Final results for the year ended 31 July 2014
2 December 2014 For Immediate Release
InfraStrata plc
("InfraStrata" or the "Company")
Final results for the year ended 31 July 2014
InfraStrata plc (AIM:INFA), the independent petroleum exploration and gas storage company, is pleased to announce its final results for the year ended 31 July 2014.
Overview and highlights
Operational
· Three well programme - two exploration wells and one gas storage well, anticipated in 2015. Significant progress with funding of the wells with new partners in parallel with engineering, procurement and consenting activities.
· Operated exploration programme targeting over 200 million barrels of oil (mmbo) prospective and unclarified contingent resources net to InfraStrata
· PL1/10 & P2123 (operator, onshore and offshore County Antrim)
o Farmin terms with Larne Oil and Gas Limited now amended such that they will farmin for 33.33% i.e. two-thirds of their originally agreed 50%.
o Partners now in discussion with various parties with regard to securing a new partner for the remaining 16.67% on terms similar to Larne.
o InfraStrata direct interest in PL1/10 is 20.83% (27.5% including interests held by associated companies)
o Targeting 165 mmbo net to InfraStrata. First well, Woodburn Forest, targeting 40 mmbo (11 mmbo net to InfraStrata) in conventional sandstone reservoirs.
o Environmental reports and Application for Consent to Drill submitted to the Department of Enterprise, Trade and Investment ("DETI") for the forthcoming exploration well. Site construction and drilling programme planned to commence during Q1 2015.
o Offshore licence P2123 awarded to the PL1/10 group in December 2013, operated by InfraStrata, covering the offshore extension of the Larne-Lough Neagh Basin.
· P1918 (operator, offshore Dorset)
o Funding for 2015 seismic capture and reprocessing programme completed with the introduction of new partner Southwestern Resources Limited. InfraStrata direct interest in P1918 is now 54% (68.4% including interests held by associated companies).
o Further options granted to Southwestern Resources Limited to fully fund either the California Quarry well or an offshore well in late 2015 which would reduce InfraStrata's net interest to 38% or 19% respectively.
o Targeting over 38 mmbo net to InfraStrata. Planning permission granted for a first onshore to offshore well, California Quarry, targeting 10 mmbo (6.8 mmbo net to InfraStrata) in conventional sandstone reservoirs.
· Other exploration
o Post year end secured a new development opportunity in the UK 28th Seaward Licensing Round where, together with partners Carstone Exploration Limited, we have been offered block 3/11a in the East Shetland Basin by DECC under the terms of a promote exploration licence.
o Through associate company Corfe Energy Limited and Brigantes Energy Limited, InfraStrata has an interest in further onshore UK exploration activities.
· Islandmagee Gas Storage project (County Antrim)
o Success in securing European Commission grant funding (subject to conclusion of a formal grant agreement) for 50% of the cost of a £4 million programme of work comprising drilling a well to obtain a salt core sample and subsequent testing and engineering work.
o Progressing this vital final step in the de-risking of the project in advance of a prospective Final Investment Decision requires securing the remaining 50% funding (c.£2 million) for the salt core well programme, either from direct investment in the project or by new InfraStrata equity fundraising.
o Targeting the drilling of the well as part of a joint drilling programme with the Woodburn Forest (PL1/10) well.
o InfraStrata retains a 65% interest in the project; the strategic importance of the project is reflected in EC support through its Project of Common Interest designation and is a key credential as InfraStrata works towards realisation of its interest as soon as practicable.
Financial
· Loss for the year ended 31 July 2014, £1,246,701 (2013: loss £1,642,760). Cash cost of management and administration for the year ended 31 July 2014 £1,126,482 (2013 £1,098,695.
· Gross exploration costs during the year £605,574 of which InfraStrata funded £347,211.
· Capital costs of Islandmagee storage project during the year £255,292 compared to £606,173 contributions received from former partner BP Gas Marketing Limited.
· Cash and cash equivalents at 31 July 2014 £1,648,955 (2013: £774,745) and net working capital at 31 July 2014 £957,491 (2013 - £5,008,801 including gas storage assets now reclassified).
· Successful Placing on 23 September 2013 to raise £800,000 before expenses.
· Appointment of VSA Capital Limited as joint broker.
Commenting on the results and outlook, Andrew Hindle, CEO of InfraStrata plc said:
"We are today reporting that each of our three key projects, exploration and gas storage in Northern Ireland and exploration in Dorset have made significant steps forward over the past year. We are reaching an inflection point in the development of the Company with the catalysts to delivering value for shareholders linked in each project to drilling activity in the coming year.
I would like to thank the dedicated team of drilling, environmental and civil engineers and scientists supporting the small team at InfraStrata managing each of the projects and interacting with the many stakeholders.
We look forward to a successful coming year after many years developing each project from initial identification, through data acquisition and lengthy consenting processes to being on the verge now of the key value step in each project."
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For further information please contact:
InfraStrata plc
Andrew Hindle, Chief Executive Officer 020 8332 1200
Stewart McGarrity, Finance Director
Financial PR - Buchanan
Richard Darby / Gabriella Clinkard / Anna Michniewicz 020 7466 5000
Nominated Advisor and Broker - Arden Partners plc
Chris Hardie 020 7614 5917
Joint Broker - VSA Capital Limited
Andrew Raca / Richard Buckle 020 3005 5004
Notes to Editors:
Background on InfraStrata plc
InfraStrata is an independent petroleum exploration and gas storage company. The Company is focused on two areas in the UK, in Dorset, England and Antrim, Northern Ireland.
Further information is available on the Company's website www.infrastrata.co.uk.
In accordance with the AIM Rules - Note for Mining and Oil and Gas Companies, the information contained in this announcement has been reviewed and signed off by the Chief Executive Officer of InfraStrata plc Andrew Hindle BSc, MSc, PhD, a Chartered Geologist with 28 years' experience, a Fellow of the Geological Society of London, and a member of the American Association of Petroleum Geologists and the Petroleum Exploration Society of Great Britain.
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CHAIRMAN'S STATEMENT
I am pleased to report on a year that has seen material developments in each of our three key projects as we approach a position where our exploration prospects move towards drilling on a fully-funded basis and our gas storage project can be de-risked and made ready for the financial investment decision. As the end of 2014 approaches we are well positioned to realise value in our projects through an active drilling programme in the following twelve months.
During the course of the year there has been meaningful progress in each of our projects as we work towards the milestones capable of yielding value to shareholders. Sustained difficulties in the capital markets and a lack of sentiment towards oil & gas exploration generally have not made life particularly easy in the past twelve months but our dedicated executive team of Andrew Hindle and Stewart McGarrity have worked tirelessly to ensure that significant progress has been made on each limb of our portfolio. Latterly, I am extremely pleased to say, their efforts have been augmented by the appointment of Anita Gardiner who has joined us from BP Gas Marketing and has made a significant early contribution to the executive effort.
With reference to our exploration activities, our strategy has been to farmout to partners such that we retain a material exploration interest but only a minimal financial exposure. This strategy has been successfully deployed during the past and we now approach the phase where we hope to deliver value to shareholders through the drilling of fully funded exploration wells in the next twelve months.
On PL1/10 in County Antrim we have introduced new partners Larne Oil and Gas Limited and despite recent uncertainties over the extent of their financial commitment, the Board anticipate that the Woodburn Forest well will be fully funded. The well in planned to commence in Q1 2015 subject to receiving approval from Northern Ireland Department of Enterprise, Trade and Investment in response to our Application for Consent to Drill. This well will target a play estimated at 40 million barrels of oil equivalent (mmboe) - net InfraStrata 11mmboe at 27.5% - and seek to de-risk over 450mmboe of further potential upside.
In Dorset we have introduced new partners, Southwestern Resources Limited, who will carry the Company through a significant seismic programme in early 2015 and then consider their option to assume a greater licence interest in exchange for the funding of an exploration well later in the year. Prospective resources on the licence have been estimated at over 100 mmboe.
In addition to our principal exploration interests, the Group also has non-operated interests in exploration licences in Hampshire, Dorset and the East Midlands through associated companies Corfe Energy Limited and Brigantes Energy Limited and has recently been successful in the UK 28th Seaward Licensing Round where together with partners Carstone Exploration Limited we have been offered block 3/11a in the East Shetland Basin.
