Baron Oil plc (LON:BOIL), the AIM-quoted oil and gas exploration company, has announced its audited financial results for the year ended 31 December 2022.
Operational Highlights (including post period)
| • | During the year, both the Chuditch PSC and Dunrobin projects, were subject to intensive technical work aimed at maturing the assets to “drill ready” status. |
| • | Delivery of the reprocessed Chuditch 3D seismic data and its interpretation significantly improved the subsurface image, enabling for the first time, the delineation of the Chuditch discovery and its adjacent prospects. |
| • | The key Dunrobin technical work components of the Phase A commitments – those of seismic reprocessing plus geochemical studies – were delivered during second half of 2022 on time and budget. Detailed seismic attribute analysis, designed to investigate candidate direct hydrocarbon indicators, followed in early 2023. |
| • | In early 2023 two Competent Person’s Reports (“CPRs”) were published which validate both projects to the industry standard SPE PRMS Contingent and/or Prospective Resource estimates. |
| • | Throughout the period the Company kept updated Virtual Datarooms for the benefit of potentially interested funding partners for the next phase of both Chuditch and P2478 projects, a process which continues. |
Financial Highlights
| • | Two oversubscribed funding events in 2022, as a result we have a well-funded balance sheet covering our current activities and commitments. |
| • | Cash Reserves at 31 December 2021 were £5,807,000 (31 December 2021: £1,650,000). |
| • | Exploration and evaluation expenditure of £213,000 (2021: £218,000). |
| • | Administration expenses for the year were £1,191,000 (2021: £1,321,000), an overall reduction on the prior year of £130,000. |
| • | Loss after taxation of £1,387,000 (2021: £1,127,000 loss). |
Commenting on the results, John Wakefield, Non-executive Chairman, said: “2022 was a year of considerable progress for Baron. Our overriding task was to progress our two material projects, Chuditch and Dunrobin, to their key evaluation points which was achieved with the publication of CPRs on both projects in early 2023. The considerable and potentially transformative value for shareholders in the Company’s assets offshore Timor-Leste and in the UK is now clearly defined and our efforts are now focused on the drilling decisions to be made in 2023 for a Chuditch-1 appraisal well and a Dunrobin West exploration well.
“Both assets continue to attract attention via our active farmout campaigns and presentations at relevant industry events. In particular, there are a number of ongoing discussions with third parties regarding participation in the Chuditch appraisal well and future activities. We are grateful for the support of our investors through the two funding events which took place during the year and as a result, we have a well-funded balance sheet covering our current activities and commitments.
“Baron is highly encouraged by the developments being made and I look forward to reporting on our further progress in due course.”
Posting of Annual Report and Notice of AGM
The Company’s Annual Report and Financial Statements, for the year ended 31 December 2022, will be available for download from the Company’s website (https://www.baronoilplc.com/) later today and will be despatched by post shortly to those shareholders that have requested a hard copy.
The Company will hold its Annual General Meeting at 11 a.m. BST on 29 June 2022 at 38-43 Lincoln’s Inn Fields, London WC2A 3PE and the Notice of Annual General Meeting to that effect will be sent to shareholders shortly and will be available on the Company’s website.
Online Investor Q&A
Baron intends to hold an investor Q&A session for existing and potential new shareholders around mid-June 2023. Further details of the date and time will be released in due course.
CHAIRMAN’S STATEMENT & OPERATIONS REPORT
Financial Review
The net result for the year was a loss before taxation of £1,387,000, which compares to a loss of £1,127,000 for the preceding financial year; the loss after taxation attributable to Baron Oil shareholders was £1,387,000, compared to a loss of £1,127,000 in the preceding year, representing a loss of 0.01p per share (2021: loss of 0.012p). It should be noted that the results for 2021 included a one-off non-cash gain on the deemed disposal of an associated undertaking amounting to £302,000.
Turnover for the year was £nil (2021: £nil), there being no sales activity during the period.
