Trading Statement

RNS Number : 3659M

Independent Resources PLC

20 January 2016

 

Independent Resources plc

("IRG" or the "Company")

Trading Update

Independent Resources plc (AIM:IRG), the oil and gas exploration and production company with a focus on the Mediterranean basin, is pleased to provide its trading update for the fourth quarter of 2015.

Highlights

·      Completion of East Ghazalat acquisition providing IRG with revenue generating assets in Egypt

·      Fourth quarter net production of 15,400 barrels of oil

·      Fourth quarter attributable revenues of US$242,499 

·      Discussions in progress with East Ghazalat's operator North Petroleum to improve this asset's financial and operating performance

·      Finalising arrangements to invoice and receive revenue payments directly from the Egyptian General Petroleum Company to improve cash flow

·      Further technical analysis conducted on Ksar Hadada to assess its potential

Monthly Production (Net)

Egypt

Month	Total Net Production (BOE)*	Attributable Revenue** (USD)
July	6,787	$144,726
August	6,292	$108,911
September	5,906	$104,820
October	4,629	$82,446
November	5,171	$83,374
December	5,600	$76,679

*Net production represents 25 per cent. of total field production. Output in October and November was adversely affected by an interruption in production at one of the field's producing wells. IRG and Nostra Terra Oil and Gas plc (NTOG) through their joint venture company Independent Resources (Egypt) Limited ("JV") moved quickly to liaise with North Petroleum, the operator of the East Ghazalat concession, to rectify the disruption to output and restore the well to its previous productivity.

**Revenue in Egypt is the accrued combination of cost recovery and profit oil attributed to IRG. The average realised price for Q4 was $40.59 per barrel

Q4 2015 Operations Update

East Ghazalat (Western Desert, Egypt)

In October 2015 IRG entered into a joint venture ("JV") agreement with Nostra Terra Oil and Gas Company plc, an AIM listed exploration and production company focused on the acquisition of producing assets in the US and Egypt which has a similar strategic intention to that of IRG to invest in producing or near-production assets with upside potential.

In October 2015 the JV acquired a 50 per cent interest in the East Ghazalat concession in Egypt ("East Ghazalat") for US$3.5 million, operated by North Petroleum ("the Operator"), a wholly-owned subsidiary of China ZhenHua Oil Co, Ltd, a Chinese state-owned oil company. The effective date of this acquisition was 1 July 2015 and accordingly IRG has reported its production and revenues derived from East Ghazalat from that date.

Historic collection of revenues prior to the JV's acquisition has been around 4 months, hence IRG has not yet received its third and fourth quarter revenue payments of, in aggregate, $600,966. The JV is finalising arrangements with the Egyptian General Petroleum Company ("EGPC") in respect of both these outstanding and future revenue receivables. The JV will energetically pursue timely payment of its revenue receivables.

The JV has identified five key objectives for East Ghazalat. These comprise:

-     a reduction in operating costs;

-     increasing production through implementing operational improvements;

-     drilling of new lower risk oil wells;

-     improving the asset's cash flow through accelerated invoicing for production and quicker receipt of outstanding invoices; and

-     developing the North Dabaa gas discovery.

The JV is in discussions with the Operator on all of these initiatives. Whilst the JV has identified and proposed measures which will improve the operating performance and cashflow generation of the asset, it does not operate East Ghazalat and the necessary changes to achieve these objectives require the consent and cooperation of the Operator and the Egyptian General Petroleum Company (EGPC).  Equally the Operator requires the consent of the JV in order to approve budgets and operating plans for East Ghazalat. Accordingly, there is a clear economic alignment between all parties to reach an agreement to achieve these improvements. IRG looks forward to providing updates on progress during the course of the year.

Ksar Hadada in Tunisia

We continue to seek a farm-in partner for the Ksar Hadada licence in Tunisia.

We have recently obtained approval from Entreprise Tunisienne d'Activités Pétrolières (ETAP) the state-owned industrial and commercial company in Tunisia directly in charge of the petroleum sector, for a data trade to provide us with technical information on a neighbouring field which is on production after the drilling of multiple successful wells and which is geologically analogous to Ksar Hadada.  We believe the availability of this information will be of value to prospective partners in understanding Ksar Hadada's potential.

Italy

The Company continues to await clarity on the timing of the commencement of planned appeal proceedings at the Regional Administrative Court in Bologna in relation to the Rivara underground gas storage facility.  

As previously disclosed, the Company closed its Rome office at the end of March 2015 and is incurring minimal administrative costs in respect of its Italian operations.

Cashflow Update

As outlined above the Company has not yet received cash receipts from its interest in East Ghazalat and continues to incur cash outflows to meet working capital and corporate overheads.  The bulk of the net cash proceeds of £0.7m from the Company's issue of equity in November went to satisfy the Company's cash contribution of $0.5m to the JV to meet the initial consideration in respect of the East Ghazalat acquisition plus associated loan interest and acquisition costs. IRG continues to be cashflow negative and has £0.109 million of cash remaining at 31 December 2015. The Company is energetically pursuing improvements in East Ghazalat's operating and financial performance and timely collection of revenue receivables from EGPC, in order to improve its cash position.

The $2.5m vendor loan note issued by TransGlobe Petroleum International Inc. to the JV in respect of the acquisition of East Ghazalat is not redeemable by the JV until 30th September 2017.

As described in its 2014 annual report and circular to shareholders of 29 October 2015, the Company remains extremely cost conscious and seeks to keep operating costs at a minimum whilst tightly managing its cash resources and the Directors continue to receive minimal to none of their remuneration as cash.

The Company is continuing to pursue various potential sources of debt and alternative forms of asset backed financing to assist with the future development of East Ghazalat and other potential investment opportunities but should these be unsuccessful and should East Ghazalat experience delays in its cashflow generation to IRG then the Company will require support from providers of equity finance in order to be able to continue as a going concern.

Outlook

The lower oil price environment continues to present a number of opportunities for IRG which will continue to seek acquisitions of assets which meet its demanding return on investment targets.  The Board are assessing a number of potential opportunities and will continue to update shareholders on any material developments

Greg Coleman, Chief Executive Officer of Independent, commented:

"The current oil price environment creates both a challenge and an opportunity for IRG.  It is clear to the authorities in all countries of the need to work together to satisfy the requirements of all stakeholders, be they investors, employees and/or fiscal authorities.  The industry has always been cyclical and therefore low cost assets are essential to be successful in the long term.  We appreciate the support of our shareholders and continue to believe that the Board's decision to acquire low cost production assets will ultimately stand the Company in good stead in the future."

For more information, please visit www.ir-plc.com or contact:

Greg Coleman		Independent Resources plc	020 3367 1134
Mark Taylor		Panmure Gordon (UK) Limited	020 7886 2500
		(Nominated Adviser & Joint Broker)
Oliver Stansfield		Brandon Hill Capital	020 3463 5000
Jonathan Evans		(Joint Broker)
Simon Hudson		Tavistock Communications	020 7920 3150

 

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