees and benefits

 

a

 

965

 

 

95

 

 

373

 

Other administrative

 

 

 

136

 

 

150

 

 

301

 

Professional fees

 

 

 

165

 

 

63

 

 

272

 

Auditors' remuneration

 

 

 

 

 

 

 

 

     Audit of parent

 

 

 

11

 

 

15

 

 

34

 

     Audit of group

 

 

 

75

 

 

112

 

 

247

 

          Total Auditors' remuneration

 

 

 

$

86

 

 

$

127

 

 

$

281

 

Other fees payable to auditors

 

 

 

4

 

 

24

 

 

42

 

Rent

 

 

 

42

 

 

44

 

 

93

 

     Recurring administrative expenses

 

 

 

$

1,398

 

 

$

503

 

 

$

1,362

 

 

 

 

 

 

 

 

 

 

Non-recurring costs associated with acquisitions & contribution of assets

 

 

 

1,769

 

 

384

 

 

838

 

Non-cash equity issuance

 

b

 

-

 

 

-

 

 

340

 

     Non-recurring administrative expenses

 

 

 

$

1,769

 

 

$

384

 

 

$

1,178

 

 

 

 

 

 

 

 

 

 

Total administrative expenses

 

 

 

$

3,167

 

 

$

887

 

 

$

2,540

 

 

 

 

 

 

 

 

 

 

Total expenses

 

 

 

$

11,618

 

 

$

7,621

 

 

$

19,346

 

 

a)

 

Prior to admission to AIM, compensation expense for the owners was recorded as an owner distribution. Thus, the expense reported in the prior year is lower by the amount of such distributions. Further, the Company hired additional personnel, including a Finance Director and Chief Operating Officer in October 2016, which increased this expense to support a larger, more dynamic organization.

 

 

 

 

b)

 

Non-cash equity issuance is a non-recurring expense related to the initial issuance of stock to a Company senior manager in 2016.

 

Note 6 - Adjusted EBITDA

 

Adjusted EBITDA is a non-IFRS financial measure, which is of particular interest to the industry and Directors, as it is essentially the cash generated from operations that DGO has free for interest payments and capital investment. Adjusted EBITDA should not be considered as an alternative to operating profit (loss), comprehensive income, cash flow from operating activities or any other financial performance or liquidity measure presented in accordance with IFRS. Adjusted EBITDA is a non-IFRS financial measure that is defined as operating profit plus or minus items detailed below in the table below.

 

The Company believes Adjusted EBITDA is a useful measure because it enables a more effective way to evaluate operating performance and compare the results of operations from period-to-period and against our peers without regard to our financing methods or capital structure. The Company excludes the items listed in the table below from operating profit in arriving at Adjusted EBITDA because these amounts can vary substantially from company to company within our industry depending upon accounting methods and book values of assets, capital structures and the method by which the assets were acquired.

 

The following table reconciles the Company's operating profit to Adjusted EBITDA:

 

 

Unaudited

 

Unaudited

 

Audited

 

 

Six months to

 

Six months to

 

Year ended

 

 

30 June 2017

 

30 June 2016

 

31 December 2016

 

 

 

 

 

 

 

Operating profit

 

$

9,738

 

 

$

23,936

 

 

$

22,450

 

 

 

 

 

 

 

 

Depreciation and depletion

 

2,226

 

 

507

 

 

4,039

 

Gain on bargain purchase

 

(10,351

)

 

(24,212

)

 

(24,293

)

Gain on disposal of property and equipment

 

(4

)

 

-

 

 

(34

)

Loss on derivative financial instruments

 

687

 

 

699

 

 

957

 

Non-recurring costs associated with acquisitions & contribution of assets

 

1,769

 

 

384

 

 

838

 

Non-cash equity issuance included in Administrative expense

 

-

 

 

-

 

 

340

 

   Total Adjustments

 

(5,673

)

 

(22,622

)

 

(18,153

)

 

 

 

 

 

 

 

Adjusted EBITDA

 

$

4,065

 

 

$

1,314

 

 

$

4,297

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding - Basic and Diluted

 

94,971

 

 

40,100

 

 

42,011

 

 

 

 

 

 

 

 

Adjusted EBITDA per share - Basic and Diluted

 

