TIDMPGR
RNS Number : 1463R
Phoenix Global Resources PLC
26 June 2020
26 June 2020
Phoenix Global Resources plc
("Phoenix" or the "company")
Final results for the year ended 31 December 2019
Phoenix Global Resources plc (AIM: PGR; BCBA: PGR), the upstream
oil and gas company offering its investors direct exposure to
Argentina's Vaca Muerta shale formation and other unconventional
resources, announces its final results for the year ended 31
December 2019 and the publication of its 2019 Annual Report and
Accounts.
Summary
-- Drilling and completion of two unconventional horizontal
Vaca Muerta wells
at Mata Mora
-- Three new vertical Agrio development wells drilled and
completed at Puesto
Rojas
* Two wells drilled as part of the appraisal campaign
recompleted as development wells in the folded Agrio
at Puesto Rojas
-- Revenue of US$129.4 million (2018: US$177.0 million)
-- Adjusted EBITDAX(1) of US$16.9 million (2018: US$39.2
million)
-- Operating loss of US$110.2 million (2018: US$34.9 million)
-- Average daily production in 2019 of 9,236
boepd (2018: 10,249 boepd)
-- 2P reserves volumes independently assessed at 29.8 MMboe
(2018: 57.1 MMboe)
-- Contingent resources (2C) increased by 37% to 281.4 MMboe
(1)Adjusted EBITDAX excludes non-recurring operating
expenses
For further information, please contact:
Phoenix Global Resources Kevin Dennehy, CFO T: +44 20 3912 2800
plc
Shore Capital Antonio Bossi T: +44 20 7408 4090
Joint broker and nominated David Coaten
adviser
Panmure Gordon Daniel Norman T: +44 20 7886 2500
Joint broker Atholl Tweedie
Camarco Billy Clegg T: +44 20 3757 4980
Financial PR Owen Roberts
James Crothers
About Phoenix
Phoenix Global Resources is an independent oil and gas
exploration and production company focused on Argentina and listed
on both the London Stock Exchange (AIM: PGR) and the Buenos Aires
Stock Exchange (BCBA: PGR). The Company has over 0.9 million
licenced working interest acres in Argentina (of which
approximately 0.7 million are operated), 29.8 million boe of
working interest 2P reserves and average working interest
production of 9,236 boepd in 2019. Phoenix has signi cant exposure
to the unconventional opportunity in Argentina through its
approximately 0.6 million working interest acres with Vaca Muerta
and other unconventional potential.
Annual report
On 2 July 2020, the Company will be posting to shareholders a
copy of the audited annual report for the year ended 31 December
2019 together with the notice for a General Meeting, to be held at
the offices of Phoenix Global Resources at King's House, 10
Haymarket, London SW1Y 4BP at 12.00 pm on 30 July 2020. The annual
report will be made available on the Company's website at
www.phoenixglobalresources.com .
CHAIRMAN'S STATEMENT
Dear shareholders,
The company's strategic objective in 2019 was to create
additional value in its substantial portfolio of unconventional oil
and gas assets through continued appraisal and development activity
in key prospective areas, an objective that was progressed in the
year.
Continued appraisal and development of our core prospective
assets
We saw success at Mata Mora where the drilling and completion of
the first two horizontal wells delivered initial production volumes
in excess of pre-drill estimates. The success at Mata Mora has
confirmed the block as a commercial unconventional prospect in the
oil and condensate window of the Vaca Muerta.
At Puesto Rojas the company secured the first ever
unconventional licence to be issued by the Province of Mendoza. The
award of the licence recognises the substantial evaluation work
undertaken at Puesto Rojas in the last several years and,
importantly, provides the platform for future work on the
development of the unconventional resources on the concession.
Testing at Mata Mora was extended beyond the initial plan as we
worked though analysis of initial production results and detailed
analysis of well performance. This extended testing has provided us
with additional subsurface information that will be used in
planning future wells and preparing for the pilot development
project at Mata Mora.
In addition, the results from the initial vertical five-well
development campaign at Puesto Rojas were mixed. Three wells were
unsuccessful, and information obtained during drilling and
completion showed that the targeted folded Agrio formation is
significantly more complex than the seismic surveys had indicated.
The outcome of the limited campaign and the additional information
gained from it has confirmed the development of the Vaca Muerta
formation using horizontal wells and the non-folded Agrio
horizontal development as the areas of focus for future activity at
Puesto Rojas.
Recent events
Unfortunately, notwithstanding the progress made in the year,
recent events mean the company is currently faced with several
challenges. On a macro level it faces economic uncertainty in
Argentina following a change of government in December 2019 and as
a result of the continuing negotiations by the government to
restructure the country's debt. This political and economic
uncertainty has been compounded by the impact of COVID-19 and the
global collapse in demand for oil that caused oil prices to
collapse in the first half of 2020.
Currency and inflation
The economic environment in Argentina continued to be volatile
in 2019 as the Peso suffered further significant devaluation and
full-year price inflation exceeded 50%. The company benefits from a
degree of protection as the oil and gas industry operates in a
primarily Dollar-based environment and Phoenix sources its primary
funding in US Dollars outside Argentina. Nevertheless, the company
is affected by aspects of government fiscal policy. These measures
can include short-term intervention on commodity prices to curb
price inflation for fuel at the pumps or tariffs on production such
as the notional export tariff introduced in 2019 that impact
realised prices for domestic sales.
A change in government
December 2019 saw a change in government in Argentina following
the presidential elections in October 2019 where the Frente de
Todos party was returned to government under the leadership of
Alberto Fernandez. The initial primary vote held in August had
foreshadowed this result with Fernandez securing an unexpectedly
large margin of victory over the incumbent Cambiemos coalition,
headed by the then President Macri.
Immediately following the result of the August primary, the
already weakened Peso suffered further significant and immediate
devaluation driven by uncertainty in international markets over
what the newly elected government's position would be in regard to
the US$57.0 billion standby credit agreement.
Potential new legislative support for key industries
The new administration has announced its intent to provide
explicit economic and regulatory support to four key sectors of the
economy, being agriculture, oil and gas, mining, and intellectual
services. These are the sectors considered to have the greatest
potential to positively impact the Argentine economy. An imperative
in reversing the fortunes of the economy is the reduction of and
potential reversal in the current significant balance of payments
deficit.
In May 2020, the Argentine government issued a decree
establishing a fixed realised Medanito price of US$45.00/bbl. This
pricing will remain in place in the Argentine domestic market until
the Brent crude benchmark sustains a price of US$45.00/bbl or above
for 10 consecutive days. The issuance of the decree demonstrates
the intention of the government to support the industry where
possible.
The impact of COVID-19
The start to 2020 has been dominated by the emergence of the
COVID-19 virus and its rapid development as a life-threatening
global pandemic. Almost universally, the governmental response to
the pandemic has been one of containment through lock-down,
quarantine or self-isolation for substantially all citizens.
This has resulted in an almost total shut-down of non-essential
industrial and commercial activity and a cessation of substantially
all discretionary travel worldwide. The sudden and profound
reduction of activity globally has resulted in a significant
reduction in demand for energy translating to record low prices for
oil and gas and, in turn, rendering many development projects
financially unviable.
As the virus begins to reach a perceived peak in a number of
countries, the focus of policy response is turning to when and to
what extent lock-down measures can be progressively lifted such
that economic and industrial activity can be recommenced and
economies effectively restarted.
Demand led commodity price drops typically reverse more quickly
than those driven primarily by excess supply and whilst this is
promising, the timetable to resumption of normal levels of activity
is unclear and could be some way off.
Current operations
The company has currently shut-in production of crude oil from
its operated licences due to demand constraints. The company has
developed and is progressively implementing a plan that involves a
significant reduction in both operating and administrative costs.
The cost reduction actions being taken mean the company will be in
a significantly better position to produce oil economically at
lower oil prices and with a positive contribution to cash flow when
production recommences. The company will then focus on the
continued development of its unconventional assets.
Our major shareholder, Mercuria, is supportive of the cost
reduction plan and has extended short-term debt facilities to
facilitate its implementation and execution. Mercuria has written
to the company stating its intention to continue to provide
financial support to the company of up to $37 million in order that
the company may continue to operate and service the company's
liabilities as they fall due in the next 12 months whilst the
company assesses the timing of work plans and capital commitments.
Mercuria has agreed to meet the company's cash needs for this
period and not demand repayment of the existing loan within the
next 12 months whilst in discussion with the company to restructure
the existing loan agreement. The letter, which by its nature is not
legally binding, represents a letter of comfort stating Mercuria's
current intention to continue to provide support.
The directors believe they will be able to agree the restructure
of the existing debt with Mercuria and formalise an agreement for
new funding and that the group and company can continue as a going
concern for the foreseeable future. The application of the going
concern basis of preparation of the financial statements included
in this annual report is based on the letter that has been received
from Mercuria and the ongoing discussions with the Mercuria
principals and accordingly, the directors continue to adopt the
going concern basis for accounting in preparing the 2019 financial
statements. However, the directors recognise that if financial
support over the next 12 months from Mercuria were not to be
available and the company is unable to restructure the existing
loan agreement from Mercuria or obtain funding from alternative
sources, this gives rise to a material uncertainty that may cast
significant doubt on the group's and company's ability to continue
as a going concern.
Summary
These are truly unprecedented time with disruption on the demand
and supply side. The board believes it can leverage this situation
and take this opportunity to examine the cost base in detail. The
company is fundamentally an unconventional oil and gas exploration
company and has excellent assets in this space. The companies that
will be successful in the future will be those with a low-cost base
and strong balance sheet. The board recognises that significant
investment will be required in the coming years to develop these
assets and enhance value and acknowledges this may include
third-party partners and local debt providers in the funding mix to
support this development.
