IGas today announced its full year results for the year ended 31 December 2020.
- Net production averaged 1,907 boepd for the year (2019: 2,325 boepd), within revised guidance, while operating costs for the year were c.$33/boe (at an average 2020 exchange rate of £1:$1.29) (2019: c.$30/boe).
- 2021, we anticipate net production of between 2,150-2,350 boepd and operating costs of c.$32/boe (assuming an exchange rate of £1:$1.35), albeit subject to the ongoing challenges that COVID-19 presents.
- Reserves and resources upgraded in DeGolyer & MacNaughton (D&M) CPR as at 31 December 2020 - IGas net reserves and resources (MMboe)
- Planning for Stoke-on-Trent geothermal project granted by Newcastle-under-Lyme, awaiting Stoke-on-Trent approval.
- The Renewable Energy Association (REA) and ARUP will launch a report in April 2021 into the economic opportunity of harnessing deep geothermal energy to solve the decarbonisation of heat in the UK.
First sites for hydrogen production in South-east England identified
- Planning submissions Q2/3 2021
- Final Investment Decision to follow within 3 months of planning approval
- First production of hydrogen could be in 2022
Corporate and Financial Summary
- Successful redetermination under the Group's Reserve Based Lending facility (RBL) at 31 December 2020 confirming $31.7 million (£24.0 million) of debt capacity and headroom of $11.7 million (£8.9 million).
- Cash balances as at 31 December 2020 of £2.4 million and net debt of £12.2 million.
- The Group invested £8.5 million across its asset base during the year (2019: £6.4 million). Budgeted capex for 2021 is £5.3 million.
- Underlying loss of £2.7 million (2019: profit £4.6 million). Loss after tax of £42.1 million (2019: loss £49.8 million) due to an impairment of £38.5 million of oil and gas assets (2019: impairment of £53.9 million primarily relating to our shale assets) being recognised on oil and gas assets due to lower oil price forecasts. Ring fence tax losses of £256 million as at 31 December 2020.
- As at 31 December 2020, the Group had hedged a total of 369,600 bbls for 2021, using a combination of collars (166,800 bbls at an average downside protected price of $43.0/bbl) and fixed price swaps (202,800 bbls at an average fixed price of $44.7/bbl).
- Foreign exchange hedges in place at 31 December 2020 of $3 million for 2021 at an average rate of $1.20:£1.
Commenting today Stephen Bowler, Chief Executive Officer, said:
"2020 was an exceptionally difficult year for everyone. Despite these highly challenging circumstances, the Company has continued to make progress in a number of key areas and continues to adapt its business to operate, both in the current environment, and to develop its business strategies to deliver a long-term and sustainable business.
We still retain a sharp focus on costs and conserving cash but as commodity prices improve we will continue to invest in our assets where appropriate and to move ahead purposefully with our geothermal and hydrogen projects."
Extract from Chief Executive's Statement:
Net production for the period averaged 1,907 boepd, in line with our revised forecast of 1,850 - 2,050 for the full year. We anticipate net production in 2021 of between 2,150 boepd and 2,350 boepd, assuming there are no further significant disruptions to our business from COVID-19.
In May 2020, when the oil price was trading at c.$25/bbl, we announced a temporary shut-in of a number of fields for the months of May and June. The impact of the shut-ins was a reduction in production by c.600 boepd for this period. This action had a positive impact on cash flow during these two months of c.£0.5 million. Those employees that were impacted by the shut-ins were furloughed in line with the Government scheme.
We have, since then, returned all but two fields back to production following improvements in the oil price. As the majority of our sites are 100% owned and operated by us, it gave us the flexibility to take shut-in decisions quickly and the ability to rapidly restore production, at some of our fields, once energy prices improved.
Given the fall in oil prices, we reviewed our capital expenditure programme for the year and reduced it broadly by half to focus on maintenance capex, abandonment and capital for projects already in execution which amounted to £6.0 million. IGas retains significant flexibility over its capital expenditure, and will ensure that as we move forward, expenditure commitments are appropriate in the macro environment.