$

0.04

 

 

$

0.03

 

 

$

0.10

 

 

Note 7 - Earnings per Share

 

The calculation of basic income/(loss) per ordinary share is based on the income/(loss) after taxation available to ordinary shareholders and on the weighted average number of ordinary shares outstanding during the period. The calculation of diluted income/(loss) per ordinary share is based on the income/(loss) after taxation available to ordinary shareholders and the weighted average number of ordinary shares outstanding plus the weighted average number of shares that would be issued if dilutive options and warrants were converted into shares on the last day of the reporting period. Basic and diluted income/(loss) per ordinary share is calculated as follows:

 

 

 

 

Unaudited

 

Unaudited

 

Audited

 

 

 

 

Six months to

 

Six months to

 

Year ended

 

 

Calculation

 

30 June 2017

 

30 June 2016

 

31 December 2016

 

 

 

 

 

 

 

 

 

Income after taxation available to ordinary shareholders

 

A

 

$

3,678

 

 

$

36,491

 

 

$

17,682

 

 

 

 

 

 

 

 

 

 

Weighted average ordinary shares outstanding - Basic & Diluted

 

B

 

94,971

 

 

40,100

 

 

42,011

 

 

 

 

 

 

 

 

 

 

Earnings per ordinary share - basic & diluted

 

= A / B

 

$

0.04

 

 

$

0.91

 

 

$

0.42

 

 

 

 

 

 

 

 

 

 

Adjusted EBITDA per ordinary share - basic & diluted

 

See Note 6

 

$

0.04

 

 

$

0.03

 

 

$

0.10

 

 

Note 8 - Dividends

 

On 15 June 2017, the Company declared its first dividend subsequent to completing its initial public offering on the AIM in February 2017. Subsequent to 30 June 2017, the Company declared an additional dividend to be paid on 20 December 2017.

 

The following table summarizes the Company's dividends paid and declared:

 

 

Dividend per Ordinary Share

 

 

 

 

 

 

 

 

Date Declared

 

USD

 

GBP

 

Record Date

 

Pay Date

 

Shares Outstanding

 

Gross Dividends Paid

15 June 2017

 

$

0.0199

 

 

£

0.0155

 

 

 

31 July 2017

 

145,076

 

 

$

2,887

 

11 September 2017

 

0.0199

 

 

Pending

 

17 November 2017

 

20 December 2017

 

Pending

 

Pending

 

Note 9 - Acquisitions

 

The assets acquired in all acquisitions include the necessary permits, rights to production, royalties, contracts and agreements that support the production from the wells. The acquisitions have been accounted for as a business acquisition under IFRS 3. The acquisitions gave rise to bargain purchases due to the prevailing market conditions in the Appalachian Basin, the context of global oil and gas prices, the financial condition of the sellers, and a change in the operational focus of the sellers compelling these sellers to divest of their conventional oil and gas assets.

 

EnerVest Acquisition

 

In April 2017, DGO acquired approximately 1,300 conventional natural gas and oil wells in Ohio and equipment from EnerVest. The purchase consideration totalling $1,750 was paid in cash. Management considered the fair value of the reserves held in the assets acquired to be $5,629, which was the 30% cumulative cash flow discount reserve valuation derived from a third-party engineer at the time of purchase. The provisional estimated fair values of the assets and liabilities assumed were as follows:

Oil and gas properties

 

$

5,629

 

Oil and gas properties (Decommissioning provision, asset portion)

 

2,406

 

Decommissioning liability

 

(2,406

)

Gain on bargain purchase

 

(3,879

)

     Purchase price

 

$

1,750

 

 

 

Titan Energy Acquisition

 

On 30 June 2017, DGO acquired approximately 8,380 producing conventional natural gas and oil wells in the states of Pennsylvania, Ohio, and Tennessee (including approximately 1,140 non-operated wells) and equipment from Titan Energy. The total purchase consideration including assets expected to close by 30 September 2017 was $84,200.  The cash consideration for the purchase was funded by a new $110,000 Senior Secured Loan Facility, of which $64,000 was drawn upon closing on 30 June 2017, and an equity placing of DGO's stock.  DGO placed 39,300 new ordinary shares at $0.89 per share with certain existing and new institutional investors to raise $35,020. The equity placing occurred in two tranches of 11,400 shares which raised $10,158 and 27,900 shares were placed with the second tranche, which raised $24,862.