Unprecedented times, require unprecedented painful decisions to
be made and whilst the steps we have agreed to take will be
challenging to implement, the board believes this will result in a
cost base from which it can leverage the company's interests in its
high quality unconventional oil and gas assets and be in a position
to create long-term value for shareholders.
It goes without saying that I take this opportunity on behalf of
your board to extend my sincere thanks to our teams for their
continued dedication and hard work in what has been a challenging
period for us all. In particular, I would like to thank all of the
departing staff and directors who have made significant
contributions during the time they have been with the company and I
am sincerely sorry to see them go. I wish them all the best for the
future. We all understand the challenges faced by the Company and
the difficult actions we are faced with in this environment.
Sir Michael Rake
Non-executive chairman
26 June 2020
OPERATING REVIEW
Mata Mora - operated, core
The drilling and completion of the first two unconventional
horizontal Vaca Muerta wells at Mata Mora is a milestone for
Phoenix and demonstrates value in the asset.
Initial unconventional horizontal wells targeting Vaca
Muerta
The first horizontal well at Mata Mora, MM.x-1001, was spud in
late 2018 and completed drilling operations in early January 2019.
On conclusion of drilling, the well was cased and cemented with
completion to be undertaken simultaneously with MM.x-1002, the
second horizontal commitment well at Mata Mora. MM.x-1002 was spud
from the same pad as MM.x-1001 in late January 2019 and drilling of
the horizontal section concluded at the end of March 2019.
The vertical section of MM.x-1002 reached a total depth of 3,170
metres with the lateral section extending to a horizontal length of
2,058 metres. Like MM.x-1001, the well was successfully geo-steered
with 95% of the lateral section maintained within a seven-metre
window in the La Cocina horizon of the Vaca Muerta formation.
The wells were unconventionally completed in May 2019 in
simultaneous zipper-frac operation where frac stages are applied in
an alternate sequence along the length of the two wells. This
technique was developed in the North American shale industry and is
designed optimise the stimulated rock volume via stress-shadowing
whilst minimising the risk of communication of the completion fluid
(or 'frac hits') between fracs stages applied to adjacent wells in
high intensity drilling operations. Frac hits can have a positive,
negative or neutral impact but where negative they can manifest in
a 'parent-child' relationship between wells with production losses
observed in one well when production is increased on an adjacent
well.
A total of 80 frac stages were successfully completed across the
two Mata Mora wells with an average of four stages completed per
day. The rate of deployment of frac stages is expected to increase
with future wells. On conclusion of the frac operation, both wells
were placed on flowback during which the frac fluids used in the
wells are recovered and initial oil volumes are produced. Both the
produced oil volumes and fluid recovery increased through the
flowback period as the choke valves were conservatively opened on
the wells.
Extended well testing providing valuable subsurface and
production information
Whilst both Mata Mora wells saw production rates of up to 1,000
bopd in initial testing it was noted that when the choke aperture
was progressively opened on one well thereby increasing its
production, offsetting production losses were noted on the other.
This production behaviour suggests a level of ongoing communication
between the wells, separate from expected interference that would
occur during completion operations.
In early Q3 2019, both wells were choked back and put on
extended test. As part of that testing, a production logging tool
was run along the length of each well that confirmed the frac
stages applied to the wells are connected to the well-bore and that
fluid is flowing in each stage across both wells. This indicates
that, whilst there may be some communication between the wells, the
individual frac stages themselves are all performing.
As of February 2020, the choke stages were being managed on each
well and are being progressively opened in small increments in
order to reduce wellhead pressure ahead of the potential
installation of pumps on both wells, dependent on well performance
in the interim.
The communication issues experienced on MM.x-1001 and MM.x-1002
have caused a re-evaluation of the optimal spacing for future
unconventional lateral wells at Mata Mora. Where the initial two
wells have spacing of 250 metres, future wells will be drilled with
projected spacing of between 300 and 400 metres between adjacent
laterals.
Optimising well spacing to maximise production potential and
total ultimate oil recovery at the same time as minimising the risk
of interference between wells is key to determining the most
economic development plan for a field.
Confirming Mata Mora as a commercial prospect
As of 31 March 2020, total cumulative production from the two
Mata Mora wells was more than 240,000 bbls of 37 API crude
generating sales proceeds of US$8.7 million.
In early April, the Mata Mora wells were shut in under force
majeure conditions. The significant reduction in demand for fuel
because of COVID-19 had caused YPF to shut in several of its
refineries and hence there was no route to market from the field.
Production is expected to resume in 2020 when the impact of the
pandemic on fuel demand eases and commercial markets return.
The work performed to date and the well results from the initial
lateral wells at Mata Mora have confirmed that the block is a
commercial prospect for development.
Puesto Rojas area - operated, core
Production
Puesto Rojas, including the Cerro Mollar Oeste and Cerro Mollar
Norte concessions, is an important area in terms of current
production and future potential. The area consistently delivered
approximately 1,500 boepd of production in 2019. Most existing
production is derived from conventional well stock however the
focus of development work going forward will be on the multiple
unconventional opportunities present at Puesto Rojas.
The Puesto Rojas area is significant in terms of acreage and
contains several formations and horizons with potential for
unconventional development.
Award of licence
In April 2019, Mendoza province awarded the company the first
unconventional concession ever issued by the province. The
unconventional concession covers the Puesto Rojas block and has a
primary term of 35 years and carries a lower royalty rate than the
conventional concession
The unconventional concession contains a requirement for a pilot
development phase with certain works to be completed by June 2022.
On conclusion of the pilot phase the company has the option to
either move into unconventional development at Puesto Rojas or to
revert the unconventional concession without specific penalty and
to resume conventional development activity on the block under the
conventional concession.
Completion of appraisal campaign
In Q1 2019, the final well of the 2018/2019 unconventional
appraisal campaign, CDM-3012, was completed and put on artificial
lift. Concurrently, the previously drilled CDM-3004 well was also
completed and put on flowback. The 2018/19 unconventional appraisal
campaign comprised a total of eight wells with a combination of
full and limited tests of various horizons undertaken over the
course of the campaign.
The appraisal campaign resulted in the identification of the
shallow folded 'tight' Agrio formation as the primary near-term
development target at Puesto Rojas given the formation can be
accessed using comparatively lower cost unconventionally competed
vertical wells meaning it could potentially provide robust
production returns in the short to medium term.
Unconventional development campaign
Three new vertical Agrio development wells were drilled and
completed as part of the initial 2019 development campaign.
CDM-3011 was the first well in the campaign followed by CDM-3014
and then CDM-3025 from the same pad as CDM-3011. In addition to the
newly drilled wells, the CDM-3012 and CDM-3007 wells that were
drilled as part of the appraisal campaign were recompleted as
development wells in the folded Agrio.
The results of the development campaign have been mixed with
only CDM-3007 and CDM-3012 currently producing at economic rates,
though below pre-drill estimates. The CDM-3011, CDM-3014 and
CDM-3025 wells, although producing, have been determined as
uncommercial in the folded Agrio.
Unconventional development at Puesto Rojas
Horizontal development of the Vaca Muerta and non-folded Agrio
formations remain the primary medium-term objective at Puesto
Rojas. Prior to its completion in the folded Agrio, several swab
tests were performed on CDM-3007 to determine the production
contributions of each of the Vaca Muerta layers penetrated by the
well. In addition, a further workover was performed on CDM-3023
where the Vaca Muerta layers were isolated and each layer tested
for flow rates.
The results of this work in the Vaca Muerta formation will be
used to plan future horizontal wells in the formation at Puesto
Rojas.
Other Puesto Rojas area drilling activity
Two commitment wells, LP.a-09 and LP-07 were drilled in the year
and are awaiting completion. The wells satisfy the licence
commitment for the field though the completion and testing of the
wells will likely be delayed following the recent fall in the Brent
benchmark price.
An additional commitment well, ML.x-1001 was drilled on the
Mallin Largo field contained within the sizeable Rio Atuel licence.
The well was not successful in its target objective but provided
information to help interpret the nature of the folded Agrio at
Mallin Largo continuing into Puesto Rojas.
Gas to power project - removing production constraints
In August 2019 the company commissioned the construction of a
gas to power plant at Puesto Rojas. Associated gas is produced as a
by-product of oil production at Puesto Rojas and whilst modest
amounts of gas in early production can be flared, this is not a
solution in a larger scale long-term development project.
As a responsible operator, the company has commissioned a
modular gas to power plant at Puesto Rojas to convert associated
gas to electricity that can be sold into the electricity grid.
The conversion of gas to power using lean burn technology
results in reduced emissions of greenhouse gases and provides a
relatively clean source of power for domestic, commercial or
industrial use and mitigates constraints on oil production where
associated gas is present.
Chachahuen Sur and Cerro Morado Este - non-operated, core
Enhanced recovery, Chachahuen Sur
The focus of activity at the relatively mature Chachahuen Sur
concession remains on the ongoing waterflood and tertiary pilot
recovery programmes aimed at arresting or slowing natural
production decline at the field. Improved and upgraded water
handling systems were commissioned during 2019 to both improve the
quality of injected water and the rate at which water can be
injected into the oil-bearing formations.
In addition to the waterflood project at Chachahuen Sur, a
tertiary recovery project using polymer-injection has been proposed
by the operator, YPF. The proposal is based on production results
to date and the properties of the oil being produced at Chachahuen
together with the nature of the reservoir itself and production
behaviour observed on neighbouring fields. The objective of polymer
injection is to arrest production decline and, potentially,
increase absolute production.
The use of polymer injection typically enhances waterflood
performance by increasing the viscosity of injected water and
thereby increasing the sweep efficiency through the reservoir. This
results in a greater volume of oil being pushed toward the
producing wells and increasing production.
The proposed tertiary injection project would initially involve
polymer injection in six wells with the potential to expand the
project if results from the pilot are positive.
