Interim Results

RNS Number : 0414M

Igas Energy PLC

12 September 2019

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

12 September 2019

IGas Energy plc (AIM: IGAS)

Unaudited Half-year results for the six months ended 30 June 2019

IGas Energy plc ("IGas" or "the Company" or "the Group"), one of the leading producers of hydrocarbons onshore in Britain, announces its unaudited half-year results for the six months to 30 June 2019.

Results Summary

	Six months to 30 June 2019 £m	Six months to 30 June 2018 £m
Revenues	21.2	21.1
Adjusted EBITDA	7.7	6.0
Profit/(loss) after tax - continuing activities	0.8	(1.2)
Operating cash flow before working capital movements	8.7	5.5
Net debt (excluding capitalised fees)	5.9	7.4
Cash and cash equivalents	14.4	14.5

Operational Summary

·     Net production averaged c.2,360 boepd in H1 2019 (H1 2018: 2,292 boepd) and we are expecting average net production for the year to be c.2,200 - 2,400 boepd, with underlying cash operating costs per boe anticipated to be under budget at $31/boe in 2019 (based on an average 2019 exchange rate of £1:$1.30)

·     We have continued to progress projects in our core conventional business which have the potential to add significant value to the Company and our shareholders. These include additional gas monetisation (Bletchingley), production uplift opportunities, such as water injection (Scampton North) and additional appraisal and exploration opportunities to access new fields (Weald basin - PEDL 235).

·     The SR-01 well at Springs Road in North Nottinghamshire encountered 429m of hydrocarbon-bearing Bowland Shale, throughout which significant gas indications were recorded. We have a highly positive dataset following the detailed analysis of the 147 metres of core acquired within the Bowland Shale Formation, the primary target, with estimated GIIP of over 600 bcf/square mile.

·     Restoration of the Tinker Lane site, also in North Nottinghamshire is now complete, ahead of schedule.

Corporate & Financial Summary

·     Cash balances as at 30 June 2019 were £14.4 million (H1 2018: £14.5 million) with net debt, excluding capitalised fees, reduced to £5.9 million (H1 2018: £7.4 million).

·     Operating cash flow before working capital movements in H1 2019 of £8.7 million (H1 2018: £5.5 million)

·     Hedging in place in H2 2019 and H1 2020 for 480,000 barrels with average downside protection of $53.5/bbl using put options.

Commenting today Stephen Bowler, Chief Executive Officer, said:

"We have had a good performance from our existing producing assets in the first half of the year and we continue to generate strong operating cash flow.

From the results at Springs Road, we now know we have a world-class resource and early indications are that we can attain significant gas flow from this basin.  We look forward to the full analysis of the data set and to moving forward to appraise this asset.

The independent Committee on Climate Change recognises natural gas has a significant role to play to meet the 2050 net zero emissions target.  It is clear that the UK needs a secure long-term supply of methane to meet our net zero targets and that the UK sources that methane not only from a diverse supply but also with the lowest emissions footprint - that being domestically produced onshore gas.

We were encouraged by the recent statement from BEIS and look forward to a positive dialogue with the appropriate ministers to discuss the role of indigenous oil and gas production as we move to net zero emissions in 2050."

A results presentation will be available at http://www.igasplc.com/investors/presentations.

Qualified Person's Statement

Ross Pearson, Technical Director of IGas Energy plc, and a qualified person as defined in the Guidance Note for Mining, Oil and Gas Companies, March 2006, of the London Stock Exchange, has reviewed and approved the technical information contained in this announcement. Mr Pearson has 18 years oil and gas exploration and production experience.

For further information please contact:

IGas Energy plc

Tel: [phone]

Stephen Bowler, Chief Executive Officer

Julian Tedder, Chief Financial Officer

Ann-marie Wilkinson, Director of Corporate Affairs

Investec Bank plc (NOMAD and Joint Corporate Broker)

Tel: [phone]

Sara Hale/Jeremy Ellis/Neil Coleman

Canaccord Genuity (Joint Corporate Broker)

Tel: [phone]

Henry Fitzgerald-O'Connor/James Asensio

Vigo Communications

Tel: [phone]

Patrick d'Ancona/Chris McMahon

 

Introduction and Market Backdrop

During the first half of the year, we have demonstrated our commitment to maximising return from our existing producing assets and developing our appraisal assets as we continue to unlock the value in our portfolio for the benefit of our shareholders.

Production was at the upper end of the guidance range at an average of 2,360 boepd.  This cash generative production underpins our capital investment in further growth opportunities.  Two such opportunities to add incremental production were progressed during the first half of the year: plans for new development in the Weald Basin; and the Scampton North Waterflood project.

It has been an important period for the UK shale gas industry with world class results from our own Springs Road well in North Nottinghamshire, and the Government has continued its support and commitment to our industry setting out its position on shale gas exploration in a statement which stated that they would consider the Oil and Gas Authority's (OGA) scientific review of the Cuadrilla seismic data once complete.

In May 2019, we welcomed the Committee on Climate Change's Net Zero Report which set out that gas consumption in 2050 will be 600 TWh against an estimate for UK production of only 85 TWh. In addition, oil consumption will be 140 TWh against an estimate of 130 TWh for UK production.  This means that without onshore gas and oil there will be a considerable increase in import dependency - potentially as high as 86% - even under net zero conditions. It is important to remember that UK shale gas has at least 50% fewer pre-combustion emissions than LNG and long distance pipeline gas. 

Earlier this year the onshore industry association, UKOOG, produced an updated forecast of the potential of UK onshore gas production based on the early results from Cuadrilla's wells at Preston New Road. This report confirmed that we have a world-class gas resource and if our aim was to reduce import dependency by half in the mid-2030s (and thus maintaining a diverse supply of gas) this could be accomplished by creating only 60 onshore sites.  There are currently 120 operational onshore oil and gas sites in the UK.

Alongside the decrease in imports we would potentially see an improvement in balance of payments of £5 billion per year, cumulative emissions savings of 45 million tonnes by 2035 compared to the overseas LNG alternative, £390 million of cumulative community benefits, and £780 million of cumulative business rates.

It is evident that the UK needs a secure long-term supply of methane to meet our net zero targets and that the UK sources that methane not only from a diverse supply but also with the lowest emissions footprint - that being domestically produced onshore gas.

Board Appointment

In May 2019, Hans Årstad was appointed as a Non-executive Director of the Board, exercising the right of KKR to take a seat on the Board. KKR owns 14.7% of IGas through KOG Investments S.A.R.L.  KKR has followed IGas closely since investing in 2016.

Operating review

Production assets

Production for the period was within the 2,200 - 2,400 target range, averaging c.2,360 boepd in H1 2019, ahead of budget. Production in our East Midlands assets has benefited from the success of waterflood and optimisation activities conducted in 2018, alongside 2019 projects being brought online ahead of schedule and wells performing above expectations; this has helped to drive the regional production to be c. 6% higher than the 2018 average. Our Gas to Wire and Gas to Grid facility at Albury has had a strong electrical export performance during the period and the initial reliability issues post commissioning have been resolved in time to meet the expected higher winter demand. Elsewhere across our southern operations we have successfully completed our routine maintenance and integrity programs and implemented a series of optimisation works at our Singleton field which should deliver enhanced performance during H2 2019.

