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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Infrastrata Plc | LSE:INFA | London | Ordinary Share | GB00BLPJ1272 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 18.125 | 17.75 | 18.50 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMINFA
RNS Number : 4933T
Infrastrata PLC
06 January 2017
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR).
6 January 2017
InfraStrata plc
("InfraStrata" or the "Company")
Final results for the year ended 31 July 2016
InfraStrata plc (AIM:INFA), the gas storage company, is pleased to announce its final results for the year ended 31 July 2016.
Overview and highlights
Islandmagee Gas Storage Project ("Islandmagee") - County Antrim
Project and financing highlights
Hot Features
Premium
-- Feasibility phase of the project completed in 2015. The next step in the project development is the Front End
Engineering and Design ("FEED") and commercialisation at a total cost of approximately GBP6 million.
-- Further grant funding secured from the European Union's Connecting Europe Facility for up to EUR4.024 million to
meet up to 50% of the costs of FEED and in-situ downhole testing.
-- Selected FEED contractors have conditionally agreed to contribute a further GBP1.1m by way of secured loans.
-- Both the European Union grant and contractors loans are conditional upon the Company securing the balance of
GBP3.0 million of funding required for the FEED and commercialisation programme, which the Company is currently
seeking.
-- Following successful completion of the FEED work programme the project will be ready to move into construction
and delivery.
Additional highlights
-- Post year end, InfraStrata's interest in the project increased from 65% to 90%, whilst Mutual Energy Limited
remains committed to the project through its remaining 10% interest.
-- Competent Person Report published on the Company's website (www.infrastrata.co.uk) supporting the revenue
assumptions used by InfraStrata to estimate the net present value of the project at GBP67 million at an 8%
discount rate and GBP38 million at a 10% discount rate.
-- InfraStrata's board has been restructured, and it is intended that the necessary technical advisors and
consultants will be appointed in 2017 to meet the requirements of the next phase of the project.
-- The Company's principal operations are being relocated to Belfast.
Discontinued Oil & Gas Exploration activities
-- Disposal of exploration assets now substantially complete, allowing the Company to focus all resources on
progressing Islandmagee towards construction.
-- Following completion of funding in January 2016, the Woodburn Forest 1 well on licence PL1/10 was drilled in May
and June 2016 but no hydrocarbons were encountered and the well was plugged and abandoned. InfraStrata was fully
carried in respect of the costs of the well.
-- Cash received from the disposal of exploration assets and farmout arrangements in relation to the Woodburn Forest
1 well totalled GBP552,481, making a vital contribution to the Group's cash requirements.
Financial
-- Profit for the year ended 31 July 2016 was GBP66,955 (2015: loss GBP6,106,070), comprising a loss of GBP177,614
(2015: loss of GBP347,842) attributable to the continuing operations of pursuing the gas storage project and a
profit of GBP244,569 (2015: loss of GBP5,758,228) attributable to the discontinued operations of oil and gas
exploration.
-- Project management and company administration costs for the year ended 31 July 2016 were GBP932,635 (2015:
GBP1,144,393), of which GBP677,735 (2015: GBP757,473) was attributable to continuing operations of pursuing the
gas storage project.
-- Capital costs of Islandmagee during the year were GBP608,760 (2015: GBP3,663,514), principally relating to the
completion of the salt core well programme in late 2015.
-- GBP1.3 million loan from Baron Oil plc was repaid in full in August 2016, following receipt of the balance of
European Union grant relating to the salt core well programme.
-- EUR1.6 million (GBP1.4 million) received as an advance on the European Union grant for the FEED programme, which
is held as a creditor, pending securing the balance of GBP3.0 million of additional funding required to complete
the FEED and commercialisation programme.
-- New GBP0.3 million secured loan facility from Baron Oil plc, to meet the Group's minimum short-term working
capital requirements whilst the additional funding to pursue the FEED is sought.
-- Cash at bank at 31 July 2016 GBP2,454,006 (2015: GBP430,199) including GBP1.4 million from the grant received in
advance from the European Union and held as a creditor pending completion of funding for the FEED programme.
Commenting on the results and outlook, Anita Gardiner, recently appointed Joint Managing Director of InfraStrata plc said:
"The year has seen the Company modify its focus entirely towards the development of the Islandmagee gas storage project, which we believe not only holds significant value for the Company, but is also likely to be of material importance to the future UK gas market once operational. We go into 2017 with a conviction that gas market conditions and the strategic need for the provision of fast acting gas storage are demonstrating the potential value of the project, and it is our belief that we can secure significant value for our shareholders from it. The best way to unlock this potential is to seek to progress the FEED and commercialisation programme during 2017, the successful completion of which should make the project ready for construction and delivery."
Stewart McGarrity, also recently appointed Joint Managing Director of InfraStrata plc added:
We have made further progress post period with procuring the engineering, technical and commercial support necessary for the FEED and commercialisation programme. We have already secured approximately half of the total costs of GBP6 million from continued grant support from the European Union and secured loan arrangements with leading FEED contractors. Furthermore, we have made changes to our Board to reflect our new focus and to allow us to work towards achieving our goals to maximum effect in 2017 and beyond. Completion of the overall funding arrangements by securing the GBP3.0 million of funding required is our immediate imperative and we look forward to updating our shareholders as we move to progress the project."
Annual Report and AGM
The full Annual Report and Financial Statements for the year ended 31 July 2016, which includes a notice of the Annual General Meeting ("AGM"), will be available shortly from the Company's website, www.infrastrata.co.uk, and will be posted to shareholders today. The AGM will be held at 11.30 a.m. on 31 January 2017 at the offices of Allenby Capital Limited, 3 St Helen's Place, London EC3A 6AB.
The Front End Engineering & Design (FEED) and Insitu Downhole Testing programme for the Islandmagee gas storage project is co-financed by the European Union's Connecting Europe Facility.
Disclaimer releasing the European Union from any liability in terms of the content of the dissemination materials:
"The sole responsibility of this publication lies with the author. The European Union is not responsible for any use that may be made of the information contained therein."
For further information please contact:
InfraStrata plc
Stewart McGarrity, Joint Managing Director 020 8332 1200
Anita Gardiner, Joint Managing Director
Nominated Adviser and Broker - Allenby Capital Limited
Jeremy Porter / Alex Brearley / Liz Kirchner 020 3328 5656
Financial PR - Camarco
Billy Clegg / Gordon Poole 020 3757 4980
Notes:
Background on InfraStrata plc
InfraStrata is an independent gas storage company focused on the UK and Ireland.
Further information is available on the Company's website www.infrastrata.co.uk.
Background on the Islandmagee Storage Project
The Islandmagee gas storage project company, Islandmagee Storage Limited ("IMSL"), is owned 90% by a wholly owned subsidiary of InfraStrata plc and 10% by a wholly owned subsidiary of Mutual Energy Limited. The project is a proposed salt cavern gas storage facility located on Islandmagee in County Antrim, Northern Ireland. Work commenced in 2007 with the acquisition of 3D seismic data to image the Permian salt in the Larne Lough area. During 2012, planning permission was granted for the project and a gas storage licence was issued by the Utility Regulator. In October 2013, the gas storage project was granted a 'Project of Common Interest' ("PCI") status by the European Commission. In 2015 a well was drilled to core the salt and confirm the technical feasibility of the project, supported in part by the Commission. The final stage before a Final Investment Decision will be the Front-End Engineering Design and Commercialisation of the project. To date approximately GBP11m has been invested in the project.
Further information is available on the project company's websitewww.islandmageestorage.com.
CHAIRMAN'S STATEMENT
Following a strategic review in the second half of 2015, InfraStrata has now completed the disposal of almost all its exploration assets and, whilst continuing to act in an administrative capacity until the transfer of responsibility to operate certain licences has been completed, we will make no further financial commitments in respect of exploration activities going into 2017. As previously announced, the entire focus of InfraStrata will be on delivery of value to shareholders through the realisation of our gas storage project at Islandmagee.