Appraisal drilling, Cerro Morado Este
YPF's focus in the Chachahuen area has been related to ongoing
delineation drilling at Cerro Morado Este. A total of 23
delineation wells were drilled in the year with encouraging results
for large-scale development of the asset.
The evaluation work undertaken on the reservoir at Cerro Morado
Este to date has shown that the block has high potential for
enhanced production through waterflood. This determination is
supported by analysis of waterflood performance of neighbouring
analogue fields, including at Chachahuen Sur.
A proposal for an initial waterflood pilot using three injection
wells has been made by YPF. In addition to the continued drilling
of development wells, should the results of the initial pilot be
positive, it is expected that the operator will continue with the
expansion of waterflood across the concession.
Potential for additional acreage
The Cerro Morado Este concession currently covers an area of
45,467 acres. Based on 3D seismic studies on neighbouring areas, an
extension to the concession of an additional 25,699 acres has been
requested to the province.
Corralera - operated, core
The Corralera licence carries an initial commitment for two
horizontal wells to be drilled before April 2021. Corralera is
situated in the gas and condensate window for Vaca Muerta in
Neuquén province. As with at Mata Mora, the province owned oil
company, Gas y Petróleo de Neuquén, is a 10% partner in the
project.
Work undertaken in 2019 related to drilling has been focused on
determining well design and identifying the best landing zone for
the well. Work has also been ongoing related to the design of the
completions to be deployed in the wells together with the method of
doing so.
Groundworks to prepare the drill site are largely complete.
Santa Cruz Sur - non-operated, non-core
The sale of Santa Cruz Sur reflects the company's focus on its
core assets and contributed modest proceeds for reinvestment in
core activity.
On 13 November 2019, the company announced the completion of the
sale to Echo Energy plc of its 70% non-operated interest in five
mature conventional production blocks comprising the Santa Cruz Sur
assets.
The Santa Cruz Sur assets are in the Austral basin in south
Argentina and their sale is in line with the company's strategy to
refocus Phoenix's portfolio to focus the company's resources on the
development of its significant unconventional oil and gas portfolio
in its primary areas of operation in Mendoza and Neuquén
provinces.
Average daily production to the date of sale was approximately
2,500 boepd of which approximately 1,950 boepd or 75% was derived
from comparatively lower-value gas production.
Rio Cullen, Las Violetas - non-operated, non-core
The Rio Cullen/Las Violetas ('RCLV') group of assets are in
Tierra del Fuego in the southernmost part of Argentina with all
production derived from conventional formations.
In February 2017, the SM.x-1001 well was drilled as an initial
exploration well in the Tobifera formation in the San Martin field
and was reported as Argentina's most productive oil well in 2019.
In Q4 2019, the well produced at an average of rate of 2,025 bpd.
In January 2020, however, the level of water cut in the well
increased rapidly to more than 50% of total production and the well
was shut in. In March 2020, production tests were undertaken in the
middle and upper Tobifera as part of the further evaluation of the
well with water volumes recorded in each section, both of which
were subsequently abandoned. The SM.x-1002 well continues to
produce strongly from the Tobifera formation. A third well in the
formation, SM.x-1003, produces at lower rates with a frac job
undertaken in early 2019 being unsuccessful in increasing
production.
The test in the upper Tobifera section in the 1,871 to
1,876-metre interval showed an average production rate of 1,576 bpd
over seven days with lower water cut. The well was subsequently
shut in due to a COVID-19 outbreak at the Chilean ENAP terminal
which is the export delivery point that production from RCLV is
currently trucked to for sale.
The main evacuation route for crude from RCLV is normally by sea
using tankers to offtake production. This option is currently not
available because the loading buoy is shut down for maintenance and
repair work. Production and sales from the San Martin field is
expected to resume in October when the repair, maintenance work and
tests on the buoy are due to conclude.
The company has commenced marketing of the non-core RCLV assets
which are now classified as held for sale.
Malargüe - non-operated, non-core
In May 2019, the Province of Mendoza ratified its decision to
deny the second exploration permit for the Malargüe area, in which
the company participates on a non-operated basis and where the
operator is YPF. During the first exploration period one well was
drilled on the block and was deemed a dry hole. The block, though
large in terms of overall acreage, was judged to have prospects for
unconventional resources in only a relatively small area of the
overall licence.
CHIEF FINANCIAL OFFICER'S REPORT
Revenue and gross margin
Revenue for the period was US$129.4 million (2018: US$177.0
million), comprising revenue from oil sales of US$114.7 million
(2018: US$154.5 million) and revenue from gas sales of US$14.8
million (2018: US$22.5 million).
The reduction in oil revenue between periods resulted from a
combination of a reduction in the realised price per barrel and
lower sales volumes period-on-period.
The average realised oil sales price in 2019 was US$47.96/bbl, a
19% decline on the average price of US$59.26/bbl in 2018. Realised
prices achieved by the company are indirectly linked to Brent. The
average Brent crude price fell period-on-period by 10%, from an
average of US$71/bbl in 2018 to an average of US$64/bbl in 2019,
driving the reduction in the Argentine realised prices.
The larger reduction (than Brent) in the realised price has
resulted from intervention by the Argentine government in the oil
market across the period. The export retention tax, which was
implemented in September 2018, has resulted in a discount being
applied to domestic crude prices based on export parity, and has
equated to an approximate downward impact of 10% on prices in
2019.
During the second half of the year the government issued decrees
fixing both the Brent reference price for sales and the US Dollar
('Dollar') to Argentine Peso ('Peso') exchange rate. This new
legislation was introduced after both the Merval index and Dollar
to Peso exchange rate fell dramatically following the result of the
Argentine presidential primary elections announcement in August
2019. The legislation fixed the crude oil and gasoline prices for
90 days at a Brent reference price of US$59/bbl and set a Dollar to
Peso exchange rate of 45.19, rising to 46.69 then 51.2 in three
dated stages. The final Dollar to Peso exchange rate set of 51.2 is
around 14% lower than the year-end exchange rate of 59.9.
All domestic oil sales contracts, whilst Dollar based, are
settled in Peso, therefore this legislation has had a direct impact
on the company's realised revenues, although the decline in revenue
has been partially offset by lower Peso denominated costs.
Average daily oil sales in the period were 6,550 bopd compared
to 7,060 bopd in 2018. The majority of the reduction has resulted
from natural decline not offset by production from new wells at
Puesto Rojas and Chachahuen. At Puesto Rojas the company's focus in
the period was the completion of the folded Agrio unconventional
development campaign, which saw four new wells completed and four
new wells drilled and completed during 2019. The campaign did not
yield the pre-drill production estimates and a number of the wells
were shut in pending further evaluation at period end.
The reduction in oil sales at Puesto Rojas has been somewhat
offset by Mata Mora coming online in Q3 2019, contributing an
additional 140,000 bbls of operated sales volume by period end.
Gas revenues arise mostly in the non-operated segment and
declined by US$7.7 million in the year compared to 2018. The
reduction was driven by a 19% decline in the realised price from an
average of US$4.10/MMcf in 2018 to an average of US$3.32/MMcf in
2019 and was further compounded by the sale of Santa Cruz Sur
('SCS') in November. The higher price observed in the prior period
resulted from a cold spike in the weather during Q2 2018 which
increased demand. In the second half of 2018 the gas market started
to become oversupplied, predominately caused by the continued
development of the Vaca Muerta bringing new supply streams onto the
market. This change in economics has reduced the seasonal
variations in the gas curve, and consequently the higher prices
previously obtained during the winter months have not been realised
in 2019.
Operating costs
Operating costs increased period-on-period at US$18.69/boe in
2019 compared to US$17.66/boe in 2018. The increase was driven by
Puesto Rojas, where conventional wells experienced natural decline
and new unconventional wells on the whole did not perform to
pre-drill estimates. The fall in sales and production also meant
that the fixed element of production cost was spread over lower
volumes, resulting in higher operating costs on a per barrel basis.
The operating cost achieved at Mata Mora in early production was
US$22.77/boe, also contributing to the cost increase due to the
$/boe realised being higher than both the 2018 and 2019 average. As
the Mata Mora block is further developed it is expected that the
$/boe operating cost will reduce.
Other operating costs
Other operating costs before impairment and one-off charges were
US$38.0 million compared to US$55.1 million in 2018. The reduction
in cost was primarily due to the hedging losses realised in 2018 of
US$7.6 million (2019: US$nil) and a one-off share-based payment
expense of US$5.5 million (2019: US$nil).
A non-recurring loss of US$56.8 million was realised in 2019
comprising US$29.0 million loss on sale of non-current assets,
US$20.2 million loss on termination of licences and a US$7.6
million impairment charge.
The loss on sale of non-current assets resulted from the sale of
SCS to Echo Energy plc in November 2019. SCS formed part of the
group's non-operated asset portfolio and the sale was in
furtherance of the group's strategy to divest of non-core
conventional operations. Total consideration received for the sale
was US$8.5 million split between cash proceeds of US$7.0 million
and equity of US$1.5 million.
The loss on termination of licences was driven by the
termination of the Chañares Herrados exploitation concession. In
May 2019, the Province of Mendoza issued a decree terminating the
concession, which was held by the company's joint venture partner,
Chañares Energía S.A., due to its failure to fulfil work
commitments. The company has no intention of participating in the
re-tender process for the licence and will cease to hold any rights
in the block once a new concessionaire is appointed. The carrying
value of the Chañares Herrados asset was consequently written off
and a corresponding US$15.8 million non-cash loss was recognised.
It is noted that a new concessionaire was not identified in 2019,
therefore the company continued to participate in the concession
during the year with the 12-month results from Chañares Herrados
included within gross margin for the period. On 9 April 2020, the
company gave a notice of termination of the joint venture agreement
to Chañares Energía S.A., which took immediate effect.
