International Oil and Gas Tech Ltd Interim Management Statement (4577T)

TIDMOGT

RNS Number : 4577T

International Oil and Gas Tech Ltd

19 November 2013

Not for release, publication or distribution in, or into, the United States, Canada, Australia or Japan

International Oil and Gas Technology Limited

("the Company")

Interim Management Statement

19 November 2013

Introduction

International Oil and Gas Technology Limited (LSE: OGT) today provides its Interim Management Statement for the period since 31 August 2013 in accordance with Rule 4.3 of the Disclosure and Transparency Rules of the UK Listing Authority.

The primary goal of the Company remains to deliver returns to shareholders by investing in, developing and then exiting successful portfolio companies. On 19 September 2013, the Company announced its intention to complete orderly exits from all three remaining portfolio investments within the next 24 months and return proceeds to shareholders.

PORTFOLIO UPDATE

Strata Energy Services Inc. ("Strata")

Strata provides specialised underbalanced and managed-pressure drilling ("UBD" and "MPD") services. The company has its headquarters in Alberta, Canada. It operates proprietary drilling equipment that is considered among the best in the industry and Strata has an excellent reputation for customer service.

Strata has experienced encouraging sales levels, with high levels of utilisation of its equipment and services in all three operating regions. Average monthly revenues for the three months to 31 October were approximately C$2.7 million, generating EBITDA of C$1.8 million in that period. As previously noted, Strata expects full-year revenues to be similar to FY12 and below the original FY13 budget. Strata continues in negotiations with its primary lender to resolve the covenant issues that arose as a result of its trailing twelve-month performance.

In Canada, activity continues to recover from the 2012 slump. Although UBD activity has been lower than forecast, this has been more than compensated by the growth in MPD services. In Kurdistan, a major new UBD contract is set to raise the long-term UBD contract count to three. The US is contributing increasing levels of revenue, with Strata's market share growing in an expanding MPD market.

Strata anticipates that the US will be the main growth area in 2014. It plans to redeploy equipment to the US from Canada during the 2014 spring-thaw slow-down in April/May to avoid the significant dip in revenues experienced in FY12 and FY13.

The Company owns 43 per cent of the fully diluted share capital of Strata and holds a US$2 million loan note.

Crest Energy Services Limited ("Crest")

Crest uses the most advanced equipment available to provide in-situ nitrogen generation services to various segments of the oil, gas and energy industries in Saudi Arabia.

The market for nitrogen services in Saudi Arabia is large, encompassing various activities from pipeline purging to well intervention. Crest has thus far only addressed two segments of this market: power-infrastructure purging and gas-pipeline purging. The value of Crest has been enhanced by its entry into the Saudi Arabian market where barriers to entry are very high.

Crest achieved sales of US$1.9 million for the ten months to 31 October 2013 (compared to just over US$1 million for FY12) and expects to exceed its revenue forecast of US$2 million for the full year.

As previously highlighted, Crest has created significant demand for its services but, without further capital investment to acquire more equipment, it cannot take advantage of that demand. As equipment is fully utilised, tendering for new work is difficult because Crest cannot be sure when existing contracts will finish. Until there is further investment in new equipment, Crest will experience void periods between contracts, which will have a negative impact on Crest's revenue and cash position.

The Company currently owns 100 per cent of the shares of Crest. An employee share-option scheme, once implemented, may dilute this holding by up to 25 per cent.

SR2020 Inc. ("SR2020")

SR2020 provides technically advanced and proprietary borehole-seismic services, including 3D-vertical seismic surveys, to a large number of operators in the US oil and gas industry.

In order to facilitate the access of its customers to more industry-standard acquisition services, SR2020 undertook a major restructuring. It closed its Houston-based acquisition facility, which will allow SR2020 to partner with an acquisition company that provides mainstream acquisition equipment rather than SR2020's proprietary tubing-conveyed system. The customer response to date has been positive. However, time is needed to rebuild the sales base.

FY13 revenues are projected at approximately US$2 million, disappointingly below both budget and FY12 levels. As the Company's valuation of SR2020 is a function of its sales performance, the valuation of SR2020 has been reduced from US$14 million to US$8 million.

With the impending launch of extremely promising new processing and interpretation, including a proprietary micro-imaging technique, the Company is investigating options to refinance SR2020 in order to provide the growth capital that SR2020 needs to achieve its potential.

The Company owns 70 per cent of the share capital of SR2020. An employee share-option scheme, once fully vested, will own the balance of 30 per cent.

Tap issue

The Company raised the gross amount of US$2.1 million by issuing 707,228 preferred ordinary shares at US$3.00 per share in October. The Company now has 7,999,367 participating redeemable preference shares of the Company in issue.

Quorum Funding Corporation ("Quorum")

The claim by Quorum against the Company is proceeding through the Commercial Division of the High Court in London. The case has been set for trial in late March/early April 2014.

The Company took advice at the relevant time, and continues to take advice, from Norton Rose and leading counsel. The Board reiterates that it acted properly at all times in terminating the original investment management agreement

As announced on 22 October 2013, Quorum has served amended pleadings to withdraw the head of damages claimed that related to the future potential value of management share options. This element of the claim amounted to approximately US$9.2 million of the original amount claimed (approximately US$15.2 million, a figure subsequently increased to over US$17 million). As noted in the interim accounts, the Board was advised that, as a matter of English law, Quorum would fail to recover this head of damages.

Since then, witness statements have been exchanged. A review of the statements from QOGT has confirmed the view of the Board and its advisers that the claim by Quorum is entirely without merit. The Board continues to be advised that the calculation of a significant remaining part of the damages is speculative and far-fetched. The Company intends vigorously to defend itself through to trial.

Net Asset Value

At 30 September 2013, the Company estimates that the unaudited Net Asset Value per participating redeemable preference share was US$6.91 (30 June 2013: US$7.98). The Company held cash of US$1.3 million on that date.

The valuations of the Company's holdings in portfolio companies as at 30 September and 30 June 2013 are set out in the table below:

 
                               30 September 2013           30 June 2013 
--------------------------  -----------------------  ----------------------- 
 Company                     Valuation         % of   Valuation         % of 
                                (US$m)    portfolio      (US$m)    portfolio 
--------------------------  ----------  -----------  ----------  ----------- 
 Strata Energy Services 
  Inc                             36.9         75.5        36.9         67.2 
 Crest Energy Services 
  Ltd (+)                          4.0          8.2         4.0          7.3 
 SR2020 Inc (+)                    8.0         16.3        14.0         25.5 
--------------------------  ----------  -----------  ----------  ----------- 
 Investment portfolio 
  total                           48.9         100%        54.9         100% 
--------------------------  ----------  -----------  ----------  ----------- 
 (+) Valuations take account of full potential 
  dilution. 
 

For further information:

 
Investment Manager 
Linton Capital LLP 
David Sefton 
[e-mail]  Tel: [phone] 
 
 
Corporate broker 
Numis Securities 
Nathan Brown 
[e-mail]  Tel: [phone] 
 

Notes to editors:

International Oil and Gas Technology Limited

International Oil and Gas Technology Limited is an authorised closed-ended investment company incorporated in Guernsey that invests expansion capital into companies that provide technologies, services and/or processes to the upstream oil and gas industry. The Company 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 OGT.L.

Further information can be found at www.international-ogt.com.

This information is provided by RNS

The company news service from the London Stock Exchange

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