In addition to our exploration activities the Company has also made significant progress in development of the Islandmagee Gas Storage project in County Antrim, Northern Ireland. This project, held through our subsidiary Islandmagee Storage Limited, had been identified by the European Commission as a Project of Common Interest and was then prequalified for UK Governmental debt support. We have had to overcome the disappointment of BP Gas Marketing declining to take up an interest option in exchange for funded drilling as they refocused their business strategy in early 2014. However, further to an application made in August, we have been successful in securing European Commission grant funding, subject to conclusion of a formal grant agreement, for 50% of the cost of a well to obtain a salt core sample and subsequent testing and engineering work. This is an enormous boost for the project and our task is to ensure we deliver the other 50% (£2 million) of the funding through corporate funding, new financial partners or a combination of both. Our intention is to realise value for shareholders from our interest in this project as soon as practicable. With the well site already constructed our aim is to raise sufficient funds to drill this well using the same rig that will be booked for the Woodburn Forest well.
Like many small exploration companies with no significant income streams, your Company is dependent upon not only direct investment in our projects by joint venture partners but also additional funds from existing and new shareholders to meet working capital requirements and provide flexibility for the future support of our projects. The board continues to believe this to be an integral part of long term delivery of shareholder value through success in our projects and we have prepared the accounts on the basis that such support will continue for the foreseeable future.
Our progress in moving towards a position of delivering on each of our main projects, during a period of economic stringency and increased regulation, is due to the skill and dedication of our small management team and I would like to take this opportunity to thank them on the Board's behalf for their continued effort and determination. To that I would like to add my appreciation of the hard work and continued enthusiasm of all InfraStrata staff and thank our shareholders for their patience and support. I am sure that all will share with me the disappointment of a depressed share price that I do not believe reflects the underlying value of the Company.
In conclusion I confirm that although we continue to be reliant upon external factors, we remain confident in our stated strategy and I trust that in twelve months' time that I will be able to report further success in each of our projects and the monetising of our interests at the appropriate time to the benefit of all shareholders.
Ken Ratcliff
Non-executive Chairman
1 December 2014
STRATEGY AND BUSINESS MODEL
InfraStrata is focused on conventional oil and gas exploration in three operated licences within the United Kingdom, PL1/10 onshore and P2123 offshore County Antrim in Northern Ireland and P1918 offshore Dorset in Southern England. Our strategy is to progress exploration activities under these existing licences up to and including the drilling of exploration wells and to pursue new front-end capture opportunities in accordance with following principles:
· Focus on the Company's core expertise and experience in exploration of the UK Continental Shelf and as an operator which has built very strong stakeholder relationships through the permitting process.
· Target high impact opportunities where successful drilling will make a very material impact upon the prospective returns to shareholders within a relatively short period of time.
· Fund exploration activities through farmout arrangements whereby material costs are borne by joint venture partners in return for a working interest in the licence. In particular we seek to be fully funded by partners through drilling.
· Review strategy for each licence following successful drilling to determine the best way to secure value for shareholders - including early monetisation.
· Build a portfolio of new exploration activities creating a future stream of opportunities to crystallise value for shareholders.
This strategy has been successfully deployed over the past four years as the Group has been awarded its operated licences in County Antrim and Dorset and has successfully funded significant exploration costs such as seismic data acquisition and processing through farmout agreements with joint venture partners whilst retaining a material working interest in each. The next step towards delivering value for shareholders is the drilling of fully funded exploration wells in the next 12 months.
The Group also has non-operated interests in exploration licences in Hampshire, Dorset and East Midlands England through associated companies Corfe Energy Limited ("Corfe") and Brigantes Energy Limited ("Brigantes") and has recently been successful in the UK 28th Seaward Licensing Round where together with partners Carstone Exploration Limited we have been offered block 3/11a in the East Shetland Basin.
The Company is also engaged in the development of the Islandmagee Gas Storage project in County Antrim in Northern Ireland through our subsidiary Islandmagee Storage Limited with a view to realising fair value for our interest in the project as soon as practicable.
A detailed review of the Group's business is provided below.
OPERATIONAL REVIEW - OIL & GAS EXPLORATION
County Antrim - Onshore PL1/10
Outline
Petroleum Licence PL1/10 (Larne-Lough Neagh Basin) was awarded in March 2011 by the Northern Ireland Department of Enterprise, Trade and Investment ("DETI"). The five year licence covers an area of 663 square kilometres over what the Company believes is a highly prospective largely unexplored sedimentary basin.
The Larne-Lough Neagh Basin is a SW-NE trending Permo-Triassic Basin, overlying an older Carboniferous sequence. The basin has historically received little attention from explorers, primarily due to the thick development of Palaeocene Antrim Flood Basalts overlying the target horizons. This has been a barrier to effective seismic imaging but with the recent technological advances in data processing, exploration in the basin is now entering an exciting phase. Only one exploration well has historically been drilled in the centre of the basin covered by the PL1/10 licence, back in 1971, before any seismic data had been acquired. Drilling in the area over the past 40 years has largely been for coal exploration and geothermal feasibility. However this has confirmed the development of good sandstone reservoirs and seals within the thick Permo-Triassic sedimentary section. Oil-prone source rocks have been identified on the margins of the Basin within the Carboniferous section, and gas-prone coals have also been mined to the west in the Coalisland area, and along the North Antrim coast. The basin is also along trend from the Midland Valley of Scotland where oil and gas prone rocks of Carboniferous age are well known. It is anticipated that in the more deeply buried areas of the Larne-Lough Neagh Basin the Carboniferous will have been buried sufficiently to generate oil and possibly also gas.
During 2011 and 2012 InfraStrata undertook two seismic surveys acquiring over 400km of new 2D seismic data which revealed a basin very similar in structural style to the prolific East Irish Sea Basin with a large number of undrilled structures. In March 2013, the Company published a prospectivity review of the PL1/10 licence prepared by Merlin Energy Resources Limited, a geoscience consultancy, which identified combined un-risked P50 prospective resources on the PL1/10 licence in the Triassic and Permian sandstone reservoir intervals of over 450 million barrels of oil equivalent ("mmboe").
Licence participants and Funding
Following its acquisition by Cairn Energy plc, Nautical Petroleum Limited ("Nautical") withdrew from the PL1/10 licence and agreement was reached for InfraStrata to acquire their 20% interest through the termination of a farmout agreement dating from 2011.
In July 2014, InfraStrata, together with joint venture partners Brigantes and Terrain Energy Limited ("Terrain"), entered into an option agreement with Larne Oil and Gas Limited ("Larne") with respect to acquiring licence interests in PL1/10 and the adjacent offshore licence P2123. Larne exercised the option in September 2014. Larne is a wholly owned subsidiary of Larne Basin Exploration LLC, a recently formed U.S. based investment company set up for the purpose of investing in oil and gas exploration in the Larne Basin, Northern Ireland.
Under the terms of the agreement, Larne will fund a disproportionate share of the forthcoming Woodburn Forest exploration well to earn its interest in the licence. Should the well cost exceed the Authorisation For Expenditure ("AFE"), which includes a contingency of 10%, then all partners would pay their respective percentage share of such excess. However, InfraStrata has pre-existing farmout agreements with partners Brigantes and Terrain with respect to the Woodburn Forest-1 well, which mean that any excess cost accruing to its interest in the well would still be carried.
Subject to the approval for the licence interest assignments by DETI the licence interests in PL1/10 following the farmout agreement would be:
InfraStrata (Operator)* 20.83%
Larne 50.00% (see below)
Brigantes (40% owned by InfraStrata)* 16.67%
Terrain 12.50%
*net InfraStrata 27.5% interest
The terms of the agreements with Larne and with existing partners Brigantes and Terrain required that the full value of the funds required to drill the Woodburn Forest well be placed in an escrow account. To date Larne has been unable to fulfil this obligation and has given notice that it expects now to be able to fund two thirds of its obligation. The partners have now entered into a supplementary agreement which reduces Larne's obligation to fund the escrow by one third and also reduces Larne's prospective licence interest by one third to 33.33%. All partners will now seek to secure additional investment in the project. InfraStrata does not expect its existing net interest in the licence (27.5%) to be reduced as a result of these transactions. As a result of the terms of the farmout to Larne and agreements with Terrain and Brigantes we are currently over carried in respect of the costs of the well and still anticipate being fully carried through the well.
Development progress & Outlook
During the current financial year permission was confirmed under Permitted Development rights for the first PL1/10 exploration well, Woodburn Forest-1, the first exploration well on the licence area since 1971. The well will target prospective resources estimated by the joint venture at 40 mmboe (InfraStrata share 11 mmboe at 27.5%) within conventional Carboniferous, Permian and Triassic sandstones. The Permitted Development rights provide a window for site clearing activities between September and February and the Permitted Development rights require all construction and drilling activities to be completed within a 4 month window.
A Project Environmental Report and Application for Consent To Drill was submitted to DETI in the summer of 2014 and the terms of the lease over the site have been agreed. The Consent to Drill and other remaining consents and approvals are expected in time to commit to a fully funded drilling programme in Q1 2015. Under the terms of the licence, the joint venture must give notification to DETI by March 2015 of its commitment to drilling the well.