Our last significant exploration activity was the drilling of the Woodburn Forest-1 well on licence PL1/10 for which we completed the funding in January 2016. Drilling took place in May and June 2016, and whilst the drilling operations reached the intended objectives no significant hydrocarbons were encountered and the well was plugged and abandoned. InfraStrata was fully carried for the costs of the well and also secured very important contributions to our cash flow requirements for 2016. These included GBP300,000 from Corallian Energy Limited as proceeds for an interest in licence PL1/10, which was conditional on the well being funded, the recovery of GBP252,481 of costs already incurred on the well under the associated farmout agreements and the operator overheads recovered. It is unfortunate that the well was not a success for InfraStrata and its joint venture partners, but these funds were in any event crucial to the continuation of our programme of work on the Islandmagee gas storage project.
At Islandmagee, the feasibility phase of the project was completed via a salt core well programme in late 2015, and during 2016 we worked closely with our advisors to explore options for monetisation of our interest in the project. These options included direct investment into the project by third parties, risk sharing with contractors and the potential sale of the entire project to a third party. The outcome of this exercise was a decision by the Board that best value would be secured for our shareholders by taking the project through its next phase, the Front End Engineering and Design ("FEED"), whilst concurrently embarking upon a commercialisation process. The purpose of this approach would be to add sufficient certainty with regard to revenues, including contracted revenues where possible, in order to support the overall project financing requirements necessary to seek to achieve a Final Investment Decision (FID) prior to commencing full construction.
This decision was taken against a background where our long held views of the project's viability have recently been supported by positive changes in the fundamentals of the gas storage market as reflected in the Competent Person Report on the project and the market potential announced in October 2016 and available on the Company's website.
Approximately half of the required funding for the GBP6 million FEED and commercialisation programme, to be completed during 2017 subject to timely receipt of the necessary funding, was secured by a further EU grant towards the FEED itself and loans from the selected FEED contractors. The grant from the EU under the Connecting Europe Facility is for up to 50% of the cost of FEED and insitu downhole testing up to a maximum of EUR4.024 million. The loans from the selected FEED contractors, of in aggregate up to GBP1.1 million based on a total anticipated engineering budget of GBP4 million, will be secured on the assets of Islandmagee Storage Limited and will be repayable with interest when the FID decision is made, or on 31 December 2018, whichever is earlier. Both the EU grant and contractors loans are conditional upon securing the balance of funding required for the FEED.
Baron Oil plc has agreed to provide the Company with a secured working capital loan facility of up to GBP300,000, sufficient to meet InfraStrata's minimum level of corporate costs to the end of 2017. Further details of this loan and its terms can be found in note 10 to the financial information. As of the date of this report we are seeking the balance of the funding required, GBP3.0 million, to complete the FEED and commercialisation programme, as well as to repay the Baron Oil loan. The directors anticipate that this additional funding can be secured through an equity fundraising in the first quarter of 2017. However the success of such fundraising cannot be guaranteed.
It is proposed that the Company's ordinary share capital be restructured to a par value of 0.01p at the forthcoming AGM (the "Share Capital Reorganisation") to facilitate access to the equity markets, given that the Company's ordinary shares are currently trading on AIM below the current par value of 1p. Further details of the Share Capital Reorganisation can be found in note 11 to the financial information below.
We have made significant progress towards restructuring our business in preparation for our work programme in 2017, including restructuring the interest of Mutual Energy Limited ("Mutual") in the project such that our own interest in the project has now increased from 65% to 90%. We are delighted that Mutual continues to be committed to this strategically important project. We are in the process of restructuring the teams at InfraStrata and Islandmagee Storage Limited over the coming months, to match the skill requirements for the next phase of the project, as well as to appoint necessary advisers and technical consultants. The Board of InfraStrata will be geared towards regulatory and corporate governance matters, with a focus on securing the funds to develop the project. As part of this focus and to further reduce corporate overheads, InfraStrata will re-locate to Belfast in January 2017, with all of its resources being dedicated to the project. Andrew Hindle has stepped down from his role as CEO of InfraStrata effective 1 January 2017, but remains a Non-Executive Director of the Company. Andrew, a Chartered Geologist, will continue to advise on the project in a technical capacity. Stewart McGarrity and Anita Gardiner became Joint Managing Directors effective 1 January 2017, bringing vital and complementary skills required for the execution of the next phase of the project.
I would like to thank Andrew Hindle for his commitment and dedication to the development of InfraStrata's projects over many years and in very difficult market conditions. We look forward to Andrew's continued substantive involvement on the Islandmagee project and to the continued dedication of the other members of our management team as we renew our focus on securing best value from the Islandmagee gas storage project.
Ken Ratcliff, Non-executive Chairman, 5 January 2017
STRATEGY AND BUSINESS MODEL
Strategic review and divestment of exploration assets
In the second half of 2015 we implemented a strategic review which resulted in the divestment of most of the Group's exploration and evaluation assets. This was in response to a very difficult market in which to secure new funding for our exploration activities, following the very significant fall in oil prices since the summer of 2014, and with upcoming commitments in 2016 the Board determined that a cash consideration and a retained interest in the assets represented the best outcome for shareholders.
In November 2015 we entered into Sale & Purchase Agreements ("S&P Agreements") to sell substantially all of the Group's oil and gas exploration interests, including its interest in its two associates, to two newly formed special purpose vehicles Corallian Energy Limited ("Corallian") and its subsidiary Osmington Holdings Limited ("Osmington"). The initial disposal, covering the Group's UK oil and gas exploration interests and the two associates, Brigantes Energy Limited ("Brigantes") and Corfe Energy Limited ("Corfe") resulted in an immediate cash inflow of GBP240,000. The Group also retained a Net Profits Interest ("NPI") in the licences and the former associates. Following this disposal, the Group now has no exposure to any future exploration costs, including cost overruns, in these assets, but, through the NPIs, will participate in any future profits. The second disposal of a 10% interest each in licences PL1/10 and P2123 was completed in February 2016 following the completion of the funding for the Woodburn Forest-1 Well on Licence PL1/10, generating a further cash inflow of GBP300,000.
InfraStrata's business going forward
The focus of InfraStrata's business is now the Islandmagee Gas Storage Facility (currently 90% owned) where we have completed the feasibility study phase for the project and now turn to readying the project for full development through progressing its Front End Engineering and Design ("FEED") and the necessary steps towards a full financing of the project.
We have a retained 10% interest in each of licences PL1/10 and P2123 but will not make any further commitments to incur costs on these licences and seek to transfer our interests and operatorship to other parties as soon as practicable. Our NPI instruments in licences P1918, P2222 and P2235 together with NPI interests in Brigantes and Corfe also provide upside in the underlying exploration activities in the event of successful exploration, but without a commitment to pay exploration costs on the assets disposed of.
OPERATIONAL REVIEW - ISLANDMAGEE GAS STORAGE PROJECT
Outline
Islandmagee Storage Limited ("IMSL") is a Northern Ireland registered company and is a joint venture between InfraStrata UK Limited ("IS-UK") a wholly-owned subsidiary of InfraStrata and Moyle Energy Investments Limited ("Moyle"), part of the Mutual Energy group of companies.
In September 2016 we announced that we had increased our interest in the project from 65% to 90% effected by the issue of new shares in IMSL which reduced Moyle's interest from 35% to 10%. The transaction will mean that at Final Investment Decision ("FID") Moyle will no longer have to advance IMSL approximately GBP2 million plus interest to enable IMSL to partially repay shareholders loans paid to date by IS-UK.
IMSL plans to create seven caverns, capable of storing up to a total of 420 million cubic metres of gas in Permian salt beds approximately 1,400 metres beneath Larne Lough. The project has a number of advantages, including being immediately adjacent to gas and electrical infrastructure, the salt being at an optimum depth for gas storage and close to a water source for solution mining of the salt to create the caverns. The project is also designed to access the extrinsic value of the gas storage market in the UK and Ireland by being able to respond to short-term volatility. We believe that no other location on the island of Ireland is as suitable for the development of salt cavern gas storage; Northern Ireland has a valuable geological asset, which, when developed for underground salt cavern gas storage should make a significant contribution towards security of gas supplies to the wider region, including the north and south of the island of Ireland and mainland Great Britain.
