Announcement PDF RNS Number : 5995P Reabold Resources PLC 11 June 2020 11 June 2020 Reabold Resources Plc ("Reabold" or "the Company") Full Year Results for the year ended 31 December 2019 Reabold, the AIM investing company which focuses on investments in upstream oil and gas projects, is pleased to announce its audited results for the year ended 31 December 2019. 2019 Highlights: · · · · · · · · · £26.6 million raised before costs, primarily from institutional investors to support the Company's strategy Discovery at West Newton appraisal well operated by Rathlin Energy (UK) Limited ("Rathlin"), potentially the largest hydrocarbon discovery onshore UK since 1973 Further investment of, in aggregate, £17.0 million in Rathlin to increase Reabold's interest to 59.5% Significant gas discovery at Danube Petroleum Limited's ("Danube") IMIC-1 appraisal well with operator volumetrics increased to 20 billion cubic feet ("bcf") of Contingent Resources from 6.1 bcf of Contingent and 12.7 bcf Prospective Resources Further investment of, in aggregate, £3.1 million in Danube to increase Reabold's interest to 50.8% Two commercial oil discoveries on West Brentwood licence in California Proven reserves of 0.98 million barrels of oil equivalent ("boe") attributed to Reabold's net interest at West Brentwood, with associated value of US$19.3 million (NPV10), as at 1 August 2019 Two commercial oil discoveries on Monroe Swell licence in California Corallian Energy Limited ("Corallian") awarded five new licences by the Oil and Gas Authority ("OGA") as part of the 31st Offshore Licensing Round in the UK Highlights post period end: · · · · · Site works commenced for drilling of the West Newton B-1 well Additional commercial discovery on West Brentwood licence in California Opportunistic conditional acquisition of a direct 16.665% interest in the West Newton field from Humber Oil and Gas Limited ("Humber") for consideration of 350,000,000 new Ordinary Shares and £1.4 million in cash; taking the Company's effective economic interest in West Newton to circa 56.4% from 39.7% Secured additional liquidity in the form of a £5 million discretionary equity line cash facility to provide the Company with further financial flexibility and strength Cash assets of the Company as at the date of this report of £5.6 million Stephen Williams and Sachin Oza, co-CEOs of Reabold, said: "We are highly encouraged by the success we have had so far in the implementation of our strategy to invest in low-risk, high impact, upstream oil and gas projects. With a portfolio that contains interests in the Danube, Corallian and Rathlin prospects, all of which had appraisal campaign drilling in 2019, and the further drilling programmes in California following the success in the US to date, together with a number of other projects currently under review, the Board is confident that its shareholders can look forward to an exciting 2020 and beyond." For further information please contact: Reabold Resources plc Stephen Williams Sachin Oza c/o Camarco +44 (0) 20 3757 4980 Strand Hanson Limited (Nominated and Financial Adviser) James Spinney Rory Murphy James Dance +44 (0)20 7409 3494 Stifel Nicolaus Europe Limited - Joint Broker Callum Stewart Simon Mensley Ashton Clanfield +44 (0) 20 7710 7600 Whitman Howard Limited - Joint Broker Hugh Rich Nick Lovering +44 (0) 20 7659 1234 Camarco James Crothers Ollie Head Billy Clegg +44 (0) 20 3757 4980 Chairman's Statement The year ended 31 December 2019 has once again been a positive transformational period for Reabold Resources Plc ("Reabold" or the "Company") with significant progress achieved, as Sachin Oza and Stephen Williams, the Co-Chief Executive Officers, lead the Company and its subsidiaries (the "Group") in advancing our investment strategy in the oil and gas exploration and production ("E&P") sector. As an investor in upstream oil & gas projects, Reabold aims to create value from each project by investing in undervalued, lower-risk, near-term upstream oil & gas projects. This has been achieved through investments across our portfolio of assets in the UK, US and Romania. 2019 has seen multiple successes with the drill bit, the growth of profitable production in California, and the discovery of what is potentially the largest oil and gas field onshore UK since 1973. We have a fully funded, high impact work programme planned for the remainder of 2020 and we look forward to sharing the results of these key drilling and testing activities in the near term. The impact of Covid-19 on the oil and gas industry is undeniably dramatic. However, it is crucial to remember that the entire basis of the Reabold model is to invest in undervalued assets that would be able to deliver profitably under any reasonable oil and gas price assumption, are at the lower end of the industry cost curve and will be competitive against other sources of hydrocarbons. The Reabold portfolio is well positioned to not only survive through the Covid related downturn, but to continue to progress and expectedly thrive throughout 2020 and beyond. 