TIDMPGR
RNS Number : 5710B
Phoenix Global Resources PLC
09 October 2020
9 October 2020
Phoenix Global Resources plc
('Phoenix' or 'the Company')
UNAUDITED INTERIM RESULTS FOR THE SIX-MONTH PERIOD TO 30 JUNE
2020
Phoenix Global Resources (AIM: PGR; BCBA: PGR) announces its
unaudited interim results for the six-month period ended 30 June
2020.
Operational summary
-- Average daily production of 4,369 boepd (H1 2019: 9,630 boepd)
-- Majority of production shut-in with effect from April
-- Significant cost reductions have and continue to be implemented
-- Phased restart of production during Q3 including at its
operated licences Pueto Rojas, Tupungato and Atamisqui and its
non-operated licences Chachahuen
2020 interim results summary
-- Revenues of US$24.9 million (H1 2019: US$68.6 million)
-- Realised oil price of US$39.19/bbl (H1 2019: US$52.23/bbl)
-- Operating loss of US$ 50.8 million (H1 2019: loss of US$ 32.9 million)
-- EBITDAX (1) loss of US$ 31.8 million (H1 2019: US$5.2 million)
-- Adjusted EBITDAX (1) loss of US$ 8.9 million (H1 2019: US$13.0 million (profit))
Outlook
Production has now restarted and is expected to continue if
demand in Argentina continues to increase, at its operated licences
Puesto Rojas, Tupungato and Atamisqui and its non-operated licence
Chachahuen, albeit initially at lower levels than before the
Covid-19 pandemic. The Company also expects to restart production
at its operated licence Mata Mora and its non-operated licences Rio
Cullen/Las Violetas and Cajon de Los Caballos, in the near
future.
Whilst the environment continues to be extremely challenging,
the Company has taken significant steps to, and continues to,
reduce its costs in all areas of the business. The Board believes
this will put the Company in a stronger position to produce oil
economically at lower prices with a positive contribution to cash
flow and allow it to focus on the continued development of its
unconventional assets.
The Company's major shareholder, Mercuria, continues to be
supportive and the Board, whilst exercising a degree of caution,
believes the actions being taken will put the Company on a sounder
financial footing, whilst appreciating this position could change
very quickly in these uncertain times.
Notes:
(1) "EBITDAX" represents earnings before interest, taxes,
depreciation, amortisation and exploration expenses and "Adjusted
EBITDAX" represents EBITDAX excluding non-recurring losses and
expenses.
For further information, please contact:
Phoenix Global Resources plc Nigel Duxbury T: +44 20 3912 2800
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 John Prior
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) and offers its investors an opportunity
to invest directly into Argentina's Vaca Muerta shale formation and
other unconventional resources . 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.
The Company's website is www.phoenixglobalresources.com
Operations Review
Covid-19
Like many other companies in Argentina, Phoenix has been heavily
impacted by the COVID-19 outbreak in the country. Quarantine
restrictions introduced in late March and the resulting drop in the
demand for oil, saw most refiners suspending the purchase of
oil.
Following notice from YPF that it was temporarily suspending the
purchase of oil, the Company was faced with no option but to
shut-down production of crude oil from its operated licences Puesto
Rojas, Atamisqui and Tupungato with production of oil from licences
operated by third parties reduced significantly.
Production has restarted and is expected to continue if demand
in Argentina continues to increase, at its operated licences Puesto
Rojas, Tupungato and Atamisqui and its non-operated licence
Chachahuen, albeit initially at lower levels than before the
Covid-19 pandemic. Production has also recently restarted at the
Company's non-operated licences Rio Cullen/Las Violetas and Cajon
de Los Caballos and the Company expects to restart production at
its operated licence Mata Mora in the near future. The Company is
continuing to take all steps necessary to operate our production by
following all recommended safety procedures regarding Covid-19 to
prevent further impacts on the Company or its employees.
OPERATED AREAS
Mata Mora
The MMox-1002 was successfully reactivated in February after an
extended shut-in designed to provide reservoir surveillance
regarding reservoir pressures and future well spacing. Both Mata
Mora wells were shut in during May as there was no market for the
oil being produced and have remained shut in for the last four
months due to weak commodity pricing. Both wells remain shut-in and
we are continuing to challenge the underlying cost structure. Our
expectation is that we will safely restart production in the fourth
quarter.
Puesto Rojas Area
First quarter activity included a workover of CP-1014 and
workover jobs on older wells to maintain production levels. Like
other assets, Puesto Rojas was shut-in in April following notice
from YPF that they were suspending oil purchases in Mendoza
province. The field was subsequently re-activated with minimal well
damage, however, wells CDM-3004, CDM-3007, CP-1003, PR-53 and
CP-1014 currently remaining offline due to damage incurred during
the shut-in period. Wells CP-1006 and CP-1008 remain shut-in for
gas handling limits in the field.
Cuyana Basin
Similar to the Puesto Rojas Area, PGR's Cuyana Basin fields of
Atamisqui and Tupungato were shut-in in April following notice from
YPF that they were suspending oil purchases in Mendoza province.
The field was subsequently re-activated with minimal well
damage.
Corralera Area
The Company was progressing its plans to drill its first well in
the Corralera area until the Covid-19 restrictions resulted in the
Company suspending these operations. The well pad location is
substantially complete and the Company is now evaluating options
with the Neuquen Province regarding the most effective way to
fullfill the Company's license commitment obligations.
Rio Atuel
We completed the evaluation of the MLx-1001 drilled in 2019 and
based on the results, we have determined it not to be commercial
and wrote off the costs in the second quarter. No other 2020
physical activity is currently planned whist we continue to study
this well result and other subsurface data previously
collected.
La Paloma
LP-9 and LP-7 wells, were drilled in the La Paloma/Cerro
Alquitran area targeting the Grupo Neuquén formation in 2019 and
were planned for completion in the first half of 2020 prior to the
Covid-19 restrictions causing us to suspend this activity. The
Company is currently evaluating options as to when it is best to
complete these wells.
NON-OPERATED AREAS
Chachahuen Area
In the Chachahuen Sur area, the focus for 2020 was to improve
the water flooding projects and start a Polymer Pilot Project.
However, given the market conditions, the majority of this work was
postponed. In the first quarter, three workovers were performed on
injector wells (ChuS-158; ChuS-293 and ChuS-294).
At Cerro Morado Este, the focus for 2020 was on the water
flooding pilot plan, with three water injection patterns, and
performing production facilities improvements. During the first
quarter of the year completion of five wells on backlog from 2019
was performed on CMoE-20; CMoE-54; CMoE-61; CMoE-66 and
CMoE-67.
Since April, activity was reduced to a minimum in this area due
to the market situation and Covid-19 restrictions and in May, the
Company's share of the production was shut-in due to YPF's notice
of suspension of oil purchases. The Company's share of oil
production has now restarted, with oil initially sold to a
different off-taker and subsequently and currently to YPF.
Tierra del Fuego Area
In January 2020, the level of water cut in the SM.x-1001
increased rapidly to more than 50% of total production and the well
was shut in. In March 2020, a workover job was performed on this
well with production tests in the middle and upper Tobifera as part
of the further evaluation of the well. A test in the upper Tobifera
section, above current productive perforations, showed an average
production rate of 1,576 bpd over seven days with lower water cut
and should now be able to restore this well to production.
