TIDMEME
RNS Number : 7329Z
Empyrean Energy PLC
16 September 2022
This announcement contains inside information
Empyrean Energy PLC / Index: AIM / Epic: EME / Sector: Oil &
Gas
16 September 2022
Empyrean Energy PLC ('Empyrean' or 'the Company')
Final Results
Empyrean Energy is pleased to announce its final results for the
year ended 31 March 2022 (" Report and Accounts "). The full Report
and Accounts will be made available on the Company's website in the
coming days.
As announced on 2 September 2022, the Company was unable to
publish the Company's 2022 Report and Accounts together with the
Notice of Annual General Meeting (" AGM "). Given that the Company
is required to hold an AGM each year within six months of its
financial year end, the Company's 2022 AGM will be held on 27
September 2022.
An announcement confirming the posting of the Report and
Accounts and Notice of General Meeting to approve the Report and
Accounts will be made in due course.
Highlights
Block 29/11, Pearl River Mouth Basin, China (EME 100% reverting
to 49% upon commercial discovery)
Reporting period
-- Empyrean and its partner China National Offshore Oil
Corporation (" CNOOC "), along with its technical service providers
CNOOC Enertech and China Oilfield Services Limited (" COSL ")
completed significant pre-drilling operational, technical and
permitting work throughout the year to enable the safe drilling of
the Jade prospect post reporting year end.
Post-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.
-- Post-well analysis at Jade confirmed reservoir quality better
than pre-drill estimate with regional seal confirmed and depth
conversion approach validated. Based on post-drill technical
evaluation, and CNOOC-assisted migration pathways assessment,
Empyrean decided to enter the second phase of exploration with the
aim to drill the larger Topaz prospect.
-- Topaz Drill Program targeted to commence in 2023.
Duyung PSC Project, Indonesia (EME 8.5%)
Reporting period
-- Prevailing strong gas prices have enabled the operator Conrad
Petroleum Ltd ("Conrad") to advance Gas Sales Agreement ("GSA")
negotiations with multiple interested parties.
-- Conrad has also been working with SKK Migas to enable an
upgrade to the Plan of Development ("POD") that was approved
following the discovery of Mako. Following the successful appraisal
of Mako, Gaffney Cline and Associates ("GCA") upgraded its resource
assessment for Mako and the new POD is expected to be finalised
once Ministerial approval is obtained.
-- 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%)
-- Evaluation on the project is ongoing and the Company will
continue to work with its joint venture partners in reviewing and
assessing any further technical and commercial opportunities in
Sacramento, particularly in light of strong gas prices.
Corporate
Reporting period
-- Placement and Convertible Note funding of US$10.14 million
(GBP7.62 million) secured in December 2021 to partially fund Jade
Prospect drilling.
-- Placement to raise US$6.92 million (GBP5.02 million) completed in July 2021.
Post-Reporting period
-- Placement to raise US$2.25 million (GBP1.83 million) completed in May 2022.
Empyrean CEO Tom Kelly said , "Empyrean's key focus during the
year was completing the necessary activities required in
preparation for the drilling of the initial exploration well at
Jade under the PSC terms.
While the end result was not the one we had hoped for at Jade,
the achievement of safely drilling the well on time and on budget
was a credit to Empyrean's team and a great reflection of the
excellent teamwork, expertise, professionalism and cooperation
between the Company, its partner CNOOC, and its technical service
providers CNOOC Enertech and COSL.
Importantly, post the drilling at Jade, Empyrean has been able
to combine our excellent quality 3D seismic data with the confirmed
well data from Jade resulting in post well analysis that has
improved the validity of the Topaz prospect as a robust and large
drilling target of approximately 891 million barrels in place
(P10). We have therefore 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.
In Indonesia, Empyrean looks forward to maximising the value
from its interest in the Mako Gas Field which would strengthen the
Company's balance sheet and help fund the drilling of Topaz.
In California, while activity and expenditure was limited during
the year, the operator Sacgasco continues to evaluate the project
and Empyrean will review and assess any further technical and
commercial opportunities as they come to hand, particularly in
light of strong gas prices for gas sales in the Sacramento
Basin.
As always, the Company continually assesses 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
or through further equity or debt funding. The Company has also
successfully restructured its convertible note.
In addition to its existing projects, Empyrean continues to
assess a number of additional oil and gas projects that it believes
may enhance a balanced portfolio of opportunity and will update
shareholders as required.
While the Board and management share the disappointment of the
Jade well result with its shareholders, it moves forward with
renewed optimism, with good news due from Indonesia and the
learnings from Jade further de-risking Topaz which standalone has
the potential to be a Company changer."
Chairman's Statement
It was another busy year for Empyrean on its portfolio of
exploration projects during the year, primarily in China.
After an enormous amount of hard work preparing for the drilling
of the Jade prospect in China, the Company was clearly disappointed
that the drilling program post year end did not result in the
discovery of commercial hydrocarbons at the Jade Prospect.
Unfortunately, this is the nature of exploration and we take the
good with the bad.
Nevertheless, post-well evaluation in conjunction with CNOOC has
provided invaluable further interpretation of the critical elements
of effective regional oil migration pathways, with positive
implications for the second target on Block 29/11, the Topaz
prospect.
We also expect good news in the near term from Indonesia with
GSA negotiations advanced and the prospect of Empyrean realising
significant value from its interest there to follow the conclusion
of the GSA process.
As always, I would like to thank the Board, management and staff
for their efforts during the year. Empyrean retains a positive
outlook for the future and is setting its sights on value creation
from Indonesia and the further de-risked drill opportunity in
China.
Patrick Cross
Non-Executive Chairman
15 September 2022
Extract from Strategic Report
Business Overview and Likely Future Developments
The Company and its partners continued to progress exploration
and development activities at its projects during the year.
Empyrean and its 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 post
reporting year end.
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.
Following the exploration success that was achieved in Indonesia
and the significant resource upgrade of the Mako gas field, the
operator is in the process of negotiating a gas sales agreement
which would enable Empyrean to maximise shareholder value from its
interest in the project. Recent strong gas prices and a solid
demand forecast in the south-east Asian region provides additional
momentum and urgency.