Drilling engineers Acona UK were appointed in May 2014 and in addition to well planning and design have substantially completed the procurement process for the rig, consumables and services for the drilling programme. RPS Consulting Engineers in Belfast are undertaking the environmental support work. The actual commitment to the well will be made after all remaining consents and approvals have been received.
Public information events attended by the project team were held in early November 2014.
County Antrim - Offshore P2123
The PL1/10 partners submitted an application for an adjacent prospective area in the UK 27th Seaward Licensing Round in 2012 and the licence was offered by the UK Department of Energy and Climate Change ("DECC") in November 2013. Un-risked P50 prospective resources of 150 mmbo have been identified within the application area.
Larne will also be assigned a 33.33% interest in P2123 and, subject to the approval for the licence interest assignments by DECC the licence interests in P2123 will be the same as for PL1/10 above. At completion of the agreement Larne will reimburse its share of certain costs to existing partners. During 2015 the partners will undertake planning of the committed work programme under the licence, to be completed by the end of the first licence term in January 2017.
Dorset - Offshore P1918
Outline
Petroleum licence P1918 comprises Blocks 97/14, 97/15 and 98/11 and was awarded in February 2012 by DECC for a period of four years.
Within and immediately adjacent to the licence area there are a number of active oil and gas seeps. A total of seven wells have previously been drilled within the licence area, including the first UK offshore well in 1963 on Lulworth Banks in Block 97/14. Six of these wells encountered oil or gas shows and three flowed oil or gas on test. The advances in technology and higher petroleum prices mean that we are hopeful of being able to develop one or more of the existing discoveries profitably as a base from which to appraise the full potential of the area. The prospective resources on the licence have been estimated by the joint venture at over 100 mmboe.
The focus for a first exploration well has been the offshore extension of the Purbeck Prospect, an anticline in the east of the licence, up dip of the onshore well Southard Quarry-1, which encountered oil and gas shows within Jurassic and Triassic intervals. Only the Sherwood was tested but failed to flow. The Purbeck Prospect immediately overlies the kitchen area for the giant Wytch Farm oilfield. This large structure lies largely within Licence P1918. During the 2013 financial year InfraStrata reprocessed 156km of onshore and offshore 2D data to further define the sub-surface target location. In June 2013, ocean divers collected gas samples from an active gas seep above the Purbeck Prospect. Isotopic analysis of the gas indicates that the gas was generated at the base of the oil window as expected.
A planning application for drilling and testing of the California Quarry-1 well was submitted to Dorset County Council ("DCC") in July 2013 and DCC granted planning permission for the well in December 2013, subject to conditions in the normal course of business. The well will be drilled from onshore to offshore within licence P1918 and will target prospective resources, within licence, estimated by the joint venture at 10 million barrels of oil equivalent (mmboe) (net InfraStrata 6.84 mmboe at 68.4%). The planning conditions preclude construction or drilling activities between March and September.
Licence participants and Funding
Following its acquisition by Cairn Energy plc, Nautical withdrew from the P1918 licence and agreement was announced in January 2014 that InfraStrata had acquired their 10% licence interest at no cost. InfraStrata intends to re-assign a 2% licence interest to project partner Corfe, subject to DECC approval.
In June 2012 InfraStrata entered into agreements as part of which its licence interest in P1918 became subject to a net profits interest ("NPI") equivalent to 3.75% on the whole licence in favour of eCORP Oil & Gas UK Limited ("eCORP"). In March 2014 eCORP's NPI in P1918 was cancelled (and InfraStrata UK Limited acquired the related preference shares held by eCORP in subsidiary Portland Gas Limited) for a consideration of US$600,000 satisfied by the cancellation of the US$600,000 still payable by eCORP under the terms of the June 2012 agreements. Also in March 2014, associated company Brigantes agreed to acquire an 18% interest in licence P1918 for a consideration of US$600,000, subject to DECC approval. The combined effect of these two transactions left InfraStrata in a cash neutral position as regards short term funding, and the removal of the NPI considerably simplified the farmout process.
In October 2014, InfraStrata, together with joint venture partners Corfe and Brigantes entered into an agreement with Southwestern Resources Limited ("Southwestern") with respect to licence P1918. Southwestern is a subsidiary of DeHay Limited, is a UK based company set up for the purpose of participating in oil and gas exploration and production in the UK.
Under the terms of the agreement, Southwestern will acquire a 10% interest in the P1918 licence, subject to DECC approval, in return for funding 100% of the next £500,000 of expenditure on the licence and thereafter funding its own share. In addition, it has been granted an exclusive option to acquire a further interest in the licence in return for funding future drilling activity.
Subject to the approval for the licence interest assignments by DECC, the licence interests will be as follows:
InfraStrata (Operator)* 54.00%
Southwestern 10.00%
Corfe (40% owned by InfraStrata)* 19.80%
Brigantes (40% owned by InfraStrata)* 16.20%
*net InfraStrata 68.40% interest
The initial £500,000 funding will include the cost of acquiring two new 2D seismic lines over the Purbeck Prospect, in order to complete the well design for the proposed California Quarry-1 well and also undertaking a Pre-stack Depth Migration re-processing of two offshore 3D seismic surveys in the north of Block 98/11 acquired during 1992 and 1999.
The reprocessing of the offshore data will focus on the undeveloped Colter, Old Harry and Ballard Point discoveries. The largest of these, the Colter Prospect, is located within a fault block immediately to the south of the giant Wytch Farm oilfield. The 98/11-3 well was drilled on the prospect in 1989 by Gas Council (Exploration) Ltd and encountered a 10.5 metres vertical oil column in the Sherwood Sandstone with an oil-water-contact at a depth of 1,739 metres sub-sea. Reservoir quality is very similar to that observed in Wytch Farm.
Southwestern has been granted an exclusive option until July 2015 to acquire a further 65% interest from InfraStrata and partners on a pro-rated basis by funding 100% of the costs of an offshore exploration well in the P1918 licence. If the option were exercised, InfraStrata's net interest in P1918 would be 19%, with its costs carried through the drilling of the well.
In the event that Southwestern decides not to exercise the option to drill an offshore well for the first well, it has been granted an option, until September 2015, to acquire a further 40% licence interest by funding 100% of the costs to drill the California Quarry-1 well. If this alternative option was exercised, InfraStrata's net interest in P1918 would be 38%, with its costs carried through the drilling of the well. Because the proposed California Quarry-1 well is an onshore to offshore well it is necessary for the area from which a well is drilled to be held under a petroleum licence, either by InfraStrata or by a third party. The P1918 joint venture group has applied for the required onshore area as part of the UK 14th Landward Licensing Round.
A well is required to be drilled by February 2016, the end of the first term of the licence, to retain P1918 into its second term.
Development progress & Outlook
Good progress has been made with the fulfilment of pre-start planning conditions for the California Quarry-1 well. Various licences and consents will be required from a number of stakeholders, including the Environment Agency, DECC and the Health and Safety Executive. Agreements with the landowner at the wellsite have been concluded.
The work programme in the first half of 2015 will focus on acquiring the two new 2D seismic lines over the Purbeck Prospect, in order to complete the well design for the proposed California Quarry-1 well and the re-processing of offshore 3D seismic surveys in Block 98/11, both of which will be fully funded by Southwestern. This seismic programme will be completed with a view to drilling a well on the licence in Q4 2015 subject to the options granted to Southwestern above.
A public information event attended by members of the project team was held in October 2014.
Non-operated exploration interests
The Company has non-operator exploration interests via its shareholdings in associated companies Corfe and Brigantes as follows:
· PEDL201 (Leicestershire) - Corfe 12.5% interest (net InfraStrata 5%)
· PEDL237/PL090 (Dorset) - Corfe 12.5% interest (net InfraStrata 5%)
· PEDL 070 (Hampshire) - Corfe and Brigantes combined 10% (net InfraStrata 4%). Avington field currently producing around 70 barrels of oil per day.
New exploration business
In April 2014, InfraStrata announced that it has entered into a New Ventures Exploration Joint Bidding Agreement with Carstone Exploration Limited ("Carstone").
Under the terms of the agreement, InfraStrata and Carstone will work together to identify early stage opportunities, drawing upon the expertise and experience of each company. The partners will seek to grow an exploration portfolio in line with a focused investment strategy aimed at high impact exploration opportunities excluding the existing core areas of InfraStrata in Northern Ireland and Southern England.
In line with InfraStrata's existing strategy, the exploration teams will work together to capture opportunities in lease rounds and attract quality farm-in partners to fund exploration costs. Each company will hold 50% of the available licence interest in each new venture. The joint venture team is based at InfraStrata's head office. Carstone is a private independent petroleum exploration company. The company was founded in 2014 by principals David Gaudoin, Donal O'Driscoll and John Robbins, who are very experienced geoscientists, with an excellent track record of being members of teams which have discovered significant commercial oil and gas accumulations over the past 30 years.