Since the second half of 2019, the buoy at the YPF terminal has
been out of service and oil production has been trucked to the
Chilean ENAP terminal with an increased transportation cost.
Following a Covid-19 outbreak at the ENAP terminal, cross-border
sales were closed, causing the majority of oil wells to be shut-in.
Only gas production continues with a small light associated oil
volume. However, the YPF buoy was repaired in August and we expect
oil production to restart in late Q3/early Q4.
Due to reservoir performance concerns and the market situation
and Covid-19 restrictions, planned drilling activity and facilities
improvements were postponed, leaving HSE related activities only to
continue where possible.
H1 2020 production
Total production (net WI)
Average total daily working interest production volumes in H1,
Q1 and Q2 2020 compared to full year 2019 and Q4 2019:
WI H12020 Q2 2020 Q1 2020 Q4 2019 FY 2019
% Boe/d Boe/d Boe/d Boe/d Boe/d
OPERATED
Puesto Rojas Area 100% 762 169 1,356 1,540 1,563
Atamisqui 100% 161 32 291 290 314
Refugio Tupungato 100% 500 107 893 858 901
Mata Mora 90% 350 96 604 616 414
----------------------- ------ ------- -------- -------- -------- --------
TOTAL OPERATED 1,773 404 3,144 3,304 3,192
----------------------- ------ ------- -------- -------- -------- --------
NON-OPERATED
Chachahuen Area 20% 1,530 1,039 2,021 1,910 1,995
Rio Cullen 17% 713 523 903 1,057 1,252
Cajon de los Caballos 38% 67 21 113 109 115
Chanares Herrados(1) 78% 242 - 484 457 482
Santa Cruz Sur(2) 70% - - - 865 2,200
Other 40% 44 39 48 - -
----------------------- ------ ------- -------- -------- -------- --------
TOTAL NON-OPERATED 2,596 1,622 3,569 4,398 6,044
----------------------- ------ ------- -------- -------- -------- --------
GRAND TOTAL 4,369 2,026 6,713 7,702 9,236
----------------------- ------ ------- -------- -------- -------- --------
(1) Joint venture terminated 9 April 2020
(2) Sold 13 November 2019
Financial review
H1 2020 H1 2019 FY 2019
US$M US$M US$M
----------------------------------------- ---------------- ------------------ ----------------
Revenue 24.9 68.6 129.4
Gross (loss)/profit (13.6) 1.6 (15.4)
Operating loss (50.8) (32.9) (110.2)
EBITDAX loss (31.8) (5.2) (39.8)
Loss for the period (55.4) (34.9) (113.8)
Net assets 167.6 301.1 222.7
Net cash flow from operating activities (10.5) (19.6) (16.4)
Capital expenditures 3.3 50.8 96.5
----------------------------------------- ---------------- ------------------ ----------------
Income Statement
Revenue and gross (loss)/profit
Revenue for the six-month period was US$24.9 million (H1 2019:
US$68.6 million), comprising revenue from oil sales of US$23.9
million (H1 2019: US$59.7 million) and revenue from gas sales of
US$1.0 million (H1 2019: US$8.9 million).
The reduction in oil revenue between periods resulted primarily
from the shut-in of production and also a reduction in the realised
price per barrel.
The average realised oil sales price in the six months to 30
June 2020 was US$39.19/bbl, a 25% decline on the average price of
US$52.23/bbl observed in the six months to 30 June 2019. Realised
prices achieved by the Company are indirectly linked to Brent.
The emergence of Covid-19 as a global pandemic and the resulting
fall in the demand for oil has had a significant impact on the
operations of the Company. The over-supply of crude in the market
resulted in YPF, the state-controlled Argentine energy company,
giving notice to its customers of the suspension of the purchase of
oil until further notice. This resulted in refineries stopping the
acceptance of deliveries, leaving the Company with no option but to
shut-down production in April.
Crude oil prices dropped to historic lows with the average Brent
crude price falling period-on-period by 35%, from an average of
US$66/bbl in H1 2019 to an average of US$42.7/bbl in H1 2020.
In May, Argentina's Government issued a decree establishing a
fixed realised Medanito price of $45/bbl ("Barril Criollo"),
subject to certain conditions, demonstrating the intention of the
government to support the industry where possible. This pricing
support remained in place until September when the Brent crude
benchmark price exceeded US$45/bbl for 10 consecutive days, which
was one of the conditions that would cause the support to expire.
Notwithstanding, as the Brent crude benchmark price has now fallen
below US$45/bbl for an extended period of time, management expects
the government to reinstate the price support mechanism in Q4.
As a result of the above, average daily oil production in the
period was 3,546 bopd compared to 5,774 bopd in H1 2019 (excluding
production from assets sold).
Gas revenues declined in the period by US$7.9million, mainly due
to the sale in 2019 of the Santa Cruz Sur asset that contributed to
US$6.7 (85%) of this decline. Realised prices fell from an average
of US$3.45/MMcf in H1 2019 to an average of US$2.13 /MMcf in H1
2020 due to an oversupplied gas market.
The shut-in of some of the gas producing wells on the
non-operated asset, Rio Cullen and Las Violetas, due to the impact
of Covid-19, resulted in lower volumes produced and sold.
Operating costs increased to US$26.3/boe compared to
US$18.37/boe in H1 2019, primarily due to the reduced production
levels resulting in the fixed element of production costs being
allocated over lower volumes.
Depreciation declined US$11.1 million in the period from US$27.3
million in H1 2019 (including depreciation of assets sold in H2
2019 of US$5.4 million and held for sale assets of US$2.4 million)
to US$16.2 million in H1 2020. The decline resulted from lower
production volumes.
Other operating costs
An exploration expense of US$2.7 million has been recognised in
the period, primarily relating to the write-off of the US$2.5
million cost of the Rio Atuel exploratory well.
Furthermore, following our assessment of the potential
impairment of our licence interests, the Company has recognised an
impairment loss of US$15.2 relating to the write down of goodwill
attributable to our interest in Chachahuen recognised at the time
of the business combination in 2017.
In addition, our assessment indicated that our Chachahuen and La
Paloma licence interests were potentially impaired and a provision
for impairment of US$ 7.8 has been recognised in the period,
primarily reflective of the lower oil price environment.
Finance income and costs
Net finance costs increased by US$1.3 million to US$11.3 million
in H1 2020 compared to US$10.0 million in H1 2019. The increase in
cost was primarily driven by foreign exchange losses on Peso
denominated balances held by the Company.
Taxation
A US$6.7 million tax credit was recognised in H1 2020, compared
to a US$8.0 million taxation credit in H1 2019. The increase in the
deferred tax credit in the period primarily resulted from the
reduction in the book value of fixed assets when compared to the
tax deductible value following the provision for impairment
together with the deferred tax benefit of the increase in net
operating losses.
Balance Sheet
At 30 June 2020 the Group had net assets of US$ 167.6 million, a
decrease of US$55.1 million compared to 31 December 2019.
During the period, intangible assets and property, plant and
equipment decreased by US$38.5 million primarily due to the
write-off of an unsuccessful exploration well in Rio Atuel of
US$2.5 million, write down of goodwill of US$15.2, provisions for
impairment of US$7.8 and DD&A of US$16.2 million offset by
US$3.3 million of additions. Additions predominately related to
completion of drilling and facilities works in Puesto Rojas, Mata
Mora, Corralera and Chachahuen.