In California operator Sacgasco continues to evaluate the
project(s) in light of strong gas prices for gas sales in the
Sacramento Basin. Empyrean is content to work with its joint
venture partners in reviewing and assessing any further technical
and commercial opportunities as they are presented, while keeping
expenditures to a minimum, currently consisting mainly of meeting
cash calls for joint venture overheads.
Further details on these activities are provided in the
Operations and Outlook section below.
The Company raised funds through a series of placements during
the year and post year end, and also through the entering of a
Convertible Note Agreement pursuant to which the Company received
gross proceeds of US$5.4 million (GBP4.0 million) (the "
Convertible Note "). The funds raised were 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 2022 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.
Empyrean completed a 608km(2) 3D seismic acquisition survey in
August 2017 and comprehensive processing and interpretation of the
3D seismic data, in addition to further geological work, has
confirmed the structural viability and substantial prospective
(un-risked) resources at the three key prospects ( "Jade, Topaz and
Pearl" ). These internal estimates were subsequently independently
audited and revised upwards. Migration studies, seismic inversion
work and the identification of well-defined gas clouds over the
three prospects further enhanced the technical merits of the Jade
and Topaz prospects in 2019 and during the current year the
Company, along with CNOOC and its service providers, completed the
substantial pre-drilling operational, technical and permitting work
to enable to safe drilling of the Jade prospect post reporting year
end.
Post the financial year end, the Company completed drilling at
the Jade prospect, which reached final total depth of 2,849 metres
MD on 27 April 2022. The interpretation from logging while drilling
(" LWD" ) and mud logging equipment indicated no oil pay in the
target reservoir and the demobilization activities were then
completed.
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 remains a world class conventional oil target in the Jade
prospect, to which 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.
Following the Jade prospect, Topaz prospect is the second of the
three identified prospects within Block 29/11, which also contains
the Pearl prospect. 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 updated Plan of Development has been approved by SKK Migas
and is awaiting Ministerial Approval, and includes uplifted GIIP
estimates. The expected conclusion of GSA negotiations will mark a
further important step toward the final investment decision to
develop and commercialise the field, and for Empyrean to maximise
value from its interest.
In 2017 the Company entered into an agreement with ASX-listed
Sacgasco Limited ( "Sacgasco" ), a Sacramento Basin focused natural
gas developer and producer, 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 up to 25%) and
further identified follow up prospects along the Dempsey trend (EME
up to 30%).
Following completion of an appraisal and exploration well,
Dempsey 1-15, the operator tested multiple gas zones with
comprehensive testing of selected zones failing to sustain gas
flow. Following the Demspey drilling campaign, the joint venture
integrated the subsurface data with regional geology and seismic
data to evaluate additional targets with thicker reservoir units
for future drilling along the "Dempsey trend", in which Empyrean
could earn a 30% interest.
The operator matured Borba prospect was the next drilling
opportunity at the project. In October 2020 Empyrean notified
Sacgasco that it would not be participating in the proposed
drilling of the Borba prospect under the timeframes and terms
proposed by Sacgasco.
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. Further detailed
analysis on all projects is provided in the Operational Review on
page 15.
Cyber Fraud Incident
As announced to the market, in December 2021 the Company made a
payment totalling US$1.98 million to COSL, representing a 10%
deposit on the dry hole cost component of the Integrated Drilling
Contract (" IDC ") signed with COSL; however, the Company was
subsequently informed that this payment was not received by COSL
and had been paid to a fraudulent third party as a result of an
impersonation fraud perpetrated against the Company.
The Company then worked with its bank, the recipient bank and
the police authorities in three jurisdictions to initiate actions
including the freezing of the recipient bank account and the
commencement of recovery actions.
Empyrean commenced legal proceedings in the Singapore courts
against the company believed to have committed the fraud and
obtained an injunction order on 21 January 2022 to freeze its
assets and obtain further banking information. Empyrean will
continue to take the necessary steps and is taking legal advice for
the purpose of pursuing recovery of the funds involved in the
fraud. Empyrean continues to cooperate with the Singapore Police
investigation into the fraud. Empyrean has taken the steps above,
upon legal advice, in order to escalate the recovery process.
Empyrean has also reviewed its internal control policies
including overseas and domestic payment processes and has added
further authority approvals and procedures for all material
payments.
Operational Review
For much of the 2022 financial year Empyrean was focused on
completing the necessary technical, operational and permitting work
required for the commencement of drilling operations at the first
of its targets at Block 29/11, offshore China, being the Jade
Prospect. The drilling of the Jade Prospect followed several years
of methodical, targeted technical evaluation and de-risking
activities. However disappointingly, the Jade well proved to be
unsuccessful with no oil pay encountered.
The Company's corporate objective remains to build a significant
asset portfolio across the Asian region and with the Jade well
evaluation work confirming reservoir quality and the regional seal
and 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 large-scale Topaz prospect.
Empyrean is excited about the significant value potential of its
interest in Indonesia. Following the discovery of high quality gas
in the first exploration well and successful appraisal program, the
project has been further supported by increasingly strong gas
prices in the Asian region. As a result, the Company anticipates
that the operator will conclude the current negotiations of the GSA
in the near term. Execution of the GSA would enable Empyrean to
maximise shareholder value from its interest in the project.
Empyrean also has a 25-30% working interest in a package of gas
projects in the Sacramento Basin, onshore California. The Company
remains an active joint venture partner and 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
Subsequent to year end, 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.
Post Well 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. Jade
well failed due to access to effective migration pathways.
As a result, reservoir, seal and trap validity of the Topaz
prospect has 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. This 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.
The Topaz prospect has an additional oil migration pathway from
Baiyun East Sag. This 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.
Post well analysis indicates that the gas shows within the "gas
cloud" zone in the overburden at the Jade well are now interpreted
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, estimated to occur in 2023.
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
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, 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 Petroleum, 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.
