Final Results

RNS Number : 6312K

Silvermere Energy PLC

31 July 2013

 



31 July 2012

Silvermere Energy PLC

("Silvermere" or the "Company")

Final results for the year ended 31 December 2012

Silvermere, the independent oil and gas company focusing principally on appraisal and production opportunities in the US, announces its preliminary results for the year ended 31 December 2012.

--ENDS--

For further information please contact:

Silvermere Energy plc Andy Morrison, Chief Executive	[phone]
Sanlam Securities UK Limited (Nominated Adviser and Broker) Simon Clements / Virginia Bull / Catherine Miles Peterhouse Corporate Finance Limited Heena Karani / Duncan Vasey	+ 44(0)20 7628 2200  [phone]
Bishopgate Communications Nick Rome/ Anna Michniewicz/ Ivana Petkova	[phone]

Chairman's Statement

For much of the year under review, the Company appeared to be making steady progress and seemed positioned to escape from the several challenges that it had experienced before, during and after its admission to trading on 31 August 2011. The Board is therefore disappointed to have to report that events since the end of the year turned against us.

The year 2012 saw the Company making further progress in the development of its asset base acquired in August 2011, the Company's pipeline of business development opportunities had grown further and additional new capital had been raised, laying the groundwork for future expansion and development. Sadly, technical problems with the well, associated costs and partial failure of a subscription in early 2013 set in motion a series of events which unravelled the good work that went before and which have led to the need for a Company Voluntary Arrangement ("CVA").

Further background covering the need for a CVA, together with details of the associated proposals, are set out in the Circular that was recently sent to shareholders. These do not make happy reading for shareholders, or for creditors. However, they do offer an opportunity which is better than the alternative of total loss.

The Board and shareholders are all disappointed by this outcome.  We trust shareholders will accept that the Board has played its hand as professionally as possible. We would like to thank the Board of Mineral and Financial Investments Ltd ("MAFI"), our major creditor, for its commitment to finding a resolution and we wish the incoming Board good fortune in creating value for all shareholders.

Financial Results

No substantial production was achieved during the year. The Group reported no turnover during the twelve months ended 31 December 2012 (2011: Nil) and made a loss before tax of £5,035,018 (2011: loss of £1,370,555) after taking into account administrative costs of £994,871 (2011: £786,603), and exceptional items of £3,850,000 (2011: £505,978).  The exceptional costs in 2012 relate to an impairment provision against the value of the Group's Mustang Island asset.  In 2011 the exceptional costs related to professional fees incurred in relation to the acquisition of the Mustang Island asset and to the Company's re-admission to AIM.

During the period the Company invested approximately £0.75 million in the development of its Mustang Island asset, (2011: £0.5 million).

Following a placing raising £629,000 in June 2012, the Company ended the year with cash and cash equivalents of £19,248 (2011: £202,352). A subscription aiming to raise a further £371,000 was completed on 11 January 2013 to fund the Company's share of outstanding development costs in respect of pipeline and shore facilities at Mustang Island and for general working capital purposes.

Operational difficulties at the I-1 Well resulted in additional expenses and no revenues during the second quarter of 2013 (see below) which was exacerbated by the partially failed placing in January 2013 which left the Company dependent upon the support of its directors and creditors. The Company's financial position was further complicated by a condition placed by subscribers to the January 2013 subscription not to accept a proposal from MAFI (formerly known as Athol Gold and Value Ltd) to reschedule and partially convert an unsecured loan note which was due for repayment in an amount of £660,000 on 1 July 2013.

The same factors combined to put downward pressure on the share price and to make it ultimately impossible for the Company to complete any acquisitions which could have provided an opportunity to raise additional funds and to mitigate operational risk.

Once it became clear that fresh equity could not be secured to resolve the Company's financial position, discussions were held with MAFI and third parties with a view to arranging a loan to be secured on the Company's interest in the I-1 well. A number of parties expressed interest but in each case the investment did not pass technical due diligence. On 9 May the Company requested that trading in its shares be suspended while it considered the next steps.