Exploration and evaluation expenditure incurred included in the Income Statement amounts to £213,000 (2021: £218,000). The Impairment provision in respect of Peru Block XXI was released and offset against the write off of the accumulated cost on the project. The Directors judged that no other exploration assets required impairment.
Administration expenses for the year were £1,191,000 (2021: £1,321,000), an overall reduction on the preceding year of £130,000. This is made up of a number of pluses and minuses. As anticipated last year, administration costs arising in SundaGas (Timor-Leste Sahul) Pte. Ltd. (“TLS”) have increased from £285,000 previously to £441,000 this year as we moved to a full 12 month reporting period at the Group level and the Dili office in Timor-Leste is now fully operational. There were also non-recurring support costs of £65,000 in Peru. Directors and UK staff salaries and related costs are lower than 2021 by £37,000 with the earlier year including a severance payment to a former director. Finally, there have been no share-based payment charges this year (2021: £286,000).
Throughout 2022, the Pound Sterling weakened considerably against the US Dollar, with an opening rate of $1.35 and a closing rate of $1.21. This has given rise to a gain on holdings of US Dollar denominated balances of £43,000 (2021: gain of £22,000).
At the end of the financial year, cash reserves of the Group had increased to £5,807,000 from a level at the preceding year end of £1,650,000. The proceeds from the issue of new shares in the year amounting to £7,131,000 gross (£6,619,000 net of costs) bolstered the Company’s cash reserves. The Group’s investment in exploration and evaluation assets in the UK and Timor-Leste amounted to £806,000 in the period, and £602,000 was repaid to SundaGas Pte Ltd to settle the outstanding amount of the remaining share of the Timor-Leste Bank Guarantee resulting from the Company’s acquisition of the remaining interest in TLS, as announced on 15 November 2022. In the case of the guarantee bond held in Peru, this was released in full on the relinquishment of the Block XXI licence resulting in a cash inflow of £128,000. After taking into account these items, operating cash outflow amounted to £1,182,000.
The Group continues to take a conservative view of its asset impairment policy, giving it a Statement of Financial Position that consists of significant net current assets and what the Board considers to be a realistic value for its exploration assets. The Board will continue to take a prudent approach in entering into new capital expenditures beyond those expected to be committed to existing ventures.
Report On Operations
Introduction
During 2022 both projects were subject to intensive technical work aimed at maturing the assets to “drill ready” status, which culminated in early 2023 with the publication of two Competent Person’s Reports (“CPRs”) which validate the projects to the industry standard SPE PRMS Contingent and/or Prospective Resource estimates.
Southeast Asia: Timor-Leste TL-SO-19-16 PSC (“Chuditch PSC” or “PSC”) (Baron 75% interest)
Background
The Chuditch PSC is located approximately 185 kilometres south of Timor-Leste, 100 kilometres east of the producing Bayu-Undan field, 50 kilometres south of the potential Greater Sunrise development and covers approximately 3,571 km2 in water depths of 50-100 metres. The Chuditch-1 discovery well, drilled by Shell in 1998 in 64 metres water depth, encountered a 25 metre gas column in Jurassic Plover Formation sandstone reservoirs at a depth of around 3,000 metres on the flank of a large faulted structure. The discovery and neighbouring prospects are largely covered by a 3D seismic survey acquired in 2012.
Baron holds a 75% working interest and operates the PSC through its wholly owned subsidiary company SundaGas Banda Unipessoal Lda. (“Banda”), with the remaining 25% held by TIMOR GAP Chuditch Unipessoal Lda. (“TIMOR GAP”), a subsidiary of the state-owned national oil company, whose share of PSC expenditure is carried until first production.
The technical work programme obligations in the first two years of the initial three-year term of the PSC include the reprocessing of legacy seismic data, aimed at addressing reservoir imaging issues caused by sea-bed topography and shallow geological features, and for which a US$1 million Bank Guarantee is in place. The commitment within the PSC for contract year 3 is for the drilling of one appraisal well to the Plover Formation, subject to seismic reprocessing supporting the presence of a significant structure associated with the Chuditch discovery.