Figure 2: Mako Gas field, Duyung PSC, Indonesia
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.
Following on from the highly successful appraisal drilling
campaign, Conrad engaged GCA to complete an independent resource
audit for the Mako Gas Field which confirmed a significant resource
upgrade for the Mako Gas Field and confirmed Mako to be one of the
largest undeveloped gas fields in the West Natuna Basin and is
currently by far the largest undeveloped resource in the immediate
area.
The GCA estimates of gross (full field) recoverable dry gas
audited in the 2020 GCA Audit are:
Contingent 2020 GCA Audit
Resource Estimates
Bcf
---------------
1C (Low Case) 287
---------------
2C (Mid Case) 495
---------------
3C (High
Case) 817
---------------
The full field resources above are classified in the 2020 GCA
Audit as contingent. Gas volumes are expected to be upgraded to
reserves when certain commercial milestones are achieved, including
execution of a Gas Sale Agreement ( "GSA" ) and a final investment
decision ( "FID" ).
SKK Migas (the Indonesian regulator) accepted the significantly
uplifted estimates of GIIP, which are broadly in line with the
independent resource audit by GCA.
The SKK Migas Accepted Mako Gas in Place estimates are:
GROSS (100%) GIIP (BSCF) Updated
Reservoir Low Best High
---------- ------------ -----------
Upper Sand 358 525 687
---------- ------------ -----------
Lower Sand 26 41 78
---------- ------------ -----------
Total 384 566 766
---------- ------------ -----------
3C (High Case) 392 817 108
---------- ------------ -----------
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.
Current Status
During the current year regional gas prices in Europe and South
East Asia have remained strong and that macro environment is
creating incentive for the negotiations of the current Heads of
Agreements for gas offtake at Mako to be negotiated to a binding
GSA.
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.
The first prospect that was drilled in 2018 was the Dempsey
Prospect. Whilst several potentially gas bearing zones were
intersected in the well, comprehensive testing of selected zones
failed to sustain gas flow. Following the Dempsey drilling
campaign, the joint venture integrated the subsurface data with
regional geology and seismic data to evaluate additional targets
with thicker reservoir units for future drilling along the "Dempsey
trend", in which Empyrean could earn a 30% interest.
The operator matured Borba prospect was the next prospect
drilled however in 2020 Empyrean notified Sacgasco that it would
not be participating in this drilling campaign.
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 but given
the current status and presence of impairment indicators the
Company took the conservative measure of fully impairing
expenditure incurred at the project as at the reporting date.
Riverbend Project (10%)
Located in Jasper County, Texas, USA, the Cartwright No.1
re-entry well produces gas and condensate from the arenaceous
Wilcox Formation.
The Cartwright No.1 well is currently virtually suspended
producing only nominal amounts of gas condensate.
Little or no work has been completed on the project in the year
and no budget has been prepared for 2022/23 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)
The Eagle Oil Pool Development Projects is located in the
prolific San Joaquin Basin onshore, southern California.
No appraisal operations were carried out during this period. It
is anticipated that, should there be a sustained improvement in the
oil price, a vertical well test of the primary objective, the
Eocene Gatchell Sand, followed by a horizontal appraisal well,
would be the most likely scenario.
Little or no work has been completed on the project in the year
and no budget has been prepared for 2022/23 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 30 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.
Extract from Director's 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$19,000 (2021:
US$150,000) and made a loss after income tax of US$8.11 million
(2021: loss of US$ 0.95 million).
The Directors have prepared cash flow forecasts for the Company
covering the period to 31 December 2023 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. In addition, the Company is required
to repay the principal owing on the Convertible Note prior to 1
December 2022, being GBP3.3 million as at the date of this report,
in accordance with the restructured terms announced to the market
on 10 May 2022. 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.
In May 2022 US$2.25 million was raised through an equity
placement to complete further post well analysis of the Jade well,
satisfy any further costs associated with the Jade drill, 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. 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 Convertible Note will be
met, having a successful track record of equity (and debt) funding
including funding the recently drilled Jade well.
It is the belief of the Board that there are likely value
catalysts throughout the next 12 months leading up to drilling -
including maximising the value of its interest at the Mako Gas
field and activities leading into the intended drilling of the
Topaz Prospect. There are a number of key milestones for the
Project, each of which brings the Project closer to production.
Each milestone reduces risk and increases the value of the Project.
The major milestones are approval by the Indonesian Government of a
revised Plan of Development that is currently before them, signing
of the GSA(s), completion of front-end engineering design, final
investment decision and production. Empyrean's interest can be sold
at any stage but with two of these major milestones due imminently
without any further funding required, it is the Board's current
intention to at least achieve those milestones before considering a
sale versus funding through to production.
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.
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:
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).
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. As a result of the unsuccessful
well at Jade, Empyrean has, in accordance with applicable
accounting standards, written off all historical expenditure
incurred on Block 29/11 and also the dry hole costs associated with
the Jade drilling program subsequent to year end, together being
US$22.04 million.
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.
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 GBP3.3 million;
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.
In June 2022, Empyrean announced that following the completion
of post well analysis at Jade it would be entering the second phase
of exploration with the aim to drill 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$250,000 and the
work obligation is the drilling of an exploration well within 2
years.
In September 2022, the Company announced that the partners in
the Duyung PSC had approved the updated POD and have secured
alignment with SKK Migas on the plan. The POD has been submitted to
the Indonesian Ministry of Energy and Mineral Resources for
approval and an Operator commissioned Competent Persons Report has
been prepared by GCA for the Mako development.
No other matters or circumstances have arisen since the end of
the financial year which significantly affected or could
significantly affect the operations of the Company, the results of
those operations, or the state of affairs of the Company in future
financial years.