Variances were also observed in the working capital balances
when compared to 31 December 2019. Trade and other receivables
decreased by US$13.9 million to US$25.4 million at 30 June 2020
principally due to the lower oil volumes sold in Q2 2020.
Inventories increased by US$2 million to US$20.2 million at 30 June
2020. Deferred tax assets increased by US$ 4.2 million to US$22.8
million at 30 June 2020 primarily due to an increase in the
deferred tax credit in the period resulting from the reduction in
the book value of fixed assets when compared to the tax deductible
value following the write down of goodwill and the provision for
impairment and the deferred tax credit resulting from the net
operating loss for the period. Trade and other payables declined by
US$12.1 million to US$32.7 million at 30 June 2020 due to the
reduced costs resulting from the lower oil volumes sold.
Funding status and going concern
At 30 June 2020 the Group had cash on hand of US$1.4 million (31
December 2019: US$11.0 million). Total borrowings in the period
increased by US$14.1 million from US$303.6 million at 31 December
2019 to US$317.7 million at 30 June 2020. The increase resulted
from the drawdown of an additional US$6.3 million of funds from the
revolving convertible credit facility and bridging facility in
place with Mercuria and the capitalisation of US$8.5 million of
accrued interest. Funds advanced under the credit facilities have
been used to satisfy working capital needs.
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 challenging political and economic environment in Argentina
has been compounded by the impact of COVID-19 that has led to a
significant reduction in demand for fuel resulting in a collapse of
oil prices in the first half of 2020 and the shut-in of the
Company's production in April this year. Whilst we have seen
restrictions gradually lifting and economic and industrial activity
increasing, the Company is gradually restarting production.
Consequently, the Company has taken significant steps to, and
continues to, reduce its costs in all areas of the business. The
Board believes 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 with normalized production, which will then allow the
Company to focus on the continued development of its unconventional
assets.
Mercuria continues to be supportive and has provided the Company
with a letter of support stating its intention to continue
providing financial support to the Company in order that the
Company may continue to operate and service its liabilities as they
fall due in the next 12 months whilst it 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 in the next 12
months whilst in discussion with the Company to restructure the
existing loan agreement.
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 this interim condensed consolidated
financial information 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 H1 2020
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 condensed consolidated financial
information does not include any adjustments that would be required
if the Group and Company were unable to continue as a going
concern.
The impact of Covid-19 and the current political and economic
climate
2020 has been dominated by Covid-19 and its rapid development as
a life-threatening global pandemic. Globally, respective
governments' response has been one of containment through
lock-down, social distancing restrictions, quarantine and
self-isolation for substantially all citizens. This has resulted in
a significant adverse impact on all industrial and commercial
activity, leading to a reduction in demand for energy, which led to
the shut-down of the Company's production in April. Whilst we have
seen restrictions gradually lifting and economic and industrial
activity increasing leading to a restart of production at the
Company's assets, the situation continues to be fluid and can
change very quickly as we have seen with a number of countries
experiencing a "second wave".
Argentina continues to experience relatively high inflation and
a continuous devaluation of the Peso. The country is in its third
straight year of recession. However, at the end of August it
announced that 99% of the holders of the country's US$ 65 billion
international bonds had agreed to restructure this debt, giving the
country a better chance of recovery. The country is also in
discussions to renegotiate its US$44 billion debt with the
International Monetary Fund.
The current administration continues its intent to provide
economic and regulatory support to four key sectors of the economy,
such as, agriculture, oil and gas, mining and intellectual
services, among others.
Board and corporate governance update
During the period Kevin Dennehy, David Jackson and Javier
Alvarez stepped down from the Board. We would like to thank them
for the significant contributions they have made during their time
with the Company.
After the end of the period, the Company announced the
appointment of a new CEO, Pablo Bizzotto. Pablo, will be based in
Buenos Aires and has more than 20 years' experience the oil
industry. Until recently Pablo was the Upstream Executive Vice
President at YPF and prior to that the Unconventional Resource
Executive Manager at YPF leading operations on the Vaca Muerta
formation in the Neuquen basin and some of Argentina's most
significant tight gas development such as Rincon del Mangrullo. We
would like to welcome Pablo to the Company and look forward to
benefitting from the wealth of experience he brings to the
Company.
The actions we have taken In this challenging environment, have
resulted in a reduced workforce and reduced board and has led to
the conclusion that it would be more appropriate in the
circumstances for the Company to adopt and report against the
Quoted Companies Alliance ("QCA") corporate governance code. The
QCA code provisions cover many of the same areas as the UK
Corporate Governance Code but provides additional flexibility in
the manner of reporting and the application of certain provisions.
The Company is currently implementing the changes needed to adopt
the QCA code.
On behalf of the Board
Sir Michael Rake
Chairman
9 October 2020
Unaudited consolidated income statement
For the period ended 30 June 2020
Six months Six months Year to 31
to 30 June to 30 June December 2019
2020 2019
Note US$'000 US$'000 US$'000
-------------------------------- ----- -------------------------- ------------------- ---------------
Revenue 2,3 24,896 68,617 129,417
Cost of sales 4 (38,498) (66,986) (144,813)
-------------------------------- ----- -------------------------- ------------------- ---------------
Gross (loss) /profit (13,602) 1,631 (15,396)
Selling and distribution
expenses (934) (2,937) (5,230)
Exploration expenses (2,689) (426) (4,240)
Loss on termination of
licences and other impairment
charges 5,6 (22,980) (18,180) (27,753)
Loss on sale of non-current
assets - - (28,971)
Administrative expenses (9,096) (12,086) (27,144)
Other operating expenses (1,450) (909) (1,417)
-------------------------------- ----- -------------------------- ------------------- ---------------
Operating loss (50,751) (32,907) (110,151)
-------------------------------- ----- -------------------------- ------------------- ---------------
Presented as:
Operating loss (50,751) (32,907) (110,151)
Add back:
Depreciation, depletion
and amortisation 16,214 27,331 66,057
Exploration cost written
off 2,689 426 4,240
-------------------------------- ----- -------------------------- ------------------- ---------------
EBITDAX (31,848) (5,150) (39,854)
Non-recurring expenses 22,980 18,180 56,724
-------------------------------- ----- -------------------------- ------------------- ---------------
Adjusted EBITDAX (8,868) 13,030 16,870
-------------------------------- ----- -------------------------- ------------------- ---------------
Finance income 1,333 675 1,577
Finance costs (12,667) (10,717) (26,247)
-------------------------------- ----- -------------------------- ------------------- ---------------
Loss before taxation (62,085) (42,949) (134,821)
Taxation 8 6,665 8,025 21,011
-------------------------------- ----- -------------------------- ------------------- ---------------
Loss for the period (55,420) (34,924) (113,810)
-------------------------------- ----- -------------------------- ------------------- ---------------
Loss per ordinary share
-------------------------------- ----- -------------------------- ------------------- ---------------
Basic and diluted loss
per share (0.02) (0.01) (0.04)
-------------------------------- ----- -------------------------- ------------------- ---------------
The above unaudited consolidated income statement should be read
in conjunction with the accompanying notes.
