TIDMEME
RNS Number : 5539I
Empyrean Energy PLC
09 August 2019
This announcement contains inside information
Empyrean Energy PLC / Index: AIM / Epic: EME / Sector: Oil &
Gas
9 August 2019
Empyrean Energy PLC ('Empyrean' or 'the Company')
Final Results
Empyrean Energy is pleased to announce its final results for the
year ended 31 March 2019. The full Report and Accounts will be made
available on the Company's website in the coming days. To view the
press release with the illustrative maps and diagrams please use
the following link:
http://www.rns-pdf.londonstockexchange.com/rns/5539I_1-2019-8-9.pdf
HIGHLIGHTS
Block 29/11, Pearl River Mouth Basin, China (EME 100%)
-- 31% increase in best case prospective resources (un-risked)
following comprehensive processing and interpretation of 3D seismic
data;
-- Oil Migration Study completed;
-- Independent audit by Gaffney, Cline and Associates ('GCA')
assessed Oil in-place estimates as:
o Audited un-risked Mean Oil-in place of 884 million barrels of
oil (MMbbl) for the three prospects; and
o Audited un-risked P10 upside of 1,588 MMbbl for the three
prospects.
-- GCA estimate Geological Chance of Success of Jade and Topaz
prospects is 32% and 30% respectively; and
-- Petroleum Contract ('PSC') for Block 29/11 signed.
Duyung PSC Project, Indonesia (EME 10%)
-- Gross 2C (contingent) resources audited by GCA in the field
of 276BcF (48.78 MMboe) of recoverable; dry gas and gross 3C
resources of 392 Bcf (69.3MMboe), representing additional field
upside;
-- Significant exploration upside with the Tambak prospect
identified beneath the central area of Mako gas field. Tambak is
part of the drilling programme planned for Q4 2019;
-- Plan of Development ('POD') for the Mako Gas field, including
reserves certification, approved by Indonesian Ministry of Energy
and Minerals; and
-- Agreement with AIM-listed Coro Energy Plc entered to fund the
majority of exploration and appraisal drilling program planned for
Q4 2019 for cash and shares.
Sacramento Basin, California USA (EME 25-30%)
-- Natural gas sales initially commenced at Dempsey in July 2018;
-- Subsequent water ingress into the well resulted in the well
being shut in for technical evaluation to determine the zone from
which the water was entering and to provide for forward program
alternatives; and
-- Technical evaluation including comprehensive sub-surface
analysis continuing to refine program at the Alvares gas project
and the prospectivity along the "Dempsey trend".
Corporate
-- Tax refunds totalling US$1.32 million ( GBP1.0 million) received; and
-- Placement to raise US$1.31 million (GBP1.03 million) completed.
Post reporting period
Block 29/11, Pearl River Mouth Basin, China (EME 100%)
-- Comprehensive analysis of 3D seismic confirms the presence of
well-defined "gas clouds" over Jade and Topaz prospects, further
mitigating exploration risk; and
-- The presence of gas clouds has been used to discover a number
of significant oil accumulations globally.
Duyung PSC Project, Indonesia (EME 10%)
-- Mako gas field appraisal and Tambak exploration prospect
drilling programme agreed and set to commence Q4 2019; and
-- Empyrean receives final cash and share consideration from
Coro Energy, bringing the total received by Empyrean to US$295,000
in cash and 6,090,504 Coro shares for a 1.5% reduction of interest
in the Duyung PSC.
Empyrean CEO Tom Kelly said, "Empyrean has made significant
progress during the year across its diversified asset portfolio and
laid a solid foundation for exploration success through its
activities to advance and de-risk the prospects.
Empyrean has been very active at its China project during the
year, increasing and independently validating its resource base and
decreasing exploration risk through rigorous seismic data analysis
and an oil migration study completed during the year. The
substantive work completed to date has established excellent, large
scale drilling targets on Block 29/11 with relatively low
geological risk. The recent confirmation that gas clouds are
present over the Jade and Topaz prospects add further confidence to
the technical merits of the project.
In Indonesia, Empyrean, Conrad and our new partner, Coro Energy
have agreed on the drilling programme at the Duyung PSC which is
set to commence in Q4 2019. The two well drilling programme will
appraise the existing Mako discovery and also test the deeper
Tambak exploration prospect. This programme is now largely funded
through the US$10.5m received by the Joint Venture as part of the
Coro transaction, and the US$295,000 cash consideration received by
Empyrean.
