Reabold Resources Plc (LON:RBD), the AIM investing company which focuses on investments in upstream oil and gas projects, has announced its audited results for the year ended 31 December 2019.
2019 Highlights:
· £26.6 million raised before costs, primarily from institutional investors to support the Company’s strategy
· Discovery at West Newton appraisal well operated by Rathlin Energy (UK) Limited (“Rathlin”), potentially the largest hydrocarbon discovery onshore UK since 1973
· Further investment of, in aggregate, £17.0 million in Rathlin to increase Reabold’s interest to 59.5%
· Significant gas discovery at Danube Petroleum Limited’s (“Danube”) IMIC-1 appraisal well with operator volumetrics increased to 20 billion cubic feet (“bcf”) of Contingent Resources from 6.1 bcf of Contingent and 12.7 bcf Prospective Resources
· Further investment of, in aggregate, £3.1 million in Danube to increase Reabold’s interest to 50.8%
· Two commercial oil discoveries on West Brentwood licence in California
· Proven reserves of 0.98 million barrels of oil equivalent (“boe”) attributed to Reabold’s net interest at West Brentwood, with associated value of US$19.3 million (NPV10), as at 1 August 2019
· Two commercial oil discoveries on Monroe Swell licence in California
· Corallian Energy Limited (“Corallian”) awarded five new licences by the Oil and Gas Authority (“OGA”) as part of the 31st Offshore Licensing Round in the UK
Highlights post period end:
· Site works commenced for drilling of the West Newton B-1 well
· Additional commercial discovery on West Brentwood licence in California
· Opportunistic conditional acquisition of a direct 16.665% interest in the West Newton field from Humber Oil and Gas Limited (“Humber”) for consideration of 350,000,000 new Ordinary Shares and £1.4 million in cash; taking the Company’s effective economic interest in West Newton to circa 56.4% from 39.7%
· Secured additional liquidity in the form of a £5 million discretionary equity line cash facility to provide the Company with further financial flexibility and strength
· Cash assets of the Company as at the date of this report of £5.6 million
Stephen Williams and Sachin Oza, co-CEOs of Reabold, said:
“We are highly encouraged by the success we have had so far in the implementation of our strategy to invest in low-risk, high impact, upstream oil and gas projects. With a portfolio that contains interests in the Danube, Corallian and Rathlin prospects, all of which had appraisal campaign drilling in 2019, and the further drilling programmes in California following the success in the US to date, together with a number of other projects currently under review, the Board is confident that its shareholders can look forward to an exciting 2020 and beyond.”
Chairman’s Statement
The year ended 31 December 2019 has once again been a positive transformational period for Reabold Resources Plc (“Reabold” or the “Company”) with significant progress achieved, as Sachin Oza and Stephen Williams, the Co-Chief Executive Officers, lead the Company and its subsidiaries (the “Group”) in advancing our investment strategy in the oil and gas exploration and production (“E&P”) sector.
As an investor in upstream oil & gas projects, Reabold aims to create value from each project by investing in undervalued, lower-risk, near-term upstream oil & gas projects. This has been achieved through investments across our portfolio of assets in the UK, US and Romania. 2019 has seen multiple successes with the drill bit, the growth of profitable production in California, and the discovery of what is potentially the largest oil and gas field onshore UK since 1973.
We have a fully funded, high impact work programme planned for the remainder of 2020 and we look forward to sharing the results of these key drilling and testing activities in the near term.
The impact of Covid-19 on the oil and gas industry is undeniably dramatic. However, it is crucial to remember that the entire basis of the Reabold model is to invest in undervalued assets that would be able to deliver profitably under any reasonable oil and gas price assumption, are at the lower end of the industry cost curve and will be competitive against other sources of hydrocarbons. The Reabold portfolio is well positioned to not only survive through the Covid related downturn, but to continue to progress and expectedly thrive throughout 2020 and beyond.
2019 saw the drilling of eight wells across the Reabold portfolio, in California, Romania, the UK offshore and the UK onshore. Seven of these wells resulted in discoveries, resulting in considerable value creation for the Company and its shareholders.
In California, two successful wells at West Brentwood in 2018 were followed by a pair of successful wells at the Company’s other California oil asset, Monroe Swell. At the end of the year, Reabold and its partners returned to West Brentwood to drill the VG-6 well, opening up a new geological horizon at the field. All of these wells were subsequently put onto production. The Californian assets are characterised by low operating costs and continue to be cash generative amidst the lower oil price environment being experienced in 2020.
In Romania, Reabold continued to increase its investment in Danube, reaching an equity position of 50.8%, having provided funding for two wells within the Parta licence. The first of these wells, IMIC-1, was successfully drilled in 2019 and resulted in a discovery ahead of expectations. The planned work programme for 2020 includes the testing of IMIC-1, the drilling of IMIC-2, and a carried seismic acquisition programme. We believe that Romanian natural gas will be an attractive market in which to be operating in the coming years, and remain optimistic about the opportunities for the growth of Danube going forwards.
The early part of 2019 saw Corallian, in which Reabold has a 34.9% equity interest, conduct a two well drilling programme at Wick and Colter in the UK offshore. Wick was the riskiest well in the Reabold portfolio, being characterised as initial exploration as opposed to appraisal, and this well resulted in a dry hole. The second well saw a discovery made at Colter South, to which the Corallian management had attributed an estimated mean recoverable volume of 15mm bbls.
The single most material event of 2019 for Reabold was the successful discovery at the West Newton A-2 well in the Humber valley, onshore UK. In 2018, Reabold made an investment into Rathlin, operator of the licence, in order to fund this well. The result was significantly ahead of expectations, with both the estimated volumetrics increasing significantly, as well as the emergence of a dominant oil component as opposed to the gas that had been expected. This asset has the potential to be transformational for the Company, and the well result led to the decision to invest a further, in aggregate, £17 million into Rathlin taking Reabold’s interest to a 59.5% equity position. These proceeds will provide funding for two more wells to be drilled at West Newton, to further appraise the discovery and move towards monetisation.
Capital reduction
On 30 July 2019, the Company’s shareholders approved the resolution for a capital reduction at Reabold’s Annual General Meeting (“AGM”), which was subsequently approved by the High Court of Justice on 27 August 2019, and to cancel its share premium account. Accordingly, the amount standing to the credit of the Company’s share premium account at that time was cancelled. The capital reduction has enhanced the Company’s ability to return surplus capital, undertake share buybacks and pay dividends to shareholders in the future.
Placings and joint broker appointment
In October 2019, the Company was delighted to complete a very significant fund raising of £24 million (before expenses) through the issue of 2,666,666,666 new ordinary shares of 0.1 pence each in the capital of the Company (“Ordinary Shares”) at a price of 0.9 pence per share, to support the Company’s investment strategy, facilitating, inter alia, the £16 million further investment in Rathlin. This fund raising was led by Stifel Nicolaus Europe Limited, and we were delighted to announce their appointment as joint corporate broker to the Company on 1 November 2019.
We were also pleased to complete in July 2019 a fund raising of £2.65 million (before expenses) through a placing of 240,909,091 new Ordinary Shares at a price of 1.10 pence per share for further strategic investment into the Company’s portfolio.
The Company was delighted by the support provided by institutional investors in the placings, and welcoming significant new institutions to the share register.
Post reporting period
On 26 May 2020, the Company was pleased to announce the opportunistic acquisition of an additional 16.665% interest in the West Newton field from Humber for the consideration of 350,000,000 new Ordinary Shares (“Consideration Shares”) and £1.4 million in cash.
On completion, Reabold’s acquisition of Humber’s 16.665% licence interest in PEDL 183 onshore UK, which holds the West Newton field, will increases the Company’s effective economic interest in PEDL 183 from 39.7% (through its 59.6% equity investment in Rathlin, operator and 66.67% licence holder of PEDL 183) to approximately 56%.
