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Tower Resources PLC (TRP)

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Friday 28 September, 2018

Tower Resources PLC

Interim Results to 30 June 2018

RNS Number : 2565C
Tower Resources PLC
28 September 2018
 

Tower Resources plc

Interim Results to 30 June 2018

 

28 September 2018

 

Tower Resources plc (the "Company" or "Tower" (TRP.L, TRP LN)), the AIM-listed oil and gas company with its focus on Africa, announces its Interim Results for the six months ended 30 June 2018.

 

HIGHLIGHTS

 

§ Completion of 3D seismic data reprocessing over the Thali license in the Republic of Cameroon and commencement of interpretation and analysis of that data;

§ Commencement of Thali Competent Persons Report and further detailed prospectivity evaluation for the Thali license. The report will not only further evaluate the existing Njonji discovery and crystalise greater confidence in the volumetric estimates, but will also identify new leads and prospects;

§ Completion and submission of an Environmental and Social Impact Assessment ("ESIA") to the Cameroon Government for approval prior to drilling;

§ Further ongoing administrative overhead reductions, which have reduced costs by $208k to $494k in the six months to 30 June 2018, from $702k in the six months to 30 June 2017. 

 

POST REPORTING PERIOD EVENTS

 

§ Approval of ESIA by the Republic of Cameroon and grant of Environmental Certificate fo Conformity, permitting drilling on the Thali license area;

§ Extension of the Initial Exploration Period of the Thali license until 15 September 2019;

§ Ongoing well planning and preparatory work for the intended 2019 drilling programme in Cameroon;

§ Commencement of farm-out process to fund further 3D seismic acquisition on the Algoa-Gamtoos license offshore South Africa, operated by 50% partner New Age;

§ Release of Operator's estimates of 510 Million boe of mean unrisked recoverable resource potential in the Algoa-Gamtoos license.

 

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

 

Contacts

 

Tower Resources plc

+44 20 7157 9625 [email protected]

Jeremy Asher, Chairman and CEO

 

Andrew Matharu, VP Corporate Affairs

 

 

 

 

 

SP Angel Corporate Finance LLP
Nominated Adviser and Broker

+44 20 3470 0470

Stuart Gledhill

 

Caroline Rowe

 

 

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2018

 

We have had a busy few months since our last report, and those months have been extremely productive.

The reprocessed 3D seismic data that we received from DMT Petrologic in April arrived later than we expected, but the quality was good and this enabled us to identify a number of features on the Njonji structure more clearly. By the end of June we had a clearer picture of the general outline of the main reservoir, and we had also ascertained that one apparent fault, which had been identified as a sealing fault based on the old 3D interpretation, was not in fact a sealing fault; and another apparent sealing fault was probably not sealing either. This enabled us to choose a good location for the proposed NJOM-3 well on the Njonji structure, and to begin designing an appropriate test programme for the well, but it also encouraged us to conduct further analysis on the data.

The main purposes of the additional work were to further enhance the reprocessed 3D data and to commission a further fault seal analysis from an acknowledged expert in this field, Dr Tim Needham of The University of Leeds Institute of Applied Geoscience. This work was completed at the end of August, and is now being integrated into our latest view of the Njonji volumetrics, and being reviewed by Oilfield International Ltd as part of their Reserve Report.

This report will also set out the most important of the oil prospects and leads that we have identified in the shallow areas of the Northern section of the Thali license.

In the meantime, since the end of June, we have been pushing forward with well preparations in Cameroon. Our environmental certificate is in place, and the Republic of Cameroon has provided us with a one-year license extension to drill this well, subject to our completing our rig contract by 15 December 2018, as confirmed in a formal letter from the Ministry received yesterday. We are in active discussions over a number of rigs, and expect to meet this timeframe without difficulty.

We have also been discussing the way forward on our South African license with our 50% partner and Operator on that License, New Age. We agreed some time ago that we should bring in a third partner to fund acquisition of more 3D seismic on behalf of the partnership, but we have been waiting for the Operator to complete its assessment of the prospects and leads and to identify the most fruitful options for further 3D. In September the Operator completed its assessment, and also formally began the farm-out process on behalf of Rift and New Age using Envoi Limited to manage the process.