In California, having commenced natural gas flows from Dempsey
in July 2018, the partners have paused activity to conduct detailed
technical evaluation focused on the reservoir development to
determine the programme going forward.
On the corporate front the Company benefited from the receipt of
US$1.3 million in tax refunds during the year, and also
successfully completed a placement in November 2018. These cash
inflows were sufficient to meet operational and working capital
requirements. Significantly a large part of the costs for the
near-term drilling program at Indonesia are now also covered.
We believe that the near-term combination of exploration and
appraisal drilling at the Mako gas discovery in Indonesia, coupled
with the enormous potential upside at our drill-ready Jade and
Topaz conventional oil prospects make Empyrean a tantalising and
unique exposure to the sector. We look forward to further progress
on both of these exciting projects."
Chairman's Statement
After the restructuring of its activities in 2016, which
included the sale of our interest in the Sugarloaf asset in Texas,
Empyrean has for the past two years developed into a highly active
exploration company, with three exciting projects in China,
Indonesia and the United States.
At Block 29/11, located in the Pearl River Mouth Basin, offshore
China, where Empyrean holds 100% exploration rights and is the
operator, Empyrean has continued to make important progress during
the year. Following the completion and interpretation of the 3D
seismic data acquired on Block 29/11, the prospective resources
(un-risked) of all three prospects on the Block were revised
upwards in June 2018 and subsequently increased further, and
independently validated, by Gaffney, Cline and Associates, who
completed an audit of the Company's oil in place estimates in
November 2018. Total mean oil in place estimates on the three
prospects are now 884 MMbbl on an un-risked basis.
In addition, Gaffney, Cline and Associates estimated close to a
1 in 3 chance of geological success at Jade and Topaz, which is
particularly pleasing. Exploration risk has been further mitigated
by the completion of an oil migration study during June 2018 which
established oil migration pathways into all three prospects. Just
recently, in May 2019, the Company further solidified the technical
merits of the project by confirming the presence of well-defined
gas clouds over the Jade and Topaz prospects.
Having completed the Geophysical Service Agreement phase ('GSA')
successfully, Empyrean signed the PSC for Block 29/11 with CNOOC in
September 2018. The contract came into effect on 13 December 2018
with the first phase commitment being the drilling of one
exploration well within a 2.5 year period.
In Indonesia, the Company entered into an agreement with the
operator, Conrad Petroleum and Coro Energy pursuant to which Coro
acquired a 15% interest in the Duyung PSC. As part of this
transaction Empyrean's interest in the project reduced from 10% to
8.5%, with Empyrean receiving cash consideration and shares in
Coro. Importantly, Coro are contributing US$10.5m to the drilling
programme at Duyung, which will largely fund the drilling of an
exploration well to test the Tambak prospect, located below the
central Mako field, and also an appraisal well in the southern area
of the Mako field. Empyrean see this transaction as mutually
beneficial for all parties. Having received approval of the Plan of
Development from the Indonesian regulators in March 2019, the
drilling campaign is expected to commence in Q4 2019.
Empyrean continues to partner with ASX listed Sacgasco Limited,
in a joint venture to test a group of projects in the Sacramento
Basin California, including two mature gas prospects in Dempsey
(EME 30%) and Alvares (EME 25%) and also further identified follow
up prospects along the Dempsey trend (EME 30%). Technical
evaluation continues to be undertaken to determine the approach
going forward, including prioritising targets for drilling.
On the corporate front, the Company has maintained sufficient
cash reserves through the receipt of US$1.32 million (approximately
GBP1 million) in tax refunds during the year and also the
successful completion of a share placement in November 2018 to
raise a further US$1.31 million (GBP1.03 million). As mentioned
above, partial funding has also been secured to cover the drilling
programme in Indonesia later this year.
Finally, I would like to thank the Board and staff for their
contribution during the year, in particular our executives Tom
Kelly and Gaz Bisht who have worked tirelessly this year to give
Empyrean the best chance for future success at its existing
projects. The Board also continues to evaluate other opportunities
to add to its existing portfolio.