An additional US$2.4 million non-cash loss was recorded in
respect of the Vega Grande concession in the operated segment. This
area is not part of the company's core operations and is currently
not producing. Management therefore made the decision not to
request the extension of the licence. A US$2.0 million non-cash
loss was also recorded in respect of the Malargüe concession in the
non-operated segment, where the application for the second
exploration permit made by the operator, YPF, was denied by the
Province of Mendoza.
Finance income and costs
Net finance costs were lower in 2019 at US$24.7 million compared
to US$26.6 million in 2018. The decline in cost was driven by a
US$6.2 million reduction in the net FX loss realised in the period,
offset by a US$5.3 million increase in interest on borrowings.
Interest charges rose due to the increase in the loan balance in
the year. The FX losses primarily arise on Peso denominated
balances held by the company. Significant devaluation of the Peso
has been experienced across both 2018 and 2019. The Peso devalued
by 97% across 2018 compared to 59% across 2019, leading to lower FX
losses recognised in the current period.
Taxation
A US$21.0 million taxation credit was recognised in 2019,
compared to a US$16.8 million taxation charge in 2018. The main
driver of the taxation credit in the current period is the deferred
tax benefit from loss before tax, principally the non-recurring
losses recorded in 2019.
Balance sheet
At 31 December 2019, the group had net assets of US$222.7
million, a decrease of US$113.5 million compared to 31 December
2018.
Property, plant and equipment ('PP&E') is US$42.0 million
lower in 2019 compared to 2018. This decline has resulted from the
disposal of SCS (US$37.1 million), the termination of the Chañares
Herrados licence (US$15.8 million), impairment charges of US$2.5
million, the write-off of US$3.6 million exploration expenses and
depreciation, depletion and amortisation ('DD&A') of US$66.1
million, offset by US$100.7 million of additions. Additions to
PP&E predominately related to the unconventional drilling
campaign at Puesto Rojas, drilling investment in the Chachahuen
area and the acquisition of an additional 4.4% share in the Rio
Cullen and Las Violetas concessions.
A US$43.3 million transfer from intangible assets was made to
PP&E related to the costs of the MMx-1001 and MMx-1002
development wells at Mata Mora following their completion in the
period and the subsequent determination of commercial reserves.
Assets of US$17.6 million were also reclassified as 'held for
sale'. The reclassification relates to certain non-core and
non-operated assets where board approval for sale has been obtained
and the company is engaged in an active programme for sale of the
assets within the next 12 months.
Intangible assets decreased by US$14.5 million in the period
predominately as a result of the US$43.3 million transfer made to
PP&E at Mata Mora, a US$5.1 million impairment charge and a
US$4.3 million write-off in relation to the licence relinquishments
at Vega Grande and Malargüe, offset by US$39.1 million of
additions. Additions to intangibles in the period predominately
related to the conclusion of drilling and completion of the
MMx-1001 well and the drilling and completion of the MMx-1002 well
at Mata Mora.
Working capital
Current assets comprise inventories, trade and other receivables
and cash. Inventories increased by US$0.9 million to US$18.2
million at 31 December 2019, with trade receivables increasing by
US$3.8 million to US$39.3 million at 31 December 2019. Trade and
other receivables primarily consist of receivables from the sale of
oil and gas whose value fluctuates related to the timing of the
payments received for invoices over the year-end period.
Current liabilities mostly comprise trade and other payables for
equipment and services. Trade and other payables declined by US$9.9
million to US$44.8 million at 31 December 2019. At 31 December
2018, the company was part way through the FY18 unconventional
completions campaign at Puesto Rojas which concluded during H1 2019
and resulted in higher payables over the 2018 year-end. No
substantial drilling or completion works were ongoing at 31
December 2019.
Financing and liquidity
At 31 December 2019, the group had cash on hand of US$11.0
million (31 December 2018: US$21.1 million). Total borrowings in
the period increased by US$103.3 million from US$200.3 million at
31 December 2018 to US$303.6 million at 31 December 2019. The
increase mostly resulted from the drawdown of an additional US$96.0
million of funds from the revolving convertible credit facility in
place with Mercuria and the capitalisation of US$15.5 million of
accrued interest. Borrowings held in Argentina of US$8.0 million
were repaid during the year.
Funds advanced under the credit facilities have been used to
invest in exploration, evaluation and development work across the
company's core licence areas and to satisfy an element of general
corporate costs.
At 31 December 2019, a total facility of US$285.0 million was
available to the company, with a total of US$278.0 million drawn
down under the facility.
Funding status and going concern
The company has currently shut-in production of crude oil from
its operated licences due to a significant reduction in demand. The
company has developed and is progressively implementing a plan that
involves a significant reduction in both operating and
administrative costs. The cost reduction actions being taken mean
the company will be in a significantly better position to produce
oil economically at lower oil prices and with a positive
contribution to cash flow when production recommences. The company
will then focus on the continued development of its unconventional
assets.
Our major shareholder, Mercuria, is supportive of the cost
reduction plan and has extended short-term debt facilities to
facilitate its implementation and execution. Mercuria has written
to the company stating its intention to continue to provide
financial support to the company of up to $37 million in order that
the company may continue to operate and service the company's
liabilities as they fall due in the next 12 months whilst the
company assesses the timing of work plans and capital commitments.
Mercuria has agreed to meet the company's cash needs for this
period and not demand repayment of the existing loan within the
next 12 months whilst in discussion with the company to restructure
the existing loan agreement. The letter, which by its nature is not
legally binding, represents a letter of comfort stating Mercuria's
current intention to continue to provide support.
The directors believe they will be able to agree the restructure
of the existing debt with Mercuria and formalise an agreement for
new funding and that the group and company can continue as a going
concern for the foreseeable future. The application of the going
concern basis of preparation of the financial statements included
in this annual report is based on the letter that has been received
from Mercuria and the ongoing discussions with the Mercuria
directors and accordingly, the directors continue to adopt the
going concern basis for accounting in preparing the 2019 financial
statements. However, the directors recognise that if financial
support over the next 12 months from Mercuria were not to be
available and the company is unable to restructure the existing
loan agreement from Mercuria or obtain funding from alternative
sources, this gives rise to a material uncertainty that may cast
significant doubt on the group's and company's ability to continue
as a going concern.
Dividend
Given the company's high growth objectives, the directors do not
recommend the payment of a dividend.
Outlook and COVID-19
The emergence of COVID-19 as a global pandemic has had a
significant impact on the operations of the company. This has
primarily resulted from the significant reduction in the demand for
oil, which has seen crude oil prices drop to historic price lows.
Within Argentina, the over-supply of crude in the market has
resulted in YPF, the state-controlled Argentine energy company,
notifying its customers that it will be suspending the purchase of
oil until further notice. This has caused the refineries to which
the company sells its oil to stop accepting deliveries and as a
result, management has made the decision to shut-in the majority of
operations until the impact the pandemic is having on the economy
is reduced and current global restrictions begin to be lifted.
To manage this evolving situation in the short term, the company
has substantially reduced its capital expenditure programmes for
2020. The company has also assessed its cost base in detail,
targeting a significant reduction in operating and general and
administrative costs to be implemented through the remainder of
2020. It is also holding discussions with Mercuria to renegotiate
the terms of the convertible revolving credit facility.
While the short-term impacts on the company will be significant,
we believe that when the COVID-19 infection rate slows and the
pandemic is brought under control, the global economy will start to
ramp up again and the supply glut in the oil markets will be
reversed.
We are confident that with the cost measures we are currently
putting in place, Phoenix will be positioned to continue to operate
and develop our licences in the Vaca Muerta in the medium and long
term.
Kevin Dennehy
Chief financial officer
26 June 2020
Consolidated income statement
For the year ended 31 December 2019
2019 2018
Note US$'000 US$'000
----------------------------------------------------- ---- --------- ---------
Revenue 3 129,417 176,972
Cost of sales (144,813) (155,638)
----------------------------------------------------- ---- --------- ---------
Gross (loss)/profit (15,396) 21,334
Selling and distribution expenses (5,230) (5,758)
Exploration expenses (4,240) (9,359)
Loss on termination of licences and other impairment
charges (27,753) -
Loss on sale of non-current assets (28,971) (1,125)
Administrative expenses (27,144) (24,561)
Other operating expenses (1,417) (15,443)
----------------------------------------------------- ---- --------- ---------
Operating loss (110,151) (34,912)
Presented as:
Operating loss (110,151) (34,912)
Add back:
Depreciation, depletion and amortisation 66,057 64,726
Exploration cost written off 4,240 9,359
----------------------------------------------------- ---- --------- ---------
EBITDAX (39,854) 39,173
Non-recurring expenses 56,724 -
----------------------------------------------------- ---- --------- ---------
Adjusted EBITDAX 16,870 39,173
----------------------------------------------------- ---- --------- ---------
Finance income 1,577 4,098
Finance costs (26,247) (30,702)
----------------------------------------------------- ---- --------- ---------
Loss before taxation (134,821) (61,516)
Taxation 21,011 (16,797)
----------------------------------------------------- ---- --------- ---------
Loss for the year (113,810) (78,313)
----------------------------------------------------- ---- --------- ---------
Loss per ordinary share US$ US$
----------------------------------------------------- ---- --------- ---------
Basic and diluted loss per share 7 (0.04) (0.03)
----------------------------------------------------- ---- --------- ---------
The above consolidated income statement should be read in
conjunction with the accompanying notes.
Consolidated statement of comprehensive income
For the year ended 31 December 2019
2019 2018
US$'000 US$'000
-------------------------------------- --------- --------
Loss for the year (113,810) (78,313)
Translation differences - (361)
-------------------------------------- --------- --------
Total comprehensive loss for the year (113,810) (78,674)
-------------------------------------- --------- --------
The above items will not be subsequently reclassified to profit
and loss. There are no impairment losses on revalued assets
recognised directly in equity.
