Columbus Energy Resources PLC Q1 Business, Operational and Financial Update (1910K)

TIDMCERP

RNS Number : 1910K

Columbus Energy Resources PLC

09 April 2018

9 April 2018

COLUMBUS ENERGY RESOURCES PLC

("Columbus" or the "Company")

Q1 Business, Operational and Financial Update

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 Q1 2018.

Leo Koot, Executive Chairman of Columbus, commented:

"Our vision is to create a Company with a strong and sustained production base, providing a foundation of steady cashflow to allow Columbus to create further growth elsewhere. In Q1 2018 we delivered value growth production, we delivered solid cashflows, and we delivered the South West Peninsula ("SWP") transaction on improved terms, all of which positions the Company to move onto the next stage of exciting growth opportunities through exploration and M&A activities. We are confident that the SWP, which contains multiple mapped prospects each ranging in size from 20-400 mmbbls, has the potential to deliver transformational growth over the next 18 to 24 months.

"The growth of the production base in Goudron is not without its challenges. In January, production was lower than our target due to a testing and monitoring phase. For the remainder of Q1 2018, successful well treatments led to the Company "Base Case" being consistently met with occasional peaks of production reaching or exceeding the "High Case" targets. The Company has worked hard to increase the Company's possible production capacity and continues to work on legacy and new technical challenges to unlock the full benefit of this increased capacity.

"Our 2018 work programme is fully funded from production revenues and available cash and we continue to increase production in a responsible and efficient manner at Goudron, alongside progressing activities on the SWP with the reactivation of the Bonasse oilfield and further analysis of the 3D seismic and other data to identify our first prospect to be drilled, potentially in H1 2019.

"An active M&A market exists in Trinidad and elsewhere in South America providing a number of acquisition opportunities. We are working hard to grow our footprint and are focused on completing at least one value accretive material acquisition in 2018."

Key Highlights in Q1 2018:

-- Good progress made delivering Columbus's strategy roadmap of being cash flow positive from operations and providing a good foundation for creating value though production growth.

-- Successful SWP re-negotiation on materially improved terms consolidating Columbus's acreage position in an attractive basin which includes multiple mapped prospects, each ranging in size from 20-400 mmbbl.

-- Solid production base within 2018 guidance, despite technical challenges, delivering steady cashflow and base for future growth:

o Q1 peak production of 627 BOPD, above the "High Case" target of around 600 BOPD for February 2018.

o Following a testing and monitoring phase during January 2018 in the Goudron field, production has consistently met or exceeded the Company's "Base Case" targets.

o Average production per month as follows: January 427 BOPD; February 541 BOPD, March 542 BOPD.

   --      Cashflow positive position maintained from operations delivering US$0.70 million. 

-- Continued focus on capital discipline with cash balance of US$4.1 million as at the end of Q1 2018 and outstanding loan balances reduced to US$0.96m.

-- Legacy issues addressed including the BOLT transaction, official closure of the La Lora Concession in Spain and implementation of Goudron Field production optimisation well work programme and operational, facility and process improvements designed to improve production and operational performance.

Outlook

   --      All planned 2018 activities fully funded from production revenues and available cash. 
   --      On track to deliver full year production guidance. 

-- Reactivation of production from the Bonasse field has commenced with a workover rig to be on-site for production enhancement well-work in the coming weeks.

-- Continuing to work actively on a number of acquisition opportunities using the following strict investment screening criteria which is not exclusive: onshore; operatorship, easy export routes, mature oil provinces in the Caribbean or South America; close to infrastructure; funded in a manner which is accretive for Columbus' current shareholders.

DETAILED INFORMATION

Growth Opportunities - South West Peninsula ("SWP"):

In March, the Company announced that it had successfully restructured the BOLT transaction, on materially improved terms. The intent behind the original BOLT transaction was to gain access to the potential hydrocarbon resource in the SWP. The Company continues with that intent and now has access to a large area (approximately 8,700 acres) in the SWP including multiple mapped prospects, each ranging in size from 20-400 million barrels in place. The transaction is a clear fit with the Company's strategy to build a core exploration, appraisal, development and potentially significant production hub in the SWP.