______________________________
Patrick Cross
Non-Executive Chairman
9 August 2019
Operational Review
The 2019 financial year has been a successful one for Empyrean
on a number of fronts, highlighted by ongoing progress towards
appraisal, development and production at the Mako gas discovery in
Indonesia and the de-risking of the large prospects in Block 29/11,
China.
Empyrean and its partners have methodologically carried out
detailed and comprehensive subsurface and technical evaluation
during the financial year on its projects in China and Indonesia
that has significantly advanced and de-risked these assets.
Systematic technical work on Empyrean operated 100% working
interest in Block 29/11, offshore China has matured two drill-ready
low risk-high reward prospects.
In Duyung PSC in offshore Indonesia, Empyrean reduced its
interest by 1.5% through the Coro Energy transaction in 2019, as
detailed further below. This transaction brought US$10.5m in
funding for the drilling of two critical wells in the permit.
Empyrean also has a 25-30% working interest in a package of gas
projects in the Sacramento Basin, onshore California. Following
successfully drilling Dempsey 1-15 to Basement and flowing sale
gas, subsequent water ingress into the well resulted in the well
being shut in for technical evaluation to determine the zone from
which the water was entering and to provide for forward program
alternatives. A workover is required to reduce water flow
(interpreted to be from separate wet reservoirs) in the
wellbore.
Empyrean has retained an interest in the Riverbend Project (10%
WI) located in the Tyler and Jasper counties, onshore Texas and a
58.084% WI in the Eagle Oil Pool Development Project, located in
the prolific San Joaquin Basin onshore, Southern California. No
technical work has been undertaken on these projects during the
year.
China Block 29/11 Project (100% WI)
Block 29/11 is located in the prolific Pearl River Mouth Basin,
offshore China approximately 200km Southeast of Hong Kong. The
acquisition of this block heralded a new phase for Empyrean when it
became an operator with 100% of the exploration rights of the
permit during the exploration phase of the project. In the event of
a commercial discovery, China National Offshore Oil Corporation
Limited ('CNOOC') will have a back in right to 51% of the
permit.
31% Uplift in Best Case Gross Prospective (Un-risked)
Resources
In June 2018, the Company announced the results of comprehensive
processing and interpretation of the 608km2 of new 3D seismic data
that it successfully acquired during 2017. The analysis firmed up
key prospects which were initially identified by the vintage
regional 2D seismic survey and were initially mapped on the
partially available (seismic Survey Boat Raw) 3D in September
2017.
Following the successful acquisition of a large 3D survey
Empyrean focused on processing the seismic data optimally. Empyrean
had regular interaction with the China Offshore Oil Services
Limited ('COSL') processing team at all stages of the project. Time
('PSTM') and Depth ('PSDM') processing of the 3D seismic data was
completed in January 2018. The final processed data is of
high-quality that has clearly imaged the potential reservoirs,
faults and deeper basin.
Arising from the 3D seismic interpretation, the Jade and Topaz
prospects were developed into better defined and very substantial
opportunities. The Pearl Prospect, which was a substantial lead
based on the vintage regional 2D seismic has evolved into a
substantial prospect following the 3D seismic. The results indicate
that all three prospects are large and are in favourable geological
settings.
Figure1: Block 29/11, Pearl River Basin, Offshore China.
Based on the results of the comprehensive processing and
interpretation of the final 3D data, the prospective (un-risked)
resources of the three major high graded prospects were revised
upwards (Table 1) from previously reported estimates because of
detailed mapping and improved assessment of reservoir parameters.
Gross (100%) 'Best' case Prospective Resources combined were
revised to 774 MMbbl on an un-risked basis.
Table 1:
Block 29/11 China: Gross Prospective (un-risked) Resources MMbbl
Timeline September 2017 June 2018
--------------------------------------------------------- ---------------------------------------------------------
(Seismic Boat Raw 3D data) (Final Processed 3D data)
--------------------------------------------------------- ---------------------------------------------------------
Prospect Low Best High Case Low Best High Case
Case Case Case Case
---------------- ---------------- --------------------- ---------------- ---------------- ---------------------
Jade 89 103 143 94 190 303
---------------- ---------------- --------------------- ---------------- ---------------- ---------------------
Topaz 280 365 498 292 435 728
---------------- ---------------- --------------------- ---------------- ---------------- ---------------------
Pearl 84 123 206 94 149 256
---------------- ---------------- --------------------- ---------------- ---------------- ---------------------
Given, one of the major challenges with resource estimation
rests heavily with an estimation of Gross Rock Volume ('GRV'), a
critical step to reducing the uncertainty of estimating GRV is to
better understand and quantify velocity field and depth conversion.
