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Trap Oil Group plc (TRAP)

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Thursday 28 March, 2013

Trap Oil Group plc

Final Results

RNS Number : 0215B
Trap Oil Group plc
28 March 2013
 



                                                                                                                                                                                                                                                                                                                                                                                                                        28 MARCH2013

Trap Oil Group plc

("Trapoil" or the "Company" and, together with its subsidiaries, the "Group")

 

FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2012

Trapoil (AIM: TRAP), the independent oil and gas exploration, appraisal and production company focused on the UK Continental Shelf ("UKCS") region of the North Sea, is pleased to announce its audited results for the year ended 31 December 2012.

Highlights:

·       Oil discoveries made from the drilling of both the Orchid and Romeo exploration wells.

·       Acquisition of a 15% working interest in the Athena producing oil field completed on 21 December 2012 at a renegotiated lower effective acquisition cost of £21.8m.

·       Three licences awarded in DECC's 27th Offshore Oil and Gas Licensing Round.

·       Farm-in for a 100% working interest in large acreage position, covering over 1,000 square kilometres on the UKCS, to develop potential unconventional offshore play.

·       Secured a major equity position in the Knockinnon prospect and, post year end, agreements entered into to conditionally acquire significant equity positions in the Trent East and Orchid prospects with the intention of assuming operatorship of all such assets.

·       First oil production achieved on the Lybster producing field. 50,027bbls (gross) produced in 2012 with Trapoil entitled to 20%.

·       Successful placing completed in June 2012 raising approximately £4.3m (gross).

·       US$20m Senior Secured Borrowing Base Facility obtained from GE Capital with associated significant 3 year swap transactions entered into with a subsidiary of BP International Limited to provide cashflow visibility.

·       Loss after taxation of approximately £10.9m (2011: £4.5m) reflects a non cash impairment charge of £6.8m further to the relinquishment of the Inverewe, Lytham and Sienna licences and the unsuccessful Magnolia exploration well.

 

Outlook:

·       Scotney exploration well currently being drilled in which the Group holds a 12.5% carried interest.

·       2013 capital expenditure anticipated to be up to £5m, principally relating to exploration activities to secure 2014 drilling opportunities. Trapoil is fully carried on both the Scotney well and the recently completed Magnolia well and no capital expenditure is currently anticipated on Athena.

·       Seeking to attain UKCS operator status from DECC in early 2013, and assume operatorship of the Knockinnon, Trent East and Orchid prospects to drive such promising assets forwards.

·       Strong cashflow generation anticipated from our interest in the Athena producing asset with payback expected within approximately one year.

·       Development of unconventional oil play with a view to potentially securing partners in 2014 to drill a proof of concept well.

·        Actively building our 2014 exploration drilling programme.

·       Utilising the cash generated from our production assets to fund further exploration and appraisal activities.

 

 

Mark Groves Gidney, Chief Executive Officer of Trapoil, commented:

"In a very challenging industry and market environment, Trapoil has successfully established strong foundations for further growth via the sizeable corporate, asset and financing transactions executed since its IPO.

We will endeavour to commercialise our existing discoveries and continue to build exciting exploration programmes as we look forward to the further opportunities ahead."

 

Enquiries:

Trap Oil Group plc

 

Mark Groves Gidney, CEO

 

Tel:  0203 170 5586

www.trapoil.com

 

Strand Hanson Limited

James Harris

Matthew Chandler

James Spinney

 

Tel:  0207 409 3494

Mirabaud Securities LLP

Peter Krens

 

Tel:  0207 321 2508

FirstEnergy Capital LLP

Hugh Sanderson

David van Erp

 

Tel:  0207 448 0200

 

Cardew Group

Shan Shan Willenbrock

Lauren Foster

 

Tel:  0207 930 0777

[email protected]

 

  

ChAIRMAN's STATEMENT

 

Introduction

 

Despite a challenging year for the Group and the UK North Sea sector as a whole, we have been involved in two exploration discoveries, been awarded a number of new licences in the UKCS 27th Licensing Round and completed the acquisition of a 15 per cent. working interest in the Athena producing field. These are substantial achievements for a smaller quoted company which has operated against a backdrop of rig and other delays and a perceived tightening of budgets in the industry. These results confirm the validity of our business model and the ability of our explorers to find oil. Our next challenge, which we are working on actively, is to commercialise these successes to create real value for shareholders. In parallel with this activity we will continue building and maturing our exploration portfolio to enable us to offer an exciting exploration programme for 2014 and beyond.

 

Our first discovery, on the Orchid prospect in Block 29/1c in the Central North Sea, was spudded in March 2012 and completed in May 2012. The well found oil in what we believe to be commercial quantities but we were unable to persuade the partnership group to conduct a flow test. We continue to believe that the Orchid discovery, which sits in a prolific area between the Bittern and Banff oil fields and was listed by the Department for Energy and Climate Change ("DECC") as the top North Sea discovery in 2012, has the potential to yield a commercial development. We recently backed this judgment by acquiring a further 45 per cent. interest in the block from Summit, taking our total stake in the block to 60 per cent., a level which should allow us to drive future activity on the discovery and to dilute our interest in the future in return for third party funding, if required. Commercialisation of the discovery requires a successful appraisal well to be drilled to demonstrate adequate flow rates. We expect to assume operatorship of the block in due course.