Statement of Comprehensive Income
For the Year Ended 31 March 2022
2022 2021
Notes US$'000 US$'000
Revenue - -
-------- --------
Expenses
Administrative expenses (377) (351)
Compliance fees (302) (225)
Directors' remuneration 4 (402) (387)
Foreign exchange differences 3 (518) 20
Impairment - exploration and evaluation
assets 8 (4,127) (3)
Cyber fraud loss 3 (1,981) -
Total expenses (7,707) (946)
Operating loss 3 (7,707) (946)
Finance expense 5 (402) (7)
Loss from continuing operations before
taxation (8,109) (953)
Tax expense in current year 6 (1) -
-------- --------
Loss from continuing operations after
taxation (8,110) (953)
-------- --------
Total comprehensive loss for the year (8,110) (953)
======== ========
Loss per share from continuing operations
(expressed in cents)
- Basic 7 (1.43)c (0.20)c
- Diluted (1.43)c (0.20)c
The accompanying accounting policies and notes form an integral
part of these financial statements.
Statement of Financial Position
As at 31 March 2022
Company Number: 05387837 2022 2021
Notes US$'000 US$'000
Assets
Non-Current Assets
Exploration and evaluation assets 8 24,907 14,643
Total non-current assets 24,907 14,643
Current Assets
Trade and other receivables 9 36 36
Corporation tax receivable 6 - 358
Cash and cash equivalents 19 150
--------- ---------
Total current assets 55 544
Liabilities
Current Liabilities
Trade and other payables 10 1,299 667
Provisions 140 111
Convertible loan notes 11 4,125 -
Derivative financial liabilities 12 722 -
Total current liabilities 6,286 778
Net Current Liabilities (6,231) (234)
--------- ---------
Net Assets 18,676 14,409
========= =========
Shareholders' Equity
Share capital 14 1,809 1,398
Share premium reserve 41,285 29,408
Warrant and share-based payment reserve 576 487
Retained losses (24,994) (16,884)
--------- ---------
Total Equity 18,676 14,409
========= =========
The accompanying accounting policies and notes form an integral
part of these financial statements.
Statement of Cash Flows
For the Year Ended 31 March 2022
2022 2021
Notes US$'000 US$'000
Operating Activities
Payments for operating activities (1,240) (831)
Receipt of corporation tax 358 -
--------- --------
Net cash outflow for operating activities 13 (882) (831)
Investing Activities
P ayments for exploration and evaluation 8 (14,391) (1,159)
Payments due to cyber fraud (1,981) -
Net cash outflow for investing activities (16,372) (1,159)
Financing Activities
Issue of ordinary share capital 11,805 2,094
Proceeds from exercise of warrants 623 -
Proceeds from borrowings 11 5,412 -
Payment of finance costs (271) -
Payment of equity issue costs (463) (163)
--------- --------
Net cash inflow from financing activities 17,106 1,931
Net decrease in cash and cash equivalents (148) (59)
Cash and cash equivalents at the start
of the year 150 189
Forex gain/(loss) on cash held 17 20
--------- --------
Cash and Cash Equivalents at the End
of the Year 19 150
========= ========
The accompanying accounting policies and notes form an integral
part of these financial statements.
Statement of Changes in Equity
For the Year Ended 31 March 2022
Share Share Warrant Retained Total
Capital Premium & Share- Losses Equity
Reserve Based Payment
Reserve
Notes US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 April
2020 1,291 27,811 153 (15,931) 13,324
========= ========= =============== ========== ==========
Loss after tax for
the year - - - (953) (953)
Total comprehensive
loss for the year - - - (953) (953)
--------- --------- --------------- ---------- ----------
Contributions by
and distributions
to owners
Shares issued in
the period 14 107 1,760 227 - 2,094
Equity issue costs - (163) - - (163)
Share-based payment
expense - - 100 - 100
Finance expense
(share-based) - - 7 - 7
--------- --------- --------------- ---------- ----------
Total contributions
by and distributions
to owners 107 1,597 334 - 2,038
--------- --------- --------------- ---------- ----------
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 31 March
2022 1,809 41,285 576 (24,994) 18,676
========= ========= =============== ========== ==========
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 2022
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 judgment
in applying the Company's accounting policies. The areas where
significant judgments and estimates have been made in preparing the
financial statements and their effect are disclosed below.
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$19,000 (2021:
US$150,000) and made a loss after income tax of US$8.11 million
(2021: loss of US$0.95 million).
The Directors have prepared cash flow forecasts for the Company
covering the period to 31 December 2023 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. In addition, the Company is required
to repay the principal owing on the Convertible Note prior to 1
December 2022, being GBP3.3 million as at the date of this report,
in accordance with the restructured terms announced to the market
on 10 May 2022. 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.
In May 2022 US$2.25 million was raised through an equity
placement to complete further post well analysis of the Jade well,
satisfy any further costs associated with the Jade drill, 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. 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 Convertible Note will be
met, having a successful track record of equity (and debt) funding
including funding the recently drilled Jade well.
It is the belief of the Board that there are likely share price
catalysts throughout the next 12 months leading up to drilling -
including maximising the value of its interest at the Mako Gas
field and activities leading into the intended drilling of the
Topaz Prospect. There are a number of key milestones for the
Project, each of which brings the Project closer to production.
Each milestone reduces risk and increases the value of the Project.
The major milestones are approval by the Indonesian Government of a
revised Plan of Development that is currently before them, signing
of the GSA(s), completion of front-end engineering design, final
investment decision and production. Empyrean's interest can be sold
at any stage but with two of these major milestones due imminently
without any further funding required, it is the Board's current
intention to at least achieve those milestones before considering a
sale versus funding through to production.
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.
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 2021 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.
Impairment tests are carried out on a regular basis to identify
whether the asset carrying values exceed their recoverable amounts.
There is significant estimation and judgement in determining the
inputs and assumptions used in determining the recoverable
amounts.
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 2021 or 31 March 2022.
(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 component parts of convertible loan notes issued by the
Company are classified separately as financial liabilities and
equity in accordance with the substance of the contractual
arrangements and the definitions of a financial liability and an
equity instrument, where material.
At the date of issue, the fair value of the liability component
is estimated using the prevailing market interest rate for a
similar non-convertible instrument. This amount is recorded as a
liability on an amortised cost basis using the effective interest
method until extinguished upon conversion or at the instrument's
maturity date.
