Publication of Annual Report and Notice of AGM

Source Company Press Release
Company ADM Energy plc
Tags Corporate: Corporate Results, Overview/Strategy, Country: Nigeria
Date June 30, 2020

ADM Energy plc (AIM: ADME), an oil and gas investing company quoted on AIM, announces its audited full year results for the year ended 31 December 2019.

OML 113 Investment Highlights

·    Aje Field asset in OML 113 continued to perform well:

o  Oil is being produced at a stable rate from two wells in the Aje Field (Aje-4 and Aje-5ST2)

o  Two wells achieved a total produced volume of 890,203 barrels of oil in 2019

o  Combined average barrels of oil per day from the two wells of 2,967 bopd (148 bopd net to ADM)

o  Field Development Plan for the Turonian Aje gas project is in the initial planning stages with the partners, aimed at tripling production to 9,000 bpd

o  An increase in reserves outlined by the Competent Person's Report updated in April 2019

·    Aje partnership fully paid the $9.8m licence renewal fee, securing a 20-year extension of the OML 113 licence

Financial and Corporate Highlights

·    Revenue was £2.5m (2018: £3.1m)

·    Loss after tax £1.7m (2018: £1.0 loss)

·    Successfully raised additional equity of £2.0 million in three fundraisings in 2019

·    Strengthened Board and Management team with the following appointments:

o  Osamede Okhomina as CEO in July 2019

o  Peter Francis as Non-Executive Chairman and Manuel Lamboley as Non-Executive Director in October 2019

Post Period

·    In February 2020, entered into an agreement with EER (Colobos) Nigeria Limited to increase its revenue interest in OML 113 from 5% to 9.2%, significantly increasing ADM's net 2P reserves from 8.9 MMboe to 16.4 MMboe, expected to complete in Q3 2020  

·    Signed MoU in February 2020 with Trafigura Pte Ltd for strategic alliance to develop investment opportunities in the African energy sector

·    OML 113 operational costs reduced by 37.5% - break even reduced to US$28 per barrel

·    In H1 2020, raised £250k in two fundraisings for working capital and converted £152k of debt to equity

·    In June 2020, added dual listings on the Berlin and Frankfurt stock exchanges to support growth and broaden investor base

Osamede Okhomina, CEO of ADM Energy, stated: "2019 was an important year to lay the foundation for our growth strategy which is focused on highly accretive 2P reserves assets in West Africa along with our quality producing asset at the Aje Field. We have made excellent progress at Aje with operations continuing largely uninterrupted despite COVID-19. We reached an agreement to increase our stake from 5% to over 9%, brought break even costs down to $28 per barrel, and with plans to triple production from 3,000 bpd to 9,000 bpd in 2021 and thus  we believe  we  have set an excellent foundation upon which to drive our  growth strategy expand our investment portfolio.  "

COVID-19 has undoubtedly had a big impact on global markets, but as economies re-open around the world we are beginning to see an upturn in oil prices from previous lows, our strategy firmly  remains to increase 2P reserves and production, ADM is well positioned to take advantage of the recovery. Furthermore, as upstream majors continue to seek exit strategies in West Africa, greater opportunities are emerging at low and attractive valuations, even more so in the current macro environment.

"In addition, ADM shares were recently admitted to trade on the Frankfurt and Berlin Stock Exchanges, which will further increase the visibility of ADM Energy's shares in continental Europe and enable us to build relationships with a wider group of new investors, this dual listing is intended to compliment, our main quotation which is on the AIM Market of the London Stock Exchange where our core investors trade."

Operating Review 

ADM has continued to pursue its strategy as an oil and gas investing company and is focused principally on its investment in Nigeria, the Aje Field, where the two wells within block OML 113 have continued to produce at very steady rates with limited decline. 

With a focus on West Africa and a quality oil producing asset offshore Nigeria, ADM has an aggressive growth strategy to increase shareholder value by acquiring undervalued 2P reserves without the risks associated with high cost exploration. The Board and management team evaluate investments at various stages of the production cycle focused on appraisal, development and producing assets where the risk factor is significantly reduced. New opportunities are continuously being evaluated in order to expand the portfolio of the Company.