It is our highest priority to continue to operate all of our assets in a safe and responsible manner, to ensure the safety of our workforce and communities in which we work and to minimise the potential risk to the environment. Throughout 2020, we worked closely with all our regulators to ensure we met the stringent guidelines in respect to COVID-19.
Reserves and Resources
In February 2021, IGas announced the publication of the Competent Persons Report (CPR) by DeGolyer & MacNaughton (D&M), a leading international reserves and resources auditor.
|Reserves & Resources as at 31st Dec 2019||10.55||16.05||19.51|
|Production during the period||(0.68)||(0.68)||-|
|Revision of estimates||1.87||1.75||0.84|
|Reserves & Resources as at 31st Dec 2020||11.74||17.12||20.35|
The report confirms a continuing high reserves replacement of 2P reserves of approximately 250% reflecting the good performance of our production assets and progression of projects demonstrating the significant upside that remains in our conventional portfolio. Some 75% of the 2P is developed meaning it does not require any capital investment to produce.
IGas has a track record of significant reserves replacement with a three-year average of over 200%.
This independent report valued our conventional assets at c.$204 million on a 2P NPV10 basis: 1P NPV10 of $150 million (based on forward oil curve of 2021 $53/bbl; 2022 $56/bbl; 2023 $58/bbl; 2024 $59/bbl; 2025 $62/bbl).
In spite of the considerable challenges related to the COVID-19 pandemic, we commenced water injection at our Scampton North site on schedule and on budget in July 2020. As well as increasing oil production, the in-field pipeline and a new processing facility at the Scampton North C-Site will provide greater efficiency and environmental improvements by reducing venting, the need to truck water to the Welton Gathering Centre, as well as increasing the amount of gas available for power generation. The latest D&M CPR estimates this project will increase production from the Scampton field by 180 Mbbl (2P-Proved plus Probable reserves) and our mid-case economics for the project have an IRR of over 40% and a NPV of £2.5 million (which assumes a long-term oil price of $55/bbl).
Our second waterflood opportunity in the southern section of the Welton Field experienced delays predominantly with the supply chain and resource availability due to the pandemic, however, the project was brought online in January 2021, slightly behind our planned initial production of Q4 2020 and largely in line with budget. This is a material project in IGas's inventory, developing approximately 660 Mbbl of 2P reserves and adding over 100 bopd incremental production with a base case NPV10 of c.£7 million (assuming a long-term oil price of $55/bbl).
Both these projects are important advancements in developing the Company's 2P reserves.
Work on other projects, to appraise the potential that exists in our prospective resources such as the prospect at Godley Bridge in the South-east, will ramp-up again once there is more certainty in energy prices.
Gas from Shale
The effective moratorium on high volume hydraulic fracturing for shale-gas, that was introduced by the Government in November 2019, remains in place until new evidence is provided. IGas, along with its industry peers, continues to be committed to working closely with the OGA and other regulators to demonstrate that we can operate safely and in an environmentally responsible manner, and we remain confident of doing so by adopting a rigorous scientific approach.
It is worth noting that the Gainsborough Trough, where our world-class Springs Road gas asset is situated, is characterised by its structural simplicity and limited faulting. This has been confirmed by the recent reinterpretation of the 69 sq km reprocessed 3D seismic data around the Springs Road area which was originally acquired in 2014.
In November 2020, IGas submitted a Section 73 Planning Application to vary a condition of our existing Planning Permission in order to extend the operational period of the site for a further three years. The application was validated by Nottinghamshire County Council the same month.
Ellesmere Port Appeal
Our application to conduct a well test at our existing Ellesmere Port well, originally drilled in November 2014, was submitted on 21 July 2017. Following the Planning Committee's refusal against Officer recommendation in January 2018, a 12-day Planning Appeal was held between 15 January 2019 and 6 March 2019. The Secretary of State recovered the appeal on 27 June 2019. Some 21 months later and 44 months after the initial application, a decision is still awaited, despite the Written Ministerial Statement in May 2018 committing to a rapid turnaround in decisions.