We have already released the Operator's assessment of the prospective resources in late September, and a more detailed review of the five main prospects in the three main basin areas on the licence can be found on our website www.towerresources.co.uk. The unrisked assessment of mean prospective resources of 510 Million boe (recoverable) in those five prospects is very encouraging and confirms our initial view of the attractiveness of this licence.

We are also working to conclude the terms of a new Petroleum Agreement with the Government of the Republic of Namibia. We remain very excited about the prospectivity of the blocks covered by the agreement and Namibia in general.

One frustrating aspect of the last few months has been the ongoing delays in completion of the new Petroleum Act in Zambia. This has been a source of difficulty with the Ministry of Mines and Mineral Development ("MMMD"), which would like to see operations continue without regard to the lack of a certain legal framework for the Company. We cannot say what will be the final outcome, but as a precaution the Directors have considered it prudent to impair our investment of $2,806,166 in Zambia while we await an outcome of both the legislation and our discussions with the MMMD.

Overall, we have been very active in the first nine months of 2018, and we are very pleased with the outcomes so far. Next year we will drill an extremely important well on the Thali license, and all the work we have done to date has reinforced our confidence in that license.

 

Jeremy Asher                                                                                   

Chairman and Chief Executive

 

27 September 2018  

 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

 

 

 

Six months ended 30 June 2018

(unaudited)

 

Six months ended 30 June 2017 (unaudited)

 

Note

$

 

$

Revenue

 

-

 

-

Cost of sales

 

-

 

-

Gross profit

 

-

 

-

Other administrative expenses

 

(546,509)

 

(702,462)

Pre-licence expenditures

 

(3,584)

 

(17,240)

Impairment of exploration and evaluation assets

4

(2,806,166)

 

(9,637)

Total administrative expenses

 

(3,356,259)

 

(729,339)

Group operating loss

 

(3,356,259)

 

(729,339)

Finance income

 

1,043

 

40

Finance expense

 

3,792

 

(830)

Loss for the period before taxation

 

(3,351,424)

 

(730,129)

Taxation

 

-

 

-

Loss for the period after taxation

 

(3,351,424)

 

(730,129)

Other comprehensive income

 

-

 

-

Total comprehensive expense for the period

 

(3,351,424)

 

(730,129)

 

 

 

 

 

Basic loss per share (USc)

3

(0.89c)

 

(0.70c)

Diluted loss per share (USc)

3

(0.89c)

 

(0.70c)

 

 

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

 

 

 

30 June 2018
(unaudited)

31 December 2017
(audited)

 

Note

$

$

Non-current assets

 

 

 

Property, plant and equipment

 

525

940

Exploration and evaluation assets

4

19,024,368

21,113,980

 

 

19,024,893

21,114,920

Current assets

 

 

 

Trade and other receivables

5

121,396

123,968

Cash and cash equivalents

 

1,090,581

2,151,476

 

 

1,211,977

2,275,444

Total assets

 

20,236,870

23,390,364

Current liabilities

 

 

 

Trade and other payables

6

1,092,359

1,052,903

Total liabilities

 

1,092,359

1,052,903

Net assets

 

19,144,511

22,337,461

Equity

 

 

 

Share capital

7

15,599,626

15,558,095

Share premium

 

142,376,317

142,361,529

Retained losses

 

(138,831,432)

(135,582,163)

Total shareholders' equity

 

19,144,511

22,337,461

 

 

Signed on behalf of the Board of Directors

Jeremy Asher

Chairman and Chief Executive

27 September 2018

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

 

 

 

-

(3,902)

-

-

(3,902)

41,531

18,690

-

-

60,221

-

-

102,155

(3,351,424)

(3,249,269)

At 30 June 2018

15,599,626

142,376,317

6,489,563

(145,320,995)

19,144,511

1 The share-based payment reserve has been included within the retained loss reserve and is a non-distributable reserve.

 

 

 

INTERIM CONSOLIDATED STATEMENT OF CASHFLOWS

 

 

 

Six months ended 30 June 2018 (unaudited)

Six months ended 30 June 2017 (unaudited)

 

Note

$

$

Cash outflow from operating activities

 

 

 

Group operating loss for the period

 

