TomCo Energy plc (LON:TOM), the US operating oil development group focused on using innovative technology to unlock unconventional hydrocarbon resources, announced today its audited results for the year ended 30th September 2021.
The 2021 Annual Report and Financial Statements have been published and made available on the Company’s website at www.tomcoenergy.com.
CHAIRMAN’S STATEMENT
I am pleased to be delivering my second Chairman’s statement to the shareholders of TomCo Energy plc, together with the Annual Report and Financial Statements for the year ended 30 September 2021.
Operational Review
Greenfield Energy LLC
The primary focus for the Company during the year was on Greenfield Energy LLC (“Greenfield”) and its plans to pursue the construction of an initial 5,000 barrels of oil per day (“bopd”) production facility at the earliest opportunity, as well as exploiting other opportunities available to it.
Whilst the shadow of Covid-19 still darkens the global economic picture, though much less so than this time last year, we have managed to make considerable progress during the financial year under review.
During the first half of the year, the focus of Greenfield was on the third-party oil sands plant at Asphalt Ridge. This was enhanced and brought into trial production, extracting oil from sands in a manner that we believe could be scaled up to be commercially viable in large, purpose-built plants. Importantly, the work undertaken by Greenfield in modifying, upgrading and operating the test plant for a temporary lease period provided sufficient information for a FEED (Front-End Engineering and Design) study to be completed, together with a third-party verification exercise.
The completed FEED study and third-party report was received at the end of July 2021. The FEED study outlined better economics for the proposed plant than we had initially envisaged, and together with the third-party report provided verification that the proposed technical approach is appropriate.
Further to an agreement reached with our former 50% joint venture partner, Valkor LLC (“Valkor”), as announced on 26 August 2021, TomCo now owns 100% of Greenfield, with full control, thereby affording TomCo’s shareholders the opportunity to fully benefit from Greenfield’s significant potential, whilst retaining Valkor as a valued stakeholder and future substantial shareholder in the Company. The consideration for the acquisition only becomes payable upon Greenfield receiving funds from, or drawing upon, a loan or credit facility in connection with the construction of an oil sands processing facility as specified in the FEED study, which I personally believe serves to demonstrate Valkor’s confidence in our plans and ability to deliver.
Prior to this, on 9 June 2021, we announced Greenfield’s potential acquisition of up to 100% of the ownership and membership rights and interests in Tar Sands Holdings II LLC (“TSHII”) (the “Membership Interests”). The successful completion of the acquisition of an initial 10% of the Membership Interests was announced post year end on 16 November 2021. Greenfield retains an exclusive option, at its sole discretion, to acquire the remaining 90% of the Membership Interests for additional cash consideration up to 31 December 2022, as detailed in the 9 June 2021 announcement.
TSHII owns approximately 760 acres of land and certain non-producing assets (the “Site”) in Uintah County, Utah, USA. Subject to securing the requisite funding, Greenfield plans to use the Site for the potential future mining of oil sands and construction of a commercial scale processing plant. The Site has existing infrastructure, plant and equipment, together with an existing Large Mine Permit No. M0470032, that could facilitate any future development by Greenfield.
Alongside the acquisition of the initial 10% of the Membership Interests, a newly incorporated subsidiary of Greenfield was granted a lease over approximately 320 acres of the 760-acre site owned by TSHII. The lease provides Greenfield’s subsidiary with the exclusive right to explore, drill, and mine for, and extract, store, and remove oil, gas, hydrocarbons, and other associated substances, together, inter alia, with the right to erect, construct and use such plant and equipment and infrastructure as required.
Greenfield is in advanced discussions with potential off-takers of both oil and sand from the TSHII site and it appears ideally suited for the future construction, subject to funding, of Greenfield’s first commercial scale plant. Whilst there can be no certainty that Greenfield can secure the required funding to complete the acquisition of 100% of the Membership Interests, I remain optimistic, based on discussions with potential funders to date, that acquisition of the remaining 90% can be completed at a cost of $16.25 million and the required funding secured. If the funding is not secured, our current business plan would be curtailed, but a viable project, albeit a fraction of the size, would remain.
To assist Greenfield in progressing its plans for the TSHII site and obtaining further funding to: (i) acquire the remaining 90% Membership Interest in TSHII, (ii) drill a number of production wells on the Site and (iii) pursue the future construction of an initial 5,000 bopd facility at the earliest opportunity, the Company has engaged specialist oil and gas industry advisers experienced in the structuring and securing of such financings. They are currently exploring a number of potential funding options.