2022 and subsequent activities
The most significant component of the technical work programme in 2022 was the delivery of the reprocessed 3D seismic data and its interpretation. The reprocessing was performed to a high standard using the most modern Pre-Stack Depth Migration (“PSDM”) techniques. We have significantly improved the subsurface image, enabling for the first time, the delineation of the Chuditch discovery and its adjacent prospects. This technical evaluation was enhanced through the completion of a number of further geological and engineering studies.
In October 2022, Baron announced its preliminary evaluation arising from the reprocessed data. The resultant mapping indicated a significant increase in management’s aggregate Gas-in-Place and Recoverable Gas Resource estimates for the Chuditch PSC. In particular, it indicated a greater concentration of resources into the Chuditch-1 discovery in a simplified and robust structure. The understanding of the adjacent prospectivity was also matured, with three low-risk exploration targets confirmed on the Chuditch trend.
Consultancy group ERC Equipoise Ltd (“ERCE”) was engaged to prepare a CPR to provide an independent assessment of the Chuditch resource to a SPE PRMS compliant standard. The CPR was released on 28 February 2023. For the Chuditch-1 discovery, ERCE assessed gross Pmean Contingent Resources of 1.16Tcf of gas. The recognition of the resources as being Contingent, rather than Prospective, is a major milestone and sets the foundation for the next stage of the project cycle. This phase typically includes pre-development feasibility studies and preliminary work on gas sales arrangements alongside the drilling of an appraisal well. Baron believes that the Chuditch-1 Contingent Resources are potentially sufficiently large to be economically viable to be developed standalone or in parallel with other developments in the region.
In addition, aggregated gross Pmean Prospective Resources attributable to the licence according to the CPR amounted to 1,562 Bscf gas across three prospects, Chuditch SW, Chuditch NE and Quokka. Geological Chances of Success (“GCOS”) for these prospects range from 52% to 26%, providing substantial follow on, low risk exploration potential to any Chuditch-1 development. It is notable that Baron’s in-house probabilistic estimates of aggregated gross Prospective gas Resources for these prospects, at 2,128 Bscf of gas, are higher that ERCE’s estimates. This arises mainly through the Company’s preferred use of the latest reprocessed seismic data velocity model to define the extent of the prospects.
Detailed tabulations of the resources assessed within the Chuditch PSC and further commentary can be accessed via the Company’s RNS announcement of 28 February 2023 and the full CPR document which is available on Baron’s corporate website (www.baronoilplc.com).
Also in October 2022, we announced a six-month extension to Contract Year Two of the Chuditch PSC granted by the relevant Timor-Leste national authority, Autoridade Nacional do Petróleo e Minerais (“ANPM”). The PSC Contract now has an expiry date of 18 June 2023.
On entry into Contract Year 3 of the PSC, the commitment will be to drill an appraisal well within a 12-month period. Such an appraisal well would likely be drilled to a total depth of around 3,000 metres and would include a production test. Recent geopolitical events and post-pandemic supply chain issues have led to considerable disruption in rig availability and drilling services globally such that a drill deadline of June 2024 could prove challenging.
There continues to be an excellent working relationship between the Company, the Government Ministry of Petroleum and Mineral Resources (“MPM”), Autoridade Nacional do Petróleo e Minerais (“ANPM”), the Government regulatory authority of petroleum and mining, and TIMOR GAP. We meet regularly with all of these bodies and provide detailed updates around our activities, plans and timelines on the PSC. The Company appreciates the support that we receive from these various state entities and will continue to work on maintaining these close relationships.
As part of our in-country activities, including the efforts of our local Dili offices, we are also undertaking various initiatives to develop the capabilities of the Timorese geological community, through relationships with local universities, welcoming student interns and sponsoring a new local chapter of the Society of Petroleum Engineers.