2019 saw the drilling of eight wells across the Reabold portfolio, in California, Romania, the UK offshore and the UK onshore. Seven of these wells resulted in discoveries, resulting in considerable value creation for the Company and its shareholders. In California, two successful wells at West Brentwood in 2018 were followed by a pair of successful wells at the Company's other California oil asset, Monroe Swell. At the end of the year, Reabold and its partners returned to West Brentwood to drill the VG-6 well, opening up a new geological horizon at the field. All of these wells were subsequently put onto production. The Californian assets are characterised by low operating costs and continue to be cash generative amidst the lower oil price environment being experienced in 2020. In Romania, Reabold continued to increase its investment in Danube, reaching an equity position of 50.8%, having provided funding for two wells within the Parta licence. The first of these wells, IMIC-1, was successfully drilled in 2019 and resulted in a discovery ahead of expectations. The planned work programme for 2020 includes the testing of IMIC-1, the drilling of IMIC-2, and a carried seismic acquisition programme. We believe that Romanian natural gas will be an attractive market in which to be operating in the coming years, and remain optimistic about the opportunities for the growth of Danube going forwards. The early part of 2019 saw Corallian, in which Reabold has a 34.9% equity interest, conduct a two well drilling programme at Wick and Colter in the UK offshore. Wick was the riskiest well in the Reabold portfolio, being characterised as initial exploration as opposed to appraisal, and this well resulted in a dry hole. The second well saw a discovery made at Colter South, to which the Corallian management had attributed an estimated mean recoverable volume of 15mm bbls. The single most material event of 2019 for Reabold was the successful discovery at the West Newton A-2 well in the Humber valley, onshore UK. In 2018, Reabold made an investment into Rathlin, operator of the licence, in order to fund this well. The result was significantly ahead of expectations, with both the estimated volumetrics increasing significantly, as well as the emergence of a dominant oil component as opposed to the gas that had been expected. This asset has the potential to be transformational for the Company, and the well result led to the decision to invest a further, in aggregate, £17 million into Rathlin taking Reabold's interest to a 59.5% equity position. These proceeds will provide funding for two more wells to be drilled at West Newton, to further appraise the discovery and move towards monetisation. Capital reduction On 30 July 2019, the Company's shareholders approved the resolution for a capital reduction at Reabold's Annual General Meeting ("AGM"), which was subsequently approved by the High Court of Justice on 27 August 2019, and to cancel its share premium account. Accordingly, the amount standing to the credit of the Company's share premium account at that time was cancelled. The capital reduction has enhanced the Company's ability to return surplus capital, undertake share buybacks and pay dividends to shareholders in the future. Placings and joint broker appointment In October 2019, the Company was delighted to complete a very significant fund raising of £24 million (before expenses) through the issue of 2,666,666,666 new ordinary shares of 0.1 pence each in the capital of the Company ("Ordinary Shares") at a price of 0.9 pence per share, to support the Company's investment strategy, facilitating, inter alia, the £16 million further investment in Rathlin. This fund raising was led by Stifel Nicolaus Europe Limited, and we were delighted to announce their appointment as joint corporate broker to the Company on 1 November 2019. We were also pleased to complete in July 2019 a fund raising of £2.65 million (before expenses) through a placing of 240,909,091 new Ordinary Shares at a price of 1.10 pence per share for further strategic investment into the Company's portfolio. The Company was delighted by the support provided by institutional investors in the placings, and welcoming significant new institutions to the share register. Post reporting period On 26 May 2020, the Company was pleased to announce the opportunistic acquisition of an additional 16.665% interest in the West Newton field from Humber for the consideration of 350,000,000 new Ordinary Shares ("Consideration Shares") and £1.4 million in cash. On completion, Reabold's acquisition of Humber's 16.665% licence interest in PEDL 183 onshore UK, which holds the West Newton field, will increases the Company's effective economic interest in PEDL 183 from 39.7% (through its 59.6% equity investment in Rathlin, operator and 66.67% licence holder of PEDL 183) to approximately 56%. Reabold