TIDMEME
RNS Number : 1455L
Empyrean Energy PLC
01 September 2023
This announcement contains inside information
Empyrean Energy PLC / Index: AIM / Epic: EME / Sector: Oil &
Gas
1 September 2023
Empyrean Energy PLC ('Empyrean' or 'the Company')
Final Results
Empyrean Energy is pleased to announce its final results for the
year ended 31 March 2023 ("Report and Accounts"). The full Report
and Accounts will be made available on the Company's website in the
coming days.
Highlights
Block 29/11, Pearl River Mouth Basin, China (EME 100% reverting
to 49% upon commercial discovery)
Reporting period
-- LH 17-2-1 Jade well spudded and reached final total depth of
2,849 metres Measured Depth ("MD") during April 2022. No oil pay
was encountered in the target reservoir and demobilisation
operations were completed. As a result, Empyrean has provided for
impairment against Jade prospect costs and the dry hole costs
associated with the Jade drilling program.
-- Empyrean decided to enter the second phase of exploration
with the aim to drill the larger Topaz prospect following post-well
analysis at Jade that confirmed the reservoir quality to be better
than pre-drill estimate and an initial CNOOC-assisted migration
pathways assessment.
Post-Reporting period
-- Joint regional oil migration study with CNOOC team to be
completed which will map oil migration from the proven source rock
south-west of Block 29/11 that charges the four CNOOC oil
discoveries (immediately west of Block 29/11 and Topaz) and extend
this into Block 29/11 and map these potential migration pathways to
Topaz.
-- Simultaneous 3D seismic inversion project to determine
whether light oil pay in the target reservoir can be discriminated
from a water bearing reservoir to be completed at Topaz with a
specialist seismic consultancy with expertise in seismic
inversion.
-- Topaz Drill Program targeted to commence in 2024.
Duyung PSC Project, Indonesia (EME 8.5%)
Reporting period
-- Updated Plan of Development ("Mako POD") submitted to the
Indonesian Ministry of Energy and Mineral Resources for approval in
September 2022 and subsequently approved in November 2022.
-- Updated Mako PoD based upon Contingent Duyung PSC Resources
of 384 billion cubic feet gross within the Duyung PSC area which
represents some 297 billion cubic feet net attributable* to 100% of
the Duyung PSC Joint Venture.
-- The operator, Conrad Asia Energy Ltd ("Conrad"), has
continued to advance Gas Sales Agreement ("GSA") negotiations.
Prevailing strong gas prices in the region are expected to
influence the ultimate terms reached in the binding agreement.
Post-Reporting period
-- Negotiation of key terms of the Mako GSA between a
Singaporean buyer and the Indonesian regulator (SKKMIGAS) are
expected to be finalised in the near term.
-- Conrad engaged a global investment bank to lead a farm-down
process for the divestment of a portion of its interest in the
Duyung Production Sharing Contract. Bids are expected to be
received shortly after a binding terms sheet for the GSA is
consummated.
-- Mako is one of the largest gas discoveries in the West Natuna
Sea and the largest undeveloped resource in the area.
Sacramento Basin, California USA (EME 25-30%)
-- No work was conducted on the project during the year.
Corporate
Reporting period
-- Placement to raise US$2.25 million (GBP1.83 million) completed in May 2022.
-- Convertible Loan Note Debt restructured.
Post-Reporting period
-- Placement to raise US$1.88 million (GBP1.52 million) completed in May 2023.
-- Convertible Loan Note Debt restructured to reduce face value
of the note and secure extended moratorium on interest.
Empyrean CEO Tom Kelly said , "Following the disappointing
result at Jade earlier in reporting year, Empyrean's post well
analysis has been able to combine our excellent quality 3D seismic
data with the confirmed well data from Jade to improve the validity
of the Topaz prospect as a robust and large drilling target of
approximately 891 million barrels in place (P10). Based on this
work, in June 2022 Empyrean made the decision to enter into an
agreement for the second phase of exploration on Block 29/11 with
the aim to drill Topaz before June 2024.
Empyrean now intends to conduct two further key projects that
capitalise on the excellent quality 3D seismic acquired by the
Company over the permit, shared regional 3D seismic that CNOOC has
and additional physical well data of both Empyrean and CNOOC. These
projects, consisting of a regional oil migration study and a
simultaneous 3D seismic inversion project, are designed to help
address and mitigate the remaining primary geological risk at
Topaz, being oil migration into the Topaz trap.
In Indonesia, Empyrean welcomed the approval by the Indonesian
Ministry of Energy and Mineral Resources of the updated Plan of
Development for the Mako Gas Project within the Duyung PSC. This
was a significant milestone on the pathway to developing this
significant pipeline quality methane gas resource at the project.
We now look forward to the conclusion of GSA negotiations and to
developments on the sell down process of the Mako Gas Field. The
macro environment for gas in South East Asia, and Singapore in
particular, is expected to continue trending favourably with the
region transitioning from coal to gas as the preferred energy
source.
On the corporate front, the Company has successfully raised
funds as needed during and post year end and was pleased to
renegotiate the Convertible Note post year end, which resulted in a
reduction in the face value of the Note and secured an extended
moratorium on interest.
The Company continues to assess other financing and strategic
alternatives to provide it with additional working capital as and
when required, including through the sale or partial sale of
existing assets, through joint ventures of existing assets, as well
as further equity funding.
The Board and management of Empyrean are excited about the
prospects of the Company, having secured recent funding and with
some important value catalysts on the horizon from both the
projects in Indonesia and China. In 2024 the Company hopes to take
the learnings from the Jade well and the studies it is now
conducting to further de-risk and ultimately drill the Topaz
Prospect, which in itself could be a transformational result for
Empyrean and its shareholders."
Chairman's Statement
While we were all disappointed with the Jade well outcome, work
continued at Empyrean and extensive post well analysis led to the
Company electing to proceed with planning and further de-risking
work with the aim to ultimately drill the Topaz prospect in 2024.
These activities, largely focused on oil migration into Topaz,
continue and are expected to be concluded during the 2023 calendar
year.
In parallel the Company awaits two key events in Indonesia,
firstly the conclusion of the GSA negotiations and secondly the
completion of the sell down process of the Mako Gas Field. With a
strong underlying macro environment for gas in South-East Asia, and
Singapore in particular, Empyrean is optimistic of favourable
outcomes that will strengthen the Company's balance sheet and
support the planned drilling at Topaz.
On the corporate front, the Company has raised equity funds to
support the activities above and provide working capital, and it
was pleasing to renegotiate the Convertible Note to hopefully allow
for the completion of the GSA and sell down processes and timely
repayment of the Note.
I would like to thank the Board, management and staff for their
persistence during the year, following the setback at Jade. The
Company now eagerly awaits good news from Indonesia and is
enthusiastic about its plans to drill the Topaz Prospect in
China.
Patrick Cross
Non-Executive Chairman
1 September 2023
For further information please visit www.empyreanenergy.com or
contact the following:
Empyrean Energy plc
Tom Kelly Tel: +61 6146 5325
Cenkos Securities plc (Nominated Advisor and Broker)
Neil McDonald Tel: +44 (0) 20 7397 8900 / +
44 (0)131 220 6939
Pearl Kellie
First Equity (Joint Broker)
Jason Robertson Tel: +44 (0) 20 7330 1883
Extract from Strategic Report
Business Overview and Likely Future Developments
Following the unsuccessful drilling of the Jade prospect in
April 2022, post-well analysis at Jade confirmed that the reservoir
quality is better than pre-drill estimates with regional seal
confirmed and the depth conversion approach validated. As part of
post-well evaluation, CNOOC geochemical and basin modelling experts
together with Empyrean have interpreted the critical elements of
effective regional oil migration pathways leading to positive
implications for the Topaz prospect, and ultimately the decision to
proceed with the second phase of exploration at Block 29/11, being
the drilling of the Topaz Prospect before June 2024.
Empyrean is now conducting two further key projects (as detailed
in the Operations Report) that capitalise on the excellent quality
3D seismic acquired by the Company over the permit, shared regional
3D seismic that CNOOC has and additional physical well data of both
Empyrean and CNOOC. These projects are designed to help address and
mitigate the remaining primary geological risk at Topaz - oil
migration into the Topaz trap.
In Indonesia, Conrad, operator and 76.5% partner in Mako has
progressed a sell down process with a global investment bank in
order to fund the development of Mako. During the year Mako
received government approval for a Plan of Development. A GSA is
also currently in advanced stages of negotiation and a binding
agreement is expected between the partners, a Singaporean buyer and
SKKMIGAS (the Indonesian regulator) in the near term.
There were no material activities conducted in California during
the year.
Further details on these activities are provided in the
Operations and Outlook section below.
The Company raised funds through a placement during the year and
also post year end, and subsequent to year end renegotiated the
Convertible Note. The funds raised from the placements are being
used to support the current exploration programs and for working
capital purposes.
The Board and management recognise that exploration for
hydrocarbons is a risky venture and there will be failures and
challenges along with successes. As a result, the Company's
strategy is to continue to add value for shareholders by building a
diverse portfolio of drilling opportunities in commercially
attractive jurisdictions. The Company has a team with a proven
track record of finding hydrocarbons and advancing projects through
exploration, appraisal and into production. Oil and Gas prices have
steadily risen since the negative impact of the COVID-19 outbreak
and the current business strategy of the Company remains sound and
value accretive.
Management continually evaluate project opportunities that meet
strict investment guidelines with an aim of adding value for all
shareholders.
Operations and Outlook
As at 31 March 2023 the Company has the following interests:
The Company has an interest in Block 29/11 offshore China (100%
during exploration and 49% upon any commercial discovery). Empyrean
is the operator with 100% of the exploration rights of the
1800km(2) permit during the exploration phase of the project. Block
29/11 is located in the prolific Pearl River Mouth Basin, offshore
China approximately 200km Southeast of Hong Kong. The acquisition
of this block heralded a new phase for Empyrean when it became an
operator with 100% of the exploration rights of the permit during
the exploration phase of the project.
Following the completion and interpretation of the 3D seismic
data acquired on Block 29/11, the prospective resources (un-risked)
of all three prospects on the Block (Jade, Topaz and Pearl) were
independently validated, by GCA, who completed an audit of the
Company's oil in place estimates in November 2018.
In April 2022, the Company commenced the drilling of the LH
17-2-1 well to test the Jade Prospect in Block 29/11, offshore
China. It was the first of the three prospects high graded by the
2017 3D seismic survey.
On 10 April 2022, LH 17-2-1 spudded and on 27 April 2022 reached
final total depth of 2,849 metres in Zhuhai Sandstone formation.
The interpretation from logging whilst drilling ("LWD") and mud
logging data indicated no oil pay in the target reservoir. The
wireline logs confirmed the initial interpretation of no oil pay
seen on LWD.
Post Jade well evaluation work confirmed reservoir quality and
the regional seal and following a CNOOC assisted oil migration
pathways assessment, the Company has committed to enter this second
phase of exploration with the aim to drill Topaz.