Aje Field

The Aje Field in OML 113 offshore Nigeria is an oil producing asset which is rich in gas and condensate reserves. It is strategically located 24km offshore Lagos where it benefits from increasing local energy demand, particularly for gas which is viewed as a replacement fuel for diesel and commands a premium. The field is also within close proximity to the West African Gas Pipeline which presents a potential opportunity for gas monetisation in neighbouring countries such as Benin and Togo.

In February 2020, the Group entered into an agreement with EER (Colobos) Nigeria Limited, subject to completion, to increase its revenue interest in OML 113 from 5% to 9.2%. Upon completion, ADM's net 2P reserves will increase from 8.9 MMboe to 16.4 MMboe with net daily reserves, based on current production, rising from 148 barrels of oil per day ("bopd") to approximately 273 bopd. 

Operations

Oil continues to flow at a stable rate from the two producing wells, Aje-4 and Aje-5ST2. Annual net production in 2019 totalled 890,203 barrels of oil (2018: 1,200,000 barrels). The reduction was caused by both routine maintenance work on the floating production storage and offloading facility ("FPSO") and significant equipment upgrades on the gas lift modules in the second half of the year. Average bopd was 2,967 (2018: 3,100 bopd), of which 148 bopd was net to ADM (2018:155 bopd).

In 2019, the joint venture partners successfully reduced operating costs to mid-US$30 per barrel. In light of the unprecedented macro conditions post period, the partners successfully reduced operational and maintenance costs by 35%, and FPSO lease costs by 40%. As a result, the breakeven cost of production decreased to US$28 per barrel, while operations have continued largely uninterrupted. The Directors anticipate a recovery in crude oil prices in Q3-Q4 2020 and production is therefore currently being stored on the FPSO, which has up to 755,808 barrels of storage capacity, in order to benefit from a positive forward curve in the oil price. 

Field Development Plan

A new Field Development Plan for the Turonian Aje gas project is in the initial planning stages with the joint venture partners. By drilling three wells in 2021, the partners intend to triple daily production of oil and gas liquids from 3,000 bpd to 9,000 bpd and thereafter develop the dry gas which could be supplied to the Lagos market and sold to the West Africa Gas Pipeline.

In Q4 2019, PetroNor acquired a 12.2% revenue interest in OML 113 (subject to completion) and formed a special purpose vehicle with the operator, Yinka Folawiyo Petroleum, to focus on the revitalisation and further development of the Aje Field. PetroNor brings renewed impetus to the project, adding technical expertise and de-risking the execution of the Field Development Plan.

Updated CPR: Aje Recoverable Oil Reserve

In April 2019, the Company received an updated Competent Person's Report ("CPR") completed by AGR Tracs International Limited ("AGR TRACS") which updated its previous CPR with the production data from May 2016 to 31 December 2018 from its two producing wells. The CPR reported that 2P Proven and Probable Reserves showed an increase from 127.1 MMboe gross to 138.2 MMboe gross.

Corporate Development and Strategy

The Group restructured its Board and management team in 2019 to take advantage of the substantial oil and gas opportunities being made available across Nigeria and West Africa. Osamede Okhomina was appointed as CEO in July 2019, bringing his expertise and contacts with a track record of originating, structuring and closing deals across Africa.  Then in October 2019, Peter Francis, whose background years of experience with the oil majors strengthens the Group's position in negotiations with them, was appointed Non-Executive Chairman, and Manuel Lamboley, a seasoned Swiss financier, was appointed as a Non-Executive Director. The Group will look to maximise and leverage the experience and network these high-calibre appointments bring to the Group's stated growth strategy of acquiring highly accretive 2P reserve assets. The Board is confident that their industry expertise and experience will accelerate the Group to its next phase of growth. 

By leveraging its extensive network across Africa, the new management team has identified a number of investment opportunities. This includes assets from both IOC divestment programmes and the Nigerian government's Marginal Oil field round. The Group is continuing to evaluate new potential investments in assets at varying stages of the production cycle focusing on appraisal, development and producing assets. These asset types are preferable as they offer significant investment returns with a decreased level of geological risk. ADM has also actively engaged in conversations with a number of parties including potential funding partners, off-takers and local project partners to further support the Company in the development of its asset portfolio.