Additionally, Greenfield has commenced detailed engineering and design work in connection with its future plans including engaging Stantec Inc, a global design and delivery firm with extensive experience in the oil and gas and mining sectors, on mine planning, and is working with Netherland Sewell & Associates, global petroleum consultants, on a reserves report, together with other preparatory work. This is in addition to the continuing detailed engineering design and planning work being undertaken by Valkor.
TurboShale RF Technology
During the previous financial year, at the onset of the Covid-19 pandemic, we took the decision to put the activities in relation to our TurboShale radio frequency technology on hold in order to focus our resources on Greenfield. This has remained the case throughout 2021 and, post the year end, we have purchased the remaining 20% of our subsidiary holding the technology and are considering how best to proceed with it during 2022.
Pending that decision, we have recognised an impairment provision against all of the Turboshale and Oil Mining Company assets in these 2021 financial statements.
Corporate
As expected, the year under review was a busy one for TomCo and one of significant progress. During the year, we raised £3.5 million (gross) via a placing in November 2020, through the issue of 777,777,777 new ordinary shares at a price of 0.45 pence per share, with the net proceeds being used to provide general working capital and to fund Greenfield’s development. Following the financial year-end, the Company raised a further £1.25 million (gross) in a placing of 250,000,000 new ordinary shares, at a price of 0.50 pence per share in January 2022.
In early November 2020, Stephen West and Alexander Benger stepped down from the Board to focus on their other commitments elsewhere, I assumed the role of Chairman, and we appointed two new non-executive directors, Richard Horsman and Robert Kirchner. Robert subsequently resigned in June 2021 to focus on his other commitments, but we were very fortunate in securing Louis Castro’s services as a non-executive director in April 2021. Louis has brought to TomCo significant sector experience and governance expertise, including as a former AIM Nominated Adviser.
Towards the end of January 2022, Richard Horsman left the Company to pursue his other interests and we recruited as his successor an oil industry expert, Zac Phillips, who had a good pre-existing knowledge of our business already via his work as a consultant to Greenfield.
I am grateful to my colleagues for their excellent contribution and particularly to John Potter for his outstanding work as our Chief Executive. The Company’s activities are continuing to evolve and we will look to add further relevant expertise as appropriate going forward.
Outlook and Summary
The Board appreciates the strong continuing support of our shareholders as we continue to progress our plans for Greenfield.
Greenfield is engaged in ongoing discussions regarding funding options to potentially achieve the ultimate acquisition of 100% of the TSHII Membership Interests, together with the proposed drilling of a number of production oil wells and further construction of the planned first 5,000 barrels of oil per day production plant, whilst progressing other preparatory work. Whilst there can be no certainty that Greenfield can secure the requisite funding or the further permitting required, I am optimistic, based on discussions with potential funders to date, that the required funding to implement our plans can ultimately be secured.
These are very exciting times for TomCo as we look to realise Greenfield’s significant potential.
Malcolm Groat
Chairman
31 March 2022
DIRECTORS’ REPORT
The Directors submit their report and the financial statements of the Group for the year ended 30 September 2021.
PRINCIPAL ACTIVITY
The principal activity of the Group is that of deploying technology on its oil shale leases and other unconventional oil resources for future production.
RISK ASSESSMENT
The Group’s oil and gas activities are subject to a range of financial and operational risks which can significantly impact on its performance, with the key risks for the year ended 30 September 2021 set out below.
Operational risk
During the financial year, the Company completed all the engineering due diligence on the oil sands separation process and completed the third-party verification and design for a 5,000 barrels of oil per day plant. Efforts have now moved towards securing the requisite funding for plant design and potential future construction. While some of the project risk has been reduced by way of securing a suitable site that has an appropriate pre-existing large mining permit, the site itself contains the remnants of a third-party facility that has not been in operation for more than 10 years. As a result, a detailed review of the historic plant has been arranged to make sure that there are no potential liabilities.
Risks relating to environmental, health and safety and other regulatory standards
The Group’s future extraction activities are subject to various US federal and state laws and regulations relating to the protection of the environment including the obtaining of appropriate permits and approvals by relevant environmental authorities. Such regulations typically cover a wide variety of matters including, without limitation, prevention of waste, pollution and protection of the environment, labour regulations and worker safety. Furthermore, the future introduction or enactment of new laws, guidelines and regulations could serve to limit or curtail the growth and development of the Group’s business or have an otherwise negative impact on its operations. The Group ensures that it complies with the relevant laws and regulations in force in the jurisdictions in which it operates.
Liquidity and interest rate risks
The Group is ultimately dependent on sources of equity and/or debt funding to develop Greenfield and any other recovery technology and in turn the Group’s exploration assets and to meet its day-to-day capital commitments and overheads. Cash forecasts identifying the liquidity requirements of the Group are produced frequently and are reviewed regularly by management and the Board. This strategy will continually be reviewed in light of developments with existing projects and new project opportunities as they arise. For further information regarding the Group’s cash resources and future funding requirements, refer to the ‘Going Concern’ section below.