Topaz is a world class conventional oil target, to which Gaffney
Cline & Associates ("GCA") assigned a Geological Chance of
Success ("GCoS") of 30%. The Topaz prospect has a GCA audited mean
in place potential of 506 MMbbl and a P10 in place upside of 891
MMbbl. The combined 2018 audited mean in place potential of the
Topaz and Pearl prospects is 659 MMbbl and a P10 in place upside of
1,193 MMbbl.
The Company holds a 8.5% direct interest in the 1,100km(2)
Duyung PSC, offshore Indonesia, operated by Conrad.
The main asset in the permit is the Mako shallow gas discovery,
which has Gross 2C (contingent) resources of 495 Bcf (87.5 MMboe)
of recoverable dry gas and 3C resources of 817 Bcf (144.4 MMboe),
as upgraded by an independent audit conducted during 2020. The
appraisal well, Mako South-1, was spudded in June 2017 with results
exceeding expectations encountering excellent reservoir quality
rock with high permeability sands. Following approval from the
Indonesian regulator of a detailed Plan of Development the JV
partners conducted a successful drilling campaign comprising two
wells, Tambak-1 and Tambak-2 wells, which demonstrated the presence
of well-developed, high-quality reservoir sandstones with a common
gas water contact across the Mako structure.
Following the successful drilling campaign the operator engaged
GCA to complete an independent resource audit for the Mako Gas
Field, which resulted in a significant resource upgrade in May 2020
and confirmed Mako as one of the largest gas fields ever discovered
in West Natuna Basin.
An u pdated Plan of Development received Ministerial Approval
during the year and Conrad is progressing a sell down process with
a global investment bank in order to fund the development of Mako.
Conrad have confirmed that industry interest in the project and
sell down process is encouraging. A GSA is currently in advanced
stages of negotiation and a binding agreement is expected between
the partners, a Singaporean buyer and SKKMIGAS (the Indonesian
regulator) in the near term.
There were no activities in California during the year but the
Company will continue to work with its joint venture partners in
reviewing and assessing any further technical and commercial
opportunities as they relate to the project, particularly in light
of strong gas prices for gas sales in the Sacramento Basin.
The Company also has a 58.084% working interest in the Eagle Oil
Pool Development Project asset in California and a 10% working
interest in the Riverbend Project in Texas. Both had no activity
during the year. Further detailed analysis on all projects is
provided in the Operational Review on page 15.
Operational Review
The Company's corporate objective remains to build a significant
asset portfolio across the Asian region. Post well studies of the
Jade evaluation work confirmed excellent reservoir quality and the
presence of the regional seal. Following a CNOOC assisted oil
migration pathways assessment, the Company has committed to the
second phase of exploration in China with the aim to drill the
material Topaz prospect.
Comprehensive technical work is now being conducted, consisting
of a regional oil migration study and a 3D simultaneous seismic
inversion project, which are designed to help address and mitigate
the remaining primary geological risk at Topaz, being oil migration
into the Topaz trap.
Empyrean remains excited about the significant value potential
of its interest in Indonesia, which will be reflected in the
current sell down process and the advanced stage of the GSA
negotiations between the partners, a Singaporean buyer and
SKKMIGAS. The project has been further supported by strong gas
prices in the Asian region.
Empyrean also has a 25-30% working interest in a package of gas
projects in the Sacramento Basin, onshore California. While no
activity occurred during the year Empyrean will assess the
technical and commercial merits of other prospects or proposals as
they are presented.
Empyrean has retained an interest in the Riverbend Project (10%
WI) located in the Tyler and Jasper counties, onshore Texas and a
58.084% WI in the Eagle Oil Pool Development Project, located in
the prolific San Joaquin Basin onshore, Southern California. No
technical work has been undertaken on these projects during the
year.
China Block 29/11 Project (100% WI)
Background
Block 29/11 is located in the prolific Pearl River Mouth Basin,
offshore China approximately 200km Southeast of Hong Kong. The
acquisition of this block heralded a new phase for Empyrean when it
became an operator with 100% of the exploration rights of the
permit during the exploration phase of the project. In the event of
a commercial discovery, CNOOC will have a back in right to 51% of
the permit.
Following the completion and interpretation of the 3D seismic
data acquired on Block 29/11, the prospective resources (un-risked)
of all three prospects on the Block (Jade, Topaz and Pearl) were
independently validated, by GCA, who completed an audit of the
Company's oil in place estimates in November 2018. Prior to the
drilling of the Jade Prospect in April 2022, the total mean oil in
place estimates on the three prospects was 884 MMbbl on an
un-risked basis.
Jade Prospect Drill Program
In April 2022, the Company commenced the drilling of the LH
17-2-1 well to test the first of the three prospects noted above,
the Jade Prospect in Block 29/11, offshore China.
On 10 April 2022 LH 17-2-1 spudded and on 27 April 2022 reached
final total depth of 2,849 metres in Zhuhai Sandstone formation.
The interpretation from LWD and mud logging data indicated no oil
pay in the target reservoir. The wireline logs confirmed the
initial interpretation of no oil pay seen on LWD. As a result,
Empyrean has provided for impairment against Jade prospect costs
and the dry hole costs associated with the Jade drilling
program.
The Company successfully operated an offshore exploration and
drilling program without any operational or environmental
issues.
Post Jade Well Analysis and Implications for Topaz Prospect
Following the Jade drilling program, comprehensive post well
analysis by Empyrean and CNOOC confirmed the Jade well intersected
carbonate reservoir as prognosed with better parameters than
pre-drill estimates with total thickness of 292m and porosity in
the range of 25 to 27%. In addition, the Jade well penetrated thick
and effective regional seal facies and the reservoir top was
encountered within the depth conversion range. These parameters can
now be more confidently mapped across Empyrean's 3D data set.
The Jade well failed due to lack of access to effective
migration pathways. Given oil migration to the Topaz Prospect is
now identified as the key risk, the Company's pre drill exploration
efforts are focusing on mitigating this risk.
Reservoir, seal and trap validity of the Topaz prospect have
been enhanced by the Jade well data.
As a part of post-well evaluation, CNOOC geochemical and basin
modelling experts provided excellent assistance in assessing the
critical elements of effective regional oil migration pathways,
leading to positive implications for the Topaz prospect. Based on
several oil discoveries in the area, CNOOC has identified the
following three key elements for effective regional oil
migration.
1. Presence of a deep sag for oil generation.
2. Presence of a deep fault for efficient vertical migration
that has reactivated at the peak time of oil expulsion (10Ma).
3. Presence of a carrier bed for lateral migration to the prospect.
Implications for the Topaz Prospect
Post-well evaluation indicates the Topaz prospect has the
potential for oil charge from two kitchen/source rocks, the Baiyun
North and Baiyun East sags.
Topaz prospect has an additional oil migration pathway from
Baiyun East Sag. The Baiyun East Sag has been bio-marked as the
proven source rock for all four CNOOC light oil discoveries to the
immediate West of Block 29/11.
Baiyun North Sag was mapped by the 2017 3D seismic data and is
located within Block 29/11 immediately south and down dip of the
Topaz prospect and it has all three key elements required for
successful oil migration. It is a deep sag that is in the timing
and depth window for oil generation, and Empyrean has identified a
suitable deep fault for efficient vertical migration that
reactivated at the peak time of oil expulsion approximately 10
million years ago (10Ma). Finally, a thick carrier bed exists for
lateral migration to the Topaz prospect. This carrier bed has been
confirmed during the drilling of the Jade well and is mapped on
Empyrean's 3D data set.
Post well analysis indicates that the gas shows within the "gas
cloud" zone in the overburden at the Jade well are now interpreted
to have migrated from Baiyun North Sag via reactivation of a nearby
fault, approximately 800m away rather than coming from basinal
faults extending into Baiyun East Sag which is approximately 20km
away. The identification of this nearby fault that extends into the
Baiyun North Sag is now the most likely explanation for the gas
shows in the Jade well.
This interpretation enhances the prospects of Baiyun North Sag
as a potentially valid additional source rock and, in turn, the
likelihood of the Topaz prospect having access to two mature source
rocks/kitchens.
Conclusions and the Entering of Second Phase of Exploration
Being able to combine excellent quality 3D seismic data with the
confirmed well data and post well analysis has resulted in the
improved validity of the Topaz prospect as a robust and large
drilling target (approximately 891 million barrels in place (P10)
per below table). Based on post drill technical evaluation, and
CNOOC-assisted migration pathways assessment, Empyrean decided to
enter the second phase of exploration and drill the larger Topaz
prospect, which is targeted to occur in 2024.
Block 29/11 Oil in place (MMbbl) audited by GCA
Prospect P90 P50 P10 Mean GCoS
---- ---- ---- ----- -----
Topaz 211 434 891 506 30%
---------- ---- ---- ---- ----- -----
Pearl 38 121 302 153 15%
---------- ---- ---- ---- ----- -----
Figure 1: Block 29/11, Pearl River Basin, Offshore China
Post Year End Work
Empyrean is conducting two further key projects that capitalise
on the excellent quality 3D seismic acquired by the Company over
the permit, shared regional 3D seismic that CNOOC has and
additional physical well data of both Empyrean and CNOOC. These
projects are designed to help address and mitigate the remaining
primary geological risk at Topaz - oil migration into the Topaz
trap.
Firstly, jointly with CNOOC, Empyrean is completing a regional
oil migration study. CNOOC bring excellence in local basin
modelling expertise along with crucial regional data that augments
the data Empyrean has on Block 29/11. The regional data includes
temperature, pressure, timing of oil maturation, and successful oil
migration pathway mapping. The project will map oil migration from
the proven source rock south west of Block 29/11 that charges the
four CNOOC oil discoveries (immediately west of Block 29/11 and
Topaz) and extend this into Block 29/11 and map these migration
pathways to Topaz. In addition, similar work will be conducted from
a new kitchen located entirely within Block 29/11 and oil migration
pathways will be mapped to Topaz. This project is expected to be
completed in the second half of 2023.
Secondly, Empyrean is conducting a 3D simultaneous seismic
inversion project focussing on Topaz. This project is utilising the
oil properties, reservoir temperature, reservoir pressure and water
salinity data from CNOOC oil discovery wells combined with
reservoir porosity and mineralogical data from Empyrean well logs
and core to maximise the effectiveness of the inversion project
outcomes. The aim of the 3D simultaneous seismic inversion project
is to assess whether Topaz has different elastic properties to that
of three water bearing wells in Block 29/11 and whether these
properties can discriminate between water and light oil in the high
porosity carbonate reservoir rocks on the high quality Topaz 3D
seismic. The 3D seismic inversion project is expected to be
completed in the second half of 2023.
Cautionary Statement: The volumes presented in this announcement
are STOIIP estimates only. A recovery factor needs to be applied to
the undiscovered STOIIP estimates based on the application of a
future development project. The subsequent estimates, post the
application of a recovery factor, will have both an associated risk
of discovery and a risk of development. Further exploration,
appraisal and evaluation is required to determine the existence of
a significant quantity of potentially movable hydrocarbons.
Duyung PSC, Indonesia (8.5% WI)
Background
In April 2017, Empyrean acquired a 10% shareholding in WNEL from
Conrad Petroleum (now Conrad Asia Energy Ltd), which held a 100%
Participating Interest in the Duyung Production Sharing Contract ("
Duyung PSC") in offshore Indonesia and is the operator of the
Duyung PSC.