has signed a conditional Sale and Purchase Agreement ("SPA") to acquire Humber's interest in PEDL 183, with completion conditional upon, inter alia, approval of the transfer of Humber's interest in PEDL 183 to Reabold by the OGA. Pursuant to the SPA, Humber has agreed to a lock up over 66.67% of the Consideration Shares for a period of three months from the date of admission to trading on AIM of the Consideration Shares and an orderly market restriction for a further period of three months once the lock-in period expires. The Company's balance sheet is in a strong position with sufficient financial resources to meet its planned work commitments across its portfolio, including those following completion of the acquisition of Humber's stake. However, current macro circumstances underscore the benefit of ensuring sufficient financial flexibility is available, particularly ahead of a major drilling campaign such as that planned for West Newton this year. Reabold has therefore enhanced its liquidity position by securing a £5 million discretionary cash facility with Acuitas Capital, LLC ("Acuitas"). This discretionary cash facility is seen, by the Directors of the Company, as a prudent measure to provide increased liquidity without the need to dilute shareholders unduly by way of an equity fundraise whilst the share price significantly undervalues Reabold's portfolio due to the current low oil price environment and the Covid-19 lock-down. The cash facility is in the form of an Equity Line Agreement ("ELA") for a period of 24 months with Acuitas, whereby Reabold will have the right, at its sole election, but not obligation, to issue new shares in Reabold to Acuitas at a subscription price as determined under the ELA for an aggregate amount not exceeding £5 million. In consideration for making the ELA facility available, the Company paid Acuitas a £100,000 commission, satisfied by the allotment and issue of 16,351,625 new Ordinary Shares. For details on the terms and pricing mechanics of the ELA, please refer to note 30 to the financial statements. Outlook Whilst we face unprecedented challenges with the Covid-19 virus, the Company's financial position is strong and our investee companies fully funded for their 2020 work programmes. We look forward to reporting further in due course on the progression of our investee companies and take this opportunity to thank our shareholders for their continued support. This report was approved by the Board and signed on its behalf: Jeremy Edelman Chairman 10 June 2020 Strategic Report Business Model Reabold invests in the E&P sector. The Company's investing policy is to acquire direct and indirect interests in exploration and producing projects and assets in the natural resources sector, and consideration is currently given to investment opportunities anywhere in the world. As an investor in upstream oil & gas projects, Reabold aims to create value from each project by investing in undervalued, low-risk, near-term upstream oil & gas projects and by identifying potential monetisation plans prior to investment. Reabold's long term strategy is to re-invest capital made through its investments into larger projects in order to grow the Company. Reabold aims to gain exposure to assets with limited downside and high potential upside, capitalising on the value created between the entry stage and exit point of its projects. The Company invests in projects that have limited correlation to the oil price. The value realisation of a project is determined by monetising the asset (putting it into production or selling it). The entry price versus the monetisation price is determined, primarily by the derisking event of drilling. Reabold's non-operator model helps to keep costs low and facilitate a fully diversified portfolio. Reabold has a specific strategy to fund other operators' appraisal wells, assessed as high quality, high return projects that have been technically de-risked by previous drilling. The projects targeted have relatively quick cycle times to monetisation. In order to maximise the return profile, identifying the optimal time to exit a project is critical to Reabold's strategy. Doing so effectively will allow the Company to scale and attract more capital over time. Monetisation of investments depends on the extent of any success and market conditions, which are principally: i) an asset sale or IPO; and/or ii) putting the asset into production. Reabold has a highly-experienced management team, which possesses the necessary background, knowledge and contacts to carry out the Company's strategy. Management believes the current distress in the oil & gas industry presents an opportune time to deploy capital in undervalued assets with huge potential. Section 172(1) statement The revised UK Corporate Governance Code ('2018 Code') was published in July 2018 and applies to accounting periods beginning on or after January 1, 2019. The Companies (Miscellaneous Reporting) Regulations 