Currency risk
Due to the limited income and expenses denominated in foreign currencies, it was not considered cost effective to manage transactional currency exposure on an active basis. However, as the financial statements are reported in sterling, any movements in the exchange rate of foreign currencies against sterling may affect the Group’s statements of comprehensive income and financial position. The Group holds some cash in US dollars to mitigate the foreign exchange risk and keeps its currency profile under review.
COVID-19 risk
In 2021 while COVID-19 continues to have an adverse impact on the global economy, oil prices were, absent the effects of the war in Ukraine, projected to continue to recover during 2022 and beyond. The Group’s continued activity with respect to Greenfield is not currently expected to be significantly affected by COVID-19.
Financial instruments
It was not considered an appropriate policy for the Group to enter into any hedging activities or trade in any financial instruments.
RESULTS AND DIVIDENDS
The statement of comprehensive income is set out on page 20. The Directors do not propose the payment of a dividend (2020: £nil).
REVIEW OF THE KEY EVENTS DURING THE YEAR
TurboShale
There were no further developments in respect of our TurboShale technology during the financial year. In the period since the end of the financial year, the remaining 20% of TurboShale not owned by TomCo has been acquired and the Board will review the next steps for TurboShale during H1 2022. In the meantime, an impairment provision has been recognised against its assets.
Greenfield Energy LLC
Our joint venture company took over all operations at the Petroteq Oil Sands Plant (POSP) in July 2020 and through January 2021 made the modifications identified by Valkor to help improve the separation process. The start-up of the plant occurred in January 2021 during which further additions were identified as being required, with such upgrades being completed in March 2021. Between March and the end of June 2021 the process was assessed, and a testing schedule completed. A third-party engineering company, Kahuna Ventures LLC observed the plant operations and completed an assessment with their report being submitted in July 2021. As a result of the testing programme and Kahuna’s independent report, Crosstrails Engineering LLC (a Valkor subsidiary) was able to complete a Front-End Engineering and Design (FEED) study for a 5,000 barrels of oil per day production plant in August 2021.
During the financial year, Netherland, Sewell & Associates, Inc (NSAI) were engaged to produce a reserves report on the oil sands resource contained within the Tar Sands Holdings II LLC acreage. Further to an agreement reached with Valkor LLC (“Valkor”), as announced on 26 August 2021, TomCo now owns 100% of Greenfield, with full control, thereby affording TomCo’s shareholders the opportunity to fully benefit from Greenfield’s significant potential, whilst retaining Valkor as a valued stakeholder and future substantial shareholder in the Company.
Financing
During the financial year, TomCo completed one equity fund raise involving the issue of 777,777,777 new ordinary shares and 388,888,888 new warrants, raising £3,500,000 (gross). The funds were deployed as a loan to Greenfield to assist it in securing the Tar Sands Holdings II LLC entity that holds 760 acres of land, with a pre-existing Large Mining Permit, Greenfield holds a multi-site licence for deployment of the Oil Sands Technology, as well as for general working capital purposes.
Following the end of the financial year, the Company undertook a further placing of 250,000,000 new ordinary shares, raising £1,250,000 (gross). These funds are to be used to cover the costs of drilling 3 exploration wells on the TSHII site and the anticipated costs of the due diligence process in seeking the requisite funding for a 5,000 barrel per day oil sand separation plant. Additionally, the funds were used to complete the purchase of the remaining 20% of TurboShale, not previously owned by TomCo and to provide additional working capital reserves for the group.
TomCo also secured a loan from Valkor Oil and Gas LLC of US$1,500,000 in order to complete the purchase of 10% of Tar Sands Holdings II LLC. Such loan is repayable by Greenfield through a number of potential options, or combination of such options, at its sole election, such combination adding up to the US$1.5 million principal amount of the loan, plus any applicable interest or fees incurred. The repayment options include granting a share of potential net production revenues to offset initially the principal amount and for a period of five years thereafter from any oil well(s) planned to be drilled on a defined lease area, but for which the requisite further funding and permits have not yet been secured; and/or straight repayment of the principal amount plus interest and fees amounting to 15% of the principal amount of the loan, payable on the maturity date. In any event, unless a production share is granted, or both parties agree an extension to the repayment date, a minimum of US$1.5 million must be repaid on or before 30 May 2022. To the extent that any part of the principal amount has not been paid by the scheduled maturity date (which may be extended by mutual agreement of the parties) then interest of 2% per month shall be applied to such unpaid amount from time to time until it has been repaid in full.