 

Our second discovery, on the Romeo prospect in Block 30/11c in the Central North Sea, is potentially much more significant. The discovery well, which was spudded in September 2012 and completed in January 2013, was drilled to a measured depth of approximately 15,300ft and found hydrocarbons within three different zones. Good quality oil similar to that encountered at the nearby Fulmar field was recovered from one of the zones but the well was not tested. Based on our modeling of the discovery we see significant potential to the north-east of the discovery well but a further well will be required to test and confirm this potential. The timing of such a well will depend on the degree of alignment across the two joint venture groups involved in this discovery.

 

In the UKCS 27th Licensing Round we were provisionally awarded interests in three traditional North Sea licences and through our involvement with Extract Petroleum Limited we also picked up, via a farm-in to their licence award, a large position in an unconventional play type. The traditional licences cover a 50 per cent. interest in Blocks 14/11, 14/12, 14/16, 16/18b (split), 21/8c, 21/9b (split), 21/10c, 21/14a and 21/15b and mostly require seismic to be acquired before drilling decisions can be made. The unconventional play covers more than 1,000 square kilometres and hinges on whether oil can be proven to flow at commercial rates from tight reservoirs. We will fund approximately £1m of research and development into this concept and work towards establishing a consortium of major oil companies to drill a well to test the concept. Our reward, if we are successful, is likely to be a carried interest in the acreage.

 

Since the year end, we spudded two exploration wells - the Scotney prospect in Block 20/5b, in which we have a 12.5 per cent. carried interest, and the Magnolia prospect in Block 13/23a, in which we have a 10 per cent. carried interest. Unfortunately, the Magnolia well has recently proved to be unsuccessful, as no significant hydrocarbons were found. Operations continue on Scotney and we await the results with interest.

 

In December 2012, we successfully completed the acquisition of a 15 per cent. working interest in the Athena producing oil field in the Central North Sea, Block 14/28b, from Dyas UK Limited. This transaction, which took nearly twelve months to complete, should provide us with valuable cash flow and allow us to conduct our exploration activities in a tax efficient manner. At the end of 2012, the Company had total cash resources of approximately £9.3m and in early 2013 we put in place a US$20m three-year senior secured borrowing base lending facility with GE Capital to increase our financial flexibility.

 

We have taken a number of steps throughout the year to improve the degree of control we have over our asset base. We have recruited well-qualified staff and consultants to establish an operating capability to enable us to drill exploration and appraisal wells in the North Sea. Our application for approval as an operator is currently being considered by DECC. We have re-negotiated our carry arrangements with Caithness Oil Limited to increase our interest in the Knockinnon discovery to 70 per cent.; we have increased our interest in the Orchid discovery to 60 per cent. and we have also acquired a 33.33 per cent. operated position in the Trent East gas discovery. These prudent steps are designed to reduce the effects of delays and partner misalignment issues that affected our 2012 exploration programme and to provide us with greater control over our future activities.

 

Turning the two oil discoveries we made in 2012 into commercial successes will be one of our top priorities over the next couple of years but we will also be devoting significant time and effort to the other discoveries in our portfolio, such as Trent East, Knockinnon, and, to a lesser extent, Surprise, where we only hold a small interest. All of these discoveries require further appraisal drilling before we can determine whether they will constitute viable developments. We intend to examine options for the financing of these appraisal wells, either individually or as a package, which minimise our contribution to the risk capital required in an extension of our existing carried exploration model. Our objective is to increase the underlying value of all of these discoveries and to see more of this value being reflected in our share price.

 

I believe the Group has established a solid foundation for growth in 2013. It has a dynamic management team and an exciting exploration programme, backed by a strong balance sheet and cash flows from production. Our key corporate objectives over the next twelve months are as follows:

 

·      Execute our 2013 exploration programme while remaining alert to the possibility of additional activity later in the year

 

·      Continue to grow and mature our exploration portfolio to generate an active drilling programme for 2014 and beyond

 

·      Start the process of commercialising our discoveries to increase their underlying value by finding partners and funding for an appraisal well programme commencing in 2014

 

·      Retain financial flexibility to enable the Group to take advantage of ad hoc opportunities as they arise

 

On behalf of the Board, I should like to thank all our shareholders for their support during the past year and for their continuing interest in our activities as we look forward to rising to the challenges from the remainder of 2013 and beyond.

 

 

Kevin Watts

Non-Executive Chairman

 

27 March 2013



 

Chief Executive OFFICER's Report

 

Introduction

 

The year ended 31st December 2012 was undoubtedly a challenging year for the management team but we have taken the right actions to build strong foundations and look forward to the remainder of 2013 with optimism.

 

The depressed state of capital markets in 2012 with a general dearth of risk capital, especially in Europe, provided a difficult backdrop for ambitious small cap companies with growth aspirations. Despite the lack of equity and subdued investor appetite, the Group has delivered many notable milestones that we believe in time will deliver shareholder value.

 

Production - the Athena and Lybster producing oil fields

 

Throughout the second half of 2012, management focused on gaining the requisite approvals to be able to complete the acquisition of a significant 15 per cent. working interest in Athena (Licence P.1293, Block 14/28b). Although this proved to be an arduous process, we successfully obtained all the necessary consents with completion of this sizeable transaction occurring just prior to the year end. The deal was ultimately concluded on significantly improved commercial terms following a renegotiation with Dyas, the vendor.