A summary of the key commercial terms of transaction (in comparison with previous BOLT transaction) are as follows:

 
 Commercial Terms          New Transaction               Previous BOLT Transaction 
------------------------  ----------------------------  -------------------------- 
 SWP Rights -              100% rights through           100% rights until 
  access to lease           new wholly-owned              Feb. 2019 through 
  for up to 28              Company subsidiary            BOLT company, new 
  years                     for upfront consideration     27-year lease extension 
                            of US$0.375m                  for BOLT from Feb. 
                                                          2019 (not yet secured) 
------------------------  ----------------------------  -------------------------- 
 Bonasse Field             100% operational              Operational control 
                            control                       through BOLT acquisition 
------------------------  ----------------------------  -------------------------- 
 BOLT loan adopted         Nil                           US$ 1.1m principal 
  and payable by                                          (plus interest) 
  the Company 
------------------------  ----------------------------  -------------------------- 
 Upfront consideration     US$0.53m - upfront            US$0.18m 
  to Seller and             consideration 
  Petrotrin payable         has effectively 
  by the Company            fallen by approx. 
                            60% (when BOLT 
                            loan taken into 
                            account) 
------------------------  ----------------------------  -------------------------- 
                           3% only after 
 Royalty (or equity)        10m barrels produced, 
  payable to Seller         US$1.25m pa cap              7.5% 
------------------------  ----------------------------  -------------------------- 
 Deferred consideration    US$0.5m upon development      No deferred consideration 
  payable to Seller         of any field other 
                            than Bonasse Field 
------------------------  ----------------------------  -------------------------- 
 BOLT Ownership            No ownership -                Columbus owned 
                            25% current equity            25% of BOLT with 
                            relinquished                  agreement to acquire 
                                                          remaining 75% as 
                                                          part of transaction 
------------------------  ----------------------------  -------------------------- 
 Future drilling           Approx. US$15k                No drilling bonuses 
  bonuses to Singh          upon spud of each 
  Estates                   of first 3 deep 
                            wells 
------------------------  ----------------------------  -------------------------- 
 Future Development        Approx. US$30k                No development 
  Bonus to Singh            on approval of                bonuses 
  Estates                   Development Plan 
                            arising from new 
                            discovery 
------------------------  ----------------------------  -------------------------- 
 Lease royalty             0%                            10% from first 
  2019-2020                                               oil, no cap 
------------------------  ----------------------------  -------------------------- 
 Lease royalty             10%, US$2m pa                 10% from first 
  2021-2026                 cap                           oil, no cap 
------------------------  ----------------------------  -------------------------- 
 Lease royalty             12.5%, US$2m pa               10% from first 
  2027-2045                 cap                           oil, no cap 
------------------------  ----------------------------  -------------------------- 
 Lease royalty             After 2 years                 On first oil 
  timing 
------------------------  ----------------------------  -------------------------- 
 

The up-front considerations in 2018 are payable from available cash in accordance with the 2018 Budget. The Company plans to undertake further analysis of the good quality 3D seismic and other data on the SWP, with the first well potentially being drilled, subject to satisfactory technical analysis, in the first half of 2019.

A new dedicated operational team is being established to work on the Bonasse oilfield. Shortly after signing the SWP deal, the Company has reactivated the Bonasse oilfield and is planning further well reactivation work, with a workover rig commencing activities in the coming weeks. All works have been budgeted for in the 2018 Budget.

Goudron Performance Enhancements:

The Company has continued to implement a programme of Goudron Field production optimisation wellwork aimed at low cost oil production gains, whilst simultaneously growing the field operations crew numbers and capabilities in a cost-efficient manner. This has been accompanied by the implementation of operational, facility and process improvements designed to improve production and operational performance:

-- The Goudron Field crew has been reorganised into three functional operations: (a) Goudron Baseline Protection; (b) Well Interventions; and (c) Water Injection teams.

-- Core staffing has been strengthened through integrating key contract personnel such as the sales Battery Station Operators into the core Baseline Protection Team and additional recruitment into the Water Injection team.