(3,356,259)

(729,339)

Depreciation of property, plant and equipment

 

415

8,236

Share-based payments

8

102,155

106,084

Impairment of intangible exploration and evaluation assets

4

2,806,166

9,638

Operating cash flow before changes in working capital

 

(447,523)

(605,381)

Decrease / (increase) in receivables and prepayments

2,572

(649)

Increase / (decrease) in trade and other payables

39,456

(99,433)

Cash used in operations

 

(405,495)

(705,463)

Interest received

 

1,043

40

Cash used in operating activities

 

(404,452)

(705,423)

Investing activities

 

 

 

Exploration and evaluation costs

4

(716,554)

(200,800)

Net cash used in investing activities

 

(716,554)

(200,800)

Financing activities

 

 

 

Proceeds from issue of ordinary share capital net of issue costs

7

56,319

234,067

Finance costs

 

3,792

(830)

Net cash from financing activities

 

60,111

233,237

Decrease in cash and cash equivalents

 

(1,060,895)

(672,986)

Cash and cash equivalents at beginning of period

 

2,151,476

788,280

Cash and cash equivalents at end of period

 

1,090,581

115,294

                       

NOTES TO THE INTERIM FINANCIAL INFORMATION

 

1.         Accounting policies

a)         Basis of preparation

This interim financial report, which includes a condensed set of financial statements of the Company and its subsidiary undertakings ("the Group"), has been prepared using the historical cost convention and based on International Financial Reporting Standards ("IFRS") including IAS 34 'Interim Financial Reporting' and IFRS 6 'Exploration for and Evaluation of Mineral Reserves', as adopted by the European Union ("EU").

The condensed set of financial statements for the six months ended 30 June 2018 is unaudited and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. They have been prepared using accounting bases and policies consistent with those used in the preparation of the audited financial statements of the Company and the Group for the year ended 31 December 2017 and those to be used for the year ending 31 December 2018. The comparative figures for the half year ended 30 June 2017 are unaudited. The comparative figures for the year ended 31 December 2017 are not the Company's full statutory accounts but have been extracted from the financial statements for the year ended 31 December 2017 which have been delivered to the Registrar of Companies and the auditors' report thereon was unqualified and did not contain a statement under sections 498(2) and 498(3) of the Companies Act 2006.

This half-yearly financial report was approved by the Board of Directors on 27 September 2018.

b)        Going concern

The Group will need to raise further funds or to agree a farm out or other transaction involving one or more of the Group's licenses in order to meet its liabilities as they fall due within the next 12 months. The Directors believe that they will need to raise funds of approximately £7.7 million in total over the coming twelve months to meet its minimum commitments (mainly to fund drilling activities in respect of the Thali license) but not all of this needs to be raised prior to the well spud. The Directors consider that there are a number of options available to them either through capital markets, farm-outs or asset disposals and are confident that these will be concluded satisfactorily within the necessary timeframes. The financial statements have therefore been prepared on a going concern basis.

However, there can be no guarantee that the required funds may be raised or transactions completed within the necessary timeframes. Consequently a material uncertainty exists that may cast doubt on the Group's ability to continue to operate and to meet its commitments and discharge its liabilities in the normal course of business for a period of not less than twelve months from the date of this report. The financial statements do not include the adjustments that would result if the Group was unable to continue in operation such as the impairment of the exploration assets.

 

2.            Operating segments

The Group has two reportable operating segments: Africa and Head Office. Non-current assets and operating liabilities are located in Africa, whilst the majority of current assets are carried at Head Office. The Group has not yet commenced production and therefore has no revenue. Each reportable segment adopts the same accounting policies. In compliance with IAS 34 'Interim Financial Reporting' the following table reconciles the operational loss and the assets and liabilities of each reportable segment with the consolidated figures presented in these Financial Statements, together with comparative figures for the period-ended 30 June 2017.