In early 2019, both the operator, Conrad, and Empyrean divested
part of their interest in the Duyung PSC to AIM-listed Coro Energy
Plc. Following the transaction, Empyrean's interest reduced from
10% to 8.5% interest in May 2020, having received cash and shares
from Coro. As part of this completion process WNEL made a direct
transfer of its interest in the Duyung PSC to Empyrean and the
other owners, who now hold their interest in the Duyung PSC
directly.
The Duyung PSC covers an offshore permit of approximately
1,100km2 in the prolific West Natuna Basin. The main asset in the
permit is the Mako shallow gas field that was discovered in 2017,
and comprehensively appraised in 2019.
During October and November 2019, a highly successful appraisal
drilling campaign was conducted in the Duyung PSC. The appraisal
wells confirmed the field-wide presence of excellent quality gas in
the intra-Muda reservoir sands of the Mako Gas Field. However,
testing of the deeper Tambak prospect in the Lower Gabus interval
found these sandstones to have low gas saturations and attempts to
collect fluid samples and pressure data demonstrated low
permeabilities.
Figure 2: Mako Gas field, Duyung PSC, Indonesia
Revised Plan of Development
In September 2022, Empyrean announced that the partners in the
Duyung PSC have approved the revised PoD and have secured alignment
with SKK Migas on the plan. The PoD was then submitted to the
Indonesian Ministry of Energy and Mineral Resources for approval,
which was duly received in November 2022, marking a major milestone
on the pathway to developing this significant pipeline quality
methane gas resource. This allowed the operator Conrad to focus on
its stated objective of working with the Government of Indonesia to
complete GSA negotiations at the earliest opportunity.
The revised Mako PoD amends an initial Mako Gas Project PoD
approved in 2018 to reflect, inter alia, previously announced
increases in Contingent Resources following a successful 2019
drilling campaign. The award of the revised PoD represents a
material event in progressing the Mako Gas Project and is a
significant milestone on the critical path to developing this
significant resource, which is currently the largest undeveloped
gas field in South Natuna Sea.
The revised Mako PoD is based on field Contingent Resources of
297 billion cubic feet (net attributable to 100% of the Duyung PSC
Joint Venture) and a daily production of 120 MMscf/d, consistent
with the GCA competent persons report dated 26 August 2022, details
of which were also announced by the Company on 9 September
2022.
Current Activities
Conrad has advanced a sell down process with a global investment
bank in order to fund the development of Mako. In addition, a GSA
is currently in advanced stages of negotiation and a binding
agreement is expected between the partners, a Singaporean buyer and
SKKMIGAS (the Indonesian regulator) in the near term.
The Mako Gas Field is located close to the West Natuna pipeline
system and gas from the field can be marketed to buyers in both
Indonesia and in Singapore.
Multi Project Farm-in in Sacramento Basin, California (25%-30%
WI)
Background
In May 2017, Empyrean agreed to farm-in to a package of
opportunities including the Dempsey and Alvares prospects in the
Northern Sacramento Basin, onshore California. The rationale for
participating in this potentially significant gas opportunity was a
chance to discover large quantities of gas in a relatively 'gas
hungry' market. Another attractive component of the deal was the
ability to commercialise a potential gas discovery using existing
gas facilities that are owned by the operator.
There were no significant activities conducted during the year
however the Company will continue to work with its joint venture
partners in reviewing and assessing any further technical and
commercial opportunities as they relate to the project.
Riverbend Project (10%)
Little or no work has been completed on the project in the year
and no budget has been prepared for 2023/24 whilst the Company
focuses on other projects. The Company previously fully impaired
the carrying value of the asset and any subsequent expenditure,
mainly for license fees, has been expensed through the profit and
loss statement.
Eagle Oil Pool Development Project (58.084% WI)
Little or no work has been completed on the project in the year
and no budget has been prepared for 2023/24 whilst the Company
focuses on other projects. The Company previously fully impaired
the carrying value of the asset and any subsequent expenditure,
mainly for license fees, has been expensed through the profit and
loss statement.
The information contained in this report was completed and
reviewed by the Company's Executive Director (Technical), Mr
Gajendra (Gaz) Bisht, who has over 34 years' experience as a
petroleum geoscientist.
Definitions
2C: Contingent resources are quantities of petroleum estimated,
as of a given date, to be potentially recoverable from known
accumulations by application of development projects, but which are
not currently considered to be commercially recoverable. The range
of uncertainty is expressed as 1C (low), 2C (best) and 3C
(high).
Bcf: Billions of cubic feet
MMbbl : Million Barrels of Oil
*Cautionary Statement: The estimated quantities of oil that may
potentially be recovered by the application of a future development
project relates to undiscovered accumulations. These estimates have
both an associated risk of discovery and a risk of development.
Further exploration, appraisal and evaluation is required to
determine the existence of a significant quantity of potentially
movable hydrocarbons.
Gajendra (Gaz) Bisht M.Sc. (Tech) in Applied Geology
Executive Director (Technical)
1 September 2023
Extract from Directors' Report
Going Concern
The Company's principal activity during the year has been the
acquisition and development of its exploration projects. At the
year end the Company had a cash balance of US$83,000 (2022:
US$19,000) and made a loss after income tax of US$20.80 million
(2022: loss of US$8.11 million).
The Directors have prepared cash flow forecasts for the Company
covering the period to 30 September 2024 and these demonstrate that
the Company will require further funding within the next 12 months.
In June 2022, the Company entered into an agreement with CNOOC to
drill an exploration well on the Topaz prospect in China, by 12
June 2024, which includes a payment of US$250,000 to CNOOC. It is
estimated that the cost of drilling this well would be
approximately US$12 million. The Directors note that if the well
commitment is not met in the timeframe advised then either a
renegotiation of the commitment timing will be required or the
licence could be relinquished.
In May 2023 US$1.88 million was raised through an equity
placement for the completion of joint regional oil migration and 3D
seismic inversion studies at Topaz, ongoing prospect, licensing
fees and permit costs, post Jade well consultancy, analysis and
residual exploration costs, front-end engineering design ("FEED"),
studies and surveys at Mako - including gas processing and export
gas tie in at the Kakap KF Platform and for general working capital
requirements.
The Company has also renegotiated the terms of the Convertible
Note as detailed in the AIM announcement dated 30 May 2023. The
Convertible Note is secured by a senior first ranking charge over
the Company, including it's 8.5% interest in the Duyung PSC and
Mako Gas Field.
However, in order to meet the well commitment at Topaz and also
to meet the repayment terms of the Convertible Note, the Company is
required to raise further funding either through equity or the sale
of assets and as at the date of this report the necessary funds are
not in place. The Directors are however optimistic that the full
funding commitments for the Topaz well and the repayment of the
Convertible Note will be met, having a successful track record of
equity (and debt) and in particular with the prospect of monetising
its interest in Mako through the current sell down process.
It is the belief of the Board that there are likely value
catalysts throughout the next 12 months leading up to the intend
drilling of the Topaz Prospect in 2024 - including maximising the
value of its interest at the Mako Gas field through the current
sell down process and the completion of the GSA and also through
the conclusion of important de-risking activities currently being
conducted prior to the drilling of the Topaz Prospect.
The Directors have therefore concluded that it is appropriate to
prepare the Company's financial statements on a going concern
basis; however, in the absence of additional funding being in place
at the date of this report, these conditions indicate the existence
of a material uncertainty which may cast significant doubt over the
Company's ability to continue as a going concern and, therefore,
that it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
The financial statements do not include the adjustments that
would result if the Company was unable to continue as a going
concern.
Post Balance Sheet Events
Significant events post reporting date were as follows:
In May 2023, the Company advised that Conrad has engaged a
global investment bank to lead a farm-down process for the
divestment of a portion of its interest in the Duyung PSC. Bids
were expected to be received during the second quarter of 2023 with
sell down news expected in the third quarter of 2023.
In May 2023, the Company advised that it had reached agreement
with the Lender on amended key terms to the Convertible Note to
allow the sales process for Mako to complete. The key terms of the
amendment are as follows:
1. The face value of the Convertible Note has been reduced from
GBP5.28m (accrued to the end of May 2023) to GBP4.6 million;
2. No interest shall accrue on the Convertible Note until 31
December 2023, with interest accruing thereafter at a rate of 20%
p.a.;
3. The conversion price on the Convertible Note has been reduced from 8p to 2.5p per Share;
4. Unless otherwise required by the joint operating agreement
entered into with Empyrean's licence partners (the "JOA") or with
the prior written consent of the Lender (such consent not to be
unreasonably withheld or delayed), Empyrean may only execute
agreements for the sale of its interest in Mako (in whole or in
part) if the terms of the sale provide for a payment to Empyrean at
completion of immediately available funds and for a sale price of
an amount that is at least the amounts owed to the Lender (as
described in 5 and 6 below);
5. On a successful sale of the Company's interest in Mako,
Empyrean must redeem the face value of the Convertible Note and pay
the Lender the greater of (a) US$1.5 million or (b) 15% of the
proceeds such sale;
6. In the event that the Company repays the Convertible Note
from sources other than a sale of its interest in Mako, Empyrean
must also pay the Lender US$1.5 million on redemption of the
Convertible Note together with a further payment based on either
(a) the actual valuation achieved on any sale within 2 years or (b)
an updated valuation of the Company's interest in Mako if not sold
within that 2 year period, in each case so that the total proceeds
paid to the Lender are 15% of the valuation of the Company's
interest in Mako; and
7. In the event that the sale process being run on behalf of the
operator, Conrad, does not result in an offer being made to acquire
all or part of the Company's interest in Mako, then Empyrean must
work with the Lender in good faith to sell the Mako Interest as
soon as reasonably possible and, subject to applicable laws and the
terms of the JOA, may grant rights to the Lender to market this
interest on its behalf.
In June 2023, Empyrean completed a Placing to raise US$1.88
million (GBP1.52 million) ("Placing") with funds raised under this
Placing to primarily be used for the completion of joint regional
oil migration and 3D seismic inversion studies at Topaz, ongoing
prospect, licensing fees and permit costs, post Jade well
consultancy, analysis and residual exploration costs, front-end
engineering design ("FEED"), studies and surveys at Mako -
including gas processing and export gas tie in at the Kakap KF
Platform and for general working capital requirements.
In June 2023, the Company issued warrants in respect of
2,833,333 Shares to advisors of the Company, for consultancy and
advisory services provided over the last 12 months (the "Advisor
Warrants"). The exercise price of the Advisor Warrants is 1.5p each
and they will expire on 30 May 2024. The Company also issued
incentive warrants in respect of 10,000,000 ordinary shares of 0.2
pence in the Company to the Company Secretary, Jonathan Whyte, or
his nominee (the "Incentive Warrants"). The Incentive Warrants were
granted as part of the Company's strategy to retain and incentivise
directors and management of the Company. The Incentive Warrants
will expire on 30 May 2026. The Incentive Warrants were issued in
two equal tranches of 5,000,000. The exercise price of the first
tranche of Incentive Warrants is 1.5p each and the exercise price
of the second tranche of Incentive Warrants is 2.0p each.
