Columbus Energy Resources PLC Business, Operational and Financial Update Q4 2018 (5609M)

TIDMCERP

RNS Number : 5609M

Columbus Energy Resources PLC

09 January 2019

9 January 2019

COLUMBUS ENERGY RESOURCES PLC

("Columbus" or the "Company")

Business, Operational and Financial Update - Q4 2018

Columbus, the oil and gas producer and explorer focused on onshore Trinidad with the ambition to grow in South America, is pleased to provide an update on business, operational and financial activities during Q4 2018.

Following the announcement by the Company of the completion of the acquisition (the "Acquisition") of Steeldrum Oil Company Inc ("Steeldrum") on 8 October 2018, the Company incorporated Steeldrum's business performance into Columbus' accounts with effect from 13 July 2018, the effective date of the Acquisition.

Key Highlights in Q4 2018:

Strategic and operational

-- Year-end target of peak production of 1,000 barrels of oil per day ("bopd") achieved with production peaking at 1,021 bopd in late December 2018 (Q3 2018: 879 bopd).

-- Average production of 670 bopd (Q3 2018: average of 735 bopd). Average production was adversely affected by extreme weather conditions, with record rainfall and extensive flooding witnessed during the period, severely hampering both routine operations and incremental well work.

-- Integration of the Steeldrum assets and personnel into Columbus successfully completed with the new Trinidad organisation allowing more effective use of our operational and administrative personnel. Columbus now operates six fields in Trinidad: Goudron, Inniss-Trinity, South Erin, Bonasse, Snowcap and Icacos.

-- Safe and successful appraisal of the Snowcap-1 & Snowcap-2 wells on the Cory Moruga block, resulting in initial oil production of 70 bopd (which contributed to the peak production volume).

-- In December 2018, the Company formally completed the Icacos transaction (the purchase of 50% of the Icacos field from Primera Oil and Gas Limited). This included transfer of operational management of the Icacos field to the Company.

-- The Company continues to pursue M&A opportunities both in Trinidad and South America that are value accretive for Columbus shareholders with several formal proposals under consideration by the relevant parties, such opportunities consistent with Company's strategy roadmap.

Financial

-- Average realised sales price from operations in Q4 2018: US$57.58/bbl (US$60.90/bbl in Q3 2018) - peaking at US$69.04/bbl in October 2018 and reducing to around US$50/bbl in December 2018.

-- Gross Revenues of US$3.23 million achieved (Q3 2018: US$3.85 million) - reduction due to lower average production and lower oil price achieved over the quarter.

-- Cashflow positive position maintained from operations delivering an estimated US$0.37 million after taking account of field maintenance and well workover campaign during Q4 2018 costing US$0.77 million.

-- Successful GBPGBP2.5 million (gross) capital raise, US$1.25 million used to repay the outstanding loan to North Energy in late November 2018.

   --     Cash balance of US$2.60 million at 31 December 2018 (30 September 2018: US$1.97 million). 
   --     US$0.48 million of additional funds also held in escrow as restricted cash. 

-- Debt outstanding reduced to US$0.40 million at 31 December 2018 (US$0.48 million at end September 2018).

Outlook

-- Following the Steeldrum acquisition, the focus of the Company in Trinidad is to optimise cashflow and profits from our six assets. This is possible given the differing commercial/licencing structures associated with each asset. Greater cashflow returns and profits can be achieved by producing more barrels in certain fields, when compared to others, due to higher netbacks from sales. The Company will target profit over "production per se".

-- Operational teams are continuing to implement newly identified opportunities to increase cashflow from operations across the expanded Columbus portfolio, all well activities to be funded from production revenues and available cashflow. This includes further appraisal activities on the recently re-activated Snowcap field to determine how best to monetise this asset.

-- Group is forecast to remain operationally cash flow positive despite the recent international oil price reductions, with operational profits forecast to cover all Group costs in Q1 2019.

-- Good progress made with Predator Oil & Gas plc ("Predator") on their planned CO injection pilot project on Columbus's Inniss-Trinity field to commence in 1H 2019. As operator of the field, Columbus is working with Predator to help deliver a successful project and views this as a win/win opportunity for both parties.

-- Technical work, using external specialists, is continuing to mature the optimal drilling locations for the South West Peninsula ("SWP") exploration programme, with commencement of drilling activities still planned for mid-2019 onwards.