Reabold has signed a conditional Sale and Purchase Agreement (“SPA”) to acquire Humber’s interest in PEDL 183, with completion conditional upon, inter alia, approval of the transfer of Humber’s interest in PEDL 183 to Reabold by the OGA. Pursuant to the SPA, Humber has agreed to a lock up over 66.67% of the Consideration Shares for a period of three months from the date of admission to trading on AIM of the Consideration Shares and an orderly market restriction for a further period of three months once the lock-in period expires.
The Company’s balance sheet is in a strong position with sufficient financial resources to meet its planned work commitments across its portfolio, including those following completion of the acquisition of Humber’s stake. However, current macro circumstances underscore the benefit of ensuring sufficient financial flexibility is available, particularly ahead of a major drilling campaign such as that planned for West Newton this year. Reabold has therefore enhanced its liquidity position by securing a £5 million discretionary cash facility with Acuitas Capital, LLC (“Acuitas”). This discretionary cash facility is seen, by the Directors of the Company, as a prudent measure to provide increased liquidity without the need to dilute shareholders unduly by way of an equity fundraise whilst the share price significantly undervalues Reabold’s portfolio due to the current low oil price environment and the Covid-19 lock-down.
The cash facility is in the form of an Equity Line Agreement (“ELA”) for a period of 24 months with Acuitas, whereby Reabold will have the right, at its sole election, but not obligation, to issue new shares in Reabold to Acuitas at a subscription price as determined under the ELA for an aggregate amount not exceeding £5 million. In consideration for making the ELA facility available, the Company paid Acuitas a £100,000 commission, satisfied by the allotment and issue of 16,351,625 new Ordinary Shares.
For details on the terms and pricing mechanics of the ELA, please refer to note 30 to the financial statements.
Outlook
Whilst we face unprecedented challenges with the Covid-19 virus, the Company’s financial position is strong and our investee companies fully funded for their 2020 work programmes.
We look forward to reporting further in due course on the progression of our investee companies and take this opportunity to thank our shareholders for their continued support.
This report was approved by the Board and signed on its behalf:
Jeremy Edelman
Chairman
10 June 2020
Strategic Report
Business Model
Reabold invests in the E&P sector. The Company’s investing policy is to acquire direct and indirect interests in exploration and producing projects and assets in the natural resources sector, and consideration is currently given to investment opportunities anywhere in the world.
As an investor in upstream oil & gas projects, Reabold aims to create value from each project by investing in undervalued, low-risk, near-term upstream oil & gas projects and by identifying potential monetisation plans prior to investment.
Reabold’s long term strategy is to re-invest capital made through its investments into larger projects in order to grow the Company. Reabold aims to gain exposure to assets with limited downside and high potential upside, capitalising on the value created between the entry stage and exit point of its projects. The Company invests in projects that have limited correlation to the oil price. The value realisation of a project is determined by monetising the asset (putting it into production or selling it). The entry price versus the monetisation price is determined, primarily by the derisking event of drilling.
Reabold’s non-operator model helps to keep costs low and facilitate a fully diversified portfolio.
Reabold has a specific strategy to fund other operators’ appraisal wells, assessed as high quality, high return projects that have been technically de-risked by previous drilling. The projects targeted have relatively quick cycle times to monetisation.
In order to maximise the return profile, identifying the optimal time to exit a project is critical to Reabold’s strategy. Doing so effectively will allow the Company to scale and attract more capital over time. Monetisation of investments depends on the extent of any success and market conditions, which are principally:
i) an asset sale or IPO; and/or
ii) putting the asset into production.
Reabold has a highly-experienced management team, which possesses the necessary background, knowledge and contacts to carry out the Company’s strategy. Management believes the current distress in the oil & gas industry presents an opportune time to deploy capital in undervalued assets with huge potential.
Section 172(1) statement
The revised UK Corporate Governance Code (‘2018 Code’) was published in July 2018 and applies to accounting periods beginning on or after January 1, 2019. The Companies (Miscellaneous Reporting) Regulations 2018 (‘2018 MRR’) require Directors to explain how they considered the interests of key stakeholders and the broader matters set out in section 172(1) (A) to (F) of the Companies Act 2006 (‘S172’) when performing their duty to promote the success of the Company under S172. This includes considering the interest of other stakeholders which will have an impact on the long-term success of the company. This S172 statement, which is reported for the first time, explains how Reabold’s Directors:
· have engaged with employees, suppliers, customers and others; and
· have had regard to employee interests, the need to foster the company’s business relationships with suppliers, customers and other, and the effect of that regards, including on the principal decisions taken by the company during the financial year.
The S172 statement focuses on matters of strategic importance to Reabold, and the level of information disclosed is consistent with the size and the complexity of the business.
General confirmation of Directors’ duties
Reabold’s Board has a clear framework for determining the matters within its remit and has approved Terms of Reference for the matters delegated to its Committees. Certain financial and strategic thresholds have been determined to identify matters requiring Board consideration and approval. When making decisions, each Director ensures that he/she acts in the way he/she considers, in good faith, would most likely promote the Company’s success for the benefit of its members as a whole, and in doing so have regard (among other matters) to:
S172(1) (A) “The likely consequences of any decision in the long term”
The Directors understand the business and the evolving environment in which we operate. As an investor in upstream oil & gas projects, Reabold aims to create value from each project by investing in undervalued, low-risk, near-term projects and by identifying potential monetisation plans prior to investment. In pursuing this objective, our focus is on minimising our emissions and footprint whilst continuing to positively contribute to the growing demand for energy and products that require hydrocarbons in the supply chain.
The Directors recognise how our investment activities are viewed by different parts of society. Given the complexity of the energy sector, the Directors have taken the decisions they believe best support Reabold’s strategic objectives, whilst meeting its environmental, social and governance obligations.
More information on this can be found below within our Environmental, Social and Governance (ESG) Statement.
S172(1) (B) “The interests of the company’s employees”
The Company during the reporting period and to date, had no employees other than the Directors. The Board recognises that Reabold employees, currently principally its executives, are fundamental and core to our business and delivery of our strategic ambitions. The success of our business depends on attracting, retaining and motivating employees. From ensuring that we remain a responsible employer, from pay and benefits to our health, safety and workplace environment, the Directors factor the implications of decisions on employees and the wider workforce, where relevant and feasible.
S172(1) (C) “The need to foster the company’s business relationships with suppliers, customers and others”
Delivering our strategy requires strong mutually beneficial relationships with suppliers, customers, governments, and joint-venture partners. We aim to have a positive and enduring impact on the communities in which we operate, through partnering with national and local suppliers, and through payments to governments in taxes and other fees. The Group values all of its suppliers and aims to build strong positive relationships through open communication and adherence to trade terms. The Group is committed to being a responsible entity and doing the right thing for its customers, suppliers and business partners. Ultimately board decisions are taken against the backdrop of what it considers to be in the best interest of the long-term financial success of the Group and its stakeholders, including shareholders, employees, the community and environment, our suppliers and customers. We value our customer relationships and aim to work closely with our customers to develop and maintain strong relationships, and understand their evolving needs so that we can improve and adapt to meet them.
More information on this can be found below within our Environmental, Social and Governance (ESG) Statement.
S172(1) (D) “The impact of the company’s operations on the community and the environment”
This aspect is inherent in our strategic ambitions, most notably on our ambitions to thrive through the energy transition and to sustain a strong societal licence to operate. As such, the Board receives information on these topics to both provide relevant information for specific Board decisions. Executive Directors conducted site visits of various investee company operations and held external stakeholder engagements, where feasible.
More information on this can be found below within our Environmental, Social and Governance (ESG) Statement.
S172(1) (E) “The desirability of the company maintaining a reputation for high standards of business conduct”
Reabold aims to achieve the production of hydrocarbons that meet the world’s growing need for energy solutions in ways which are economically, environmentally and socially responsible. The Board periodically reviews and approves clear frameworks, such as Reabold’s Code of Conduct, and specific Ethics & Compliance policies, to ensure that its high standards are maintained both within Reabold and the business relationships we maintain. This, complemented by the various ways the Board is informed and monitors compliance with relevant governance standards, help ensure its decisions are taken and that Reabold investee companies act in ways that promote high standards of business conduct.