In June 2023, the Company announced that two of its Directors,
Tom Kelly and Gaz Bisht, together with its Company Secretary,
Jonathan Whyte, had agreed to take one third of their salaries in
new Shares ("Salary Sacrifice Shares") in lieu of cash remuneration
in order to preserve capital and ensure more funds are directed
towards project activities. The Salary Sacrifice Shares will be
issued at the same price as the Placing Subscription Price (0.8p
per New Ordinary Share). This arrangement will conclude on the
earlier of 31 December 2023 or the signing of a binding agreement
for the sale (in part or whole) of Empyrean's interest in Mako.
No other matters or circumstances have arisen since the end of
the financial year which significantly affected or could
significantly affect the operations of the Company, the results of
those operations, or the state of affairs of the Company in future
financial years.
Statement of Comprehensive Income
For the Year Ended 31 March 2023
2023 2022
Notes US$'000 US$'000
Revenue - -
--------- --------
Expenses
Administrative expenses (382) (377)
Compliance fees (263) (302)
Directors' remuneration 4 (362) (402)
Foreign exchange gain/(loss) 3 197 (518)
Impairment - exploration and evaluation
assets 8 (17,030) (4,127)
Cyber fraud loss 3 - (1,981)
Total expenses (17,840) (7,707)
Operating loss 3 (17,840) (7,707)
Finance expense 5 (2,955) (402)
Loss from continuing operations before
taxation (20,795) (8,109)
Tax expense 6 (1) (1)
--------- --------
Loss from continuing operations after
taxation (20,796) (8,110)
--------- --------
Total comprehensive loss for the year (20,796) (8,110)
========= ========
Loss per share from continuing operations
(expressed in cents)
- Basic 7 (2.71)c (1.43)c
- Diluted (2.71)c (1.43)c
The accompanying accounting policies and notes form an integral
part of these financial statements.
Statement of Financial Position
As at 31 March 2023
Company Number: 05387837 2023 2022
Notes US$'000 US$'000
Assets
Non-Current Assets
Exploration and evaluation assets 8 10,635 24,907
Total non-current assets 10,635 24,907
Current Assets
Trade and other receivables 9 38 36
Cash and cash equivalents 83 19
--------- ---------
Total current assets 121 55
Liabilities
Current Liabilities
Trade and other payables 10 4,224 1,299
Provisions 159 140
Convertible loan notes 11 4,076 4,125
Derivative financial liabilities 12 - 722
Total current liabilities 8,459 6,286
Net Current Liabilities (8,338) (6,231)
--------- ---------
Net Assets 2,297 18,676
========= =========
Shareholders' Equity
Share capital 14 2,170 1,809
Share premium reserve 45,319 41,285
Warrant and share-based payment reserve 73 576
Retained losses (45,265) (24,994)
--------- ---------
Total Equity 2,297 18,676
========= =========
The accompanying accounting policies and notes form an integral
part of these financial statements.
Statement of Cash Flows
For the Year Ended 31 March 2023
2023 2022
Notes US$'000 US$'000
Operating Activities
Payments for operating activities (1,126) (1,240)
Receipt of corporation tax - 358
-------- ---------
Net cash outflow for operating activities 13 (1,126) (882)
Investing Activities
P ayments for exploration and evaluation 8 (1,227) (14,391)
Payments due to cyber fraud - (1,981)
Net cash outflow for investing activities (1,227) (16,372)
Financing Activities
Issue of ordinary share capital 2,268 11,805
Proceeds from exercise of warrants 233 623
Proceeds from borrowings 11 - 5,412
Payment of finance costs (8) (271)
Payment of equity issue costs (76) (463)
-------- ---------
Net cash inflow from financing activities 2,417 17,106
Net increase/(decrease) in cash and cash
equivalents 64 (148)
Cash and cash equivalents at the start
of the year 19 150
Forex gain/(loss) on cash held - 17
-------- ---------
Cash and Cash Equivalents at the End
of the Year 83 19
======== =========
The accompanying accounting policies and notes form an integral
part of these financial statements.
Statement of Changes in Equity
For the Year Ended 31 March 2023
Share Share Warrant Retained Total
Capital Premium and Share-Based Losses Equity
Reserve Payment
Reserve
Notes US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 April
2021 1,398 29,408 487 (16,884) 14,409
========= ========= ================= =========== ===========
Loss after tax for
the year - - - (8,110) (8,110)
Total comprehensive
loss for the year - - - (8,110) (8,110)
--------- --------- ----------------- ----------- -----------
Contributions by
and distributions
to owners
Shares issued in
the period 14 378 11,427 - - 11,805
Partial conversion
of convertible note 23 896 - - 919
Exercise of warrants 10 613 - - 623
Equity issue costs - (463) - - (463)
Issue of placement
warrants - (596) - - (596)
Share-based payment
expense - - 66 - 66
Finance expense
(share-based) - - 23 - 23
--------- --------- ----------------- ----------- -----------
Total contributions
by and distributions
to owners 411 11,877 89 - 12,377
--------- --------- ----------------- ----------- -----------
Balance at 1 April
2022 1,809 41,285 576 (24,994) 18,676
========= ========= ================= =========== ===========
Loss after tax for
the year - - - (20,796) (20,796)
Total comprehensive
loss for the year - - - (20,796) (20,796)
--------- --------- ----------------- ----------- -----------
Contributions by
and distributions
to owners
Shares issued in
the period 14 307 1,961 - - 2,268
Partial conversion
of convertible note 49 1,921 - - 1,970
Exercise/expiry
of warrants 5 228 (525) 525 233
Equity issue costs - (76) - - (76)
Share-based payment
expense - - 22 - 22
Total contributions
by and distributions
to owners 361 4,034 (503) 525 4,417
Balance at 31 March
2023 2,170 45,319 73 (45,265) 2,297
========= ========= ================= =========== ===========
The accompanying accounting policies and notes form an integral
part of these financial statements.
Notes to the Financial Statements
For the Year Ended 31 March 2023
Note 1. Statement of Significant Accounting Policies
Basis of preparation
The Company's financial statements have been prepared in
accordance with United Kingdom adopted International Accounting
Standards ("UK adopted IAS") and Companies Act 2006. The principal
accounting policies are summarised below. The financial report is
presented in the functional currency, US dollars and all values are
shown in thousands of US dollars (US$'000), unless otherwise
stated.
The preparation of financial statements in compliance with UK
adopted IAS requires the use of certain critical accounting
estimates. It also requires Company management to exercise
judgement in applying the Company's accounting policies. The areas
where significant judgements and estimates have been made in
preparing the financial statements and their effect are disclosed
below.
The financial information set out herein does not constitute the
Group's statutory financial accounts. This information has been
derived from the Group's Annual Report and full financial
statements for the year ended 31 March 2023 which were approved and
authorised for issue on 1 September 2023 and upon which the
auditors have reported without qualification. The Group's 2023
Annual Report and financial statements will be distributed to
shareholders and made available on the Company's website in due
course.
Basis of measurement
The financial statements have been prepared on a historical cost
basis, except for derivative financial instruments, which are
measured at fair value through profit or loss.
Nature of business
The Company is a public limited company incorporated and
domiciled in England and Wales. The address of the registered
office is 2(nd) Floor, 38-43 Lincoln's Inn Fields London, WC2A 3PE.
The Company is in the business of financing the exploration,
development and production of energy resource projects in regions
with energy hungry markets close to existing infrastructure. The
Company has typically focused on non-operating working interest
positions in projects that have drill ready targets that
substantially short cut the life-cycle of hydrocarbon projects by
entering the project after exploration concept, initial exploration
and drill target identification work has largely been
completed.
Going concern
The Company's principal activity during the year has been the
acquisition and development of its exploration projects. At the
year end the Company had a cash balance of US$83,000 (2022:
US$19,000) and made a loss after income tax of US$20.80 million
(2022: loss of US$8.11 million).
The Directors have prepared cash flow forecasts for the Company
covering the period to 30 September 2024 and these demonstrate that
the Company will require further funding within the next 12 months.
In June 2022, the Company entered into an agreement with CNOOC to
drill an exploration well on the Topaz prospect in China, by 12
June 2024, which includes a payment of US$250,000 to CNOOC. It is
estimated that the cost of drilling this well would be
approximately US$12 million. The Directors note that if the well
commitment is not met in the timeframe advised then either a
renegotiation of the commitment timing will be required or the
licence could be relinquished.
In May 2023 US$1.88 million was raised through an equity
placement for the completion of joint regional oil migration and 3D
seismic inversion studies at Topaz, ongoing prospect, licensing
fees and permit costs, post Jade well consultancy, analysis and
residual exploration costs, front-end engineering design ("FEED"),
studies and surveys at Mako - including gas processing and export
gas tie in at the Kakap KF Platform and for general working capital
requirements. The Company has also renegotiated the terms of the
Convertible Note as detailed in the AIM announcement dated 30 May
2023. The Convertible Note is secured by a senior first ranking
charge over the Company, including its 8.5% interest in the Duyung
PSC and Mako Gas Field.
However, in order to meet the well commitment at Topaz and also
to meet the repayment terms of the Convertible Note, the Company is
required to raise further funding either through equity or the sale
of assets and as at the date of this report the necessary funds are
not in place. The Directors are however optimistic that the full
funding commitments for the Topaz well and the repayment of the
Convertible Note will be met, having a successful track record of
equity (and debt) and in particular with the prospect of monetising
its interest in Mako through the current sell down process.
It is the belief of the Board that there are likely value
catalysts throughout the next 12 months leading up to the intend
drilling of the Topaz Prospect in 2024 - including maximising the
value of its interest at the Mako Gas field through the current
sell down process and the completion of the GSA and also through
the conclusion of important de-risking activities currently being
conducted prior to the drilling of the Topaz Prospect.
The Directors have therefore concluded that it is appropriate to
prepare the Company's financial statements on a going concern
basis, however, in the absence of additional funding being in place
at the date of this report, these conditions indicate the existence
of a material uncertainty which may cast significant doubt over the
Company's ability to continue as a going concern and, therefore,
that it may be unable to realise its assets and discharge its
liabilities in the normal course of business.
The financial statements do not include the adjustments that
would result if the Company was unable to continue as a going
concern.
Adoption of new and revised standards
(a) New and amended standards adopted by the Company:
There were no new standards effective for the first time for
periods beginning on or after 1 April 2022 that have had a
significant effect on the Company's financial statements.
(b) Standards, amendments and interpretations that are not yet
effective and have not been early adopted:
Any standards and interpretations that have been issued but are
not yet effective, and that are available for early application,
have not been applied by the Company in these financial statements.
International Financial Reporting Standards that have recently been
issued or amended but are not yet effective have been assessed by
the Company and are not considered to have a significant effect on
the Company's financial statements.
Tax
The major components of tax on profit or loss include current
and deferred tax.
(a) Current tax
Tax is recognised in the income statement. The current tax
charge is calculated on the basis of the tax laws enacted at the
statement of financial position date in the countries where the
Company operates.