 

Under the revised terms, we are delighted to now be part of the Athena consortium and are currently benefiting from extended plateau production at a rate of approximately 10,800bopd. It is not yet possible to comment with any degree of comfort on the ultimate recoverable reserves but we are satisfied that the price paid reflects an anticipated recovery in the 'low to mid teens' million barrels of oil reserves.

 

Production as it currently stands is forecast to deliver a pay back period of approximately one year and our anticipated return on investment, based on our projections, should ultimately prove to be attractive.

 

The Lybster field came on stream 2 May 2012. Lybster produced 50,027bbls (gross) in 2012; of which Trapoil was entitled to 20 per cent.  During the period, the field experienced operational problems from the build up of wax in the well necessitating regular wireline interventions. The current production rate is approximately 300bopd, when producing.  Initially, production was trucked to the Immingham refinery however, following completion of the requisite modifications in January 2013, oil is now being trucked to the nearby Nigg facility.

 

Debt facility

 

The acquisition of an interest in the Athena producing field enabled the Group to secure a debt facility to provide an additional source of funding and enhanced financial flexibility. We were offered terms from several leading financial institutions and were pleased to mandate GE Capital who provided the optimal combination in respect of fees, interest rate (LIBOR + 6 to 7 per cent. depending upon economic drivers) and facility size (US$20m) and term (3 years).  We look forward to a long and successful relationship with GE Capital.

 

Conterminously, with securing the debt facility we entered into a series of oil price hedging transactions to obtain greater certainty over our future forecast cash flow streams. With the support of GE Capital, we entered into swaps with Britannic Trading Limited, a subsidiary of BP International Limited, for a period of three years at yearly average prices ranging from approximately US$109 to US$96.  Again, we look forward to establishing a strong relationship with Britannic.

 

With the agreed US$20m senior secured borrowing base facility implemented at an acceptable cost alongside hedging from Britannic over approximately 60 per cent. of our near term future production stream, we believe that the Group is financially well positioned for the immediate future.

 

Exploration activities in 2012

 

Our track record to date is cautiously encouraging with two oil discoveries achieved from our first two wells.  Although both discoveries require further appraisal, they offer the Group the potential of future commercialisation. Our third well, Magnolia has recently proven to be unsuccessful, with no significant hydrocarbons encountered.

 

Orchid

We farmed into Orchid and secured a second tranche of equity in this well via our acquisition of Reach Oil & Gas Limited ("Reach") in 2011. The Orchid well was originally scheduled to be drilled in the second half of 2011, but was delayed due to rig availability. Drilling eventually commenced in March 2012 and operations were completed in early May 2012. We discovered an approximate 200ft plus hydrocarbon column in the primary Chalk reservoir. Chalk is a difficult reservoir to understand and we were unable to take cores or conduct testing. As a result, we were left with many unanswered questions, especially as wireline logs indicated higher than normal water concentrations with the oil.

 

Following consultation with various experts, we believe our preliminary conclusion at the time of drilling was correct and that there is moveable oil in the zone of interest. Future activity will require a further appraisal well to test flow rates. If this is successful, we believe that there is sufficient oil for a commercial development assuming that we can make use of nearby export facilities. We have recently entered into a transaction to acquire the operator's (Summit Petroleum Limited ("Summit"), a subsidiary of Sumitomo Corporation) 45 per cent. equity and assume operatorship for a consideration of £1.5m. With a controlling position, we can drive the asset forward towards potential future commercialisation and currently expect to drill a further well in 2014, subject to rig market conditions and securing a further partner.

 

Romeo

Our second well, Romeo (Licence P.1666, Block 30/11c), proved challenging but turned out to be a successful exploration well that helps to de-risk the accumulation. We believe the opportunity offered by Romeo remains as significant as our pre drill estimates of resources.

 

This well was a joint well between our partnership, led by Suncor Energy UK Limited ("Suncor"), and Total E&P UK Limited, who control the adjacent acreage to the West. Suncor operated the well, which was deep and had to be drilled very carefully as there was a concern about potential high temperatures and pressures. Evaluation whilst drilling was not possible due to the manner in which the well was drilled such that no cores were cut even though they were planned. With the benefit of wireline logs, it was clear that we had hydrocarbons in the Jurassic over a gross 700ft column and, upon finding water, we then went back into a second hydrocarbon column in the Triassic. We did not encounter any water in the Triassic before hitting the Zechstein, which completed the drilling commitment to DECC.

 

There was active debate amongst the five companies involved in this well as to whether or not we should perform a side track or test and, unfortunately, with no clear consensus emerging and the hole deteriorating rapidly due to extensive wireline log runs, the decision to abandon the well was taken. However, we are nevertheless encouraged with the results of this discovery well. It is our current desire, if we can secure partner support, to see a new appraisal well drilled at Romeo.

 

Consistent with our stated business plan, we have carried interests in both of the above wells thereby limiting our net drilling costs to approximately £2.5m for both wells.  It is encouraging that potentially commercial hydrocarbons have been discovered for such a low cost to the Group.