We continue to mature our production portfolio opportunities and achieved final approvals for our Scampton North Waterflood project during H1 2019. This c. £2.0 million project to install water injection capability and convert a suspended well into a water injector has now moved into the construction phase with initial production scheduled for H2 2020. This secondary recovery project (water-flood) is forecast to double the current output of the field to over 200 bopd and increase the ultimate recovery from the field. The D&M CPR estimated 239Mbbl of incremental 2P (Probable Undeveloped) reserves and our mid-case economics for the project have an IRR of over 40% and a NPV of £2.5 million.

In early July 2019 we also announced plans, from our conventional portfolio, for a new site in the Weald basin on PEDL 235, which IGas owns 100%. The intention is to drill up to two wells from the site to explore and evaluate the resource potential of both the Portland Sandstones and the Kimmeridge Micrites. The Portland Sandstone has an existing gas discovery (IGas 2C resources includes c.1.4 MMBoe https://www.igasplc.com/media/39949/DM-CPR-IGas-Reserves-and-Resources-as-of-31-December-2018.pdf) and technical studies conducted by the IGas team have concluded that the Kimmeridge Micrites have the potential for significant resources of c.300 million barrels of oil in place.

Work on this project continues with a view to submitting a planning application in the future. As part of the planning process, IGas will undertake community consultation to take account of feedback from local residents before submitting the full planning application.

Bletchingley is a Gas Monetisation, gas-to wire project.   It includes the installation of up to 6MW of electrical generation capability at the Bletchingley Central site fueled by gas from the Bletchingley 2 well, which is currently suspended. A planning application has now been submitted to the relevant Mineral Planning Authority.

As announced in July 2019, we were unable to agree a transaction with Onshore Petroleum Limited and consequently all non-core assets will now remain with IGas. A 25% farm down of the PEDL 235 licence was included in the original transaction, accordingly IGas will now continue to hold 100% of the licence.

Development assets

We mobilised the equipment to our Springs Road development in North Nottinghamshire in early January 2019 and spudded the well on 22 January 2019.  In mid-February 2019, we encountered shales on prognosis, at c.2,200 metres depth and drilled through a significant hydrocarbon bearing shale sequence, including the upper and lower Bowland Shale. 

The well sought to assess three target zones: the Bowland Shale; the Millstone Grit and the Arundian Shale. All three targets were encountered, with 429 metres of hydrocarbon bearing shales encountered within the primary target, the Bowland Shale. 

IGas acquired 147 metres of core within the Bowland Shale, the first extensive core sample from this basin, which has subsequently been analysed by Stratum Reservoir (formerly Weatherford Labs) in their laboratories in both the UK and the USA.

The results from the core analysis are extremely positive and confirm that a significant hydrocarbon resource is present in the Gainsborough Trough. Following further detailed analysis, the core results are as follows:

	SR-01 Upper Bowland	SR-01 Lower Bowland
Organic content	3.2% (0-8.4%)	2.5% (0-6.6%)
Maturity (Ro)	c. 1.17%	c.1.29%
Shale thickness	179m	305m
Approx. depth	2,109-2,288m	2,288-2,593m
Clay content	43%	22%
Matrix porosity	4.8% (1-11%)	3.0% (1-9%)
Natural fracturing	Yes	Yes
Estimated GIIP Bcf/Sq mile (Adsorbed and free)*	231	409

*volumetric estimates based on SR-01 data only, no regional data has been incorporated and as such does not account for thickness variations and reservoir heterogeneity within the basin. Secondary (Millstone Grit) and tertiary (Arundian shale) targets excluded.

The key characteristics of the Bowland Shale in the SR-01 well compare favourably to commercial shale operations observed in North America such as the Permian and the Marcellus. The core results indicate a mature, organic rich source rock with good porosity confirming favourable gas resource density.  In particular, the low clay content is encouraging and an indication that hydraulic fracturing of the rock should be effective.

The analysis we have undertaken will help delineate the resource potential and help refine the subsequent appraisal programme. Working with our joint venture partners, IGas will now consider the attributes of the data set in order to commence planning for both the appraisal programme and pilot development within the Gainsborough Trough, including redefining the basin model.

The well at Tinker Lane was plugged and abandoned earlier in the year and the full restoration of the site commenced in July 2019.  Restoration of the site is now complete and has been handed back to the landowner ahead of schedule.

In the North West, the Ellesmere Port appeal was recovered by the Secretary of State (SoS) at the end of June 2019 in order to determine a decision. The Planning Inspectorate has set a deadline for the report and recommendation by the inquiry inspector of 23 January 2020.  The SoS will then make their decision following the recommendation.

The OGA has granted three-year extensions to the initial terms on the following 14^th round, Company operated licences:  PEDL189, PEDL235, PEDL257, PEDL273, PEDL278, PEDL305, PEDL316 and PED326.

Financial review

The Group generated revenue of £21.2m in the first six months of 2019 from sales of 409,470 barrels of oil,  including sales of third party oil, 9,000 Mwh of electricity and 746,410 therms of gas (H1 2018: revenue £21.1m, sales 415,632 barrels of oil and 5,240 Mwh of electricity and 0 therms of gas). Brent prices decreased compared to the first half of 2018 averaging $66.0/bbl during H1 2019 compared to $70.6/bbl in H1 2018. The impact of lower oil prices was largely offset by a strengthening of the US dollar versus sterling with an average USD/GBP rate of $1.29/£1 in H1 2019 compared to $1.37/£1 in H1 2018.

Adjusted EBITDA for H1 2019 was £7.7m (H1 2018: £6.0m) and the profit after tax from continuing activities was £0.8m (H1 2018: loss of £1.2m). The main factors explaining the movements between H1 2019 and H1 2018 were as follows:

·   Revenues of £21.2m (H1 2018: £21.1m) were in line with the first half of 2018, with lower oil prices and volumes being offset by the impact of the strengthening of the US dollar versus sterling;

·   DD&A increased to £4.6m (H1 2018: £3.3m) mainly due to the inclusion of depreciation on right of use assets of £0.6m, depreciation of the Albury site £0.3m and £0.2m relating to an increase in decommissioning assets at 31 December 2018;

·   Operating costs decreased to £9.7m (H1 2018: £10.3m). A change in accounting policy on adoption of the new leasing standard reduced costs by £0.9m as operating lease payments previously charged to operating costs were capitalised in the period. Other costs were £0.3m higher than H1 2018 due to higher third party volumes purchased and higher regulatory, production and workover costs, offset by a refund of rent and rates relating to prior periods;

·   Administrative expenses decreased to £2.5m (H1 2018: £2.8m) mainly due to a reduction in staff costs. The impact of the adoption of IFRS 16 on administrative expenses was an increase in DD&A on right of use  assets of £0.2m, primarily relating to office leases, and a reduction in lease costs of £0.3m;

·   Loss on oil price derivatives of £2.3m (H1 2018: £3.5m loss) mainly due to the realised premium on put options and an increase in Brent prices which decreased the unrealised gain recognised as at 31 December 2018;

·   Decreased finance costs of £1.7m (H1 2018: £1.9m) principally due to positive foreign exchange movements, offset by an increase in finance costs relating to right of use assets of £0.1m; and

·   A tax credit of £0.1m (H1 2018: charge £0.3m) principally due to a decrease in deferred tax relating to the value of ring fence tax losses available for offset against future taxable profits.

