IGas Energy has announced its unaudited interim results for the six months to 30 June 2020.

Corporate & Financial Summary

• Strategic acquisition of GT Energy moving IGas into a fast growing, renewable energy market whilst utilising existing core competencies.
• Successful Reserve Base Loan (RBL) redetermination (a semi-annual recalculation), confirming US$29 million (£23.3 million) of debt capacity and headroom of US$15.2 million (£12.3 million).
• Cash balances as at 30 June 2020 were £2.6 million (H1 2019: £14.4 million) with net debt increased to £11.2 million (H1 2019: £5.9 million).
• Significant cost reduction exercise implemented. As of end of September 2020, gross cash savings are anticipated to be c. £1.6 million per annum incurring a one-off cost in 2020 of c.£0.55 million.
• £4.9 million of capex incurred during six months to 30 June 2020.  Net cash capex for FY 2020 expected to be £6.0 million, with c.£2 million in relation to production assets and c.£4.0 million on development projects (primarily Welton and Scampton).
• Operating cash flow before working capital movements in H1 2020 of £1.9 million (H1 2019: £8.7 million)
• Impairments of £34.6 million largely due to reduction in oil price.
• Hedging in place in H2 2020 for 180,000 barrels with average downside protection of $53.05/bbl using put options and swaps.

Operational Summary

• Net production averaged c.1,940 boepd in H1 2020 (H1 2019: 2,360 boepd) principally due to our decision to shut-in sites, to augment cash flow, given the low oil prices in Q2 and COVID-19 related supply chain interruptions.
• Five fields remain shut in and we continue to keep them under review.
• We are still expecting average net production for the year to be within the 1,850 - 2,050 boepd range, with underlying cash operating costs per boe anticipated to be $34/boe (based on an exchange rate of £1:$1.30).
• We have continued to progress projects in our core conventional business which have the potential to add significant value to the Company and our shareholders. These include production uplift opportunities, such as water injection (Scampton North and Welton) and in wellbore production optimisation projects.
• Full CPR published in February 2020 confirming reserves replacement of 2P reserves of c.277%.

Commenting today Stephen Bowler, Chief Executive Officer, said:
"It has been an incredibly challenging period for the business and a worrying and difficult time for all our employees coping with the COVID-19 pandemic and with the collapse in commodity prices, continued market volatility and the uncertainty that persists. It is testament to the resilience of our workforce that in spite of this, we have continued to achieve solid results in our production business, delivered the Scampton Waterflood project on budget and schedule and completed a significant transaction with the acquisition of the UK geothermal developer, GT Energy.

Our core conventional business is the driver of our future diversification and we will continue to exploit the potential that exists in our core assets and ensure we continue to invest to protect that business as oil prices improve. We will also consider other new technologies that complement our existing business, as we move forward."

Production operations

Net production for the period averaged c.1,940 boepd, in line with our revised forecast of 1,850 – 2,050 for the full year.

In May, 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 2020 and June 2020. The impact of the shut-ins was a reduction in production by c.600 boepd for this period. Due to the anticipated reduction in operating costs associated with the shut-in fields 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 the end of June, returned a number of fields back to production following improvements in the oil price. Five fields remain shut-in and we continue to keep them under review. As the majority of our sites are 100% owned and operated by us, it gave us the flexibility to take the shut-in decision quickly and the ability to rapidly restore production, at some fields, once we saw energy prices improving. Throughout the period, we have worked closely with all our regulators to ensure we continued to meet stringent guidelines in respect to COVID19.

Given the fall in oil prices in early March, we reviewed our capital expenditure programme for the year and reduced it principally to maintenance capex, abandonment and capital for projects already in execution which in aggregate is anticipated to be c.£6 million in 2020. Work on other projects to exploit the potential that exists in our prospective resources has temporarily been put on hold until energy prices improve further.

However, 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 DeGolyer & MacNaughton ("D&M"), Competent Persons Report (CPR) estimated 180 Mbbl of incremental 2P (Proved plus Probable Undeveloped) 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 has also experienced delays predominantly with the supply chain and resource availability. We will now be bringing this project online in a phased approach with water injection commencing Q4 2020 with the final water clean-up expected to be completed in early 2021. The phased approach will have little to no impact on the project economics and allows the benefit of the waterflood to be realised broadly in line with the project plan. This is a material project in IGas’s inventory, developing approximately 660 Mbbl of 2P reserves and adding over 100bbls/d incremental production with a base case NPV10 of c. £7M (assuming a long-term oil price of $55/bbl).

Both these projects are important advancements in developing the Company’s 2P reserves.

KeyFacts Energy: IGas Energy UK country profile