S172(1) (F) “The need to act fairly as between members of the company”
After weighing up all relevant factors, the Directors consider which course of action best enables delivery of our strategy over the long-term, taking into consideration the impact on stakeholders. In doing so, our Directors act fairly as between the Company’s members but are not required to balance the Company’s interest with those of other stakeholders, and this can sometimes mean that certain stakeholder interests may not be fully aligned.
Culture
Whilst Reabold currently comprises a small team of people, the Board recognises that it has an important role in assessing and monitoring that our desired culture is embedded in the values, attitudes and behaviours we demonstrate, including in our activities and stakeholder relationships. The Board has established honesty, integrity and respect for people as Reabold’s core values.
Principal decisions
We outline some of the principal decisions made by the Board over the year, explain how the Directors have engaged with, or in relation to, the different key stakeholder groups and how stakeholder interests were considered over the course of decision-making in this Strategic Report and also specifically in the Environmental, Social and Governance (ESG) Statement below.
Environmental, Social and Governance (ESG) Statement
Reabold is committed to preserving and protecting our natural environment for future generations. We conduct our business in a manner that respects the environment and addresses climate challenges. Our focus is on minimising our emissions and footprint whilst continuing to positively contribute to the growing demand for energy and products that require hydrocarbons in the supply chain.
There is an increasing demand for energy in a growing global economy, and hydrocarbons will continue to play a critical role in meeting these needs, alongside renewables and other sources of energy for the foreseeable future. The International Energy Agency predicts a 30% increase in demand for hydrocarbons by 2040. The challenge is to meet the world’s energy needs sustainably, which requires managing and reducing harmful emissions. Reabold actively encourages and expects its investee companies / operators of its oil and gas interests to respond to this by continuously striving to minimise the potential environmental impact of operations by:
· Implementing controls to identify and prevent potential environmental risks
· Implementing controls during operations to avoid accidental spills, or leaks of polluting materials
· Managing water with due consideration
· Targeting high energy efficiency levels in drilling and other activities
· Limiting unnecessary wastage
· Handling waste products in an environmentally responsible manner
· Regularly assessing the environmental consequences of operations
The operators have developed systems, controls and processes to integrate climate related considerations, in order to meet these objectives. Reabold complies with the applicable standards of the international oil industry, environmental laws and regulations. We recognise and support the basis of the Paris Agreement to strengthen the global response to the threat of climate change. Furthermore, extraction activities at sites in which Reabold is invested are significantly lower in carbon intensity than the industry average.
Our growth strategy consists of expanding our existing asset base and to developing the world’s limited but proven reserves of hydrocarbon fuels in the most efficient and sustainable manner possible.
Reabold’s assets are primarily small to medium sized, proven oil and gas fields at relatively shallow depth. As such, the intensity of drilling required is considered low relative to industry standards and we do not conduct energy intensive prospecting activities, reducing the impact on the environment. We continue to seek the most energy efficient drilling methods are utilised by the operators of our interests and as the energy mix evolves towards a higher percentage of renewables in the countries in which we operate (e.g. increasing wind power in the UK and Romania, solar in California), we anticipate a greater share of the energy consumption will be purchased from green sources.
United Kingdom
Our investee company sites in the United Kingdom are located close to areas with a high demand for energy. Consequently, we expect that hydrocarbons produced locally and consumed locally will displace imported hydrocarbons thereby resulting in lower carbon emissions overall.
The carbon intensity of the UKCS has fallen by 16% since 2013 to 21,000 tonnes CO2/million boe. The industry needs to deliver production with an emissions intensity of 4,000 tonnes CO2e/million boe by 2050. We are committed to being part of the overall reduction in carbon intensity.
California, USA
Reabold’s subsidiary US production sites are located in California, a state with very high renewable energy generation which feeds into the energy required for hydrocarbon extraction. By industry standards, our oil and gas activities require a very low level of energy to extract the hydrocarbons, ensuring it is one of the most energy efficient of its type in California.
Romania
Romania is in the midst of creating a more sustainable energy mix by transitioning away from coal fired generation and ageing nuclear plants towards renewable energy sources. However, during this transition period, the country needs indigenously sourced natural gas as a fuel to ensure the security of supply of energy. By developing and producing gas from the Parta site, Danube Petroleum Limited is able to contribute to the country’s efforts to implement this energy strategy.
Managing our environmental footprint and reducing our emissions are important objectives for Reabold Resources. We regularly review and revise our policies, as necessary.
Reabold portfolio and operational annual summary
Reabold California
Following the successful drilling of Reabold’s first well, VG-3 on the West Brentwood field in 2018, 2019 saw the drilling of a further four wells at the Group’s Monroe Swell and West Brentwood licence areas, with considerable success as all four wells made successful discoveries.
West Brentwood Licence Area:
VG-4 Well
On 3 January 2019 Reabold announced initial success at the VG-4 location at West Brentwood, which was a follow on to the VG-3 well in the same formation, the Second Massive. The well was drilled safely and within budget to a total depth of approximately 1,400 metres and had significant oil and gas shows in the targeted formation, with Halliburton wireline logging confirming the presence of pay.
On 28 January 2019, Reabold was able to announce that the VG-4 well had tested at a rate above expectations. The well produced at a choked level of 480 barrels of oil per day (“bopd”) and additionally averaged 742 thousand cubic feet per day of gas (“mscf”). Over a 19-hour period, the VG-4 well produced oil at rates as high as 1,029 bopd before being choked back and averaged 480 bopd. The cumulative oil produced was 371 barrels over the test period. The oil cut averaged in excess of 99.5%.
On 16 April 2019, it was announced that the VG-4 well had been put onto production, at an initially constrained rate. The significant volume of gas produced, in addition to the oil, during the VG-4 test, meant that the well could not be produced at its full rate until a tie-in to a nearby gas pipeline had been completed. The decision was taken to put VG-4 onto production at a choked back rate, reducing gas production to an acceptable level, in advance of the completion of such a tie-in. VG-4 was at this time producing in a range of 150-250 bopd on a gross basis.
On 20 May 2019 it was announced that VG-4 had been shut in following commencement of the work to complete the tie-in to the nearby gas pipeline to realise revenue from the gas production and to allow VG-4 to produce at less constrained rates. IMS was awaiting an Encroachment Permit from the California Division of Oil, Gas and Geothermal Resources required to complete the tie-in due to the proximity of the pipeline to a public road.
Reabold earns 50% interest in West Brentwood
On 26 July 2019, VG-4 was put onto permanent production, following a successful “hot tap” into the nearby gas pipeline infrastructure. Reabold California earned a 50% equity interest in the West Brentwood licence area on completion of the VG-4 well pursuant to Reabold California’s earn-in agreement with Sunset Exploration, which, prior to VG-4, had a 100% equity interest in the West Brentwood licence.
Permits for up to three additional wells at West Brentwood were also secured at this time, and given the success at VG-3 and VG-4, it was decided by Reabold, its JV partner Sunset Exploration, and contract operator IMS, to drill the third West Brentwood well around year end 2019.
VG-6 Well
Therefore, on 10 December 2019 drilling operations commenced at the VG-6 well, targeting the Third Massive formation. This was the first Reabold well to be funded out of operating cash flow.
Post period end, the Company was able to announce, on 6 January 2020, that drilling had been successfully completed to a measured depth of 1,455 metres, and that oil and gas shows were encountered in the target interval in line with pre-drill expectations.
On 26 February 2020, Reabold announced that the VG-6 well tested at 350 mscf per day (“mscf/d”) and had been put onto permanent production. Gas produced from VG-6 was being sold utilising the existing pipeline infrastructure constructed by Reabold and its partners in California, IMS and Sunset Exploration.
As VG-6 was designed to test a new geological horizon at West Brentwood, the Third Massive, success at VG-6 has opened up a new play on the West Brentwood field and therefore additional follow on targets.