 

Ongoing exploration with carried interests

 

Our established business model is to leverage our technical knowledge, combined with access to best in class seismic databases, to unearth exploration opportunities. This allows management to secure partners and gain a carried interest, principally at the time the opportunity is awarded to our consortia or when we farm it out to an industry partner following award (or both).

 

This model has delivered low cost drilling opportunities, albeit we did not drill as many wells as we had hoped for due to rig delays and differing partner priorities. Following on from the drilling of Magnolia, completed in March 2013, we look forward to completing the drilling of the Scotney exploration well. We are fully carried in both of these wells with no consequent financial downside. Success on Scotney potentially has the ability to significantly enhance our prevailing market capitalisation.

 

Within our portfolio, we currently hold a five per cent. carried interest (together with a 17 per cent. paying interest) in the Crazy Horse (Licence P.1650, Block 14/13) well and an eight per cent. carried interest (together with a 20 per cent. paying interest) in the Niobe well (Licence P.1889, Blocks 12/26b & 27), both of which are commitments to DECC. Norwegian Energy Company UK Limited ("Noreco") and Suncor operate these assets respectively and both wells are currently expected to be drilled in 2014.

 

It is disappointing that Crazy Horse will not be drilled until 2014 following the decision of the operator, Noreco, to relinquish its drilling slot. As a result of the delay, whilst a new rig slot is sought, DECC has granted a licence extension.

 

It is essential that we maintain and add to our exploration inventory of new opportunities. Through DECC's 26th Licensing Round of three years ago, we hold the Brule NW prospect (and Bordeaux discovery) where we have a 6.25 per cent. carried interest (and 40 per cent. working interest) and North Kelvin (50 per cent. working interest), which both require partners to be secured before drilling can take place.

 

In the 27th Licensing Round, we were awarded three interesting blocks, in two of which we hold five per cent. carried interests (plus 45 per cent. working interests), named Homer and Valleys. Homer is of particular interest as it covers acreage that may yield upside potential for our Athena producing asset. Noreco is the operator of both and our partnership group needs to shoot new seismic data before taking any further decisions.

 

Trap Oil Limited will operate the third asset, Savannah (50 per cent. interest of which five per cent. is carried) and this lies adjacent to our newly acquired Extract acreage. As with the other 27th Licensing Round awards, it is currently too early to determine drilling viability.

 

We look forward to DECC's 28th Licensing Round, on which work is currently anticipated to start early this year to be ready to bid at the year end/start of 2014, when we expect the formal application process to be announced.

 

Active portfolio management

 

2012 was very difficult for exploration companies focused on the North Sea. Equity markets have become more risk adverse to this type of resource play, especially with respect to exposure to small cap companies. Whilst this environment creates good opportunities, it also means that it is difficult to attract farm-out partners for projects. We had three good assets - Inverewe (Licence P.1864 Block 9/24d), Lytham and Sienna - on which we had spent considerable time and resources but regrettably ran out of time to attract partners prior to the end of their respective licensing periods. We had to decide whether it was prudent to drill one or more of the three prospects with high equity positions, 80 per cent., 100 per cent. and 28 per cent. (8 per cent. carried) respectively, and therefore incur significant cost exposure. Following due and careful deliberation with our partners, it was agreed to relinquish these assets. The Group received £4.25m of entrance and exit fees from our partners in respect of Inverewe. As a result of such relinquishments, we booked a non cash impairment charge, which is reflected in the results for this reporting period.

 

Further evidence of the difficult market place was encountered with respect to our joint venture with Caithness, which we acquired as part of the Reach transaction. Trapoil was carried as to 35 per cent. on two potential wells, one of which was a commitment to DECC.  The potential failure of Caithness to drill the commitment well on a timely basis, could have harmed our reputational standing with DECC. Accordingly, an asset swap was negotiated and agreed whereby we assumed control of Knockinnon(Licence P.1270, Block 11/24), in exchange for ceding equity in Forse (Licence P.1286, Block 11/23). We also retained the ability to buy back a 20 per cent. working interest in Forse if the well ultimately leads to a discovery along with an agreed amount of compensation of US$7m should the well not be drilled.

 

An important achievement for the Group was the recent agreement to, acquire an additional 45 per cent. interest in Orchid (to permit us greater control over this promising asset) and farmed into Extract's entire UK asset portfolio acquiring a 100 per cent. equity interest and operatorship of its UKCS acreage.

 

Trapoil's management worked closely with Extract's executive team in its lead up to securing the relevant acreage totaling 1,026km2 in the 27th Licensing Round. The opportunity is to demonstrate the commercial viability of flowing oil from tight reservoirs. The Group will commit approximately £1m to this opportunity and, following a technical work programme to be completed by Trapoil and Extract, will look to attract a major industry player to drill a "proof of concept" well.  Although relatively immature, if successful, this could be a potentially "game changing" well if we can prove that oil will flow out of tight reservoirs at a commercial rate. The amount of oil potentially held in tight reservoirs is equal to, or probably greater than, all of the oil produced to date from the UK North Sea. The possible prize is therefore substantial, but this asset is still very much in its infancy and we will need to perform a considerable amount of work before drilling may occur in 2014/2015. 

