Preliminary Results

RNS Number : 8021D

Silvermere Energy PLC

22 May 2012

 



22 May 2012

Silvermere Energy PLC

("Silvermere" or the "Company")

Preliminary results for the year ended 31 December 2011

Silvermere, the independent oil and gas company focusing principally on appraisal and production opportunities in the US, is pleased to announce its preliminary results for the year ended 31 December 2011.

Highlights

§  The year was transformational for the Company. It started as Chalkwell Investments PLC, an investment company. By September 2011, it had become Silvermere Energy PLC, an oil and gas company, had acquired a 33.3 per cent working interest (20.83 per cent net entitlement interest) in the Mustang Island gas and condensate field in Block 818-L in the Gulf of Mexico and had put in place a new Board and management team.

§  The Company was admitted to trading on AIM on 31 August 2011

§  A close working relationship has been established with Dominion Production Company LLC, the operator of the Mustang asset, enabled by both companies' commitment to openness, transparency and fair dealing.

§  Delays to the construction of the production platform for the I-1 well led to the deferral of planned date for first production from the well being from the end of 2011.

§  Production now expected to commence in summer 2012.

Andy Morrison, Chief Executive of Silvermere Energy PLC, said, "The Company has come a long way in a short period of time, but much still remains to be done. The Company will soon be a gas and condensate producer and we look forward to expanding through the identification of at or near production, secondary and tertiary oil and natural gas opportunities onshore or shallow offshore the US".

--ENDS--

For further information please contact:

Silvermere Energy plc Andy Morrison, Chief Executive	[phone]
Merchant Securities Limited (Nominated Adviser and Broker) Lindsay Mair/Virginia Bull	+ 44 (0)20 7628 2200
Rivington Street Corporate Finance Limited Jon Levinson	[phone]
Bishopsgate Communications Nick Rome/Shabnam Bashir	[phone]

About Silvermere Energy PLC

The Company acquired its interest in the Mustang Asset on 30 August 2011.  This comprises a 33.33 per cent. working interest and 20.83 per cent. net entitlement interest in the Mustang Licence Area, an area within the southern half of the north west quarter and northern half of the south west quarter of the Block 818-L field as defined in State of Texas Oil and Gas Lease numbers 108873 and 108874. The Mustang Island 818-L field, located in Kleberg County waters of the Gulf of Mexico, is a field re-habilitation project targeting bypassed or only partially produced gas-condensate.

Early in 2011 the Hercules Offshore 205 jack-up rig was contracted to re-enter the I-1 Well on the Mustang Licence Area which was considered to be the most likely of the historic well sites to provide 14 optimum re-entry conditions. The I-1Well re-entry and side-tracking operation was completed in March 2011 leaving it ready to complete in sand horizons I-1 to I-6. Production and flow testing was carried out during June 2011. The well re-entry programme was led by Dominion as the operator. Gas and oil produced from the I-1Well is proposed to be connected to pipeline infrastructure and tied in via a subsea assembly, constructed for the purpose and then transported to the Six Pigs gas facility.

Silvermere's strategy is to acquire a portfolio of US oil and gas licence interests onshore and in shallow offshore waters, characterised by relatively low risk and low cost with the potential for near term production.

Silvermere is quoted on the AIM Market of the London Stock Exchange plc (AIM: SLME) with its offices in London.

Chairman's Statement

The year ended 31 December 2011 was transformational for the Company.  It started the year as Chalkwell Investments, an investment company with limited internal financial resources seeking to acquire oil & gas industry assets within the US.  This process took longer than expected and the Company's shares were suspended in January 2011 because it had not made a qualifying acquisition within a twelve month period of becoming an investing company, as defined by the AIM Rules. Nevertheless, by September 2011, it had become Silvermere Energy, acquired a 33.3 per cent working interest and 20.83 per cent net entitlement interest in the Mustang License Area of the Block 818-L Field in the Gulf of Mexico, raised funds for the continued development of that property's I-1 re-entry well towards first production and put in place a new Board and management team.

In April 2011 the Company's then management team secured an option to purchase the Mustang Island asset from Core Oil & Gas, Inc.  The Mustang Island asset is a partially depleted gas and condensate field for which the partners have identified an opportunity for field rehabilitation. The Company raised funds through various equity and convertible loan issues during the period ending July 2011 to finance the development of the I-1 Well in the form of loans to Core.  In June 2011, Andy Morrison and I were hired as consultants to the Company to help complete the acquisition process and secure the  re-admission of the Company's shares to trading on AIM before a second regulatory deadline which would have seen it lose its AIM quotation altogether.