 

Of the total $84,200 purchase consideration, DGO funded $72,800 in cash on 30 June 2017 for approximately 8,240 of the total wells. The remaining $11,400 of the purchase price is allocated to Titan Energy assets that are held within public partnership structures and include a number of horizontal wells. The Company continues to anticipate closing on the remaining assets by 30 September 2017 pending regulatory approval within the United States.

 

Management considered the fair value of the reserves held in the assets acquired on 30 June 2017 to be $79,272, which was the 25% cumulative cash flow discount reserve valuation derived from a third-party engineer at the time of purchase. The provisional estimated fair values of the assets and liabilities assumed were as follows:

Total purchase consideration

 

$

84,200

 

     Less: Net purchase price adjustments

 

(4,928

)

Oil and gas properties purchased at 30 June 2017

 

$

79,272

 

Oil and gas properties (Decommissioning provision, asset portion)

 

14,896

 

Decommissioning liability

 

(14,896

)

Gain on bargain purchase for properties purchased at 30 June 2017

 

(6,472

)

     Purchase price as at 30 June 2017

 

$

72,800

 

 

Note 10 - Other Liabilities

 

The following table reconciles the Company's other liabilities for the periods presented:

 

Unaudited

 

Unaudited

 

Audited

 

30 June 2017

 

30 June 2016

 

31 December 2016

Other non-current liabilities

 

 

 

 

 

   Customer deposits

$

55

 

 

$

52

 

 

$

52

 

   Revenue to be distributed

3,128

 

 

306

 

 

362

 

   Derivative financial instruments - net non-current liability

1,855

 

 

99

 

 

-

 

Total Other non-current liabilities

$

5,038

 

 

$

457

 

 

$

414

 

 

 

 

 

 

 

Other current liabilities

 

 

 

 

 

   Accrued expenses

$

896

 

 

$

-

 

 

$

1,112

 

   Net revenue clearing

2,461

 

 

-

 

 

498

 

IPO related expenses

2,768

 

 

-

 

 

-

 

Acquisition related short term financing

3,500

 

 

-

 

 

3,500

 

   Derivative financial instruments - net current liability

-

 

 

583

 

 

939

 

Other

1,213

 

 

125

 

 

473

 

Total Other current liabilities

$

10,838

 

 

$

708

 

 

$

6,522

 

 

Note 11 - Oil and Gas Properties

 

As discussed in Note 9, the Company completed two acquisitions during the first half of 2017. The following table summarizes the Company's oil and gas properties for each of the periods presented:

 

 

Costs

 

 

Depletion and Impairment

 

 

 

Period

 

Beginning Balance

 

Additions

 

Disposals

 

Ending Balance

 

 

Beginning Balance

 

Period Charges

 

Disposals

 

Ending Balance

 

 

Net Book Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the 6-months ended 30 June 2017 (Unaudited)

 

$

94,608

 

 

101,645

 

 

(12

)

 

$

196,241

 

 

 

$

(17,815

)

 

(1,890

)

 

-

 

 

$

(19,705

)

 

 

$

176,536

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the 6-months ended 30 June 2016 (Unaudited)

 

56,659

 

 

37,809

 

 

(28

)

 

94,440

 

 

 

(14,306

)

 

(283

)

 

13

 

 

(14,576

)

 

 

79,864

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the year ended 31 December 2016 (Audited)

 

56,659

 

 

41,077

 

 

(3,128

)

 

94,608

 

 

 

(14,306

)

 

(3,553

)

 

44

 

 

(17,815

)

 

 

76,793

 

 

Note 12 - Property and Equipment

 

The following table summarizes the Company's property and equipment for each of the periods presented:

 

 

Plant, Property & Equipment

 

 

Accumulated Depreciation and Disposals

 

 

 

Period

 

Beginning Balance

 

Additions

 

Disposals

 

Ending Balance

 

 

Beginning Balance

 

Period Charges

 

Disposals

 

Ending Balance

 

 

Net Book Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the 6-months ended 30 June 2017 (Unaudited)

 