Income statement

The Group recognised revenues of £21.2m in the period (H1 2018: £21.1m). Group production in the period was 2,360 boepd (H1 2018: 2,292 boepd). Oil sales were 388,757 barrels (excluding third party sales), with 9,000 Mwh of electricity and 746,410 of gas sold (H1 2018: 398,618 barrels; 5,240 Mwh of electricity). Revenues for the period also included £1.0m (H1 2018: £0.8m) relating to the sale of third party oil, the bulk of which is processed through our gathering centre at Holybourne in the Weald Basin. 

The average realised price for the period pre-hedge (excluding third party sales) was $64.0/bbl (H1 2018: $68.3/bbl) and post hedge $61.1/bbl (H1 2018: $57.7/bbl).  The average exchange rate for the period was £1:$1.29 (H1 2018: £1:$1.37) which had a positive impact on revenues compared to H1 2018.

Cost of sales for the period were £14.2m (H1 2018: £13.6m) including depreciation, depletion and amortisation (DD&A) of £4.6m (H1 2018: £3.3m), and operating costs of £9.7m (H1 2018: £10.3m). Operating costs include £0.9m (H1 2018: £0.7m) in relation to processing third party oil. The contribution received from processing third party oil was £0.1m (H1 2018: £0.1m).  Excluding the costs of processing third party oil, operating costs were £0.8m lower than the prior period, due to a decrease relating to the re-classification of operating leases under IFRS 16 of £0.9m and a refund for rent and rates being partially offset by an increase in regulatory, production and workover costs. Operating costs per barrel of oil equivalent were £20.5 ($26.6), excluding the third party costs (H1 2018: £22.7 ($31.3)). This includes the impact of the change in classification of operating lease costs in H1 2019 in accordance with IFRS 16 which reduced operating costs by £2.2 ($2.8) per barrel for the period.

Adjusted EBITDA in the period was £7.7m (H1 2018: £6.0m).  Gross profit of £7.0m was recognised in the period (H1 2018: £7.5m).  Administrative costs decreased by £0.3m to £2.5m (H1 2018: £2.8m) principally due to lower staff costs.

Exploration costs written off in H1 2019 were £nil (H1 2018: £0.1m in relation to licence relinquishments). As part of our ongoing active portfolio management we continually review our acreage positions and will relinquish non-core or uneconomic acreage.

Net finance costs were £1.6m in the period (H1 2018: £1.9m), including interest on borrowings of £0.9m (H1 2018: £0.9m), a net foreign exchange loss of £nil (H1 2018: £0.4m) and unwinding of decommissioning discount £0.7m (2018: £0.6m). The charge also includes £0.1m relating to the finance charge on lease liabilities recognised under IFRS 16 Leases, which was adopted on 1 January 2019. The decrease in net finance costs is mainly due to the impact of changes in the GBP/USD foreign exchange rate on USD denominated bank balances and debt, resulting in lower net foreign exchange losses. The Group recognised a tax credit of £0.1m (H1 2018: expense £0.3m) during the period primarily relating to deferred tax.

Cash flow

Net cash generated from operations before working capital movements in the period amounted to £8.7m (H1 2018: £5.5m). The Group invested £3.3m across its asset base in the period (H1 2018: £5.9m). We invested £1.6m (H1 2018: £4.3m) in our conventional assets primarily to optimise existing facilities and systems and carry out routine maintenance. We invested £1.8m (H1 2018: £1.3m), net of recoveries from our joint venture partners, in progressing our shale programme. Expenditure related principally to the Group's share of costs for the drilling and analysis of results of the Tinker Lane and Springs Road wells and the Ellesmere Port planning appeal. We also invested £0.2m (H1 2018: £0.2m) on our conventional assets to work up additional exploration opportunities.

IGas repaid £1.1m ($1.5m) of principal on borrowings (H1 2018: £0.6m ($0.8m) of principal on borrowings) in accordance with the terms of the bonds.

IGas paid £0.8m ($1.1m) in interest (H1 2018: £0.9m ($1.2m)). Repayment of obligations under leases was £1.2m (H1 2018: £nil).

Cash and cash equivalents were £14.4m at the end of the period (31 December 2018: £15.1m).

Balance sheet

Net assets were £162.9m at 30 June 2019 (31 December 2018: £161.7m).

On adoption of IFRS16 Leases, the Group recognised lease assets and liabilities in relation to leases which were previously classified as operating leases under the provisions of IAS 17 Leases (See note 10).

Assets and liabilities comprising net liabilities of £0.2m previously classified as held for sale were re-classified during the period as the proposed sale to Onshore Petroleum Limited was unable to be  completed (see note 13).

Shareholder's equity increased by £1.2m to £162.9m.

Non-IFRS measures

The Group uses non-IFRS measures of performance that are not specifically defined under IFRS or other generally accepted accounting principles. The non-IFRS measures include net debt, adjusted EBITDA and underlying cash operating costs. Operating lease costs for the period which have been capitalised under IFRS 16 have been added to underlying cash operating costs and deducted in the calculation of adjusted EBITDA to be consistent with previous periods.

Net debt, being borrowings less cash, decreased to £5.9m at 30 June 2019 (31 December 2018: £6.4m; 30 June 2018: £7.4m). The Group's definition of net debt does not include the Groups liabilities under operating leases.

	Six months ended 30 June 2019	Six months ended 30 June 2018	Year ended 31 December 2018
	£m	£m	£m
Debt (nominal value excluding capitalised expenses)	(20.3)	(21.9)	(21.5)
Cash and cash equivalents	14.4	14.5	15.1
Net Debt	(5.9)	(7.4)	(6.4)

Adjusted EBITDA

Adjusted EBITDA is considered by the Company to be a useful additional measure to help understand underlying performance

Adjusted EBITDA
	Six months ended 30 June 2019	Six months ended 30 June 2018	Year ended 31 December 2018
	£m	£m	£m
Profit/(loss) before tax	0.6	(0.9)	(25.1)
Net finance costs	1.6	1.9	3.8
Depletion, depreciation & amortisation	4.6	3.4	6.9
Impairments/write offs	-	0.1	29.1
EBITDA	6.8	4.5	14.7
Operating lease costs	(0.9)	-	-
Share based payment charges	0.3	0.8	0.8
Unrealised loss/(gain) on hedges	1.5	0.7	(4.7)
Adjusted EBITDA	7.7	6.0	10.8

Underlying cash operating costs
	Six months ended 30 June 2019	Six months ended 30 June 2018	Year ended 31 December 2018
	£m	£m	£m
Other cost of sales	9.7	10.3	21.9
Operating lease payments	1.2	-	-
Underlying cash operating costs	10.9	10.3	21.9

Principal risks and uncertainties

The Group constantly monitors the Group's risk exposures and the management reports to the Audit Committee and the Board on a regular basis.  The Audit Committee receives and reviews these reports and focuses on ensuring that the effective systems of internal financial and non-financial controls including the management of risk are maintained.  The results of this work are reported to the Board which in turn performs its own review and assessment.