The first venture together is the UK 28th Seaward Licensing Round where an application was submitted to the DECC in April 2014 and in November 2014 the joint venture was offered block 3/11a in the East Shetland Basin by DECC and the partners intend to accept the offer for the block under the terms of a promote exploration licence.
Block 3/11a contains the undeveloped Oulton oil discovery (3/11-1 and 1ST) estimated to contain approximately 16 million barrels of recoverable oil. The discovery was made over 40 years ago by Amoco, and flowed in excess of 1000 barrels of 41 degrees API oil per day on test from Jurassic Emerald sandstones. InfraStrata believes that the use of modern offshore technologies combined with access to nearby infrastructure will enable Oulton to be successfully developed in the near future. InfraStrata and Carstone will now work together to introduce one or more partners into the project to fund the next stage of the block evaluation and ultimately the drilling of a new well to appraise the discovery.
OPERATIONAL REVIEW - GAS STORAGE DEVELOPMENT
Islandmagee project - County Antrim
Outline
Islandmagee Storage Limited ("IMSL") is an independent Northern Ireland registered company and is a joint venture between a wholly-owned subsidiary of InfraStrata plc (65% shareholder) and Moyle Energy Investments Limited, part of the Mutual Energy group of companies (35% shareholder). During 2012, IMSL was granted planning permission for a natural gas storage facility at Islandmagee, County Antrim and a Gas Storage Licence from the Utility Regulator.
IMSL plans to create seven caverns, capable of storing up to a total of 500 million cubic metres of gas in Permian salt beds approximately 1,500 metres beneath Larne Lough. The project has unique advantages including being immediately adjacent to gas and electrical infrastructure, the salt being at an optimum depth for gas storage and close to a water source for solution mining of the salt to create the caverns. The project is also designed to access the extrinsic value of the gas storage market in the UK and Ireland by being able to respond to short-term volatility.
The proposed gas storage facility will make a significant contribution to the security of gas supplies for the whole island of Ireland. Ireland is dependent on gas for around 65% of its electricity generation with 90% of the island's gas imported via a single pipeline from Scotland. The facility, when complete, will store enough gas to satisfy Northern Ireland's demand for around 60 days. Northern Ireland has a target to generate 40% of electricity from renewables by 2020 - this will primarily be achieved through wind-powered generation. A shift to renewable energy sources is likely to result in an increasing reliance on gas-fired power stations to support the inherently intermittent supply from wind. Rapid cycle gas storage facilities, such as this planned project, will be important to respond to the increasingly fluctuating demands for gas to fuel this electricity generation requirement. The estimated timescale for the project is approximately seven years, with the first cavern becoming operational after five years.
Development progress & Outlook
The development of the project commenced in 2007 with the acquisition of 3D seismic data to image the Permian salt in the Larne Lough area. During 2012, planning permission was granted for the project and a gas storage licence was issued by the Utility Regulator. A wellsite was constructed in the summer of 2013. During 2014, a sub-surface agreement for lease was signed with The Crown Estate and all other land rights required for the project were secured. Also during 2014, the project was granted marine licences by the Department of Environment for the offshore elements of the project, including a discharge consent subject to the composition of the Permian salt being verified by drilling a well to obtain a sample of the salt.
In October 2013, the project was granted a 'Project of Common Interest' ("PCI") status by the European Commission. PCI status means recognition by the European authorities that the Islandmagee gas storage project brings benefits not only to the Member State in which it is located, but to a much wider area. It confirms the importance of the project at a European level. PCI status also means that the project must be given priority and quick passage by relevant Member States in the permitting process, and cooperation in its development. In addition, a PCI can apply for significant financial support from the European Union - this may be in the form of direct grant or other forms of financial backing from institutions such as the European Investment Bank.
The project has also been 'pre-qualified' (deemed eligible for support) under the Treasury's 'UK Guarantee Scheme' which is making cover of up to £40 billion available to ensure that key infrastructural projects across all sectors in the UK, those that really ought to go ahead, are not held back due to any difficulty in obtaining finance. Under the scheme the Government will guarantee a certain proportion of the capital required to fund projects, so that banks can lend more freely in today's risk-averse lending environment.
In January 2014 it was announced that BP Gas Marketing Limited ("BPGM") who had been funding the development of the project since January 2012 had decided not to take further part in the project following a review of its European wide gas assets portfolio which determined that further investment in gas storage in Northern Ireland is no longer aligned with the portfolio's objectives. BPGM relinquished its option to acquire 50.495% of the shares of IMSL. Much was accomplished during our partnership with BPGM. A total of approximately £5 million has been invested in the project since its inception including £2m by BPGM. This does not include the cost of engineering studies estimated at US$1m paid for by BPGM but not charged to the project.
The next significant investment in the project is the drilling of a well (Islandmagee-1) to 1,650 metres depth to obtain cores of the salt sequence and subsequently undertake further testing to confirm the depth, thickness, rock mechanical properties and composition of the salt to finalise the preliminary design of the caverns and above ground plant. The aggregate cost of this programme of work is approximately £4m. Procurement of the well is already well advanced and an Application for Consent To Drill has submitted to DETI. The actual commitment to the well will be made after all consents and approvals have been received and full funding has been secured.
In August 2014 IMSL, together with partners Mutual Energy Limited submitted an application to the European Commission for a grant of up to 50% of the cost of the salt core well and associated testing and engineering work under the Connecting Europe Facility, available to PCIs. In November 2014 the European Commission published a list of grant awards with IMSL receiving assistance of up to Euros 2.5m (c.£2m) subject to conclusion of a formal grant agreement. We are now pursuing the £2m balance of funding from a range of potential investors by way of an equity participation in IMSL.
In order to save on the total costs of drilling it is planned to drill the Islandmagee-1 well in Q1 2015 as part of the same drilling programme as the Woodburn Forest-1 oil and gas exploration well, subject to being granted a Consent to Drill by DETI, and IMSL completing the remainder of the funding.
InfraStrata believes the completion of the Islandmagee-1 well and subsequent testing and design programme will complete the project's feasibility stage and allow us to seek the developers who will make the Final Investment Decision ("FID") to construct the project at an estimated cost of £274m during 2016. We anticipate that FID will provide InfraStrata with the opportunity to monetise our interest in the project.
Public information events attended by the project team were held in November 2014.
Portland project - Dorset
In 2012 we reported that the poor seasonal gas storage market, a different market to that being targeted by the Islandmagee project, meant that it is unlikely that the Portland gas storage project will be realised in the near term and we fully impaired our historical investment in the project, with the exception of data obtained from seismic surveys and drilling which are key for the development of the petroleum exploration play.
Our wholly owned subsidiary Portland Gas Transportation Limited continues to renew the gas pipeline construction authorisation with DECC as a potential means of importing or exporting gas from Portland. InfraStrata continues to examine this and other opportunities which may arise to realize some value from our historic investment in the project.
OPERATIONAL REVIEW - FUNDING
Financing
InfraStrata's funding model for our projects is to manage risk for our shareholders by attracting investment from quality partners and thereby minimising our own commitments to pay the costs of exploration and other project development costs. The success of our projects and therefore the carrying value of the projects on InfraStrata's statement of financial position are dependent not only on the underlying economics of the projects but also on our continuing success in attracting such investment and we do not make commitments to significant exploration expenditure in the absence of such investment.
Our share of exploration expenditure on our licences during the year to 31 July 2014 was £347,211 out of a total gross expenditure of £605,574. These costs were mostly related to the planning, permitting and consultation processes as well as paying annual licence fees. As detailed above we have now concluded farmout agreements which complete the funding of the Woodburn Forest-1 well costs (PL1/10) and the seismic programme in Dorset (P1918) such that all significant exploration expenditure in the remainder of the 2015 financial year is fully funded.
As explained above, Larne has been unable to date fulfil this obligation to fund an escrow account with its share of the Woodburn Forest well costs and the partners have now entered into a supplementary agreement which reduces Larne's obligation to fund the escrow by one third and also reduces Larne's prospective licence interest by one third to 33.33%. All partners will now seek to secure additional investment in the project. As a result of the terms of the farmout to Larne and agreements with Terrain and Brigantes InfraStrata are currently over carried in respect of the costs of the well and still anticipate being fully carried through the well.
