Corporate and Operational Update

Longboat Energy PLC

29 May 2024

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION 596/2014 AS AMENDED AND TRANSPOSED INTO UK LAW IN ACCORDANCE WITH THE EUROPEAN UNION (WITHDRAWAL) ACT 2018 ("UK MAR").

29 May 2024

Longboat Energy plc

(the "Company", "Longboat Energy" or "Longboat")

Corporate and Operational Update

Longboat Energy, an emerging full-cycle E&P company currently active in Norway and Malaysia, announces the following corporate and operational update.

Norway

Although there were good grounds to believe that the production ramp up from the Equinor operated Statfjord Satellites (comprised of a 4.80% unitised interest in the Statfjord Øst Unit and a 4.32% unitised interest in the Sygna Unit) would be delivered, actual performance has been disappointing to date despite an increase in production from 2023.

Production has averaged approximately 544 barrels of oil equivalent per day ("boepd") during the prior four weeks and 401 boepd for the period from January to April this year, significantly below both Longboat's internal and operator forecasts.

The underperformance relates to operational issues associated with well completions on Statfjord Øst, leaving two out of the five redevelopment wells drilled in 2023 still off-line. The operator, Equinor, is working to rectify these multiple issues utilising an offshore vessel during Q2 and Q3 2024.

The Sygna asset continues to perform in-line with expectations, albeit at relatively low levels.

Owing to these delays and uncertainty regarding the commissioning of the final two wells on Statfjord Øst, Longboat now anticipates average production of between 575- 625 boepd for the full year 2024 net to the Longboat Japex Norge AS ("LJN") joint venture (in which Longboat is a 50.1% owner).

In addition to lower-than-forecast production, as a result of these ongoing operational issues LJN has now been informed by the operator that the Statfjord Øst 2024 gross capex budget has almost doubled to 685 million Norwegian Kroner (~$64 million) having already suffered a 25% gross capex budget increase of 586 million Norwegian Kroner (~$55 million) in 2023.

Progress has been frustratingly slow on moving the Kveikje discovery (LJN, 10%) towards development due to diverging views from partners in the wider area on the best offtake solution. As has been reported in the press, the Norwegian regulator SoDir (previously NPD) has now become involved in the situation in an attempt to unlock the development plans for the significant resources (~350 mmboe) already identified in Kveikje and the surrounding fields.

Based on the value of discoveries which have traded hands in the area over the past few years, Longboat believes that Kveikje continues to hold significant value for shareholders but recognises that this is likely to take longer to realise than previously anticipated.

On the exploration front, the Kjøttkake (aka Lotus) exploration well (LJN, 15%) is anticipated to spud in Q4 2024. Based on the internal estimates at the time of the original licence application, the prospect contains gross mean prospective resources of 27 mmboe with a chance of success of 54% with the key risk being hydrocarbon retention.

Following a farm-out announced in late 2023, LJN is fully carried on the Kjøttkake well costs up to cap greater than the currently forecast dry hole budget. Kjøttkake is located directly to the south of Kveikje and could potentially form part of an integrated development once the area-wide issues are resolved.

Malaysia

Progress continues to be made on the Company's Block 2A (52.5%, op) located offshore Sarawak in eastern Malaysia.

Detailed mapping of the giant Kertang prospect is nearly complete to support the of identification of an optimal well location to safely test the multiple horizons with hydrocarbon potential. It is anticipated that a final well decision will be made in late 2024 or early 2025.

Due to its importance to Longboat, the Company has recently commissioned ERCE to undertake a competent persons report to confirm the potential size and risk associated with the giant Kertang prospect, which is believed to be one of the largest undrilled structures in Malaysia. Longboat intends to publish the results of the CPR when available in the next few months.

In addition to Kertang, Longboat has recently completed a key exploration review gate with PETRONAS where additional, significant prospectivity on Block 2A has been identified. Two areas of interest have been delineated: firstly surrounding the Kertang structure, where several large structural closures analogous to Kertang have been mapped and secondly in shallow water, in the southwest of the block, where the continuation of a play that has seen several notable recent gas discoveries made in younger, shallower horizons to the south of 2A.

Following recent increased interest levels in exploration for world-scale fields, multiple large companies have approached Longboat regarding Block 2A and the Company is currently planning on running a farm-out process later in 2024 to identify potential partners for the block.

In addition to its exploration efforts in Malaysia, earlier this year, Longboat executed an Area of Mutual Interest agreement with another E&P company active in Malaysia to pursue discovered resource opportunities ("DROs") being offered by PETRONAS. The companies subsequently made an application for acreage in shallow water offshore Sarawak and should the partnership be successful, the DROs are anticipated to add significant hydrocarbon resources capable of near-term development to Longboat's growing Asian portfolio.

Finance

As reported in the Company's full year accounts for the period to 31 December 2023, production performance issues and the related cost overruns at the Statfjord Satellites have had a significant negative impact on LJN's working capital position. To date, this shortfall has been funded through a total of $17 million drawdown on the $100 million Acquisition Finance Facility ("Acquisition Facility") provided to the joint venture by Japan Petroleum Exploration Co. Ltd ("JAPEX").  