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.
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
throughout the reporting period to enable to safe drilling,
although ultimately unsuccessful drilling of the Jade prospect post
reporting year end. As a result of the unsuccessful well at Jade,
Empyrean has, in accordance with applicable accounting standards,
written off all historical expenditure incurred on Block 29/11 and
also the dry hole costs associated with the Jade drilling program
subsequent to year end, together being US$22.04 million. At 31
March 2022, there were no conditions, facts or circumstances
present which lead the Company to believe the Jade well would be
dry, therefore it does not constitute an adjusting event under the
requirements of IAS 10 Events after the Reporting Period.
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. As this is an impairment indicator under
IFRS 6, management has taken the decision to impair all expenditure
incurred on the project to date as at 31 March 2022.
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 2022.
(b) Share based payments (judgement)
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 have also been issued to
shareholders as part of their subscription for shares and suppliers
for services received.
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 the more detail in Note
14.
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 2022
Unallocated corporate
expenses - - - (1,599) (1,599)
-------- ---------- -------- ---------- --------
Operating loss - - - (1,599) (1,599)
Finance expense - - - (402) (276)
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
======== ========== ======== ========== ========
Details China Indonesia USA Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000
31 March 2021
Unallocated corporate expenses - - - (943) (943)
-------- ---------- -------- ---------- --------
Operating loss - - - (943) (943)
Finance expense - - - (7) (7)
Impairment of oil and gas
properties - - (3) - (3)
Loss before taxation - - (3) (950) (953)
Tax benefit in current - - - - -
year
-------- ---------- -------- ---------- --------
Loss after taxation - - (3) (950) (953)
-------- ---------- -------- ---------- --------
Total comprehensive loss
for the financial year - - (3) (950) (953)
======== ========== ======== ========== ========
Segment assets 6,537 4,052 4,054 - 14,643
Unallocated corporate assets - - - 544 544
-------- ---------- -------- ---------- --------
Total assets 6,537 4,052 4,054 544 15,187
======== ========== ======== ========== ========
Segment liabilities - - - - -
Unallocated corporate liabilities - - - 778 778
-------- ---------- -------- ---------- --------
Total liabilities - - - 778 778
======== ========== ======== ========== ========
Note 3. Operating Loss
2022 2021
US$'000 US$'000
The operating loss is stated after charging:
Audit and tax fees (94) (97)
Foreign exchange differences (518) 20
Impairment - exploration and evaluation
assets (4,127) (3)
Cyber fraud loss(a) (1,981) -
Auditor's Remuneration
Amounts paid to BDO LLP and their associates in respect of
both audit and non-audit services:
Fees payable to the Company's auditor
for the audit of the Company annual accounts 73 45
Fees payable to the Company's auditor
and its associates in respect of:
- Other services relating to taxation 12 14
-------- --------
Total auditor's remuneration 85 59
(a) In December 2021, the Company announced a payment totalling
US$1.98 million to COSL, representing a 10% deposit on the dry hole
cost component of the Integrated Drilling Contract ("IDC") signed
with COSL; however, the Company was subsequently informed that this
payment was not received by COSL and had been paid to an unknown
third party as a result of an impersonation fraud perpetrated
against the Company.
The Company then worked with its bank, the recipient bank and
the police authorities in three jurisdictions to initiate actions
including the freezing of the recipient bank account and the
commencement of recovery actions.
Empyrean has commenced legal proceedings in the Singapore courts
against the company believed to have committed the fraud and has
obtained an injunction order on 21 January 2022 to freeze its
assets and obtain further banking information. Empyrean will take
the necessary steps and is taking legal advice for the purpose of
pursuing recovery of the funds involved in the fraud. Empyrean
continues to cooperate with the Singapore Police investigation into
the fraud. Empyrean has taken the steps above, upon legal advice,
in order to escalate the recovery process.
Empyrean has also reviewed its internal control policies
including overseas and domestic payment processes and has added
further authority approvals and procedures for all material
payments.
Note 4. Directors' Emoluments
Fees and Salary Bonus Payment Social Security Short-Term Employment
Contributions Benefits (Total)
2022 2021 2022 2021 2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Non-Executive
Directors:
Patrick
Cross 25 24 - - 2 2 27 26
John Laycock 15 14 - - 1 1 16 15
Executive
Directors:
Thomas
Kelly(a) 304 291 - - - - 304 291
Gajendra
Bisht(b) 220 220 - - - - 220 220
Total 564 549 - - 3 3 567 552
-------- -------- -------- -------- -------- -------- ----------- -----------
Capitalised
to E&E(b) (165) (165) - - - - (165) (165)
-------- -------- -------- -------- -------- -------- ----------- -----------
Total
expensed 399 384 - - 3 3 402 387
======== ======== ======== ======== ======== ======== =========== ===========
(a) Services provided by Apnea Holdings Pty Ltd, of which Mr
Kelly is a Director. In addition to the Director fees above, Apnea
Holdings Pty Ltd was paid US$95,000 for capital raising services
for the July 2021 Placement which raised US$6.92 million. 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 7).
The average number of Directors was 4 during 2022 and 2021. The
highest paid director received US$304,000 (2021: US$291,000).