Monroe Swell licence area:
The other key area of activity for Reabold California in 2019 was at the Monroe Swell license area. IMS spud the Burnett 2A well on 2 March 2019 following the drying out of the access road to the site after a prolonged period of severe weather conditions. Burnett 2A was the first well in a two well programme, which together would earn Reabold a 50% equity share in the Monroe Swell licence area.
Drilling times are relatively quick at Monroe Swell and a discovery at Burnett 2A was announced on 11 March 2019. The well was safely drilled and within budget, despite severe weather conditions, to a total depth of 922 metres, encountering the targeted Burnett and Lower Burnett sands. Significant oil and gas shows were seen within these formations and Halliburton wireline logging confirmed the presence of pay estimated to be in excess of 60 metres, ahead of pre-drill expectations.
Whilst the initial plan had been to subsequently test the Burnett 2A well, the decision was instead taken to seek accelerated permitting for the immediate drilling at the Burnett 2B location. This allowed the drilling rig to be retained on site, and the drilling operations at 2B commenced by 22 March 2019.
The well was drilled safely and within budget, despite continued severe weather conditions, to a total depth of 894 metres, encountering the targeted Burnett and Lower Burnett sands, as announced on 1 April 2019. Significant oil and gas shows were seen within these formations and Halliburton wireline logging confirmed the presence of estimated pay of 90 metres, ahead of pre-drill expectations. Production testing was then planned for both the Burnett 2B and 2A wells.
On 20 May 2019, IMS informed Reabold that that the perforating and swabbing operation at the Burnett 2B and Burnett 2A wells had been completed. Commercial flow rates were confirmed at both wells. Multiple zones were perforated in both wells and the swabbing runs resulted in oil flow from all zones prognosed to be hydrocarbon bearing.
Reserves:
On 26 September 2019, the Company was pleased to announce the conclusion of a third-party reserves report into its assets at the West Brentwood field in Contra Costa County, California.
As part of an evaluation of the current and future potential value associated with its California business, Reabold commissioned Petrotech Resources Company Inc. (“Petrotech”), based in Bakersfield California, to compile a reserves report, prepared in accordance with the 2007 Petroleum Resources Management System, to cover the West Brentwood field.
The reserves report as at 1 August 2019 attributed an NPV10 value, net to Reabold, of US$19.31 million associated only with the PDPs at the VG-3 and VG-4 locations, and the PUDs at the VG-6 location. Additional prospectivity associated with other potential drilling locations at West Brentwood, along with “Probable” and “Possible” upsides, have not been included in the valuation calculation. This corresponded to a total capitalised expenditure by Reabold at West Brentwood to 30 June 2019 of US$2.9 million, associated with the drilling and completion of the VG-3 and VG-4 wells. Almost all expenditure to date at West Brentwood has been 100% funded by Reabold in order to earn its 50% equity interest. Going forward, all expenditure will be funded by Reabold on a 50% basis.
The reserves report was subsequently updated by Petrotech, in accordance with the 2007 Petroleum Resources Management System, as at 1 February 2020, and attributed an NPV10 value, net to Reabold, of US$20.41 million associated with the PDPs at VG-3 and VG-4 and the PUD at VG-6, as well as the PDPs at the 2A and 2B locations in Monroe Swell that were brought into production. The PUD at the VG-6 location was brought into production in Q1 2020. It is noted that the additional prospectivity associated with other potential drilling locations at West Brentwood and the other locations, along with “Probable” and “Possible” upsides, have not been included in the valuation calculation. These updated reserves correspond to a total capitalised expenditure by Reabold in respect to the PDPs and PUD at West Brentwood and Monroe Swell to 31 December 2019 of US$6.3 million, associated with the drilling and completion.
This technical information has been reviewed by Mr Jon Ford as a Qualified Person. Jon has more than 38 years’ experience as a petroleum geologist, holds a BSc in Geology & Geophysics from the University of Durham, is a Fellow of the Geological Society of London, and is a member of the European Association of Geoscientists & Engineers and the Petroleum Exploration Society of Great Britain.
Operational update and production:
Post period end, on 26 February 2020, Reabold provided an update to the market regarding the performance of its California portfolio of assets. Oil production across Reabold’s California licences, being West Brentwood and Monroe Swell, in which Reabold has a 50% equity interest, for the period from 1 July 2019 to 31 December 2019 was 50,285 (gross) and 25,143 (net) boe. Reabold’s net revenue generated from the sales of hydrocarbons in California over the period was US$1,349,000 (US$1,079,000 net of royalties), equating to a realised price of US$57.9/boe (US$46.3/boe net of royalties). The estimated cash operating cost per boe was approximately US$13.10 for the six months ended 31 December 2019.
| Unit | H2 2019 | H1 2019 | Total 2019 | |
| Total Production | Boe | 50,285 | 15,407 | 65,692 |
| Reabold’s 50% share of production | Boe | 25,143 | 7,703 | 32,846 |
| Reabold’s gross revenue | US$ | $1,349,000 | $505,000 | $1,854,000 |
| Reabold’s revenue net of royalties | US$ | $1,079,000 | $404,000 | $1,483,000 |
| Realised price per boe | US$ | $57.9 | $66.7 | $60.0 |
| Realised price per boe net of royalties | US$ | $46.3 | $53.4 | $48.0 |
| Cash operating cost per boe | US$ | $13.1 | $15.9 | $13.7 |
Rathlin Energy (UK) Limited
Following our initial investment in 2018, 2019 was a transformational year for Reabold’s involvement in the West Newton project, via its 59.5% equity holding in project operator, Rathlin.
Drilling and evaluation West Newton A2:
On 25 March 2019, Reabold announced that Rathlin had signed a rig contract to drill the West Newton A-2 well, with spud expected in April 2019. The appraisal well at West Newton had two pre-drill objectives. The first objective was to appraise the Kirkham Abbey Formation gas discovery which had been given a 72% chance of success and an NPV of US$247m1. The second objective of the well was to test a deeper Cadeby Formation reef flank oil prospect, considered by Rathlin to have an NPV of US$850m and a 24% chance of success1. Commencement of drilling was announced on 26 April 2019, with an intention to drill to a total depth of approximately 2,061 metres and a circa 40 day expected time to complete drilling operations.
The well reached total depth on 9 June 2019, and 28 metres of core were extracted from the Kirkham Abbey formation, with logging operations also undertaken. This allowed Reabold to announce a significant hydrocarbon discovery on 17 June 2019.
A net 65-metre hydrocarbon saturated interval was encountered from within the Kirkham Abbey formation indicating a substantial hydrocarbon accumulation, including a significant liquids component. The initial petrophysical data obtained from the West Newton A-2 well correlated positively with the results from the West Newton A-1 well.
The well also encountered hydrocarbon shows within the secondary target Cadeby formation with an oil saturated core. This is highly encouraging and the formation is planned to be intersected from the West Newton B location, where optimal reservoir development is expected.
Production casing was run in preparation for testing of the Kirkham Abbey interval, for which planning consent had already been received. This test was intended to determine flow rates and inform the forward work programme, with testing operations expected to commence Q3 2019. A test rig was mobilised to the site on 12 August 2019.
1 – Connaught Oil & Gas Limited management estimate. Connaught had a 35% interest in Rathlin and is operator. In 2017, Deloitte LLP prepared a CPR for Connaught Oil & Gas Limited incorporating both the data from the West Newton discovery well and subsequently acquired 3D seismic data over the field, The Deloitte CPR assigns Contingent Resource to the Kirkham Abbey gas formation and is the source of management volumetric assessments.
Initial test of West Newton A2:
On 29 August 2019, Reabold announced preliminary conclusions from the testing programme. Initial open hole information on West Newton A-2 indicated that, in many respects, the Kirkham Abbey interval was consistent with that encountered in the West Newton A-1 well. However, the West Newton A-2 well indicated the presence of both gas and oil in the reservoir as opposed to it being a primarily gas project as originally anticipated.