By 2 August 2011 these objectives were successfully achieved with the publication of the Company's admission document of that date and the announcement, subject to shareholder approval, of the completion of its Mustang Island asset acquisition. Following the Company's general meeting at which these proposals were agreed, shares in the Company were re-admitted to trading on 31 August 2011. I then joined the Board as Chairman along with Andy Morrison as Chief Executive and Stewart Dalby as a Non-executive Director.

Our next objectives were to develop a close relationship with the operator of the Mustang Island asset, Dominion Production Company, LLC, access to whom had been severely limited throughout the long acquisition process, and to secure first production from the I-1 Well which we were then confident could be achieved before the end of 2011.

We met with Dominion very soon after the acquisition was completed and, over a series of meetings with them both in the US and in London, fostered close links. This was enabled, to a great extent, by each company's commitment to openness, transparency and fair dealing.

However, construction of the production platform for the I-1 well took longer than anticipated, because of additional work required to meet new and enhanced safety regulations. By the time it was completed, winter weather had arrived at the Mustang Island Field, with no predictable weather window to get the necessary load-out and installation work done.  Having discussed the matter with the operator and the turn-key project management company, a decision was taken, in the interests of both health and safety and the avoidance of potentially significant standby and production down time costs, to postpone work until Spring 2012 when the turn-key terms would be reapplied.

On 9 April 2012 the load out process for Mustang Island commenced. This was the precursor to a three-stage installation process, tripod base installation, main deck structure installation and pipeline  hook up, all dependent upon one or more sufficient weather windows to allow each stage to be attempted. By 23 April, load-out operations were complete and the barges were alongside in Galveston waiting for the lift-boat to take on supplies and to mobilise to the platform location for pile-driving of the platform legs. Unfortunately, on 28 April, while under contract to a third party, the lift-boat struck an unmarked underwater obstruction on its inward journey to Galveston and was severely damaged. The extra delay is frustrating, but it does not expose the Company to any additional liabilities and we were pleased to learn that no-one was injured in the incident. On 9 May the Company was able to confirm that a replacement lift-boat had been secured and that operations were scheduled to recommence in the first half of June.

At the time of writing, the Company is looking forward to becoming a gas and condensate producer within the short term. This will be an important milestone for the Company, enabling it to start to contribute to its operating and capital costs using cash flow from operations.

During the course of 2011 and to date, US gas prices have declined due to the emergence of additional supplies of shale gas and demand being subdued by economic conditions. Whilst condensate prices have moved in the opposite direction, the net effect is that revenues in the short term will be lower than had originally been hoped. Fortunately, the Company's assets remain attractive even at current gas prices and the situation is likely to present further discounted acquisition opportunities that should increase in value as gas supply and demand inevitably return to balance. The Directors therefore maintain their belief that the Company's asset acquisition strategy remains sound. The Board has also identified the potential to hedge against short term variances in US domestic gas prices through diversification into suitable oil producing assets.

We intend to develop a significant business from the pursuit of at or near production, secondary and tertiary oil and natural gas opportunities onshore or shallow offshore the US with low technical risk and short term development and production upside. 

Since the beginning of 2011 there have been many changes to the Company's Board.  Leo Knifton and Nigel Weller left the Company in January 2011.  John Roddison, appointed in November 2010 as finance director, and Reinhold Heus, appointed in December 2010 as non-executive director, left the Company at the end of August 2011.  Bruce Evers, appointed in December 2011 as executive chairman and then, from the end of August 2011, a non-executive director, resigned from the Company in April 2012.  The Company wishes to thank them for the good that they did.

The Company has come a long way in a short period of time.  This would not have been possible without the hard work and commitment of our chief executive, directors and professional advisers and the patience and continued support of our shareholders.  On behalf of the Company I wish to thank all those who have made a positive contribution in this respect.

There is much more work yet to be done and I look forward to reporting on continued progress.

