Hague and London Oil PLC Full Period Results for 18 months (6177T)

TIDMHNL

RNS Number : 6177T

Hague and London Oil PLC

31 March 2016

Hague and London Oil PLC

("Company", "HALO")

Full Period Results for the 18 months ended 31 December 2015

Hague and London Oil PLC (AIM: HNL), the hydrocarbon exploration company, is pleased to announce its financial results for the 18 months ended 31 December 2015.

Highlights

Strategic

-- Integration complete following combination between Wessex Exploration and Hague and London Oil

   --    New management team defined a strategy for growth 
   --    Portfolio reviewed and restructured to focus on lower risk opportunities

-- Agreement to acquire Duyung PSC identified as a low-cost, low-risk opportunity in a buoyant South-East Asian gas market

Operational

-- Cost structure adapted to current environment, with a shift of operations to Holland enabling more efficient management and reduced costs

   --    New licence awarded in Bournemouth Bay (UKCS)

-- SC54A (Philippines) and Bournemouth Bay fully impaired as part of prudent management in current environment

   --    SADR licences extended to December 2020, for minimal lease maintenance costs

Financial

   --    Loss before taxation for 18 month period was GBP6.5m (12 months to June 2014: loss GBP6.9m) 
   --    GBP3.5m non-cash impact due to impairment of French Guyana costs 
   --    Cash position of GBP0.3m as at 31 December 2015

Post-period and outlook

   --    Near-term focus on progressing Duyung acquisition

-- Company is currently in active discussions to address near-term liquidity issues through a restructuring of its portfolio

-- Continued screening of opportunities, specifically in Holland, including pending application for offshore exploration licence in the F5 Block

   --    Strategy to pursue other opportunities in South-East Asia and Europe with low entry costs 
   --    Portfolio geared to emerge from the oil price downturn with a strong platform for growth

-- Maintain cost discipline through efficient management and careful screening of potential and current commitments

Andrew Cochran, Chairman and Interim CEO, commented:

"The past 18 months have been a transformational period for Hague and London Oil as we reshaped the business, both to make it resilient in the current environment and set it on a growth path as the markets recover. We have achieved significant progress in changing our cost structure, and most importantly in shifting our focus away from risky and costly ventures. HALO's new strategy is ambitious in its goal of becoming a well-diversified, sizeable and successful E&P business. We believe this will be achieved through a prudent approach to targeting those opportunities that are low cost, low risk and offer synergies within the company. This disciplined approach will set HALO apart as we invest in our future growth, by retaining corporate flexibility, capital control and strong strategic focus."

For further information please contact:

 
 
                                          +44 20 7520 
 Hague and London Oil PLC                 9268 
 Andrew Cochran, Chairman 
  and Interim CEO 
 Natalia Erikssen, IR/PR enquiries 
 
 Stifel Nicolaus Europe Limited         +44 20 7710 
  (NOMAD & Broker)                       7600 
 Michael Shaw / Ashton Clanfield

Chairman's Statement

The past year has been an important transitional period for Hague and London Oil (HALO). In fact the past year, with respect to these results, has actually been 18 months for HALO and straddles the time from which Wessex Exploration Plc (Wessex) became HALO. As part of the restructuring the Company chose to move its financial reporting to the calendar year and this period includes nearly six months prior to the merger. However, with the close of this 18 month period, Wessex has been fully transformed into a new and improved company named HALO.

The Board undertook, within the challenging market conditions, a number of strategic and operational steps to reorganise, rebrand, reposition and redirect the business during the course of 2015. Prudent and considered action by the Board has enabled HALO to not only survive but also take advantage of the opportunities that the current environment of sustained low commodity prices has created.

Following the, near unanimous, approval at the AGM in late 2014 Wessex Exploration changed its name to Hague and London Oil and carried out a 1 for 40 share consolidation of the entire issued Ordinary Share Capital. Shortly thereafter the Group appointed Stifel Nicolaus Europe Limited ("Stifel") as Nominated Adviser and Broker. The relocation of operational headquarters to The Hague, with lower operating costs and access to a wide pool of industry experts and advisers, completed the integration of HALO and Wessex.