Evaluation of the West Newton A-2 open hole data identified an estimated gross hydrocarbon column of approximately 65 metres in the Kirkham Abbey Formation. A cased hole pulsed-neutron tool was run across the Kirkham Abbey zone and initial petrophysical evaluation identified a gross oil column of approximately 45 metres underlying a gross gas column of approximately 20 metres within that interval.
The West Newton A-2 well exhibited encouraging porosities on logs and in core, particularly in the identified oil zone where in excess of 30 metres with good matrix porosities approaching 15% were measured. The core also exhibited natural fracturing which is confirmed by an imaging log run across the entire Kirkham Abbey interval.
Cased hole logging and completion programmes were initiated on 6 August 2019 followed by well test operations which commenced on 20 August 2019. However, with the indication of a potentially significant oil column, the EWT was temporarily paused, in order to review and revise the well test design, which will now focus on the potentially highly significant oil column. The decisions was therefore taken to restart the flow test under a different test design, subject to all necessary approvals.
Additionally, the West Newton A-2 well data provided a good tie to the high quality three component 3D seismic data volume that covers the entire West Newton project. The new data allowed for a revised interpretation of the seismic volume incorporating the well and the newly identified gas over oil gross hydrocarbon column.
Updated volumetrics at West Newton:
On 11 November 2019, Rathlin provided an update in respect of the estimated in-place oil and gas volumes of the West Newton area. In the United Kingdom, the Zechstein reservoirs of the Southern Permian Basin have been explored and produced largely in the offshore Southern North Sea, with limited exploration in the immediately neighbouring onshore. They have, by contrast, been extensively and successfully explored and produced in the Netherlands, Germany and Poland, providing multiple analogues to West Newton.
Subsequent to the drilling of West Newton A-2, Rathlin had undertaken a number of technical studies including core analysis, petrophysical evaluation, sedimentology, and hydrocarbon geochemical characterisation, which were reintegrated with the results of the pre-existing 3D seismic survey and West Newton A-1 well. As a result of these studies Rathlin upgraded the estimated volumes of hydrocarbons in place in the West Newton Kirkham Abbey formation reservoir.
The integrated study indicates a significant upgraded volume of estimated hydrocarbons in place in the Kirkham Abbey formation reservoir of West Newton consisting of a significant volume of oil below a gas cap also of potentially significant size:
· Base Case:
o Liquids: 146.4 million barrels (“mmbbl”) of oil initially in-place (“OIIP”);
o Gas: 211.5 bcf of gas initially in-place (“GIIP”)
· Upside Case:
o Liquids: 283 mmbbl OIIP
o Gas: 265.9 bcf GIIP
Basis for re-evaluation of the Kirkham Abbey Formation Reservoir:
Rathlin provided an updated technical analysis of the West Newton Kirkham Abbey Formation reservoir, including:
· Evaluation of drilling results from the West Newton A-2 well, particularly petrophysical, fluid saturation, sedimentological and diagenetic analyses;
· Identification of an oil leg in the Kirkham Abbey reservoir in the West Newton A-2 well, based on the “C5+” readings in the mud gas (an industry standard means of determining fluid type in a reservoir); analysis of drilling samples; fluorescence from core and surface samples; and the results of pulsed-neutron downhole logs;
· Analysis of the 28 metre physical core recovered from the Kirkham Abbey reservoir, yielding key sedimentological and depositional information, which has been tied to the petrophysical interpretation of downhole log data;
· Integration of these well results into the reflection and inversion volumes of the 3D seismic survey, which covers the entirety of the West Newton area; and
· Updated ranges of reservoir rock volumes and parameters including, porosities, hydrocarbon saturations and fluid characterisation have been derived, and combined to arrive at a revised range of in-place hydrocarbon estimates.
Increased investment in Rathlin:
Reabold completed two significant additional share subscriptions in Rathlin during 2019.
On 22 August 2019, Reabold announced that it has increased its investment in Rathlin through participation in an advanced subscription agreement. Following the successful drilling result at West Newton A-2, Rathlin raised £1,793,000, in which Reabold invested £1,000,000. Reabold at the time held a 24% economic interest in West Newton via its 36% holding in Rathlin the subsequent economic interest was to be confirmed once the next Rathlin fundraising round was complete. The additional shares to be issued under the advanced subscription agreement were to be priced at the higher of either a 20% discount to the price achieved in the next Rathlin funding round or at £0.8427 per share, being the price per share of Rathlin’s previous fundraise.
The next Rathlin fundraise took place completed on 5 November 2019 with Reabold the sole investor in a £16 million equity subscription at £2.75 per share. This also triggered the pricing and allotment of shares from the abovementioned advanced subscription agreement. This resulted in Reabold having a 59% equity position in Rathlin, and an effective look through interest into the West Newton project of 39%.
As a result of this investment, Rathlin was fully funded for an exciting and highly impactful 2020 work programme, consisting of the testing of the A-2 well, and the drilling of up to two additional West Newton wells at the West Newton B location.
Danube Petroleum Limited
Reabold has a 50.8% equity position in Danube, with ASX listed ADX Energy Ltd (“ADX”) holding the remaining 49.2%. Danube is active in Romania through its ownership of the Parta License. Danube has a 100% interest in the ‘sole risk area’ of the Parta licence (“Parta Sole Risk Area”), which includes the IMIC-1 discovery and the IMIC-2 prospect. Danube, which currently has a 100% interest in the broader Parta Licence, has agreed to farm out a 50% interest in the remainder of the Parta Licence (excluding the Parta Sole Risk Area) to Tamaska Oil & Gas (“Tamaska”).
Drilling of IMIC-1:
2019 was a pivotal year for the Romania business, with the first well, IMIC-1, being drilled and resulting in a successful discovery.
Following the mobilisation, setting up and commissioning of the Tacrom Futura Rig 6 on 5 August 2019, the Iecea Mica 1 (“IMIC-1”) appraisal well was spud on 6 August 2019.
By 27 August 2019, the well had reached total depth of 2,335 metres measured depth and wireline logging had been completed. A number of potential Pannonian (“PA”) reservoirs were intersected and logged with observed hydrocarbon shows including:
· 2 metre sandstone at a depth of approximately 1,863 metres measured depth with (C1) gas shows at the PA III stratigraphic interval;
· 5 metre sandstone at a depth of 2,033 metres measured depth with (C1) gas shows as expected at the PA IV stratigraphic level (the zone that was successfully tested in the historical well); and
· stratified sandstone and siltstone section from 2,140 to 2,163 metres measured depth (23 metres) including a number of potential reservoirs with heavier gas shows (C1, C2 & C3) in the PA V interval (a historical offset production well has produced oil from this interval).
Successful discoveries were confirmed over a 14.5 metre section of net pay at a number of PA intervals; namely, the PA IV interval (the primary target of the well), the PA III and PA V formations.
Overall, volumetrics across the intervals at IMIC-1 were increased by ADX to 20 bcf of 2C Contingent Resources, which compares favourably to the predrill best estimate of 6.1 bcf of Contingent and 12.7 bcf Prospective Resources. (ERCE Independent Resource Estimates for Parta Appraisal Programme).
The primary target, the PA IV interval, had measured porosities in excess of 20% and calculated permeabilities in the order of 50 to 100 mD (millidarcies), suggesting reservoir quality is at the upper end of pre-drill expectations, giving confidence of strong gas production rates.
The PA III and PA V exploration intervals were shown to be hydrocarbon bearing with the PA V interval being assessed to be a gas condensate discovery. The PA V interval has previously been tested at a rate of 126 bopd by the IM-30 well, 2.5 km north of IMIC-1 and approximately 70 metres deeper.
Attempts to drill into the deeper fractured basement play intersected a highly over-pressured zone associated with a strong drilling break, indicative of formation porosity and permeability, coincident with an increase in gas shows. Severe mud losses were experienced, indicating open fractures in the formation. The presence of highly permeable fractured zones proximal to basement, together with the gas shows encountered, upgraded the prospectivity of the play across the licence. For technical, commercial and safety reasons, the drilling of the basement play was deferred to a later date.