A key development in the Group's phased growth strategy has been the strategic partnership signed with Trafigura in February of 2020. The new management team agreed a memorandum of understanding with the multi-billion dollar global trading house to provide up to US$100 million in approved project finance and up to US$20 million of convertible loan notes. This endorsement with such a high-profile partner has given the Group confidence to evaluate and acquire highly accretive assets as well as making progress on the new Field Development Plan at Aje.

To date, the Group has made its first highly accretive acquisition under new management: the increased stake in OML 113, which it expects to complete in Q3 2020. Guided by its strategy of purchasing producing and near-term production assets, the Group is in negotiations with multiple other parties as it seeks low-risk, highly-accretive assets.

Post Period Event

As announced on 25 June 2020, the Group added dual listings on the Berlin and Frankfurt stock exchanges to support its growth and enable ADM to broaden its investor base and create new demand centres for the Group's shares. As a result, the Company is in a strengthened position to withstand the current market uncertainties and grow its investment portfolio in the year ahead.   

Financial Review

Results and Dividends

For the year ended 31 December 2019, the Group's revenue decreased by 19% to £2.5 million (2018: £3.1 million). The loss after taxation increased to £1.7 million (2018: £1.0 million loss). The Directors do not propose a dividend (2018: £nil). As of 12 June 2020, the Group had cash and cash equivalents of £200,000 with access to a further £100,000 from a new loan facility (31 December 2019: £15,000; 31 December 2018: £216,000). 

Funding

During the period, the Group raised additional equity of £2.0 million in three fundraisings. In April 2019, the Group raised £680,000, before expenses, through a subscription for general working capital purposes. In August, the Group raised c.£500,000 gross from a placing with Pello Capital Limited and PrimaryBid offer, and a further £832,000 gross from a conditional subscription by Zark Capital Limited ("Zark") and other investors in September 2019. 

Post period, On 27 April 2020, the Group announced a loan facility of £200,000 before expenses, a £50,000 equity subscription by certain Directors and the conversion of £152,000 of debt to equity.

Going Concern

Since the year end, the Group has raised additional equity funding of £50,000 and has agreed a loan facility of £200,000 to provide for its immediate working capital requirements and converted £152,000 of debt to equity, and the Directors have prepared cashflow forecasts for twelve months following the date of approval of these financial statements to assess whether the use of the going concern basis of their preparation is appropriate. In the short term, the Group will require further additional funding in order to meet its liabilities as they fall due. The Directors have taken into consideration the level and timing of the Group's working capital requirements and have also considered the likelihood of successfully securing funding to meet these needs. In particular, consideration has been given to ongoing discussions around further third-party investment and the extent to which these discussions are advanced both in respect of short and longer term funding. The Directors acknowledge that while they have an expectation that funding will be secured based on this assessment, at the date of approval of these financial statements, no such funding has been unconditionally committed. Therefore, as disclosed in Note 2, while the Directors have a reasonable expectation that the Group has the ability to raise the additional finance required in order to continue in operational existence for the foreseeable future, the uncertainty surrounding the ability and likely timing of securing such finance indicates that a material uncertainty exists that may cast significant doubt on the Group's ability to continue as a going concern. Were no such funding to be secured, the Group would have no realistic alternative but to halt operations and prepare its financial statements on a non-going concern basis.

Annual Report and Accounts and Notice of Annual General Meeting ("AGM")

The Company will shortly be publishing its Annual Report and Accounts including a Notice of AGM. These will be made available on the Company's investor relations website at admenergyplc.com. The AGM is to be held at 11.00 am on Wednesday 29 July 2020 at the offices of at the offices of Shakespeare Martineau LLP, 60 Gracechurch Street, London, EC3V 0HR.