$

5,223

 

 

2,657

 

 

(5

)

 

$

7,875

 

 

 

$

(1,875

)

 

(336

)

 

4

 

 

$

(2,207

)

 

 

$

5,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the 6-months ended 30 June 2016 (Unaudited)

 

3,506

 

 

911

 

 

(6

)

 

4,411

 

 

 

(1,395

)

 

(224

)

 

6

 

 

(1,613

)

 

 

2,798

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the year ended 31 December 2016 (Audited)

 

3,506

 

 

1,791

 

 

(74

)

 

5,223

 

 

 

(1,395

)

 

(486

)

 

6

 

 

(1,875

)

 

 

3,348

 

 

Note 13 - Derivative Financial Instruments & Hedging Activities

 

The following table summarizes DGO Group's calculated fair value of derivative financial instruments:

 

 

Unaudited

 

Unaudited

 

Audited

(Liabilities)/Assets

 

30 June 2017

 

30 June 2016

 

31 December 2016

 

 

 

 

 

 

 

Natural gas

 

 

 

 

 

 

     Swaps

 

$

(747

)

 

$

(474

)

 

$

(99

)

     Collars

 

(57

)

 

-

 

 

(685

)

     Basis swaps

 

(568

)

 

53

 

 

-

 

     Put options

 

-

 

 

(140

)

 

-

 

          Total natural gas derivative financial instruments

 

$

(1,372

)

 

$

(561

)

 

$

(784

)

 

 

 

 

 

 

 

Oil

 

 

 

 

 

 

     Swaps

 

$

-

 

 

$

-

 

 

$

-

 

     Collars

 

(254

)

 

-

 

 

(155

)

     Basis swaps

 

-

 

 

-

 

 

-

 

     Put options

 

-

 

 

(121

)

 

-

 

          Total oil derivative financial instruments

 

$

(254

)

 

$

(121

)

 

$

(155

)

 

 

 

 

 

 

 

Total derivative financial instruments

 

$

(1,626

)

 

$

(682

)

 

$

(939

)

 

The Company reports the derivative financial instrument assets and liabilities net in its balance sheet. The following table reconciles the Company's derivative financial instrument gross assets and gross liabilities for the periods presented:

Derivative Financial

 

 

 

Unaudited

 

Unaudited

 

Audited

Instruments

 

Balance Sheet line item

 

30 June 2017

 

30 June 2016

 

31 December 2016

 

 

 

 

 

 

 

 

 

Non-current assets

 

 

 

$

1,585

 

 

$

380

 

 

$

-

 

Current assets

 

 

 

2,012

 

 

466

 

 

640

 

     Total assets

 

 

 

$

3,597

 

 

$

846

 

 

$

640

 

 

 

 

 

 

 

 

 

 

Non-current liability

 

 

 

$

(3,440

)

 

$

(479

)

 

$

-

 

Current liabilities

 

 

 

(1,783

)

 

(1,049

)

 

(1,579

)

     Total liabilities

 

 

 

$

(5,223

)

 

$

(1,528

)

 

$

(1,579

)

 

 

 

 

 

 

 

 

 

Net (liabilities)/assets - Non-current

 

Other Non-current (liabilities)/assets

 

$

(1,855

)

 

$

(99

)

 

$

-

 

Net assets/(liabilities) - Current

 

Other Current assets/(liabilities)

 

229

 

 

(583

)

 

(939

)

     Net (liabilities)/assets

 

 

 

$

(1,626

)

 

$

(682

)

 

$

(939

)

 

For the periods indicated, the Company recorded the following related to its derivative financial instruments in the consolidated statements of comprehensive income as gain (loss) on derivative financial instruments:

 

 

Unaudited

 

Unaudited

 

Audited

 

 

30 June 2017

 

30 June 2016

 

31 December 2016

 

 

 

 

 

 

 

Net gain on settlements

 

$

147

 

 

$

391

 

 

$

147

 

Net loss on fair value adjustments on unsettled financial instruments

 

(687

)

 

(699

)

 

(957

)

   Total loss on derivative financial instruments

 

$

(540

)

 

$

(308

)

 

$

(810

)

 

Listed in the table below are the outstanding natural gas and oil derivative financial instruments as of 30 June 2017:

