Interim Management Statement
November 08 2010 - 5:00AM
UK Regulatory
TIDMQOGT
RNS Number : 7752V
Quorum Oil and Gas Tech. Fund Ld
08 November 2010
Not for release, publication or distribution in, or into, the United States,
Canada, Australia or Japan.
+------------------------------+------------------------------+
| Press Release | 8 November 2010 |
+------------------------------+------------------------------+
Quorum Oil and Gas Technology Fund Limited
(the "Company")
Interim Management Statement
3rd Quarter 2010
Quorum Oil and Gas Technology Fund Limited (LSE: QOGT) today provides its
Interim Management Statement for the period from 30 June 2010 in accordance with
Rule 4.3 of the Disclosure and Transparency Rules of the UK Listing Authority,
and provides its unaudited quarterly Net Asset Valuation ("NAV") as at 30
September 2010.
The Board has previously announced the results of an Extraordinary General
Meeting completed on 29 September 2010 where a resolution to appoint SGW Capital
Managers Limited (which term shall, prior to SGW Capital Managers Limited's
incorporation following receipt of any necessary regulation approvals, include
Sefton Partners LLP) was passed (the "Resolution"). In view of this appointment
the Board has requested that the LSE TIDM will be amended with effect from 9
November 2010 to OGT.L.
The Chairman has held discussions with holders of a substantial proportion of
the Company's shares, including those who are believed to have voted against the
Resolution. Each has indicated their agreement that a period of stability and
'clear water' is essential for the Company to regain focus on shareholder value.
Uncertainty and speculation regarding the future management arrangements of the
Company was highly disruptive to the managements of the investee companies,
damaging the companies' individual strategic directions as explained elsewhere
in this statement. The Board emphasises its view that further corporate
instability for the Company has the potential to be significantly damaging to
the investee companies and to Shareholders' interests.
Announcements have also now been made of the appointment of Jeremy Thompson and
Arthur Copple as non-executive directors of the Company. Jeremy and Arthur
bring a great deal of experience in their respective fields and broaden and
deepen the Board's resources. An appointment of a further director is
anticipated in due course.
The Board has entered into discussions with Sefton Partners LLP in respect of a
revised management fee structure. The Board has proposed that payment of a
portion of the management fee should become conditional on progress towards
certain performance targets. It is also proposed that the agreement would
provide for a notice period on the basis disclosed in the shareholder circular
dated 1 September 2010, subject to certain revisions to be negotiated. Sefton
Partners has agreed in principle to this revised structure and the Company
intends to consult major Shareholders regarding any proposed revisions and make
a further announcement once negotiations are completed. Notwithstanding the
above, Sefton Partners continue to advance plans for the incorporation and
licensing of SGW Capital Managers.
The Board announces that the diluted NAV per share as at 30 September 2010 is
estimated to be US$9.11 per participating redeemable preference share, based on
the following fair value estimates of the investee companies. In particular,
the Board notes that the revaluation of Strata is due to fair market value
considerations, in particular that Strata's current year EBITDA has been
materially affected by Strata's strategic decision to end the supply of its
proprietary equipment to competitors, costs incurred in respect of the
now-postponed capital market transaction and flooding in the Mexican oil field
(leading to equipment there standing idle) and therefore the current EBITDA
multiple valuation shows a reduction in value. The Investment Manager remains
extremely confident in the contracts for future work secured by Strata, its
above-target growth in its services business, continued strong equipment
utilisation and its underlying strategic value.
+---------------+-------------+-------------+---------------+--------+
| Investment | Fair Value | Fair Value | 3 month | Notes |
| | Estimate | Estimate | change | |
| | US$ | US$ | US$ | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| | As at | As at | | |
| | 30 | 30 June | | |
| | September | 2010 | | |
| | 2010 | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| Strata Energy | 36,740,372 | 46,740,372 | (10,000,000) | (1) |
| Services Inc. | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| WellPoint | 17,534,539 | 17,534,539 | | |
| Systems Inc. | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| SQFive | 6,667,037 | 11,111,728 | (4,304,691) | (2)(3) |
| Intelligent | | | | |
| Oilfield | | | | |
| Services Ltd. | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| Quorum MENA | 3,468,901 | 3,138,901 | 330,000 | (4) |
| Limited | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| Ambercore | 2,692,584 | 2,592,584 | 100,000 | (5) |
| Software Inc. | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| Seismic | 2,110,500 | 1,600,000 | 510,500 | (6) |
| Reservoir | | | | |
| 2020 Inc. | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| LxData | 544,712 | - | 544,712 | (7) |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| Total | 69,758,646 | 82,718,124 | (12,959,478) | |
| Portfolio | | | | |
| Value | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| Cash and | 2,409,420 | 5,204,536 | (2,795,116) | |
| other net | | | | |
| assets | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| Net Asset | 72,168,066 | 87,922,660 | (15,754,594) | |
| Value | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| Shares in | 10.2m | 10.2m | | |
| issue | | | | |
| | | | | |
+---------------+-------------+-------------+---------------+--------+
| Net Asset | 9.11 | 10.66 | (1.55) | (8) |
| Value per | | | | |
| share | | | | |
+---------------+-------------+-------------+---------------+--------+
Notes:
1) Change in valuation results from revaluation as discussed below.