-- The wellwork programme has focussed on low cost existing well optimisation with the successful Q4 2017 campaign continuing into Q1 2018. This programme has the added benefits of establishing well integrity ahead of potential water injection operations. All Goudron Field wells are targets for such activities and 8 jobs have been successful in increasing oil rates in Q1 2018.

-- The well-optimisation programme has resulted in some successful oil increment wells responding with increased sand production which the conventional rod pumps are not designed to handle efficiently. This prohibits consistent achievement of the "High Case". Resolving solids management in successful well stimulations represents the main technical challenge to the Goudron Field 2018 incremental production initiative. The Company has recruited additional Petroleum Engineering expertise in Trinidad and is working with artificial lift and sand control suppliers to develop effective solutions to improve post well intervention sand clean-up.

-- The wellwork programme has also targeted the re-start of previously shut-in wells to increase oil and produced water availability. A 7 well programme has been completed in Q1 2018 targeting increased field production of 1,000 BWPD. This has now been achieved, allowing additional volumes to be available for the water injection pilot work.

-- Field facilities improvements continue including the installation of an additional back-up electrical generator which now allows 100% coverage of Goudron production wells during the frequent external power outages. Additional in-field flow-lines using reclaimed production tubing have been installed to distribute water for the injection and well stimulation programmes. These practical, low-cost solutions are aimed at improving production uptime, enhancing water injection pilot operational efficiency and reducing incremental wellwork costs.

Solid production base delivering cash flow:

In January 2018, the Company undertook a testing phase to allow for a better understanding of the reservoir and to plan for an increase in incremental production. Due to wells being taken offline for injection trials and monitoring, there was a period of lower production compared to the Company's "Base Case" target.

During the remainder of Q1 2018 the monitoring continued and successful well treatments led to the Company "Base Case" being consistently met with occasional peaks of production reaching or being greater than the "High Case". This has increased the Company's possible production capacity, however the Company has continued to work on legacy and new technical challenges in order to unlock the full benefit of this capacity.

Production in Q1 2018 was as follows:

   --      January oil production: average of 427 BOPD.  Base target: 501 BOPD 
   --      February oil production: average of 541 BOPD.  Base target: 506 BOPD 
   --      March oil production: average of 542 BOPD.  Base target: 542 BOPD 

-- Peak production: 627 BOPD, demonstrating High Case potential is achievable as legacy and technical issues continue to be addressed.

The Board remains confident that the Company will achieve its end of year forecasted cumulative production volumes. The Company notes that it has established a solid, production base that is cash flow positive. This allows the Company to maintain its capital base and reinvest cashflow profits to grow the business. Whilst some production challenges remain, including sand control, profitable day to day operations from the Goudron field (with 2P reserves of 11.8 mmbbl) provides a robust platform for future growth through either the SWP assets and/or M&A activity.

Goudron Waterflood Campaign:

Water injection emphasis in Q1 2018 has concentrated on injection interference testing in the Goudron Mayaro sandstone in the vicinity of the GY-254 well. Daily injection of available water has been achieved using the newly commissioned produced water re-injection facilities with offset production well monitoring through downhole memory gauges and active Echometer based fluid level monitoring.

GY-669 injection was discontinued in January after pressure monitoring results indicated a limited connectivity with offset C sand production point GY-670. Support for GY-670 remains a high potential injection target and other offset existing well locations are being reviewed to assess their potential support to this well which when initially completed in December 2014 delivered 1,100 BOPD.

The Company is continuing with water injection on a daily basis and is constantly reviewing the effect on production and where water injection can best be deployed to increase production.

Spain:

In Q1 2018, the Company largely closed-out legacy issues associated with the La Lora Concession in Spain and is ready to participate in any re-tender process for the Ayoluengo oil field initiated by the Spanish Authorities.

The re-tender is expected in Q2-3 2018.   The legacy issues were addressed as follows: 
   --      Completion in January of various dismantling works of old infrastructure. 
   --      Formal extinction of the La Lora Concession in March. 

-- Completion in March of a Collective Dismissal Process ("CDP") under Spanish law affecting 14 employees. The CDP process was completed on time and the final cost was consistent with the relevant budget approved by the Board. The costs were met from currently available funds. The final cost to the Company of the CDP was approximately EUR410,000 with ongoing costs to maintain the field on a care and maintenance basis reducing to approximately EUR15,000 per month instead of EUR60,000 per month.