Derivative Financial

 

Remaining

 

Ending

 

Swap

 

Floor

 

Short Put

 

Ceiling

 

Mark-to-Market

Instrument Type

 

Volumes

 

Month

 

Price

 

Price

 

Price

 

Price

 

As of 30 June 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas

 

 

 

 

 

 

 

 

 

 

 

 

Swap

 

307,500 MMBTUs

 

Oct-17

 

$

3.38

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

102

 

Swap

 

1,500,000 MMBTUs

 

Oct-17

 

2.92

 

 

-

 

 

-

 

 

-

 

 

(181

)

Swap

 

6,000,000 MMBTUs

 

Mar-19

 

2.89

 

 

-

 

 

-

 

 

-

 

 

(266

)

Swap

 

6,000,000 MMBTUs

 

Mar-20

 

2.81

 

 

-

 

 

-

 

 

-

 

 

(191

)

Swap

 

6,000,000 MMBTUs

 

Mar-21

 

2.82

 

 

-

 

 

-

 

 

-

 

 

(211

)

Two-Way Collar

 

152,500 MMBTUs

 

Dec-17

 

-

 

 

3.25

 

 

-

 

 

3.75

 

 

31

 

Two-Way Collar

 

1,000,000 MMBTUs

 

Dec-17

 

-

 

 

2.87

 

 

-

 

 

3.32

 

 

(97

)

Two-Way Collar

 

1,500,000 MMBTUs

 

Mar-18

 

-

 

 

3.00

 

 

-

 

 

3.55

 

 

(145

)

Three-Way Collar

 

688,500 MMBTUs

 

Dec-17

 

-

 

 

3.00

 

 

2.50

 

 

3.48

 

 

24

 

Three-Way Collar

 

688,500 MMBTUs

 

Dec-17

 

-

 

 

3.30

 

 

2.80

 

 

3.77

 

 

130

 

Basis Swap: Dominion SP

 

1,230,000 MMBTUs

 

Oct-17

 

(0.67

)

 

-

 

 

-

 

 

-

 

 

493

 

Basis Swap: Dominion SP

 

3,600,000 MMBTUs

 

Dec-18

 

(0.60

)

 

-

 

 

-

 

 

-

 

 

(420

)

Basis Swap: Dominion SP

 

305,000 MMBTUs

 

Dec-18

 

(0.53

)

 

-

 

 

-

 

 

-

 

 

(13

)

Basis Swap: Dominion SP

 

7,668,000 MMBTUs

 

Sep-20

 

(0.59

)

 

-

 

 

-

 

 

-

 

 

(567

)

Basis Swap: TCO

 

2,100,000 MMBTUs

 

Sep-20

 

(0.39

)

 

-

 

 

-

 

 

-

 

 

(61

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

 

 

 

 

 

 

 

 

 

 

Two-Way Collar

 

30,728 BBLs

 

Dec-17

 

-

 

 

$

50.00

 

 

$

-

 

 

$

59.00

 

 

$

133

 

Two-Way Collar

 

30,600 BBLs

 

Dec-17

 

-

 

 

40.00

 

 

-

 

 

49.00

 

 

(35

)

Two-Way Collar

 

146,000 BBLs

 

Dec-18

 

-

 

 

42.00

 

 

-

 

 

51.00

 

 

(204

)

Two-Way Collar

 

146,000 BBLs

 

Dec-19

 

-

 

 

44.00

 

 

-

 

 

52.00

 

 

(197

)

Three-Way Collar

 

22,800 BBLs

 

Dec-17

 

-

 

 

47.00

 

 

37.00

 

 

59.00

 

 

49

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Derivative Financial Instruments

 

 

 

 

 

 

 

 

 

 

 

$

(1,626

)

 

Listed in the table below are the natural gas and oil derivative financial instruments executed subsequent to 30 June 2017:

Derivative Financial

 

Remaining

 

Ending

 

Swap

 

Floor

 

Short Put

 

Ceiling

Instrument Type

 

Volumes

 

Month

 

Price

 

Price

 

Price

 

Price

 

 

 

 

 

 

 

 

 

 

 

 

 

Natural Gas

 

 

 

 

 

 

 

 

 

 

Swap

 