(b) Deferred tax
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the statement of
financial position differs to its tax base. Recognition of deferred
tax assets is restricted to those instances where it is probable
that taxable profit will be available, against which the difference
can be utilised. The amount of the asset or liability is determined
using tax rates that have been enacted or substantively enacted by
the reporting date and are expected to apply when the deferred tax
liabilities/(assets) are settled/(recovered). The Company has
considered whether to recognise a deferred tax asset in relation to
carried-forward losses and has determined that this is not
appropriate in line with IAS 12 as the conditions for recognition
are not satisfied.
Foreign currency translation
Transactions denominated in foreign currencies are translated
into US dollars at contracted rates or, where no contract exists,
at average monthly rates. Monetary assets and liabilities
denominated in foreign currencies which are held at the year-end
are translated into US dollars at year-end exchange rates. Exchange
differences on monetary items are taken to the Statement of
Comprehensive Income. Items included in the financial statements
are measured using the currency of the primary economic environment
in which the Company operates (the functional currency).
Oil and gas assets: exploration and evaluation
The Company applies the full cost method of accounting for
Exploration and Evaluation ("E&E") costs, having regard to the
requirements of IFRS 6 Exploration for and Evaluation of Mineral
Resources. Under the full cost method of accounting, costs of
exploring for and evaluating oil and gas properties are accumulated
and capitalised by reference to appropriate cash generating units
("CGUs"). Such CGUs are based on geographic areas such as a
concession and are not larger than a segment. E&E costs are
initially capitalised within oil and gas properties: exploration
and evaluation. Such E&E costs may include costs of license
acquisition, third party technical services and studies, seismic
acquisition, exploration drilling and testing, but do not include
costs incurred prior to having obtained the legal rights to explore
an area, which are expensed directly to the income statement as
they are incurred, or costs incurred after the technical
feasibility and commercial viability of extracting a mineral
resource are demonstrable, which are reclassified as development
and production assets.
Property, Plant and Equipment ("PPE") acquired for use in
E&E activities are classified as property, plant and equipment.
However, to the extent that such PPE is consumed in developing an
intangible E&E asset, the amount reflecting that consumption is
recorded as part of the cost of the intangible E&E asset.
Intangible E&E assets related to exploration licenses are not
depreciated and are carried forward until the existence (or
otherwise) of commercial reserves has been determined. The
Company's definition of commercial reserves for such purpose is
proven and probable reserves on an entitlement basis.
The ultimate recoupment of the value of exploration and
evaluation assets is dependent on the successful development and
commercial exploitation, or alternatively, sale, of the exploration
and evaluation asset.
The carrying amounts of the Company's non-financial assets are
reviewed at each reporting date to determine whether there is any
indication of impairment. E&E assets are assessed for
impairment if (i) sufficient data exists to determine technical
feasibility and commercial viability, or (ii) facts and
circumstances suggest that the carrying amount exceeds the
recoverable amount. If any such indication exists, then the asset's
recoverable amount is estimated.
For the purpose of impairment testing, assets are grouped
together into CGU's. The recoverable amount of an asset or a CGU is
the greater of its value in use and its fair value less costs of
disposal.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset. Value in use is generally
computed by reference to the present value of the future cash flows
expected to be derived from production of proven and probable
reserves.
Fair value less costs of disposal is the amount obtained from
the sale of an asset or CGU in an arm's length transaction between
knowledgeable, willing parties, less the costs of disposal.
An impairment loss is recognised if the carrying amount of an
asset or its CGU exceeds its estimated recoverable amount.
Impairment losses are recognised in the consolidated statement of
comprehensive loss.
Impairment losses recognised in respect of CGU's are allocated
first to reduce the carrying amount of any goodwill allocated to
the units and then to reduce the carrying amounts of the other
assets in the unit (or group of units) on a pro rata basis.
Impairment losses recognised in prior years are assessed at each
reporting date for any indications that the loss has decreased or
no longer exists. An impairment loss is reversed if there has been
a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have
been determined, net of depletion and depreciation or amortization,
if no impairment loss had been recognised. Reversal of impairment
losses are recognised in the consolidated statement of
comprehensive loss.
The key areas of judgement and estimation include:
-- Recent exploration and evaluation results and resource estimates;
-- Environmental issues that may impact on the underlying tenements; and
-- Fundamental economic factors that have an impact on the
planned operations and carrying values of assets and
liabilities.
Financial instruments
Financial assets and liabilities are recognised in the statement
of financial position when the Company becomes party to the
contractual provision of the instrument.
(a) Financial assets
The Company's financial assets consist of financial assets at
amortised cost (trade and other receivables, excluding prepayments,
and cash and cash equivalents) and financial assets classified as
fair value through profit or loss. Financial assets at amortised
cost are initially measured at fair value and subsequently at
amortised cost and attributable transaction costs are included in
the initial carrying value. Financial assets designated as fair
value through the profit or loss are measured at fair value through
the profit or loss at the point of initial recognition and
subsequently revalued at each reporting date. Attributable
transactions costs are recognised in profit or loss as incurred.
Movements in the fair value of derivative financial assets are
recognised in the profit or loss in the period in which they
occur.
(b) Financial liabilities
All financial liabilities are classified as fair value through
the profit and loss or financial liabilities at amortised cost. The
Company's financial liabilities at amortised cost include trade and
other payables and its financial liabilities at fair value through
the profit or loss include the derivative financial liabilities.
Financial liabilities at amortised cost, are initially stated at
their fair value and subsequently at amortised cost. Interest and
other borrowing costs are recognised on a time-proportion basis
using the effective interest method and expensed as part of
financing costs in the statement of comprehensive income.
Derivative financial liabilities are initially recognised at fair
value of the date a derivative contract is entered into and
subsequently re-measured at each reporting date. The method of
recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the
nature of the item being hedged. The Company has not designated any
derivatives as hedges as at 31 March 2022 or 31 March 2023.
(c) Impairment for financial instruments measured at amortised
cost
Impairment provisions for financial instruments are recognised
based on a forward looking expected credit loss model in accordance
with IFRS 9. The methodology used to determine the amount of the
provision is based on whether there has been a significant increase
in credit risk since initial recognition of the financial asset.
For those where the credit risk has not increased significantly
since initial recognition of the financial asset, twelve month
expected credit losses along with gross interest income are
recognised. For those for which credit risk has increased
significantly, lifetime expected credit losses along with the gross
interest income are recognised. For those that are determined to be
credit impaired, lifetime expected credit losses along with
interest income on a net basis are recognised.
Convertible loan notes ("CLNs")
The proceeds received on issue of convertible loan notes are
allocated into their liability and equity components. The amount
initially attributed to the debt component equals the discounted
cash flows using a market rate of interest that would be payable on
a similar debt instrument that does not include an option to
convert. Subsequently, the debt component is accounted for as a
financial liability measured at amortised cost until extinguished
on conversion or maturity of the CLN.
The conversion option is determined by deducting the amount of
the liability component from the fair value of the compound
instrument as a whole. Where material, this is recognised and
included as a financial derivative where the convertible loan notes
are issued in a currency other than the functional currency of the
Company because they fail the fixed for fixed criteria in IAS 32.
The conversion option is recorded as a financial liability at fair
value through profit or loss and revalued at each reporting
date.
In the case of a substantial modification, the existing
liability is derecognised, the modified liability is recognised at
its fair value and the difference between the carrying value of the
old instrument and the modified instrument is recognised as a gain
or loss in the statement of comprehensive income.
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
Share-based payments
The Company issues equity-settled share-based payments to
certain employees. Equity-settled share-based payments are measured
at fair value at the date of grant. The fair value determined at
the grant date of the equity-settled share-based payments is
expensed over the vesting period, based on the Company's estimate
of shares that will eventually vest. The fair value of options is
ascertained using a Black-Scholes pricing model which incorporates
all market vesting conditions. Where equity instruments are granted
to persons other than employees, the income statement is charged
with the fair value of goods and services received.
The Company has also issued warrants on placements which form
part of a unit. These warrants do not fall into the scope of IFRS 2
Share Based Payments because there is no service being provided and
are assessed as either a financial liability or equity. If they
fail the fixed for fixed criteria in IAS 32 Financial Instruments:
Presentation, they are classified as financial liability and
measured in accordance with IFRS 9 Financial Instruments.
Critical accounting estimates and judgements
The Company makes judgements and assumptions concerning the
future that impact the application of policies and reported
amounts. The resulting accounting estimates calculated using these
judgements and assumptions will, by definition, seldom equal the
related actual results but are based on historical experience and
expectations of future events. The judgements and key sources of
estimation uncertainty that have a significant effect on the
amounts recognised in the financial statements are discussed
below.
Critical estimates and judgements
The following are the critical estimates and judgements that
management has made in the process of applying the entity's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
(a) Carrying value of exploration and evaluation assets
(judgement)
The Company monitors internal and external indicators of
impairment relating to its exploration and evaluation assets.
Management has considered whether any indicators of impairment have
arisen over certain assets relating to the Company's exploration
licenses. Management consider the exploration results to date and
assess whether, with the information available, there is any
suggestion that a commercial operation is unlikely to proceed. In
addition, management have considered the likely success of renewing
the licences, the impact of any instances of non-compliance with
license terms and are continuing with the exploration and
evaluation of the sites. After considering all relevant factors,
management were of the opinion that no impairment was required in
relation to the costs capitalised to exploration and evaluation
assets except for the below:
i) Empyrean and its China Block 29/11 partner CNOOC, along with
its technical service providers CNOOC Enertech and COSL, completed
significant pre-drilling operational, technical and permitting work
to enable the safe drilling, although ultimately unsuccessful
drilling of the Jade prospect. As a result of the unsuccessful well
at Jade, Empyrean has, in accordance with applicable accounting
standards, provided for impairment against Jade prospect costs and
the dry hole costs associated with the Jade drilling program,
together being US$17.0 million.
ii) While the Company will continue to work with its joint
venture partners in reviewing and assessing any further technical
and commercial opportunities as they relate to the Sacramento Basin
project, particularly in light of strong gas prices for gas sales
in the region, it has not budgeted for further substantive
exploration expenditure. Whilst the Company maintains legal title
it has continued to fully impair the carrying value of the asset at
31 March 2023.
iii) In light of current market conditions, little or no work
has been completed on the Riverbend or Eagle Oil projects in the
year and no substantial project work is forecast for either project
in 2022/23 whilst the Company focuses on other projects. Whilst the
Company maintains legal title it has continued to fully impair the
carrying value of the asset at 31 March 2023.
(b) Share based payments (estimate)
In prior financial years, the Company has made awards of options
and warrants over its unissued share capital to certain employees
as part of their remuneration package. Certain warrants were issued
to shareholders as part of their subscription for shares and
suppliers for services received. There were no warrants issued in
the financial year ended 31 March 2023.
The valuation of these options and warrants involves making a
number of critical estimates relating to price volatility, future
dividend yields, expected life of the options and forfeiture rates.
These assumptions have been described in more detail in Note
14.
(c) Valuation of embedded derivative - Convertible loan notes
(estimate)
The Company has made estimates in determining the fair value of
the embedded conversion feature portion of the CLN. Fair value
inputs are subject to market factors as well as internal estimates.
The Company considers historical trends together with any new
information to determine the best estimate of fair value at the
date of initial recognition and at each period end. The Company has
determined that the fair value of the embedded conversion feature
is not material and therefore has not been separately recognised,
in line with the Company's accounting policy.