Unaudited consolidated statement of comprehensive income
For the period ended 30 June 2020
Six months Six months Year to 31
to 30 June to 30 June December
2020 2019 2019
US$'000 US$'000 US$'000
---------------------------------- ---------------------- -------------------- ---------------------
Loss for the period (55,420) (34,924) (113,810)
Translation differences - - -
---------------------------------- ---------------------- -------------------- ---------------------
Total comprehensive loss for the
period (55,420) (34,924) (113,810)
---------------------------------- ---------------------- -------------------- ---------------------
The above items will not be subsequently reclassified to profit
and loss. There are no impairment losses on revalued assets
recognised directly in equity.
The above unaudited consolidated statement of comprehensive
income should be read in conjunction with the accompanying
notes.
Unaudited consolidated statement of financial position
At 30 June 2020
Note 30 June 2020 30 June 2019 31 December
2019
US$'000 US$'000 US$'000
------------------------------- ----- -------------------- ------------------- ----------------------------
Non-current assets
Property, plant and equipment 5 303,125 327,704 324,249
Intangible assets and
goodwill 6 229,161 287,352 246,540
Other receivables 1,726 2,895 4,744
Deferred tax assets 9 22,759 10,207 18,534
------------------------------- ----- -------------------- ------------------- ----------------------------
Total non-current assets 556,771 628,158 594,067
------------------------------- ----- -------------------- ------------------- ----------------------------
Current assets
Assets held for sale 18,400 17,069 18,208
Inventories 20,229 20,731 18,202
Trade and other receivables 23,628 37,117 34,527
Cash and cash equivalents 1,439 20,476 11,002
------------------------------- ----- -------------------- ------------------- ----------------------------
Total current assets 63,696 95,393 81,939
------------------------------- ----- -------------------- ------------------- ----------------------------
Total assets 620,467 723,551 676,006
------------------------------- ----- -------------------- ------------------- ----------------------------
Non-current liabilities
Trade and other payables 4,372 2,626 5,370
Borrowings 7 154,122 185,341 146,751
Deferred tax liabilities 9 85,307 91,818 87,636
Provisions 16,081 16,258 15,784
------------------------------- ----- -------------------- ------------------- ----------------------------
Total non-current liabilities 259,882 296,043 255,541
------------------------------- ----- -------------------- ------------------- ----------------------------
Current liabilities
Liabilities held for
sale 447 447 447
Trade and other payables 28,313 43,065 39,446
Income tax liability 649 1,528 870
Borrowings 7 163,577 80,009 156,865
Provisions - 1,326 120
------------------------------- ----- -------------------- ------------------- ----------------------------
Total current liabilities 192,986 126,375 197,748
------------------------------- ----- -------------------- ------------------- ----------------------------
Total liabilities 452,868 422,418 453,289
------------------------------- ----- -------------------- ------------------- ----------------------------
Net assets 167,599 301,133 222,717
------------------------------- ----- -------------------- ------------------- ----------------------------
Equity
Share capital and share
premium 457,198 457,198 457,198
Treasury shares (464) (572) (464)
Other reserves (112,150) (112,150) (112,150)
Retained deficit (176,985) (43,343) (121,867)
------------------------------- ----- -------------------- ------------------- ----------------------------
Total equity 167,599 301,133 222,717
------------------------------- ----- -------------------- ------------------- ----------------------------
The above unaudited consolidated statement of financial position
should be read in conjunction with the accompanying notes.
Unaudited consolidated statement of changes in equity
For the period ended 30 June 2020
Called up Share premium Treasury Retained Other reserves Total
Capital and share capital shares (deficit) / equity
reserves earnings
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------------- --------------- --------------- --------------- ----------------- ----------------- ---------
At 1 January
2019 364,175 93,023 - (8,878) (112,150) 336,170
Loss for the
period - - - (34,924) - (34,924)
---------------- --------------- --------------- --------------- ----------------- ----------------- ---------
Total
comprehensive
loss
for the period - - - (34,924) - (34,924)
---------------- --------------- --------------- --------------- ----------------- ----------------- ---------
Purchase of own
shares - - (572) - - (572)
Fair value of
share based
payments - - - 613 - 613
Cash settlement
of employee
share options - - - (154) - (154)
---------------- --------------- --------------- --------------- ----------------- ----------------- ---------
At 30 June 2019 364,175 93,023 (572) (43,343) (112,150) 301,133
---------------- --------------- --------------- --------------- ----------------- ----------------- ---------
At 1 January
2020 364,175 93,023 (464) (121,867) (112,150) 222,717
---------------- --------------- --------------- --------------- ----------------- ----------------- ---------
Loss for the
period - - - (55,420) - (55,420)
---------------- --------------- --------------- --------------- ----------------- ----------------- ---------
Total
comprehensive
loss
for the period - - - (55,420) - (55,420)
---------------- --------------- --------------- --------------- ----------------- ----------------- ---------
Fair value of
share based
payments - - - 302 - 302
---------------- --------------- --------------- --------------- ----------------- ----------------- ---------
At 30 June 2020 364,175 93,023 (464) (176,985) (112,150) 167,599
---------------- --------------- --------------- --------------- ----------------- ----------------- ---------
Other reserves Merger Warrant Translation Total other
reserve reserve reserve reserves
-------------------
US$'000 US$'000 US$'000 US$'000
------------------- ------------------ --------------- ------------- -------------
At 1 January 2019 (112,000) 2,105 (2,255) (112,150)
------------------- ------------------ --------------- ------------- -------------
At 30 June 2019 (112,000) 2,105 (2,255) (112,150)
------------------- ------------------ --------------- ------------- -------------
At 1 January 2020 (112,000) 2,105 (2,255) (112,150)
------------------- ------------------ --------------- ------------- -------------
At 30 June 2020 (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.
Unaudited consolidated statement of cash flows
For the period ended 30 June 2020
Note Six months to 30 June Six months to 30 June 2019 Year to 31 December 2019
2020
US$'000 US$'000 US$'000
--------------------------- ----- -------------------------- --------------------------- -------------------------
Cash flows from operating
activities
Cash used in operations 10 (10,475) (19,487) (16,280)
Income taxes paid (1) (75) (144)
--------------------------- ----- -------------------------- --------------------------- -------------------------
Net cash outflow from
operating activities (10,476) (19,562) (16,424)
--------------------------- ----- -------------------------- --------------------------- -------------------------
Cash flows from investing
activities
Payments for property,
plant and equipment (1,985) (19,158) (46,375)
Payments for intangibles (914) (19,169) (38,852)
Payments for held for sale
assets (192) - -
Proceeds from sale of
non-current assets - - 7,563
Recovery of restricted
cash - 266 -
--------------------------- ----- -------------------------- --------------------------- -------------------------
Net cash outflow from
investing activities (3,091) (38,061) (77,664)
--------------------------- ----- -------------------------- --------------------------- -------------------------
Cash flows from financing
activities
--------------------------- ----- -------------------------- --------------------------- -------------------------
Proceeds from borrowings 6,280 58,000 96,000
Repayment of borrowings (800) - (8,000)
Interest paid (427) (735) (1,548)
Principle lease payments (216) (211) (1,419)
--------------------------- ----- -------------------------- --------------------------- -------------------------
Net cash inflow from
financing activities 4,837 57,054 85,033
--------------------------- ----- -------------------------- --------------------------- -------------------------
Net decrease in cash and
cash equivalents (8,730) (569) (9,055)
Cash and cash equivalents
at the beginning of the
period 11,002 21,085 21,085
Effects of exchange rates
on cash and cash
equivalents (833) (40) (1,028)
--------------------------- ----- -------------------------- --------------------------- -------------------------
Cash and cash equivalents
at end of the period 1,439 20,476 11,002
--------------------------- ----- -------------------------- --------------------------- -------------------------
The above consolidated statement of cash flows should be read in
conjunction with the accompanying notes.