The above consolidated statement of comprehensive income should
be read in conjunction with the accompanying notes.
Consolidated statement of financial position
At 31 December 2019
2019 2018
Note US$'000 US$'000
-------------------------------- ---- --------- ---------
Non-current assets
Property, plant and equipment 4 324,249 366,191
Intangible assets and goodwill 5 246,540 261,010
Other receivables 4,744 5,085
Deferred tax assets 18,534 9,001
-------------------------------- ---- --------- ---------
Total non-current assets 594,067 641,287
-------------------------------- ---- --------- ---------
Current assets
Assets held for sale 18,208 -
Inventories 18,202 17,279
Trade and other receivables 34,527 30,407
Cash and cash equivalents 11,002 21,085
-------------------------------- ---- --------- ---------
Total current assets 81,939 68,771
-------------------------------- ---- --------- ---------
Total assets 676,006 710,058
-------------------------------- ---- --------- ---------
Non-current liabilities
Trade and other payables 5,370 3,256
Borrowings 6 146,751 135,919
Deferred tax liabilities 87,636 99,374
Provisions 15,784 16,236
-------------------------------- ---- --------- ---------
Total non-current liabilities 255,541 254,785
-------------------------------- ---- --------- ---------
Current liabilities
Liabilities held for sale 447 -
Trade and other payables 39,446 51,410
Income tax liability 870 1,595
Borrowings 6 156,865 64,365
Provisions 120 1,733
-------------------------------- ---- --------- ---------
Total current liabilities 197,748 119,103
-------------------------------- ---- --------- ---------
Total liabilities 453,289 373,888
-------------------------------- ---- --------- ---------
Net assets 222,717 336,170
-------------------------------- ---- --------- ---------
Equity
Share capital and share premium 456,734 457,198
Other reserves (112,150) (112,150)
Retained deficit (121,867) (8,878)
-------------------------------- ---- --------- ---------
Total equity 222,717 336,170
-------------------------------- ---- --------- ---------
The above consolidated statement of financial position should be
read in conjunction with the accompanying notes.
Consolidated statement of changes in equity
For the year ended 31 December 2019
Called
up Retained
share Share Treasury (deficit)/ Other Total
capital premium shares earnings reserves equity
Capital and reserves US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------------- -------- -------- -------- ----------- --------- ---------
At 1 January 2018 329,877 - - 68,896 (116,299) 282,474
-------------------------------- -------- -------- -------- ----------- --------- ---------
Loss for the year - - - (78,313) - (78,313)
Other comprehensive loss - - - - (361) (361)
-------------------------------- -------- -------- -------- ----------- --------- ---------
Total comprehensive loss for
the year - - - (78,313) (361) (78,674)
-------------------------------- -------- -------- -------- ----------- --------- ---------
Fair value of share based
payments - - - 305 - 305
Issue of ordinary shares 7,271 20,050 - - 4,510 31,831
Fair value of warrants - - - 234 - 234
Debt to equity conversion 27,027 72,973 - - - 100,000
-------------------------------- -------- -------- -------- ----------- --------- ---------
At 31 December 2018 364,175 93,023 - (8,878) (112,150) 336,170
-------------------------------- -------- -------- -------- ----------- --------- ---------
Loss for the year - - - (113,810) - (113,810)
Other comprehensive income - - - - - -
-------------------------------- -------- -------- -------- ----------- --------- ---------
Total comprehensive loss for
the year - - - (113,810) - (113,810)
-------------------------------- -------- -------- -------- ----------- --------- ---------
Purchase of own shares - - (572) - - (572)
Issue of employee share options - - 108 (126) - (18)
Cash settlement of employee
share options - - - (154) - (154)
Fair value of share based
payments - - - 971 - 971
Fair value of warrants - - - 130 - 130
-------------------------------- -------- -------- -------- ----------- --------- ---------
At 31 December 2019 364,175 93,023 (464) (121,867) (112,150) 222,717
-------------------------------- -------- -------- -------- ----------- --------- ---------
Total
Merger Warrant Translation other
reserve reserve reserve reserves
Other reserves US$'000 US$'000 US$'000 US$'000
------------------------- --------- -------- ----------- ----------
At 1 January 2018 (116,510) 2,105 (1,894) (116,299)
------------------------- --------- -------- ----------- ----------
Translation differences - - (361) (361)
Issue of ordinary shares 4,510 - - 4,510
------------------------- --------- -------- ----------- ----------
At 31 December 2018 (112,000) 2,105 (2,255) (112,150)
------------------------- --------- -------- ----------- ----------
At 31 December 2019 (112,000) 2,105 (2,255) (112,150)
------------------------- --------- -------- ----------- ----------
The above statement of consolidated changes in equity should be
read in conjunction with the accompanying notes.
Consolidated statement of cash flows
For the period ended 31 December 2019
2019 2018
Note US$'000 US$'000
------------------------------------------------------- ----- -------- ---------
Cash flows from operating activities
Cash (used in)/generated from operations (16,280) 21,014
Income taxes paid (144) (842)
-------------------------------------------------------------- -------- ---------
Net cash (outflow)/inflow from operating activities (16,424) 20,172
-------------------------------------------------------------- -------- ---------
Cash flows from investing activities
Payments for property, plant and equipment (46,375) (80,531)
Payments for intangibles (38,852) (43,188)
Proceeds from sale of non-current assets 7,563 39
Recovery of restricted cash - 377
-------------------------------------------------------------- -------- ---------
Net cash outflow from investing activities (77,664) (123,303)
-------------------------------------------------------------- -------- ---------
Cash flows from financing activities
Proceeds from issues of shares and other equity
instruments - 4,925
Proceeds from borrowings 96,000 116,210
Repayment of borrowings (8,000) (7,556)
Interest paid (1,548) (8,852)
Principle lease payments (1,419) -
-------------------------------------------------------------- -------- ---------
Net cash inflow from financing activities 85,033 104,727
-------------------------------------------------------------- -------- ---------
Net (decrease)/increase in cash and cash equivalents (9,055) 1,596
Cash and cash equivalents at the beginning of the
financial year 21,085 23,696
Effects of exchange rates on cash and cash equivalents (1,028) (4,207)
-------------------------------------------------------------- -------- ---------
Cash and cash equivalents at end of year 11,002 21,085
-------------------------------------------------------------- -------- ---------
The above consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
1. GENERAL INFORMATION
The financial information set out in this announcement does not
comprise the group's statutory accounts for the years ended 31
December 2019 or 31 December 2018.
The financial information has been extracted from the audited
statutory accounts of the company for the year ended 31 December
2019, which were approved by the directors on 26 June 2020. The
auditors reported on these accounts; the report was unqualified and
did not contain a statement under Section 498(2) or Section 498(3)
of the Companies Act 2006.
The company has produced its statutory accounts for the year
ended 31 December 2019 in accordance with International Financial
Reporting Standards as adopted by the European Union and in
accordance with the group's accounting policies consistent with
those set out in the 2018 statutory accounts.
The statutory accounts for the year ended 31 December 2018 have
been delivered to the Registrar of Companies and those for the year
ended 31 December 2019 will be delivered to the Registrar of
Companies in due course.
2. basis of preparation
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards as
adopted by the European Union, the associated interpretations
issued by the IFRS Interpretations Committee (together 'IFRS') and
the Companies Act 2006.
Going concern
The group principally generates cash from its existing
conventional oil and gas production operations. Nevertheless, it
was formed with the stated intention of undertaking a significant
exploration, evaluation and development programme focused on the
group's unconventional oil and gas assets in Argentina, including
the Vaca Muerta formation. To date, the funding required to support
the activities of the group has been provided by Mercuria Energy
Group.
The company is currently faced with several challenges. On a
macro level it faces economic uncertainty in Argentina following a
change of government in December 2019 and as a result of the
continuing negotiations by the government to restructure the
country's debt. This political and economic uncertainty has been
compounded by the impact of COVID-19 and the global collapse in
demand for oil that caused oil prices to collapse in the first half
of 2020.
As a result of the fall in the demand for oil and the collapse
in oil prices, the company has shut-in production of crude oil from
its operated licences. The company has developed and is
progressively implementing a plan that involves a significant
reduction in both operating and administrative costs. The cost
reduction actions being taken mean the company will be in a
significantly better position to produce oil economically at lower
oil prices and with a positive contribution to cash flow when
production recommences. The company will then focus on the
continued development of its unconventional assets.
Our major shareholder, Mercuria, is supportive of the cost
reduction plan and has extended short-term debt facilities to
facilitate its implementation and execution. Mercuria has written
to the company stating its intention to continue to provide
financial support to the company of up to $37 million in order that
the company may continue to operate and service the company's
liabilities as they fall due in the next 12 months whilst the
company assesses the timing of work plans and capital commitments.
Mercuria has agreed to meet the company's cash needs for this
period and not demand repayment of the existing loan within the
next 12 months whilst in discussion with the company to restructure
the existing loan agreement. The letter, which by its nature is not
legally binding, represents a letter of comfort stating Mercuria's
current intention to continue to provide support.
The directors believe they will be able to agree the restructure
of the existing debt with Mercuria and formalise an agreement for
new funding and that the group and company can continue as a going
concern for the foreseeable future. The application of the going
concern basis of preparation of the financial statements included
in this annual report is based on the letter that has been received
from Mercuria and the ongoing discussions with the Mercuria
directors and accordingly, the directors continue to adopt the
going concern basis for accounting in preparing the 2019 financial
statements. However, the directors recognise that if financial
support over the next 12 months from Mercuria were not to be
available and the company is unable to restructure the existing
loan agreement from Mercuria or obtain funding from alternative
sources, this gives rise to a material uncertainty that may cast
significant doubt on the group's and company's ability to continue
as a going concern.