Ireland is dependent on gas for around 40% of its electricity generation, with the majority of the island's gas imported via a single pipeline from Scotland. The Islandmagee facility, when complete, is intended to store enough gas to satisfy Northern Ireland's current demand for around 50 days.
In October 2016 we announced the publication of a competent person report (the "CPR") on the gas storage market in the UK and a review of the revenue assumptions for InfraStrata's economic model of the Islandmagee gas storage project by The Energy Contract Company ("ECC"), a leading commercial consultancy in the global oil and gas industry. The full report titled "The gas storage market in the UK and review of revenue assumptions in economic model for the Islandmagee gas storage project" is available on the Company's website, www.infrastrata.co.uk, with a summary of its findings below.
The revenue model for the project was based on assumptions of volatility and summer-winter price spreads by Baringa Partners ("Baringa"), an independent business and technology consultancy, for InfraStrata. ECC concluded that the underlying assumptions in the Baringa model are reasonable.
This revenue model formed the basis for InfraStrata determining the project's cashflow over a 20 year period. InfraStrata's economic model assumes a capital expense and pre-operations operating expense of GBP308m in aggregate, utilising 65% debt. InfraStrata has estimated the net present value (NPV) of the project to be GBP67m at an 8% discount rate and GBP38m at a 10% discount rate. ECC did not review these NPV estimates.
The executive summary points in the CPR are as follows:
-- Most gas sold in the UK is used for space heating, so demand has always varied significantly from day to day, due to temperature variations. In future these short term variations in demand should become significantly greater. UK Government energy policy now emphasises the need to replace power generation from fossil fuels with electricity generated from renewable sources, such as wind. As wind is not consistent, gas fired generation will have to make up any deficit. Short term gas demand levels will therefore vary increasingly, depending on whether the wind is blowing or not.
-- Many traditional means of meeting peak gas demand such as swing from offshore fields and interruptible gas sales contracts have almost disappeared to be replaced by other sources of peak supply, such as pipeline gas imports from the rest of Europe and LNG imports. However, there are drawbacks to reliance on these sources in future. Historic data shows gas suppliers in the rest of Europe are reluctant to supply the UK in cold winter conditions, if it means that they might be risking their own supply requirements. There are also problems with LNG as a source of peak gas, as the long-time lags for the delivery of LNG cargoes mean it is difficult for LNG producers and traders to react to short term high prices in the UK market, which might have collapsed by the time a cargo arrives in the UK.
-- In continental Europe the traditional means of supplementing gas supplied to meet peak demand was through the use of gas storage, which remains much less common in the UK. Gas storage levels in the UK are very low compared to the rest of Europe. Average UK storage capacity is only equivalent to 6.4% of annual demand in the UK compared to 25-35% in the other major European markets.
-- The situation in the UK has been exacerbated by recent technical problems on the Rough storage facility, which has severely restricted injection this summer. There have also been problems on the Hornsea storage facility. Both Rough and Hornsea, which account for almost 75% of UK gas storage capacity, are now over 30 years old and their continuing availability in the longer term must be subject to some doubt.
-- The cessation of injection at Rough this summer seems to have led to a surge in price volatility from late August onwards. From October 2013 to July 2016 the Short term Gas Volatility Index averaged 34%. However in the last month or so this has more than trebled to 126%. This surge in volatility has potentially great significance for the Islandmagee project. Salt cavern storage projects such as Islandmagee depend on short term volatility to enable the users to gain from injecting gas on low price days and producing later on when prices have risen. The greater the volatility the more profitable the project.
-- Overall the conclusion is that as a result of increased use of renewable generation, gas demand will become even more variable on a short term basis in future. The existing means of meeting this variation in demand may well be inadequate in future, so price volatility is likely to increase, perhaps significantly.
The strategic importance of the Islandmagee gas storage facility is recognised by the project being awarded Project of Common Interest ("PCI") status by the European Union. This status was first awarded in November 2013 and reconfirmed in November 2015 for a further two years. PCI status also means that the project benefits from accelerated permitting procedures and improved regulatory conditions making it more attractive to investors. In addition, a PCI can apply for significant financial support from the European Union's Connecting Europe Facility ("CEF") including grants for both studies and works. A budget of EUR5.35 billion has been allocated under CEF for 2014-20 for PCI projects. Assistance may be in the form of direct grant or other forms of financial backing from institutions such as the European Investment Bank. As detailed below, the project has already received grant assistance for the 2015 salt core well programme and for the forthcoming FEED programme to be undertaken in 2017.
To date over GBP11 million has been expended on the project, to acquire 3D seismic data, drill a well to acquire salt cores, undertake engineering design work, acquire rights on the full land assembly, and obtain planning permission and other consents required to construct the project.
Salt Core Well programme
During 2015 a data gathering well (Islandmagee-1) was successfully drilled to a total depth of 1,753 metres, obtaining wireline data and cores of the 185.8 metre Permian salt sequence encountered. Core samples were sent to Germany to undertake laboratory analyses and the test results on the salt cores and rock mechanics have now been incorporated into the subsurface and surface facility preliminary design and cost estimates for the project have been updated. This GBP3.8m programme of work was co-funded by a EUR2.5 million grant from the CEF. The overall results from the technical programme of work were positive and the objective to confirm the feasibility of the development of an underground gas storage facility in salt caverns in this location was met.
In May 2015 the Company concluded a Convertible Loan Facility Agreement with Baron Oil Plc ("Baron") under which Baron provided a loan for EUR1.8 million (GBP1.4 million) to InfraStrata which was used as working capital to bridge the receipt of the CEF grant, 70% of which amounting to EUR1.75 million (GBP1.3 million) was due upon completion of the work and application for the balance. The balancing EUR1.75 million grant monies were received from the EU in May 2016 and placed into an escrow arrangement as security for the loan. In August 2016 the loan was repaid in full by release to Baron of the EUR1.75 million (GBP1,358,063) then held in escrow, a payment of EUR50,000 (GBP42,301) and a further payment of EUR160,904 (GBP136,134) for the interest on the loan at a fixed rate of 8% up to the effective repayment date of 1 August 2016.
Baron had an accompanying option to convert the entire balance of the loan into an equity participation of 15% of the share capital in IMSL. Under the terms of an amendment to the loan agreement in August 2016 Baron's option could be exercised until 31 March 2017 for a payment of GBP1,536,498, equivalent to the capital and interest repaid on the loan. On 26 September 2016 we announced that the option has been further revised, so that Baron now has an option to acquire the number of ordinary shares of 1p in InfraStrata that represents 16.666% of the enlarged ordinary share capital of InfraStrata (from time to time) for a payment of GBP1,536,498, until 31 March 2017. Exercise of the option in full is conditional on InfraStrata having the requisite authorities under the Companies Act 2006 to issue new ordinary shares in the Company. This is part of an ongoing programme of re-structuring of the Company, as it seeks to focus entirely on the Islandmagee gas storage project.
2016 Monetisation process
During 2016 the Company organised an extensive monetisation process through Centrus Advisors LLP and VSA Capital Ltd, both having been appointed in March 2016. A wide range of options were explored, from investment into the project alongside the EU grant, risk sharing with contractors, or the sale of the entire project to a third party.
As a result of the feedback from this process, together with the positive changes in the fundamentals of the gas storage market and the supportive CPR announced in October 2016, the Board decided to restructure the Company's business with the goal of attracting the remaining risk capital required to take the project through to FID. The restructuring has included increasing InfraStrata's equity position from 65% to 90% in IMSL and seeking to divest all the Company's other remaining business interests, as announced in September 2016.
As part of a commercialisation process to run alongside the FEED in 2017, InfraStrata will seek to secure contracts for storage capacity to support further project finance. During the monetisation process, the Company had a number of discussions regarding the project with interested parties. The feedback at that time with respect to investment in gas infrastructure was that it would be preferable for the FEED to be completed and for the project to have sufficient certainty with regards to revenues, including pre-contracted revenues where possible, in order to support the additional project finance that would be required.
2017 FEED and commercialisation programme
The next phase in the development of the project comprises the closely interrelated work streams associated with the FEED (including associated insitu downhole testing) and the commercialisation process running concurrently with the FEED to secure capacity contracts to support project finance.