Frank H. Moxon

Chairman

Group Income Statement and Statement of Comprehensive Income

		Year ended 31 Dec 2011	7 months to 31 Dec 2010
	Notes	£	£
Administration costs		(786,603)	(152,826)
Exceptional items		(505,978)	-
Operating loss	7	(1,292,581)	(152,826)
Financial income	8	126	-
Financial cost	9	(78,100)	-
Loss before tax		(1,370,555)	(152,826)
Income tax	10	-	-
Loss for the period		(1,370,555)	(152,826)
Since there is no other comprehensive income, the profit/(loss) for the period is the same as the total comprehensive income for the period.
Attributable to:
Owners of the parent		(1,370,555)	(152,826)
Loss per share:
Basic and diluted	11	(13.7 pence)	(16.9 pence)

Group and Company Statements of Financial Position

		GROUP		COMPANY
		2011	2010	2011	2010
	Notes	£	£	£	£
ASSETS
NON-CURRENT ASSETS
Investment in oil and natural gas assets	12	3,339,980	-	-	-
Investment in subsidiary undertaking	12	-	-	3,255,033	-
Loans and receivables falling due after more than one year	12	-	308,608	-	308,608
		3,339,980	308,608	3,255,033	308,608
CURRENT ASSETS
Trade and other receivables	13	452,712	123,397	452,712	123,397
Cash and cash equivalents	14	202,352	133,396	202,352	133,396
		655,064	256,793	655,064	256,793
TOTAL ASSETS		3,995,044	565,401	3,910,097	565,401
EQUITY AND LIABILITIES
Share capital	15	1,287,815	1,269,821	1,287,815	1,269,821
Share premium		5,179,647	1,796,690	5,179,647	1,796,690
Loan note equity reserve		25,274	-	25,274	-
Share option and warrant reserve		839,274	-	839,274	-
Retained earnings		(3,996,514)	(2,625,959)	(3,996,514)	(2,625,959)
		3,335,496	440,552	3,335,496	440,552
CURRENT LIABILITIES
Trade and other payables	16	157,345	43,202	105,643	43,202
NON-CURRENT LIABILITIES
Convertible loan notes	17	468,958	81,647	468,958	81,647
Decommissioning obligation	18	33,245	-	-	-
TOTAL NON-CURRENT LIABILITIES		502,203	81,647	468,958	81,647
TOTAL LIABILITIES		659,548	124,849	574,601	124,849
TOTAL EQUITY AND LIABILITIES		3,995,044	565,401	3,910,097	565,401

Group and Company Statement of Changes in Equity

GROUP AND COMPANY	Share	Share	Shares to be	Loan note equity	Option and warrant	Retained	Total
	capital	premium	issued	reserve	reserve	earnings	equity
	£	£	£		£	£	£
Balance at 31 May 2010	1,267,490	1,189,106	12,033	-	-	(2,473,133)	(4,504)
Total comprehensive income	-	-	-	-	-	(152,826)	(152,826)
Changes in equity
Transactions with owners
Issue of share capital	2,331	607,584	(12,033)	-	-	-	597,882
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)
Changes in equity
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

Group and company Statement of Cash Flow

		GROUP		COMPANY
		Year ended 31 Dec 11	7 months to 31 Dec 10	Year ended 31 Dec 11	7 months to 31 Dec 10
	Notes	£	£	£	£
OPERATING ACTIVITIES
Cash used in operations	22	(1,100,199)	(156,913)	(1,151,901)	(156,913)
INVESTING ACTIVITIES
Investment in joint venture		(3,248,127)	-	-	-
Investment in subsidiary undertaking		-	-	(3,196,425)	-
Loans repayable in more than one year		-	(308,608)	-	(308,608)
Net cash from investing activities		(3,248,127)	(308,608)	(3,196,425)	(308,608)
FINANCING ACTIVITIES
Amount introduced by directors		-	1,035	-	1,035
Net proceeds on issues of shares		3,851,803	597,882	3,851,803	597,882
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		4,417,282	598,917	4,417,282	598,917
Increase in cash and cash equivalents		68,956	133,396	68,956	133,396
Cash and cash equivalents at beginning of period		133,396	-	133,396	-
Cash and cash equivalents at end of period		202,352	133,396	202,352	133,396

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 year ended 31 December 2011.  The 2011 statutory accounts have not been finalised but this preliminary announcement has been prepared by the Directors based on the results and position which they expect will be reflected in the statutory accounts. The audited accounts will be posted to all shareholders in due course and will be available on request in due course by contacting the Company Secretary at the Company's Registered Office.

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

Any consideration of the foreseeable future involves making a judgement, at a particular point in time, about future events which are inherently uncertain. The ability of the Company to carry out its planned business objectives is dependent on its continuing ability to raise adequate financing from equity investors and/or the discovery, development or sale of mineral reserves and achievement of profitable operations.

Nevertheless, at the time of approving of these Financial Statements and after making due enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue operating for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the Financial Statements.