Working alongside major creditor MAFI, the Company determined that the best way forward would be to dispose of all or part of the Mustang Island asset to the operator in consideration for a release from past and future obligations and to turn the Company into a clean shell through a CVA.  A number of parties expressed interest in financing a CVA and investing in the resulting shell and on 9 July 2013 the Company signed Heads of Terms and entered into exclusive discussions with a consortium of investors.

The proposed arrangements for the CVA and the terms of the investment by that consortium are set out in the Circular that has been sent to shareholders and posted on the website.

Review of Operations

During 2012 the Company was primarily focused on preparations for first production from the I-1 well and the building of its portfolio of business development opportunities as a basis for future expansion. Operations at Mustang Island were conducted under the supervision of the designated operator, Dominion Production Company LLC.

Load-out of the first barge, containing the platform jacket for the I-1 well, from its base at a Galveston shipyard was completed on 29 June and the I-1 well production platform was completed in all material respects on 4 August and connection of the pipeline between the platform and sub-sea tie-in point was subsequently completed on 18 August.

Production from the I-1 well commenced on 29 August under supervised and choked (deliberately limited flow) conditions. Gas and condensate were produced along with quantities of drilling mud and other solid material during the clean-up phase. The completion of the tie-in and resumption of production on 29 August signalled the satisfaction of the Company's obligations to carry the residual working interest of the original asset vendors.

The well was shut in on the afternoon of 5 September after a small leak was detected on a neighbouring abandoned platform that is connected to the same pipeline. The authorities responsible for the abandoned platform were notified and an operation to seal off the pipeline connection from that platform was devised. The lift-boat required to perform the work was mobilised on 27 September.

On 28 September, announced the appointment of Rockflow Resources Ltd ("Rockflow") (www.rocflo.com) as technical advisers to the Company.

The well was re-opened to flow on 2 October under supervised conditions. System pressure was gradually increased over the subsequent days and by 13 October the system was operating under continuous and unmanned conditions. A 24-hour flow-test was conducted on 15 October during which time production was 155 bopd plus 700,000 scfpd of associated gas and zero water. The well was then shut in at the request of the pipeline operator to enable them to attend to a further repair on the pipeline riser at one of the neighbouring abandoned platforms. This repair was completed on 30 October and the well returned to continuous operation. Having achieved the necessary operating pressure to supply the transmission network, the first oil and gas sales were recorded on 1 December 2012.

The next day the operator was advised that the main interconnect pipeline operated by Exxon Mobil was being immediately shut down for urgent repairs. The repairs were successfully completed on 5 January 2013 and the sales line from the Mustang Island 818-L Field was re-opened on 7 January.

Operations during the next month were interrupted a few times by the need to clean up accumulated drilling mud and debris from the platform equipment and it is clear that the well remained in clean-up phase. Well performance improved during February with the well flowing for 73% of the time. During March the well continued to experience restricted flow rates due to obstructions in the well-bore. Pipeline operating pressure from platform to shore was reduced in an attempt to improve pressure differentials and flow conditions, but this did not resolve the matter. It was therefore agreed by the partners that a work-over should be conducted in order to investigate and remedy the blockages that had extended the clean-up period longer than had been expected.

Following mobilisation of the required equipment to the platform on 1 April, work-over operations commenced. Initially, the work-over was conducted using the platform's on-board crane. As at the date of this report the well remains shut in pending definition and funding of the next steps. Under the terms of the CVA, this will be a matter for Dominion and the remaining working interest partners.