In the event that Larne is unable to any extent to place the revised two thirds of its commitment into escrow and new investment is not secured by the date on which the well construction and drilling programme is due to commence then there would be a shortfall in the funding of the well. The licence partners have until 4 March 2015 to commit to the drilling of a well before the end of the licence term on 4 March 2016. In the absence of such a commitment or an agreement by DETI to extend the date by which a commitment to drill must be made, then the licence would need to be relinquished. Despite the uncertainties regarding Larne's funding of the escrow account and the need to secure new partners, the directors remain confident that the well will be fully funded on or before 4 March 2015 being the last date a commitment to drill must be made if there is no extension to that date granted by DETI.
The Group's associated companies, Corfe and Brigantes are self-funded and therefore we have no commitments to fund exploration costs on our non-operated exploration interests.
On the Islandmagee gas storage project gross capital expenditure during the year to 31 July 2014 was £255,292. Total contributions received from BPGM during the financial year prior to their exit in January 2014 were £606,173 meaning that not only was the expenditure during the year fully funded by BPGM but also that IMSL has funds which we anticipate will be sufficient to secure the project until there is new funding to develop the project to the next stage. No part of the aggregate funding of £2,033,450 provided by BPGM is reimbursable to them and it has been transferred from non-controlling interests to retained earnings.
The Company intends to raise £2m through a new equity fundraising to provide flexibility in the support of its projects generally and intends to use these funds to underwrite £2m funding required by IMSL to drill the salt core well in anticipation of new direct equity participation in IMSL being secured in due course. However, the success of any equity fundraising cannot be guaranteed and the directors have therefore concluded that a material uncertainty exists with regard to the availability of funding to progress the Islandmagee gas storage facility.
Receipts from eCORP in relation to subscriptions for preference shares in our subsidiary Portland Gas Limited aggregated £367,474 (US$600,000) during the year. As explained above, in March 2014 we acquired all the issued preference shares in Portland Gas Limited from eCORP and the net profits interest in favour of eCORP in licence P1918 was cancelled for a total consideration of £361,012 (US$600,000), equivalent to the outstanding subscriptions due from eCORP at that time. This resulted in a capitalisation to intangible exploration and evaluation assets of the same amount by way of a transfer from trade and other receivables. Also in March we received £360,000 from Brigantes as consideration for the sale of an 18% interest in licence P1918, thereby leaving InfraStrata in a cash neutral position regarding short term funding as a result of these transactions.
On 23 September 2013 the Company completed the Placing of 8,000,000 new ordinary 10p shares at 10p per share to raise £800,000 before expenses.
The Group's cash and cash equivalents at 31 July 2014 was £1,648,955 (2013 - £774,745) and net current assets were £957,491 (2013 - £5,008,801). The principal reason for the disparity in net current asset value is the reclassification of the gas storage development assets.
The directors have prepared the financial statements on the going concern basis which assumes that the Group will continue in operational existence without significant curtailment of its activities for the foreseeable future. Forward cash flow forecasts assume that all significant future exploration costs will continue to be funded by joint venture partners and that the management and administrative costs of the Group will remain at current levels, consistent with the delivery of the Group's strategy and the management of challenges and risks associated with the Group's development programmes. The cash flow forecasts reflect that the Group requires an additional £600,000 to meet management and administrative costs and working capital requirements till the end of December 2015.
The directors anticipate that additional funding can be generated through an equity fundraising. It is proposed that the Company's share capital be restructured to a par value of 1p at the forthcoming AGM to facilitate access to the equity markets given that the Company's shares are currently trading at or below par value; however, the success of any equity fundraising cannot be guaranteed and the directors have concluded that at the date of this report a material uncertainty must therefore exist that may cast significant doubt upon the Group's ability to continue as a going concern.
Management and administration costs
Like other oil and gas exploration companies InfraStrata needs to be seen to be taking steps to ensure that cash spent on management and administrative expenses is good value for money in light of the progress being made against programme, success against key performance indicators and mitigation of the principal risks and uncertainties facing our business.
The remuneration committee sets salaries for individual members of the management team which are competitive, but not over generous. There are no additional cash incentive elements attached to remuneration packages with incentivisation achieved through the granting of share options being preferred as a means of conserving cash and aligning management rewards to the interests of shareholders. Nevertheless in January 2014 changes were implemented which reduced aggregate management cash salaries by 15% including a 20% reduction in the salary of the Chief Executive Officer to £200,000. In October 2014 our management team was greatly strengthened by the appointment of a Commercial Development Director. Every member of the management team makes an indispensable contribution to effective delivery of our strategy, performance against our key performance indicators and effective management of the risks and uncertainties our business faces. We expect to recover an increased proportion of our management costs from our partners by way of operator overhead recoveries as we progress the exploration programmes in 2015.
The cash cost of management and administrative expenses in the year to 31 July 2014 was £1,126,482. We estimate that our current annualised cash cost of management and administration, taking into account anticipated operator overhead recoveries, is just over £1m.
On behalf of the Board
Andrew Hindle
Chief Executive 1 December 2014
InfraStrata plc
Consolidated statement of comprehensive income for the
year ended 31 July 2014
|
|
Notes |
|
2014 |
|
2013 |
|
|
|
|
£ |
|
£ |
|
Continuing operations |
|
|
|
|
|
|
Revenue |
|
|
17,764 |
|
62,428 |
|
|
|
|
|
|
|
|
Cost of sales |
|
|
- |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
17,764 |
|
62,428 |
|
|
|
|
|
|
|
|
Administrative expenses
|
2 |
|
(1,331,350) |
|
(2,002,080) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
|
(1,313,586) |
|
(1,939,652) |
|
|
|
|
|
|
|
|
Finance income |
|
|
8,921 |
|
25,566 |
|
Share of loss of Associates |
8 |
|
(82,961) |
|
(43,862) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before taxation |
|
|
(1,387,626) |
|
(1,957,948) |
|
|
|
|
|
|
|
|
Taxation |
3 |
|
140,925 |
|
315,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year attributable to the equity holders of the parent |
|
|
(1,246,701) |
|
(1,642,760) |
|
|
|
|
|
|
|
|
Other comprehensive income
Reclassification of funds received from BP Gas Marketing Limited |
7 |
|
-
2,033,450 |
|
-
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive profit / (loss) for the year attributable to the equity holders of the parent |
|
|
786,749 |
|
(1,642,760) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
4 |
|
|
|
|
|
Continuing operations |
|
|
(1.27)p |
|
(1.81)p |
InfraStrata plc
Consolidated statement of financial position
as at 31 July 2014
|
|
Notes |
|
2014 |
|
2013 |
|
|
|
|
£ |
|
£ |
|
Non-current assets |
|
|
|
|
|
|
Intangible fixed assets: Exploration & Evaluation Gas Storage Development Property, plant and equipment |
5 6
|
|
3,827,066 3,641,437 440,100 |
|
3,478,843 - 1,974 |
|
Investments in associates
|
8
|
|
2,545,012
|
|
2,627,973
|
|
|
|
|
|
|
|
|
Total non-current assets |
|
|
10,453,615 |
|
6,108,790 |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
Trade and other receivables |
|
|
144,823 |
|
906,063 |
|
Cash and cash equivalents |
|
|
1,648,955 |
|
774,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,793,778 |
|
1,680,808 |
|
|
|
|
|
|
|
|
Assets classified as held for sale |
7 |
|
- |
|
4,190,267 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,793,778 |
|
5,871,075 |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade and other payables |
|
|
(836,287) |
|
(533,236) |
|
Deferred income tax liabilities |
3 |
|
- |
|
(179,478) |
|
Liabilities directly associated with assets classified as held for sale |
7 |
|
- |
|
(149,560) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
(836,287) |
|
(862,274) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net current assets |
|
|
957,491 |
|
5,008,801 |
|
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
Deferred income tax liabilities |
3 |
|
(745,183) |
|
(706,630) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets |
|
|
10,665,923 |
|
10,410,961 |
|
|
|
|
|
|
|
|
Shareholders' funds |
|
|
|
|
|
|
Share capital |
|
|
9,949,160 |
|
9,149,160 |
|
Share premium |
|
|
11,920,219 |
|
11,920,219 |
|
Merger reserve |
|
|
8,988,112 |
|
8,988,112 |
|
Share based payment reserve |
|
|
530,410 |
|
434,920 |
|
Retained earnings |
|
|
(20,721,978) |
|
(21,508,727) |
|
|
|
|
|
|
|
|
Attributable to owners of the parent |
|
|
10,665,923 |
|
8,983,684
|
|
Non-controlling interests |
7 |
|
- |
|
1,427,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
10,665,923 |
|
10,410,961 |
|
|
|
|
|
|
|
InfraStrata plc
Consolidated statement of changes in equity
for the year ended 31 July 2014
|
|
Share capital
|
Share premium
|
Merger reserve
|
Share based payment reserve
|
