TIDMIOG
RNS Number : 9302B
IOG PLC
07 June 2023
7 June 2023
IOG plc
Corporate Update
IOG plc ("IOG", or "the Company"), (AIM: IOG.L) provides an
operational and financial update following well clean-up and
testing operations at the Blythe H2 well over 4-7 June.
Blythe H2 clean-up and testing
-- The H2 well was drilled to a total depth of 13,400 ft MD and
initial data indicated better reservoir quality (permeability and
porosity) in the H2 wellbore versus H1
-- The well has flowed at a maximum dry gas rate of 22.8 mmscf/d
and 280-336 bbl/d condensate at the export pipeline pressure of
1250psi, with no formation water observed
-- This is an improvement on current H1 rate, but below the
expected initial H2 gas rate of 30-40 mmscf/d
-- There is evidence that a potential mechanical blockage
downhole is constraining flow. Equipment is being mobilised in the
coming weeks to assess and rectify this potential blockage.
-- No faults or fractures were encountered in the H2 reservoir
section, unlike at H1 where a sub-seismic fracture appears to be
causing formation water production
Blythe H2 next steps
-- H2 will now be handed over for final hook-up and
commissioning ("HUC") and remains expected to be brought onstream
this month, despite the 34 days lost to the well control event
-- Safely completing the H2 HUC is expected to require
approximately one week of planned downtime
-- The remedial downhole equipment will be mobilised in the
coming weeks and run in the well with the rig alongside, with H2
well shut in during these operations
-- Once H2 production is on, H1 is planned to be shut in; in a
higher gas price environment it could be possible to reopen H1 at
lower rates to minimise water production
Blythe H1 production operations
-- The current gross unconstrained H1 production rate is approximately 15.5 mmscf/d
-- Average 2023 gross production year to date to 31 May was 13.9
mmscf/d, factoring in shutdowns and liquid letdowns alongside other
Bacton gas streams
-- Operating Efficiency over that period has been 93.9% and Production Efficiency 84.6%
Financial Update
-- Final H2 well costs are expected to be approximately GBP15m
net to IOG, consistent with guidance provided on 2 May
-- The gas market environment has become increasingly
challenging over recent months. In January 2023, the Company's
average realised gas price was 214 p/therm. When the 2022 Annual
Report and Accounts ("ARA") was released on 16 March 2023, the UK
NBP Day-ahead gas price was 126 p/therm. This then fell to 64
p/therm by 6 June 2023. The average realised price for May 2023 was
72 p/therm and 2023 realised average to the end of May was 112
p/therm.
-- The forward curve for 2H 2023 has also dropped considerably
with near term prices at a 20-month low and less than half the
level in February 2022 before the Ukraine war. Given the complex
dynamics involved, there is also considerable uncertainty about the
outlook for future gas prices.
-- The going concern section of the ARA highlighted the
evolution of gas prices as a key risk facing the business. The
recent substantial further falls in gas prices means the Company is
now likely to breach one or more of the covenants under the terms
of its EUR100 million senior secured bond at the next covenant test
date of 30 June 2023.
-- The ARA also highlighted the importance to the Company of the
Blythe H2 well. The Company is assessing the impacts of potentially
lower than expected H2 production rates.
-- The Board has been proactively taking mitigating actions to
address balance sheet risks, including appointing an independent
corporate finance firm, Smith Square Partners, which has
considerable experience in advising companies in similar
situations
-- The Company has also engaged in preliminary discussions with
an ad-hoc group of bondholders representing c. 40% of the bonds.
The purpose of these discussions, which the Board views as
constructive to date, is:
a) to secure pre-emptive waivers of potential covenant breaches
b) to agree measures to enable the Company to withstand short
term consequences of recent gas price developments
c) to explore the most effective means of addressing the maturity of the bond in September 2024
-- In this context, the Board remains highly focused on
maximising near-term production and reducing operating costs, as
well as minimising capital expenditure, as reflected in the Goddard
farm-out process
-- Cash at bank as at 31 May 2022 was GBP21.5 million, including
restricted funds of GBP6.8 million
Rupert Newall, CEO, commented:
"The Blythe H2 well has tested at a maximum gas rate of 22.8
mmscf/d at the pipeline export pressure, appearing to be
constrained by a suspected downhole mechanical blockage. H2 has
been executed safely and efficiently considering that 34 days were
lost to the well control event and remains on track to come
onstream later this month following final hook-up and
commissioning.
Meanwhile, the Company has come under increased pressure from
severe gas market volatility, with UK NBP Day-ahead gas prices
falling by over 85% from August 2022 to June 2023. In that context,
we have initiated constructive discussions with an ad-hoc group of
our largest bondholders around potential short and longer-term
solutions. We will keep all stakeholders updated as appropriate on
the progress of these discussions. "
This announcement contains inside information for the purposes
of Article 7 of the Market Abuse Regulation (EU) 596/2014 as it
forms part of UK domestic law by virtue of the European Union
(Withdrawal) Act 2018 ("MAR"), and is disclosed in accordance with
the company's obligations under Article 17 of MAR.
Enquiries:
IOG plc
Rupert Newall (CEO)
Dougie Scott (COO)
James Chance (Head of Capital Markets & ESG) +44 (0) 20 7036 1400
finnCap Ltd
Christopher Raggett / Simon Hicks +44 (0) 20 7220 0500
Peel Hunt LLP
Richard Crichton / David McKeown +44 (0) 20 7418 8900
Vigo Consulting
Patrick d'Ancona / Finlay Thomson +44 (0) 20 7390 0230
About IOG:
IOG is a UK developer and producer of indigenous offshore gas.
The Company began producing gas in March 2022 via its offshore and
onshore Saturn Banks production infrastructure. In addition to its
production assets, IOG operates several UK Southern North Sea
licences containing gas discoveries and prospects which, subject to
future investment decisions, may be commercialised through the
Saturn Banks infrastructure. All its assets are co-owned 50:50 with
its joint venture partner CalEnergy Resources (UK) Limited. Further
details of its portfolio can be found at www.iog.co.uk .
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