In June 2016 we announced that we had concluded a further grant from the EU under the CEF for 50% of the cost of FEED and insitu downhole testing up to a maximum of EUR4.024 million. An advance payment of 40% of the maximum grant amounting to EUR1.6 million was received in July 2016 and has since been held in a Euro denominated bank account pending completion of the remaining 50% funding required to both match the grant for FEED and also to complete the commercialisation programme during 2017.
On 3 November 2016 we announced that following the completion of a tendering process, the Company had selected FEED contractors for the project's above-ground facilities and for the sub-surface elements. The FEED will include a detailed plant design specification for the project, a detailed project plan and cost estimate. Both the FEED contractors have an international reputation and have experienced working on many of the existing salt cavern storage projects in the UK.
Both FEED contractors will provide loans in aggregate of up to GBP1.1m based on a total anticipated engineering budget of GBP4m. These loans, which are subject to contracts being agreed and upon InfraStrata securing the remaining funding for the FEED, will be repayable at the Final Investment Decision ("FID"), when a decision will be made whether to proceed to construction, or on 31 December 2018, whichever is earlier. The loans will be secured on the assets of IMSL and attract interest at 10 per cent. per annum, which will be rolled up and paid on the loan repayment date. These will be repayable at the FID.
In addition to funding from the EU and the loans, further funding of approximately GBP3m is required to complete the FEED and commercialisation process during 2017, inclusive of corporate project management costs, overheads, external technical and commercial consultancy, working capital and bridging finance on the EU grant. The bridging finance, which could be in the form of debt, is required to cover the timing of receipt of funds from the European Commission grant which they pay in two stages: EUR1.6m of EU grant monies has already been received by the Company with the balance receivable once the FEED work has been completed, which is targeted for the end of 2017.
OPERATIONAL REVIEW - OIL & GAS EXPLORATION
County Antrim - Onshore PL1/10, Offshore P2123
Licence ownership
In November 2015 we signed an agreement, alongside Brigantes, with Ermine Resources Limited ("Ermine") whereby Ermine would acquire a 15% interest (paying 20% of the Woodburn Forest-1 well costs) in the PL1/10 licence, subject to the full well funding being completed. In January 2016 we announced that a series of Farmout Agreements ("FOAs") had been entered into by InfraStrata and Brigantes, both together and separately, which together resulted in completion of the funding for Woodburn Forest-1 well. The additional new investors that entered into FOAs for the remaining 45% are Tudor Hall Energy Limited (10%), Baron Oil Plc (10%), Horizon Energy Partners Limited (formerly called Southwestern Resources Limited) (16%) and Petro River UK Limited (9%). All the parties except Tudor Hall Energy Limited acquired corresponding interests in licence P2123. The terms of the FOAs provided for reimbursement of costs already incurred on the Woodburn Forest-1 well and on licence P2123, resulting in cash payments to InfraStrata totalling GBP252,481.
In order to facilitate the FOAs, the Company also signed a Supplemental Sale and Purchase Agreement with Brigantes under which there was a transfer of a 5% interest in PL1/10 from Brigantes to InfraStrata, a 10% interest in P2123 from InfraStrata to Brigantes and a payment of GBP86,459 in cash from Brigantes to InfraStrata.
Under the sale and purchase agreements with Corallian Energy Limited ("Corallian") announced in November 2015, on completion of the Woodburn Forest-1 well funding 10% of InfraStrata's remaining 20% interest in PL1/10 and a 10% interest in P2123 was to be assigned to Corallian, subject to the respective approvals of the Department for Economy ("DfE") and the Oil and Gas Authority ("OGA"), in return for a further payment to InfraStrata by Corallian of GBP300,000 in cash.
Woodburn Forest-1 well
Permitted Development rights for the Woodburn Forest-1 well were granted in December 2013 and in February 2015 a 'Consent to Drill' was granted by DfE. A separate consent issued by the Northern Ireland Environment Agency (Water Management Unit) under the Water (Northern Ireland) Order 1999, which regulates the well in terms of surface water and groundwater impacts, was also granted in February 2015.
Site construction commenced on 10 March 2016 and drilling commenced on 15 May 2016. The well was drilled to a depth of 2,000 metres and encountered two conventional sandstone reservoir intervals, the Triassic Sherwood and the Lower Permian Sandstones. Wireline log analysis has calculated porosities of over 20% in the upper parts of both the Sherwood and the Lower Permian Sandstones but both targets were water wet. Following completion of the drilling, the well was plugged and abandoned and the rig released on 21 June 2016. The site was restored in compliance with the Permitted Development.
Other exploration interests
Following the divestment of exploration assets to Corallian and its subsidiary Osmington Holdings Limited (Osmington) completed in November 2015, InfraStrata has the following retained interests in the disposed exploration assets:
-- Net profits interest ("NPI") instruments in each of P1918 (Dorset - Offshore), P2222 (East Shetland Basin - Offshore) and P2235 (Moray Firth - Offshore) of 0.5%, 0.5% and 1% respectively of the gross, representing 4% of Corallian's anticipated interest in the licences at the time of drilling the first well on the licences; and
-- a 4% share of any future profits derived by Osmington from the 40% shareholdings in former associates Brigantes and Corfe sold to Osmington, again in the form of NPI instruments. Corfe and Brigantes have interests in licence P1918 and Brigantes has interests in PL1/10 and P2123.
No value has been ascribed to any of the NPI instruments retained in the Group's statement of financial position as at 31 July 2016, as it is not possible to determine a fair value for these instruments.
InfraStrata will remain as operator under the P1918 licence until the formal assignment of the licence interest to Corallian has been approved in due course by OGA. However InfraStrata has no commitment to pay exploration costs and is receiving a small income for services rendered during the interim period.
The licence administratorship on the P2222 and P2235 licences has been transferred to Corallian.
OPERATIONAL REVIEW - FUNDING
Financing
Gross capital expenditure on the Islandmagee gas storage project during the year to 31 July 2016 was GBP608,760, most of which related to the completion of the salt core well programme.
In August 2015 the remaining GBP300,000 was drawn down on the Baron Convertible Loan Facility Agreement. The balancing EUR1.75 million (GBP1,358,063) grant monies were received from the EU in May 2016 and placed into an escrow arrangement as security for the loan and disclosed as restricted cash in the statement of financial position. Subsequent to the year end in August 2016 the loan of EUR1.80 million (GBP1,400,364) was repaid in full by release to Baron of the cash held in escrow, a payment of EUR50,000 (GBP42,301) and a further payment of EUR160,904 (GBP136,134) for the interest on the loan which had been accrued and capitalised to intangible gas storage development costs at 31 July 2016.
Our share of expenditure on our oil and gas exploration licences during the year to 31 July 2016 was GBP43,158, mostly related to farmout activities and our share of annual licence fees. We were fully carried through the drilling of the Woodburn Forest-1 well and therefore did not incur any costs on our own account. The book value of the Group's intangible Exploration and Evaluation assets which were disposed of in November 2015, including interests in P1918, P2222 and the Group's interests in associated companies Brigantes and Corfe, were impaired such that they equated to the immediate cash inflow of GBP240,000 from Corallian. The further receipt from Corallian of GBP300,000 upon successful funding of the Woodburn Forest-1 well together with reimbursement of costs already incurred of GBP252,481 under the terms of the Woodburn Forest-1 FOAs and a receipt of GBP86,459 from Brigantes in relation to a licence interest sale to facilitate the FOAs, resulted in the Group recording a profit on disposal of Exploration and Evaluation assets during the year to July 2016 totalling GBP453,945. The Company's remaining 10% interest in each of PL1/10 and P2123 is carried at a book value of GBP19,459 being the estimated proceeds from a future disposal of these interests.
On 18 December 2015 the Company announced a placing to raise GBP450,625 (GBP421,963 after expenses) through the issue of 36,050,000 new ordinary shares of 1p each in two tranches. The first tranche of 18,880,000 shares were issued on 23 December 2015 and the second tranche of 17,170,000 shares was issued on 26 January 2016 following approval of shareholders at the Company's annual general meeting on 26 January 2016 of resolutions to provide authority to the Directors to issue and allot further new ordinary shares with exemption rights dis-applied.