As detailed in the original LJN joint venture announcement in May 2023, the Acquisition Facility is available to LJN for the sole purpose of financing acquisitions and associated development costs and Longboat's partner has reiterated that the Acquisition Facility is not available to finance working capital shortfalls post-acquisition completion.

In the event Longboat cannot meet its share of additional working capital shortfalls at LJN in a timely fashion, the terms of the Shareholder Agreement and Acquisition Facility could result in Longboat forfeiting some-or-all of its shares in LJN.

Despite these financial challenges, due to its existing asset base in Norway and strong market positioning of LJN, Longboat strongly believes that the joint venture has significant remaining value and is currently exploring all options available to fully realise that value for shareholders.

In order to preserve liquidity, Longboat has begun a detailed review of its cost base and is already taking measures to ensure its overheads are in-line with the current size and scale of the business and ensure its capital is being directed towards the areas with the greatest value-creation potential.

It is anticipated that Longboat will give a further update to the market around the time of its AGM at the end of June.

Related Party Transaction

Pursuant to its joint venture arrangements in Norway, JAPEX provides LJN with the Acquisition Facility out of which an amount of $10 million was made available for the Statfjord Satellites acquisition.

Due to adverse working capital movements in the period between signing and completion of the transaction, the Company required drawing $17 million to fund the acquisition. As a result, LJN required an amendment to the Acquisition Facility which was entered into on 19 January 2024 (the "Amended Acquisition Facility").

The Amended Acquisition Facility, which replaced the Acquisition Facility, was on materially similar terms as regards to:

·    Total facility size: $100 million;

·    Term: five-years;

·    Purpose: finance LJN acquisitions and associated development costs.

·    Interest: all-in cost over the term of <10%

The Amended Acquisition Facility had several additional features including:

·    Increase in availability totalling $17 million (retaining a $100 million maximum); and

·    A flat interest rate of 10% for the drawn amounts over $10 million

·    Final repayment: 31 December 2024

At the time of the entry into the Amended Acquisition Facility, JAPEX was a Related Party of the Company and therefore the entry into the amended facility is deemed a Related Party Transaction under Rule 13 of the AIM Rules. The Company's directors consider, having consulted with Stifel, the Company's Nominated Adviser, that the terms of Amended Acquisition Facility are fair and reasonable insofar as shareholders are concerned.

Nick Ingrassia, CEO of Longboat commented:

"While Longboat faces a series of near-term financial challenges, I am confident that the steps we are currently taking will allow the slimmed down business to create significant shareholder value from our high-quality positioning in Norway and our emerging portfolio in Malaysia."  

Ends

Enquiries: Longboat Energy via FTI Nick Ingrassia Chief Executive Officer Stifel (Nomad and Joint Broker) Tel: [phone] Callum Stewart Jason Grossman Ashton Clanfield [e-mail] Cavendish Capital Markets Limited (Joint Broker) Tel: [phone] Neil McDonald Pete Lynch Leif Powis FTI Consulting (PR adviser) Tel: [phone] Ben Brewerton Rosie Corbett Catrin Trudgill [e-mail] Company Background Longboat Energy was established at the end of 2019 to create a full-cycle E&P company through value accretive M&A and near-field exploration. Longboat's initial focus has been in Norway where the Company has drilled nine exploration wells resulting in six hydrocarbon discoveries, representing a 66% technical success rate.  In July 2023, Longboat completed a transaction with Japan Petroleum Exploration Co., Ltd ("JAPEX") to form a new joint venture company in Norway named Longboat JAPEX Norge AS in return for a cash investment of US$20 million and a US$100 million Acquisition Financing Facility. Longboat retains 50.1% ownership in Longboat JAPEX Norge AS. Longboat JAPEX Norge AS holds interests in multiple discoveries on the Norwegian Continental Shelf and has a 4.80% interest in Statfjord Øst and 4.32% unitised interest in Sygna producing fields. Longboat entered Malaysia in February 2023 through the award of a Production Sharing Contract for Block 2A, offshore Sarawak where it holds a 52.5% operated interest. Block 2A covers approx. 12,000km2 and is located in water depths of between 100-1,400 metres and contains the giant 'Kertang' prospect which has volume potential of multiple trillions of cubic feet of gas. Longboat's activities remain focused on creating a portfolio with a clear low-cost route to monetisation and low-carbon drilling and development opportunities, well aligned to Longboat's ESG targets which includes a corporate 'Net Zero' on a Scope 1 and 2 basis by 2050.

Standard

Estimates of reserves and resources have been prepared in accordance with the June 2018 Petroleum Resources Management System ("PRMS") as the standard for classification and reporting with an effective date of 31 December 2020.

Review by Qualified Person

The technical information in this release has been reviewed by Hilde Salthe, Managing Director Norge, who is a qualified person for the purposes of the AIM Guidance Note for Mining, Oil and Gas Companies. Ms Salthe is a petroleum geologist with more than 20 years' experience in the oil and gas industry. Ms Salthe has a Master's Degree from Faculty of Applied Earth Sciences at the Norwegian University of Science and Technology in Trondheim.

Glossary

"mmboe" Million barrels of oil equivalent

"Prospective Resources" those quantities of petroleum which are estimated, on a given date, to be potentially recoverable from undiscovered accumulations

 

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