Despite the challenges the pandemic has presented, we completed a significant transaction with the acquisition of the geothermal developer, GTE. This equity-funded deal was a major strategic milestone for the Company given our intention to play an important role in the UK's energy transition and is a logical step given the development and operational synergies with our onshore business.
There are many synergies between our existing skill sets. Essentially this is a very similar process in terms of geological interpretation, drilling, completion and facility design; we are just looking for a different resource, a permeable heat reservoir.
GTE's principal project is a 14MW deep geothermal project in the Etruria Valley, Stoke-on-Trent. The project is anticipated to supply zero carbon heat to the city of Stoke-on-Trent on a long-term 'take or pay' contract with Stoke-on-Trent City Council (SoTCC). It is anticipated that the heat will be supplied through the SoTCC owned and operated district heating network, which is undergoing installation. All the geophysical work on the project is complete and the necessary permitting in place. We await the grant of the renewed planning permission.
Like many other things however, COVID-19 has taken its toll on the project and this has meant that all construction of the heat network has paused and the TPA (thermal purchase agreement) has not been completed. However, in an effort to progress the project, we have entered into discussions with the council and Engie to deliver the project. This structure would take all financial risk away from the council and allow the project to proceed at a faster pace.
Discussions with Government regarding future financial support for renewable heat from geothermal beyond the closure of the Non-domestic Renewable Heat Incentive on 31 March 2021, are both ongoing and positive.
The Renewable Energy Association (REA) and ARUP supported by GTE and other industry players will launch a report in April 2021 into the economic opportunity of harnessing deep geothermal energy to solve the decarbonisation of heat in the UK. The report will highlight the significant geothermal resource that exists within the UK and show how other European countries with similar resources have been successful in exploiting their resources. A number of MP's have already indicated their support for developing an industry to harness geothermal.
We have identified a number of strategic geothermal development locations across the UK and are working at converting these into a development pipeline of projects. Areas include Newcastle, Crewe, and Southampton.
In October 2020, IGas announced that it had entered into a partnership agreement with BayoTech, a manufacturer of modular SMR equipment.
BayoTech, whose high efficiency, low carbon technologies originated in Sandia National Laboratories, is a hydrogen generation technology company offering hydrogen production solutions through rentals, leases, sales and gas as a service to customers worldwide. Headquartered and produced in New Mexico, USA, BayoTech's on-site hydrogen generators are more efficient than legacy SMRs, leading to lower carbon emissions and low-cost hydrogen. In January 2021, BayoTech received an equity investment of up to $157 million from Newlight Partners LP, to accelerate its strategic growth.
The company's intent is to utilise this equipment to produce high quality hydrogen from its gas producing assets and from stranded gas assets.
IGas has initially identified two of its existing sites, in the South-east, where the gas resource can be reformed into hydrogen which will then be sold to local or national customers. We expect to advance these projects in 2021.
Given the rapidly changing environment that the COVID-19 pandemic has created, it is still difficult to forecast with accuracy the full extent of the pandemic's impact on business. However, through all of this, the underlying operations of the company remained safe and steadfast, and projects continued to be brought online. None of this could have been achieved without the commitment and resilience of all our teams.
I am excited about the various energy transition opportunities that we have identified in our existing and new businesses. Our land portfolio is well suited to the development of renewable and hybrid flexible power generation and our assets have the potential for carbon storage close to emitters.
The British Geological Survey recently estimated that geothermal energy resources in the UK are sufficient to deliver about 100 years of heat supply for the entire UK. The publication of the UK Government's Ten Point Plan and Energy White Paper provides a strong platform for our geothermal business to contribute significantly towards the decarbonisation of large-scale heat.
We look forward to advancing these and other opportunities that will allow IGas to make material contributions to the Green Energy Revolution whilst continuing to maximise returns from our conventional portfolio given the clear need for oil and gas in a 2050 net zero environment.
KeyFacts Energy: IGas Energy UK country profile