Frank H. Moxon

Non-executive Chairman

Group Income Statement and Statement of Comprehensive Income

		2012	2011
	Notes	£	£
Administration costs		(994,871)	(786,603)
Exceptional items		(3,850,000)	(505,978)
Operating loss		(4,844,871)	(1,292,581)
Finance income		-	126
Finance costs		(190,147)	(78,100)
Loss before tax		(5,035,018)	(1,370,555)
Income tax		-	-
Loss for the period		(5,035,018)	(1,370,555)
Since there is no other comprehensive income, the loss for the period is the same as the total comprehensive income for the period.
Attributable to:
Owners of the parent		(5,035,018)	(1,370,555)
Loss per share:
Basic and diluted		(20.0 pence)	(13.7 pence)

Group and Company Statements of Financial Position

		GROUP		COMPANY
		2012	2011	2012	2011
	Notes	£	£	£	£
ASSETS
NON-CURRENT ASSETS
Investment in oil and natural gas assets		247,865	3,339,980	-	-
Investment in subsidiary undertaking		-	-	207,771	3,255,033
		247,865	3,339,980	207,771	3,255,033
CURRENT ASSETS
Trade and other receivables		84,640	452,712	84,640	452,712
Cash and cash equivalents		19,248	202,352	19,248	202,352
		103,888	655,064	103,888	655,064
TOTAL ASSETS		351,753	3,995,044	311,659	3,910,097
EQUITY AND LIABILITIES
Share capital		1,296,607	1,287,815	1,296,607	1,287,815
Share premium		6,004,030	5,179,647	6,004,030	5,179,647
Loan note equity reserve		25,274	25,274	25,274	25,274
Share option and warrant reserve		795,699	839,274	795,699	839,274
Retained earnings		(9,031,532)	(3,996,514)	(9,013,782)	(3,996,514)
		(909,922)	3,335,496	(892,172)	3,335,496
CURRENT LIABILITIES
Trade and other payables		1,175,399	157,345	1,175,399	105,643
NON-CURRENT LIABILITIES
Borrowings		28,432	468,958	28,432	468,958
Decommissioning obligation		57,844	33,245	-	-
TOTAL NON-CURRENT LIABILITIES		86,276	502,203	28,432	468,958
TOTAL LIABILITIES		1,261,675	659,548	1,203,831	574,601
TOTAL EQUITY AND LIABILITIES		351,753	3,995,044	311,659	3,910,097

Group Statement of Changes in Equity

	Share	Share	Loan note equity	Option and warrant	Retained	Total
	capital	premium	reserve	reserve	earnings	equity
	£	£		£	£	£
Balance at 31 December 2010	1,269,821	1,796,690	-	-	(2,625,959)	440,552
Total comprehensive income	-	-	-	-	(1,370,555)	(1,370,555)
Transactions with owners
Issue of share capital and warrants	17,994	3,567,604	-	767,830	-	4,353,428
Share issue costs	-	(184,647)	-	-	-	(184,647)
Issue of convertible loan notes	-	-	25,274	-	-	25,274
Share based payments	-	-	-	71,444	-	71,444
Balance at 31 December 2011	1,287,815	5,179,647	25,274	839,274	(3,996,514)	3,335,496
Total comprehensive income	-	-	-	-	(5,035,018)	(5,035,018)
Transactions with owners
Issue of share capital and warrants	8,792	760,198	-	-	-	768,990
Exercise of warrants	-	64,185	-	(64,185)	-	-
Share based payments	-	-	-	20,610	-	20,610
Balance at 31 December 2012	1,296,607	6,004,030	25,274	795,699	(9,031,532)	(909,922)