 

Operatorship

 

As a consequence of both our acquisition of Reach in 2011 and our exploration drilling to date, we have a number of assets requiring appraisal. Due to the prevailing investment climate and some individual factors these assets have struggled to attract further investment from some partners, unless they are located in their immediate spheres of influence, for example where they have existing infrastructure. In the majority of cases, it is imperative to have control of these assets so that as operator we can heavily influence the timing for drilling as well as the manner in which the appraisal is undertaken.

 

Currently, we have four such assets in our portfolio. Trent East (Licence P.685, Block 43/24a) is unique in being a gas asset and one where the reservoir has already historically been tested at 50mmcfgd. The other three are oil assets, namely Knockinnon, Orchid and Surprise (Licence P.1267, Blocks 12/25a & 13/21b), where the reservoirs are still to be tested to gain comfort regarding their ability to flow at commercial rates. Such flow assurance testing and the need to gain more information (for example, core data) on the reservoirs is all important before we can potentially finalise a field development plan (FDP). At that stage, we would hope to have materially increased the value of the asset in order to potentially monetise it from a sale (singularly or collectively) or alternatively develop the field to obtain cash flow.

 

Trapoil's management team is currently looking to secure partners to enable drilling of Knockinnon, Orchid and Surprise. If we can secure the requisite funding all of these wells could potentially be drilled in 2014.

 

Trent East already has greater clarity regarding commercial flow rates. Our agreement with Perenco requires us to secure a rig and assume operatorship, which may lead to a well in late 2013 if we can obtain a single well slot. However, it is more likely that we will batch it into a drilling programme with Knockinnon and Surprise for which we need a similar rig type (a 'jack up'). Orchid's drilling requirements are different in that it requires a semi-submersible rig.

 

Trapoil is in the process of completing its qualification with DECC to become an operator and such status, plus the securing of funding partners, will then enable such appraisal drilling projects to commence.

 

Outlook

 

The Group has an exciting future ahead of it with numerous wells to be drilled within its portfolio over the next three years. The 2013 drilling programme is shorter than we hoped comprising Scotney and Magnolia and the possibility of the Forse well, in which the Group has a free option to back into 20% of any discovery made, being drilled by Caithness later in the year. We continue to evaluate further potential 2013 drilling opportunities but are cognisant of the difficulties posed by the tight rig market which is unlikely to change radically for 2014. As a Group, we have progressed significantly, particularly in such a difficult market environment, and we will continue to explore all avenues that lead to enhanced shareholder value whilst keeping true to our principles of being a technically led UK focused E&P company. Our progress in 2012 in capturing a meaningful tranche of production, coupled with a robust exploration business model, means that we are well positioned to play our part as an active consortium member, especially in DECC's anticipated 28th Licensing Round. Additionally, during 2013, we will be working diligently to build an exciting drill programme for 2014 which should include our first operated well(s). We are therefore in good stead to move towards the next stage of our development and look to the future with confidence.

 

 

 

Mark Groves Gidney

Chief Executive Officer

 

27 March 2013



 

Finance Director's Report

 

The year ended 31st December 2012 has been a challenging year for the Group but one where we have established a strong foundation to move forward. Including post year-end events, there have been several notable milestones including the acquisition of a 15 per cent. working interest in the producing Athena oil field, first production from the Lybster (Licence P.1270, Block 11/24) field, drilling of our first well, completion of a further equity raise and, in January 2013, the securing of our first debt facility.

 

Share Issue, Debt and Hedging

 

During the year, the Group successfully raised approximately £4.3m (before expenses) of additional equity funding. Following the year-end, the Group secured debt funding from GE Capital Corporation on what we believe are very competitive terms for a Group of our size.  This US$20m three year senior secured borrowing base facility incurs interest on drawdown amounts initially at a rate of LIBOR+7%, reducing to LIBOR+6% if certain conditions are met.  Both the equity and debt funding will be used to support the continued growth of the business.

 

In conjunction with the debt facility we entered into certain oil price swap arrangements for a significant proportion of our production over a three-year period.  Prices achieved were in a range of approximately US$109/bbl for 2013 to US$96/bbl in 2015. These swaps were concluded with Britannic, a subsidiary of BP International Limited and provide another important element of securing cashflow for our investment needs.

 

In GE Capital and Britannic we have attracted two blue chip organisations to work alongside us.  We look forward to continuing and broadening these relationships in the years to come.

 

Cash Resources, Acquisitions and Capital Expenditure

 

As at 31 December 2012, the Group held cash resources of approximately £9.3m and is fully funded to execute its current committed capital expenditure programme.  It is anticipated that the Group will complete three wells in 2013, Romeo (commenced in late 2012), Scotney (Licence P.1658, Block 20/5b) and Magnolia (Licence P.1610, Block 13/23a).  The Group will incur no capital costs for these particular wells, with expenditure being met by our partners through carry agreements. At present, the Group is anticipating 2013 capital expenditure before any acquisitions of up to £5m. This is principally preparatory work ahead of drilling, seismic and other technical work to mature a number of our existing prospects for drilling in 2014. There is no capital expenditure budgeted or anticipated on the Athena field.

 

During the year, the Group completed the acquisition of a 15 per cent. working interest in the producing Athena asset for an effective net cost of approximately £21.8m.  We anticipate that this asset will be a strong source of cashflow for the Group and it is believed that the deal will achieve payback in approximately one year. The acquisition of the interest in Athena also provides tax synergy for our investment programme. Based on current projections, tax payable on our income from the Athena asset will be low or zero due to offsetting tax losses and the Group's continuing projected investment.