Leo Koot, Executive Chairman of Columbus, commented:

"The past three months has been very challenging as we sought to complete the integration of the Steeldrum and Columbus teams in Trinidad into one effective unit, whilst also striving to grow production across our expanded portfolio. With the recent appraisal of the Snowcap field and the transfer of operating management of Icacos, Columbus is now operating six fields onshore Trinidad. This provides us with many competing options to increase operational cashflow and also reduces our reliance on just one or two fields for our cashflow streams.

"All of our activities in Q4 2018 were undertaken at a time when Trinidad was witnessing the worst weather conditions in many years with record rainfall and resultant floods which impacted the lives of many. These conditions severely hampered our operations on a number of occasions, in particular gaining access to our wells which needed operational support to maintain production. In many instances, roads were flooded and impassable. This also had a knock on effect on our rig campaigns to increase production. That said, our operational and support teams performed admirably in very difficult circumstances and our back-up power-generation facilities, installed over the past year, ensured operations were maintained when grid electrical power was lost due to the weather conditions.

"I am therefore delighted to report that, despite these challenges, we successfully achieved our year-end target of 1,000 bopd of peak production, with all six fields in Trinidad contributing growing volumes of oil for sale. Achieving a peak of 1,021 bopd was an excellent achievement. We will now focus on a level of production within that figure that will allow us to high-grade our operations and well activities to achieve better financial results, focussing on a level of production that optimises profits ("better bang for our buck"), as opposed to chasing production targets per se. The newly integrated organisation appears to be working well, with staff and contractors coming up with creative ideas on where we can grow cashflow further in the months ahead.

"Another key focus in the next six months will be the ongoing technical and commercial preparations for the planned drilling campaign in the South West Peninsula, which we plan to commence mid-2019. Work continues to identify the optimal drilling locations and to help reduce risk and increase the chance of success. I remain hugely excited at the opportunity presented by the SWP exploration portfolio which could be transformational for the Company in 2019, given the known prospectivity which exists in the SWP.

"We have also been very active on pursuing M&A opportunities in Trinidad and other South American countries and are continuing discussions with a number of third parties. We are working hard to find the right deal that is value accretive for Columbus's shareholders.

"In summary, our newly integrated operational team and our supporting contractors in Trinidad have faced many challenges in Q4 2018 but have proved the production potential and profitability of our six fields. I look forward to progressing the various opportunities we have in the coming months and hope 2019 can be a year of real transformation for Columbus."

DETAILED INFORMATION

STEELDRUM ACQUISITION:

The acquisition of Steeldrum Oil Company Inc was completed on 8 October 2018. Through this acquisition, Columbus now has three additional exploration and production blocks, consisting of the Inniss-Trinity block, the South Erin block and the Cory Moruga block. The acquisition has also bolstered the local talent of Columbus with the strong human resources from Steeldrum being assimilated into Columbus. Upon the closing of the Steeldrum transaction, Columbus has been able to restructure and rationalize the organizational staffing structure of the respective entities which shall lead to significant savings in operational costs. The closing of this transaction has also facilitated Columbus to continue with its strategy to explore and exploit the vast onshore potential of the SWP in Trinidad.

OPERATIONS:

Production performance

Year-end target of peak production of 1,000 bopd achieved with production peaking at 1,021 bopd in late December 2018 (Q3 2018: 879 bopd).

Average production of 670 bopd (Q3 2018: average of 735 bopd).

Production was adversely affected by extreme weather conditions, with record rainfall and extensive flooding witnessed during the period, severely hampering both routine operations and incremental well work. The Company encountered significant road access difficulties, in many instances, roads were flooded and impassable. This had a knock on effect on our rig campaigns to increase production. That said, our back-up power-generation facilities, installed over the past year, ensured operations were maintained when grid electrical power was lost due to the weather conditions.

Operating Strategy:

The Trinidad based wellwork team are focused on active daily optimisation of the 100 plus active wells in the producing fields and implementation of piloting field specific enhanced oil recovery projects including water injection, CO injection and thermal techniques. Rig wellwork is optimised based on short term commercial return in the five producing fields and focussed appraisal on the Snowcap discovery.

Goudron:

Rig and non-rig wellwork focus is based around low-cost repeat stimulation jobs on higher potential wells, pump optimisation and baseline protection workovers as well as continuing to implement missed pay perforation opportunities. The GY-677 successful perforation in the Goudron-Mayaro sands in December 2018 added instantaneous oil rates of over 70 bopd.

The Water Injection Pilot A implementation that commenced in July 2018 through injection into GY-667, showed evidence of direct pressure communication with target offset production well GY-665. The second Pilot A injection well GY-209 is ready for conversion to injection in Q1 2019 with the target of supporting well GY-664. To date, the cumulative total of water injected into Goudron is over 201,946 barrels.