900,000 MMBTUs

 

Nov-18

 

$

2.84

 

 

$

-

 

 

$

-

 

 

$

-

 

Basis Swap: TCO

 

20,000 MMBTUs

 

Nov-17

 

(0.24

)

 

-

 

 

-

 

 

-

 

Basis Swap: TCO

 

20,000 MMBTUs

 

Apr-18

 

(0.21

)

 

-

 

 

-

 

 

-

 

Basis Swap: TCO

 

320,000 MMBTUs

 

Oct-18

 

(0.34

)

 

-

 

 

-

 

 

-

 

Basis Swap: TCO

 

65,000 MMBTUs

 

Feb-19

 

(0.32

)

 

-

 

 

-

 

 

-

 

Basis Swap: Leidy

 

320,000 MMBTUs

 

Oct-18

 

(0.71

)

 

-

 

 

-

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Oil

 

 

 

 

 

 

 

 

 

 

Two-Way Collar

 

23,000 BBLs

 

Oct-17

 

$

-

 

 

$

38.00

 

 

$

-

 

 

$

50.90

 

Two-Way Collar

 

2,800 BBLs

 

Feb-18

 

-

 

 

39.00

 

 

-

 

 

53.35

 

Two-Way Collar

 

5,600 BBLs

 

Feb-19

 

-

 

 

40.00

 

 

-

 

 

56.05

 

 

Note 14 - Share Capital

 

In February 2017, DGO placed 61,000 new ordinary shares at 65 pence per share to raise gross proceeds of $49,563 (approximately £39,650). DGO used the funds raised for the repurchase of bonds, repayment of existing debt facilities, costs of admission to AIM and working capital requirements of the Company. Following this initial placing, and as discussed in Note 9, in June 2017, DGO issued an additional 39,300 ordinary shares at 70 pence per share to raise additional gross proceeds of $34,938 (approximately £27,510) to fund part of the purchase price of an additional acquisition. The following table summarizes the Company's share capital for the periods presented:

 

 

Number of Shares

 

Total Share Capital

 

 

 

 

 

Balance as of 1 January 2017

 

44,210

 

 

$

669

 

 

 

 

 

 

Issuance of share capital, primarily initial offering

 

61,381

 

 

768

 

Issuance of share capital, primarily secondary offering

 

39,485

 

 

503

 

 

 

 

 

 

Balance as of 30 June 2017

 

145,076

 

 

$

1,940

 

 

 

 

 

 

 

 

Number of Shares

 

Total Share Capital

 

 

 

 

 

Balance as of 1 January 2016

 

41,200

 

 

$

630

 

 

 

 

 

 

No activity during the period

 

-

 

 

-

 

 

 

 

 

 

Balance as of 30 June 2016

 

41,200

 

 

$

630

 

 

 

 

 

 

 

 

Number of Shares

 

Total Share Capital

 

 

 

 

 

Balance as of 1 January 2016

 

41,200

 

 

$

630

 

 

 

 

 

 

Issuance of share capital, Board Member

 

800

 

 

12

 

Issuance of share capital, Chief Operating Officer & Finance Director

 

2,210

 

 

27

 

 

 

 

 

 

Balance as of 31 December 2016

 

44,210

 

 

$

669

 

 

Note 15 - Decommissioning Liability

 

The Company records a liability for future cost of decommissioning production facilities and pipelines on a discounted basis. The decommissioning liability represents the present value of decommissioning costs relating to oil and gas properties, which are expected to be incurred up to 2047, which is when the producing oil and gas properties are expected to cease operations. These liabilities are recorded based on the Directors' internal estimates. Assumptions based on the current economic environment have been made, which the Directors believe are a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly to take into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works required that will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on when the fields cease to produce at economically viable rates. This, in turn, will depend upon future oil and gas prices, which are inherently uncertain. The discount rate and the cost inflation rate used in the calculation of the decommissioning liability were 8.0% and 3%, respectively as at each of the periods presented. See Note 9 for a discussion of acquisition activity that drove the increase in the liability since 31 December 2016:

Period

 

Beginning Liability

 

Additions

 

Accretion

 

Disposals

 

Change of Estimate

 

Ending Liability

 

 

 

 

 

 