 

Income Statement

 

The Group recorded a Loss After Tax of approximately £10.9m (2011: £4.5m).  This loss has two principal components:

 

1.   Technical and employment costs incurred in order to progress and develop our portfolio to the drilling stage; and

 

2.   An impairment charge on certain assets relinquished in January 2013 and arising from the unsuccessful Magnolia well.

 

Revenue of £1.7m (2011: £0.8m) was generated from our partnering arrangements with Suncor and Noreco and production income from the Lybster field. This figure does not include any success fees from the 27th Licensing Round awards, announced in late October 2012. Cost of Sales of £9.8m (2011: £0.8m) were incurred in supporting our assets including Lybster, delivering opportunities to our partners and the amortisation of the CGGV Seismic Data Licence. Also included within Cost of Sales is an impairment charge. On 9 January 2013, the Group announced that as it had been unsuccessful in securing partners it would be relinquishing three licences including the Inverewe prospect. In addition, the Group recently announced that the Magnolia exploration well had been unsuccessful. As a consequence, the Group has recorded an impairment charge of £6.8m (2011: £Nil) in this reporting period, primarily reflecting the value attributed to the Inverewe and Magnolia asset as part of the Reach acquisition.

 

Administrative expenses of approximately £3.0m (2011: £4.5m) were reduced reflecting our continued cost control and certain one-off costs incurred in 2011.

 

Following the deduction of Net Finance Charges of £0.1m (2011: £0.3m), a Loss Before Tax of £10.9m (2011: £4.5m) was recorded. 

 

Balance Sheet

 

During 2012, the Group made investments of £28.2m (2011: £32.8m) and, at the end of December, the Group acquired an interest in the producing Athena field for an effective cost of £21.8m. During the first half of the year, £2.2m was spent drilling the Orchid prospect.  The remaining capital expenditure was spent on progressing our portfolio to the drilling stage, principally through seismic, well planning and survey activity.

 

Net Current Assets decreased by £24.4m compared to 2011, reflecting reduced cash balances post investment activity.  Non Current Liabilities, representing amounts owing to CGGV for data acquired and capitalised together with provisions for future decommissioning, increased by £4.5m from 2011 reflecting provisions for future decommissioning on both Lybster and Athena.

 

Outlook

 

In a very difficult financial environment, the Group remains well funded and through securing the abovementioned debt facility in January 2013 has further financial flexibility to continue to invest in its exciting exploration and appraisal opportunities. The unique nature of our business model means that three wells will be completed in 2013 at no cost to the Group whilst it is anticipated that the Athena field will continue to deliver strong cash returns.

 

 

 

David Kemp

Finance Director

 

27 March 2013



 

GROUP INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2012

 

 

 

 

2012

£

 

2011

£

 

CONTINUING OPERATIONS

 

 

 

 

 

 

Revenue

 

1,674,698

 

807,044

 

 

 

 

 

 

 

Cost of sales

 

(9,812,361)

 

(786,309)

 

 

 

 

 

 

 

GROSS (LOSS)/PROFIT

 

(8,137,663)

 

20,735

 

 

 

 

 

 

 

Other operating income

 

172,245

 

-

 

Administrative expenses

 

(3,002,611)

 

(4,501,659)

 

 

 

 

 

 

 

OPERATING LOSS

 

(10,968,029)

 

(4,480,924)

 

 

 

 

 

 

 

Finance costs

 

(68,495)

 

(291,099)

 

 

 

 

 

 

 

Finance income

 

174,707

 

245,727

 

 

 

 

 

 

 

LOSS FOR THE YEAR BEFORE TAX

 

(10,861,817)

 

(4,526,296)

 

 

 

 

 

 

 

Tax

 

-

 

-

 

 

 

 

 

 

 

LOSS FOR THE YEAR

 

(10,861,817)

 

(4,526,296)

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME

 

-

 

-

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

 

(10,861,817)

 

(4,526,296)

 

 

 

 

 

 

 

 

 

 

 

 

 

Total loss for the year and comprehensive income attributable to:

 

 

 

 

 

  Owners of the parent

 

(10,861,817)

 

(4,526,296)

 

 

 

 

 

 

 

Loss per share expressed in pence per share:

 

 

 

 

 

  Basic

 

(5.00)

 

(2.74)

 

Diluted

 

(5.00)

 

(2.74)

 

 

 

 

 

 

 

 

 

 

GROUP STATEMENT OF FINANCIAL POSITION

AS AT 31 DECEMBER 2012

 

 

 

 

 

2012

£

 

2011

£

NON-CURRENT ASSETS

 

 

 

 

Intangible assets - Exploration costs

 

25,193,180

 

30,085,588

Intangible assets - Data licence costs

 

1,833,332

 

2,333,332

Property, plant and equipment

 

28,093,548

 

23,539

 

 

 

 

 

 

 

55,120,060

 

32,442,459

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

Trade and other receivables

 

1,625,311

 

1,102,100

Cash and cash equivalents (including restricted cash)

 

9,275,542

 

32,418,234

 

 

 

 

 

 

 

10,900,853

 

33,520,334

 

 

 

 

 

TOTAL ASSETS

 