The conditional agreement, which still remains subject to various Government approvals, to acquire a material interest in the Duyung Production Sharing Contract, offshore Indonesia, in the fourth quarter of 2015, was an example of HALO's opportunity identification and evaluation process. The proposed transaction would see HALO acquire 85% and the operatorship of Duyung from West Natuna Exploration Ltd, a private Singapore-based entity, who would retain a 15% stake. Duyung could represent a low-cost, low-risk opportunity for natural gas appraisal within the targeted area of energy-hungry Southeast Asia. Regardless, the process to date has created an opportunity for HALO to expand its scope in Southeast Asia beyond the Philippines.

Looking ahead the primary challenge for HALO with respect to Duyung will be to navigate the government approvals in a timely manner to support safe, responsible drilling operations in Duyung during 2016. If this is achieved the secondary challenge is that of the capital markets, or industry partners, supporting operations in Duyung in a value accretive fashion. The difficulties created by sector-wide conditions have seen a dramatic decrease in drilling and other related costs as well as greatly improving the availability of rigs and other related equipment. In addition to these operational benefits, and now independent of Duyung, there are considerable and expanding opportunities for further portfolio growth; however, our priority is to continue the same cost discipline we have followed to date and pursue only those opportunities which offer sufficient returns within manageable risk. This is an ongoing process and all opportunities, even within the existing (or pending) portfolio, are constantly measured against that which is now, or soon becoming, available.

Additionally, HALO was awarded a new licence for offshore exploration in Bournemouth Bay (otherwise known as Poole Bay) early in 2015. The licence (composed of three adjacent blocks) is operated by HALO with a 35% interest and partially surrounds the giant Wytch Farm oil field. The Company, along with adjacent operators, combined the collective 3D seismic dataset for reprocessing in a single, contiguous survey through pre-stack depth migration (PSDM) for the first time. The goal of this phase of exploration was to identify traps within the Wytch Farm migration fairway that had been overlooked to date due to the relatively poor quality of the individual 3D seismic surveys. The results of the PSDM volume will be interpreted during the course of 2016 and subsequent exploration plans will be based on this analysis.

We believe that, with the current state of capital markets and commodity prices and with many within the global oil and gas industry seeking a diminished pool of available capital, it is important for HALO to distinguish itself by our strategy and discipline. It is with these beliefs that our focus for new opportunities has been directed towards South East Asian and European opportunities, offering low entry cost which are close to infrastructure and in areas of strong local demand with robust natural gas prices. Opportunities such as Bournemouth Bay and Duyung offer low commitments but opportunities of significant scale that are economically viable in the current climate.

As oil prices fell a further 35% in 2015 it became evident that many assets in HALO's portfolio would be considered for impairment. While this is likely to be a common theme in the sector it has allowed HALO to concentrate its efforts and resources on the assets that make economic and commercial sense in the current environment. Additionally, HALO has decided to depart from highly speculative - and relatively high cost - ventures such as Juan de Nova. All other aspects of the portfolio are constantly reviewed, but 2016 carries with it very little commitments within the remaining portfolio.

Additionally, the Company has addressed costs aggressively. The establishment of operational headquarters in The Hague has created much flexibility in corporate overheads. Virtually all services sought in The Hague are lower cost than those of London with comparable quality. World-class engineering and geoscience services are available to HALO locally due to the presence of much larger companies also operating from The Netherlands.

We believe that, while capital is severely limited for oil and gas projects globally, HALO's strict capital discipline, corporate flexibility, clean balance sheet and low capital commitments create a unique opportunity to exploit the current market conditions that have left so many smaller independents and the broader oil and gas industry under acute pressure. At the same time we are also in active discussions to strengthen the Balance Sheet and provide ongoing working capital, via a potential restructuring of the portfolio.

Financial Review

Consolidated Income Statement

In the 18 month period to 31 December 2015, the loss before taxation was GBP6.5m (12 months to June 2014: loss GBP6.9m) and loss per share was 28.6p (12 months to June 2014: loss 38.0p).

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Administrative expenses for the 18 month period were GBP3.0m (12 months to June 2014: GBP1.9m) of which GBP1.8m represented actual cash administration costs, GBP1.2m being accounted for by impairment charges and other non-cash credits of GBP(0.2m).