Retained earnings
|
Attributable to the owners of the parent
|
Non-controlling interest
|
Total equity
|
|
|
£ |
£ |
£ |
£ |
£ |
£ |
£ |
£ |
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 July 2012 |
9,099,160 |
11,920,219 |
8,988,112 |
333,735 |
(19,865,967) |
10,475,259 |
475,689 |
10,950,948 |
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
- |
- |
- |
- |
(1,642,760) |
(1,642,760) |
- |
(1,642,760) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss for the year |
- |
- |
- |
- |
(1,642,760) |
(1,642,760) |
- |
(1,642,760) |
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
50,000 |
- |
- |
- |
- |
50,000 |
- |
50,000 |
|
Share based payments |
- |
- |
- |
101,185 |
- |
101,185 |
- |
101,185 |
|
BP Gas Marketing Limited - Islandmagee Storage Limited option (note 7) |
- |
- |
- |
- |
- |
- |
951,588 |
951,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 July 2013 |
9,149,160 |
11,920,219 |
8,988,112 |
434,920 |
(21,508,727) |
8,983,684 |
1,427,277 |
10,410,961 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
- |
- |
- |
- |
(1,246,701) |
(1,246,701) |
- |
(1,246,701) |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
2,033,450 |
2,033,450 |
2,033,450 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive profit for the year |
- |
- |
- |
- |
786,749 |
786,749 |
- |
786,749 |
|
Shares issued |
800,000 |
- |
- |
- |
- |
800,000 |
- |
800,000 |
|
Share based payments |
- |
- |
- |
95,490 |
- |
95,490 |
- |
95,490 |
|
BP Gas Marketing Limited - Islandmagee Storage Limited option (note 7 ) |
- |
- |
- |
- |
- |
- |
606,173 |
606,173 |
|
Reclassification of funds received from BP Gas Marketing Limited (note 7 )
|
- |
- |
- |
- |
- |
- |
(2,033,450) |
(2,033,450) |
|
|
|
|
|
|
|
|
|
|
|
Balance at 31 July 2014 |
9,949,160
|
11,920,219 |
8,988,112
|
530,410
|
(20,721,978)
|
10,665,923 |
- |
10,665,923
|
InfraStrata plc
Consolidated statement of cash flows
for the year ended 31 July 2014
|
|
Notes |
2014 |
|
2013 |
|
|
|
£ |
|
£ |
|
|
|
|
|
|
|
Net cash (used in) operating activities |
9 |
(702,407) |
(2,249,084) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities |
|
|
|
|
|
Interest received |
|
4,772 |
|
5,318 |
|
Purchase of exploration intangible assets |
|
(347,211) |
|
(146,128) |
|
Purchase of gas storage intangible assets |
|
(255,292) |
|
(754,390) |
|
Purchase of equipment |
|
- |
|
(368) |
|
Proceeds from the disposal of exploration intangible assets |
|
360,000 |
|
150,000 |
|
PGL preference shares receipts |
|
367,474 |
|
899,608 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from investing activities |
|
129,743 |
|
154,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities |
|
|
|
|
|
Proceeds on issue of ordinary shares |
|
800,000 |
|
- |
|
Contribution from non-controlling interest |
|
606,173 |
|
951,588 |
|
Cash inflow on reclassification of assets previously held for sale |
|
40,701 |
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from financing activities |
|
1,446,874 |
|
951,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
874,210 |
|
(1,143,456) |
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
774,745 |
|
1,918,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
1,648,955 |
|
774,745 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents consist of: |
|
|
|
|
|
|
|
|
|
|
|
Cash at bank |
|
£1,648,955 |
|
£774,745 |
|
|
|
|
|
|
Significant non-cash transactions
On 14 March 2014 eCORP's Net Profits Interest in licence P1918 was cancelled (and InfraStrata UK Limited acquired the related preference shares held by eCORP in Portland Gas Limited) for a non-cash consideration of US$600,000 satisfied by the cancellation of the US$600,000 (£361,012) still payable by eCORP under the terms of the June 2012 agreements.
There were no significant non-cash transactions in the 2013 year.
InfraStrata plc
Notes to the financial information
for the year ended 31 July 2014
1. Basis of accounting and presentation of financial information
The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 31 July 2014 or 31 July 2013. The financial information has been extracted from the statutory accounts of the Group for the years ended 31 July 2014 and 31 July 2013.
The auditor, Nexia Smith & Williamson, has reported on the statutory accounts for the years ended 31 July 2014 and 2013; the reports were unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. However, in their report on the statutory accounts for the year ended 31 July 2014, the auditor drew attention to the material uncertainties which exist with respect to the ability of the group to continue as a going concern, the carrying value of the Islandmagee gas storage facility should further funds to develop the project not be secured and the carrying value of the PL1/10 license should partner funding not be received and the drilling commitment date not be extended. These uncertainties are further explained below.
The statutory accounts for the year ended 31 July 2013 have been delivered to the Register of Companies; those for the year ended 31 July 2014 were approved by the Board on 1 December 2014 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. InfraStrata plc adopted International Financial Reporting Standards (IFRS) as adopted by the European Union effective in July 2014, as the basis for preparation of its financial statements. The financial information has been prepared under the historical cost convention as modified by the revaluation of certain financial assets. There was no change to the Group's accounting policies for the year ended 31 July 2014 as compared to those published in the statutory accounts for the year ended 31 July 2013.
Going concern
As with other development companies which have no significant and consistent revenue streams, the Group will only be able to advance its development programme if it has sufficient resources to do so. The Group generally seeks to farmout the costs of exploration on its directly operated licences to manage risks and minimise funding requirements. Similarly the Group seeks new equity partners in the gas storage project prior to committing to each stage of development.
In September 2014, the Company announced that Larne had exercised an option to acquire licence interests in PL1/10 and the adjacent offshore licence P2123 subject to DETI approval. The agreement provides that Larne will fund a disproportionate share of the forthcoming Woodburn Forest-1 exploration well to earn its interest in the licence. The Company has pre-existing farmout agreements with partners Brigantes and Terrain with respect to the Woodburn Forest-1 well, which mean that any excess cost accruing to its interest in the well would still be carried.
The terms of the agreements with Larne and with existing partners Brigantes and Terrain required that the full value of the funds required to drill the Woodburn Forest well be placed in an escrow account. To date Larne has been unable to fulfil this obligation and has given notice that it expects now to be able to fund two thirds of its obligation. The partners have now entered into supplementary agreements which reduce Larne's obligation to fund the escrow by one third.
In the event that Larne is unable to any extent to place the revised two thirds of its commitment into escrow and new investment is not secured by the date on which the well construction and drilling programme is due to commence then there would be a shortfall in the funding of the well. The licence partners have until 4 March 2015 to commit to the drilling of a well before the end of the licence term on 4 March 2016. In the absence of such a commitment or an agreement by DETI to extend the date by which a commitment to drill must be made, then the licence would need to be relinquished. Despite the uncertainties regarding Larne's funding of the escrow account and the need to secure new partners, the directors remain confident that the well will be fully funded on or before 4 March 2015 being the last date a commitment to drill must be made if there is no extension to that date granted by DETI. However, the well funding cannot be guaranteed and the directors have therefore concluded that a material uncertainty exists with regard to Group's ability to retain the license.
In October 2014, the Company announced that it had entered into an agreement with Southwestern Resources with respect to licence P1918 under which Southwestern Resources will acquire a 10% interest in the P1918 licence, subject to DECC approval, in return for funding 100% of the next £500,000 of expenditure on the licence and thereafter funding its own share. In addition Southwestern Resources has been granted an exclusive option to acquire a further interest in the licence in return for funding future drilling activity.
In November 2014 the European Commission published a list of grant awards with the Islandmagee gas storage facility receiving grant assistance of up to Euros 2.5m (c£2m) towards the cost of well to obtain a salt core sample and carry out subsequent testing and engineering activities, subject to conclusion of a formal grant agreement. The Company's subsidiary IMSL is now pursuing the £2m balance of funding from a range of potential investors by way of an equity participation in IMSL prior to making a financial commitment to the well.
Should the Group not be successful in obtaining future funding for its projects, capitalised project development costs and amounts due to the Company from fellow subsidiaries amounting to £3,990,081 may become impaired in value. The directors are confident that such funding will continue to be secured. With particular regard to the Islandmagee gas storage facility the Company intends to raise £2m through a new equity fundraising to provide flexibility in the support of its projects generally and intends to use these funds to underwrite £2m funding required by IMSL to drill the salt core well in anticipation of new direct equity participation in IMSL being secured in due course.
However, the success of any equity fundraising cannot be guaranteed and the directors have therefore concluded that a material uncertainty exists with regard to the availability of funding to progress the Islandmagee gas storage facility and to the recovery of amounts due from fellow subsidiaries.