Unaudited notes to the unaudited consolidated financial
information
1. Basis of preparation
General information
The Company is a Public Limited Company incorporated in England
and Wales and is domiciled in the United Kingdom. The Registered
Office address is 6th Floor, King's House, 10 Haymarket, London
SW1Y 4BP. The Company is quoted on the AIM market of the London
Stock Exchange and maintains a secondary listing on the Buenos
Aires Stock Exchange.
The principal activities of the Company and its subsidiaries
(together the "Group") are the exploration for and the development
and production of oil and gas in Argentina.
Basis of preparation
This unaudited condensed consolidated interim financial
information for the six-months ended 30 June 2020 has been prepared
in accordance with IAS 34, 'Interim financial reporting' as adopted
by the European Union. This condensed consolidated financial
information should be read in conjunction with the Group's annual
financial statements for the year ended 31 December 2019, which
have been prepared in accordance with International Financial
Reporting Standards as adopted by the European Union.
The financial information for the period ended 30 June 2020
contained within this condensed consolidated financial information
does not constitute statutory accounts as defined in section 434 of
the Companies Act 2006. The information for 2019 within was derived
from the statutory accounts for the year ended 31 December 2019, a
copy of which has been delivered to the Registrar of Companies. The
auditors' report on these accounts was unqualified but did include
a reference to the adequacy of the disclosures made concerning the
Group's and Company's ability to continue as a going concern. The
Group had not completed the renegotiation of its current debt
repayments with the lender, who is a majority shareholder of the
Group and the funding plan for FY2021 had not yet been agreed. The
ultimate form of the funding could be significantly different to
what was being discussed with the lender, which in turn could lead
to a lack of future funding for capital and operating expenditures
which would ensure the continued development of the assets. These
conditions, along with other matters explained in the 2019 Annual
Report, indicated the existence of a material uncertainty, casting
significant doubt about the Group's and Company's ability to
continue as a going concern. The auditors' report did not contain a
statement under sections 498 (2) or (3) of the Companies Act
2006.
The annual financial statements for the year ended 31 December
2019 are available on the Company's website at
www.phoenixglobalresources.com.
The Group's business activities, together with factors likely to
affect its future development, performance and position are set out
in the operations and financial review sections of this report.
The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the financial
review section.
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 challenging political and economic environment in Argentina
has been compounded by the impact of COVID-19 that has led to a
significant reduction in demand for fuel resulting in a collapse of
oil prices in the first half of 2020 and the shut-in of the
Company's production in April this year. Whilst we have seen
restrictions gradually lifting and economic and industrial activity
increasing, the Company is gradually restarting production.
Consequently, the Company has taken significant steps to, and
continues to, reduce its costs in all areas of the business. The
Board believes 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 with normalized production, which will then allow the
Company to focus on the continued development of its unconventional
assets.
Mercuria continues to be supportive and has provided the Company
with a letter of support stating its intention to continue
providing financial support to the Company in order that the
Company may continue to operate and service its liabilities as they
fall due in the next 12 months whilst it 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 in the next 12
months whilst in discussion with the Company to restructure the
existing loan agreement.
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 this interim condensed consolidated
financial information 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 H1 2020
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 condensed consolidated financial information does not
include any adjustments that would be required if the Group and
Company were unable to continue as a going concern.
Estimates and judgements
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing the condensed consolidated financial information,
the significant judgements made by management in applying the
Group's accounting policies and the key sources of estimation
uncertainty were the same as those that applied to the consolidated
financial statements for the year ended 31 December 2019.
Principal risks and uncertainties
In preparing the condensed consolidated financial information
management is required to consider the principal risks and
uncertainties facing the Group. In management's opinion the
principal risks and uncertainties facing the Group are unchanged
since the preparation of the consolidated financial statements for
the year ended 31 December 2019. Those risks and uncertainties,
together with management's response to them are described in the
Risk Review section of the Annual Report and Accounts 2019.
Accounting policies
The accounting policies applied in this condensed consolidated
financial information are consistent with those applied in
preparing the financial statements for the year ended 31 December
2019.
2. Segment information
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.
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.
First half 2020 Operated Non-operated Corporate Total
US$'000 US$'000 US$'000 US$'000
--------------------------------- -------------------- ----------------------- ---------------- ------------------
Revenue 11,242 13,654 - 24,896
--------------------------------- -------------------- ----------------------- ---------------- ------------------
Loss for the period (35,550) (4,678) (15,192) (55,420)
--------------------------------- -------------------- ----------------------- ---------------- ------------------
Add: depreciation, depletion and
amortisation 8,116 7,214 884 16,214
Add: exploration costs written
off 2,534 155 - 2,689
Less: finance income - - (1,333) (1,333)
Add: finance costs 227 158 12,282 12,667
Less: taxation - - (6,665) (6,665)
EBITDAX loss (24,673) 2,849 (10,024) (31,848)
--------------------------------- -------------------- ----------------------- ---------------- ------------------
Oil revenues 11,240 12,634 - 23,874
bbls sold 270,519 338,651 - 609,170
Realised price (US$/bbl) 41.55 37.31 - 39.19
--------------------------------- -------------------- ----------------------- ---------------- ------------------
Gas revenues 2 1,020 - 1,022
MMcf Sold 0.90 479.06 - 479.96
Realised price (US$/MMcf) 2.22 2.13 - 2.13
--------------------------------- -------------------- ----------------------- ---------------- ------------------
Capital expenditure
Property, plant and equipment 1,409 561 88 2,058
Intangible exploration and
evaluation assets 1,282 - - 1,282
Total capital expenditure 2,691 561 88 3,340
--------------------------------- -------------------- ----------------------- ---------------- ------------------
Exploration costs incurred in the operated segment include
US$2.5 million related to the write-off of an unsuccessful
exploration well at the Rio Atuel. Exploration costs in the
non-operated segment include US$0.2 million related to geological
or geophysical work at the Chachahuen concession that is not
related to a specific prospect and is general in nature.
F ollowing an assessment of the potential impairment of our
licence interests, the Company has recognised an impairment loss of
US$15.2 relating to the write down of goodwill attributable to our
interest in Chachahuen recognised at the time of the business
combination in 2017.
Our assessment review indicated that our Chachahuen and La
Paloma licence interests were potentially impaired and a provision
for impairment of US$ 7.8 has been recognised in the period,
primarily reflective of the lower oil price environment.