More generally in Timor-Leste, there was increased E&P activity during the year as Timor Resources Pty Ltd commenced an onshore drilling campaign, the first in 50 years. In addition, the Greater Sunrise development project continued to move towards development with negotiations between its many stakeholders. In April successful bidders of five blocks in the Second Licencing Round were announced by the Timor-Leste authorities, including Block P, which sits between the Chuditch PSC and Greater Sunrise, to a subsidiary of the Italian major ENI.
Throughout the period the Company hosted and kept updated a Virtual Dataroom for the benefit of potentially interested funding partners for the next phase of the Chuditch project, a process which continues.
United Kingdom Offshore Licence P2478 (“Dunrobin”) (Baron 32% interest)
Background
Innovate Licence P2478, awarded in September 2019, is currently held by a joint operation comprising Reabold North Sea Limited (“Reabold”, Licence Administrator, interest 36%), Baron (32%), and Upland Resources (UK Onshore) Limited (32%). The licence covers blocks 12/27c, 17/5, 18/1 and 18/2 in the Inner Moray Firth area of the North Sea and contains the Dunrobin and Golspie prospects, in a province where regional and local petroleum systems are considered by the partners to be proven. Target depths are as shallow as 660 metres subsea and water depths are less than 100 metres.
The work commitments on the Licence are to undertake reprocessing of legacy 3D and 2D seismic data and perform other studies, in order to better understand the subsurface risks, reduce the range of volumetric uncertainty, as well as providing drilling location candidates ahead of making a decision whether to proceed beyond the end of the Phase A evaluation stage of the licence on 14 July 2023.
2022 and subsequent activities
The key technical work components of the Phase A commitments – those of seismic reprocessing plus geochemical studies – were delivered during second half of 2022 on time and budget. Detailed seismic attribute analysis, designed to investigate candidate direct hydrocarbon indicators, followed in early 2023. A thorough revised evaluation of the prospectivity of P2478 is now finalised, with the UK’s North Sea Transition Authority (“NSTA”) recording that the work programme was fully complete during March 2023. Baron maintained direct technical involvement during 2022.
Towards the end of 2022, consultancy group RPS was engaged by the joint operation to prepare a CPR to provide an independent validation of resource estimates to a SPE PRMS compliant standard. The CPR was announced and published on Baron’s website on 16 February 2023.
The CPR provided independent confirmation of the Company’s belief that the western part of the Dunrobin complex had matured into a drillable prospect where a relatively low-cost exploration well can target more than 100 MMbbl of gross Pmean Prospective Resources with low geological risk. The key points from the CPR can be summarised as follows:
| · | 201mmboe gross unrisked Pmean Prospective Resources on licence when aggregated; |
| · | the Dunrobin West prospect (“Dunrobin West”) estimated to contain 119mmboe gross unrisked Pmean Prospective Resources aggregated across the Jurassic and Triassic stacked targets; |
| · | 34% Geological Probability of Success (GPoS) at the Dunrobin West Jurassic primary target, with an estimated 71mmbbl (gross) of Pmean Prospective Resources. |
The CPR estimates indicate that Baron’s farm-up arrangement of August 2021 increased the Company’s share of aggregate net Pmean Prospective Resources on the Licence from 30mmboe to 64mmboe at a capped cost to Baron of £160,000.
Detailed tabulations of the resources assessed within the P2478 licence, and further commentary, can be accessed via the Company’s RNS announcement of 16 February 2023, along with the full CPR document which is available on Baron’s corporate website (www.baronoilplc.com).
During the first quarter of 2023, the Licence Administrator, on behalf of the joint operation, hosted a Virtual Dataroom in order to attract funding for an exploration well on the Dunrobin West prospect, a process which continues.
Current gross cost estimates for an exploration well to be drilled to a total depth of approximately 700 metres are approximately US$10 million on a dry hole basis.