2018 ('2018 MRR') require Directors to explain how they considered the interests of key stakeholders and the broader matters set out in section 172(1) (A) to (F) of the Companies Act 2006 ('S172') when performing their duty to promote the success of the Company under S172. This includes considering the interest of other stakeholders which will have an impact on the long-term success of the company. This S172 statement, which is reported for the first time, explains how Reabold's Directors: · · have engaged with employees, suppliers, customers and others; and have had regard to employee interests, the need to foster the company's business relationships with suppliers, customers and other, and the effect of that regards, including on the principal decisions taken by the company during the financial year. The S172 statement focuses on matters of strategic importance to Reabold, and the level of information disclosed is consistent with the size and the complexity of the business. General confirmation of Directors' duties Reabold's Board has a clear framework for determining the matters within its remit and has approved Terms of Reference for the matters delegated to its Committees. Certain financial and strategic thresholds have been determined to identify matters requiring Board consideration and approval. When making decisions, each Director ensures that he/she acts in the way he/she considers, in good faith, would most likely promote the Company's success for the benefit of its members as a whole, and in doing so have regard (among other matters) to: S172(1) (A) "The likely consequences of any decision in the long term" The Directors understand the business and the evolving environment in which we operate. As an investor in upstream oil & gas projects, Reabold aims to create value from each project by investing in undervalued, low-risk, near-term projects and by identifying potential monetisation plans prior to investment. In pursuing this objective, our focus is on minimising our emissions and footprint whilst continuing to positively contribute to the growing demand for energy and products that require hydrocarbons in the supply chain. The Directors recognise how our investment activities are viewed by different parts of society. Given the complexity of the energy sector, the Directors have taken the decisions they believe best support Reabold's strategic objectives, whilst meeting its environmental, social and governance obligations. More information on this can be found below within our Environmental, Social and Governance (ESG) Statement. S172(1) (B) "The interests of the company's employees" The Company during the reporting period and to date, had no employees other than the Directors. The Board recognises that Reabold employees, currently principally its executives, are fundamental and core to our business and delivery of our strategic ambitions. The success of our business depends on attracting, retaining and motivating employees. From ensuring that we remain a responsible employer, from pay and benefits to our health, safety and workplace environment, the Directors factor the implications of decisions on employees and the wider workforce, where relevant and feasible. S172(1) (C) "The need to foster the company's business relationships with suppliers, customers and others" Delivering our strategy requires strong mutually beneficial relationships with suppliers, customers, governments, and joint-venture partners. We aim to have a positive and enduring impact on the communities in which we operate, through partnering with national and local suppliers, and through payments to governments in taxes and other fees. The Group values all of its suppliers and aims to build strong positive relationships through open communication and adherence to trade terms. The Group is committed to being a responsible entity and doing the right thing for its customers, suppliers and business partners. Ultimately board decisions are taken against the backdrop of what it considers to be in the best interest of the long-term financial success of the Group and its stakeholders, including shareholders, employees, the community and environment, our suppliers and customers. We value our customer relationships and aim to work closely with our customers to develop and maintain strong relationships, and understand their evolving needs so that we can improve and adapt to meet them. More information on this can be found below within our Environmental, Social and Governance (ESG) Statement. S172(1) (D) "The impact of the company's operations on the community and the environment" This aspect is inherent in our strategic ambitions, most notably on our ambitions to thrive through the energy transition and to sustain a strong societal licence to operate. As such, the Board receives information on these topics to both provide relevant information for specific Board decisions. Executive Directors conducted site visits of various investee