2) Change in valuation results from revaluation as discussed below.
3) This investment comprises the indirect investments in Seismic Reservoir
2020 Inc. and LxData. More recent investments in these companies have been made
directly.
4) Change in valuation results from follow-on investment.
5) Change in valuation results from follow-on investment.
6) Change in valuation results from follow-on investment.
7) This investment comprises the direct investment in LxData. The Company
also has an indirect investment in LxData through SQFive.
8) The one-off costs associated with the recent EGM have been provided for in
calculating the NAV.
Financial Overview
The Company has suffered a negative financial performance during the most recent
quarter. There are two principal causes:
+---+---------------------------------------------------------+
| · | the lack of any interest payments being made to the |
| | Company by any of the investee companies and delay of |
| | strategic decisions within those companies due to |
| | uncertainty over the management arrangements; |
+---+---------------------------------------------------------+
| · | one-off costs associated with the recent protracted |
| | dispute concluding in the Extraordinary General Meeting |
| | ("EGM") at the end of September 2010. |
+---+---------------------------------------------------------+
With respect to the costs, the Board regrets that significant fees were incurred
although the directors were mindful throughout, of the pressing need to minimise
expense. However, it was essential to ensure that the Company was properly
advised throughout the difficulties, which lasted from the beginning of April
until the end of September 2010.
With respect to the former, the Board and the Investment Manager are focused on
ensuring that the Company's most significant investee companies recommence the
payment of interest as soon as possible and are working on transactions which
aim to result in a return of capital to the Company.
Dividend
The Board has taken the difficult decision to suspend payment of the dividend
for the time being until the Company's financial position improves. This
decision has been made in order to ensure that the Company has sufficient cash
resources to meet its working capital requirements, including settling costs
incurred during the dispute which started in April 2010, and to meet follow-on
investments into the investee companies to ensure that the investees are in the
best condition to work towards successful exits. The Board is fully aware of
the importance to many investors of re-instating the dividend payment as soon as
practicable and hopes to announce a resumption in 2011.
Investee Company Updates
Strata Energy Services Inc.
Strata Energy Services Inc. has now fully implemented its plan to end the supply
of its proprietary equipment to major oil service companies and to focus on the
full service provision of underbalanced and managed pressure drilling services
at the wellhead. The Investment Manager fully supports this decision, which
avoids further arming competitors with Strata's technology and ensures that
capital is being deployed in support of higher margin activity. However, the
inevitable effect of this change in the short term is a reduction in overall
revenues and EBITDA. This, when combined with costs incurred in respect of the
now-postponed capital market transaction and flooding in the Mexican oil field
(leading to equipment there standing idle), has resulted in overall revenue and
EBITDA that are materially lower than in 2009, although revenue and EBITDA
numbers for the full service business show an above-target increase of
approximately two thirds. Utilisation rates and margins remain high in the US
and Canada and Strata has recently entered into an agreement to redeploy
equipment currently situated in Mexico, has a new contract in Asia, as well as
pursuing significant contracts in the Middle East. However, given the lower
2010 numbers and delayed IPO, the Investment Manager feels that fair market
valuation principles require that the current valuation should be reduced, at
least temporarily, until several of the new larger expansion contracts and
financings take place. The Investment Manager continues to remain highly
confident in the future strategic value of Strata and expects the Company to
show significant growth in 2011.
Strata is in arrears with its interest payments to the Company, and has not made
interest payments since Q1 2010, principally due to restrictions imposed by its
working capital provider. The Investment Manager is working with Strata and its
working capital provider with the aim that Strata should commence payment of
arrears during November 2010 and become current on interest payments during Q1
2011.
WellPoint Systems Inc.
WellPoint Systems Inc's ("WellPoint) short term financial and trading position
has improved considerably since the most recent update and the EBITDA losses it
incurred in Q1 and Q2 2010, and as a result it is considered highly unlikely
that WellPoint will require any working capital investment from the Company.
The improvements are a result of the improved sales, with several new customer
acquisitions, cost reductions and an improved strategic focus on the core
revenue-generating segments of the business. The Investment Manager continues
to work closely with management to implement the reductions and reduce the
over-complex operational structure of the company, and also to examine and
implement strategic and corporate restructuring options which will further
strengthen the value of WellPoint. The Investment Manager also supports the
decision of management to end the allocation of resources and management time to
speculative, start-up projects. WellPoint has also made significant progress
towards obtaining a new working capital facility which will further reduce short
term cash pressures.