Innis-Trinity:

Higher production peaks were achieved through a combination of swabbing and well reactivation work during the quarter.

The planned implementation in 1H 2019 of the Innis-Trinity CO injection pilot with Predator made additional progress with the submission of the Certificate of Environmental Compliance documentation in December 2018 and presentation of the technical submissions to Petrotrin and the successors in Heritage Oil Company. As operator of the field, Columbus is working with Predator to help deliver a successful project and views this as a win/win opportunity for both parties.

Cory Moruga Block - Snowcap Appraisal:

The reactivation of the Snowcap-1 well was initiated in December 2018 following receipt of confirmation of the existing Cory Moruga License status from the Ministry of Energy and Energy Industries. The well was placed on pumped production towards the end of December 2018 following over 3 years of shut-in status. The initial objective of the reactivation is to establish maximum oil rates from the well and understand the source of water production observed during the 2015 flow periods.

The Snowcap-2 well was perforated in late December 2018 to allow appraisal of two potential hydrocarbon layers downdip from the Snowcap-1 well. The well is to be placed on pumped production to confirm the hydrocarbon potential of the well with initial oil presence indications being established following perforation.

South Erin:

Two non-rig jobs were performed, including one reactivation on shut-in well ER-102 as the start of the extension of successful Goudron field stimulation techniques to the other fields in the portfolio.

Two remedial sand production related rig workovers were performed in October on the main field production well ER-105 restoring sand-free production from the well to 40 bopd.

Drilling planning of an ER-105 compartment well was progressed with this to be undertaken in Q1 2019.

Bonasse:

Oil and water separation challenges were overcome during the quarter through optimisation of chemical treatment of the produced fluids allowing a number of discrete oil sales in December 2018 with sales receipts being in US Dollars.

A steam perforation wash was conducted on Bonasse-5 during December as a precursor to evaluating thermal recovery potential in the field. Bonasse-8 continued to yield intermittent stop-cock production allowing a rig workover to place this well on pump to be planned during the upcoming quarter. Infill well drill options were reviewed by the subsurface team with a view to inclusion in an upcoming drilling campaign.

Icacos:

The assumption of field management of the Icacos Field and license was agreed with Primera Oil and Gas Limited following completion of the Sale and Purchase Agreement on 20 December 2018.

Optimisation work was managed in December on the field in the form of a wax removal steam wash on Icacos-2. Columbus subsidiary Leni Trinidad Ltd will assume full responsibility for the field during 1Q 2019.

HEALTH, SAFETY & ENVIRONMENT ("HSE"):

No Lost Time Incidents were recorded during the quarter on any of the field operations. The increased wellwork activity, with up to four workover rigs in simultaneous operation and the challenging weather conditions which resulted in significant road access difficulties, were successfully managed by the integrated HSE team.

Integration of the Columbus and Steeldrum HSE systems was initiated and is a priority in 2019.

The Certificate of Environmental Compliance submission for the planned Innis-Trinity CO injection pilot facilities was prepared and lodged with the Environmental Management Authority in the quarter.

Preparation for activation of the Columbus owned CESL-1 workover rig was progressed with mobilisation of the rig to the Goudron Field to complete the final work that will allow certification of the rig by the authorities.

SOUTH WEST PENINSULA ("SWP"):

Technical work is continuing to mature optimal drilling locations for the SWP exploration programme, with commencement of drilling activities planned for mid-2019 onwards. Drilling is to be funded from existing cash resources or through partnering with appropriate third parties. Exploration success in the SWP could be transformational for the Company, given the known prospectivity which exists in the SWP and the commercial terms associated with any discovery.

SPAIN:

In Q4 2018, the Company's Spanish subsidiary, Compañía Petrolifera de Sedano S.L.U. ("CPS") received notification from the Spanish Government that it should commence the decommissioning of the Ayoluengo field. As previously announced, the Company was expecting the Spanish Government to re-tender the La Lora Concession and indeed had been waiting for the re-tender process to commence since January 2017. No reasons were given by the Spanish Government for the decision not to re-tender the La Lora Concession and the Company is working with the Spanish authorities on agreeing a decommissioning plan which it will commence in 2019 using local staff and expects this decommissioning programme to continue for some two to four years.

The Company already carries sufficient provision in its accounts for decommissioning costs. There are various assets on site, including equipment, and these will be moved to, and utilised in, the Trinidadian operations or sold to offset any such costs. No material cash expenditure is expected to be made by the Company in relation to the decommissioning of the La Lora Concession.