The IMIC-1 well was subsequently prepared for production testing which is expected to take place in Q2 2020.
Forward programme at Danube:
The anticipated 2020 work programme for the Parta license area and the Parta Sole Risk Area was announced by Reabold and ADX on 23 December 2019 and comprised of the following:
IMIC-1 production testing:
Testing of the IMIC-1 well in the Parta Sole Risk Area was expected to commence in late February 2020 (subsequently revised to Q2 2020). As Danube plans to complete IMIC-1 as a production well, the commencement date of the well test has been determined by the time needed to manufacture and deliver down hole well equipment which are required for production wells. Furthermore, completing IMIC-1 as a future production well is expected to minimise cost to commercial production and better preserve reservoir integrity.
Testing will concentrate on the Pannonian IV sand, which is a proven reservoir and has the greatest reserves potential.
IMIC-1 feasibility studies and reserves declaration:
Danube will also commence studies for the commercialisation of IMIC-1 gas and the booking of reserves for the Parta Sole Risk Area. Two viable commercialisation options are being progressed in parallel including:
· delivery of sales gas to the nearby Calacea Gas Plant; or
· the conversion of produced gas to power and the connection to a high voltage power line located approximately 2km from the IMIC-1 location.
Subject to a successful production test and the determination of a viable commercialisation option, Danube expects to book reserves for the IMIC-1 well and initiate development by mid-2020.
3D and 2D seismic acquisition:
Danube is currently undertaking planning, regulatory approvals and finalising contractual arrangements for the acquisition of 100 km2 of 3D seismic in the Parta Exploration Licence as well as high resolution 2D seismic within the Parta Sole Risk Area that includes the IMIC-1 well and the planned IMIC-2 well location
The 3D seismic programme will be funded by Parta Energy Ltd, a subsidiary of Tamaska, pursuant to a farm-in agreement where Tamaska will fund a US$1.5 million seismic programme to earn a 50% interest in the Parta Exploration Licence, excluding the ‘sole risk area’. The Parta 3D programme is likely to generate high quality appraisal and exploration targets.
The high resolution 2D seismic lines will be acquired across the IMIC-1 and IMIC-2 accumulations. The programme is designed to better define the extent of gas zones where Danube has identified substantial stratigraphic upside volumes following the recent drilling of the IMIC-1 well.
IMIC-2 appraisal drilling:
Danube has approved the IMIC-2 well in the Parta Sole Risk Area. Planning and licencing for the IMIC-2 well has already been completed and Danube will order long lead items (well heads and casing) as soon as possible to enable an early drilling date.
At present Danube expects that drilling will commence during the third quarter of 2020. Commencement of operations is determined by drilling rig slot availability. This timing is also optimal from a weather perspective for site preparation. The IMIC-2 well has a planned total depth of 2,200 metres with approximately 23 days to drill and evaluate.
On 8 April 2019, Reabold announced that a binding Heads of Agreement had been signed between Danube’s wholly owned subsidiary, ADX Energy Panonia Srl, and Parta Energy Pty Ltd, an Australian private company, to fund a planned US$1.5 million seismic programme on Danube’s Parta Exploration Licence onshore Romania. Parta Energy Pty Ltd was subsequently acquired by Tamaska.
The Parta Exploration Licence activities are intended to provide low risk, high reward exploration follow up drilling locations for Danube, following on from the Parta Appraisal Programme.
Further investments in Danube:
Reabold increased its investment into Danube Petroleum with several tranches of share subscriptions during 2019. This investment funded the 2019 work programme and will fund significant activity in 2020, including the drilling of the Iecea Mica 2 well, expected to commence in Q3 2020.
On 9 May 2019, Reabold announced that it had agreed to subscribe for a further 375,940 new ordinary shares in Danube (“Danube Shares”) at an issue price of £1.00 per share. This increased Reabold’s shareholding in Danube from 33.3% to 37.5%, with ADX holding the remaining 62.5%. In addition, ADX, on behalf of Danube, agreed to engage Reabold for a period of 12 months to provide corporate advisory services to Danube for a fee of approximately £75,000.
On 16 September 2019, Reabold subscribed for 810,811 Danube Shares at an issue price of £1.00 per share via two tranches, with the first tranche being for 237,838 Danube Shares and the second tranche being for of 572,973 Danube Shares. Simultaneously, ADX subscribed for 540,541 Danube Shares at an issue price of £1.00 per share, comprising 158,559 first tranche Shares and 381,982 second tranche shares. Following completion of the Subscription, this increased Reabold’s equity interest in Danube to 41.6%, with ADX holding the remaining 58.4%.
On 22 November 2019, Reabold exercised its option to subscribe for 200,000 Danube Shares at a price of £1.20 per share for a total sum of £240,000, taking Reabold’s interest in Danube to 43.2%, with ADX holding the remaining 56.8%.
On 2 December 2019, Reabold, announced that it had fully exercised the remainder of its option to increase its investment in Danube through the subscription for additional shares. Reabold exercised its options over a further 1,427,604 Danube Shares at a subscription price of £1.20 per share, being an investment of £1,713,125. ADX elected to partially exercise its own corresponding options, subscribing for 241,929 Danube Shares at £1.20 per share. Following these investments, Reabold now owns 50.8% of Danube, with the remaining 49.2% held by ADX.
Corallian Energy Limited
Reabold has a 34.9% equity holding in Corallian, a private UK oil and gas exploration and appraisal company. Corallian holds interests in 5 basins in the UK: Central Graben, Inner Moray Firth, Viking Graben, West of Shetland and Wessex Basin. It has an experienced in-house team to execute its programmes.
Wick and Colter wells
The early part of 2019 saw the execution of Corallian’s two well drilling campaign, targeting the Wick and Colter prospects. Both wells in the campaign were drilled using the ENSCO-72 jack-up rig.
Drilling operations commenced on the Wick exploration prospect on 25 December 2018. Wick is located within the UKCS on Licence P2235, in the Inner Moray Firth offshore Scotland. Corallian had a 40% equity interest in the license and operated the well. The well was drilled to a total depth of 1000 metres. On 16 January 2019, Corallian informed Reabold that the target Beatrice sands, whilst present in the well, were water bearing. The well was plugged and abandoned.
The ENSCO-72 rig was then mobilised to the South Coast of England to drill the Colter prospect. Colter is located in license P1918 in which at the time of drilling, Corallian had a 49% equity interest and was the operator. The Colter well was targeting 23 million barrels (“mmbbls”) of Prospective Resources. The well was spud on 6 February 2019.
On 25 February 2019, Corallian stated that the Colter well (98/11a-6) had reached a total depth of 1,870m MD in the Sherwood Sandstone. The 98/11a-6 well had unexpectedly remained on the southern side of the Colter Prospect bounding fault but encountered oil and gas shows over a 9.4 metre interval at the top of the Sherwood Sandstone reservoir. A petrophysical evaluation of the LWD data calculated a net pay of 3 metres. Similar indications of oil and gas were encountered in the 98/11-1 well, drilled in 1983 by British Gas, within the Colter South fault terrace. Provisional analysis of the new data indicated that the two wells may share a common oil-water-contact having both intersected the down-dip margin of the Colter South prospect. Corallian’s most recent assessment of the Colter South Prospect prior to drilling the 98/11a-6 well had estimated a mean recoverable volume of 15 mmbbls.
The joint venture commenced preparations to side-track the 98/11a-6 well. The side-track was drilled directionally to a Sherwood Sandstone target within the Colter prospect on the northern side of the bounding fault, and was completed by 8 March 2019.
It was then determined that the majority of the potential resource resides within the Colter South portion of the play. The more northerly location of the fault results in a larger areal extent than previously mapped at Colter South, which modelled a 15 mmbbls Pmean potential resource within the Colter South Prospect. However, this also results in a smaller areal extent of the Colter feature north of the fault, which is unlikely to yield additional commercial volumes.