The financial statements do not include any adjustments that
would be required if the group and company were unable to continue
as a going concern.
3. Segment information
The group's executive management team comprising the interim
chair of the executive committee, the chief financial officer and
the chief operating officer has been determined collectively as the
chief operating decision maker for the group. The information
reported to the group's executive management team for the purposes
of resource allocation and assessment of segment performance is
split between those assets which are operated by the group and
those which are not.
The strategy of the group is focused on the development of its
unconventional operated assets in the Vaca Muerta and other
unconventional opportunities in Argentina, while optimising its
operated conventional production assets. The group also
participates in joint arrangements as a non-operated partner. The
group identifies its non-operated assets which are focused on the
exploitation and development of the Vaca Muerta as core to its
operations, with those focused on exploiting conventional oil and
gas resources as non-core. Operated and non-operated assets of the
group have therefore been determined to represent the reportable
segments of the business. The third segment 'corporate', primarily
relates to administrative costs, financing costs and taxation
incurred in running the business which are not directly
attributable to one of the identified segments.
In 2019, the group redefined its segments to better reflect how
the executive management team receives and reviews information on
the business. As such, the 2018 comparatives have been restated in
the period to match the updated definition.
The group's executive management primarily uses a measure of
earnings before interest, tax, depreciation and exploration
expenses ('EBITDAX') to assess the performance of the operating
segments. However, the executive management team also receives
information about segment revenue and capital expenditure on a
monthly basis.
Operated Non-operated Corporate Total
2019 US$'000 US$'000 US$'000 US$'000
---------------------------------------------- --------- ------------ --------- ---------
Revenue 49,355 80,062 - 129,417
---------------------------------------------- --------- ------------ --------- ---------
Loss for the year (32,952) (50,611) (30,247) (113,810)
---------------------------------------------- --------- ------------ --------- ---------
Add: depreciation, depletion and amortisation 32,470 31,954 1,633 66,057
Add: exploration costs written off 3,665 575 - 4,240
Less: finance income - - (1,577) (1,577)
Add: finance costs 381 465 25,401 26,247
Less: taxation - - (21,011) (21,011)
---------------------------------------------- --------- ------------ --------- ---------
EBITDAX 3,564 (17,617) (25,801) (39,854)
---------------------------------------------- --------- ------------ --------- ---------
Oil revenues 49,341 65,311 - 114,652
bbls sold 1,050,157 1,340,561 - 2,390,718
Realised price (US$/bbl) 46.98 48.72 - 47.96
---------------------------------------------- --------- ------------ --------- ---------
Gas revenues 14 14,751 - 14,765
MMcf sold 5.43 4,448.47 - 4,453.90
Realised price (US$/MMcf) 2.58 3.32 - 3.32
---------------------------------------------- --------- ------------ --------- ---------
Capital expenditure
Property, plant and equipment 34,630 19,015 3,774 57,419
Intangible exploration and evaluation assets 36,915 2,139 - 39,054
---------------------------------------------- --------- ------------ --------- ---------
Total capital expenditure 71,545 21,154 3,774 96,473
---------------------------------------------- --------- ------------ --------- ---------
Exploration costs incurred in the operated segment include
US$3.4 million related to the write-off of an unsuccessful
exploration well at the Atamisqui concession which was previously
being held as suspended. Exploration costs in the non-operated
segment include US$0.4 million related to geological or geophysical
work at the Chachahuen concession that is not related to a specific
prospect and is general in nature.
Operated Non-operated Corporate Total
(restated) (restated) (restated) (restated)
2018 US$'000 US$'000 US$'000 US$'000
---------------------------------------------- ----------- ------------ ----------- -----------
Revenue 64,806 112,166 - 176,972
---------------------------------------------- ----------- ------------ ----------- -----------
Profit/(loss) for the year 910 3,282 (82,505) (78,313)
---------------------------------------------- ----------- ------------ ----------- -----------
Add: depreciation, depletion and amortisation 24,445 39,547 734 64,726
Add: exploration costs written off 5,607 3,752 - 9,359
Less: finance income - - (4,098) (4,098)
Add: finance costs 452 408 29,842 30,702
Add: taxation - - 16,797 16,797
---------------------------------------------- ----------- ------------ ----------- -----------
EBITDAX 31,414 46,989 (39,230) 39,173
---------------------------------------------- ----------- ------------ ----------- -----------
Oil revenues 64,785 89,690 - 154,475
bbls sold 1,099,618 1,507,137 - 2,606,755
Realised price (US$/bbl) 58.92 59.51 - 59.26
---------------------------------------------- ----------- ------------ ----------- -----------
Gas revenues 21 22,476 - 22,497
MMcf sold 5.36 5,488.19 - 5,494
Realised price (US$/MMcf) 3.92 4.10 - 4.10
---------------------------------------------- ----------- ------------ ----------- -----------
Capital expenditure
Property, plant and equipment 54,288 26,286 918 81,492
Intangible exploration and evaluation assets 57,224 344 - 57,568
---------------------------------------------- ----------- ------------ ----------- -----------
Total capital expenditure 111,512 26,630 918 139,060
---------------------------------------------- ----------- ------------ ----------- -----------
Exploration costs incurred in the operated segment included
US$4.8 million related to the write-off of an unsuccessful
exploration well at the Laguna el Loro concession. The well
satisfied the commitments associated with the licence which has now
been relinquished. The remaining US$0.8 million exploration costs
in the operated segment related to geological or geophysical work
that was not related to a specific prospect or area and was general
in nature.
Exploration costs incurred in the non-operated segment of US$3.4
million related to the company's share of costs related to the
unsuccessful Orkeke well drilled by the company's partner, ROCH
S.A.
There are no intersegment revenues in either period presented.
The significant majority of oil and gas sales are made to the
Argentina state-owned oil company, YPF.
4. PROPERTY, PLANT AND EQUIPMENT
Other Development Assets
fixed and production under
assets assets construction Total
Property, plant and equipment US$'000 US$'000 US$'000 US$'000
------------------------------------------------ -------- --------------- ------------- ---------
At 1 January 2019
Cost 9,431 694,747 6,070 710,248
Accumulated depreciation and impairment (5,680) (338,377) - (344,057)
------------------------------------------------ -------- --------------- ------------- ---------
Net book amount 3,751 356,370 6,070 366,191
------------------------------------------------ -------- --------------- ------------- ---------
Year ended 31 December 2019
Opening net book amount 3,751 356,370 6,070 366,191
Additions 3,990 18,078 35,351 57,419
Transfers - 34,131 (34,131) -
Transfers from intangible assets - 43,287 - 43,287
Transfers to assets held for sale - cost (349) (67,233) - (67,582)
Disposal of assets - cost - (126,950) - (126,950)
Termination of licences - cost - (53,334) - (53,334)
Exploration costs written off - (3,626) - (3,626)
Depreciation charge (1,788) (64,269) - (66,057)
Impairment charge - (2,500) - (2,500)
Transfers to assets held for sale - accumulated
DD&A 309 49,682 - 49,991
Disposal of assets - accumulated DD&A - 89,922 - 89,922
Termination of licences - accumulated DD&A - 37,488 - 37,488
------------------------------------------------ -------- --------------- ------------- ---------
Closing net book amount 5,913 311,046 7,290 324,249
At 31 December 2019
Cost 13,072 539,100 7,290 559,462
Accumulated depreciation and impairment (7,159) (228,054) - (235,213)
------------------------------------------------ -------- --------------- ------------- ---------
Net book amount 5,913 311,046 7,290 324,249
------------------------------------------------ -------- --------------- ------------- ---------
Additions
An amount of US$0.9 million has been capitalised to other fixed
assets in the period in relation to the right-of-use asset
calculated on the adoption of IFRS 16 in the period. The asset will
be depreciated on a straight-line basis over the life of the
underlying lease contracts.
In August 2019, the company entered a new finance lease contract
for the provision of power generators at the Puesto Rojas
concession. An amount of US$5.9 million was capitalised as a
right-of-use asset to assets under construction on commencement of
the lease. The right-of-use asset will be transferred to
development and production assets and depreciated following
completion of the asset in 2020.
Additions to property, plant and equipment in the year ended 31
December 2019 include US$0.3 million of interest capitalised in
respect of qualifying assets (2018: US$0.7 million). The total
amount of interest capitalised within property, plant and equipment
at 31 December 2019 is US$3.1 million (2018: US$2.8 million).
Exploration costs
Exploration costs written off in 2019 include US$3.4 million
related to the write-off of an unsuccessful exploration well in the
operated segment that was previously being held as suspended.
Termination of licences
In May 2019, the Province of Mendoza issued a decree terminating
the concession for the Chañares Herrados block held by the
company's joint venture partner, Chañares Energía S.A., as a result
of its failure to fulfil work commitments. The decree took
immediate effect and the company has no intention of participating
in the re-tender process. The carrying value of the asset has
consequently been written off at 31 December 2019, causing a
US$15.8 million loss to be realised in the non-operated
segment.
Disposals
In November 2019, the company sold its 70% working interest in
the Santa Cruz Sur ('SCS') licences to Echo Energy plc ('Echo').
SCS forms part of the group's non-operated asset portfolio, being
conventional oil production operated by ROCH S.A. On sale, the net
non-current assets related to SCS of US$34.2 million were written
off to the gain/loss on sale calculation.
Assets held for sale
Assets held for sale relate to certain non-core development and
production assets in the non-operated segment with a net book value
of US$17.6 million and exploration and evaluation assets held
within intangible assets with a net book value of US$0.6 million.