First Half 2019 Operated Non-operated Corporate Total
US$'000 US$'000 US$'000 US$'000
---------------------------------- ----------------------- --------------------- ------------------ --------------
Revenue 23,825 44,792 - 68,617
---------------------------------- ----------------------- --------------------- ------------------ --------------
Loss for the period (3,184) (17,679) (14,061) (34,924)
---------------------------------- ----------------------- --------------------- ------------------ --------------
Add: depreciation, depletion and
amortisation 8,306 18,366 659 27,331
Add: exploration costs written
off 284 142 - 426
Less: finance income - - (675) (675)
Add: finance costs 225 237 10,255 10,717
Less: taxation - - (8,025) (8,025)
---------------------------------- ----------------------- --------------------- ------------------ --------------
EBITDAX 5,631 1,066 (11,847) (5,150)
---------------------------------- ----------------------- --------------------- ------------------ --------------
Oil revenues 23,817 35,853 - 59,670
bbls sold 462,707 679,712 - 1,142,419
----------------------------------
Realised price (US$/bbl) 51.47 52.75 - 52.23
---------------------------------- ----------------------- --------------------- ------------------ --------------
Gas revenues 8 8,939 - 8,947
MMcf Sold 3 2,594 - 2,597
---------------------------------- ----------------------- --------------------- ------------------ --------------
Realised price (US$/MMcf) 2.67 3.45 - 3.45
---------------------------------- ----------------------- --------------------- ------------------ --------------
Capital expenditure
Property, plant and equipment 13,678 6,774 1,024 21,476
Intangible exploration and
evaluation assets 27,163 2,129 - 29,292
---------------------------------- ----------------------- --------------------- ------------------ --------------
Total capital expenditure 40,841 8,903 1,024 50,768
---------------------------------- ----------------------- --------------------- ------------------ --------------
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.
3. Total revenue
Six months Six months Year to
to 30 June to 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
------------------ --------------- ------------- --------------
Crude oil revenue 23,874 59,670 114,652
Gas revenue 1,022 8,947 14,765
------------------ --------------- ------------- --------------
Total revenue 24,896 68,617 129,417
------------------ --------------- ------------- --------------
4. Cost of sales
Six months Six months Year to
to 30 June to 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
----------------------------------- ------------------ ----------------- -------------------
Production costs 22,981 40,180 78,960
Depreciation of oil and gas assets 16,214 27,331 66,057
Movements in crude inventory (697) (525) (204)
----------------------------------- ------------------ ----------------- -------------------
Total cost of sales 38,498 66,986 144,813
----------------------------------- ------------------ ----------------- -------------------
5. Property, plant and equipment
Development
Other fixed and production Assets
assets assets under construction Total
Non-current assets US$'000 US$'000 US$'000 US$'000
---------------------------------------- --------------- ------------------- -------------------- ----------------
At 1 January 2020
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
Period ended 30 June 2020
Opening net book amount 5,913 311,046 7,290 324,249
Additions 56 481 1,521 2,058
Transfers - 355 (355) -
Exploration costs written off - (116) - (116)
Depreciation charge (895) (15,319) - (16,214)
Impairment charge - (6.852) - (6.852)
Closing net book amount 5,074 289,595 8,456 303,125
At 30 June 2020
Cost 13,128 539,820 8,456 561,404
Accumulated depreciation and impairment (8,054) (250,225) - (258,279)
---------------------------------------- --------------- ------------------- -------------------- ----------------
Net book amount 5,074 289,595 8,456 303,125
---------------------------------------- --------------- ------------------- -------------------- ----------------
Additions to property, plant and equipment in the period ended
30 June 2020 include US$ nil of interest capitalised in respect of
qualifying assets (H1 2019: US$nil). The total amount of interest
capitalised within property, plant and equipment at 30 June 2020 is
US$3.1 million (2019: US$3.1 million).
Exploration costs in the non-operated segment include US$0.2
million related to geological or geophysical work at the Chachahuen
concession that is not related to a specific prospect and is
general in nature.
Assets are tested for impairment by calculating their
value-in-use using a discounted cash flow model or their fair value
less costs of disposal, whichever is determined to be the higher.
Fair value less costs to sell can be based on a similar cash flow
measure or can be estimated by reference to similar comparable
reference transactions.
The Company assessed its licence interests for potential
impairment by comparing the book value of each asset to
managements' estimate of its respective NPV15. The calculation
includes several key assumptions, including oil and gas prices and
reserve estimates, which the Company defines as key impairment
indicators within its accounting policy. The NPV15 value is
calculated based on a discounted cash flow model using a discount
rate of 15% and a price deck based on mean futures prices provided
by analysts. Where the NPV15 value is lower than the carrying value
of an asset an impairment test is performed.
Our assessment review indicated that our Chachahuen interests
was potentially impaired and a provision for impairment of US$ 6.9
has been recognised in the period, primarily reflective of the
lower oil price environment.
Development
Other fixed and production Assets
assets assets under construction Total
Non-current assets 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
Period ended 30 June 2019
Opening net book amount 3,751 356,370 6,070 366,191
Additions 1,208 9,025 11,243 21,476
Transfers - 12,742 (12,742) -
Transfers to assets held for sale
- cost (327) (66,117) - (66,444)
Termination of licences - cost - (53,334) - (53,334)
Exploration costs written off - (333) - (333)
Depreciation charge (871) (26,460) - (27,331)
Transfers to assets held for sale
- accumulated DD&A 309 49,682 - 49,991
Termination of licences - accumulated
DD&A - 37,488 - 37,488
Closing net book amount 4,070 319,063 4,571 327,704
At 30 June 2019
Cost 10,312 596,730 4,571 611,613
Accumulated depreciation and impairment (6,242) (277,667) - (283,909)
---------------------------------------- --------------- ------------------- -------------------- ----------------
Net book amount 4,070 319,063 4,571 327,704
---------------------------------------- --------------- ------------------- -------------------- ----------------
In May 2019, the Province of Mendoza issued a decree terminating
the concession for the Chañares Herrados block held by the
Company's JV partner, Chañares Energía S.A., as a result of their
failure to fulfil work commitments. The decree took immediate
effect. The carrying value of the asset has consequently been
written off at 30 June 2019, causing a US$15.8 million loss to be
realised in the non-operated segment.
Assets held for sale relate to certain non-core assets in the
Austral basin. Board approval for the sale of these assets has been
given and the Company has engaged in an active program for the sale
of the assets within 12 months of the reporting date.
Additions to property, plant and equipment in the period ended
30 June 2019 include US$ nil of interest capitalised in respect of
qualifying assets. The total amount of interest capitalised within
property, plant and equipment at 30 June 2019 is US$2.8
million.
6. Intangible assets
Exploration and evaluation assets are primarily the Group's
licence interests in exploration and evaluation assets located in
Argentina. The exploration and evaluation assets consist of both
conventional and unconventional oil and gas properties.
Exploration
and evaluation
Goodwill assets Total
Non-current assets US$'000 US$'000 US$'000
---------------------------------------- ---------- --------------- ------------
At 1 January 2020
Cost 260,007 215,759 475,766
Accumulated amortisation and impairment (224,169) (5,057) (229,226)
---------------------------------------- ---------- --------------- ------------
Net book amount 35,838 210,702 246,540
---------------------------------------- ---------- --------------- ------------
Period ended 30 June 2020
Opening net book amount 35,838 210,702 246,540
Additions - 1,282 1,282
Exploration cost written off - (2,533) (2,533)
Impairment charge (15,223) (905) (16,128)
Closing net book amount 20,615 208,546 229,161
At 30 June 2020
Cost 260,007 217,041 477,048
Accumulated amortisation and impairment
charges (239,392) (8,495) (247,887)
---------------------------------------- ---------- --------------- ------------
Net book amount 20,615 208,546 229,161
---------------------------------------- ---------- --------------- ------------
Additions to intangible assets during the period predominately
relate to long lead items and drilling works at Corralera Sur.
Exploration costs incurred in the operated segment include
US$2.5 million related to the write-off of an unsuccessful
exploration well at the Rio Atuel.