Corallian licence awards
In early June 2019, Corallian was offered interests in five additional licenses by the OGA as part of the UK 31st Offshore Licensing Round. Three of these new licences were awarded with joint venture partners, while the other two were offered on a 100% interest basis.
The five licences comprise 22 blocks and part blocks, including one in the English Channel (49% interest), two in the Inner Moray Firth (40% interest each), one in the Viking Graben (100% interest) and one in the West of Shetland basin (100% interest).
Further investment in Corallian
Reabold continued to invest in Corallian in 2019 to support drilling and business development activity. On 25 February 2019, Reabold secured an additional equity investment into Corallian, by way of an advanced subscription agreement, whereby Reabold invested £750,000, priced at a 30% discount to the next Corallian fundraise. This structure and pricing was in line with a previous £300,000 investment in December 2018. This investment was intended to cover Corallian’s expected costs in relation to the side-track to appraise the principle Colter oil discovery.
Corallian’s next fundraise was completed in late July 2019, when the company completed an equity raise of £1,225,000 at £2.20 per share with a new shareholder. Completion of which enabled Corallian to allot the shares related to the advanced subscription agreements that it executed with its existing shareholders in December 2018 and February 2019. Accordingly, Reabold was allotted 681,818 new Corallian shares at a price of £1.54 per share, taking the Company’s interest in Corallian to 34.9% from 32.9%.
A portion of the net proceeds from the July 2019 fundraising was utilised by Corallian to acquire Corfe Energy Limited’s (“Corfe”) interests in licences in which they were a JV partner with Corallian. Such interests comprise four licences in the Wessex Basin, which includes the licence containing Colter South, and the Inner Moray Firth, including three new licences offered in these areas in the 31st Licensing Round. The Pmean Prospective Resources attributable to Corfe’s interests, accordingly to the Corallian management estimates, are 10 mmboe in the Inner Moray Firth and 6 mmboe in the Wessex Basin. Following this transaction, Corallian’s interest in the Wessex Basin JV licences increased to 74% and in the Inner Moray Firth JV licences to 45%.
On 22 November 2019, Reabold announced that it had participated in the second tranche of Corallian’s July 2019 fundraise. Reabold subscribed for 47,727 new ordinary shares in Corallian at a subscription price of £2.20 per share, an investment of £105,000, being Reabold’s pro rata share. In aggregate, Corallian raised £300,000 pursuant to the fundraise via the issuance of 136,363 ordinary shares. Accordingly, Reabold’s equity interest in Corallian remained unchanged at 34.9%. The proceeds were intended to be used by Corallian to prepare for a planned Initial Public Offering early in the second half of 2020, and to complete the work required to finalise UK North Sea well locations for both the Unst prospect in the Viking Graben and the Dunrobin prospect in the Inner Moray Firth.
Notwithstanding the positive results achieved at Colter, Corallian has taken the conservative approach of writing down in full its interest in Colter on the basis that the licence expires in January 2021 and there is currently no funded work programme by the partners in Colter. The Company remains hopeful for Colter and for funding to be made available prior to the licence expiry to further evaluate the encouraging prospectivity. The writedown in full by Corallian of its interests in Wick and Colter has driven Reabold’s share of Colter’s loss during the reporting period of a charge of £2.5 million.
Funding
In 2019, Reabold completed two equity capital raises, raising gross proceeds of £24.0 million as announced on 28 October 2019, and £2.65 million as announced on 2 July 2019.
We are extremely pleased with our decision to raise a significant amount of capital in late 2019 despite very difficult market conditions at the time. Since then, the impacts of Covid-19, and of the oil price crash following, inter alia, the decision by Saudi Aramco to significantly increase production, have resulted in even greater challenges for growth companies in the sector to access capital.
We exited 2019 with a healthy cash balance of £6.7 million, which excludes cash already invested into Rathlin and Danube, which will be used to fund the planned drilling and testing campaigns in the UK and Romania in 2020. Reabold is therefore well funded through and beyond a very active and exciting year of activity in 2020.
Key performance indicators
The key performance indicators (“KPIs”) are:
| KPI | Definition | Performance | Attainment |
| KPI 1 | Addition of material investment that meets the Company’s corporate investment criteria | · Significant additional investment in Rathlin and Danube of, in aggregate, £17.0m and £3.1m respectively (2018: £3.0m and £1.9m respectively).· Significant additional investment in Reabold California in E&E and O&G assets of £3.2m (2018: £4.7m).· Significant number of opportunities reviewed and evaluated. | Achieved |
| KPI 2 | Commercial discovery in-line with investment strategy | · Discovery at Rathlin’s West Newton appraisal well, potentially the largest hydrocarbon discovery onshore UK since 1973· Significant gas discovery at Danube’s IMIC-1 appraisal well in Romania· Multiple oil discoveries in California project.· Discovery at Corallian’s Colter South Prospect. | Achieved |
| KPI 2 | Commercial production of hydrocarbons | · Significant increase in production of hydrocarbons by Reabold California with its share of production in 2019 (12 months) of 32,846 boe compared to 4,550 boe in 2018 (6 months). | Achieved |
| KPI 3 | Fund raisings and preservation in the Company’s cash position | · In 2019 raised £26.6m (before expenses) at an average of 0.92 pence, a significant increase in the amount raised in 2018 of £12.6m (before expenses) at 0.68 pence.· Significant new institutional support.· Strong cash position at 31 December 2019 of £6.7m (2018: £7.1m). | Achieved |
| KPI 4 | Growth in total net assets | · The total net assets at the end of 2018 and 2019 were £19.3m and £40.2m respectively. | Achieved |
| KPI 5 | Growth in share price | · The closing share prices at the end of 2018 and 2019 were 0.74 pence and 0.75 pence respectively.· On 30 August 2019, the share price achieved a closing high of 1.4 pence (2018 closing high of 0.95 pence). | Partially achieved |
| KPI 6 | Environmental compliance | · There was environmental compliance by the Group and investee companies, with permits successfully obtained for multiple drilling campaigns. | Achieved |
| KPI 7 | Retention of key management and strong Board | · The key executives were retained and incentivised.· The Board is experienced and qualified, including two independent directors. The Board will aim to achieve gender diversity as the Company grows and evolves from its relative current small size. | Achieved |
Principal risks and uncertainties
The Company continuously monitors its risk exposures and reports to the board of directors (the “Board”) on a regular basis. The Board reviews these risks and focuses on ensuring effective systems of internal financial and non-financial controls are in place and maintained.