Health, Safety & Environment ("HSE"):

The Company passed a 400,000 manhours without a LTI in February 2018 following another accident free quarter. Total field manhours in 2017 was 101,879 and the milestone signifies over 3 years since the last LTI. A reorganisation of the Company HSE structures has been undertaken to reflect the new challenges of the Goudron Field increase in wellwork, facilities and water injection operations activity. This has included a renewed emphasis on risk identification and management as well as recruitment and training. The operational implementation of water injection that commenced in Q4 2017 has moved the Goudron Field away from discharging produced water and allowed a focus on increased field crew competencies.

Strong cash position, fully funded 2018 work programme:

Un-audited Q1 2018 Financial Results Summary

-- Cash flow from operations in Q1 2018: US$0.70 million operating netback achieved after payment of operating costs, workovers and well interventions, royalties and SPT.

-- Cash in hand: US$4.1 million at 31 March 2018, after full payment of the EUR0.41 million (US$0.504 million) CDP costs to employees in Spain.

-- Average realised sales price from Goudron operations in Q1 2018: US$58.41 per barrel (peaking at US$60.68 per barrel in January).

-- Gross Revenues during Q1 2018 of US$2.64 million, all monies received by the Company in Q1 2018 from Petrotrin before month-end.

-- Special Petroleum Tax ("SPT") now payable in Trinidad with realised sales oil price consistently above US$50 per barrel. Royalties and SPT in Q1 2018 charged at equivalent of US$24.78 per barrel on Goudron field.

   --      Capex:  Total capex of US$0.86 million incurred during quarter. 

-- Lind Partners loan position: Loan balance reduced to US$0.96 million at end March 2018, US$0.4 million of loan repayments made to Lind in Q1 2018 in cash as per Budget. Loan repayments will be reduced to US$0.04 million per month by the end of July 2018.

-- All planned activities, business costs and liabilities in 2018 in Trinidad, Spain and London, including loan repayments, will be fully funded from production revenues and available cash, as per the approved 2018 Budget.

No new fund-raises are planned in 2018 by the Company at this time, although the Company continues to examine new business opportunities and funding possibilities for those opportunities with various external parties. The Board has committed that any future fund-raising, to support any new business opportunities, will be seen to be accretive for all of the Company's shareholders. "Accretive" in this respect means that any equity or other form of funding to support a transaction/s needs to be clearly seen to increase shareholder's value, not reduce that value through dilutive fund-raising.

Issue of Shares:

In order to conserve the Company's cash resources, the Company agreed last year with its financial adviser & broker VSA Capital Ltd and one of its consultants Anthony Hawkins Consulting GmbH, to receive part of their fees in shares instead of cash. Pursuant to these agreements, approximately 1.3m of the Company's shares fall to be issued for services provided from July 2017 to February 2018. These shares, which were calculated using the volume weighted average share price of the Company for the 30 days prior to the first day of each month in which services were provided, will be issued shortly and the market will be updated accordingly.

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, Managing 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 32 years of relevant experience in the oil industry.

Contact Information

 
 Columbus Energy Resources plc          [phone] 
  Leo Koot / Gordon Stein                9230 
 VSA Capital Limited 
  Financial Adviser and Broker 
  Andrew Monk / Andrew Raca / Justin    [phone] 
  McKeegan                               5000 
 Beaumont Cornish Limited 
  Nominated Adviser 
  Roland Cornish / Rosalind Hill        [phone] 
  Abrahams                               3396 
 Camarco 
  Public and Investor Relations         [phone] 
  Georgia Edmonds / James Crothers       4983 
 

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. Initially focussed on maximising production from its core Goudron field asset, Columbus is cashflow positive and aims to create transformational growth by developing its exploration targets across its portfolio in the South West Peninsula ("SWP"), which lies in the extreme southwest of Trinidad and consists of stacked shallow and deep prospects, 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 
 

This information is provided by RNS

The company news service from the London Stock Exchange

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April 09, 2018 03:25 ET (07:25 GMT)