Having reviewed the value of gas storage and exploration and evaluation assets in accordance with the Group accounting policies, and the value of balances due to the Company from its subsidiaries, the directors are of the opinion that these assets are not impaired in value subject to the impact of the uncertainties regarding future funding referred to in the previous paragraphs.
On the 23 September 2013 the Company issued 8,000,000 new ordinary shares of 10 pence each at 10 pence per share to institutional and other shareholders and raised £800,000 before costs. The proceeds of the Placing have improved the Company's statement of financial position and enable the Company to be flexible about the funding of exploration costs in advance of the completion of the farm-out of exploration well costs.
The directors have prepared the financial statements on the going concern basis which assumes that the Group will continue in operational existence without significant curtailment of its activities for the foreseeable future. Forward cash flow forecasts assume that all significant future exploration costs will continue to be funded by joint venture partners and that the management and administrative costs of the Group will remain at current levels, consistent with the delivery of the Group's strategy and the management of the challenges and risks associated with the Group's development programmes. The cash flow forecasts reflect that the Group requires an additional £600,000 to meet management and administrative costs and working capital requirements till the end of December 2015.
The directors anticipate that additional funding can be generated through an equity fundraising. It is proposed that the Company's share capital be restructured to a par value of 1p at the forthcoming AGM to facilitate access to the equity markets given that the Company's shares are currently trading at or below par value; however, the success of any equity fundraising cannot be guaranteed. After preparing cash flow forecasts, making enquiries and considering the uncertainties described above, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
However, the directors have concluded that a material uncertainty exists that may cast significant doubt upon the Group's ability to continue as a going concern and that, therefore, the Group may be unable to realise its assets and discharge its liabilities in the normal course of business. Were the Group no longer a going concern, adjustments may be required to the carrying value of assets, provision would be required for the future liabilities arising as a consequence of the Group ceasing business and assets and liabilities currently classified as non-current would be reclassified as current.
The assessment of capitalised project costs for any indications of impairment involves judgement. When facts or circumstances suggest that impairment exists, a formal estimate of recoverable amount is performed and an impairment loss recognised to the extent that the carrying amount exceeds recoverable amount. Recoverable amount is determined to be the higher of fair value less costs to sell and value in use. The key assumptions are the net income expected to be generated from the facilities, the cost of construction and the date from which the facilities become operational. Management assigns values and dates to these inputs after taking into account market information, engineering design costing and the project programme. A discount rate of 8% is applied in determining gas storage project net present values. Salt cavern gas storage projects are long term investments and cash flows are therefore projected over periods greater than 5 years. Engineering design provides for a project life of 40 years. It is assumed that 100% of a project's capacity will be sold from the date that the capacity becomes operational, therefore no cash flow growth is used when performing cash flow projections.
Review of exploration and evaluation asset carrying values
IFRS 6 requires that exploration and evaluation assets be assessed for impairment when facts and circumstances suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. Management therefore consider annually whether there are any such facts and circumstances and, if so, undertake an impairment review. In making the initial judgements, management consider the outcome of exploration and evaluation activities to date and, in particular, data from any seismic surveys and drilling activities. Management also consider the continuity of the license interests and market data, including oil and gas prices.
Where an impairment test is required, a comparison is made between the carrying value of the assets at the reporting date with the expected discounted cash flow from the Group's license interest. For the discounted cash flows to be calculated, management use production profiles based on its best estimate of reserves and a range of assumptions, including oil/gas prices and discount rates.
|
2. |
Administrative expenditure |
|
|
|
|
||
|
|
|
|
2014 £ |
2013 £ |
|
||
|
|
Management & administrative expenditure paid in cash |
|
1,126,482 |
1,098,695
|
|
||
|
|
Non-cash items: Share options expense |
|
95,490 |
101,185 |
|
||
|
|
Exchange differences |
|
58,903 |
46,280 |
|
||
|
|
Depreciation |
|
1,974 |
5,865 |
|
||
|
|
Shares issued in lieu of salary |
|
- |
50,000 |
|
||
|
|
Profit on sale of assets |
|
- |
(49,945) |
|
||
|
|
|
|
|
|
|
||
|
|
Expenses of share issue |
|
42,784 |
- |
|
||
|
|
Pre-licence costs written off Portland gas storage lease costs |
|
5,717 - |
- 750,000
|
|
||
|
|
|
|
1,331,350
|
2,002,080
|
|
||
|
|
|
|
|||||
|
3. |
Taxation |
|
|
2014 |
2013 |
|
|
|
|
|
£ |
£ |
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities in relation to:
Intangible assets (recovered in more than 12 months) Financial assets (recovered within 12 months) |
|
745,183 - |
706,631 179,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
745,183 |
886,108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The gross movement on the deferred tax account is as follows: |
2014 |
2013 |
||
|
|
|
|
|
£ |
£ |
|
|
|
|
|
|
|
|
|
At 1 August |
|
|
886,108 |
1,201,296 |
|
|
|
|
|
|
|
|
|
Credited to the statement of comprehensive income:
Reversal of timing differences Change of tax rate |
|
|
(96,446) (44,479) |
(247,888) (67,300)
|
|
|
Income tax credit reported in the profit or loss relating to continuing operations |
|
|
(140,925) |
(315,188)
|
|
|
At 31 July |
|
|
745,183
|
886,108 |
|
4. |
Earnings per share |
|
2014 £ |
2013 £ |
|
|
(Loss)/profit |
|
|
|
|
|
The (loss) for the purposes of basic and diluted loss per share being the net loss attributable to equity shareholders |
|
|
|
|
|
Continuing operations |
|
(1,246,701) |
(1,642,760) |
|
|
|
|
|
|
|
|
Number of shares |
|
|
|
|
|
Weighted average number of ordinary shares for the purposes of basic earnings per share |
|
98,307,952 |
91,055,983 |
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
|
|
|
|
Continuing operations |
|
(1.27)p |
(1.81)p |
|
|
|
|
|
|
|
|
For 2014 and 2013, the share options were not dilutive as a loss was incurred. |
|||
|
|
|
|
|||||
|
5. |
Intangible assets - Exploration & evaluation |
|
|
|
|||
|
|
|
|
|
£ |
|
||
|
|
Cost |
|
|
|
|
||
|
|
At 1 August 2012 |
|
|
3,399,473 |
|
||
|
|
|
|
|
|
|
||
|
|
Additions |
|
|
146,128 |
|
||
|
|
Disposals |
|
|
(66,758) |
|
||
|
|
|
|
|
|
|
||
|
|
At 31 July 2013
|
|
|
3,478,843
|
|
||
|
|
Additions
Acquisition of net profits interest from eCORP (see footnote 1 below ) |
|
|
347,211
361,012 |
|
||
|
|
Disposal of interest in P1918 to associate (see footnote 2 below) |
|
|
(360,000) |
|
||
|
|
Net book value At 31 July 2014 |
|
|
3,827,066
|
|
||
Note 1: In June 2012 InfraStrata entered into agreements as part of which its licence interest in P1918 became subject to a net profits interest ("NPI") equivalent to 3.75% on the whole licence in favour of eCORP Oil & Gas UK Limited ("eCORP"). On 14 March 2014 eCORP's NPI in P1918 was cancelled (and InfraStrata UK Limited acquired the related preference shares held by eCORP in our subsidiary Portland Gas Limited) for a consideration of US$600,000 satisfied by the cancellation of the US$600,000 (£361,012) still payable by eCORP under the terms of the June 2012 agreements.
Note 2: On 17 March 2014, associated company Brigantes agreed to acquire an 18% interest in licence P1918 for a consideration of US$600,000 (£360,000 received), subject to DECC approval.
|
6. |
Intangible assets - Gas storage development |
|
|
|
||||
|
|
|
|
|
£ |
|
|||
|
|
Cost |
|
|
|
|
|||
|
|
Reclassified on 24 January 2014 (note 7) |
|
|
3,585,643 |
|
|||
|
|
Additions subsequent to reclassification |
|
|
55,794 |
|
|||
|
|
|
|
|
|
|
|||
|
|
At 31 July 2014
|
|
|
3,641,437
|
|
|||
|
|
Net book value At 31 July 2014 |
|
|
3,641,437
|
|
|||
Until 24 January 2014, the gas storage development costs were classified as held for sale. Additions in the year prior to that date were £199,498.
7. Reclassification of assets previously held for sale
In January 2012 the Company entered into an agreement with BPGM regarding the acquisition of an equity interest in IMSL owned by a subsidiary of InfraStrata plc (65%) and Moyle Energy Investments Limited (35%). The equity interest was to arise through the exercise of an option by BPGM to acquire a 50.495% holding in the equity of IMSL, effected by the issue of new shares. As consideration, BPGM was funding appraisal activities under a Joint Appraisal Agreement (JAA) and the option would have been triggered following the drilling of a well to be funded by BPGM. From inception of this agreement the assets and liabilities of IMSL were classified as held for sale on the basis BPGM's option would vest and IMSL would then cease to be a subsidiary. Cumulative receipts from BPGM under the Joint Appraisal Agreement were classified as Non-controlling interests as a component of equity in the Group balance sheet.