Group and company Statement of Cash Flow

		GROUP		COMPANY
		2012	2011	2012	2011
	Notes	£	£	£	£
OPERATING ACTIVITIES
Cash used in operations		(290,634)	(1,100,199)	(290,634)	(1,151,901)
INVESTING ACTIVITIES
Investment in joint venture		(537,510)	(3,248,127)	-	-
Investment in subsidiary undertaking		-	-	(537,510)	(3,196,425)
Loans repayable in more than one year		-	-	-	-
Net cash used in investing activities		(537,510)	(3,248,127)	(537,510)	(3,196,425)
FINANCING ACTIVITIES
Amount introduced by directors		-	-	-	-
Net proceeds on issues of shares		645,040	3,851,803	645,040	3,851,803
Share issue expenses		-	(184,647)	-	(184,647)
Proceeds from issue of convertible loan notes		-	750,000	-	750,000
Finance income		-	126	-	126
Net cash from financing activities		645,040	4,417,282	645,040	4,417,282
(Decrease)/increase in cash and cash equivalents		(183,104)	68,956	(183,104)	68,956
Cash and cash equivalents at beginning of year		202,352	133,396	202,352	133,396
Cash and cash equivalents at end of year		19,248	202,352	19,248	202,352

Notes

1.       The financial information set out herein does not constitute the Group's statutory accounts within the meaning of section 435 of the Companies Act 2006 for the years ended 31 December 2012 and 31 December 2011. Statutory accounts for the years ended 31 December 2012 and 31 December 2011 have been reported on by the Independent Auditors. The Independent Auditors' Report on the Annual Report and Financial Statements for 2012 was unqualified and did not contain a statement under 237(2) or 237(3) of the Companies Act 1985. The audit report for the year ended 31 December 2012 included an emphasis of matter in respect of a material uncertainty in respect of the Group's ability to continue as a going concern. The Independent Auditors' Report on the Annual Report and Financial Statements for 2011 was unqualified but also included an emphasis of matter with respect to the Group's ability to continue as a going concern.

Statutory accounts for the year ended 31 December 2011 have been filed with the Registrar of Companies. The statutory accounts for the year ended 31 December 2012 will be delivered to the Registrar in due course.

2.       Basis of preparation

The financial statements of the Company and the Group have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union (EU) and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost basis.  Historical cost is generally based on the fair value of the consideration given in exchange for the assets.  The principal accounting policies set out below have been consistently applied to all periods presented, except where stated.

3.       Going Concern

As at 30 June 2013 the Company had current liabilities of approximately £1,365,000 and cash balances of approximately £18,000.  The Directors are taking the following actions in order to maintain the Company as a going concern.

1.            An agreement is being negotiated for the disposal of the Group's wholly owned subsidiary Silvermere Energy LLC including all the Group's interests in the Mustang Asset including the I-1 well in exchange for the release from current and future obligations to the operator. 

2.            Published at the same time as this report, there is a circular to shareholders setting out proposals for a CVA, which shareholders are being asked to approve at the Company's forthcoming AGM.

3.            Conditional upon the above disposal being concluded and the shareholders' approval of the CVA proposals a group of new investors have undertaken to invest £300,000 in the Company.

On the basis that the processes set out above are successfully concluded, and that no expenditure is undertaken except that required to maintain the Company's listing on AIM, unless additional funds are raised, the Directors have formed a judgement at the time of approving the financial statements that the Company has adequate funds to continue in operational existence for the foreseeable future and have continued to adopt the going concern basis in preparing the financial statements.

If the Directors are unable to successfully conclude their negotiations for the introduction of additional capital, over which there is significant uncertainty, the carrying value of the assets of the Company may be impaired. In addition, other costs may arise in the course of realising the assets of the Company.

4.       Earnings per Share

		2012	2011
		£	£
	Loss for the purposes of basic and diluted earnings per share:
	From continuing operations	(5,035,018)	(1,370,555)
		2012	2011
		Number	Number
	Weighted average number of ordinary shares for the purpose of basic and diluted earnings per share	25,117,597	9,986,069
		2012	2011
	Basic and diluted loss per share	(20.0p)	(13.7p)
	The diluted loss per share is the same as the basic loss per share as the loss for the year has an anti-dilutive effect.

