NCE New City Energy

 
TIDMNCE 
 
 
   NEW CITY ENERGY LIMITED 
 
   Date of Announcement: 28/06/2016 
 
   RELEASE OF INTERIM REPORT AND FINANCIAL STATEMENTS 
 
   The Directors announce the release of the Interim Report and Financial 
Statements for the 6 months to 31 March 2016. 
 
   CHAIRMAN'S STATEMENT FOR THE SIX MONTHS TO 31 MARCH 2016 
 
 
 
   After such a severe rout in the Oil price during the year to 30 
September 2015, the six month period under review continued the same 
theme with the price of WTI (West Texas Intermediate) falling a further 
18.7% from US$45.48 per barrel at the end of September 2015 to US$36.94 
at the end of March 2016. Your Company's net asset value in total return 
terms was slightly down at -1.0% as the portfolio was defensively 
positioned. The ordinary share price (total return) was down by 0.1%, 
ending the period at a discount of 28.1%. 
 
   The investment managers have done a good job in ensuring the fund has 
weathered the storms affecting the energy sector. Their report on the 
following pages notes that the oil price has risen since the end of 
March to nearly US$50 per barrel at the time of writing and production 
cuts appear to be happening. Gearing in the Company has increased to 8 
per cent after the reporting date and we have seen increased activity 
from the unquoted proportion of the portfolio. 
 
   The Board took the difficult decision at the end of 2015 to reduce the 
level of dividends to an annual 1.0 pence per share payable as to 0.25p 
per quarter. We believe that this level is sustainable in the current 
environment. 
 
   I would like to thank Shareholders for continuing to support the Company 
and for ensuring that the annual Continuation Vote was passed at the 
Annual General Meeting in March. The Board and the investment management 
team look forward to achieving better returns for Shareholders in the 
months and years to come. 
 
   David Norman 
 
   Chairman 
 
   June 2016 
 
   INVESTMENT ADVISER'S REPORT FOR THE SIX MONTHS TO 31 MARCH 2016 
 
 
 
   The Energy sector has had a difficult six months to the end of March 
2016 due to excessive supply as OPEC removed its production quota 
restriction, led by Saudi Arabia's unwillingness to absorb rising global 
output from Iraq, Russia and North America, compounded by the untimely 
shift in US policy allowing crude exports for the first time in 40 
years. Souring Middle Eastern relationships, which have traditionally 
boosted oil's risk premium, was more recently outweighed by increased 
regional production as warring Sunni and Shia factions pump more to fund 
campaigns in Syria, Iraq and Yemen. Crude sold off into the turn of the 
year as global growth expectations declined, before subsequently rising 
30% from January lows to reach $41.34 per barrel at the half year end. 
Prices have been surprisingly resilient in the face of OPEC failing to 
agree production quotas at the previous three meetings. Our belief 
remains that Saudi-Iranian tensions are central to the lack of accord 
within the OPEC cartel as Iran, following the relaxation of US sanctions 
in January, seeks to restore its national output to former levels. 
Iranian production has subsequently recovered approximately 1 million 
barrels, reaching pre-sanction output levels. 
 
   Against this backdrop the actions of commercial US producers, often 
cited as a responsive industry segment likely to contribute 
significantly to restoring market balance, have received considerable 
investor focus. The 44.6% fall in the US rig count during the six month 
period led to a decline of 74,000 barrels per day, although at the time 
of writing output has fallen by a further 277,000 barrels per day. This 
reflects action by North Americas' overly indebted operators, including 
integrated multinationals, to make aggressive capex cuts and sell 
non-core asset sales to defend their credit ratings and equity 
dividends. 
 
   However, at the time of writing crude prices have pushed higher, briefly 
exceeding US$50 per barrel, due to the impact of the Canadian Wild fires 
on oil sands production, disruption to Libyan exports and attacks on oil 
infrastructure in Nigeria. A recovery in production from these regions 
may now act to depress prices. Further, after crude's price recovery 
there is now some evidence that US production may follow suit evidenced 
by news that drilled-but-uncompleted wells are now being brought on 
stream. With equities still discounting approximately US$65 per barrel, 
valuations of many operators appear unattractive. As a result the fund 
also retained minimal gearing over this period, and exposure is 
concentrated on companies that can operate profitably at a lower oil 
price. 
 
   Longer-term, delays to large, costly, long-lead projects will limit 
future supply with current global demand projections indicating the 
emergence of deficit conditions in 3-5 years time. We expect the more 
responsive, shorter lead time U.S. shale producers will be best placed 
to take advantage. While some U.S. operators have retrenched into the 
shale market we believe producers may undertake further cycle of M&A 
aimed at competitive on-shore, shale production. Meanwhile oil demand 
remains healthy, with EIA and IEA revising up their production 
expectations to 1.5 million & 1.4 million barrels year-on-year. This is 
largely driven by US demand and strong growth from China, committing to 
continued growth of its Strategic Petroleum Reserve. 
 
   Over the period the fund took positions in Amerisur, a low cost producer 
in Colombia which may benefit from improving margins and cash flow 
generation as completion of a new pipeline reduces transportation cost. 
The fund also reduced its exposure to UK shale as the low oil price 
added to concern on their competitiveness versus US peers, whilst adding 
to high yielding Crude shipper Euronav, due to benefiting from increased 
seaborne trade as OPEC production replaces declining US and Chinese 
crude supply. The fund reduced its exposure to private companies 
following the sale of Canadian International Oil Corp to Riverstone and, 
at the time of writing, the imminent listing of Francais De L'Energie. 
 
   The Fund holds an Antares convertible bond which went into 
administration in April. The investment is a holder of acreage in the 
Permian Basin in Texas. While we are of the view that the Company will 
receive the full nominal value back for the bonds, as we believe the 
Company's core assets exceed the bond, we have reduced the investment 
carrying value to 73% of the nominal value to reflect the timing 
uncertainty of this process. 
 
   Robert Crayfourd, Keith Watson and Ian Francis 
 
   New City Investment Managers 
 
   June 2016 
 
   For further information please contact: 
 
   Craig Cleland - New City Investment Managers - 0207 201 5368 
 
   Lisa Neil - R&H Fund Services (Jersey) Limited - 01534 825 336 
 
   Interim Report and Financial Statements: 
http://hugin.info/140891/R/2023669/751911.pdf 
 
   This announcement is distributed by NASDAQ OMX Corporate Solutions on 
behalf of NASDAQ OMX Corporate Solutions clients. 
 
   The issuer of this announcement warrants that they are solely 
responsible for the content, accuracy and originality of the information 
contained therein. 
 
   Source: New City Energy Ltd via Globenewswire 
 
   HUG#2023669 
 
 
 
 

(END) Dow Jones Newswires

June 28, 2016 10:54 ET (14:54 GMT)

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