TIDMIOG
RNS Number : 7713F
IOG PLC
12 July 2023
12 July 2023
IOG plc
Half-Year Operational Update
IOG plc ("IOG", or "the Company"), (AIM: IOG.L) provides an
operational update in advance of the Company's half-year 2023
results. The information contained herein has not been audited and
may be subject to further review. An accompanying presentation is
available on the IOG website and can be accessed via this link:
https://bit.ly/3LuKbPW
Rupert Newall, CEO, commented:
"Following the successful intervention and production ramp up,
the Blythe H2 gas rate has stabilised at 32 mmscf/d, within the
30-40 mmscf/d pre-well guidance range, with no indication of
formation water. As expected, initial H2 production data indicates
better reservoir quality than at H1 and supports our existing
Blythe gas in place and reserves estimates. We expect 2H23
production to average in the 20-30 mmscf/d range.
The team has significantly improved operating performance over
1H23, delivering 93% operating efficiency and a cost reduction
programme tackling both opex and overheads. In parallel we continue
the constructive dialogue with bondholders to address balance sheet
challenges caused by the Southwark A2 result and the sharp fall in
the gas market.
As a new management team, we have been reassessing the most
efficient strategy to create value for our stakeholders based on
operating data since First Gas in 2022 and updated technical
evaluation of the risks and rewards across the portfolio. In
addition to the established Saturn Banks production infrastructure
position, the portfolio comprises high permeability conventional
reservoirs as well as tighter gas reservoirs which require
stimulation. Whilst the latter have clear potential, the
conventional fields can deliver more compelling returns on capital
with lower development risk. Strategically, therefore, we plan to
prioritise these opportunities, from the Western Cluster (Blythe
and Elgood) to the Southern Cluster (Kelham, Abbeydale, Orrell) and
the Central Cluster, where our latest technical work indicates
conventional discovered gas development potential at Grafton and
Tenby.
Our "Conventional Core" incremental investment case illustrates
this potential for efficient capital deployment. This has a
management estimated unrisked pre-tax IRR of over 90% at an average
gas price of 75 p/therm (well below today's forward curve), which
would be substantially derisked by a successful Kelham appraisal
well. The broader portfolio has also extensive value to unlock
beyond this, which could be further enhanced if we are successful
in our nine 33(rd) Round block applications."
1H23 Operating Highlights
1H23 FY22
Gross average gas
rate mmscf/d 13.8 21.0
------------- ------ ------
Operating efficiency % 93.3% N/A
------------- ------ ------
Production efficiency % 81.4% 58.6%
------------- ------ ------
Net gas sales mmscf 511 3,444
------------- ------ ------
Average realised
gas price p/therm 124.0 201.4
------------- ------ ------
Net condensate sales MT 1,764 5,339
------------- ------ ------
Average condensate
price $/MT 599 805
------------- ------ ------
per 200,000
TRIR(1) hours 3.5 3.6
------------- ------ ------
Emissions intensity(2) kgCO e/boe 1.1 0.8
------------- ------ ------
Blythe Production
-- The H2 well gross gas rate tested at 42 mmscf/d directly
after the faulty downhole valve had been fully opened. The
subsequent gas rate ramp-up has stabilised at 32 mmscf/d, within
the pre-well 30-40 mmscf/d guidance range.
-- Initial H2 production data is in line with pre-well expectations:
o Better reservoir quality at H2 than at H1 area
o Indications that communication exists between H2 and H1
area
o No indication of formation water production from H2
o Consistent with remaining reserves estimates (FY2022: 1P / 2P
/ 3P 24.6 / 42.3 / 46.8 billion cubic feet equivalent (BCFE)
-- Gross 2H23 production is expected to average in the 20-30
mmscf/d range, based on initial decline rate expectations
o Perenco Bacton terminal annual maintenance shutdown expected
in Q3
-- Reduction in water production is expected to reduce unit opex
-- Shelf Drilling Perseverance rig has demobilised from Blythe
with the associated mandatory shut-in completed within three
days
o Rig and associated vessel contracts in process of being
terminated
Initial 1H23 Financial Information
-- Revenue before sales deductions in the period of GBP9.5m,
impacted by lower production rates, lower gas prices and higher
partner royalty payments
o In periods of declining production and gas prices, the joint
venture royalty formula increases the reduction in effective net
economic interest beyond 20.2% of IOG's net 50% working interest,
however in periods of higher production and gas prices this effect
can reverse
o The royalty is applicable to revenues from Blythe, Elgood and
Southwark and is capped at GBP91m; total aggregate royalty paid to
date is GBP16.1m
-- Cash balance at 30 June 2023 of GBP20.3m, of which GBP7.3m restricted
-- Maximising near-term cash flow remains a key priority ; capital expenditure being minimised
-- Ongoing constructive engagement with bondholders on near-term
liquidity and longer-term capital structure solutions
Saturn Banks Portfolio: strategic focus on conventional gas
Conventional discovered gas opportunities
-- Blythe: Potential for limited periodic H1 gas flow later in 2023, in addition to H2
-- Elgood: Further production targeted from existing well by
2024 from limited remaining reserves
-- Kelham: subject to funding, successful appraisal would open
up the Southern Cluster that includes the conventional gas
discoveries Abbeydale and Orrell
o Dual-lateral appraisal well would test both Kelham North and
Kelham Central structures
-- P2589 licence (part of Central Cluster): ongoing subsurface
re-evaluation indicates two conventional discovered gas
opportunities with development potential as subsea tiebacks to the
Southwark platform c.17km to the southwest:
o Grafton (formerly Sinope South)
o Tenby (previously Callisto North, initially developed in
2000)
o Both to be further defined technically and economically
o Additional conventional exploration prospects on block: Forest
Row and Brockley
-- Positive 33(rd) Licensing Round interviews held in May 2023
for nine SNS block applications which could add further
conventional and tight gas resources to the Saturn Banks
portfolio
Ongoing re-evaluation of tight gas assets
-- Southwark re-evaluation continues; further technical and
economic justification required for any return to A1 or A2
wells
-- Nailsworth and Elland subsurface and deliverability to
undergo further technical review over 2H2023 in light of Southwark
A2 learnings
-- Goddard due to be appraised by 31 March 2024 pursuant to
licence terms and up to 50% has been offered for farm-out by the
IOG-CalEnergy Resources (UK) Ltd joint venture
Incremental investment cases
Based on the latest subsurface and engineering work, two
incremental investment scenarios have been worked up that
demonstrate the significant value in the Saturn Banks portfolio.