| Risk | Mitigation | Magnitude & likelihood |
| Strategic risks | ||
| Political risk: changes in government policies in the jurisdictions in which the Group investee companies operate, could have an adverse impact on the implementation of the Group’s strategy. | The Group assessed political risk prior to making an investment decision and monitors political developments in the various jurisdictions in which it has invested, in-conjunction with its partners and through industry associations. | Magnitude – HighLikelihood – Medium |
| Operational risks | ||
| Exploration risk: the Group and investee companies fail to identify hydrocarbon bearing prospects that have the potential to produce commercially. | The Group and investee companies undertake extensive analysis of available technical information to determine work programmes. Downside risk can be reduced by entering into risk sharing arrangements. | Magnitude – HighLikelihood – High |
| Regulatory risk: planning, environmental, licensing and other permitting risks associated with the Group and investee companies’ operations particularly with exploration drilling operations. | The Group and investee companies have to date been successful in obtaining the required permits to operate. Such risks are mitigated through compliance with regulations, proactive engagement with regulators, communities and the expertise and experience of the management teams of the Group and investee companies. | Magnitude – HighLikelihood – Medium |
| Production risk: hydrocarbons are not able to be produced in the projected quantities by the operators/investee companies (as applicable), or cannot be produced economically. | The Group and investee companies undertake extensive analysis of the available technical information towards improving the understanding of the reservoir. | Magnitude – HighLikelihood – Medium |
| Financial risks | ||
| Liquidity risk: insufficient liquidity and funding capacity of the Group and investee companies could adversely impact the implementation of the Group’s strategy and restrict work programmes due to lack of capital. | The Board regularly reviews the Group’s cash flow forecasts and the availability or adequacy of its current facilities to meet the Group’s cash flow requirements. The Company actively monitors the liquidity position of its investee companies. | Magnitude – HighLikelihood – Medium |
| Market risk: uncertainty and volatility of oil and gas prices could adversely impact on expected future revenues, margins, cash flows and returns. | Contingency is built into the evaluation, planning and budgeting process to allow for the downside movements in commodity prices. The Reabold model is to invest in undervalued assets that would be able to deliver profitably under any reasonable oil and gas price assumption, are at the lower end of the industry cost curve and will be competitive against other sources of hydrocarbons. The Group may consider it appropriate in the future to hedge a proportion of its production, particularly if the Group is reliant on the production to service debt. | Magnitude – MediumLikelihood – Medium |
| Management risks | ||
| Loss of key staff risk: the adverse impact on operating capability and implementation of the Group’s strategic objectives from the loss of key executives. | Recruitment and retention of key staff through providing competitive remuneration packages and stimulating and safe working environment. Balancing salary with longer term incentive plans. | Magnitude – HighLikelihood – Low |
| Other risks | ||
| Covid-19 virus: the dramatic impact on global economies, demand for oil & gas and project operational activities, for example the closing of borders, restricting travel movements and resultant effects on project work programmes, as well as impacting fund raising activities. | The Reabold model is to invest in undervalued assets that would be able to deliver profitably under any reasonable oil and gas price assumption, are at the lower end of the industry cost curve and will be competitive against other sources of hydrocarbons. Reabold’s investee companies’ expected work programmes for 2020 are fully-funded by cash already invested into the operating businesses. We believe that these projects remain economic at current oil prices. | Magnitude – HighLikelihood – High |
Financial review
The Group loss for the 12 months ended 31 December 2019 was £4,266,000 (2018: loss of £1,949,000), significantly impacted by the Company’s share of losses of associates of £2,952,000 (2018: loss of £165,000). The Company’s share of losses of associates primarily comprised the share of Corallian’s loss of £2,459,000, driven by their impairment of the Wick and Colter wells.
During the reporting period, the Group successfully increased production from its California assets, generating revenues of £1,452,000 (2018: £194,000) and gross profit of £596,000 (2018: £111,000).
Total administration costs increased from £939,000 for the year ended 31 December 2018 to £1,386,000 for the year ended 31 December 2019, mainly driven by an increase in executive remuneration, legal fees, broker and investor relations fees, reflecting the significant increase in investment and market activities. The impact to the Group loss for the reporting period of share based payments expense was reduced to £192,000 (2018: £995,000), reflecting the final expensing of options issued to executives in prior periods.
For the year ended 31 December 2019, the Group net cash outflow from operating activities was £216,000 (2018: cash outflow of £732,000) reflecting increased administration costs offset by positive movements in working capital. The cash outflow from investing activities increased considerably from £9,348,000 for the year ending 31 December 2018 to £24,985,000 for the year ended 31 December 2019, reflecting the significant increase in investment activities during the reporting period, including the investments in Rathlin, Danube and Corallian, as well as the funding of activities in California.
The Group raised £24,873,000 (net of costs) during the reporting period (2018: £11,909,000). Cash and cash equivalents as at 31 December 2019 was £6,717,000 (2018: £7,112,000).
The Group total net assets and net current assets as at 31 December 2019 were £40,127,000 (2018: £19,313,000) and £6,660,000 (2018: £7,073,000) respectively.
Our people
Our people are a key element in our success and the Company aims to attract, develop and retain talented people and to create a diverse and inclusive working environment, where everyone is accepted, valued and treated equally without discrimination, taking into account the current size of the Company.
Currently the Company comprises 6 directors and no other employees, with the workforce by gender summarised below:
| As at 31 December 2019 | Male | Female | Female % |
| Executive Directors | 3 | – | -% |
| Non-Executive Directors | 3 | – | -% |
| Other employees | – | – | -% |
| All employees | 6 | – | -% |
Brexit
The UK left the EU on 31 January 2020 and has now entered an 11-month transition period. During this period the UK effectively remains in the EU’s customs union and single market and continues to obey EU rules. However, the UK is no longer part of the political institutions. If no trade deal has been agreed and ratified by the end of 2020, then the UK faces the prospect of tariffs on exports to the EU. The UK must also agree deals in a number of other areas where co-operation is needed.
Notwithstanding, the Board does not currently envisage any material negative impact on the Company specifically from Brexit. The Board considers that the Group is much more impacted by E&E success by investee companies and factors driving energy prices globally, than Brexit, and specifically in the regions of exposure in the existing portfolio of the US, UK and Romania.
The negotiations on the United Kingdom’s departure from the European Union continue to create great uncertainty in the UK economy. The Board continues to monitor the terms of the withdrawal of the United Kingdom from the European Union, which have not yet been finalised and accordingly the final impact of which on the Group is currently uncertain.
Covid-19 virus
Following the year end, the Covid-19 pandemic has had a dramatic global impact. The situation is continually developing and as at the date of this report, the situation will need constant attention as it evolves over time. In the Board’s view, consistent with others, Covid-19 is considered to be a non-adjusting post balance sheet event and no adjustment is made in the financial statements as a result.
The rapid development and fluidity of the Covid-19 virus makes it difficult to predict the ultimate impact on the Group at this stage. In line with most experts, we believe that the impact of the virus will be material on the general economy and many central banks have reduced interest rates and are taking other economic stimulus measures. Undoubtedly, this will have implications for the Group’s operations, for example the closing of borders, restricting travel movements and resultant effects on project work programmes, as well as impacting fund raising activities as investors look to delay decisions until the crisis is over. Management is in the process of addressing the impact of COVID-19 on the Group, however given the fluidity and volatility of the situation it is not possible to quantify the impact at this stage.
The impact of Covid-19 on the oil and gas industry is undeniably dramatic. However, it is crucial to remember that the entire basis of the Reabold model is to invest in undervalued assets that would be able to deliver profitably under any reasonable oil and gas price assumption, are at the lower end of the industry cost curve and will be competitive against other sources of hydrocarbons. The Reabold portfolio is well positioned to not only survive through the Covid related downturn, but to continue to progress and expectedly thrive throughout 2020 and beyond.
Reabold’s investee companies’ expected work programmes for 2020 are fully-funded by cash already invested into the operating businesses. The programme includes the testing of West Newton A-2, the drilling of two wells at West Newton B, the testing of IM-1 and the drilling of IM-2 in Romania, and the drilling of additional wells in California. We believe that these projects remain highly economic at current oil prices.
Reabold currently has approximately £5.6 million in cash beyond the cash invested into the operating entities to fund the 2020 work programme, which is available and uncommitted at this time. Reabold and its investee companies are financially robust under current market conditions and Reabold is in a position to potentially take advantage of acquisition and investment opportunities that these conditions present. In addition, post reporting period, the Company secured additional liquidity in the form of the £5 million ELA to provide the Company with further financial flexibility and strength.
A fundamental aspect of the Reabold business model is to participate in projects which have low development and operating costs, thereby reducing sensitivity to the oil price. As announced on 26 February 2020, the cash operating costs of Reabold California are approximately US$13 per barrel of oil equivalent, meaning production in California continues to be profitable and to generate positive free cash flow at current oil prices.
Outlook
We are highly encouraged by the success we have had so far in the implementation of our strategy to invest in low-risk, high impact, upstream oil and gas projects. With a portfolio that contains interests in the Danube, Corallian and Rathlin prospects, all of which had appraisal campaign drilling in 2019, and the further drilling programmes in California following the success in the US to date, together with a number of other projects currently under review, the Board is confident that its shareholders can look forward to an exciting 2020 and beyond.
Sachin Oza and Stephen Williams
Co-Chief Executive Officers
10 June 2020