On 2 February 2016, the Group concluded an agreement for the sharing, interpretation and integration of data in respect of proprietary data in Northern Ireland acquired by InfraStrata for the Islandmagee gas storage project. The consideration for sharing this data was GBP500,000 in cash which is accounted for as revenue in the consolidated statement of comprehensive income. InfraStrata has recorded a profit for the year to 31 July 2016 of GBP66,955 (2015 - loss of GBP6,106,070 after impairments totalling GBP6,072,785).
Excluding cash held in escrow and classified as restricted cash, the Group's cash and cash equivalents at 31 July 2016 were GBP2,454,006 (2015 - GBP430,199) and net current assets were GBP542,336 (2015 - GBP42,122). Cash balances at 31 July 2016 included EUR1.6 million (GBP1.35 million) EU grant received in advance in July 2016 and held in a Euro denominated bank account pending completion of the remaining 50% funding required to match the grant and to complete the commercialisation programme during 2017.
As explained in note 1 to the financial information the directors have prepared the accounts on the going concern basis which assumes that the Group will continue in operational existence without significant curtailment of its activities for the foreseeable future.
On 5 January 2017 the Company entered into a secured loan agreement with Baron for a facility up to GBP300,000 to provide working capital for the Group. The loan is for a term of 12 months from the date of the loan agreement. Baron is entitled, acting in its sole discretion, to extend the term of the loan agreement by an additional 12 months. The directors believe that the facility provides sufficient funding to meet InfraStrata's minimum level of management and administrative expenditure and to make the necessary payments in relation to the maintenance of the Islandmagee gas storage for a period of 12 months to the end of December 2017, but not to undertake the FEED and commercialisation programme.
The directors anticipate that the additional funding of GBP3.0m required to complete the FEED and commercialisation programme during 2017 and to repay the new Baron loan can be generated through an equity fundraising in the first quarter of 2017. However the success of such fundraising cannot be guaranteed.
Following the completion of the FEED and commercialisation programme the project will be ready to move into construction and delivery and at that time the Company will further evaluate the optimum way to structure the funding of the initiation and delivery of that programme for our shareholders and will evaluate the available sources of funding, including both debt and equity participation, to fund both the continuing operations of the company and the commencement of construction. The full project construction is expected to be delivered over a number of years at an aggregate cost of approximately GBP300 million and to be delivered on a phased basis.
The directors remain confident that the project is economically viable and that following the completion of the FEED and commercialisation programme, the project should be capable of attracting further new investment for the Company and the project. However the success of the Q1 2017 fundraising and a further fundraising following FID are both uncertain. Should the Group not be successful in obtaining future funding for the Islandmagee gas storage project or realising value for the project in excess of current book value, the Group's capitalised project development costs totalling GBP6,116,114 and amounts due to the Company from its subsidiaries amounting to GBP5,873,052 may become impaired in value. In addition the Company may be unable to continue as a going concern.
Project management and company administration costs
During 2016 every member of the management team was required to make an indispensable contribution to the effective delivery of our projects, the performance against our key performance indicators and the effective management of the risks and uncertainties our business faces. We have, however, continued to implement cost reductions. Total management and administrative expenditure is further analysed in note 4 to the financial information, which shows that the cash cost of management and administrative costs in the year to 31 July 2016 was GBP853,850 (2015 - GBP1,065,161).
In October 2015 the Company implemented a Performance Incentive Scheme under which voluntary salary reductions were taken in return for participation in the scheme. The scheme expired on 30 September 2016 with no incentive payments being due.
Plans have been developed to restructure the teams at InfraStrata and IMSL in the coming months, to match the skill requirements for the next phase of the project, as well as to appoint necessary advisers and technical consultants.
The Board of InfraStrata will be geared towards regulatory and corporate governance matters, with a focus on securing the funds to develop the project. As part of this focus and to minimise corporate overheads, InfraStrata will re-locate to Belfast in January 2017, with all of its resources being dedicated to bringing the project to construction. Andrew Hindle has stepped down from his role as CEO of InfraStrata effective 1 January 2017, but will remain a Non-Executive Director of the Company. Andrew, a Chartered Geologist, will continue to advise on the project in a technical capacity. Stewart McGarrity and Anita Gardiner became Joint Managing Directors effective 1 January 2017, bringing vital and complementary skills required for the execution of the next phase of the Project.
On behalf of the Board
Andrew Hindle,
5 January 2017
Consolidated statement of comprehensive income
for the year ended 31 July 2016
Notes 2016 2015
GBP GBP
Continuing operations
Revenue 3 500,000 408,526
Cost of sales - -
------------ --------------
Gross profit 500,000 408,526
Management and administrative
expenses 4 (677,735) (757,473)
Operating loss (177,735) (348,947)
Finance income 121 1,105
Loss before taxation (177,614) (347,842)
Taxation 5 - -
Loss for the year from
continuing operations 2 (177,614) (347,842)
Profit (loss) for the year
from discontinued operations 2 244,569 (5,758,228)
Profit (loss) for the year
attributable to the equity
holders of the parent 66,955 (6,106,070)
Other comprehensive income - -
Total comprehensive profit
(loss) for the year attributable
to the equity holders of
the parent 66,955 (6,106,070)
Basic and diluted earnings
per share 6
Continuing operations (0.10)p (0.28)p
Discontinued operations 0.14p (4.72)p
Continuing and discontinued 0.04p (5.00)p
operations
============ ==============
Consolidated statement of financial position
as at 31 July 2016
Notes 2016 2015
GBP GBP
Non-current assets
Intangible fixed assets:
Gas Storage Development 7 6,116,114 5,704,951
Exploration & Evaluation 8 19,459 429,139
Property, plant and
equipment 440,744 440,453
Investments in associates - 600
Total non-current assets 6,576,317 6,575,143
Current assets
Trade and other receivables 1,182,572 300,408
Grant receivable 9 - 1,066,306
Restricted cash 9 1,358,063 -
Cash and cash equivalents 2,454,006 430,199
Total current assets 4,994,641 1,796,913
------------- -------------
Current liabilities
Trade and other payables (1,693,055) (754,791)
Grant received in advance 9 (1,358,886) -
Short-term convertible
borrowings 9 (1,400,364) (1,000,000)
Total current liabilities (4,452,305) (1,754,791)
Net current assets 542,336 42,122
Net assets 7,118,653 6,617,265
Shareholders' funds
Share capital 10,834,660 10,474,160
Share premium 13,440,878 13,379,415
Merger reserve 8,988,112 8,988,112
Share based payment
reserve 616,096 603,626
Retained earnings (26,761,093) (26,828,048)
Total equity 7,118,653 6,617,265
Company registration number: 06409712
Approved and authorised for issue by the Board on 5 January 2017
A Hindle S McGarrity
Director Director
Consolidated statement of changes in equity
for the year ended 31 July 2016
Share Share
premium based
Share Merger payment Retained Total
capital reserve reserve earnings equity
GBP GBP GBP GBP GBP GBP
Balance at 31 July
2014 9,949,160 11,920,219 8,988,112 530,410 (20,721,978) 10,665,923
Loss for the year - - - - (6,106,070) (6,106,070)
Total comprehensive
loss for the year - - - - (6,106,070) (6,106,070)
Shares issued 525,000 1,459,196 - - - 1,984,196
Share based payments - - - 73,216 - 73,216
Balance at 31 July
2015 10,474,160 13,379,415 8,988,112 603,626 (26,828,048) 6,617,265
============= ============= ============ ========= ============= ============
Profit for the
year - - - - 66,955 66,955
Total comprehensive
profit for the
year - - - - 66,955 66,955
Shares issued 360,500 61,463 - - - 421,963
Share based payments - - - 12,470 - 12,470
Balance at 31 July
2016 10,834,660 13,440,878 8,988,112 616,096 (26,761,093) 7,118,653
============= ============= ============ ========= ============= ============
Consolidated statement of cash flows for the
year ended 31 July 2016
2016 2015
GBP GBP
Operating activities
Operating loss for the year (177,735) (348,947)
Depreciation 167 71
Increase in trade and other
receivables (882,164) (155,585)
Increase (Decrease) in trade
and other payables 938,264 (81,496)
Share option expense 12,470 73,216
Exchange differences 33,301 -
Cash (used in) discontinued
operations (180,933) (381,340)
Net cash (used in) continuing
and discontinued operating
activities (256,630) (894,081)
Investing activities
Interest received 121 1,105
Purchase of intangible assets:
Gas Storage Development (608,760) (3,663,514)
Exploration and Evaluation
(discontinued) (43,158) (179,732)
Proceeds from Exploration
and Evaluation assets (discontinued):
Disposals 626,459 -
Receipt of back costs under 252,481 -
farmout agreements
Grants received 2,689,852 533,694
Purchase of equipment (458) (424)
Net cash generated from (used
in) investing activities 2,916,537 (3,308,871)
Financing activities
Proceeds on issue of ordinary
shares 421,963 1,984,196
Drawdown of short-term borrowings 300,000 1,000,000
Net cash generated from financing
activities 721,963 2,984,196
Net increase (decrease) in
cash and cash equivalents 3,381,870 (1,218,756)
Cash and cash equivalents
at beginning of year 430,199 1,648,955
Cash and cash equivalents
at end of year 3,812,069 430,199
Cash and cash equivalents consist
of:
Restricted cash 1,358,063 -
Cash at bank 2,454,006 430,199
3,812,069 430,199
Significant non-cash transactions
As disclosed in note 9, at 31 July 2015 the Group had accrued GBP1,066,306 as the portion of the Grant from the European Commission in respect of the Islandmagee gas storage project attributable to work done at that date. This accrual is a non-cash item, as are the impairment charges of GBP28,443 (2015 - GBP6,072,785); therefore these items do not appear in the statement of cash flows.