 

Africa

Head Office

Total

 

Six months
ended
30 June 2018

Six months
ended
30 June 2017

Six months
ended
30 June 2018

Six months
ended
30 June 2017

Six months
ended
30 June 2018

Six months
ended
30 June 2017

 

$

$

$

$

$

$

Loss by reportable segment

2,822,162

41,103

529,262

689,026

3,351,424

730,129

Total assets by reportable segment 1

19,167,793

21,061,256

1,069,077

302,106

20,236,870

21,363,362

Total liabilities by reportable segment 2

(599)

(1,049,432)

(1,091,760)

(237,298)

(1,092,359)

(1,286,730)

1 Carrying amounts of segment assets exclude investments in subsidiaries.

2 Carrying amounts of segment liabilities exclude intra-group financing.

 

3.            Loss per ordinary share

 

 

Basic & Diluted

 

 

30 June 2018

 

 

$

 

3,351,424

375,151,046

 

-

375,151,046

 

0.89c

 

4.            Intangible Exploration and Evaluation (E&E) assets

 

 

Exploration and evaluation assets

Goodwill

Total

Period-ended 30 June 2017

 

$

$

$

 

 

 

 

 

 

716,554

-

716,554

At 30 June 2018

 

91,025,582

8,023,292

99,048,874

Amortisation and impairment

 

 

 

 

 

 

(2,806,166)

-

(2,806,166)

At 1 January and 30 June 2018

 

(72,001,214)

(8,023,292)

(80,024,506)

Net book value

 

 

 

 

At 30 June 2018

 

19,024,368

-

19,024,368

 

 

In accordance with the Group's accounting policies and IFRS 6 the Directors' have reviewed each of the exploration license areas for indications of impairment. Having done so, based on the financial constraints on the Group, and specific issues associated with each license it was concluded that a full impairment was only necessary in the case of the Zambian licenses 40 and 41.

The Group subsequently conducted an impairment review in accordance with the provisions of IAS 36. This is inherently an extremely judgmental exercise requiring the Directors to place a value on exploration projects that by definition are not in the development stage and are not therefore cash generating units.

The process of completing a new Petroleum Act in Zambia, which began in 2015, has still not reached a conclusion. In the meantime, the Company has been working on the assumption that its operations in Zambia have been in a state of hiatus pending conclusion of the new Act, as previously discussed with the former Minister of Mines and Mineral Development. However, the Company has recently received some mixed signals from the Ministry, and the Petroleum Act has still not been passed. The Directors have considered the position during the asset valuation review associated with these accounts, and have decided that it would be prudent to make full impairment provision against both licenses. The capitalised investment in Zambia represents historic costs incurred by Rift Petroleum Limited, the license holder, since December 2013 when the licenses were originally awarded and it was not felt that carrying these costs forward adhered to the spirit of IAS 36 and that the fully impaired carrying value is equal to the assessed value in use at this time.

The additions during the period represent $708k in Cameroon (2017: $164k) and $9k in Zambia (2017: $21k) (subsequently impaired). The focus of the Group's activities during this period has been on further evaluating the Thali block in Cameroon and delineating the most suitable drilling location on the Njonji discovery for a 2019 appraisal well.

5.            Trade and other receivables

 

30 June 2018

(unaudited)

31 December 2017  (audited)

 

$

$

Trade and other receivables

121,396

123,968

 

 

6.            Trade and other payables

 

30 June 2018

(unaudited)

31 December 2017

(audited)

 

$

$

Trade and other payables

1,013,233

999,331

Accruals

79,126

53,572

 

1,092,359

1,052,903

 

Included within trade and other payables are amounts totalling $944k (2017: $965k; difference due to exchange rate fluctuations) with respect to UK VAT payable.

As has been previously noted, HMRC have issued assessments totalling £843k excluding interest and penalties. This was appealed and referred to the first-tier tribunal, a hearing date for which has not yet been confirmed but is likely to be early in 2019.

The Company has also identified a supplier that had incorrectly charged UK VAT on their fees to the Company totaling £127k. The supplier concerned has filed letters disclosing this error with HMRC who have confirmed the validity of the claim and are arranging reimbursement. The legal benefit and the handling of this claim has now been assigned to the Company, which is engaged in a continuing dialogue with HMRC about this claim and HMRC's earlier assessments.

The Company continues to firmly believe that it has complied in all material respects with UK VAT legislation. Based on discussions with its advisors, the Company understands that the strength of HMRC's claim over the £843k is subject to legal interpretation, whereas HMRC have conceded that the claim of £127k against HMRC is indeed valid.