The principal risks for the Group remain as previously detailed on pages 26-29 of the 2018 Annual Report and Accounts and can be summarised as:

·   Exposure to political risk. This can include changes in Government or the effect of any local or national referendum. These political risks can result in changes to the regulatory or fiscal environment (including taxation) which could affect the Group's ability to deliver its strategy;

·   Planning, environmental, licensing and other permitting risks associated with its operations and, in particular, with drilling and production operations;

·   Oil or gas is not produced in the anticipated quantities from any or all of the Group's assets or that oil or gas can be delivered economically;

·   Successful development of shale gas resources is not achieved;

·   Loss of key staff;

·   Exposure to market price risk through variations in the wholesale price of oil in the context of the production from oil fields it owns and operates;

·   Market price risk through variations in the wholesale price of gas and electricity in the context of its future unconventional production volumes;

·   Exchange rate risk through both its major source of revenue and its major borrowings being priced in US$ while most of the Group's operating and G&A costs are denominated in UK pounds sterling;

·   Exposure, through its operations, to liquidity risk;

·   Exposure to capital risk resulting from its capital structure, including operating within the covenants of its existing bond agreements; and

·   Strategy fails to meet shareholder expectations.

Going concern

The Group continues to closely monitor and manage its liquidity risks. Cash forecasts for the Group are regularly produced based on, inter alia, the Group's production and expenditure forecasts, management's best estimate of future oil prices (based on current forward curves, adjusted for the Group's hedging programme) and the Group's borrowings. Sensitivities are run to reflect different scenarios including, but not limited to, possible further reductions in commodity prices below the current forward curve and reductions in forecast oil and gas production rates. The Group's base case working capital forecasts show that the Group will have sufficient financial headroom for the 12 months from the date of approval of the financial statements. To manage the impact of the most extreme downside scenarios modelled, management would have to take action, including delaying capital expenditure in order to remain within the company's debt liquidity covenants. All such mitigating actions are within management's control. 

 Therefore, after making appropriate enquiries and considering the risks described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in the preparation of the financial statements.

Responsibility statement

The Directors confirm that to the best of their knowledge:

a)    The condensed interim consolidated set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

b)    The interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the six months and description of principal risks and uncertainties for the remaining six months of the year); and

c)    The interim finance review includes a fair review of the business and of any required related party disclosures.

By order of the Board,

Stephen Bowler                                                                               Julian Tedder

Chief Executive Officer                                                 Chief Financial Officer
 

Independent review report to IGas Energy plc

Report on the Condensed Interim Consolidated Financial Statements

Our conclusion

We have reviewed IGas Energy plc's Condensed Interim Consolidated Financial Statements (the "interim financial statements") in the Unaudited results for the six months ended 30 June 2019 of IGas Energy plc for the 6 month period ended 30 June 2019. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

What we have reviewed

The interim financial statements comprise:

·     the Condensed Interim Consolidated Balance Sheet as at 30 June 2019;

·     the Condensed Interim Consolidated Income Statement and Condensed Interim Consolidated Statement of Comprehensive Income for the period then ended;

·     the Condensed Interim Consolidated Cash Flow Statement for the period then ended;

·     the Condensed Interim Consolidated Statement of Changes in Equity for the period then ended; and

·     the explanatory notes to the interim financial statements.

The interim financial statements included in the Unaudited results for the six months ended 30 June 2019 have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the AIM Rules for Companies.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The Unaudited results for the six months ended 30 June 2019, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Unaudited results for the six months ended 30 June 2019 in accordance with the AIM Rules for Companies which require that the financial information must be presented and prepared in a form consistent with that which will be adopted in the company's annual financial statements.

Our responsibility is to express a conclusion on the interim financial statements in the Unaudited results for the six months ended 30 June 2019 based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the AIM Rules for Companies and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the Unaudited results for the six months ended 30 June 2019 and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

London

11 September 2019

 

Condensed Interim Consolidated Income Statement

	Notes	Unaudited 6 months ended 30 June 2019 £000	Unaudited 6 months ended 30 June 2018 £000	Audited year ended 31 December 2018  £000
Revenue	4	21,243	21,112	42,928
Cost of sales
Depletion, depreciation and amortisation		(4,585)	(3,345)	(6,824)
Other costs of sales		(9,653)	(10,252)	(21,932)
Total cost of sales		(14,238)	(13,597)	(28,756)
Gross profit		7,005	7,515	14,172
Administrative expenses		(2,515)	(2,797)	(5,467)
Exploration and evaluation assets written off		(6)	(140)	(29,067)
Loss on oil price derivatives		(2,283)	(3,512)	(638)
Gain/(loss) on foreign exchange contracts		80	(118)	(180)
Other income		8	40	(60)
Operating profit/(loss)		2,289	988	(21,240)
Finance income	5	57	38	69
Finance costs	5	(1,698)	(1,903)	(3,948)
Profit/(loss) from continuing activities before tax		648	(877)	(25,119)
Income tax credit/(charge)	6	126	(342)	3745
Profit/(loss) after tax from continuing operations attributable to equity shareholders of the Group		774	(1,219)	(21,374)
(Loss)/profit after tax from discontinued operations	13	(172)	(17)	41
Net profit/(loss) attributable to equity shareholders of the Group		602	(1,236)	(21,333)
Profit/(loss) attributable to equity shareholders:
Basic earnings/(loss) per share (pence/share)	7	0.49p	(1.02p)	(17.56p)
Diluted earnings/(loss) per share (pence/share)	7	0.47p	(1.02p)	(17.56p)

Condensed Interim Consolidated Statement of Comprehensive Income

	Unaudited 6 months ended 30 June 2019 £000	Unaudited 6 months ended 30 June 2018 £000	Audited year ended 31 December 2018 £000
Profit/(loss) for the period/year	602	(1,236)	(21,333)
Other comprehensive income for the period/year:
Currency translation adjustments	(24)	(309)	(235)
Total comprehensive income/(loss) for the period/year	578	(1,545)	(21,568)