Note 2. Segmental Analysis
The Directors consider the Company to have three geographical
segments, being China (Block 29/11 project), Indonesia (Duyung
PSC project) and North America (Sacramento Basin project),
which are all currently in the exploration and evaluation phase.
Corporate costs relate to the administration and financing
costs of the Company and are not directly attributable to the
individual projects. The Company's registered office is located
in the United Kingdom.
Details China Indonesia USA Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000
31 March 2023
Unallocated corporate
expenses - - - (810) (810)
--------- ---------- -------- ---------- ---------
Operating loss - - - (810) (810)
Finance expense - - - (2,955) (2,955)
Impairment of oil and
gas properties (16,998) - (32) - (17,030)
Loss before taxation (16,998) - (32) (3,765) (20,795)
Tax expense in current
year - - - (1) (1)
--------- ---------- -------- ---------- ---------
Loss after taxation (16,998) - (32) (3,766) (20,796)
--------- ---------- -------- ---------- ---------
Total comprehensive
loss for the financial
year (16,998) - (32) (3,766) (20,796)
========= ========== ======== ========== =========
Segment assets 5,958 4,677 - - 10,635
Unallocated corporate
assets - - - 121 121
--------- ---------- -------- ---------- ---------
Total assets 5,958 4,677 - 121 10,756
========= ========== ======== ========== =========
Segment liabilities - - - - -
Unallocated corporate
liabilities - - - 8,459 8,459
--------- ---------- -------- ---------- ---------
Total liabilities - - - 8,459 8,459
========= ========== ======== ========== =========
Details China Indonesia USA Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000
31 March 2022
Unallocated corporate expenses - - - (1,599) (1,599)
-------- ---------- -------- ---------- --------
Operating loss - - - (1,599) (1,599)
Finance expense - - - (402) (402)
Impairment of oil and gas
properties - - (4,127) - (4,127)
Cyber fraud loss - - - (1,981) (1,981)
Loss before taxation - - (4,127) (3,982) (8,109)
Tax expense in current
year - - - (1) (1)
-------- ---------- -------- ---------- --------
Loss after taxation - - (4,127) (3,983) (8,110)
-------- ---------- -------- ---------- --------
Total comprehensive loss
for the financial year - - (4,127) (3,983) (8,110)
======== ========== ======== ========== ========
Segment assets 20,662 4,245 - - 24,907
Unallocated corporate assets - - - 55 55
-------- ---------- -------- ---------- --------
Total assets 20,662 4,245 - 55 24,962
======== ========== ======== ========== ========
Segment liabilities - - - - -
Unallocated corporate liabilities - - - 6,286 6,286
-------- ---------- -------- ---------- --------
Total liabilities - - - 6,286 6,286
======== ========== ======== ========== ========
Note 3. Operating Loss
2023 2022
US$'000 US$'000
The operating loss is stated after charging:
Foreign exchange gain/(loss) 197 (518)
Impairment - exploration and evaluation
assets (17,030) (4,127)
Cyber fraud loss - (1,981)
Auditor's Remuneration
Amounts paid to BDO LLP in respect of both audit and non-audit
services:
Audit fees payable to the Company's auditor
for the audit of the Company annual accounts 102 73
Non-audit fees payable to the Company's
auditor in respect of:
- Other services relating to taxation
compliance 13 12
--------- --------
Total auditor's remuneration 115 85
Note 4. Directors' Emoluments
Fees and Salary Bonus Payment Social Security Contributions Short-Term Employment
Benefits (Total)
2023 2022 2023 2022 2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Non-Executive
Directors:
Patrick Cross 22 25 - - 2 2 24 27
John Laycock 13 15 - - 1 1 14 16
Executive
Directors:
Thomas
Kelly(a) 269 304 - - - - 269 304
Gajendra
Bisht(b) 220 220 - - - - 220 220
Total 524 564 - - 3 3 527 567
-------- -------- -------- -------- -------------- -------------- ------------- --------------
Capitalised to
E&E(b) (165) (165) - - - - (165) (165)
-------- -------- -------- -------- -------------- -------------- ------------- --------------
Total expensed 359 399 - - 3 3 362 402
======== ======== ======== ======== ============== ============== ============= ==============
(a) Services provided by Apnea Holdings Pty Ltd, of which Mr
Kelly is a Director. Mr Kelly has not sold any shares during the
reporting period.
(b) Services provided by Topaz Energy Pty Ltd, of which Mr Bisht
is a Director. 75% of Mr Bisht's fees are capitalised to
exploration and evaluation expenditure (Note 8).
The average number of Directors was 4 during 2023 and 2022. The
highest paid director received US$269,000 (2022: US$304,000).
Note 5. Finance Expense
2023 2022
US$'000 US$'000
Convertible loan notes - interest and
finance costs (Notes 10 and 11) (2,308) (253)
Convertible loan notes - loss on substantial (1,369) -
modification (Note 11)
Finance expense - equity facility options
(Note 14) - (23)
Fair value adjustment - derivative financial
liabilities (Note 12) 722 (126)
Total finance expense (2,955) (402)
======== ========
Note 6. Taxation
2023 2022
US$'000 US$'000
Opening balance - (358)
AMT Federal Credit received during year - 358
---------- ----------
Total corporation tax receivable - -
========== ==========
Factors Affecting the Tax Charge for
the Year
Loss from continuing operations (20,795) (8,109)
---------- ----------
Loss on ordinary activities before tax (20,795) (8,109)
Loss on ordinary activities at US rate
of 21% (2022: 21%) (4,367) (1,703)
Non-deductible expenses 3,429 1,328
Movement in provisions 4 6
Carried forward losses on which no DTA
is recognised 933 368
(1) (1)
Analysed as:
Tax expense on continuing operations (1) (1)
---------- ----------
Tax expense in current year (1) (1)
========== ==========
Deferred Tax Liabilities
Temporary differences - exploration 1,679 1,669
Temporary differences - other 4 4
---------- ----------
1,683 1,673
Offset of deferred tax assets (1,683) (1,673)
---------- ----------
Net deferred tax liabilities recognised - -
========== ==========
Unrecognised Deferred Tax Assets
Tax losses(a) 2,622 3,609
Temporary differences - exploration 4,110 4,101
Temporary differences - other 968 1,054
---------- ----------
7,700 8,764
Offset of deferred tax liabilities (1,683) (1,673)
---------- ----------
Net deferred tax assets not brought to
account 6,017 7,091
========== ==========
(a) If not utilised, carried forward tax losses of approximately
US$10.53 million (2022: $9.87 million) begin to expire in the year
2033. Deferred income tax assets are only recognised to the extent
that it is probable that future tax profits will be available
against which deductible temporary differences can be utilised.
Deferred tax assets and deferred tax liabilities are offset only
if applicable criteria to set off is met.
Note 7. Loss Per Share
The basic loss per share is derived by dividing the loss after
taxation for the year attributable to ordinary shareholders
by the weighted average number of shares on issue being 767,981,222
(2022: 565,853,821).
2023 2022
Loss per share from continuing operations
Loss after taxation from continuing US$(20,796,000) US$(8,110,000)
operations
Loss per share - basic (2.71)c (1.43)c
Loss after taxation from continuing
operations adjusted for dilutive effects US$(20,796,000) US$(8,110,000)
Loss per share - diluted (2.71)c (1.43)c
For the current and prior financial years, the exercise of
the options is anti-dilutive and as such the diluted loss
per share is the same as the basic loss per share. Details
of the potentially issuable shares that could dilute earnings
per share in future periods are set out in Note 14.
Note 8. Exploration and Evaluation Assets
2023 2022
US$'000 US$'000
Balance brought forward 24,907 14,643
Additions(a)(b) 2,758 14,391
Impairment(b)(c)(d) (17,030) (4,127)
Net book value 10,635 24,907
========= ========
(a) The Company was awarded its permit in China in December
2016. Block 29/11 is located in the Pearl River Mouth Basin,
offshore China. Empyrean is operator with 100% of the exploration
right of the Permit during the exploration phase of the project. In
May 2017 the Company acquired a working interest in the Sacramento
Basin, California. Empyrean entered into a joint project with
ASX-listed Sacgasco Limited, to test a group of projects in the
Sacramento Basin, California, including two mature, multi-TcF gas
prospects in Dempsey (EME 30%) and Alvares (EME 25%) and also
further identified follow up prospects along the Dempsey trend (EME
30%). Please refer to the Operational Review for further
information on exploration and evaluation performed during the
year.
(b) Empyrean and its China Block 29/11 partner CNOOC, along with
its technical service providers CNOOC Enertech and COSL, completed
significant pre-drilling operational, technical and permitting work
throughout the reporting period to enable to safe drilling,
although ultimately unsuccessful drilling of the Jade prospect. As
a result of the unsuccessful well at Jade, Empyrean has, in
accordance with applicable accounting standards, provided for
impairment against Jade prospect costs and the dry hole costs
associated with the Jade drilling program, together being US$17.0
million. Post-well analysis at Jade however has confirmed reservoir
quality is better than pre-drill estimates with regional seal
confirmed and the depth conversion approach validated. As a part of
post-well evaluation, CNOOC geochemical and basin modelling experts
together with Empyrean have interpreted the critical elements of
effective regional oil migration pathways-leading to positive
implications for the Topaz prospect, and ultimately the decision to
proceed with the second phase of exploration at Block 29/11, being
the drilling of the Topaz Prospect before June 2024.
(c) While the Company will continue to work with its joint
venture partners in reviewing and assessing any further technical
and commercial opportunities as they relate to the Sacramento Basin
project, particularly in light of strong gas prices for gas sales
in the region, it has not budgeted for further substantive
exploration expenditure. Whilst the Company maintains legal title
it has continued to fully impair the carrying value of the asset at
31 March 2023.
(d) In light of current market conditions, little or no work has
been completed on the Riverbend or Eagle Oil projects in the year
and no substantial project work is forecast for either project in
2023/24 whilst the Company focuses on other projects. Whilst the
Company maintains legal title it has continued to fully impair the
carrying value of the asset at 31 March 2023.
2023 2022
Project Operator Working Carrying Carrying
Interest Value Value
US$'000 US$'000
Exploration and
evaluation
China Block 29/11 Empyrean Energy 100%(1) 5,958 20,662
Sacramento Basin Sacgasco 25-30% - -
Duyung PSC Conrad Asia Energy 8.5% 4,677 4,245
Riverbend Huff Energy 10% - -
Eagle Oil Pool Strata-X 58.084% - -
Development
---------- ----------
10,635 24,907
========== ==========
1. In the event of a commercial discovery, and subject to the
Company entering PSC, CNOOC Limited will have a back in right
to 51% of the permit. As at the date of these financial statements
no commercial discovery has been made.