 

 

 

 

 

 

 

As at and for the 6 months ended 30 June 2017 (Unaudited)

 

$

12,265

 

 

$

18,780

 

 

$

585

 

 

$

-

 

 

$

-

 

 

$

31,630

 

As at and for the 6 months ended 30 June 2016 (Unaudited)

 

8,869

 

 

5,706

 

 

223

 

 

-

 

 

-

 

 

14,798

 

As at and for the year ended 31 December 2016 (Audited)

 

8,869

 

 

5,457

 

 

797

 

 

(4

)

 

(2,854

)

 

12,265

 

 

Note 16 - Borrowings

 

As discussed in Note 14, the Company used part of the equity proceeds raised through its IPO on AIM to repay much of the debt outstanding at 31 December 2016. DGO's borrowings consist of the following amounts for the periods presented:

 

 

Unaudited

 

Unaudited

 

Audited

 

 

30 June 2017

 

30 June 2016

 

31 December 2016

 

 

 

 

 

 

 

Financial institution, with interest rate of 3.25%, matured December 2016, secured by oil and gas properties

 

$

-

 

 

$

16,118

 

 

$

15,768

 

Financial institution, interest rate of 4.00%, matured August 2016, secured by oil and gas properties

 

-

 

 

3,225

 

 

3,165

 

Financial institution, interest rate of WSJ Prime Rate plus 0.50%, maturing July 2017, secured by oil and gas properties

 

-

 

 

2,000

 

 

2,000

 

Financing companies, interest rates of 10%-12%, maturing September 2016 - November 2016, secured by oil and gas properties

 

-

 

 

6,650

 

 

4,750

 

Individuals and institutional investor bonds, interest rate of 8.50%, maturing June 2020, unsecured

 

118

 

 

13,009

 

 

13,928

 

Financial institution, interest rate of 8.25% plus LIBOR, maturing July 2020, secured by oil and gas properties (a)

 

64,000

 

 

-

 

 

-

 

Miscellaneous notes, primarily for equipment, real estate and operational cash flow

 

497

 

 

1,537

 

 

1,728

 

     Total borrowings

 

$

64,615

 

 

$

42,539

 

 

$

41,339

 

 

 

 

 

 

 

 

Less current portion of long-term debt

 

(305

)

 

(29,194

)

 

(27,181

)

Less deferred financing costs (b)

 

(2,994

)

 

(3,753

)

 

(4,045

)

     Total non-current borrowings, net

 

$

61,316

 

 

$

9,592

 

 

$

10,113

 

 

a.       In June 2017 the Company closed a new $110,000 Senior Secured Credit Facility, of which $64,000 was drawn upon closing on 30 June 2017. Of the $46,000 undrawn, $11,000 is reserved to close on the remaining oil and gas assets discussed in Note 9. The remaining $35,000 availability can be used within the first twelve months of the facility's life to finance additional acquisitions, of which $25,000 would require an additional underwriting process by the lender.

 

b.       Subsequent to 31 December 2016, all deferred financing costs were expensed when applicable borrowings were paid in full using IPO proceeds. The deferred financing costs outstanding at 30 June 2017 were incurred with the financing of the Senior Secured Term Loan.

 

The following table provides a reconciliation of DGO's future maturities of its total borrowings for each of the periods presented:

 

 

Unaudited

 

Unaudited

 

Audited

 

 

30 June 2017

 

30 June 2016

 

31 December 2016

 

 

 

 

 

 

 

Not later than one year

 

$

305

 

 

$

29,194

 

 

$

27,181

 

Later than one year and not later than five years

 

64,310

 

 

13,345

 

 

14,158

 

Later than five years

 

-

 

 

-

 

 

-

 

     Total borrowings

 

$

64,615

 

 

$

42,539

 

 

$

41,339

 

 

Note 17 - Subsequent Events

 

Subsequent to 30 June 2017, the Directors determined the need to disclose within the interim financial statements the following material items:

 

a.   Dividend Paid & Declared: See Note 8 for a discussion of dividends paid and declared subsequent to 30 June 2017.

 

b. Hedging Activities:  See Note 13 for a detail of derivative financial instruments executed subsequent to 30 June 2017.

 


This information is provided by RNS
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