Condensed Interim Consolidated Balance Sheet

	Notes	Unaudited  at 30 June 2019  £000	Unaudited at 30 June 2018 £000	Audited at 31December 2018 £000
Assets
Non-current assets
Goodwill		4,801	4,801	4,801
Intangible exploration and evaluation assets	8	91,729	116,329	89,282
Property, plant and equipment	9	98,687	86,423	91,403
Right-of-use assets	10	7,566	-	-
Restricted cash		410	303	410
Deferred tax asset		20,779	16,567	20,656
		223,972	224,423	206,552
Current assets
Inventories		1,221	1,141	1,149
Trade and other receivables		6,638	7,783	9,589
Cash and cash equivalents	12	14,403	14,460	15,112
Restricted cash		193	1,348	193
Derivative financial instruments		679	-	2,158
Assets held for sale	13	-	7,977	10,100
		23,134	32,709	38,301
Total assets		247,106	257,132	244,853
Liabilities
Current liabilities
Trade and other payables		(7,160)	(8,284)	(11,878)
Current tax liabilities		(21)	(346)	-
Borrowings	12	(2,390)	(2,304)	(2,389)
Derivative financial instruments		(100)	(3,325)	(180)
Lease liabilities	10	(1,759)	-	-
Liabilities held for sale	13	-	(7,937)	(10,272)
		(11,430)	(22,196)	(24,719)
Non-current liabilities
Borrowings	12	(17,511)	(18,947)	(18,591)
Other creditors		(1,722)	(162)	(1,916)
Lease liabilities	10	(5,294)	-	-
Provisions		(48,294)	(35,009)	(37,946)
		(72,821)	(54,118)	(58,453)
Total liabilities		(84,251)	(76,314)	(83,172)
Net assets		162,855	180,818	161,681
Equity
Capital and reserves
Called up share capital	14	30,333	30,333	30,333
Share premium account	14	102,590	102,435	102,501
Foreign currency translation reserve		(7,318)	(7,368)	(7,294)
Other reserves		31,817	30,663	31,310
Accumulated surplus		5,433	24,755	4,831
Total equity		162,855	180,818	161,681

Condensed Interim Consolidated Statement of Changes in Equity

	Called up share capital  £000	Share premium account   £000	Foreign currency translation  reserve* £000	Other reserves**  £000	Accumulated surplus/ (deficit)  £000	Total  Equity  £000
At 31 December 2017 (audited)	30,333	102,342	(7,059)	29,994	25,991	181,601
Loss for the period	-	-	-	-	(1,236)	(1,236)
Employee share plans	-	-	-	669	-	669
Issue of shares (note 14)	-	93	-	-	-	93
Currency translation adjustments	-	-	(309)	-	-	(309)
At 30 June 2018 (unaudited)	30,333	102,435	(7,368)	30,663	24,755	180,818
Loss for the period	-	-	-	-	(20,097)	(20,097)
Employee share plans	-	-	-	820	-	820
Lapse of LTIP under the employee share plan	-	-	-	(173)	173	-
Issue of shares  (note 14)	-	66	-	-	-	66
Currency translation adjustments	-	-	74	-	-	74
At 31 December 2018 (audited)	30,333	102,501	(7,294)	31,310	4,831	161,681
Profit for the period	-	-	-	-	602	602
Employee share plans	-	-	-	507	-	507
Issue of shares (note 14)	-	89	-	-	-	89
Currency translation adjustments	-	-	(24)	-	-	(24)
At 30 June 2019 (unaudited)	30,333	102,590	(7,318)	31,817	5,433	162,855

*            The foreign currency translation reserve represents exchange gains and losses arising on translation of foreign currency subsidiaries net assets and results, and on translation of those subsidiaries intercompany balances which form part of the net investment of the Group.

**          Other reserves include: 1) EIP/MRP/LTIP/VCP/EDRP reserves which represent the cost of share options issued under the long term incentive plans; 2) share investment plan reserve which represents the cost of the partnership and matching shares; 3) treasury shares reserve which represents the cost of shares in IGas Energy plc purchased in the market and held by the IGas Employee Benefit Trust to satisfy awards held under the Group incentive plans; and 4) capital contribution reserve which arose following the acquisition of IGas Exploration UK Limited.

Condensed Interim Consolidated Cash Flow Statement

	Notes	Unaudited 6 Months ended  30 June 2019 £000	Unaudited 6 Months ended 30 June 2018 £000	Audited year ended 31 December 2018 £000
Cash flows from operating activities:
Profit/(loss) before tax for the period/year		648	(877)	(25,119)
Depletion, depreciation and amortisation		4,771	3,407	6,923
Other provisions utilised/abandonment costs incurred		(230)	-	(91)
Share based payment charge		436	485	1,606
Exploration and evaluation assets written off	8	6	140	29,067
Unrealised loss/(gain) on oil price derivatives		1,479	458	(4,906)
Unrealised (gain)/loss on foreign exchange contracts		(80)	118	180
Finance income	5	(57)	(38)	(69)
Finance costs	5	1,698	1,903	3,948
Other non-cash adjustments		(5)	(52)	43
Operating cash flow before working capital movements		8,666	5,544	11,582
(Increase)/decrease in trade and other receivables and other financial assets		(916)	(780)	993
(Decrease)/increase in trade and other payables		(1,989)	979	536
(Increase)/decrease in inventories		(72)	181	173
Cash generated from continuing operating activities		5,689	5,924	13,284
Cash generated from discontinued operating activities		118	121	(335)
Taxation paid - continuing operating activities		-	(9)	(9)
Net cash generated from operating activities		5,807	6,036	12,940
Cash flows from investing activities
Purchase of intangible exploration and evaluation assets		(1,814)	(1,525)	(2,496)
Purchase of property, plant and equipment		(1,568)	(4,331)	(8,152)
Proceeds from disposal of oil and gas assets		-	22	18
Other income received		8	-	38
Interest received		57	34	69
Cash used in continuing investing activities		(3,317)	(5,800)	(10,523)
Net cash used in investing activities		(3,317)	(5,800)	(10,523)
Cash flows from financing activities
Cash proceeds from issue of ordinary share capital	13	37	34	70
Repayment  of bonds		(1,144)	(552)	(1,722)
Interest paid		(823)	(867)	(1,751)
Repayment of obligations under leases		(1,170)	-	-
Cash used in continuing financing activities		(3,100)	(1,385)	(3,403)
Net cash used in financing activities		(3,100)	(1,385)	(3,403)
Net decrease in cash and cash equivalents during the period/year		(610)	(1,149)	(986)
Net foreign exchange difference		(99)	(118)	371
Cash and cash equivalents at the beginning of the period/year		15,112	15,727	15,727
Cash and cash equivalents at the end of the period/year	12	14,403	14,460	15,112

 

1    Corporate information

The condensed interim consolidated financial statements of the Group for the six months ended 30 June 2019, which are unaudited, were authorised for issue in accordance with a resolution of the Directors on 11 September 2019.

IGas Energy plc is a public limited company incorporated and domiciled in England whose shares are publicly traded. The Group's principal activity is exploring for, appraising, developing and producing oil and gas resources in Great Britain.

2    Accounting policies

Basis of preparation

These condensed interim consolidated financial statements for the six months ended 30 June 2019 have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and with International Accounting Standard ('IAS') 34 - 'Interim Financial Reporting' as adopted by the European Union. The condensed interim consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended 31 December 2018, which have been prepared in accordance with IFRSs as adopted by the European Union.

The financial information contained in this document does not constitute statutory accounts as defined by Section 435 of the Companies Act 2006 (England & Wales). The financial information as at 31 December 2018 is based on the statutory accounts for the year ended 31 December 2018.  A copy of the statutory accounts for that year, which were prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union up to 31 December 2016, has been delivered to the Register of Companies and is available on the Company's website at www.igasplc.com. The auditors' report in accordance with Chapter 3 Part 16 of the Companies Act 2006 in relation to those accounts was unqualified and did not contain any matters on which the auditors are required to report an exception in accordance with section 498 (2) and (3) of the Companies Act 2006.