Note 9. Trade and Other Receivables
2023 2022
US$'000 US$'000
Accrued revenue 30 30
VAT receivable 8 6
Total trade and other receivables 38 36
======== ========
Note 10. Trade and Other Payables
2023 2022
US$'000 US$'000
Trade payables 2,245 293
Accrued expenses 349 850
Accrued interest - convertible loan
note (Note 11) 1,630 156
Total trade and other payables 4,224 1,299
======== ========
Note 11. Convertible Loan Notes
2023 2022
US$'000 US$'000
Current - original convertible loan
note
Opening balance 4,125 -
Drawdowns(a) - 5,412
Conversions(b) (1,970) (919)
Costs of finance 121 (211)
Foreign exchange loss (133) (157)
Extinguishment on substantial modification(c) (2,143) -
Total original convertible loan note
- current - 4,125
======== ========
Current - modified convertible loan
note
Opening balance - -
Recognition of modified liability 2,637 -
Loss on substantial modification(c) 1,369 -
Costs of finance 185 -
Foreign exchange loss (115) -
Total modified convertible loan note 4,076 -
- current
======== ========
(a) On 16 December 2021, the Company entered into a Convertible
Loan Note Agreement with a Melbourne-based investment fund pursuant
to which the Company issued a convertible loan note to the Lender
and received gross proceeds of US$5.4 million (GBP4.0 million).
Under the terms of original Convertible Note, the Lender could
elect to convert all or part of the principal amount of the
Convertible Note into fully paid ordinary shares in the Company at
any time prior to maturity in December 2022 at a conversion price
of 8.0p per share. The Convertible Note bears interest at a rate of
10% per annum and is secured by a senior first ranking charge over
the Company, including its 8.5% interest in the Duyung PSC and Mako
Gas Field.
(b) On 1 April 2022 the Company issued 18,750,000 Ordinary
Shares at a conversion price of 8.0p per share under the existing
Convertible Loan Note Agreement, as announced on 28 March 2022. The
partial conversion reduced the amount owing on the Convertible Note
by US$1.97 million (GBP1.5 million).
(c) In May 2022, following the announcement regarding the Jade
well on 27 April 2022, the Company and the Lender proactively
entered discussions to amend the key repayment terms of the
Convertible Note, which included the right by the Lender to redeem
the Convertible Note within five business days of the announcement
of the results of the Jade well. The parties agreed the following
key amendments to the terms of the Convertible Note:
1. The face value of the Convertible Note is increased to GBP2.9
million (GBP3.3 million including accrued interest);
2. The Company may, at its sole and absolute discretion, redeem
the Convertible Note at any time;
3. The Lender will not redeem the Notes prior to 31 July 2022;
4. If a binding GSA is entered into with regard to the Mako Gas
Discovery in Indonesia on or before 31 July 2022, the Lender will
not redeem the Convertible Note prior to 1 December 2022, with
interest accruing thereafter at a rate of GBP330,000 per calendar
month;
5. If a binding GSA is not entered into with regard to the Mako
Gas Discovery in Indonesia on or before 31 July 2022, the Lender
may redeem the Convertible Note at any time thereafter, in which
circumstances the face value of the Convertible Note will be
reduced to GBP2.67 million;
6. If the Company completes a sale of its interest in the Mako
Gas Discovery, it will redeem the Convertible Note
contemporaneously with that agreement; and
7. The Company will not execute any agreement in respect of a
sale of its interest in the Mako Gas Discovery if the proceeds are
less than the expected value of the Convertible Note on the date of
completion of that agreement.
Note 12. Derivative Financial Liabilities
2023 2022
US$'000 US$'000
Current
Opening balance 722 -
Issue of warrants - 596
(Gain)/loss on fair value revaluation(a) (89) 126
Expired/exercised warrants(a) (633) -
Total derivative financial liabilities
- current - 722
======== ========
(a) In the prior financial year, 49,465,915 warrants were issued
across multiple tranches attached to the Placement in July 2021. As
a financial liability at fair value through profit or loss these
were revalued at year end. 45,657,582 warrants were previously
exercised or expired during the current financial year. The
remaining 3,808,333 warrants were revalued to nil. Refer to Note 14
for valuations and assumptions of the warrants.
Note 13. Reconciliation of Net Loss
2023 2022
US$'000 US$'000
Loss before taxation (20,795) (8,109)
Share-based payments 22 66
Finance expense (non-cash) 2,955 148
Impairment - exploration and evaluation
assets 17,030 4,127
Cyber fraud loss - 1,981
Foreign exchange (gain)/loss (197) 518
(Increase) in trade receivables relating (2) -
to operating activities
(Decrease) in trade payables relating (158) -
to operating activities
Increase in provisions 19 29
--------- --------
Net cash outflow from operating activities
before taxation (1,126) (1,240)
--------- --------
Receipt of corporation tax - 358
--------- --------
Net cash outflow from operating activities (1,126) (882)
========= ========
Note 14. Share Capital
2023 2022
US$'000 US$'000
788,431,892 (2022: 646,070,780 ) ordinary
shares of 0.2p each 2,170 1,809
------------ ------------
2023 2022
No. No.
a) Fully Paid Ordinary Shares of 0.2p
each - Number of Shares
At the beginning of the reporting year 646,070,780 489,430,615
Shares issued during the year:
* Placements(a) 121,750,001 144,081,832
* Partial conversion of Convertible Note(b) 18,750,000 8,750,000
* Exercise of warrants 1,861,111 3,808,333
Total at the end of the reporting year 788,431,892 646,070,780
============ ============
2023 2022
US$'000 US$'000
b) Fully Paid Ordinary Shares of 0.2p
each - Value of Shares
At the beginning of the reporting year 1,809 1,398
Shares issued during the year:
* Placements(a) 307 378
* Partial conversion of Convertible Note(b) 49 23
* Exercise of warrants 5 10
Total at the end of the reporting year 2,170 1,809
======== ========
(a) In May 2022, Empyrean completed a Placing to raise US$2.25
million (GBP1.83 million) with funds raised under this Placing to
primarily be used to complete further post well analysis of the
Jade well, satisfy any further costs associated with the Jade
drilling, conduct a comprehensive oil migration study in
conjunction with CNOOC for potential oil charge to the Topaz
prospect, and for the Company's general working capital
requirements.
(b) On 1 April 2022, the Company issued 18,750,000 Ordinary
Shares at a conversion price of 8.0p per share under the existing
Convertible Loan Note Agreement, as announced on 28 March 2022. The
partial conversion reduced the amount owing on the Convertible Note
by US$1.97 million (GBP1.5 million).
The Companies Act 2006 (as amended) abolishes the requirement
for a company to have an authorised share capital. Therefore the
Company has taken advantage of these provisions and has an
unlimited authorised share capital.
Each of the ordinary shares carries equal rights and entitles
the holder to voting and dividend rights and rights to participate
in the profits of the Company and in the event of a return of
capital equal rights to participate in any sum being returned to
the holders of the ordinary shares. There is no restriction,
imposed by the Company, on the ability of the holder of any
ordinary share to transfer the ownership, or any of the benefits of
ownership, to any other party.
Share options and warrants
The number and weighted average exercise prices of share
options and warrants are as follows:
Weighted Number Weighted Number
Average of Options Average of Options
Exercise and Warrants Exercise and Warrants
Price Price
2023 2023 2022 2022
Outstanding at the beginning
of the year GBP0.116 65,890,916 GBP0.094 20,233,334
Issued during the year - - GBP0.125 49,465,915
Expired during the year GBP0.114 (57,471,472) - -
Exercised during the year GBP0.096 (1,861,111) GBP0.120 (3,808,333)
----------- ---------------- ----------- ----------------
Outstanding at the end
of the year GBP0.137 6,558,333 GBP0.116 65,890,916
=========== ================ =========== ================
Employee Equity Bonus
Options Facility Warrants
Options
Number of Options 2,500,000 250,000 3,803,333
Grant date 15/09/20 11/09/20 15/11/21
Expiry date 10/09/23 17/09/23 22/07/23
Share price GBP0.05 GBP0.047 GBP0.063
Exercise price GBP0.075 GBP0.1014 GBP0.18
Volatility 81% 81% 79%
Option life 3.00 3.00 1.70
Expected dividends - - -
Risk-free interest rate (based on national
government bonds) 0.14% 0.14% 0.08%
The options outstanding at 31 March 2023 have an exercise
price in the range of GBP0.075 to GBP0.18 (2022: GBP0.075
to GBP0.18) and a weighted average remaining contractual
life of 0.37 years (2022: 0.95 years). None of the outstanding
options and warrants at 31 March are exercisable at period
end.
Note 15. Reserves
Reserve Description and purpose
Warrant and share-based Records items recognised as expenses on
payment reserve valuation of employee share options and
subscriber warrants.
------------------------------------------------
Retained losses All other net gains and losses and transactions
with owners not recognised elsewhere.
------------------------------------------------
Note 16. Related Party Transactions
Directors are considered Key Management Personnel for the
purposes of related party disclosure.
There were no related party transactions during the year ended
31 March 2023 other than those disclosed in Note 4.
Note 17. Financial Risk Management
The Company manages its exposure to credit risk, liquidity risk,
foreign exchange risk and a variety of financial risks in
accordance with Company policies. These policies are developed in
accordance with the Company's operational requirements. The Company
uses different methods to measure and manage different types of
risks to which it is exposed. These include monitoring levels of
exposure to interest rate and foreign exchange risk and assessment
of prevailing and forecast interest rates and foreign exchange
rates. Liquidity risk is managed through the budgeting and
forecasting process.
Credit risk
Exposure to credit risk relating to financial assets arises from
the potential non-performance by counterparties of contract
obligations that could lead to a financial loss to the Company.
Risk is also minimised by investing surplus funds in financial
institutions that maintain a high credit rating.
Credit risk related to balances with banks and other financial
institutions are managed in accordance with approved Board policy.
The Company's current investment policy is aimed at maximising the
return on surplus cash, with the aim of outperforming the benchmark
within acceptable levels of risk return exposure and to mitigate
the credit and liquidity risks that the Company is exposed to
through investment activities.
The following table provides information regarding the credit
risk relating to cash and money market securities based on Standard
and Poor's counterparty credit ratings.
2023 2022
US$'000 US$'000
Cash and cash equivalents
AA-rated 83 19
-------- --------
Total cash and cash equivalents 83 19
======== ========
Price risk
Commodity price risk
The Company is not directly exposed to commodity price risk.
However, there is a risk that the changes in prevailing market
conditions and commodity prices could affect the viability of the
projects and the ability to secure additional funding from equity
capital markets.
Liquidity risk
Liquidity risk arises from the possibility that the Company
might encounter difficulty in settling its debts or otherwise
meeting its obligations related to financial liabilities.
The Company manages liquidity risk by maintaining sufficient
cash or credit facilities to meet the operating requirements
of the business and investing excess funds in highly liquid
short-term investments. The Company's liquidity needs can
be met through a variety of sources, including the issue
of equity instruments and short or long-term borrowings.
Alternative sources of funding in the future could include
project debt financing and equity raisings, and future operating
cash flow. These alternatives will be evaluated to determine
the optimal mix of capital resources.
The following table details the Company's non-derivative
financial instruments according to their contractual maturities.
The amounts disclosed are based on contractual undiscounted
cash flows. Cash flows realised from financial assets reflect
management's expectation as to the timing of realisation.
Actual timing may therefore differ from that disclosed. The
timing of cash flows presented in the table to settle financial
liabilities reflects the earliest contractual settlement
dates.