An additional amount of US$0.4 million has been disclosed as held
for sale in current liabilities in relation to the ARO provision
associated with these assets. Board approval for the sale of these
assets has been given and the company has engaged in an active
programme for the sale of the assets within 12 months of the
reporting date.
Other Development Assets
fixed and production under
assets assets construction Total
Property, plant and equipment US$'000 US$'000 US$'000 US$'000
---------------------------------------- -------- --------------- ------------- ---------
At 1 January 2018
Cost 7,320 608,015 18,241 633,576
Accumulated depreciation and impairment (4,608) (274,723) - (279,331)
---------------------------------------- -------- --------------- ------------- ---------
Net book amount 2,712 333,292 18,241 354,245
---------------------------------------- -------- --------------- ------------- ---------
Year ended 31 December 2018
Opening net book amount 2,712 333,292 18,241 354,245
Additions 2,111 - 79,381 81,492
Transfers - 91,552 (91,552) -
Transfers to intangible assets - (1,413) - (1,413)
Exploration costs written off - (3,407) - (3,407)
Depreciation charge (1,072) (63,654) - (64,726)
---------------------------------------- -------- --------------- ------------- ---------
Closing net book amount 3,751 356,370 6,070 366,191
At 31 December 2018
Cost 9,431 694,747 6,070 710,248
Accumulated depreciation and impairment (5,680) (338,377) - (344,057)
---------------------------------------- -------- --------------- ------------- ---------
Net book amount 3,751 356,370 6,070 366,191
---------------------------------------- -------- --------------- ------------- ---------
Exploration costs
Exploration costs written off in 2018 of US$3.4 million include
the company's share of costs related to the unsuccessful Orkeke
well drilled by the company's partner, ROCH S.A., in the
non-operated segment in 2018.
Impairment
The company defines the key indicators of impairment in relation
to its oil and gas assets within its accounting policies. When a
specific impairment trigger is identified during a period, the
company will complete an impairment review of the associated
CGU.
The company also assessed its licence interests for potential
impairment on an annual basis by comparing the book value of each
asset to its respective NPV10 value that is independently assessed
by the external reservoir engineers using the Petroleum Resources
Management System guidance. The NPV10 value is calculated based on
a discounted cash flow model using a discount rate of 10%.
The calculation includes several key assumptions, including oil
and gas prices and reserve estimates, which the company defines as
key impairment indicators within its accounting policy. Where the
NPV10 value is lower than the carrying value of an asset an
impairment test is performed.
Assets are tested for impairment by calculating their
value-in-use using a discounted cash flow model or their fair value
less costs of disposal, whichever is determined to be the higher.
The impairment test uses several assumptions but is most sensitive
to assumptions related to oil and gas prices, discount rate and
production volumes.
The NPV10 impairment trigger assessment showed that the
Atamisqui concession was potentially impaired. An impairment test
was performed using a discounted cash flow model and an impairment
charge of US$2.5 million was determined to be required at 31
December 2019. The impairment charge is reflective of the mature
nature of the asset and the lower oil price environment observed
towards the end of 2019.
In the prior year, a potential impairment was identified at the
La Brea concession, however following completion of an impairment
review, no impairment charge was considered necessary. During 2019,
it was identified that the La Brea concession will share a single
offtake point for production with Puesto Rojas and therefore it has
been included in the same CGU as Puesto Rojas in 2019. The NPV10
impairment trigger assessment completed for this CGU during 2019
did not indicate any potential impairment.
Post year-end considerations
During 2020, the Brent crude benchmark price has fallen
dramatically, primarily due to a significant reduction in demand
for fuel caused by the COVID-19 pandemic and consequent travel and
economic restrictions introduced. The Brent price recovered
somewhat during May and June 2020, though current pricing remains
significantly lower than the 2019 full year average Brent price of
US$64.30/bbl.
In assessing for potential impairment conditions at 31 December
2019, we considered, amongst other factors, Gaffney, Cline and
Associates's 2019 2P NPV10 calculations provided as part of their
independent assessment of reserves and resources at 31 December
2019. The 2P NPV10 values were taken as a proxy for fair value and
compared to the carrying value of the company's oil and gas assets
on a CGU-by-CGU basis. A deficit of NPV10 compared to carrying
value could be an indicator of impairment. These calculations were
based on a US$65.00/bbl Brent reference price with a 1.5% accretion
over time.
Because of the current lower oil price environment brought about
by the COVID-19 situation, the company has carried additional 2019
2P NPV10 calculations and has performed sensitivity analysis based
on a change in oil price, whilst maintaining the consistency of
other inputs into the model. There are many other variables to
consider in these calculations when undertaking a formal impairment
review and hence the outcome of the sensitivity analysis performed
is not necessarily indicative of potential impairment in the same
amount.
In May 2020, the Argentine government issued a decree
establishing a fixed realised Medanito price of US$45.00/bbl. This
pricing will remain in place in the Argentine domestic market until
the Brent crude benchmark sustains a price of US$45.00/bbl or above
for 10 consecutive days. The company has, therefore, performed a
sensitivity to evaluate the potential impact on asset carrying
values if a flat long term US$45.00/bbl price was applied in the
2019 NPV10 calculations. Applying the revised flat pricing
assumption gives a 2P NPV10 value that is approximately US$300
million lower than the comparable measure included in the
independent assessment of reserves and resources at 31 December
2019.
Notwithstanding, it should be noted that the sensitivity
analysis performed is a mathematical exercise and focuses only on a
change in price and, for instance, does not take into account
potential cost reductions, efficiencies or deferrals that could be
achieved. In addition, the medium to long-term forward curve for
Brent pricing currently shows future prices significantly above the
US$45/bbl used in the sensitivity analysis. Therefore, the results
of this analysis should not be taken as indicating actual potential
impairment of an equivalent amount.
The company will be carrying out a full impairment assessment at
30 June 2020 as part of its preparation of its half year
results.
5. Intangible assets
Exploration and evaluation assets are primarily the group's
licence interests in exploration and evaluation assets located in
Argentina. The exploration and evaluation assets consist of both
conventional and unconventional oil and gas properties.
Exploration
and evaluation
Goodwill assets Total
Intangible assets US$'000 US$'000 US$'000
------------------------------------------------ --------- --------------- ---------
At 1 January 2019
Cost 260,007 225,172 485,179
Accumulated amortisation and impairment charges (224,169) - (224,169)
------------------------------------------------ --------- --------------- ---------
Net book amount 35,838 225,172 261,010
------------------------------------------------ --------- --------------- ---------
Year ended 31 December 2019
Opening net book amount 35,838 225,172 261,010
Additions - 39,054 39,054
Transfers from property, plant and equipment - (43,287) (43,287)
Transfers to assets held for sale - (616) (616)
Exploration cost written off - (230) (230)
Impairment charge - (5,057) (5,057)
Disposal of assets - cost - (4,334) (4,334)
------------------------------------------------ --------- --------------- ---------
Closing net book amount 35,838 210,702 246,540
At 31 December 2019
Cost 260,007 215,759 475,766
Accumulated amortisation and impairment charges (224,169) (5,057) (229,226)
------------------------------------------------ --------- --------------- ---------
Net book amount 35,838 210,702 246,540
------------------------------------------------ --------- --------------- ---------
Additions
Additions to intangible assets during the period predominately
relate to the conclusion of the drilling of the MMx-1001 well, the
drilling of the MMx-1002 well and subsequent flowback and other
testing and completion works completed at Mata Mora. Additions also
included costs associated with securing the group's interest in the
Corralera Noroeste concession.
The costs associated with the MMx-1001 and MMx-1002 wells were
transferred to development and production assets within property,
plant and equipment on completion of flowback and determination of
commercial reserves. The remaining exploration and evaluation costs
associated with the Mata Mora licence will be held as intangibles
until the license area is commercially developed.
Disposals
A US$2.3 million loss on relinquishment has been recognised in
respect to the Vega Grande concession in the operated segment. The
licence area is not part of the company's core operations and is
currently not producing. Management therefore made the decision not
to request the extension of the concession when it became due for
renewal during the period.
An additional US$2.0 million loss on relinquishment has been
recognised in respect to the Malagüe concession in the non-operated
segment. In May 2019, the Province of Mendoza ratified its decision
to deny the application for the second exploration permit for the
area with the current operator, YPF. The company subsequently
appealed the decision and made a separate application for the
exploration permit, in which the company would assume operatorship
on the licence. In Q4 2019, this application was also denied,
following which management elected to write off the asset.
Impairment
The impairment charge of US$5.1 million recorded in the period
related to certain licences held on the balance sheet at the
business combination date in 2017 which have subsequently been
relinquished.
Exploration
and evaluation
Goodwill assets Total
Intangible assets US$'000 US$'000 US$'000
------------------------------------------------ --------- --------------- ---------
At 1 January 2018
Cost 260,007 171,393 431,400
Accumulated amortisation and impairment charges (224,169) - (224,169)
------------------------------------------------ --------- --------------- ---------
Net book amount 35,838 171,393 207,231
------------------------------------------------ --------- --------------- ---------
Year ended 31 December 2018
Opening net book amount 35,838 171,393 207,231
Additions - 57,568 57,568
Transfers from property, plant and equipment - 1,413 1,413
Exploration cost written off - (5,202) (5,202)
------------------------------------------------ --------- --------------- ---------
Closing net book amount 35,838 225,172 261,010
At 31 December 2018
Cost 260,007 225,172 485,179
Accumulated amortisation and impairment charges (224,169) - (224,169)
------------------------------------------------ --------- --------------- ---------
Net book amount 35,838 225,172 261,010
------------------------------------------------ --------- --------------- ---------
Additions
Additions to intangible assets during 2018 related to amounts
paid to secure additional acreage with unconventional exposure as
part of open bid rounds held in both the Neuquén and Mendoza
provinces. Additions in 2018 also included costs associated with
securing the group's interests in the Mata Mora and Corralera
blocks and increasing its working interest participation from 27%
to 90%.