company operations and held external stakeholder engagements, where feasible. More information on this can be found below within our Environmental, Social and Governance (ESG) Statement. S172(1) (E) "The desirability of the company maintaining a reputation for high standards of business conduct" Reabold aims to achieve the production of hydrocarbons that meet the world's growing need for energy solutions in ways which are economically, environmentally and socially responsible. The Board periodically reviews and approves clear frameworks, such as Reabold's Code of Conduct, and specific Ethics & Compliance policies, to ensure that its high standards are maintained both within Reabold and the business relationships we maintain. This, complemented by the various ways the Board is informed and monitors compliance with relevant governance standards, help ensure its decisions are taken and that Reabold investee companies act in ways that promote high standards of business conduct. S172(1) (F) "The need to act fairly as between members of the company" After weighing up all relevant factors, the Directors consider which course of action best enables delivery of our strategy over the long-term, taking into consideration the impact on stakeholders. In doing so, our Directors act fairly as between the Company's members but are not required to balance the Company's interest with those of other stakeholders, and this can sometimes mean that certain stakeholder interests may not be fully aligned. Culture Whilst Reabold currently comprises a small team of people, the Board recognises that it has an important role in assessing and monitoring that our desired culture is embedded in the values, attitudes and behaviours we demonstrate, including in our activities and stakeholder relationships. The Board has established honesty, integrity and respect for people as Reabold's core values. Principal decisions We outline some of the principal decisions made by the Board over the year, explain how the Directors have engaged with, or in relation to, the different key stakeholder groups and how stakeholder interests were considered over the course of decision-making in this Strategic Report and also specifically in the Environmental, Social and Governance (ESG) Statement below. Environmental, Social and Governance (ESG) Statement Reabold is committed to preserving and protecting our natural environment for future generations. We conduct our business in a manner that respects the environment and addresses climate challenges. Our focus is on minimising our emissions and footprint whilst continuing to positively contribute to the growing demand for energy and products that require hydrocarbons in the supply chain. There is an increasing demand for energy in a growing global economy, and hydrocarbons will continue to play a critical role in meeting these needs, alongside renewables and other sources of energy for the foreseeable future. The International Energy Agency predicts a 30% increase in demand for hydrocarbons by 2040. The challenge is to meet the world's energy needs sustainably, which requires managing and reducing harmful emissions. Reabold actively encourages and expects its investee companies / operators of its oil and gas interests to respond to this by continuously striving to minimise the potential environmental impact of operations by: · · · · · · · Implementing controls to identify and prevent potential environmental risks Implementing controls during operations to avoid accidental spills, or leaks of polluting materials Managing water with due consideration Targeting high energy efficiency levels in drilling and other activities Limiting unnecessary wastage Handling waste products in an environmentally responsible manner Regularly assessing the environmental consequences of operations The operators have developed systems, controls and processes to integrate climate related considerations, in order to meet these objectives. Reabold complies with the applicable standards of the international oil industry, environmental laws and regulations. We recognise and support the basis of the Paris Agreement to strengthen the global response to the threat of climate change. Furthermore, extraction activities at sites in which Reabold is invested are significantly lower in carbon intensity than the industry average. Our growth strategy consists of expanding our existing asset base and to developing the world's limited but proven reserves of hydrocarbon fuels in the most efficient and sustainable manner possible. Reabold's assets are primarily small to medium sized, proven oil and gas fields at relatively shallow depth. As such, the intensity of drilling required is considered low relative to industry standards and we do not conduct energy intensive prospecting activities, reducing the impact on the environment. We continue to seek the most energy efficient drilling methods are utilised by the operators of our interests and as the