In light of Government's advice surrounding social distancing, it has become necessary to restrict physical participation at the AGM in line with our Articles of Association and current guidance and legislation. Shareholders will still be able to ask questions by email ahead of the meeting. As such, we invite Shareholders to submit any questions in advance of the AGM. Any specific questions on the business of the AGM and Resolutions can be submitted ahead of the AGM by e-mail to [email protected] (marked for the attention of the Company Secretary).Shareholders who wish to vote are strongly encouraged to submit their votes by proxy as soon as possible and, in any event, by no later than at 11:00 a.m. on 27 July 2020.

COVID-19 and Outlook

COVID-19 represents an unprecedented global public health emergency which has impacted many aspects of our daily lives and which ADM hopes to see resolved quickly. The primary concern and focus for the Company is the health and safety of its employees, contractors and other stakeholders.

The Company has taken action to cut costs at both the FPSO Front Puffin operating level and at Headquarters, including reductions in Director pay. This has put ADM in a position to withstand market uncertainties with cash reserves to enable safe operations through to the end of 2020.

While COVID-19 has had a devastating impact globally including oil markets, as economies begin to re-open oil prices are beginning to recover from their recent lows. With the Company's strategy to increase oil and gas reserves and production, ADM is well positioned to take advantage of the recovery. In addition, as oil majors continue to look to divest assets, attractive opportunities are emerging at depressed valuations, even more so in the current macro environment.

Production at the Aje Field asset continues at a stable rate, with progress in the Field Development Plan for 2021 reiterating the near-term potential of the oil and gas field. Based on the current performance of wells Aje-4 and Aje-5ST2, the Group is confident of the commercial viability of further development, and this is further supported by the abundance of reserves as well the very low geological risk associated with the Aje Field. This asset provides the Group with the a very stable base from which to build a wider portfolio of highly accretive assets and take advantage of current market conditions to aggressively build up production and reserves at an attractive price.

Group Income Statement and Statement of Comprehensive Income

For the year ended 31 December 2019

    2019  2018 
      *Restated 
    £'000  £'000 
       
Continuing operations       
       
Revenue    2,519  3,127 
       
Operating costs    (2,444)  (2,356) 
Administrative expenses    (1,721)  (1,739) 
       
Operating loss    (1,646)  (968) 
       
Finance costs    (27) 
       
Loss on ordinary activities before taxation    (1,673)  (968) 
       
Taxation   
       
Loss for the year    (1,673)  (968) 
Other Comprehensive income:       
Exchange translation movement    (272)  401 
Total comprehensive income for the year    (1,945)  (567) 
       
Basic and diluted loss per share:       
From continuing and total operations    (3.8)p  (5.0)p 
       

*The 2018 comparative figures have been restated as a result of a change in accounting policy, adopted retrospectively, as explained in note 2. 

Group and Company Statements of Financial Position
as at 31 December 2019

    GROUP  COMPANY 
    2019  2018  2019  2018 
      *Restated     
    £'000  £'000  £'000  £'000 
           
NON-CURRENT ASSETS           
Intangible assets    15,708  16,106 
Investment in subsidiaries    14,983  14,738 
    15,708  16,106  14,983  14,738 
           
CURRENT ASSETS           
Investments held for trading    200  200  200  200 
Trade and other receivables    562  29  562  29 
Cash and cash equivalents    15  216  15  216 
    777  445  777  445 
           
CURRENT LIABILITIES           
Trade and other payables    1,555  1,643  1,331  1,104 
    1,555  1,643  1,331  1,104 
NET CURRENT LIABILITIES    (778)  (1,198)  (554)  (659) 
           
           
NET ASSETS    14,930  14,908  14,429  14,079 
           
EQUITY           
Share capital     8,817  8,499  8,817  8,499 
Share premium    34,012  32,833  34,012  32,833 
Shares to be issued    150  150 
Reserve for options granted    172  172 
Reserve for warrants issued    720  783  720  783 
Currency translation reserve    (617)  (345) 
Retained deficit    (28,152)  (27,034)  (29,270)  (28,208) 
Equity attributable to owners of the Company and total equity    14,930  14,908  14,429  14,079 
           

*The 2018 comparative figures for the Group have been restated as a result of a change in accounting policy, adopted retrospectively, as explained in note 2.