Going concern

The Group continues to closely monitor and manage its liquidity risks. Cash forecasts for the Group are regularly produced based on, inter alia, the Group's production and expenditure forecasts, management's best estimate of future oil prices (based on current forward curves, adjusted for the Group's hedging programme) and the Group's borrowings. Sensitivities are run to reflect different scenarios including, but not limited to, possible further reductions in commodity prices below the current forward curve and reductions in forecast oil and gas production rates. The Group's base case working capital forecasts show that the Group will have sufficient financial headroom for the 12 months from the date of approval of the financial statements. To manage the impact of the most extreme downside scenarios modelled, management would have to take action, including delaying capital expenditure in order to remain within the company's debt liquidity covenants. All such mitigating actions are within management's control.  Therefore, after making appropriate enquiries and considering the risks described above, the Directors have a reasonable expectation that the Group has adequate resources to continue in existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in the preparation of the financial statements.

Accounting policies

The accounting policies applied in these condensed interim consolidated financial statements are consistent with those followed in the preparation of the Group's financial statements for the year ended 31 December 2018 except for the new and amended standards and interpretations discussed below.

New and amended standards and interpretations

During the period, the Group adopted the following new and amended IFRSs for the first time for their reporting period commencing 1 January 2019:

IFRS 16	Leases - see note 10
IFRIC Interpretation 23	Uncertainty over Income Tax Treatments
Amendments to IAS 28	Long-term interest in Associates and Joint Ventures

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods.

Estimates

The preparation of the condensed interim consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim consolidated financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2018. In addition, the application of IFRS 16 Leases requires significant judgements and certain key estimates including:

·   Identifying whether a contract includes a lease

·   Determining the term of the lease

·   Determining the appropriate discount rate

·   Assessment of whether a right-of-use asset is impaired

2    Accounting policies (continued)

Financial risk management

The Group's activities expose it to a variety of financial risks; market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

The condensed interim consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2018.

3     Basis of consolidation

The condensed interim consolidated financial statements present the results of IGas Energy plc and its subsidiaries as if they formed a single entity. The financial information of subsidiaries used in the preparation of condensed interim consolidated financial statements are based on consistent accounting policies to those of the parent. All intercompany transactions and balances between Group companies, including unrealised profits/losses arising from them, are eliminated in full. Where shares are issued to an Employee Benefit Trust, and the Company is the sponsoring entity, it is treated as an extension of the entity.

 4      Revenue

The Group derives revenue solely within the United Kingdom from the transfer of goods and services to external customers which is recognised at a point in time.  The Group's major product lines are:

	Unaudited 6 months ended 30 June 2019	Unaudited 6 months ended 30 June 2018	Audited year ended 31 December 2018
	£000	£000	£000
Oil sales	20,416	20,794	41,978
Electricity sales	517	318	888
Gas sales	310	-	62
	21,243	21,112	42,928

5      Finance income and costs

	Unaudited 6 months ended 30 June 2019	Unaudited 6 months ended 30 June 2018	Audited year ended 31 December 2018
	£000	£000	£000
Finance income
Interest on short-term deposits	57	33	63
Other interest and finance charges	-	5	6
Finance income for the period/year	57	38	69
Finance expense
Interest on borrowings	(920)	(902)	(1,948)
Foreign exchange loss	(46)	(448)	(895)
Unwinding of discount on provisions	(655)	(553)	(1,105)
Other interest and finance charges	(77)	-	-
Finance expense for the period/year	(1,698)	(1,903)	(3,948)

6     Tax on profit on ordinary activities

The Group calculates the period income tax expense using the tax rate that would be applicable to expected total annual earnings. The major components of income tax expense in the condensed interim consolidated income statement are:

	Unaudited 6 months ended 30 June 2019 £000	Unaudited 6 months ended 30 June 2018 £000	Audited year ended 31 December 2018 £000
UK corporation tax
Charge/(credit) in relation to prior periods	-	9	9
Total current tax charge/(credit)	-	9	9
Deferred tax
Current year (credit)/charge relating to the origination or reversal of temporary differences	(76)	335	(782)
Charge due to tax rate changes	-	-	84
Credit in relation to prior periods	(50)	(2)	(3,056)
Total deferred tax (credit)/charge	(126)	333	(3,754)
Tax (credit)/charge on profit on ordinary activities	(126)	342	(3,745)

7     Earnings per share (EPS)

The calculation of the basic and diluted earnings/loss per share is based on the following data:

Basic EPS amounts are based on the profit for the period after taxation attributable to ordinary equity holders of the parent of £0.6 million (six months ended 30 June 2018: a loss after tax of £1.2 million; year ended 31 December 2018: a loss after tax of £21.3 million) and the weighted average number of ordinary shares outstanding during the period of 122.2 million (six months ended 30 June 2018: 121.5 million; year ended 31 December 2018: 121.5 million).

Diluted EPS amounts are based on the profit after taxation attributable to the ordinary equity holders of the parent and the weighted average number of shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on the conversion of all the potentially dilutive ordinary shares into ordinary shares, except where these are anti-dilutive.

There are 6.5 million potentially dilutive employee share options which are included in the calculation of diluted earnings per share in the current period.  (Six months ended 30 June 2018: 4.7 million and year ended 31 December 2018: 4.6 million, potentially dilutive employee share options were not included in the calculation of diluted earnings as their conversion to ordinary shares would have decreased the loss per share).

8     Intangible exploration and evaluation assets

	Unaudited 6 months ended 30 June 2019  £'000	Unaudited 6 months ended 30 June 2018  £'000	Audited year ended 31 December 2018  £'000
At 1 January	89,282	115,130	115,130
Additions	2,111	1,619	3,561
Transfer from/(to) disposal group classified as held for sale (note 12)	342	(280)	(342)
Amounts written off	(6)	(140)	(29,067)
At 30 June/31 December	91,729	116,329	89,282

Exploration costs written off in the period to 30 June 2019 were £nil (6 months to 30 June 2018: £0.1m, year ended 31 December 2018: £29.1 million).  The impairment for the year ended 31 December 2018 comprises £20.7 million relating to the Doe Green production facility in the North West (PEDL 145) where a long-term test determined that there is no potential for a commercial development; £3.2 million relating to a well that is not being used in the Albury development and £5.2 million relating to the relinquishment of licences during the year.  Management continually review the Group's licences and will seek to relinquish non-core licences and will impair licences where the carrying value is not considered to be recoverable.

Further analysis by location of asset is as follows:

North West: The group has £49.1 million (H1 2018: £74.0 million, year ended 31 December 2018: £48.7 million) of capitalised exploration expenditure which includes PEDL's 145,147, 184, 189 and 190. Work is still ongoing to assess the viability for exploration and development, and in conjunction with our JV partner, INEOS, we will agree a 2020 work programme by the end of the year.