Other non-cash items included GBP3.5m (12 months to June 2014: GBP5.0m) being the Company's share of the operating loss attributed to its indirect interest in the Guyane Maritime Joint Venture (JV). This included full impairment of costs related to the JV drilling campaign.

Consolidated Balance Sheet

In the consolidated balance sheet, for which HALO follows a Successful Efforts accounting policy, HALO has now fully written off the Guyane investment (2014: GBP3.5m) and Total Equity is GBP0.1m (2014: GBP5.3m).

At the end of December 2015, cash resources stood at GBP0.3m (2014: GBP1.9m). Looking forward, our project commitments for calendar year 2016 are minimal. As of the balance sheet date, HALO was holding 20% (2014: 63%) of its cash resources in US$.

Going concern

At 31 December 2015 the Group had cash balances of GBP0.3m and management forecasts indicate that it will require additional funds in 2016 to maintain sufficient cash resources for its current working capital needs over the next twelve months. The Directors are confident that they can raise sufficient funds from new or existing investors or from a restructuring of the portfolio, despite the current market conditions.

The Directors have a reasonable expectation that the Group will have adequate resources to continue operating for the foreseeable future and continue to meet its planned commitments and liabilities for at least twelve months from the date these financial statements have been approved. For this reason the Directors continue to adopt the going concern basis in preparing these financial statements.

Project Review

Indonesia

On 23 September 2015 HALO announced that it had entered into a conditional agreement to acquire a material interest in the Duyung Production Sharing Contract (PSC).

Southeast Asia was at the forefront of HALO's efforts during the second half of 2015 and is anticipated to continue as a focus area in 2016. As well as an intensified work program on development and economic scenarios, HALO has spent significant time in Indonesia working closely with the government on all requisite approvals to be able to drill an offshore appraisal well in Duyung in a safe and responsible manner. As a result of these discussions, HALO sought an extension to the drilling time period towards the end of 2015; approvals (including environmental permits) remain pending.

From an operational perspective, HALO has begun initial discussions along with its partner regarding rig-tendering processes and associated services for the drilling of an offshore appraisal well. Initial work has been encouraging with respect to rig availability and with well and test costs estimated to be significantly lower than previously budgeted for late in 2015. We see the market conditions in the upstream energy sector as providing opportunities that would not have been otherwise available. The Company continues to examine potential cost saving synergies where available in parallel with the permitting and approvals process.

HALO's current primary objective for early 2016 is the permitting and approvals process with the Government of Indonesia for the suggested Mako South-1X well. Whilst capital markets are challenging at present, with a much-reduced capital budget it is well within HALO's capabilities to raise finance for the provisional Southeast Asia work program for 2016, provided that all extensions, permits and approvals are received within time to support a safe and responsible drilling campaign.

We believe that HALO's initial screening process, which resulted in the conditional agreement to enter the Duyung PSC, will justify continued pursuits along a similar strategic arc where low-entry-cost opportunities with much upside potential, near infrastructure, are identified, evaluated and captured.

Philippines

The Company (through its wholly owned subsidiary HALO BV) holds a 15% interest in Service Contract SC54A in the NW Palawan Basin, offshore Philippines. The project holds a number of undeveloped oil discoveries with much remaining exploration potential. The joint venture sought, and was awarded, a three-year moratorium with respect to exploration activities in SC54A in August 2014. The project remains a key element of HALO's portfolio and the Company continues to review the potential for operations there during the moratorium period should commodity prices rise or service costs fall to ensure commerciality in the future. This is a low cost opportunity attracting little capital in 2016 unless the partners decide conditions support new activity there with three years remaining on the Service Contract.

A change in partners was announced in June 2015 following the divestment by Kairiki Energy to IMC Oil and Gas Investments Ltd of its entire 30.1% interest in SC54A. Other partners remained unchanged with Nido Petroleum (majority owned by Thailand's Bangchak Petroleum) (operator, 42.4%) and TG World (BV) Corp. (12.5%). However, the proposed acquisition by IMC indicates continued interest in the project.

Following careful evaluation of SC54A, the Board has taken the decision to fully impair the asset at the end of 2015. Although we see much remaining prospectivity, and potential commerciality of existing discoveries, in SC54A we believe that the prevalent oil price makes it imprudent to formally commit to a work program. We do however see the block as a highly prospective area which, in the event of an improvement in oil prices, would warrant a full re-evaluation and renewed activity prior to the end of the contract in the second half of 2018.