Notes on the financial information for the year ended 31 July 2016
1. Basis of accounting and presentation of financial information
Basis of preparation
The financial information set out in this announcement does not comprise the Group's statutory accounts for the years ended 31 July 2016 or 31 July 2015. The financial information has been extracted from the statutory accounts of the Group for the years ended 31 July 2016 and 31 July 2015.
The auditor, Nexia Smith & Williamson, has reported on the statutory accounts for the years ended 31 July 2016 and 2015; the reports were unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. However, in their report on the statutory accounts for both the year ended 31 July 2016 and 31 July 2015, the auditor drew attention to the material uncertainties which exist with respect to the ability of the group to continue as a going concern and the carrying value of the Islandmagee gas storage facility should further funds to develop the project not be secured. These uncertainties are further explained below. In their report on the statutory accounts for the year ended 31 July 2015 the auditor additionally drew attention to the material uncertainties which existed with respect to the carrying value of the PL1/10 license should funding not be received or if the licence were not allowed to continue to its second term.
The statutory accounts for the year ended 31 July 2015 have been delivered to the Register of Companies; those for the year ended 31 July 2016 were approved by the Board on 5 January 2016 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. InfraStrata plc adopted International Financial Reporting Standards (IFRS) as adopted by the European Union effective in July 2016, as the basis for preparation of its financial statements. The financial information has been prepared under the historical cost convention as modified by the revaluation of certain financial assets. There was no material change to the Group's accounting policies for the year ended 31 July 2016 as compared to those published in the statutory accounts for the year ended 31 July 2015.
Going concern
All future exploration costs associated with retained licence interests will continue to be funded by joint venture partners.
The next phase of the development of the Islandmagee gas storage project is the completion of the FEED and commercialisation programme which will take to the end of December 2017 at a total estimated cost including all the Group's financial commitments during that period of GBP6 million. Of that total GBP3m is being met by a grant from the EU and loans from the selected FEED contractors leaving a further GBP3m additional funding requirement.
On 5 January 2017 the Company entered into a secured loan agreement with Baron Oil plc for a facility up to GBP300,000 to provide working capital for the Group. This Loan is for a term of 12 months from the date of the loan agreement. Baron is entitled, acting in its sole discretion, to extend the term of the loan agreement by an additional 12 months. After preparing cash flow forecasts the directors have concluded that this facility would provide sufficient funding to meet the minimum level of management and administrative expenditure and to make necessary payments in relation to the Islandmagee gas storage for a period of 12 months to the end of December 2017 but not to undertake the FEED and commercialisation programme.
The directors anticipate that the additional funding of GBP3.0m required to complete the FEED and commercialisation programme during 2017 and to repay the new Baron loan can be secured through an equity fundraising in the first quarter of 2017. However the timing and success of such fundraising cannot be guaranteed. After preparing cash flow forecasts, making enquiries and considering the loan facility from Baron Oil plc and the intention to raise the balance as described above, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.
Following the completion of the FEED and commercialisation programme at the end of 2017 the project will be ready to move into construction and delivery and at that time the Company will further evaluate the optimum way to structure the funding of the initiation and delivery of that programme for our shareholders and will evaluate the available sources of funding, including both debt and equity participation, to fund both the continuing operations of the Company beyond December 2017 and the commencement of construction. The full project construction is expected to be delivered over a number of years at an aggregate cost of approximately GBP300 million and to be delivered on a phased basis.
The directors remain confident that the project is economically viable and that following the completion of the FEED and commercialisation programme, further new investment for the Company and the project will be secured. Having reviewed the value of gas storage assets in accordance with the principles set out below, the directors are of the opinion that these assets are not impaired in value.
However the success of the 2017 fundraising is uncertain. The directors have concluded that a material uncertainty exists that may cast significant doubt upon the Group's ability to continue as a going concern and therefore the Group may be unable to realise its assets and discharge its liabilities in the normal course of business. Were the Group no longer a going concern, the Group's capitalised project development costs totalling GBP6,116,114 provision would be required for the future liabilities arising as a consequence of the Group ceasing business and assets and liabilities currently classified as non-current would be reclassified as current.
Capitalisation and impairment of intangible gas storage assets
Costs of development of gas storage facilities are capitalised as intangible assets once it is probable that future economic benefits that are attributable to the assets will flow to the Group and until consent to construct has been awarded, at which time the capitalised costs are transferred to plant and equipment provided there being reasonable certainty of construction proceeding. The nature of these costs includes all direct costs incurred in project development, including any directly attributable finance costs. No amortisation or depreciation is provided until the storage facility is available for use.
An impairment test is performed annually and whenever events or circumstances arising during the development phase indicate that the carrying value of a development asset may exceed its recoverable amount. The aggregate carrying value is compared against the expected recoverable amount of the cash generating unit, generally by reference to the present value of the future net cash flows expected to be derived from storage revenue. The present value of future cash flows is calculated on the basis of future storage prices and cost levels as forecast at the statement of financial position date.
The cash generating unit applied for impairment test purposes is generally an individual gas storage facility. Where the carrying value of the facility is greater than the present value of its future cash flows a provision is made. Any such provisions are charged to cost of sales.
Review of gas storage project asset carrying values
The assessment of capitalised project costs for any indications of impairment involves judgement. When facts or circumstances suggest that impairment exists, a formal estimate of recoverable amount is performed and an impairment loss recognised to the extent that the carrying amount exceeds recoverable amount. Recoverable amount is determined to be the higher of fair value less costs to sell and value in use. The key assumptions are the net income expected to be generated from the facilities, the cost of construction and the date from which the facilities become operational. Management assigns values and dates to these inputs after taking into account market information, engineering design costing and the project programme. A discount rate of 8% is applied in determining gas storage project net present values. Salt cavern gas storage projects are long term investments and cash flows are therefore projected over periods greater than 5 years. Engineering design provides for a project life of 40 years. It is assumed that 100% of a project's capacity will be sold from the date that the capacity becomes operational.
2. Segment information
The directors have determined the Group's operating segments by reference to the risk profile of the Group's activities, which are affected predominately by location of the Group's assets. The Group's head office is located in the United Kingdom with operations located in Dorset and Northern Ireland. The segmental businesses activities are the development and construction of gas storage and associated facilities, and petroleum exploration. In both years presented petroleum exploration activities have been classified as discontinued operations.