Group Statement of Changes in Equity

For the year ended 31 December 2019

  Share  capital  Share premium  Shares to be issued  Reserve for options granted  Reserve for warrants issued  Exchange translation reserve  Retained deficit  Total equity 
            *restated  *restated  *restated 
  £'000  £'000  £'000  £'000  £'000  £'000  £'000  £'000 
At 1 January 2018  8,389  31,533  172  783  (746)  (25,932)  14,199 
*Adjustment (see note below)  (134)  (134) 
At 1 January 2018 (restated)  8,389  31,533  172  783  (746)  (26,066)  14,065 
Loss for the year  (968)  (968) 
Exchange translation movement  401  401 
Total comprehensive expense for the year  401  (968)  (567) 
Issue of new shares  110  1,390  1,500 
Share issue costs  (90)  (90) 
At 31 December 2018  8,499  32,833  172  783  (345)  (27,034)  14,908 
Loss for the year  (1,673)  (1,673) 
Exchange translation movement  (272)  (272) 
Total comprehensive expense for the year  (272)  (1,673)  (1,945) 
Issue of new shares  318  1,322  150  299  2,089 
Share issue costs  (143)  21  (122) 
Share options lapsed  (172)  172 
Share warrants lapsed/cancelled  (383)  383 
                 
At 31 December 2019  8,817  34,012  150  720  (617)  (28,152)  14,930 

*The 2018 figures for "Exchange translation reserve", "Retained deficit" and "Total equity" have been restated as a result of a change in accounting policy, adopted retrospectively, as explained in note 2.

Company Statement of Changes in Equity

For the year ended 31 December 2019

  Share  capital  Share premium  Shares to be issued  Reserve for options granted  Reserve for warrants issued  Retained deficit  Total equity 
  £'000  £'000  £'000  £'000  £'000  £'000  £'000 
               
At 1 January 2018  8,389  31,533  172  783  (26,588)  14,289 
Loss for the period and total comprehensive expense  (1,620)  (1,620) 
Issue of new shares  110  1,390  1,500 
Share issue costs  (90)  (90) 
               
At 31 December 2018  8,499  32,833  172  783  (28,208)  14,079 
Loss for the period and total comprehensive expense  (1,617)  (1,617) 
Issue of new shares  318  1,322  150  299  2,089 
Share issue costs  (143)  21  (122) 
Share options lapsed  (172)  172 
Share warrants lapsed/cancelled  (383)  383 
               
At 31 December 2019  8,817  34,012  150  720  (29,270)  14,429 

Group and Company Statements of cash flows

For the year ended 31 December 2019

          GROUP        COMPANY 
    2019  2018  2019  2018 
      *Restated     
    £'000  £'000  £'000  £'000 
           
OPERATING ACTIVITIES           
Loss for the period    (1,673)  (968)  (1,617)  (1,620) 
Adjustments for:           
Finance costs    27  27 
Depreciation and amortisation    112  119 
Operating cashflow before working capital changes    (1,534)  (849)  (1,590)  (1,620) 
Decrease in receivables    (383)  (383) 
Increase/(decrease) in trade and other payables    (115)  593  200  495 
Net cash outflow from operating activities    (2,032)  (250)  (1,773)  (1,119) 
INVESTMENT ACTIVITIES           
Proceeds from disposal of investments   
Purchase of investments held for trading    (25)  (25) 
Development costs    (952) 
Loans to subsidiary operation    (245)  (104) 
Net cash outflow from investment activities    (973)  (245)  (125) 
FINANCING ACTIVITIES           
Continuing operations:           
Issue of ordinary share capital    1,939  1,500  1,939  1,500 
Share issue costs    (122)  (90)  (122)  (90) 
Net cash inflow from financing activities    1,817  1,410  1,817  1,410 
           
Net (decrease)/increase in cash and cash equivalents from continuing and total operations    (215)  188  (201)  166 
Exchange translation difference    14  (22) 
Cash and cash equivalents at beginning of period    216  50  216  50 
           
Cash and cash equivalents at end of period    15  216  15  216  

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