HALO, as Licence Administrator (i.e. Operator) of Promote Blocks 98/7b, 98/8a and 98/12 (northern part), holds a 35% interest through its wholly owned subsidiary Wessex Hydrocarbons Limited. Its partner, NWE Mirrabooka (UK) Pty. Ltd (a wholly owned subsidiary of ASX-listed Norwest Energy NL) has a 65% interest. These licences partially surround the giant Wytch Farm oil field off the coast of Dorset, Southern England.

The Company pooled its seismic data with adjacent operators in Bournemouth (otherwise known as Poole) Bay and fully reprocessed the combined data. This data was then interpreted as a single contiguous volume specifically to identify previously unidentified traps within the Wytch Farm migration fairway. This will be the focus of the work in 2016 and the partners, as well as adjacent operators, seek to mature prospects for future drilling.

After reviewing the Group's 35% interest in Bournemouth Bay (Licence P2265 (blocks 98/7b, 98/8a and 98/12) we have taken the decision to fully impair the licences. Given the current oil price, as well as the environmental sensitivity of the area, significant capital expenditures on these assets do not make commercial sense. HALO believes that with an improvement in the oil price and availability of capital these assets will warrant re-evaluation.

The Netherlands

The Company maintains its operational headquarters in The Hague, Netherlands. This has been an optimal location in which to manage most operational functions given the low costs and access to world-class services and advisers. During the course of 2015, HALO has examined potential upstream opportunities within the Netherlands.

HALO has existing exposure to Northwest Europe from its activities as Operator in Bournemouth Bay, UK. We have monitored activity in the Netherlands given the physical presence of technical and operating staff in the country. Additionally, there are tax efficiencies that could be realized through upstream activity in the Netherlands.

No decisions have been made with respect to any specific opportunity but HALO continues to review opportunities in the country and applied for an offshore exploration licence in the F5 Block in late 2015. That process remains ongoing, with uncertain outcome, but is consistent with the corporate strategy of the Company.

French Guyana

The Group holds a 44.11% interest in Northpet Investments Limited (Northpet), giving it a 1.103% beneficial interest in the Guyane Maritime Permit. The remaining interest in Northpet is owned by Northern Petroleum plc. Northpet holds a 2.5% interest in this Permit in partnership with Shell (operator, 45%), Tullow (27.5%) and Total SA (25%).

Following the full impairment of the asset at the end of 2014, HALO considered French Guyana to be non-core. Subsequently the Group has committed very little cost or resource to the asset and would expect to continue to do so. The joint venture is currently contemplating the path forward for the permit.

The joint venture budget for 2016 is minimal, with no major works planned while the future of the permit is being considered. French Guyana remains prospective, in the Company's opinion, given the expenditures to date and the relatively small portion of the licence having been explored with drilling. The focus in 2016 will be to review these under-explored areas of the licence.

Western Sahara (SADR)

Maghreb Exploration Limited (a wholly owned subsidiary of HALO) and Comet Petroleum (SADR) Limited (a wholly-owned subsidiary of Tower Resources plc) each hold a 50% interest in three licence blocks under Assurance Agreements in the SADR - Bojador, Guelta and Imlili.

In June 2015, HALO received confirmation from the authorities that all three licences have been extended to December 2020. The Company, and partner, plans only a care and maintenance budget in 2016 with very little, if any, capital committed. The blocks remain prospective with drilling having taken place in an overlapping claim permit in 2015. The well proved the existence of a hydrocarbon system and HALO watches the situation closely with respect to recent, renewed diplomatic efforts to resolve the political situation in Western Sahara during 2016.

East Africa

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The Juan de Nova Permit expired on 30 December 2013 and has been suspended since then awaiting determination by the French Authorities of the renewal application. HALO was disappointed at the lack of progress in the previous pursuit of the renewal of its Juan de Nova Permit with little progress having been made over the course of 2015. The Company is unlikely to pursue the renewal any further. A cost, risk and benefit analysis indicated that the Permit no longer fits within the portfolio and corporate strategy.

Consolidated Income Statement