The Report and Accounts, which are expected to be posted to shareholders tomorrow, include an emphasis of matter paragraph with respect to going concern. The emphasis of matter does not qualify the auditor's opinion on the financial statements and an unqualified audit report has been issued. 

4.       Earnings per Share

		Year to 31 Dec 2011	7 months to 31 Dec 2010
		£	£
	Loss for the purposes of basic and diluted earnings per share:
	From continuing operations	(1,370,555)	(152,826)
		2011	2010
		Number	Number
	Weighted average number of ordinary shares for the purpose of basic and diluted earnings per share	9,986,069	904,525
		2011	2010
	Basic and diluted loss per share	(13.7p)	(16.9p)
	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 29 June 2011 the Company's sole subsidiary Silvermere Energy Inc ("SE Inc") was incorporated in the USA as an investment holding company for the Group's oil and gas assets.  The Company owns 100% of the common shares of SE Inc and 100% of the voting power.  The results of SE Inc have been incorporated in the Group accounts in accordance with its accounting policies (see Note 1.3). On 31 October 2010 the Company entered into an option agreement to acquire Core (Holdings) Limited in exchange for the issue of shares in the Company.  The option was exercisable at any time within 180 days from the date of the option agreement.  This option agreement was replaced and superseded by an option agreement dated 29 April 2011, together with a Memorandum of Option Agreement (as amended) dated 4 May 2011.  The second option agreement was between the Company and Core Oil & Gas, Inc ("Core").  Core owned an undivided one third working interest equal to not less than a 25% net revenue interest in certain oil and gas leases and wells located in Kleberg County, Texas, USA (the "Mustang Assets").  The option agreement set out the consideration for which the Company could acquire Core's interest in the Mustang Assets.  The main terms of the agreement were: The Company would acquire all Core's interests in the Mustang Assets, in consideration for: ·     the cancellation of all advances made by the Company to Core; ·     the reimbursement of Core's legal fees up to a total of £20,000; ·     payment of a cash consideration to Core's shareholders of £169,000 which would be applied to the subscription for 676,000 shares in the Company at 25p each, and the issue to Core's shareholders of 676,000 warrants exercisable at 30p per share on or before 31 August 2013; ·     the assumption by SE Inc of certain liabilities of Core incurred in connection with the Mustang Assets amounting to approximately $1,200,000 ( £775,000); ·     Payment to Core of an over-riding royalty of 4% of the annual revenues attributable to the Mustang Assets; ·     Retention by Core of a 16.65% working interest in the I-1 Well only, with the Company carrying Core's share of the tie-in costs for the I-1 Well.
	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 SE Inc.
			GROUP		COMPANY
			31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
			£	£	£	£
		Balance at start of period	308,608	-	308,608	-
		Loans advanced to Core Oil & Gas Inc	2,094,248	308,608	2,094,248	308,608
		Shares and warrants issued to vendors	169,000	-	169,000	-
		Geological survey and evaluation costs	153,171	-	153,171	-
			2,725,027	308,608	2,725,027	308,608
		Payments to the operator of the JOA on behalf of Silvermere Energy Inc	530,006	-	530,006	-
		Amount due under the JOA at year end	51,702	-	-	-
		Decommissioning provision	33,245	-	-	-
		Investment in Joint Venture at 31 December	3,339,980	308,608	3,255,033	308,608

6.       Trade and Other Receivables

		GROUP		COMPANY
		31 Dec 2011	31 Dec 2010	31 Dec 2011	31 Dec 2010
		£	£	£	£
	Loan to Mustang Oil & Gas Inc	250,000	-	250,000	-
	Other debtors	93,876	123,397	93,876	123,397
	Prepaid expenses	108,836	-	108,836	-
	Total	452,712	123,397	452,712	123,397
	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.  At the date of signing of the accounts £109,375 had been received in part settlement of the loan. 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 20 February 2012 the company issued options over 400,000 shares to Andy Morrison.  For further details see the relevant section of the Report on Directors' Remuneration on pages 16 and 17. ·       On 20 February 2012 the company allotted 15,894 shares to Stewart Dalby, 26,255 shares to Frank Moxon and 105,960 shares to Andy Morrison in respect of reinvestment of salary due into new shares in the company. ·       On 27 April 2012, the company raised £102,857 from the early exercise of warrants under the warrant holders incentive plan at an exercise price of 20p per share. 514,286 new ordinary shares have been issued together with the same number of replacement warrants exercisable at 30p per share until 31 August 2013.

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 42 Brook Street, London W1K 5DB, and on the Company's website www.silvermere-energy.com.

 

END

 

 

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