Exploration costs
Exploration costs written off in 2018 included US$4.8 million
related to the write-off of an unsuccessful exploration well at the
Laguna el Loro concession. The well satisfied the commitments
associated with the licence which has now been relinquished.
Impairment tests for exploration and evaluation assets
Exploration and evaluation assets are subject to impairment
testing prior to reclassification as tangible fixed assets where
commercially viable reserves are confirmed. Where commercially
viable reserves are not encountered at the end of the exploration
phase for an area the accumulated exploration costs are written off
in the income statement.
Impairment tests for goodwill
Goodwill is monitored by management at the level of the
operating segments identified in note 3. A segment level summary of
goodwill allocation is presented below.
Operated Non-operated Corporate Total
At acquisition US$'000 US$'000 US$'000 US$'000
------------------------------- -------- ------------ --------- --------
Chachahuen & Cerro Morado Este - 15,223 - 15,223
Corralera 16,780 - - 16,780
Mata Mora 3,835 - - 3,835
------------------------------- -------- ------------ --------- --------
Total goodwill 20,615 15,223 - 35,838
------------------------------- -------- ------------ --------- --------
No goodwill was recognised prior to 2017. All goodwill presented
relates to the allocation of technical goodwill arising as a result
of accounting for deferred tax on the business combination on 10
August 2017. Goodwill of US$224.2 million that was related to the
excess of the purchase consideration given over the fair value of
assets acquired and liabilities assumed at the acquisition date was
impaired in full on completion of the business combination in
2017.
The carrying value of goodwill has been assessed for impairment
at the period end. The discount rate used in the carrying value
assessment was the group's calculated weighted average cost of
capital of 12.0% (2018: 14.0%). Prices used in the assessment were
the Energy Information Administration's forecast of Brent crude
prices based on a US$65.00/bbl price with a 1.5% accretion over
time and consistent with those used in completing the impairment
assessment for the development and production assets.
The assessment determined that the fair value of the assets to
which goodwill has been allocated was in excess of their carrying
values as at 31 December 2019 and consequently no impairment charge
has been recorded in 2019.
6. Borrowings
2019 2018
--------------------------- ------------------------------- -------------------------------
Current Non-current Total Current Non-current Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------------------- -------- ----------- -------- -------- ----------- --------
Secured
Bank loans 10,055 - 10,055 17,523 - 17,523
--------------------------- -------- ----------- -------- -------- ----------- --------
Total secured borrowings 10,055 - 10,055 17,523 - 17,523
--------------------------- -------- ----------- -------- -------- ----------- --------
Unsecured
Bank loans - - - 709 - 709
Loans from related parties 146,782 146,751 293,533 46,090 135,919 182,009
Other loans 28 - 28 43 - 43
--------------------------- -------- ----------- -------- -------- ----------- --------
Total unsecured borrowings 146,810 146,751 293,561 46,842 135,919 182,761
--------------------------- -------- ----------- -------- -------- ----------- --------
Total borrowings 156,865 146,751 303,616 64,365 135,919 200,284
--------------------------- -------- ----------- -------- -------- ----------- --------
Secured liabilities and assets pledged as security
Secured liabilities relate to US Dollar denominated loans at a
fixed interest rate of 8.0% (2018: interest rate range from 6.2% to
8.25%). At 31 December 2019 the group held no material Argentine
Peso denominated loans (2018: US$nil).
Loans from related parties
The related party loan at 31 December 2019 relates to a
convertible rolling credit facility ('RCF') provided to the group
by Mercuria Energy Netherlands B.V., a subsidiary of the Mercuria
Energy Group Limited ('Mercuria').
In February 2018, US$100.0 million of the original Mercuria
facility was converted to equity of the company at a price of
GBP0.37 per share. At the same time the facility was restructured
as a new convertible RCF in the amount of US$160.0 million with an
additional US$100.0 million of new funds made available to the
company.
In December 2018, Mercuria advanced an additional US$25.0
million as a Facility B element to the RCF. In February 2019, a
further US$50.0 million was made available under this Facility B
element. The original loan of US$160.0 million became Facility
A.
In May 2019, the amended convertible RCF was further extended to
add a Facility C commitment of US$40 million. Facility C was
extended in November 2019 by an additional US$10.0 million.
At 31 December 2019, a total facility of US$285.0 million was
available to the company, with a total of US$278.0 million drawn
down under the facility. All funds drawn down under the amended
convertible RCF facility bear interest at three-month LIBOR+4% and
are repayable by 31 December 2021.
Mercuria Group has the right to convert all or part of the
outstanding principal of Facility A into additional new ordinary
shares of the company at a price of GBP0.45 per share. This
conversion right can be exercised at any time from 30 June 2018
until 10 business days prior to the maturity of Facility A. A
similar conversion feature exists in relation to Facility B at a
price of GBP0.28 per share exercisable from 30 June 2019 until 10
business days prior to the maturity date and in relation to
Facility C at a price of GBP0.23 per share exercisable from 30 June
2020 until 10 business days prior to the maturity date.
The amended convertible RCF provides for a grace period
(interest and principal) from 1 January 2019 to 29 February 2020
and the loan will be amortised in equal quarterly repayment
instalments from 31 March 2020 until maturity. The rights to
convert Facility B and Facility C are subject to appropriate
shareholder resolutions, in relation to the authority to allot and
disapplication of pre-emption rights in relation to such shares,
having been approved.
Refer to note 8 for changes since the year end.
Fair value
The fair values of the majority of the borrowings held by the
group are not materially different to their carrying amounts, since
the interest payable on those borrowings is either close to current
market rates or the borrowings are of a short-term nature.
Differences identified between the fair values and carrying amounts
of borrowings are as follows:
2019 2018
--------------------------- -------------------- --------------------
Carrying Carrying
amount Fair value amount Fair value
US$'000 US$'000 US$'000 US$'000
--------------------------- -------- ---------- -------- ----------
Bank loans 10,055 10,018 18,232 17,924
Other loans 28 28 43 43
Loans from related parties 293,533 288,668 182,009 182,009
--------------------------- -------- ---------- -------- ----------
303,616 298,714 200,284 199,976
--------------------------- -------- ---------- -------- ----------
The fair values of non-current borrowings are based on
discounted cash flows using a current borrowing rate. They are
classified as Level 3 fair values in the fair value hierarchy due
to the use of unobservable inputs, including own credit risk.
7. Loss per share
2019 2018
Basic and diluted loss per share US$ US$
-------------------------------------------------------- ------ ------
From continuing operations attributable to the ordinary
equity holders of the company (0.04) (0.03)
-------------------------------------------------------- ------ ------
Total basic loss per share attributable to the ordinary
equity holders of the company (0.04) (0.03)
-------------------------------------------------------- ------ ------
2019 2018
Basic and diluted loss per share US$'000 US$'000
-------------------------------------------------------- --------- --------
Loss attributable to the ordinary equity holders of the
company used in calculating basic earnings per share:
From continuing operations (113,810) (78,313)
-------------------------------------------------------- --------- --------
(113,810) (78,313)
-------------------------------------------------------- --------- --------
Weighted average number of shares used as the denominator
Number of shares 2019 2018
----------------------------------------------------------- --------- ---------
Adjustments for calculation of diluted earnings per share:
At 1 January 2,786,645 2,537,178
At 31 December 2,785,024 2,786,645
Potential dilutive ordinary shares 3,989 3,325
----------------------------------------------------------- --------- ---------
Weighted average number of shares used as the denominator
in calculating diluted earnings per share 2,785,791 2,730,364
----------------------------------------------------------- --------- ---------
8. Post balance sheet events
Convertible revolving credit facility extension
On 9 March 2020, Facility C of the existing convertible
revolving credit facility ('RCF') held with Mercuria was increased
by US$6.0 million to US$291.0 million. The terms of this additional
facility will be consistent with those of Facility C, bearing
interest at a rate of LIBOR+4% and repayable on 31 December 2021.
Refer to note 6 for additional details on the company's
borrowings.
On 31 March 2020, the company announced that due to the
unprecedented market conditions being caused by the current
COVID-19 crisis it has reduced its capital expenditure programs for
2020 and is also exploring other cost saving initiatives. As part
of these initiatives the company has entered discussions with
Mercuria to restructure the existing convertible RCF facility.
Whilst these discussions are ongoing, Mercuria has agreed to amend
certain terms of the RCF agreement, including extending the
interest grace period and first repayment date.
On 15 May 2020, the company announced that it had reached
agreement with Mercuria to extend the interest grace period and
delay the first repayment date under the RCF agreement to 15 July
2020.
Capex programs and cost saving initiatives
The company is currently faced with several challenges. On a
macro level it faces economic uncertainty in Argentina following a
change of government in December 2019 and the recent technical
default on Argentina's sovereign debt. This political and economic
uncertainty has been compounded by the impact of COVID-19 and the
consequent governmental response that has led to a significant
reduction in demand for fuel resulting in a collapse of oil prices
in the first half of 2020.
Given this, the board has taken steps to develop operating plans
that conserve or minimise the use of cash by reducing capital
expenditure programs and other operating and administrative
costs.
Due to significant reduction in demand for oil, the company has
shut-in production of crude oil from its operated licences at
Puesto Rojas, Atamisqui and Tupungato. In addition, the company has
developed a plan that involves a significant reduction in operating
and administrative costs. The company has completed the restructure
of its US$10.0 million local Argentine debt, restructured its
London and Houston offices, reduced the size of the board of
directors. In addition, substantially all open capex programmes
have been closed and salary reductions of between 30% to 40% have
been implemented for all staff.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR PPURUQUPUGRA
(END) Dow Jones Newswires
June 26, 2020 02:00 ET (06:00 GMT)
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