Less 6 months 1 to Total
than 6 to 1 year 6 years
months
US$'000 US$'000 US$'000 US$'000
Convertible loan note (2023) 4,076 - - 4,076
-------- ----------- --------- --------
Convertible loan note (2022) - 4,125 - 4,125
-------- ----------- --------- --------
Trade and other payables (2023) 4,718 - - 4,718
-------- ----------- --------- --------
Trade and other payables (2022) 1,299 - - 1,299
-------- ----------- --------- --------
Capital
In managing its capital, the Company's primary objective
is to maintain a sufficient funding base to enable the Company
to meet its working capital and strategic investment needs.
In making decisions to adjust its capital structure to achieve
these aims, through new share issues, the Company considers
not only its short-term position but also its long-term operational
and strategic objectives. The Company has a track record
of successfully securing additional funding as and when required
from equity capital markets.
Foreign exchange risk
The Company operates internationally and is exposed to foreign
exchange risk arising from various currency exposures. Foreign
exchange risk arises from future commitments, assets and
liabilities that are denominated in a currency that is not
the functional currency of the Company. Currently there are
no foreign exchange hedge programmes in place. However, the
Company treasury function manages the purchase of foreign
currency to meet operational requirements.
As at 31 March 2023, the Company's gross exposure to foreign
exchange risk was as follows:
2023 2022
US$'000 US$'000
Gross foreign currency financial assets
Cash and cash equivalents - GBP 81 10
---------- ---------
Total gross exposure 81 10
========== =========
The effect of a 10% strengthening of the USD against the
GBP at the reporting date on the GBP-denominated assets carried
within the USD functional currency entity would, all other
variables held constant, have resulted in an increase in
post-tax loss for the year and decrease in net assets of
US$8,100 (2022: US$1,000).
Fair value
Fair values are those amounts at which an asset could be
exchanged, or a liability settled, between knowledgeable, willing
parties in an arm's length transaction. Fair values may be based on
information that is estimated or subject to judgement, where
changes in assumptions may have a material impact on the amounts
estimated. Areas of judgement and the assumptions have been
detailed below.
The following methods and assumptions are used to determine the
net fair values of financial assets and liabilities:
-- Cash and short-term investments - the carrying amount
approximates fair value because of their short term to
maturity;
-- Trade receivables and trade creditors - the carrying amount
approximates fair value; and
-- Derivative financial assets and liabilities - initially
recognised at fair value through profit and loss at the date the
contract is entered into and subsequently re-measured at each
reporting date, the fair value of the derivative financial
liability warrants is calculated using a Black-Scholes Model.
Measurement inputs include share price on measurement date,
exercise price of the instrument, expected volatility (based on
weighted average historic volatility adjusted for changes expected
due to publicly available information), weighted average expected
life of the instruments (based on historical experience and general
option holder behaviour), expected dividends, and the risk-free
interest rate (based on government bonds).
No financial assets and financial liabilities are readily traded
on organised markets in standardised form.
Financial Instruments Measured at Fair Value
The financial instruments recognised at fair value in the
statement of financial position have been analysed and classified
using a fair value hierarchy reflecting the significance of the
inputs used in making the measurements. The fair value hierarchy
consists of the following levels:
-- Quoted prices in active markets for identical assets or
liabilities (Level 1);
-- Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices) (Level 2); and
-- Inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
Financial instruments at fair value and methods used to estimate
the fair value are summarised below:
Financial Instruments at Fair Value 31 March 31 March
2023 2022
Fair Value Fair Value
US$'000 US$'000
Financial liabilities
Derivative financial liabilities (Level
3) - 722
-------------- ------------
Total financial liabilities - 722
============== ============
Financial instruments by category are summarised below:
Financial Instruments Fair Value Through Amortised Cost
by Category Profit or Loss
31 March 31 March 31 March 31 March
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
Financial assets
Cash and cash equivalents - - 83 19
Trade and other receivables - - 38 36
Total financial assets - - 121 55
=========== ========= ========= =========
Financial liabilities
Trade and other payables - - 2,245 1,299
Convertible loan notes - - 4,076 4,125
Derivative financial - 722 - -
liabilities
Total financial liabilities - 722 6,321 5,424
=========== ========= ========= =========
Cash and cash equivalents
Cash and short-term deposits in the Statement of Financial
Position comprise cash at bank and in hand and short-term deposits
with an original maturity of three months or less. For the purposes
of the Cash Flow Statement, cash and cash equivalents consist of
cash and cash equivalents as defined above and which are readily
convertible to a known amount of cash and are subject to an
insignificant risk of change in value.
Note 18. Events After the Reporting Date
Significant events post reporting date were as follows:
In May 2023, the Company advised that Conrad has engaged a
global investment bank to lead a farm-down process for the
divestment of a portion of its interest in the Duyung PSC. Bids
were expected to be received during the second quarter of 2023 with
sell down news expected in the third quarter of 2023.
In May 2023, the Company advised that it had reached agreement
with the Lender on amended key terms to the Convertible Note to
allow the sales process for Mako to complete. The key terms of the
amendment are as follows:
1. The face value of the Convertible Note has been reduced from
GBP5.28m (accrued to the end of May 2023) to GBP4.6 million;
2. No interest shall accrue on the Convertible Note until 31
December 2023, with interest accruing thereafter at a rate of 20%
p.a.;
3. The conversion price on the Convertible Note has been reduced from 8p to 2.5p per Share;
4. Unless otherwise required by the joint operating agreement
entered into with Empyrean's licence partners (the "JOA") or with
the prior written consent of the Lender (such consent not to be
unreasonably withheld or delayed), Empyrean may only execute
agreements for the sale of its interest in Mako (in whole or in
part) if the terms of the sale provide for a payment to Empyrean at
completion of immediately available funds and for a sale price of
an amount that is at least the amounts owed to the Lender (as
described in 5 and 6 below);
5. On a successful sale of the Company's interest in Mako,
Empyrean must redeem the face value of the Convertible Note and pay
the Lender the greater of (a) US$1.5 million or (b) 15% of the
proceeds such sale;
6. In the event that the Company repays the Convertible Note
from sources other than a sale of its interest in Mako, Empyrean
must also pay the Lender US$1.5 million on redemption of the
Convertible Note together with a further payment based on either
(a) the actual valuation achieved on any sale within 2 years or (b)
an updated valuation of the Company's interest in Mako if not sold
within that 2 year period, in each case so that the total proceeds
paid to the Lender are 15% of the valuation of the Company's
interest in Mako; and
7. In the event that the sale process being run on behalf of the
operator, Conrad, does not result in an offer being made to acquire
all or part of the Company's interest in Mako, then Empyrean must
work with the Lender in good faith to sell the Mako Interest as
soon as reasonably possible and, subject to applicable laws and the
terms of the JOA, may grant rights to the Lender to market this
interest on its behalf.
In June 2023, Empyrean completed a Placing to raise US$1.88
million (GBP1.52 million) ("Placing") with funds raised under this
Placing to primarily be used for the completion of joint regional
oil migration and 3D seismic inversion studies at Topaz, ongoing
prospect, licensing fees and permit costs, post Jade well
consultancy, analysis and residual exploration costs, front-end
engineering design ("FEED"), studies and surveys at Mako -
including gas processing and export gas tie in at the Kakap KF
Platform and for general working capital requirements.
In June 2023, the Company issued warrants in respect of
2,833,333 Shares to advisors of the Company, for consultancy and
advisory services provided over the last 12 months (the "Advisor
Warrants"). The exercise price of the Advisor Warrants is 1.5p each
and they will expire on 30 May 2024. The Company also issued
incentive warrants in respect of 10,000,000 ordinary shares of 0.2
pence in the Company to the Company Secretary, Jonathan Whyte, or
his nominee (the "Incentive Warrants"). The Incentive Warrants were
granted as part of the Company's strategy to retain and incentivise
directors and management of the Company. The Incentive Warrants
will expire on 30 May 2026. The Incentive Warrants were issued in
two equal tranches of 5,000,000. The exercise price of the first
tranche of Incentive Warrants is 1.5p each and the exercise price
of the second tranche of Incentive Warrants is 2.0p each.
In June 2023, the Company announced that two of its Directors,
Tom Kelly and Gaz Bisht, together with its Company Secretary,
Jonathan Whyte, had agreed to take one third of their salaries in
new Shares ("Salary Sacrifice Shares") in lieu of cash remuneration
in order to preserve capital and ensure more funds are directed
towards project activities. The Salary Sacrifice Shares will be
issued at the same price as the Placing Subscription Price (0.8p
per New Ordinary Share). This arrangement will conclude on the
earlier of 31 December 2023 or the signing of a binding agreement
for the sale (in part or whole) of Empyrean's interest in Mako.
No other matters or circumstances have arisen since the end of
the financial year which significantly affected or could
significantly affect the operations of the Company, the results of
those operations, or the state of affairs of the Company in future
financial years.
Note 19. Committed Expenditure
The Company has met all commitments on all three key projects
during the current financial year.
Block 29/11 offshore China
The Company's committed work program for the GSA phase for Block
29/11 included acquisition, processing and interpretation of 500km2
for a 3D seismic survey, and a financial commitment of US$3.0
million. The Company exceeded the work program commitments during
the 2018 financial year.
Having successfully completed the committed work program for the
first phase GSA, the Company exercised its option to enter a PSC on
the Block, on pre-negotiated terms, with CNOOC on 30 September
2018, with the date of commencement of implementation of the PSC
being 13 December 2018. In April 2022, Empyrean announced that the
Jade well had reached a final total depth of 2,849 metres MD and
the interpretation from logging while drilling (LWD) and mud
logging equipment indicated no oil pay in the target reservoir. In
June 2022, Empyrean announced that following the completion of post
well analysis at Jade it would be entering the second phase of
exploration and drilling the Topaz prospect at its 100% owned Block
29/11 permit, offshore China. The second phase of exploration
requires the payment to CNOOC of US$250,000 and the work obligation
is the drilling of an exploration well within 2 years. It is
estimated that the cost of drilling this well would be
approximately US$12 million.
Additional commitments for the 2023/24 financial year consist of
an annual assistance fee to CNOOC of US$60,000, an annual personnel
representative fee to CNOOC of approximately US$200,000 and an
annual prospecting fee of US$150,000.
Duyung PSC offshore Indonesia
As reported the joint venture partners completed a successful
exploration and appraisal well program at the Duyung PSC during
2020. Empyrean have paid all cash calls associated with the program
with no further amounts due and payable.
Sacramento Basin assets onshore California
The Company earned a 30% interest in the Dempsey Prospect by
paying US$2,100,000 towards the costs of drilling the Dempsey 1-15
exploration well. These drilling costs had a promoted cap of
US$3,200,000 and the Company paid its share of additional costs at
Dempsey 1-15, including completion costs. At the time of this
report, the work plan, cost estimates and timing of further
expenditure for both the Borba and Alvares prospects are unknown.
The Company incurs quarterly cash calls of approximately US$8,000
for overheads, geological and geophysical costs.
Note 20. Ultimate Controlling Party
The Directors consider that there is no ultimate controlling
party of the Company.
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END
FR NKDBQKBKDFCK
(END) Dow Jones Newswires
September 01, 2023 07:30 ET (11:30 GMT)
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