5.       Investments

	On 30 August 2011 the Group completed the acquisition of the Mustang Assets following the exercise of its option, and was assigned Core's one third participation in the Joint Operating Agreement ("JOA") to explore, develop, produce and operate the oil and gas licence areas in which Core participated (the "Joint Venture").  All the Group's interests in the Mustang Assets are directly held by Silvermere Energy LLC.
			GROUP		COMPANY
			2012	2011	2012	2011
			£	£	£	£
		Balance at start of period	3,339,980	308,608	3,255,033	308,608
		Loans advanced to Core Oil & Gas Inc	-	2,094,248	-	2,094,248
		Shares and warrants issued to vendors	-	169,000	-	169,000
		Geological survey and evaluation costs	-	153,171	-	153,171
			3,339,980	2,725,027	3,255,033	2,725,027
		Payments to the operator of the JOA on behalf of Silvermere Energy LLC	485,808	530,006	537,510	530,006
		Amount due under the JOA at year end	247,478	51,702	247,478	-
		Management charge	-	-	17,750	-
		Decommissioning provision	24,599	33,245	-	-
		Investment in Joint Venture at 31 December at cost	4,097,865	3,339,980	4,057,771	3,255,033
		*Provision for impairment	(3,850,000)	-	(3,850,000)	-
			247,865	3,339,980	207,771	3,255,033

*On 16 April 2013 the Company announced that it was in default of significant outstanding commitments on its I-1 Well which could prejudice the Company's interest in the Well, in respect of which it had received a default notice.  Following this announcement the directors consider that an impairment provision is required to reduce the value of the Company's assets to what the directors believe to be their net realisable value.

6.       Trade and Other Receivables

		GROUP		COMPANY
		2012	2011	2012	2011
		£	£	£	£
	Loan to Mustang Oil & Gas Inc	-	250,000	-	250,000
	Other debtors	33,274	93,876	33,274	93,876
	Prepaid expenses	51,366	108,836	51,366	108,836
	Total	84,640	452,712	84,640	452,712
	The loan to Mustang Oil & Gas Inc was repayable in instalments starting with £19,000 due on 15 January 2012 and followed by 11 equal instalments of £21,000 between 15 February 2012 and 15 December 2012. The loan is secured on the revenues due to Mustang Oil & Gas Inc in respect of its residual interest in the I-1 well.  During the year £109,375 was received in part settlement of the loan and full provision was made against the balance of the amount due. The directors consider that the carrying amount of trade and other receivables approximates to their fair value. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Company does not hold any collateral as security.

7.       Post Year End Events

·      On 11 January 2013, the Company announced that it had raised £371,000 through the issue of 5,305,716 new ordinary shares for cash at 7p per share.  The subscribers also received one warrant for each share subscribed for.  The warrants are exercisable for 2 years from the date of subscription at 9p per share.  Included in the share issue were 120,000 shares subscribed for by the Chief Executive, Andy Morrison. ·      On 16 April 2013, the Company announced that an existing shareholder who had subscribed for £80,000 worth of shares in the January share issue had failed to honour his irrevocable commitment to pay for the shares.  The Company has accordingly instructed its lawyers to pursue the defaulting subscriber for the amount owed. ·      Also on 16 April 2013 the Company announced that it was in default of significant outstanding commitments on its I-1 Well which could prejudice the Company's interest in the Well, in respect of which it had received a default notice. ·      On 9 May 2013, the Company announced that trading in the Company's shares had been suspended with immediate effect, pending clarification of the Company's financial position. ·      On 31 July 2013, the Company announced that it was proposing to dispose of its interest in the Mustang Asset, a Company Voluntary Arrangement ("CVA") with its creditors and for a new consortium of investors to provide £300,000 to finance a new strategy of investment in IT. ·

8.       Copies of the Report and Accounts

Copies of the Report and Accounts will be posted to shareholders in due course and will be available from the Company's registered office 31 Harley Street, London W1G 9QS and on the Company's website www.silvermere-energy.com.

 

END

 

 

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