WellPoint is in arrears with its interest payments to the Company, and has not
made interest payments since Q2 2010. The Investment Manager is working with
WellPoint and its working capital lender with the aim that WellPoint recommence
interest payments prior to the end of 2010 and make progress on arrears shortly
thereafter.
Ambercore Software Inc.
The Company had entered into an agreement with Canrock Ventures ("Canrock"), a
company controlled by Jim Estill, to allow the latter to bring forward
termsheets for the potential acquisition of intellectual property and other
assets owned by Ambercore Software Inc. ("Ambercore"). Canrock failed to secure
any offers or written indicative interest in the assets during the period
governed by the agreement and, following representations from Ambercore's
management, the Company has declined to extend the agreement as both the
Investment Manager and Ambercore's management believe that a continuation of
this process would lead to significant damage to the revenue generating
operations of Ambercore.
The core underlying LiDAR business of Terrapoint, a wholly owned subsidiary of
Ambercore continues to grow and remains pro-forma cashflow positive on a
standalone basis, with a substantial backlog and pipeline of sales. The
Ambercore business itself continues to be significantly loss making with little
or no sales.
The Company is therefore focusing on taking steps to protect its security
position and extract value from the intellectual property assets of Ambercore
and the revenue generating Terrapoint LiDAR business.
Seismic Reservoir SR2020 Inc.
The Company has both direct and indirect (through SQ5) investments in Seismic
Reservoir 2020 Inc. ("SR2020"). SR2020 has continued to show revenue growth and
has made significant customer acquisitions during 2010 but remains cashflow
negative. The Investment Managers continue to support the strategy of SR2020
and its management, but have decided to take a provision of approximately US$4.3
million on the investment in order to recognise the risks arising from the time
being taken by SR2020 to fully develop its order pipeline. SR2020 and the
Investment Manager are engaged in discussions with potentially interested
co-investors and strategic partners.
LxData
The Company recently completed the final part of its commitment to provide
working capital to LxData of approximately US$272,356 giving a total of
US$544,712 invested directly in LxData with the balance of the Company's
interest in LxData held through SQ5. This was part of a larger investment
shared with the other investors in LxData on a pro-rata basis. The capital is
primarily for working capital in response to the increased order demand, sales
pipeline and additional refinement and implementation of the existing products.
The company continues with positive progress on both multi-point temperature and
pressure sensors and has achieved solid traction from major oil and gas
customers in North America. LxData also continues to make progress on corporate
strategic initiatives.
Quorum MENA Limited
The Company has worked intensively with Quorum MENA Limited ("QMENA") to ensure
that operations are commenced on nitrogen purging in Saudi Arabia in Q1 2011.
QMENA is on schedule to meet that target and has recently signed a contract with
the prime contractor in Saudi Arabia. In addition, QMENA is in the final stages
of restructuring its relationship with Strata to ensure that Strata provides
QMENA with all necessary support in Saudi Arabia and to enable each of QMENA and
Strata to pursue opportunities in the Middle East in exchange for a repayment of
funds paid to Strata in 2009. In addition, QMENA is in discussions with a
Middle Eastern software distribution group for the latter to assist in respect
of the WellPoint licence. Finally, QMENA proposes to change its name to Crest
Energy Services.
Other than those described above, there have been no market events or
transactions in the period from 30 June 2010 to the date of this announcement
that have had a material impact on the Company's financial position.
- Ends -
For further information:
+----------------------------------------+---------------------+
| Investment Manager | |
+----------------------------------------+---------------------+
| Sefton Partners LLP | |
+----------------------------------------+---------------------+
| David Sefton | Tel: +44 (0) 7989 |
| | 333 371 |
+----------------------------------------+---------------------+
| david@seftonpartners.com | |
+----------------------------------------+---------------------+
+----------------------------------------+---------------------+
| Corporate Broker | |
+----------------------------------------+---------------------+
| Numis Securities | |
+----------------------------------------+---------------------+
| Nathan Brown, Corporate Broking | Tel: +44 (0) 20 |
| | 7260 1426 |
+----------------------------------------+---------------------+
| n.brown@numiscorp.com | |
+----------------------------------------+---------------------+
Media enquiries:
+----------------------------------------+------------------------+
| Abchurch | |
+----------------------------------------+------------------------+
| Henry Harrison-Topham / Mark Dixon | Tel: +44 (0) 20 |
| | 7398 7702 |
+----------------------------------------+------------------------+
| mark.dixon@abchurch-group.com | www.abchurch-group.com |
+----------------------------------------+------------------------+
Notes to editors:
Quorum Oil and Gas Technology Fund Limited ("Q-OGT") is an authorised
closed-ended investment company incorporated in Guernsey to provide expansion
capital to companies which own and/or are developing proven proprietary
technology which may have a potentially significant effect on the oil and gas
industry. Q-OGT was admitted to the Official List of the UK Listing Authority
and to trading on the London Stock Exchange on 7 January 2008. Its stock market
EPIC is QOGT.L. Further information can be found at www.q-ogtfund.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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