8     Intangible exploration and evaluation assets (continued)

East Midlands: The group has £38.8 million (H1 2018: £35.9 million, year ended 31 December 2018: £36.9 million) of capitalised exploration expenditure which includes PEDL's 12, 139, 140 and 200.

Under the terms of the secured bond agreement, the secured bondholders have a fixed and floating charge over these assets.

9    Property, plant and equipment

	Unaudited 6 months ended 30 June 2019  £'000				Unaudited 6 months ended 30 June 2018  £'000					Audited year ended 31 December 2018  £'000
	Oil and gas assets	Other fixed assets	Total		Oil and gas assets	Other fixed assets	Total		Oil and gas assets		Other fixed assets	Total
Cost
At 1 January	154,649	2,871	157,520		171,888	3,603	175,491		171,888		3,603	175,491
Additions	1,680	-	1,680		4,265	88	4,353		10,135		104	10,239
Disposals	-	-	-		(19)	(45)	(64)		(25)		(57)	(82)
Changes in decommissioning	-	-	-		-	-	-		4,596		-	4,596
Transfer from/(to) disposal group classified as held for sale (note 12)	31,945	779	32,724		(29,709)	(802)	(30,511)		(31,945)		(779)	(32,724)
At 30 June/31 December	188,274	3,650	191,924		146,425	2,844	149,269		154,649		2,871	157,520
Depreciation and Impairment
At 1 January	65,002	1,115	66,117		80,756	1,577	82,333		80,756		1,577	82,333
Charge for the period/year	3,951	112	4,063		3,253	154	3,407		6,638		285	6,923
Disposals	-	-	-		(15)	(47)	(62)		(25)		(57)	(82)
Transfer from/(to) disposal group classified as held for sale (note 12)	22,367	690	23,057		(22,147)	(685)	(22,832)		(22,367)		(690)	(23,057)
At 30 June/31 December	91,320	1,917	93,237		61,847	999	62,846		65,002		1,115	66,117
Net book value at 30 June/31 December	96,954	1,733	98,687		84,578	1,845	86,423		89,647		1,756	91,403

Under the terms of the secured bond agreement, the secured bondholders have a fixed and floating charge over these assets.

10  IFRS 16 Leases

The Group adopted IFRS 16 Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases, for the period commencing 1 January 2019. On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which were previously classified as operating leases under the provisions of IAS 17 Leases. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable.  The discount rates used on transition are the incremental borrowing rates as appropriate for each lease based on factors such as the lessee legal entity and lease term.  The incremental borrowing rate applicable for all of the leases for the Group is between 7.5% and 8.5%.  The determination of whether there is an interest rate implicit in the lease, the calculation of the Group's incremental borrowing rate, and whether any adjustments to this rate are required, involves some judgement and is subject to change over time. At the commencement date of leases management consider whether the lease term will be the full term of the lease or whether any option to break or extend the lease is likely to be exercised.  Leases are regularly reviewed and will be revalued if the term is likely to change.

In accordance with the transition provisions in IFRS 16, the modified retrospective approach has been adopted with the cumulative effect of initially applying the new standard recognised on 1 January 2019. Comparatives for the 2018 financial year have not be restated. The financial impact of transition to IFRS 16 for the first half of financial year 2019 has been summarised within this note. The Group has elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option, and lease contracts for which the underlying asset is of low value ('low-value assets'). The Group recognises lease expenses for these contracts on a straight-line basis as permitted by IFRS 16. Lease liabilities related to operated Joint Ventures are disclosed gross with the debit representing the partner's share disclosed in amounts due from Joint Venture Partners.

10 IFRS 16 Leases (continued)

Adjustments recognised on adoption of IFRS 16

	1 January 2019 £'000
Operating lease commitments disclosed as at 31 December 2018	9,605
Operating leases relating to assets no longer held in sale	911
Impact of discounting using the incremental borrowing rate (IBR) on transition	(3,605)
Less: low-value leases recognised on a straight-line basis as expense	(17)
Add: adjustments as a result of a different treatment of extension and termination options	1,380
Lease liability recognised as at 1 January 2019	8,274
Current liabilities	1,538
Non-current liabilities	6,736
	8,274

The Group has identified lease portfolios for property, land, cars and other equipment as follows:

	30 June 2019  £'000	1 January 2019  £'000
Lease portfolio
Property	633	778
Land	6,630	7,099
Cars and other equipment	303	397
	7,566	8,274

Balance Sheet

The adoption of IFRS 16 has resulted in higher non-current assets due to the recognition of right-of-use assets and higher current and non-current liabilities due to the recognition of lease liabilities.

	Unaudited 30 June 2019  £'000
Right-of-use assets
Non-current	7,566
Lease liabilities
Current	1,759
Non-current	5,294

Right of use assets

 The Group recognises right-of-use assets at the commencement date of the lease.  Right-of-use assets are measured at cost, less accumulated depreciation and impairment losses and adjusted for any re-measurement of lease liabilities.  The cost of right-of-use assets includes the amount of lease liabilities recognised, adjusted for any lease payments made at or before the commencement date, less any lease incentives received.  Right-of-use assets are depreciated over the shorter of the asset's useful life or the lease term on a straight-line basis.  Right-of-use assets are subject to and reviewed regularly for impairment.  Depreciation on right-of-use assets is included in depletion, depreciation and amortisation within cost of sales or in administrative expense in the consolidated income statement based on the nature of the asset.

Lease liabilities

The Group recognises lease liabilities measured at the present value of the lease payments to be made over the lease term.  Lease payments include fixed payments less any lease incentives receivable and variable lease payments that depend on an index.  

10 IFRS 16 Leases (continued)

Cash flow statement

Lease payments are now split between financing cash flows and operating cash flows in the cash flow statement. Financing cash flows represent repayment of principal, and operating cash flow payments of interest. In prior periods operating lease payments were all presented as operating cash flows under IAS 17. During the six month period to 30 June 2019, the Group had a total cash outflow of £1.2 million on qualifying leases.

11     Financial Instruments - fair value disclosure

The Group uses the following hierarchy for determining and disclosing the fair value of the financial instruments by valuation technique:

·     Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

·     Level 2: other valuation techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and

·     Level 3: valuation techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

There are no non-recurring fair value measurements nor have there been any transfers between levels of the fair value hierarchy.

The financial assets and liabilities measured at fair value are categorised into the fair value hierarchy as at the reporting dates as follows:

	Unaudited 6 months ended 30 June 2019  £'000	Unaudited 6 months ended 30 June 2018  £'000	Audited year ended 31 December 2018  £'000
Financial assets: Level 2
Derivative financial instruments - oil hedges	679	-	2,158
At 30 June/31 December	679	-	2,158
Financial liabilities: Level 2
Derivative financial instruments - oil hedges	-	3,325	-
Derivative financial instruments - foreign exchange contracts	100	-	180
At 30 June/31 December	100	3,325	180

Fair value of derivative financial instruments

Commodity price options

The fair values of the commodity price options were provided by counterparties with whom the trades have been entered into.  These consist of Asian style put and call options to sell/buy oil.  The options are valued using a Black-Scholes methodology; however, certain adjustments are made to the spot-price volatility of oil prices due to the nature of the options.  These adjustments are made either through Monte Carlo simulations or through statistical formulae.  The inputs to these valuations include the price of oil, its volatility, and risk free interest rates.