UN-AUDITED Q4 2018 FINANCIAL SUMMARY:

-- Gross Revenues of US$3.23 million achieved (Q3 2018: US$3.85 million) - reduction due to lower average production and lower oil price achieved over the quarter.

-- Average realised sales price from operations in Q4 2018: US$57.58/bbl (US$60.90/bbl in Q3 2018) - peaking at US$69.04/bbl in October 2018.

-- Cashflow positive position maintained from operations delivering an estimated US$0.37 million after taking account of field maintenance and well workover campaign during Q4 2018 costing US$0.77 million.

-- Capex of US$0.18 million incurred in Q4 2018 (Q3 2018: US$0.17 million). Main cost focus in Q4 2018 has been on field optimisation and workover activities (see above).

-- M&A costs of US$0.26 million in Q4 2018, including US$0.23m relating to the BOLT completion process and US$0.03 million as part of the Steeldrum completion process.

-- Successful GBP2.5 million (gross) capital raise completed following approval for the placing at a General Meeting on 2 November 2018. Net proceeds from placing (after fees) was GBP2.38 million (approximately US$3.0 million). From the capital raise, US$1.25 million was used in late November 2018 to repay the outstanding loan to North Energy Capital AS which was inherited as part of the Steeldrum transaction.

-- Cash balance of US$2.60 million at 31 December 2018 (30 September 2018: US$1.97 million) after full repayment of North Energy loan in late November 2018 and inclusion of US$0.54 million for oil sales made in November 2018.

-- US$0.48 million also held as restricted cash at 31 December 2018, these payments made in Q3 & Q4 2018 to address legacy Performance Bond and abandonment fund requirements in Trinidad.

-- Lind Partners loan position: Loan balance reduced to US$0.40 million at end December 2018 (US$0.48 million at end September 2018) with all monthly repayments made in cash during quarter. Due to the above-mentioned capital raise, the Company has not drawn-down any funds from the US$3.25 million Lind Partners facility (the "2018 Lind Facility"), announced on 13 July 2018 alongside the announcement of the Steeldrum acquisition. The 2018 Lind Facility was established by the Company as a form of "financial insurance policy" and terminates in early January 2019 if funds are not drawn-down.

M&A ACTIVITIES:

The Company has looked at a number of opportunities, both in Trinidad and South America, and made a number of formal proposals, some of which are still under consideration by the relevant parties. The Company is actively pursuing transactions that are value accretive for Columbus' shareholders.

This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.

Qualified Person's statement:

The information contained in this document has been reviewed and approved by Stewart Ahmed, Technical Director (Trinidad), for Columbus Energy Resources plc. Mr Ahmed has a BSc in Mining and Petroleum Engineering and is a member of the Society of Petroleum Engineers. Mr Ahmed has over 33 years of relevant experience in the oil industry.

Contact Information

 
 Columbus Energy Resources plc 
  Leo Koot / Gordon Stein                    [phone] 
 VSA Capital Limited 
  Financial Adviser and Broker 
  Andrew Monk / Andrew Raca                  [phone] 
 Beaumont Cornish Limited 
  Nominated Adviser 
  Roland Cornish / Rosalind Hill Abrahams    [phone] 
 Camarco 
  Public and Investor Relations 
  Georgia Edmonds / James Crothers           [phone] 
 

Notes to Editors:

Columbus Energy Resources Plc is an oil and gas producer and explorer focused on onshore Trinidad with the ambition to grow in South America. The Columbus Energy group has five producing fields, one appraisal/development project and a highly prospective exploration portfolio in the South West Peninsula ("SWP"), which lies in the extreme southwest of Trinidad and consists of stacked shallow and deep prospects. Columbus is cashflow positive and aims to create transformational growth by developing its portfolio in a capital efficient and disciplined manner.

Columbus is guided by the following core values; safe and sustainable, stronger together, creative excellence, positive energy, totally trusted and personally responsible.

The Company is led by an experienced Board and senior management team with supportive shareholders and intends on leveraging its expertise and experience to build an attractive and diversified portfolio of assets across South America in order to build an oil production led South American exploration business.

To find out more, visit www.columbus-erp.com or follow us on Twitter @Columbus_ERP.

Glossary

 
 "bopd"    Barrels of oil per day 
 "BWPD"    barrels of water per day 
 "LTI"     Lost Time Incident 
 "mmbbl"   Million barrels of oil 
 

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January 09, 2019 02:00 ET (07:00 GMT)