Note 5. Finance Expense
2022 2021
US$'000 US$'000
Interest - convertible loan notes (Note (253) -
11)
Finance expense - equity facility options
(Note 14) (23) (7)
Fair value adjustment - derivative financial (126) -
liabilities (Note 12)
Total finance expense (402) (7)
======== ========
Note 6. Taxation
2022 2021
US$'000 US$'000
Opening balance (358) (358)
AMT Federal Credit received during year 358 -
---------- --------
Total corporation tax receivable - (358)
========== ========
Factors Affecting the Tax Charge for
the Year
Loss from continuing operations (8,109) (953)
---------- --------
Loss on ordinary activities before tax (8,109) (953)
Loss on ordinary activities at US rate
of 21% (2021: 21%) (1,703) (200)
Non-deductible expenses 1,328 23
Movement in provisions 6 7
Carried forward losses on which no DTA
is recognised 368 170
(1) -
Analysed as:
Tax expense on continuing operations (1) -
---------- --------
Tax expense in current year (1) -
========== ========
Deferred Tax Liabilities
Temporary differences - exploration 1,669 1,657
Temporary differences - other 4 4
---------- --------
1,673 1,661
Offset of deferred tax assets (1,673) (1,661)
---------- --------
Net deferred tax liabilities recognised - -
========== ========
Unrecognised Deferred Tax Assets
Tax losses(a) 3,609 3,555
Temporary differences - exploration 4,101 2,946
Temporary differences - other 1,054 824
---------- --------
8,764 7,325
Offset of deferred tax liabilities (1,673) (1,661)
---------- --------
Net deferred tax assets not brought to
account 7,091 5,664
========== ========
(a) If not utilised, carried forward tax losses of approximately
US$9.87 million (2021: $9.63 million) begin to expire in the year
2033.
Deferred tax assets and deferred tax liabilities are offset only
if applicable criteria to set off is met.
Note 7. Loss Per Share
The basic loss per share is derived by dividing the loss
after taxation for the year attributable to ordinary shareholders
by the weighted average number of shares on issue being 565,853,821
(2021: 479,537,844).
2022 2021
Loss per share from continuing operations
Loss after taxation from continuing operations US$(8,110,000) US$(953,000)
Loss per share - basic (1.43)c (0.20)c
Loss after taxation from continuing operations
adjusted for dilutive effects US$(8,110,000) US$(953,000)
Loss per share - diluted (1.43)c (0.20)c
For the current and prior financial years, the exercise of
the options is anti-dilutive and as such the diluted loss
per share is the same as the basic loss per share. Details
of the potentially issuable shares that could dilute earnings
per share in future periods are set out in Note 14.
Note 8. Exploration and Evaluation Assets
2022 2021
US$'000 US$'000
Balance brought forward 14,643 9,850
Additions(a)(b) 14,391 847
Transfers - 3,949
Impairment(c)(d) (4,127) (3)
Net book value 24,907 14,643
======== ========
(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 post
reporting year end. As a result of the unsuccessful well at Jade,
Empyrean has, in accordance with applicable accounting standards,
written off all historical expenditure incurred on Block 29/11 and
also the dry hole costs associated with the Jade drilling program
subsequent to year end, together being US$22.04 million. At 31
March 2022, there were no conditions, facts or circumstances
present which lead the Company to believe the Jade well would be
dry, therefore it does not constitute an adjusting event under the
requirements of IAS 10 Events after the Reporting Period. Post-well
analysis at Jade however has confirmed reservoir quality is better
than pre-drill estimates with regional seal confirmed and the depth
conversion approach validated. As a part of post-well evaluation,
CNOOC geochemical and basin modelling experts together with
Empyrean have interpreted the critical elements of effective
regional oil migration pathways-leading to positive implications
for the Topaz prospect, and ultimately the decision to proceed with
the second phase of exploration at Block 29/11, being the drilling
of the Topaz Prospect before June 2024.
(c) While the Company will continue to work with its joint
venture partners in reviewing and assessing any further technical
and commercial opportunities as they relate to the Sacramento Basin
project, particularly in light of strong gas prices for gas sales
in the region, it has not budgeted for further substantive
exploration expenditure. As this is an impairment indicator under
IFRS 6, management has taken the decision to impair all expenditure
incurred on the project to date as at 31 March 2022.
(d) In light of current market conditions, little or no work has
been completed on the Riverbend or Eagle Oil projects in the year
and no substantial project work is forecast for either project in
2022/23 whilst the Company focuses on other projects. Whilst the
Company maintains legal title it has continued to fully impair the
carrying value of the asset at 31 March 2022.
2022 2021
Project Operator Working Carrying Carrying
Interest Value Value
US$'000 US$'000
Exploration and
evaluation
China Block 29/11 Empyrean Energy 100%(1) 20,662 6,537
Sacramento Basin Sacgasco 25-30% - 4,054
Duyung PSC Conrad Petroleum 8.5% 4,245 4,052
Riverbend Huff Energy 10% - -
Eagle Oil Pool Strata-X 58.084% - -
Development
----------- -----------
24,907 14,643
=========== ===========
1. In the event of a commercial discovery, and subject to the
Company entering PSC, CNOOC Limited will have a back in right
to 51% of the permit. As at the date of these financial statements
no commercial discovery has been made.
Note 9. Trade and Other Receivables
2022 2021
US$'000 US$'000
Accrued revenue 30 30
VAT receivable 6 6
Total trade and other receivables 36 36
======== ========
Note 10. Trade and Other Payables
2022 2021
US$'000 US$'000
Trade payables 293 504
Accrued expenses(a) 1,006 163
Total trade and other payables 1,299 667
======== ========
(a) Accrued expenses includes expenditure incurred pre-31 March
2022 in relation to drilling the China Block 29/11 Jade prospect
post-year end.
Note 11. Convertible Loan Notes
2022 2021
US$'000 US$'000
Current
Opening balance - -
Drawdowns(a) 5,412 -
Conversions(b) (919) -
Costs of finance (211) -
Foreign exchange loss (157) -
Total convertible loan notes - current 4,125 -
======== ========
(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). The
Convertible Note has a maturity date of 16 December 2022 and the
Lender can 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 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 22 March 2022 the Company advised that it had received a
conversion notice to convert 8,750,000 Ordinary Shares at a
conversion price of 8.0p per share under the existing Convertible
Loan Note Agreement. The partial conversion reduced the amount
owing on the Convertible Note by US$0.92 million (GBP0.7
million).