Foreign exchange contracts

The fair values of foreign exchange contracts were provided by counterparties with whom the trades have been entered into.

Fair value of financial assets and financial liabilities

The carrying values of the financial assets and financial liabilities are considered to be materially equivalent to their fair values.

12    Cash and cash equivalents and other financial assets

	Unaudited 30 June  2019 £000	Unaudited 30 June  2018 £000	Audited 31 December  2018 £000
Cash and cash equivalents Borrowings	14,403 (19,901)	14,460 (21,251)	15,112 (20,980)
Net debt Capitalised fees	(5,498) (416)	(6,791) (638)	(5,868) (518)
Net debt excluding capitalised fees	(5,914)	(7,429)	(6,386)

Net debt reconciliation

	Cash and cash equivalents £000	Borrowings £000	Total £000
1 January 2018	15,727	(21,240)	(5,513)
Repayment of borrowings	(552)	552	-
Interest paid	(867)	-	(867)
Foreign exchange adjustments	(118)	(666)	(784)
Other cash flows	270	-	270
Other non-cash movements	-	103	103
30 June 2018	14,460	(21,251)	(6,791)
Repayment of borrowings	(1,170)	1,170	-
Interest paid	(884)	-	(884)
Foreign exchange adjustments	489	(572)	(83)
Other cash flows	2,217	-	2,217
Other non-cash movements	-	(327)	(327)
31 December 2018	15,112	(20,980)	(5,868)
Repayment of borrowings	(1,144)	1,144	-
Interest paid	(823)	-	(823)
Foreign exchange adjustments	(99)	36	(63)
Other cash flows	1,357	-	1,357
Other non-cash movements	-	(101)	(101)
30 June 2019	14,403	(19,901)	(5,498)

13   Disposal group classified as held for sale and discontinued operations

Discontinued operations

The divestment of assets acquired as part of the Dart Acquisition, namely the Rest of the World segment, was completed in 2016.  The Group still has a presence in a number of Australian and Singaporean registered operations and continues its plans to exit all legal jurisdictions in the near future. During the current period six of the subsidiaries have been struck off and a further six are in the process of being liquidated or being struck off.  The total loss after tax in respect of discontinued operations was £0.2 million (six months ended 30 June 2018: loss after tax of £0.02 million; year ended 31 December 2018: profit after tax of £0.04 million), primarily relating to administration costs. 

Disposal group classified as held for sale

In H1 2018, the Group announced the potential sale of certain non-core assets to Onshore Petroleum Limited ("OPL") subject to OGA consent. The OGA did not give their consent to the proposed transaction and the Group has not agreed an alternative option with OPL.  Assets and liabilities which were recognised as held for sale in prior period/year have therefore been re-classified back to their respective balance sheet categories during the current period, as follows:

	£000
Intangible exploration and evaluation assets	342
Property, plant and equipment	9,667
Oil stock	91
Total assets	10,100
Trade and other payables	(350)
Provisions	(9,922)
Total liabilities	(10,272)
Net liabilities	(172)

14     Share capital

	Ordinary Shares		Deferred Shares		Total share capital	Share premium
	No.	Nominal value £000	No.	Nominal value £000	Nominal value £000	Value £000
Issued and fully paid
At 31 December 2017	121,881,119	2	303,305,534	30,331	30,333	102,342
SIP share issue during the period	124,474	-	-	-	-	93
At 30 June 2018	122,005,593	2	303,305,534	30,331	30,333	102,435
SIP share issue during the period	71,676	-	-	-	-	66
At 31 December 2018	122,077,269	2	303,305,534	30,331	30,333	102,501
SIP share issue during the period	117,277	-	-	-	-	89
At 30 June 2019	122,194,546	2	303,305,534	30,331	30,333	102,590

Accordingly, the Group share capital account comprised:

	Unaudited 30 June  2019 £000	Unaudited 30 June  2018 £000	Audited 31 December  2018 £000
At 30 June/31 December	30,333	30,333	30,333

 

Glossary

£ The lawful currency of the United Kingdom

$ The lawful currency of the United States of America

1P Low estimate of commercially recoverable reserves

2P Best estimate of commercially recoverable reserves

3P High estimate of commercially recoverable reserves

1C Low estimate or low case of Contingent Recoverable Resource quantity

2C Best estimate or mid case of Contingent Recoverable Resource quantity

3C High estimate or high case of Contingent Recoverable Resource quantity

AIM AIM market of the London Stock Exchange

boepd Barrels of oil equivalent per day

bopd Barrels of oil per day

Contingent Recoverable Resource - Contingent Recoverable Resource estimates are prepared in accordance with the Petroleum Resources Management System (PRMS), an industry recognised standard. A Contingent Recoverable Resource is defined as discovered potentially recoverable quantities of hydrocarbons where there is no current certainty that it will be commercially viable to produce any portion of the contingent resources evaluated. Contingent Recoverable Resources are further divided into three status groups: marginal, sub‑marginal, and undetermined. IGas' Contingent Recoverable Resources all fall into the undetermined group. Undetermined is the status group where it is considered premature to clearly define the ultimate chance of commerciality.

Drill or drop - A drill or drop well carries no commitment to drill. The decision whether or not to drill the well rests entirely with the Licensee being driven by the results of geotechnical analysis. The Licence will, however, still expire at the end of the Initial Term if the well has not been drilled.

Firm well - A firm well is classified as a firm commitment to drill a well. It is not contingent on any further geotechnical evaluation (i.e. it is a fully evaluated Prospect).

GIIP Gas initially in place

m Million

MMboe Millions of barrels of oil equivalent

MMscfd Millions of standard cubic feet per day

PEDL United Kingdom petroleum exploration and development licence

PL Production licence

Tcf Trillions of standard cubic feet of gas

UK United Kingdom

 

DIRECTORS AND ADVISERS
Directors	R McTighe - Non-Executive Chairman
	S Bowler - Chief Executive Officer
	C McDowell - Non-Executive Director
	P Jackson - Non-Executive Director
	T Kumar - Non-Executive Director
	H Arstad - Non-Executive Director
Company Secretary	Cooley Services Limited
	Dashwood
	69 Old Broad Street
	London EC2M 1QS
Nominated Adviser and Broker	NOMAD and Joint Broker
	Investec Bank plc
	30 Gresham Street
	London EC2V 7QP
Joint Broker	Canaccord Genuity
	88 Wood Street
	London EC2V 7QR
Registrars	Computershare Investors Services plc
	The Pavilions
	Bridgwater Road
	Bristol BS13 8AE
Auditor	PricewaterhouseCoopers LLP
	1 Embankment Place
	London WC2N 6RH
Banker	Barclays Bank Plc
	1 Churchill Place
	London E14 5HP
Registered Office	7 Down Street
	London W1J 7AJ
Company's Registered Number	4981279

 

END

 

 

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