66,020,913

 

65,962,793

 

 

 

 

 

EQUITY

 

 

 

 

SHAREHOLDERS' EQUITY

 

 

 

 

Called up share capital

 

2,259,104

 

2,053,731

Share premium

 

68,101,922

 

64,222,583

Share options reserve

 

2,341,644

 

1,774,310

Retained deficit

 

(16,985,796)

 

(6,123,979)

Reorganisation reserve

 

(382,543)

 

(382,543)

 

 

 

 

 

 

 

55,334,331

 

61,544,102

 

 

 

 

 

LIABILITIES

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

Trade and other payables

 

2,645,228

 

3,291,101

Provisions for liabilities and charges

 

5,176,396

 

-

 

 

 

 

 

 

 

7,821,624

 

3,291,101

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Trade and other payables

 

2,864,958

 

1,127,590

 

 

 

 

 

TOTAL LIABILITIES

 

10,686,582

 

4,418,691

 

 

 

 

 

TOTAL EQUITY AND LIABILITIES

 

66,020,913

 

65,962,793



 

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2012

 

 

 



 

GROUP STATEMENT OF CASHFLOWS

FOR THE YEAR ENDED 31 DECEMBER 2012

 

 

 

 

2012

£

 

2011

£

 

Cash flows from operating activities

 

 

 

 

 

Cash used in operations

 

(1,082,496)

 

(2,438,520)

 

 

 

 

 

 

 

Net cash used in operating activities

 

(1,082,496)

 

(2,438,520)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

Purchase of intangible fixed assets

 

(5,141,129)

 

(32,729,100)

 

Purchase of property, plant and equipment

 

(23,062,638)

 

(27,359)

 

Sale proceeds of intangible fixed assets

 

2,584,152

 

2,727,600

 

Interest received

 

174,707

 

245,727

 

 

 

 

 

 

 

Net cash used in investing activities

 

(25,444,908)

 

(29,783,132)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

Loan notes repaid

 

-

 

(992,700)

 

CGGV loan repaid

 

(700,000)

 

(1,000,000)

 

Proceeds from share issue

 

4,084,712

 

66,325,135

 

 

 

 

 

 

 

Net cash generated from financing activities

 

3,384,712

 

64,332,435

 

 

 

 

 

 

 

 

 

 

 

 

 

(Decrease)/Increase in cash and cash equivalents

 

(23,142,692)

 

32,110,783

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

32,418,234

 

307,451

 

 

 

 

 

 

 

Cash and cash equivalents at end of year

 

9,275,542

 

32,418,234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NOTE TO THE GROUP STATEMENT OF CASHFLOWS

 

 

 

 

 

 

 

 

 

 

 

RECONCILIATION OF LOSS BEFORE TAX TO CASH USED IN OPERATIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

2012

£

 

2011

£

 

Loss for the year before tax

 

(10,861,817)

 

(4,526,296)

 

Adjusted for:

 

 

 

 

 

Depreciation charges

 

972,257

 

5,591

 

Amortisation and impairment charges

 

7,304,031

 

502,066

 

Profit on disposal of intangible fixed assets

 

(172,245)

 

 

 

Share based payments (net)

 

567,334

 

1,239,467

 

Finance costs

 

68,495

 

291,099

 

Finance income

 

(174,707)

 

(245,727)

 

 

 

 

 

 

 

 

 

(2,296,652)

 

(2,733,800)

 

Increase in trade and other receivables

 

(523,212)

 

(525,850)

 

Decrease in trade and other payables

 

1,737,368

 

821,130

 

 

 

 

 

 

 

Cash used in operations

 

(1,082,496)

 

(2,438,520)

 

 

 

 

 

 

 

 



NOTES TO THE CONSOLIDATED FINANCIAL INFORMATION

FOR THE YEAR ENDED 31 DECEMBER 2012

 

 

1.   The consolidated financial information set out above does not constitute the Group's statutory financial statements for the year ended 31 December 2012 or the period ended 31 December 2011. The consolidated financial information for the period ended 31 December 2011 is derived from the statutory financial statements for that year that have been approved by the Board of Directors. The consolidated financial information for the year ended 31 December 2012 is derived from the financial statements for 2012 prepared using the historical cost convention, on a going concern basis and in accordance with IFRS as adopted by the European Union. The auditors have reported on the 2012 financial statements and their report was unqualified. The financial statements are yet to be delivered to the Registrar of Companies but will be delivered to the Registrar of Companies and filed at Companies House following the Company's forthcoming annual general meeting. The principal accounting policies used in preparing the final results announcement are those that the Company has applied in its financial statements for the year ended 31 December 2012 and are unchanged from those disclosed in the Company's Annual Report and Financial Statements for the period ended 31 December 2011.

 

2.   Trap Oil Group plc (the 'Company') and its subsidiaries (together, the 'Group') are involved in the exploration, development and production of oil and gas reserves from the UK Continental Shelf and during the year production of hydrocarbons commenced from the Lybster field. The Company is a public limited company which is listed on AIM, a market operated by the London Stock Exchange, and incorporated and domiciled in the United Kingdom. The address of its registered office is 10 The Triangle, ng2 Business Park, Nottingham, NG2 1AE.

