Independent Oil swings to profit as it continues core project work

UK gas-focussed development and production company Independent Oil and Gas reported a post-tax profit of £15m in its final results on Thursday, swinging from a loss of £5.6m.

The AIM-traded firm, which is pre-revenue, noted a £40m upfront farm-out payment from CalEnergy Resources (CER) during the year, of which £17.1m was used simultaneously to repay existing debt.

A total of £125m of development carry was committed under the farm-out agreement, with £60m earmarked for the first phase and £65m for the second.

A €100m five-year senior secured bond issue was successfully raised from Nordic, European, UK and Asian institutional investors during the year ended 31 December, and subsequently listed on the Oslo Børs.

An institutional equity fundraise, board and management subscription and open offer was also completed, raising combined gross proceeds of £18.9m.

Cash balances at year-end totalled £98.3m, up from £0.7m in 2018, including restricted cash of £82m.

Group net cash at year-end was £8m.

IOG converted an 8p convertible loan into ordinary shares at farm-out completion, the board noted, and restructured a 19p convertible loan into a long-term, unsecured, non-interest bearing convertible loan note instrument.

On the operational front, the company noted the farm-out of 50% of its core project to CER, with IOG retaining operatorship of all of its assets.

It acquired the onshore Thames Reception Facilities at the Bacton Gas Terminal, and took a final investment decision on the first phase of its core project in the fourth quarter, with a view to first gas in the third quarter of 2021.

Development works had started across all four key elements, being platforms, subsea, drilling and onshore, with the Harvey appraisal well drilled safely in the third quarter.

IOG said initial analysis indicated around 40 billion cubic feet equivalent of mid-case recoverable volumes at Harvey, and about 100 billion cubic feet equivalent at Redwell.

It said it strengthened its board, management and operational team during the year, and entered an alliance with CER for further Southern North Sea business development.

A number of licence applications were made in the 32nd Offshore Licensing Round, in partnership with CER.

Since the end of the financial year, IOG said platform construction activities were underway, and a competitive tender process was started for a jack-up drilling rig for the first phase of the drilling programme.

It said a “established” well management company had been selected to support its in-house drilling team in delivering best-in-class well execution, with onshore Thames Reception Facilities refurbishment activities ramping up, and front-end engineering and design studies being executed by Worley.

The £60m first phase development carry and €100m bond issue was being used as planned, and further seismic reprocessing was underway to support plans for the Harvey and Redwell licences as incremental developments beyond the core project.

IOG said discussions were ongoing as to potential CER participation in those licences, following the expiry of farm-in option in February.

The core project platforms were estimated to have “industry-leading” average carbon intensity at 0.2 kilograms of carbon dioxide per barrel of oil equivalent, compared to the 21 kilogram UK North Sea average in 2018.

“After a very successful 2019, and despite the unfolding Covid-19 pandemic, we at IOG are looking forwards from a position of fundamental strength to continuing our project execution throughout 2020,” said chief executive officer Andrew Hockey.

“The two major financial highlights of last year, the £165 million farm-out to an exceptionally strong partner in CalEnergy Resources and the €100m bond raise, enabled us to sanction phase 1 of our substantial UK Southern North Sea core project.

“With funding in place we are firmly focused on cost-effective Phase 1 development execution as well as adding high-return incremental opportunities.”

In 2019, Hockey said the company consolidated its competitive advantage in owning its infrastructure, with the “important acquisition” of the Thames Reception Facilities at Bacton.

“We also safely drilled the Harvey appraisal well, demonstrating our operating capability and the potential to access additional resources and increased shareholder returns through our gas hub strategy.

“The tangible progress made in 2019 reflects both our resilience in overcoming challenges and our drive to seize new opportunities.

“Such attributes will again prove crucial in this time of unprecedented upheaval.”

Hockey said that, with a “strengthened” team and a “robust” low-cost portfolio benefitting from “very low” carbon intensity, the firm was well-placed to both survive and thrive by investing through the cycle.

“With our balance sheet strength, commitment to the project and CER partnership, we are well positioned to reduce costs in the current low commodity price environment.”

At 1429 GMT, shares in Independent Oil and Gas were up 8% at 11.88p.