2016 Discontinued operations Continuing operations
- exploration - gas storage
Northern Southern Total Northern Central Total
Ireland England Ireland income
and costs
GBP GBP GBP GBP GBP GBP
Revenue 61,150 12,817 73,967 500,000 - 500,000
Management & administrative
expenses (254,900) - (254,900) (494,146) (183,589) (677,735)
Profit on disposal
of Exploration &
Evaluation assets 453,945 - 453,945 - - -
Impairment of Exploration
& Evaluation assets (28,443) - (28,443) - - -
Finance income - - - - 121 121
Taxation - - - - - -
231,752 12,817 244,569 5,854 (183,468) (177,614)
Analysis of:
Assets by segment 1,429,879 67,687 1,497,566 9,266,058 807,334 10,073,392
Liabilities by segment (1,414,935) (11,282) (1,426,217) (2,922,841) (103,247) (3,026,088)
14,944 56,405 71,349 6,343,217 704,087 7,047,304
Cash flows from discontinued operations
Cash flows arising from discontinued operations comprise net cash used in discontinued operations GBP180,933 (2015: GBP381,340), and net cash received from investing activities GBP835,782 (2015: net cash used in investing activities GBP179,732)
2015 Discontinued operations Continuing operations
- exploration - gas storage
Northern Southern Total Northern Central Total
Ireland England Ireland income
and costs
GBP GBP GBP GBP GBP GBP
Revenue 4,929 651 5,580 400,000 8,526 408,526
Management & administrative
expenses (331,646) (55,274) (386,920) (506,193) (251,280) (757,473)
Impairment of Exploration
& Evaluation assets - (3,577,659) (3,577,659) - - -
Share of loss of
associates (24,754) (24,532) (49,286) - - -
Impairment of interest
in associates (1,234,006) (1,261,120) (2,495,126) - - -
Finance income - - - - 1,105 1,105
Taxation - 745,183 745,183 - - -
(1,585,477) (4,172,751) (5,758,228) (106,193) (241,649) (347,842)
Analysis of:
Assets by segment 232,180 247,212 479,392 7,491,517 401,147 7,892,664
Liabilities by
segment (464,596) (68,540) (533,136) (1,081,957) (139,698) (1,221,655)
(232,416) 178,672 (53,744) 6,409,560 261,449 6,671,009
3. Revenue 2016 2015
GBP GBP
Revenue comprises:
Licensing of seismic data 500,000 400,000
Other income - 8,526
500,000 408,526
========== ==========
Project management & company
4. administrative expenditure
2016 2015
GBP GBP
Management & administrative
expenditure paid in cash 853,850 1,065,161
Advisor costs relating to Islandmagee
Storage 41,520 -
Non-cash items:
Share options expense 12,470 73,216
Exchange differences 23,180 (1,476)
Depreciation 167 71
Pre-licence costs written off 1,448 7,421
932,635 1,144,393
========== ============
Attributable to:
Continuing operations 677,735 757,473
Discontinued operations 254,900 386,920
932,635 1,144,393
========== ============
5. Income tax 2016 2015
GBP GBP
The major components of income
tax expense for the years ended
31 July 2016 and 2015 are:
Continuing operations - -
Current income tax charge/(credit)
Adjustments in respect of current - -
income tax of previous years
Total Current tax - -
Discontinued operations
The tax credit of GBP745,183 attributed to
discontinued operations in the 2015 year (note
2) represented a deferred tax credit arising
from the reversal of a timing differences
in relation to an intangible exploration asset
which was impaired to net selling price during
the year.
6. Earnings per share
2016 2015
GBP GBP
Profit (Loss)
The profit (loss) for the purposes
of basic and diluted loss per
share being the net loss attributable
to equity shareholders
Continuing operations (177,614) (347,842)
Discontinued operations 244,569 (5,758,228)
Continuing and discontinued
operations 66,955 (6,106,070)
Number of shares
Weighted average number of ordinary
shares for the purposes of:
Basic earnings per share 172,318,503 122,217,627
Basic and diluted earnings per
share
Continuing operations (0.10)p (0.28)p
Discontinued operations 0.14p (4.72)p
Continuing and discontinued 0.04p (5.00)p
operations
For 2015, the share options were not dilutive
as a loss was incurred. For 2016 the share
options were not dilutive as the exercise
price on all options in issue was in excess
of the average price of the Company's shares
throughout the year.
7. Intangible assets -
Gas Storage Development
GBP
Cost
At 1 August 2014 3,641,437
Additions 3,663,514
Grant received (note
9) (533,694)
Grant accrual during
year (note 9) (1,066,306)
At 31 July 2015 5,704,951
Additions 608,760
Grant accrual during
year (note 9) (197,597)
Net book value
At 31 July 2016 6,116,114
=============
Capitalised finance costs
Additions during the year to 31 July 2016 include capitalised finance costs totalling GBP135,843 (2015 - GBP14,145).
Capital and other commitments
In the event that the project does not proceed to development IMSL would have an obligation to reinstate the area of the well-pad which has already been constructed. This is an unrecognised contingent liability estimated at GBP100,000 (2015: GBP100,000). At 31 July 2016 the Group had capital commitments of GBPNil (2015: GBP218,000) relating to the project.
8. Intangible assets - Exploration
& Evaluation
GBP
Cost
At 1 August 2014 3,827,066
Additions 179,732
Disposals -
Impairments (see footnote below) (3,577,659)
At 31 July 2015 429,139
Additions 43,158
Disposals (424,395)
Impairments (see footnote
below) (28,443)
Net book value
At 31 July 2016 19,459
============
On 13 November 2015, the Company entered into agreements to dispose of its interests in exploration licences P1918, P2222 and P2235 for a cash consideration and a retained Net Profits Interest in each licence interest. The carrying value of the Group's interest in these licences at 31 July 2015 was impaired such the net book value equated to the attributable net sales proceeds of GBP239,400 with the balance representing a 20% interest in each of licences PL1/10 and P2123. No value has been ascribed to the Net Profits Interests retained on each of the licence interests as it is not possible to determine a reliable fair value for these instruments. The agreements also contained conditions, principally the completion of the farm-out and drilling of the Woodburn Forest-1 well, under which a 10% interest in each of licences PL1/10 and P2123 would be disposed of for a further consideration of GBP300,000. The conditions were met and the disposals completed.
After impairment the net book value at 31 July 2016 is equal to the estimated net sale proceeds that would arise from a disposal of the Company's remaining 10% interests in licences P2123 and PL1/10.
9. Grants and short-term borrowings
Grant receivable / restricted cash
The Grant receivable balance of GBP1,066,306 at 31 July 2015 represented an accrual of a grant receivable from the European Commission's Connecting Europe Facility in relation to the Islandmagee gas storage project. During 2015 the associated work programme was complete successfully at an aggregate cost of approximately GBP3.8 million. 30% of the maximum grant amounting to EUR750,000 (GBP533,694) was received in May 2015 and the remaining EUR1.75 million, the maximum available, (GBP1,358,063) was received in May 2016 and placed into an escrow arrangement as security for most of the EUR1,800,000 short-term convertible borrowings from Baron Oil plc. The amount placed in escrow is disclosed as restricted cash on the Consolidated statement of financial position.
Grant received in advance
In May 2016 the Company signed a further grant agreement with the European Commission's Connecting Europe Facility in relation to the Islandmagee gas storage project for a maximum of EUR4.024 million or up to 50% of the costs of Front End Engineering and Design ("FEED") for the project. 40% of the maximum grant amounting to EUR1.6 million (GBP1,331,886) was received on 1 July 2016. At 31 July 2016 the EUR1.6 million (GBP1,358,886) was held in a Euro denominated bank account pending completion of the remaining 50% funding required to match the grant.
Short-term convertible borrowings
On 30 April 2015, the Company concluded a EUR1.8 million Convertible Loan Facility Agreement with Baron Oil Plc ("Baron") for the purposes of providing bridge finance until receipt of the EUR1.75 million balancing grant for the data gathering well to obtain salt cores and subsequently undertake testing and engineering design work from the European Commission. The loan was drawn-down as Sterling fixed at GBP1.3 million and was subject to an interest rate of 8%.