Block XXI, Peru
In April 2022, Baron requested the relinquishment of the legacy Licence Block XXI in Peru. The Licence had been largely under Force Majeure for a variety of reasons since 2017 and the Company had been frustrated in its attempts to access the area in order to carry out operations. The Bank Guarantee of US$160,000 was released in full to Baron in June. We continue to work with the Peruvian authorities to establish and file an Abandonment Plan. Ongoing costs are minimal and we hope to complete our withdrawal from Peru by the end of 2023.
New Ventures
In line with our strategy, the Company continued to screen early stage opportunities. In this context, in January 2023 the Company announced that, as a joint venture non-operating partner, it had submitted an application in the UK’s 33rd Offshore Licensing Round.
Further potential new ventures remain under consideration in both our existing areas of activity and elsewhere.
Corporate
In April 2022, the Company completed an oversubscribed Placing and Subscription of new ordinary shares at 0.06p to raise £1.65 million (gross). The monies were to be applied to support the Chuditch PSC (Timor-Leste) and P2478 (UK) projects as they moved towards their key milestones.
In November 2022, the Company completed an oversubscribed Placing and Subscription and Rex Retail Offer of new ordinary shares at 0.12p, double the funding price achieved in April, to raise £5.36 million (gross). These monies were predominantly raised to support workstreams underpinning the ongoing farm-out discussions and to provide working capital into 2023.
The Company was pleased to announce on 15 November 2022 the appointment of Keith Bush, the former Chief Executive Officer of Cabot Energy Plc (previously known as Northern Petroleum Plc), as an independent non-executive Director. Keith has a petroleum engineering background, with significant experience in the oil and gas sector. He is a member of the Audit Committee and Chairman of the Remuneration Committee.
Conclusions
I am pleased to report that Baron’s overriding task during 2022 – to progress our two material projects, Chuditch and Dunrobin, to their key evaluation points – was achieved, as signaled by the publication of CPRs on both assets in early 2023. This represents the culmination of large volumes of detailed, diligent and high quality technical work carried out by Baron’s team of global consultants, employees and joint operation partners.
The considerable and potentially transformative value for shareholders in the Company’s assets offshore Timor-Leste and UK is now clearly defined. We are now directing our efforts onto the drilling decisions to be made in 2023 for a Chuditch-1 appraisal well and a Dunrobin West exploration well.
In Timor-Leste, the independent assessment of approximately 1.1Tcf of gross Pmean Contingent Resources for the Chuditch-1 discovery underpins the viability of the project. We are updating the development and gas export option studies and commencing environmental baseline studies in preparation for a drilling campaign. The Board currently believes that a single appraisal well may be sufficient to determine commerciality without the need for an immediate follow-on exploration campaign.
In the UK an exploration well on Dunrobin West will be designed to test gross Pmean Prospective Resources of 71mmbbl in the primary, regionally proven, Jurassic target, and 45mmbbl in the vertically underlying secondary Triassic target. Due to the shallow target depths, gross drilling costs to test such a substantial volume are likely to be relatively modest. Success at Dunrobin West would de-risk the potential follow up targets Dunrobin Central & East plus Golspie, which are directly analogous prospects.
Both assets continue to attract attention via our active farmout campaigns and presentations at relevant industry events. In particular, there are a number of ongoing discussions with third parties regarding participation in the Chuditch appraisal well and future activities. We look forward to updating shareholders on progress as and when appropriate.
Our search for new venture opportunities to enhance and complement the existing portfolio resulted in an application as a non-operating partner for a licence in the offshore UK 33rd Round of Licensing and we continue to actively pursue other material new business opportunities.
We are grateful for the support of our investors through the two funding events in 2022. As a result we have a well-funded balance sheet covering our current activities and commitments. As at 31 December 2022 we had cash reserves of £5.8 million (2021: £1.65 million). The addition of Mr Keith Bush as an independent non-executive Director in 2022 also strengthens and broadens the Board’s talents as we enter a decisive phase of operations.
John Wakefield
Non-executive Chairman
22 May 2023