 

3.   Trap Oil Group plc was incorporated and registered on 24 January 2011.  On 11 March 2011, a new statutory holding company structure became effective by way of a share for share exchange between the shareholders of Predator Oil Ltd (the previous holding company) and Trap Oil Group plc (the new holding company) and the Group became Trap Oil Group plc. As a consequence of the reorganisation, the comparative figures for the period ended 31 December 2011 comprise the results of Predator Oil Ltd for the 12 months ended 31 December 2011 consolidated with those of Trap Oil Group plc from 11 March 2011.

 

4.   At 31 December 2012, 225,910,417 (2011: 205,373,117) ordinary shares of 1p each were issued and fully paid. Each ordinary share carries 1 vote. During the year, 20,537,300 ordinary shares were issued which raised £4,312,833 (gross) in additional capital. The net proceeds from the share issue were £4,084,712.

 

5.   An impairment charge of £6,804,031 is included in Cost of sales in the Group income statement as an impairment trigger was identified requiring a full impairment review to be carried out in accordance with IAS 36 'Impairment of assets'. An economic assessment of all assets was carried out as at 31 October 2012, using the economic value models (EMV). The impairment charge relates to the relinquishment of the Inverewe, Lytham and Sienna licences and the unsuccessful Magnolia exploration well.

 

6.   No dividend is proposed.

 

7.   Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

 

Diluted loss per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares. As a loss was recorded for the current year and prior period the issue of potential ordinary shares would have been anti-dilutive in both periods.



 

 

 

 

Loss attributable to ordinary shareholders

£

 

Weighted average number of shares

 

Per share amount pence

Year ended 31 December 2012

 

 

 

 

 

Basic and Diluted

 

 

 

 

 

Loss attributable to ordinary shareholders

     (10,861,817)

 

 217,020,291

 

                    (5.00)

 

 

 

 

 

 

Period ended 31 December 2011

 

 

 

 

 

Basic and Diluted

 

 

 

 

 

Loss attributable to ordinary shareholders

(4,526,296)

 

165,398,816

 

(2.74)

 

8.   The net cash proceeds due from the disposal of interests included in Exploration costs is as follows:

 


2012


2011


£


£

P.1181 Lacewing

1,000,000


-

 

P.1864 Inverewe

1,584,152


2,727,660

 


2,584,152


2,727,660

 

 

9.   On 21 December 2012, the Group completed the acquisition of a 15% working interest in the Athena oil field from Dyas UK Ltd for a cash consideration of £21.8m. £22.9m has been included in Non-Current Assets, with the balancing amount representing working capital balances assumed at acquisition.

 

10.  The restricted cash relates to amounts held in escrow as security for possible future liabilities to third parties.

 

11.  Provisions for liabilities and charges represents decommissioning and site restoration provisions in relation to production interests. The provisions are based on the discounted net present value of the assessment of the obligation to decommission assets in place at the reporting date. The provision will increase as additional infrastructure is installed, as needed, and will be settled on the actual decommissioning of fields. The new provision created during the year relates to the Athena and Lybster producing assets.

 

12.  Borrowing Base Facility and Hedging Arrangements. On 29 January 2013, the Group entered into a three year senior secured borrowing base facility agreement of US$20m with an affiliate of GE Energy Financial Services secured by a first fixed and floating charge over all Group companies and a first equitable mortgage over the existing shares and any further shares in Predator Oil Ltd and Trap Oil Ltd and a share pledge over Trap Oil & Gas Ltd, Trap Exploration (UK) Ltd and Trap Petroleum Ltd in the event of non-payment.

 

In conjunction with, and for the term of the borrowing base facility, the Group also entered into certain oil price hedging arrangements with Britannic Trading Ltd, a subsidiary of BP International Limited. These arrangements consist of swap agreements, entered into at prices ranging from US$108.51/barrel for 2013 to US$95.50/barrel for 2015 with Britannic Trading Ltd to provide greater visibility in respect of future cash flows arising from a significant proportion of the Group's near term forecast production as it continues to build its exploration and appraisal work programmes.

 

13.  On 7 February 2013, the Group entered into a sale and purchase agreement to acquire a 33.33% working interest in Licence P.685 (Block 43/24a) Trent East Terrace area, containing the Trent East gas discovery, from Perenco UK Ltd. The Group has committed to secure a drilling rig within six months for the planned appraisal well and it is currently anticipated that the Group's share of the drilling costs will be approximately £5m as and when the well is drilled.  The Group will also assume its share of the abandonment liability for the well via a letter of credit for £0.7m which will be provided from existing cash resources and it qualifies as an eligible asset within the terms of the US$20m senior secured borrowing base facility with GE Energy Financial Services.

 

14.  On 11 March 2013, the Group entered into a sale and purchase agreement to acquire a 45% working interest in Licence P.1556, containing the Orchid discovery, from Summit Petroleum Limited for £1.5m.

 

15.  Copies of the Company's full Annual Report and Financial Statements are expected to be posted to shareholders in due course and, once posted, will also be made available to download from the Company's website at www.trapoil.com.

 

The Annual Report and Financial Statements will also be made available for inspection at the Company's Registered office during normal business hours on any weekday. Trap Oil Group plc is registered in England and Wales with registration number 7503957. The registered office is at 10 The Triangle, ng2 Business Park, Nottingham, NG2 1AE.

 

 

 

 

 

 

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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