In August 2016 the loan of EUR1.8 million (GBP1,400,364) was repaid in full by release to Baron of the EUR1.75 million (GBP1,358,063) then held in escrow, a payment of EUR50,000 (GBP42,301) and a further payment of EUR160,904 (GBP136,134) for the interest on the loan at a fixed rate of 8% up to the effective repayment date of 1 August 2016.
Baron had an accompanying option to convert the entire balance of the loan into an equity participation of 15% of the share capital in IMSL. Subsequent to the end of the reporting period in August 2016, the terms were amended such that Baron's option could be exercised until 31 March 2017 for a payment of GBP1,536,498, equivalent to the capital and interest repaid on the loan. On 26 September 2016 the option was further revised, so that Baron now has an option to acquire the number of ordinary shares of 1p in InfraStrata that represents 16.666% of the enlarged ordinary share capital of InfraStrata (from time to time) for a payment of GBP1,536,498, until 31 March 2017.
The borrowings were initially secured by a debenture over the assets of InfraStrata UK Limited which included the Group's interest in the share capital of IMSL but this security was released when the balancing EUR1.75 million grant was received and placed in escrow.
10. Events after the reporting period
In August 2016 the Baron loan of EUR1.8 million
was repaid in full by release to Baron of the
EUR1.75 million (GBP1,358,063) then held in
escrow, a payment of EUR50,000 (GBP42,301)
and a further payment of EUR160,904 (GBP136,134)
for the interest on the loan at a fixed rate
of 8% up to the effective repayment date of
1 August 2016. Baron had an accompanying option
to convert the entire balance of the loan into
an equity participation of 15% of the share
capital in IMSL. The terms were amended such
Baron's option could be exercised until 31
March 2017 for a payment of GBP1,536,498, equivalent
to the capital and interest repaid on the loan.
On 26 September 2016 we announced that the
option has been further revised, so that Baron
now has an option to acquire the number of
ordinary shares of 1p in InfraStrata that represents
16.666% of the enlarged ordinary share capital
of InfraStrata (from time to time) for a payment
of GBP1,536,498, until 31 March 2017.
In September 2016 InfraStrata UK Limited increased
its interest in Islandmagee Storage Limited
from 65% to 90% effected by the issue of new
shares in Islandmagee Storage Limited which
reduced Moyle's interest from 35% to 10%. The
transaction will mean that when the construction
and operation of the facility is certain or
when the current shareholders' interests in
the project are monetised Moyle will no longer
have to advance IMSL approximately GBP2 million
plus interest to enable IMSL to partially repay
shareholders loans paid to date by InfraStrata
UK Limited.
On 5 January 2017 the Company entered into
a secured loan facility agreement with Baron
Oil plc ("Baron"). Under the terms of the Loan
Agreement, Baron will provide a loan facility
of up to GBP300,000 to InfraStrata (the "Loan"),
which will be applied towards InfraStrata's
working capital requirements. The Loan is for
a term of 12 months from the date of the Loan
Agreement. Baron is entitled, acting in its
sole discretion, to extend the term of the
Loan Agreement by an additional 12 months.
The Loan will convert to an on-demand facility,
repayable at any time following Baron's demand,
with effect from 30 April 2017 in the event
that GBP3.0m of further funding has not been
received by the Company on or prior to that
date. The Loan is subject to an interest rate
of 6% of the funds drawn down, which is payable
monthly in advance (rising to 9% in a payment
default situation).
Baron will also receive an additional GBP200,000
(the "Additional Payment") in the event of
a sale or disposal by InfraStrata of substantially
all of its assets, which now comprise its interest
in the Project, and/or a change in control
of InfraStrata within two years from the entering
into of the Loan Agreement. In the event of
a partial disposal of InfraStrata's interest
in the Project (whereby InfraStrata retains
control of Islandmagee Storage Limited ("IMSL"),
the company through which it holds its 90%
interest in the Project) the Additional Payment
will be reduced to GBP100,000, with the remaining
GBP100,000 payable in the event of a subsequent
disposal or change in control of InfraStrata
during the two years. The Additional Payment
is payable in the above scenarios regardless
of whether the Loan has been repaid during
this period or is still in use.
The Loan is secured by, inter alia: (i) a first-ranking
debenture over the undertakings and assets
of InfraStrata UK Limited ("InfraStrata UK"),
the wholly owned subsidiary of the Company
which owns 90% of IMSL; and (ii) charges over
shares in InfraStrata UK (granted by the Company)
and IMSL (granted by InfraStrata UK). The Loan
can be repaid by InfraStrata in full at any
time during its term, which would lead to the
release of the security arrangements.
The terms of the Loan Agreement contain a number
of customary representations and warranties,
information undertakings, and general covenants,
which include a negative pledge restricting
the Company and InfraStrata UK's ability to
grant further security over their assets. The
terms of the Loan Agreement also impose certain
obligations and restrictions on InfraStrata
and InfraStrata UK, including, inter alia,
restrictions on acquisitions and joint ventures,
further borrowing and guarantees. The Loan
Agreement contains a number of events of default,
which includes, inter alia, the suspension
or cancellation of trading of the Company's
ordinary shares on AIM, subject to a seven
day remedy period.
11. Share Capital Reorganisation
The mid-market price of the Company's Ordinary
Shares as at the close of business on 5 January
2017 (the last practicable day prior to this
announcement) was 0.45p. The Ordinary Shares
have since late November 2016 been trading on
AIM at a price below their nominal value of
1 penny per share. The issue of new shares by
a UK company at a price below their nominal
value is prohibited by UK company law and accordingly
the ability of the Company to raise funds by
way of the issue of further equity has been
inhibited. Should the share price remain below
the nominal value of the shares then the inability
to raise additional funds by way of an equity
issue will constrain the Company's financial
flexibility.
Accordingly, the Directors are seeking shareholders'
authority at the Annual General Meeting to implement
a proposed reorganisation to be effected by
subdividing each existing ordinary share of
1 penny each in the capital of the Company ("Existing
Ordinary Shares") into 1 new ordinary share
of 0.01p each ("New Ordinary Shares") and 99
second deferred shares of 0.01p ("Second Deferred
Shares") (collectively the "Share Capital Reorganisation"),
to create a differential between the nominal
value of the Company's ordinary shares and their
market price to facilitate future share issues.
The Second Deferred Shares created will be effectively
valueless as they will not carry any rights
to vote or any dividend rights. The Second Deferred
Shares will not be admitted to trading on AIM
and will not be transferable without the prior
written consent of the Board.
To give effect to the Share Capital Reorganisation,
the current Articles of Association of the Company
will need to be amended to make changes to allow
for the creation of the Second Deferred Shares
(in addition to the current deferred shares
of 1p each arising from the share capital reorganisation
which took place on 21 January 2015 ("Deferred
Shares") arising on the Share Capital Reorganisation
becoming effective. These amendments to the
current Articles of Association will also require
shareholders' approval at the Annual General
Meeting.
The proposed timetable for the Share Capital
Reorganisation is as follows: Event Date
Latest time and date for receipt of Forms 11.30 a.m. 27 January
of Proxy for the Annual General meeting 2017
Time and date of Annual General meeting 11.30 a.m. 31 January
2017
Latest time and date for dealings on AIM 4.30 p.m. 31 January
in Existing Ordinary Shares 2017
Record Time for the Share Capital Reorganisation 6.00 p.m. 31 January
2017
Admission of the New Ordinary Shares to 8.00 a.m. 1 February
trading on AIM and crediting of CREST 2017
accounts
Each of the times and dates in the above timetable
is based on current expectations and is subject
to change. If any of the above times and/or
dates change, the revised times and/or dates
will be notified to shareholders by announcement
through a Regulatory Information Service. All
references in this above to times are to London
times.
Further details regarding the Share Capital
Reorganisation can be found in the letter from
the Chairman with the Notice of Annual General
Meeting which will accompany the Annual Report
and Financial Statements for the year ended
31 July 2016.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UGUAWGUPMPWA
(END) Dow Jones Newswires
January 06, 2017 02:00 ET (07:00 GMT)
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