Exploration
and evaluation
Goodwill assets Total
Non-current assets US$'000 US$'000 US$'000
---------------------------------------- -------------- --------------- -------------
At 1 January 2019
Cost 260,007 225,172 485,179
Accumulated amortization and impairment
charges (224,169) - (224,169)
---------------------------------------- -------------- --------------- -------------
Net book amount 35,838 225,172 261,010
---------------------------------------- -------------- --------------- -------------
Period ended 30 June 2019
Opening net book amount 35,838 225,172 261,010
Additions - 29,292 29,292
Transfer to assets held for sale - (616) (616)
Disposals of assets - cost - (2,334) (2,334)
Closing net book amount 35,838 251,514 287,352
At 30 June 2019
Cost 260,007 251,514 511,521
Accumulated amortisation and impairment
charges (224,169) - (224,169)
---------------------------------------- -------------- --------------- -------------
Net book amount 35,838 251,514 287,352
---------------------------------------- -------------- --------------- -------------
Additions to intangible assets during the period predominately
relate to the completion of the drilling of the MMx-1001 well and
the drilling of the MMx-1002 well at Mata Mora.
A US$2.3 million loss on relinquishment has been recorded in
respect to the Vega Grande concession in the Neuquina basin. The
licence area is not part of the Company's core operations and is
currently not producing. Management has therefore made the decision
not to request the extension of the concession when it comes due
for renewal in H2 2019.
Impairment tests for exploration and evaluation assets
Exploration and evaluation assets are subject to impairment
testing prior to reclassification as tangible fixed assets where
commercially viable reserves are confirmed. Where commercially
viable reserves are not encountered at the end of the exploration
phase for an area the accumulated exploration costs are written off
in the income statement.
The Company assessed its licence interests for potential
impairment by comparing the book value of each asset to
managements' estimate of its respective NPV15. The calculation
includes several key assumptions, including oil and gas prices and
reserve estimates, which the Company defines as key impairment
indicators within its accounting policy. The NPV15 value is
calculated based on a discounted cash flow model using a discount
rate of 15% and a price deck based on mean futures prices provided
by analysts. Where the NPV15 value is lower than the carrying value
of an asset an impairment test is performed.
Our assessment review indicated that our La Paloma interest was
potentially impaired and a provision for impairment of US$ 0.9 has
been recognised in the period, primarily reflective of the lower
oil price environment.
Impairment tests for goodwill
Goodwill is monitored by management at the level of the
operating segments identified in note 2.
A segment level summary of the 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 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 that
completed on 10 August 2017.
The Company assessed its licence interests for potential
impairment by comparing the book value of each asset to
managements' estimate of its respective NPV15. 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. The NPV15 value is
calculated based on a discounted cash flow model using a discount
rate of 15% and a price deck based on mean futures prices provided
by analysts. Where the NPV15 value is lower than the carrying value
of an asset an impairment test is performed.
F ollowing an assessment for potential impairment, the Company
has recognised an impairment loss of US$ 15.2 relating to the write
down of goodwill attributable to our interest in Chachahuen.
7. Borrowings
30 June 2020 31 December 2019
----------- ------------------------------------------------------------ -------------------------------------------------
Current Total Current Non-current Total
US$'000 Non-current US$'000 US$'000 US$'000 US$'000 US$'000
----------- ----------------- ----------------------- ---------------- ---------------- ------------ -----------------
Secured
Bank loans 9,392 - 9,392 10,055 - 10,055
----------- ----------------- ----------------------- ---------------- ---------------- ------------ -----------------
Total
secured
borrowings 9,392 - 9,392 10,055 - 10,055
Unsecured
Loans from
related
parties 154,160 154,122 308,282 146,782 146,751 293,533
Other loans 25 - 25 28 - 28
Total
unsecured
borrowings 154,185 154,122 308,307 146,810 146,751 293,561
----------- ----------------- ----------------------- ---------------- ---------------- ------------ -----------------
Total
borrowings 163,577 154,122 317,699 156,865 146,751 303,616
----------- ----------------- ----------------------- ---------------- ---------------- ------------ -----------------
Secured liabilities and assets pledged as security
Secured liabilities relate to US Dollar denominated loans
totalling US$ 9.4 million with a fixed interest rate of 8.0% (FY19:
interest rate of 8%).
Loans from related parties
The related party loan at 30 June 2020 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 of the RCF. 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 and in
March 2020 by an additional US$6.0.
At 30 June 2020, a total facility of US$291.0 million was
available to the Company with a total of US$281.0 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 at any time 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 31 October 2020 and
the loan will be amortised in equal quarterly repayment instalments
from 31 October 2020 until maturity.
Mercuria Group has provided the Group with a short-term bridging
facility of US$11 million, whilst the parties continue to agree the
restructure of the RCF. The bridging facility bears interest at
three-month LIBOR+4% and the interest and principal are repayable
by 31 October 2020.
8. Income tax expense
Period to Period to Year to
30 June 30 June 31 December
2020 2019 2019
Income tax expense US$'000 US$'000 US$'000
------------------------------------------ ------------------ ------------------- ------------------
Current tax
Current tax credit / (expense) on profits
for the period 111 (737) (260)
------------------------------------------ ------------------ ------------------- ------------------
Total current tax expense 111 (737) (260)
Deferred income tax
------------------------------------------ ------------------ ------------------- ------------------
Increase in deferred tax 6,554 8,762 21,271
------------------------------------------ ------------------ ------------------- ------------------
Total deferred tax benefit 6,554 8,762 21,271
------------------------------------------ ------------------ ------------------- ------------------
Income tax benefit 6,665 8,025 21,011
------------------------------------------ ------------------ ------------------- ------------------
Reconciliation of income tax expense to notional tax charge
calculated using corporate tax rate :
Period to Period to Year to
30 June 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
--------------------------------------- -------------------- -------------------- ------------------
Loss from continuing operations before
income tax expense (62,085) (42,949) (134,821)
Tax at the Argentina tax rate of 30%
(2019: 30%) 18,626 12,885 40,446
Tax effect of amounts which are not
deductible (taxable) in calculating
taxable income:
Effect of currency translation on tax
values (3,615) 4,070 (7,875)
Effect of change in tax rate (1,943) (1,539) (7,989)
Disposals of assets - - 12,028
Expenses not deductible for taxation 1,159 (159) (523)
Deferred tax assets not recognised (6,972) (3,648) (6,308)
Inflation adjustment (825) (3,972) (7,481)
Other 235 388 (1,287)
--------------------------------------- -------------------- -------------------- ------------------
Total income tax benefit 6,665 8,025 21,011
--------------------------------------- -------------------- -------------------- ------------------
The corporate income tax rate in Argentina in 2020 is 30% (2019:
30%) and applies to profits earned and losses suffered in the
period to 30 June 2020.
Under the December 2017 tax reform plan implemented by the
Argentina tax authorities, (the Administration Federal de Ingresos
Publicos or "AFIP"), the corporate income tax rate was to be
further reduced to 25% for years ending 31 December 2020 and
forward. In December 2019 however, new tax reforms were implemented
by the incoming government under Law 27,541. Under the new
legislation, it was established that the reduced corporate rate of
25% would not be applicable until the year ending 31 December 2022
and forward.
An additional tax rate of 7% is applied to dividends when the
corporate income tax rate is 30%. This additional dividend tax will
be increased to 13% when the corporate tax rate is reduced to 25%
in 2022.