Note 12. Derivative Financial Liabilities
2022 2021
US$'000 US$'000
Current
Opening balance - -
Issue of warrants(a)(b) 596 -
Fair value revaluation(a)(b) 126 -
Total derivative financial liabilities 722 -
- current
======== ========
(a) 41,849,249 Placement Warrants were issued to subscribers of
the Placement announced on 9 July 2021. The warrants have an
exercise price of GBP0.12 and expire on 22 July 2022. The warrants
have been valued using a Black-Scholes model and the fair value of
US$489,000 was recorded as a derivative financial liability. As a
financial liability at fair value through profit or loss these were
revalued at the year end. Refer to Note 14 for valuations and
assumptions of the warrants.
(b) As detailed in the announcement on 9 July 2021, any
Placement Warrants that were exercised by 22 October 2021
(subsequently extended to 12 November 2021) were entitled to
receive replacement incentive warrants ("Substitute Warrants" and
"Bonus Warrants"), resulting in an additional 3,808,333 Substitute
Warrants and 3,808,333 Bonus Warrants being issued on exercise of
Placement Warrants. The Substitute Warrants have an exercise price
of GBP0.12 and expire on 22 October 2022. The Bonus Warrants have
an exercise price of GBP0.18 and expire on 22 July 2023. The
Substitute and Bonus Warrants have been valued using a
Black-Scholes model and the fair value of US$109,000 was recorded
as a derivative financial liability. As a financial liability at
fair value through profit or loss these were revalued at the year
end. Refer to Note 14 for valuations and assumptions of the
warrants.
Note 13. Reconciliation of Net Loss
2022 2021
US$'000 US$'000
Loss before taxation (8,109) (953)
Share-based payments 66 100
Finance expense (non-cash) 148 7
Impairment - exploration and evaluation
assets 4,127 3
Cyber fraud loss 1,981 -
Forex loss/(gain) 518 (20)
Decrease/(increase) in trade receivables
relating to operating activities - (1)
Increase in trade payables relating - -
to operating activities
Increase in provisions 29 33
-------- --------
Net cash outflow from operating activities
before taxation (1,240) (831)
-------- --------
Receipt of corporation tax 358 -
-------- --------
Net cash outflow from operating activities (882) (831)
======== ========
Note 14. Share Capital
2022 2021
US$'000 US$'000
646,070,780 (2021: 489,430,615) ordinary
shares of 0.2p each 1,809 1,398
------------ ------------
2022 2021
No. No.
a) Fully Paid Ordinary Shares of 0.2p
each - Number of Shares
At the beginning of the reporting year 489,430,615 447,597,577
Shares issued during the year:
144,081,832 -
* Placements(a)(b)
8,750,000 -
* Partial conversion of Convertible Note(c)
3,808,333 -
* Exercise of warrants
* Placements & Subscriptions - prior year - 41,833,038
------------ ------------
Total at the end of the reporting year 646,070,780 489,430,615
============ ============
2022 2021
US$'000 US$'000
b) Fully Paid Ordinary Shares of 0.2p
each - Value of Shares
At the beginning of the reporting year 1,398 1,291
Shares issued during the year:
378 -
* Placements(a)(b)
23 -
* Partial conversion of Convertible Note(c)
10 -
* Exercise of warrants
* Placements & Subscriptions - prior year - 107
Total at the end of the reporting year 1,809 1,398
======== ========
(a) In July 2021 the Company completed a Placing to raise
US$6.92 million (GBP5.02 million) before costs, issuing 83,698,498
new ordinary shares at a price of 6.0p per Share.
(b) On 16 December 2021, the Company advised that it has secured
funding totalling US$10.14 million (GBP7.62 million) through an
equity placing and convertible loan note issue. Pursuant to the
equity placing, the Company issued 60,383,334 new ordinary shares
at a price of 6.0p per Share to raise US$4.89 million (GBP3.62
million) before costs.
(c) On 22 March 2022 the Company advised that it had received a
conversion notice to convert 8,750,000 Ordinary Shares at a
conversion price of 8.0p per share under the existing Convertible
Loan Note Agreement. The partial conversion reduced the amount
owing on the Convertible Note by US$0.92 million (GBP0.7
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 Weighted
Average Number Average
Exercise of Options Exercise Number
Price & Warrants Price Of Options
2022 2022 2021 2021
Outstanding at the beginning
of the year GBP0.094 20,233,334 GBP0.145 5,500,000
Issued during the year(a)(b) GBP0.125 49,465,915 GBP0.088 17,233,334
Cancelled during the year - - GBP0.170 (2,500,000)
Exercised during the year GBP0.120 (3,808,333) - -
-------------- ------------------- ------------- ------------------
Outstanding at the end of
the year GBP0.116 65,890,916 GBP0.094 20,233,334
============== =================== ============= ==================
(a) 41,849,249 Placement Warrants were issued to subscribers
of the Placement announced on 9 July 2021. The warrants have
an exercise price of GBP0.12 and expire on 22 July 2022. The
warrants have been valued using a Black-Scholes model and the
fair value of US$489,000 was recorded as a derivative financial
liability (Note 12).
(b) As detailed in the announcement on 9 July 2021, any Placement
Warrants that were exercised by 22 October 2021 (subsequently
extended to 12 November 2021) were entitled to receive replacement
incentive warrants ("Substitute Warrants" and "Bonus Warrants"),
resulting in an additional 3,808,333 Substitute Warrants and
3,808,333 Bonus Warrants being issued on exercise of Placement
Warrants. The Substitute Warrants have an exercise price of
GBP0.12 and expire on 22 October 2022. The Bonus Warrants have
an exercise price of GBP0.18 and expire on 22 July 2023. The
Substitute and Bonus Warrants have been valued using a Black-Scholes
model and the fair value of US$109,000 was recorded as a derivative
financial liability (Note 12).