energy mix evolves towards a higher percentage of renewables in the countries in which we operate (e.g. increasing wind power in the UK and Romania, solar in California), we anticipate a greater share of the energy consumption will be purchased from green sources. United Kingdom Our investee company sites in the United Kingdom are located close to areas with a high demand for energy. Consequently, we expect that hydrocarbons produced locally and consumed locally will displace imported hydrocarbons thereby resulting in lower carbon emissions overall. The carbon intensity of the UKCS has fallen by 16% since 2013 to 21,000 tonnes CO2/million boe. The industry needs to deliver production with an emissions intensity of 4,000 tonnes CO2e/million boe by 2050. We are committed to being part of the overall reduction in carbon intensity. California, USA Reabold's subsidiary US production sites are located in California, a state with very high renewable energy generation which feeds into the energy required for hydrocarbon extraction. By industry standards, our oil and gas activities require a very low level of energy to extract the hydrocarbons, ensuring it is one of the most energy efficient of its type in California. Romania Romania is in the midst of creating a more sustainable energy mix by transitioning away from coal fired generation and ageing nuclear plants towards renewable energy sources. However, during this transition period, the country needs indigenously sourced natural gas as a fuel to ensure the security of supply of energy. By developing and producing gas from the Parta site, Danube Petroleum Limited is able to contribute to the country's efforts to implement this energy strategy. Managing our environmental footprint and reducing our emissions are important objectives for Reabold Resources. We regularly review and revise our policies, as necessary. Reabold portfolio and operational annual summary Reabold California Following the successful drilling of Reabold's first well, VG-3 on the West Brentwood field in 2018, 2019 saw the drilling of a further four wells at the Group's Monroe Swell and West Brentwood licence areas, with considerable success as all four wells made successful discoveries. West Brentwood Licence Area: VG-4 Well On 3 January 2019 Reabold announced initial success at the VG-4 location at West Brentwood, which was a follow on to the VG-3 well in the same formation, the Second Massive. The well was drilled safely and within budget to a total depth of approximately 1,400 metres and had significant oil and gas shows in the targeted formation, with Halliburton wireline logging confirming the presence of pay. On 28 January 2019, Reabold was able to announce that the VG-4 well had tested at a rate above expectations. The well produced at a choked level of 480 barrels of oil per day ("bopd") and additionally averaged 742 thousand cubic feet per day of gas ("mscf"). Over a 19-hour period, the VG-4 well produced oil at rates as high as 1,029 bopd before being choked back and averaged 480 bopd. The cumulative oil produced was 371 barrels over the test period. The oil cut averaged in excess of 99.5%. On 16 April 2019, it was announced that the VG-4 well had been put onto production, at an initially constrained rate. The significant volume of gas produced, in addition to the oil, during the VG-4 test, meant that the well could not be produced at its full rate until a tie-in to a nearby gas pipeline had been completed. The decision was taken to put VG-4 onto production at a choked back rate, reducing gas production to an acceptable level, in advance of the completion of such a tie-in. VG-4 was at this time producing in a range of 150-250 bopd on a gross basis. On 20 May 2019 it was announced that VG-4 had been shut in following commencement of the work to complete the tie-in to the nearby gas pipeline to realise revenue from the gas production and to allow VG-4 to produce at less constrained rates. IMS was awaiting an Encroachment Permit from the California Division of Oil, Gas and Geothermal Resources required to complete the tie-in due to the proximity of the pipeline to a public road. Reabold earns 50% interest in West Brentwood On 26 July 2019, VG-4 was put onto permanent production, following a successful "hot tap" into the nearby gas pipeline infrastructure. Reabold California earned a 50% equity interest in the West Brentwood licence area on completion of the VG-4 well pursuant to Reabold California's earn-in agreement with Sunset Exploration, which, prior to VG-4, had a 100% equity interest in the West Brentwood licence. Permits for up to three additional wells at West Brentwood were also secured at this time, and given the success at VG-3 and VG-4, it was decided by Reabold, its JV partner Sunset Exploration, and contract operator IMS, to drill the third West Brentwood well around year end 2019. VG-6 Well Therefore, on 10 December 2019 drilling operations commenced at the VG-6 well, tar