9. Deferred tax balances
Argentina tax law does not contain the concept of tax groups and
therefore deferred tax assets and liabilities cannot be offset
between and among companies registered in Argentina and falling
under the control of the same shareholder. Outside of Argentina,
the Group does not have sufficient concentration of subsidiaries in
a single tax jurisdiction to warrant seeking tax group status to
allow the offset of assets and liabilities.
Deferred tax assets and liabilities are calculated at the rate
of 25% or 30% taking into consideration the expected time of
recovery.
Deferred tax assets
30 June 31 December
2020 30 June 2019
US$'000 2019 US$'000 US$'000
-------------------------- ----------------- ------------------ ------------------
Tax losses 18,837 3,716 14,468
Provisions 1,607 2,934 1,723
Others 7,995 12,092 7,063
-------------------------- ----------------- ------------------ ------------------
Total deferred tax assets 28,439 18,742 23,254
-------------------------- ----------------- ------------------ ------------------
Deferred tax assets are recognised only to the extent that it is
probable that future taxable profits will be available against
which the asset can be utilised.
The Company did not recognise deferred income tax assets of
US$2.4 million (2019: US$6.3 million) in respect of tax losses
amounting to US$7.9 million (2019: US$14.1 million) as there is
insufficient evidence that the potential assets will be
recovered.
Assessed tax losses amounting to US$18.8 million (2019: US$14.5
million) will expire between 2021 to 2025 (2021: 2020 to 2024).
Tax losses Provisions Other Total
Movements US$'000 US$'000 US$'000 US$'000
-------------------------------------- ------------------ ----------------- ------------------ ------------------
At 1 January 2019 2,525 3,055 7,151 12,731
Credited/(charged) to profit and loss 1,191 (121) 4,941 6,011
At 30 June 2019 3,716 2,934 12,092 18,742
-------------------------------------- ------------------ ----------------- ------------------ ------------------
Tax losses Provisions Other Total
Movements US$'000 US$'000 US$'000 US$'000
----------------------------------- ------------------- -------------------- ------------------ ------------------
At 1 January 2020 14,468 1,723 7,063 23,254
Credited/(charged) to profit and
loss 4,369 (116) 932 5,185
At 30 June 2020 18,837 1,607 7,995 28,439
----------------------------------- ------------------- -------------------- ------------------ ------------------
The timeframe for expected recovery or settlement of deferred
tax assets is as follows:
30 June 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
------------------------------------------- ----------------- ------------------ ------------------
No more than 12 months after the reporting
period 9,602 12,061 8,802
More than 12 months after the reporting
period 18,837 6,681 14,452
------------------------------------------- ----------------- ------------------ ------------------
28,439 18,742 23,254
------------------------------------------- ----------------- ------------------ ------------------
Deferred tax liabilities
The balance comprises temporary differences attributable to:
30 June 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
------------------------------------------------------- ------------------- -------------------------- -----------------------
Property, plant and equipment and
intangible assets (83,201) (99,149) (84,462)
Inventories (1,551) (1,188) (1,861)
Inflation adjustments (6,235) - (6,033)
Others - (16) -
------------------------------------------------------- ------------------- -------------------------- -----------------------
Total deferred tax liabilities (90,987) (100,353) (92,356)
------------------------------------------------------- ------------------- -------------------------- -----------------------
Property,
plant
and
equipment
and intangible Inflation
assets Inventories adjustments Other Total
Movements US$'000 US$'000 US$'000 US$'000 US$'000
----------------------- ------------------ ---------------------- ------------------ ---------------------- --------------
At 1 January 2019 (101,310) (42) - (1,751) (103,103)
(Charged)/ credited to
profit and loss 2,161 (1,146) - 1,735 2,750
At 30 June 2019 (99,149) (1,188) - (16) (100,353)
----------------------- ------------------ ---------------------- ------------------ ---------------------- --------------
Property,
plant and
equipment
and intangible
assets Inventories Inflation adjustments Other Total
Movements US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- --------------- --------------- --------------------- ------------------ -------------
At 1 January 2020 (84,462) (1,861) (6,033) - (92,356)
(Charged)/ credited to
profit and loss 1,261 310 (202) - 1,369
At 30 June 2020 (83,201) (1,551) (6,235) - (90,987)
-------------------------- --------------- --------------- --------------------- ------------------ -------------
Argentine tax law has introduced provisions for inflationary
adjustments to be made for tax purposes in the event that the
increases in the 36-month cumulative CPI index for the preceding
closing year exceed 100%, considering for the first three periods
assessed a increase in excess of 55% in 2018, 30% in 2019 or 15% in
2020. Where an inflationary adjustment for tax is triggered, the
law requires an adjustment to taxes in the period with one sixth of
the calculated value booked to current income taxes in the period
and the remaining five sixths included within deferred tax and
recognised through current tax in equal parts in the following five
years.
During the period an amount of US$0,6 million (FY19: US$ 1.5
million) has been included in current taxes, with an additional
US$0.2 million (FY19: US$ 6.0 million) included within other
deferred tax assets in relation to this adjustment.
The above presentation of deferred tax assets and liabilities is
prepared showing the aggregate of the gross asset and liability
position on a company-by-company basis.
Deferred tax assets and liabilities presented in the balance
sheet reflect the offset of deferred tax assets and liabilities
where permissible. The deferred tax assets and liabilities, after
legal offset, are shown in the table below.
30 June 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
---------------------------------- ------------- ------------- --------------
Deferred income tax assets 22,759 10,207 18,534
Deferred tax liabilities (85,307) (91,818) (87,636)
---------------------------------- ------------- ------------- --------------
Net deferred income tax liability (62,548) (81,611) (69,102)
---------------------------------- ------------- ------------- --------------
10. Cash used in operations
Period to Period to Year to
30 June 30 June 31 December
2020 2019 2019
US$'000 US$'000 US$'000
-------------------------------------------- ------------------- ------------------- ----------------
Loss for the period before taxation (62,085) (42,949) (134,821)
Adjusted for:
Finance costs 9,885 9,186 19,361
Finance income (861) (373) (824)
Accretion of discount on asset retirement
obligation 385 462 846
Accretion of discount on lease obligation 14 - 62
Net unrealised exchange gains (114) 2,498 3,862
Interest received on short term investments (236) (302) -
Exploration cost written-off 2,649 - 3,856
Impairment charge 22,980 - 7,557
Loss on termination of licences - 18,180 20,196
Loss of disposal of non-current assets - - 28,971
Share based payments 284 608 893
Depreciation and amortisation 16,214 27,331 66,057
Change in operating assets and liabilities:
Increase in inventories (2,027) (3,452) (1,233)
Decrease / (increase) in trade and
other receivables 10,939 (8,887) (22,745)
(Decrease) in trade and other payables (8,569) (20,817) (8,165)
Increase / (decrease) in provisions 67 (972) (153)
-------------------------------------------- ------------------- ------------------- ----------------
Cash used in operations (10,475) (19,487) (16,280)
-------------------------------------------- ------------------- ------------------- ----------------
11. Events occurring after the reporting period
No events occurred after the reporting period requiring
disclosure.
Translation
This document is the English original in the event of any
discrepancy between the original English document and the Spanish
translation, the English original shall prevail.
- ENDS -
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END
IR FLFLTIRLTIII
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