Valuation and assumptions of options
and warrants at 31 March 2022
Employee Employee Equity Equity Subscriber Placement Substitute Bonus
Options Options Facility Facility Warrants Warrants Warrants Warrants
Options Options
Number of
Options 2,500,000 2,500,000 500,000 500,000 14,233,334 41,849,249 3,803,333 3,803,333
Grant date 17/09/19 15/09/20 24/12/19 11/09/20 11/09/20 09/07/21 12/11/21 15/11/21
Expiry date 30/09/22 10/09/23 24/12/22 17/09/23 25/09/22 22/07/22 22/10/22 22/07/23
Share price GBP0.098 GBP0.05 GBP0.084 GBP0.047 GBP0.047 GBP0.063 GBP0.073 GBP0.063
Exercise GBP0.125 GBP0.075 GBP0.123 GBP0.1014 GBP0.09 GBP0.12 GBP0.12 GBP0.18
price
Volatility 79% 81% 79% 81% 81% 82% 79% 79%
Option life 3.00 3.00 3.00 3.00 2.00 1.00 1.00 1.70
Expected - - - - - - - -
dividends
Risk-free
interest
rate (based
on national
government
bonds) 0.49% 0.14% 0.52% 0.14% 0.14% 0.08% 0.08% 0.08%
The options outstanding at 31 March 2022 have an exercise price
in the range of GBP0.075 to GBP0.18 (2021: GBP0.075 to GBP0.125)
and a weighted average remaining contractual life of 0.95 years
(2021: 1.64 years).
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 2022 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.
2022 2021
US$'000 US$'000
Cash and cash equivalents
AA-rated 19 150
-------- --------
Total cash and cash equivalents 19 150
======== ========
Price risk
Commodity price risk
The Company is not directly exposed to commodity price risk.
However, there is a risk that the changes in prevailing market
conditions and commodity prices could affect the viability of the
projects and the ability to secure additional funding from equity
capital markets.
Liquidity risk
Liquidity risk arises from the possibility that the Company
might encounter difficulty in settling its debts or otherwise
meeting its obligations related to financial liabilities. The
Company manages liquidity risk by maintaining sufficient cash or
credit facilities to meet the operating requirements of the
business and investing excess funds in highly liquid short-term
investments. The Company's liquidity needs can be met through a
variety of sources, including the issue of equity instruments and
short or long-term borrowings.
Alternative sources of funding in the future could include
project debt financing and equity raisings, and future operating
cash flow. These alternatives will be evaluated to determine the
optimal mix of capital resources.
The following table details the Company's non-derivative
financial instruments according to their contractual maturities.
The amounts disclosed are based on contractual undiscounted cash
flows. Cash flows realised from financial assets reflect
management's expectation as to the timing of realisation. Actual
timing may therefore differ from that disclosed. The timing of cash
flows presented in the table to settle financial liabilities
reflects the earliest contractual settlement dates.
Less 6 months 1 to Total
than 6 to 1 year 6 years
months
US$'000 US$'000 US$'000 US$'000
Convertible loan note (2022) - 4,125 - 4,125
-------- ----------- --------- --------
Trade and other payables (2022) 1,299 - - 1,299
-------- ----------- --------- --------
Trade and other payables (2021) 667 - - 667
-------- ----------- --------- --------
Capital
In managing its capital, the Company's primary objective is to
maintain a sufficient funding base to enable the Company to meet
its working capital and strategic investment needs. In making
decisions to adjust its capital structure to achieve these aims,
through new share issues, the Company considers not only its
short-term position but also its long-term operational and
strategic objectives. The Company has a track record of
successfully securing additional funding as and when required from
equity capital markets.
Foreign exchange risk
The Company operates internationally and is exposed to foreign
exchange risk arising from various currency exposures. Foreign
exchange risk arises from future commitments, assets and
liabilities that are denominated in a currency that is not the
functional currency of the Company. Currently there are no foreign
exchange hedge programmes in place. However, the Company treasury
function manages the purchase of foreign currency to meet
operational requirements.
As at 31 March 2022 the Company's gross exposure to foreign
exchange risk was as follows:
2022 2021
US$'000 US$'000
Gross foreign currency financial assets
Cash and cash equivalents - GBP 10 133
--------- --------
Total gross exposure 10 133
========= ========
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$1,000 (2021: US$13,300).
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
2022 2021
Fair Value Fair Value
US$'000 US$'000
Financial liabilities
Derivative financial liabilities (Level 722 -
3)
------------- ------------
Total financial liabilities 722 -
============= ============
Financial instruments by category are summarised below:
Financial Instruments Fair Value Through Amortised Cost
by Category Profit or Loss
31 March 31 March 31 March 31 March
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
Financial assets
Cash and cash equivalents - - 19 150
Trade and other receivables - - 36 36
Total financial assets - - 55 186
========== ========= ========= =========
Financial liabilities
Trade and other payables - - 1,299 504
Convertible loan notes - - 4,125 -
Derivative financial 722 - - -
liabilities
Total financial liabilities 722 - 5,424 504
========== ========= ========= =========
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:
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).
In April 2022, Empyrean announced that the Jade well had reached
a final total depth of 2,849 metres MD and the interpretation from
LWD and mud logging equipment indicated no oil pay in the target
reservoir. As a result of the unsuccessful well at Jade, Empyrean
has, in accordance with applicable accounting standards, written
off all historical expenditure incurred on Block 29/11 and also the
dry hole costs associated with the Jade drilling program subsequent
to year end, together being US$22.04 million.
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.
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 GBP3.3 million;
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.
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.
In September 2022 the Company announced that the partners in the
Duyung PSC had approved the updated POD and have secured alignment
with SKK Migas on the plan. The POD has been submitted to the
Indonesian Ministry of Energy and Mineral Resources for approval
and an Operator commissioned Competent Persons Report has been
prepared by GCA for the Mako development.
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 2022/23 financial year consist of
an annual assistance fee to CNOOC of US$67,000, an annual personnel
representative fee to CNOOC of approximately US$260,000 and an
annual prospecting fee of US$128,000.
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 have not been
finalised. The Company incurs quarterly cash calls of approximately
US$10,000 for overheads, geological and geophysical costs and
approximately US$48,000 for its share of associated lease
obligations annually.
Note 20. Ultimate Controlling Party
The Directors consider that there is no ultimate controlling
party of the Company.
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END
FR BKABKABKKNCD
(END) Dow Jones Newswires
September 16, 2022 02:09 ET (06:09 GMT)
Empyrean Energy (LSE:EME)
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