Following a strategic review of its European wide gas assets portfolio BPGM determined that it will not be taking any further participation in the project. On 24 January 2014 agreement was reached with BPGM on the terms of settlement of the JAA and the relinquishment of its option to acquire shares of IMSL. No element of the amounts paid or payable by BPGM under the JAA or the terms of the settlement are repayable to BPGM. Since the sale of IMSL is no longer highly probable, the assets and liabilities of IMSL have, with effect from 24 January 2014, been reclassified under the appropriate heading in the Group's balance sheet and the balance of amounts paid and payable by BPGM at that date amounting to £2,033,450 has been transferred from Non-controlling interests to Retained earnings. The assets and liabilities of IMSL classified as held for sale at 31 July 2013 and the amounts reclassified on 24 January 2014 are presented below.
|
|
|
|
24 January 2014 Reclassified £ |
31 July 2013 £ |
|
|
|
|
|
|
|
|
Freehold land Intangible fixed assets: Gas Storage Development Trade & other receivables Cash & cash equivalents |
|
440,100
3,585,643 522,964 40,701 |
440,100
3,386,145 190,730 173,292 |
|
|
|
|
|
|
|
|
Assets previously held for sale |
|
4,589,408 |
4,190,267
|
|
|
|
|
|
|
|
|
Trade & other payables |
|
(39,596) |
(149,560) |
|
|
|
|
|
|
|
|
Liabilities previously directly associated with assets classified as held for sale |
|
(39,596) |
(149,560)
|
|
|
|
|
4,549,812 |
4,040,707
|
The loss arising from the operations of IMSL in the year 31 July 2013 amounting to £197,298 which was previously classified as arising from discontinued operations has now been reclassified as arising from continuing operation in the consolidated statement of comprehensive income.
In the event that the project does not proceed to development IMSL would have an obligation to reinstate the area of the well-pad which has already been constructed. This is a contingent liability estimated at £100,000.
|
8. |
Investments |
|
|
|
|
|
|
|
|
|
|
|
|
2014 £ |
|
2013 £ |
|
|
|
|
|
|
|
|
Investment in associates |
|
|
|
|
|
|
|
|
|
|
|
At 1 August |
2,627,973 |
|
2,705,131 |
|
|
Share of losses |
(82,961) |
|
(43,862) |
|
|
Elimination of inter-company profit |
- |
|
(33,296) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 July |
2,545,012 |
|
2,627,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investments at the end of the year |
2,545,012 |
|
2,627,973 |
|
|
|
|
|
|
The Group has 40% interests (2013: 40%) in both of Corfe Energy Limited and Brigantes Energy Limited which are involved in hydrocarbon exploration. The associates are private companies, incorporated in England and Wales and are not listed on any public exchanges.
|
8. |
Investments (continued)
|
|
|
The following table summarises the Group's share of the assets and liabilities of each of these associates as recorded in each associates' audited financial statements made up to 31 July 2014 and after making adjustments to align the accounting policies of the associates with those of the Group:
|
Corfe Energy Limited |
|
|
|
||||||||||||||||
|
|
2014 £ |
|
|
|
|||||||||||||||
|
Long-term asset Current assets |
690,470 95,074 |
|
613,276 215,101 |
|
|||||||||||||||
|
Current liability |
(10,729) |
|
(10,392) |
|
|||||||||||||||
|
Long-term liability |
(1,600) |
|
(1,210) |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Group's share of net assets of associates |
773,215 |
|
816,775 |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Brigantes Energy Limited |
|
|
|
||||||||||||||||
|
|
2014 £ |
|
|
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Long-term asset Current assets |
704,676 91,200 |
|
510,813 319,835 |
|
|||||||||||||||
|
Current liability |
(6,567) |
|
(7,411) |
|
|||||||||||||||
|
Long-term liability |
(1,600) |
|
(1,210) |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Group's share of net assets of associates |
787,709 |
|
822,027 |
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
|
|
|
|
||||||||||||||||
|
The revenue and net loss of each of these associates as recorded in each associates' audited financial statements made up to 31 July 2014 and after making adjustments to align the accounting policies of the associates with those of the Group:
Corfe Energy Limited
|
|||||||||||||||||||
|
|
|
2014 £ |
|
|
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
|
Revenue |
|
72,775 |
|
96,052 |
|||||||||||||||
|
Total loss for the year |
|
96,378 |
|
70,073 |
|||||||||||||||
|
Group's share of losses |
|
46,560 |
|
24,134 |
|||||||||||||||
|
Group's share of other comprehensive income |
|
- |
|
- |
|||||||||||||||
|
|
|
|
|
|
|||||||||||||||
Brigantes Energy Limited
|
|
|
2014 £ |
|
|
|
||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||
|
Revenue |
|
72,771 |
|
96,296 |
|
||||||||||||||||
|
Total loss for the year |
|
66,082 |
|
55,006 |
|
||||||||||||||||
|
Group's share of losses |
|
36,401 |
|
19,728 |
|
||||||||||||||||
|
Group's share of other comprehensive income |
|
- |
|
- |
|
||||||||||||||||
|
|
|
|
|
|
|||||||||||||||||
|
|
|
|
|||||||||||||||||||
|
9. |
Cash (used in) operations |
|
|
|
2014 |
2013 |
|
||||||||||||||
|
|
|
|
|
|
£ |
£ |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Operating loss for the year |
|
|
|
(1,313,586) |
(1,939,652) |
|
||||||||||||||
|
|
Depreciation |
|
|
|
1,974 |
5,865 |
|
||||||||||||||
|
|
Exchange differences on eCORP debtor |
|
|
|
56,004 |
46,890 |
|
||||||||||||||
|
|
Decrease in trade and other receivables |
|
|
|
103,863 |
62,432 |
|
||||||||||||||
|
|
Increase/(Decrease) in trade and other payables |
|
|
|
263,455 |
(372,514) |
|
||||||||||||||
|
|
Share option expense Shares issued in lieu of salary or bonus Profit on sale of assets |
|
|
|
95,490 - - |
101,185 50,000 (49,945) |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Net working capital change in Islandmagee Storage Limited prior to reclassification |
|
|
|
90,393 |
(153,345) |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
Cash (used in) operating activities |
|
|
|
(702,407) |
(2,249,084) |
|
||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
|
|
|
|
|
|
|
||||||||||||||
|
10. |
Events after the reporting period
In September 2014, the Company announced that Larne had exercised an option to acquire licence interests in PL1/10 and the adjacent offshore licence P2123 subject to DETI approval. The agreement provides that Larne will fund a disproportionate share of the forthcoming Woodburn Forest-1 exploration well to earn its interest in the licence. The Company has pre-existing farmout agreements with partners Brigantes and Terrain with respect to the Woodburn Forest-1 well, which mean that any excess cost accruing to its interest in the well would still be carried.
The terms of the agreements with Larne and with existing partners Brigantes and Terrain required that the full value of the funds required to drill the Woodburn Forest well be placed in an escrow account. To date Larne has been unable to fulfil this obligation and has given notice that it expects now to be able to fund two thirds of its obligation. The partners have now entered into supplementary agreements which reduce Larne's obligation to fund the escrow by one third.
In October 2014, Southwestern entered into an agreement with respect to licence P1918. Under the terms of the agreement, Southwestern will acquire a 10% interest in the P1918 licence, subject to DECC approval, in return for funding 100% of the next £500,000 of expenditure on the licence and thereafter funding its own share. In addition, it has been granted an exclusive option to acquire a further interest in the licence in return for funding future drilling activity.
In August 2014 IMSL, together with partners Mutual Energy Limited submitted an application to the European Commission for a grant of up to 50% of cost of the salt core well and associated testing and engineering work under the Connecting Europe Facility, available to PCIs. On 21 November 2014 the European Commission published a list of grant awards with IMSL receiving assistance of up to Euros 2.5m (c.£2m) subject to conclusion of a formal grant agreement.
In November 2014 the Company together with partners Carstone Exploration Limited was offered block 3/11a in the East Shetland Basin by DECC in the UK 28th Seaward Licensing Round.
|
|
|||||||||||||||||||
|
|
|
||||||||||||||||||||
|
11. |
Approval |
|
|||||||||||||||||||
|
|
|
|
|||||||||||||||||||
|
|
This announcement was approved by the board on 1 December 2014 |
||||||||||||||||||||
This information is provided by RNS
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