The economics benefit from extensive synergies given the
established production infrastructure already in place.
Both scenarios also benefit from IOG's material tax loss and
investment allowance position, which as at 31 December 2022
included ring fence(3) tax losses of GBP239.3m and Energy Profits
Levy losses of GBP21.0m and non-ring fence losses of GBP24.2m.
Conventional Core incremental development scenario
-- Southern and Central Cluster conventional fields only
(includes Kelham North/Central which is subject to appraisal)
-- Base case gross unrisked recoverable resources of 239 BCF
-- Entirely focused on higher permeability reservoirs that do not require stimulation
-- 6 conventional subsea wells (3 per cluster): IOG classification: Tie back developments
-- Tied back to Southwark platform and delivered into Bacton via
Saturn Banks Pipeline System (SBPS)
-- Base case monthly peak gross gas rate of 142 mmscf/d
-- First gas 26 months from initial Final Investment Decision
-- Estimated pre-production gross capex of GBP284m; total capex
including compression, decommissioning and contingencies of GBP368m
(15.4 p/therm)
-- Gross project pre-tax Internal Rate of Return (IRR):
o 92% at average gas price of 75 p/therm
o 124% at average gas price of 100 p/therm
Full Portfolio incremental development scenario
-- Southern, Central and Northern cluster conventional and tight gas assets (includes both Kelham North/Central and Goddard, both subject to appraisal) plus certain 33(rd) Round assets (subject to successful award)
-- Base case gross unrisked recoverable resources of 591 BCF
-- 7 conventional and 11 tight gas wells
-- Two additional unmanned platforms, with tiebacks via the
Blythe and Southwark platforms into the SBPS and on to Bacton
-- Base case monthly peak gross gas rate of 239 mmscf/d
-- First gas 23 months from initial Final Investment Decision
-- Estimated pre-production gross capex of GBP743m; total capex
including compression, decommissioning and contingencies of
GBP1,091m (18.5 p/therm)
-- Gross project pre-tax Internal Rate of Return (IRR):
o 63% at average gas price of 75 p/therm
o 89% at average gas price of 100 p/therm
(1) TRIR is a 12-month rolling measure including all incidents
reportable by law to UK regulators, irrespective of size or
consequence, whether involving IOG personnel, duty holders or
contractors, per 200,000 hours worked
(2)Emissions intensity measures Scope 1 and 2 emissions in
kilograms of carbon dioxide equivalent per barrel of oil equivalent
produced
(3)Ring-fence tax losses are losses applicable under the Ring
Fence Corporation Tax (30%) and Supplementary Charge Tax (10%) that
are levied on companies involved in exploration and production
activities on the UK Continental Shelf
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the company's obligations under Article 17 of MAR.
Enquiries:
IOG plc
Rupert Newall (CEO)
James Chance (Head of Capital Markets & ESG) +44 (0) 20 7036 1400
finnCap Ltd
Christopher Raggett / Simon Hicks +44 (0) 20 7220 0500
Peel Hunt LLP
Richard Crichton / David McKeown +44 (0) 20 7418 8900
Vigo Consulting
Patrick d'Ancona / Finlay Thomson +44 (0) 20 7390 0230
About IOG:
IOG is a UK developer and producer of indigenous offshore gas.
The Company began producing gas in March 2022 via its offshore and
onshore Saturn Banks production infrastructure. In addition to its
production assets, IOG operates several UK Southern North Sea
licences containing gas discoveries and prospects which, subject to
future investment decisions, may be commercialised through the
Saturn Banks infrastructure. All its assets are co-owned 50:50 with
its joint venture partner CalEnergy Resources (UK) Limited. Further
details of its portfolio can be found at www.iog.co.uk .
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