Taking into consideration the uncertainty regarding the appeal on the withholding of the original receivable and the assessment of £843k, and the alternative reimbursement due of £127k, the Company has therefore reduced the net payable within the accounts to £716k / $944k (2017: $965k; difference due to exchange rate fluctuations) to reflect only the reimbursement due, and has also made a full provision for the HMRC assessment. The difference has been charged to the Income Statement.

7.            Share capital

 

 

30 June 2018

(unaudited)

 

 

$

 

 

 

15,599,626

 

The share capital issues during the period are summarised below:

 

Number of shares

Share capital at nominal value

Share premium

 Ordinary shares

 

$

$

 At 1 January 2018

374,270,520

15,558,095

142,361,529

 Shares issued for cash

-

-

-

 Shares issued in lieu of fees payable

3,064,907

41,531

18,690

 Share issue costs

-

-

(3,902)

 At 30 June 2018

377,335,427

15,599,626

142,376,317

 Deferred shares

 

$

$

 At 1 January and 30 June 2018

653,483,333

-

-

 

8.            Share-based payments

 

 

Six months ended 30 June 2018

(unaudited)

 

 

$

102,155

 

On 9 November 2017, the Board of the Company determined to implement a Share Incentive Plan and to make an award to the Chief Executive covering rights over 15 million shares vesting after three years and subject to performance conditions. The performance conditions provide that 5 million of the shares will only be payable if, during the vesting period, the Company's stock achieves a closing price at least 25% above the November 2017 Placing Price; and 5 million of the shares will only be payable if, during the vesting period, the Company's stock achieves a closing price at least 50% above the November 2017 Placing Price. In each case the target share price must be achieved for a minimum of five (not necessarily consecutive) trading days during the vesting period. Included within the above share-based payment charges for the period is $52,265 with respect to these shares.

Options

Details of share options outstanding at 30 June 2018 are as follows:

 

 

 

Number in issue

At 1 January 2018 & 30 June 2018

 

 

1,626,800

 

Date of grant

Number in issue

 

Option price (p)

Latest           exercise date

27 Dec 14

19,998

 

175.000

27 Dec 19

09 Dec 15

48,000

 

47.500

09 Dec 20

16 Mar 16

58,802

 

47.500

16 Mar 21

26 Oct 16

1,500,000

 

2.250

25 Oct 21

 

1,626,800

 

 

 

 

These options vest in the beneficiaries in equal tranches on the first, second and third anniversaries of grant.

Warrants

Details of warrants outstanding at 30 June 2018 are as follows:

 

 

 

Number in issue

 

 

 

 

At 30 June 2018

 

 

36,576,314

 

Date of grant

Number in issue

 

Warrant price (p)

Latest           exercise date

26 Jul 13

96,848

 

306.250

26 Jul 18

09 Nov 17

31,853,761

 

1.000

09 Nov 22

01 Jan 18

2,542,372

 

1.000

01 Jan 23

01 Apr 18

2,083,333

 

1.500

01 Apr 23

 

36,576,314

 

 

 

 

9.            Subsequent events

2 July 2018: Issue of warrants to Directors in lieu of fees totalling £15,000 (in aggregate) to Peter Taylor and Graeme Thomson (non-executive directors), and Jeremy Asher (as Chairman) in partial settlement of fees due for the period from 1 July 2018 to 30 September 2018. The warrants are exercisable at a price of 1.78 pence ("Warrants"), which is the closing share price on 29 June 2018 and are exercisable for a period of 5 years from the date of issue.

20 August: Approval of ESIA by the Republic of Cameroon and grant of Environmental Certificate fo Conformity, permitting drilling on the Thali license area;

20 August: Ongoing well planning and preparatory work for the intended 2019 drilling programme in Cameroon;

17 September: Extension of the Initial Exploration Period of the Thali license until 15 September 2019;

21 September: Commencement of farm-out process to fund further 3D seismic acquisition on the Algoa-Gamtoos license offshore South Africa, operated by 50% partner New Age.

21 September: Release of Operator's estimates of 510 Million boe of mean unrisked recoverable resource potential in the Algoa-Gamtoos license.

 

 


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