As a result, two approaches were taken for depth 'conversion of
time' interpretation of the seismic marker for the potential
reservoir top. The resulting two GRVs from two structure maps were
then combined to generate an industry standard probabilistic result
using Monte Carlo simulation with 1,000 trials (using Crystal Ball
software). This probabilistic method has produced Gross Prospective
(un-risked) Resources as shown below (Table 2).
Table 2:
Block 29/11 China: Gross Prospective (un-ricked) Resources MMbbl
Probabilistic Estimates
Prospect P90 P50 P10 Mean
---------- ---------- ---------- ------------
Jade 110 183 230 202
---------- ---------- ---------- ------------
Topaz 298 431 631 453
---------- ---------- ---------- ------------
Pearl 105 152 220 159
---------- ---------- ---------- ------------
Cautionary Statement: The estimated quantities of oil that may
potentially be recovered by the application of a future development
project relates to undiscovered accumulations. These estimates have
both an associated risk of discovery and a risk of development.
Further exploration, appraisal and evaluation is required to
determine the existence of a significant quantity of potentially
movable hydrocarbons.
Oil Migration Study Completed
Substantial geological work was also undertaken during late
2017/early 2018, focusing on migration pathways of oil in the basin
which culminated in an Oil Migration Study ('the Study') which was
completed in June 2018.
The Study established the maturity profile of source rock, and
unambiguously established that the source rock in the Baiyun Sag
East ('BSE') area was at peak maturity when oil expulsion
commenced. The main implications for Block 29/11 prospectivity are
very positive with the entire source rock within BSE interpreted to
have produced abundant hydrocarbons. In addition, any potential oil
accumulation in Block 29/11 prospects are expected to be light and
of good quality, and therefore similar to the oil discoveries
around Block 29/11 that range from 33-38 API.
The Study validated the interpreted oil migration pathways from
the known oil sources of the Enping Formation (Paleocene aged)
within the BSE into the several oil discoveries made by CNOOC
Limited to the immediate West and South of Block 29/11 since 2010,
and thus provided strong evidence of a prolific petroleum system in
the area. At the same time, the Study interprets effective
migration pathways from BSE towards the northern flank of the
Baiyun uplift where the Jade and Topaz prospects are located.
In addition, 28km2 of 3D seismic data that was acquired outside
Block 29/11 over the 2013 CNOOC Limited oil discovery LH 23-1d-1
which is located 8km west of the Jade prospect, helped confirm
potential "fill-and-spill" pathways to the Jade structure from the
oil discovery. Whilst early exploration techniques such as this are
no guarantee of exploration success, the Company believes that this
form of 'seismic tie' to a nearby known discovery helps to reduce
the risks associated with exploration and helps to provide an
improved understanding of the geology in the basin and within Block
29/11.
Comprehensive interpretation of the 2017 3D seismic data also
mapped a new sub-basin called Baiyun Sag North ('BSN'). BSN is
located between the Jade and Topaz prospects and is entirely within
Block 29/11. The Study confirms a potential effective migration
pathway from BSN into Jade and Topaz.
Figure 2: Proven and interpreted migration pathways from Baiyun
Sag East
The Study also indicated that the Pearl Prospect is potentially
located in a migration shadow for oil migrating from BSE or BSN. As
a result, further work has been done focusing on the possibility of
migration from the Huizhou Sag located NW of Block 29/11. The
Liuhua 11-1 field complex that contained an estimated 1.1 billion
barrels of oil is located immediately North of Block 29/11 and has
been interpreted to have received oil from Huizhou Sag. Additional
work completed now indicates that the Pearl prospect is located
favourably for receiving oil charge from Huizhou Sag.
Petroleum Contract Signed
The initial contractual term called Geophysical Service
Agreement was for two years with a work programme commitment of
acquisition, processing and interpretation of 500km(2) of 3D
seismic data.
Having successfully completed the committed work program for the
GSA, the Company exercised its option to enter a PSC on the Block,
on pre-negotiated terms, with CNOOC. The PSC was signed on 30
September 2018 with the date of commencement of implementation of
the PSC being 13 December 2018.
The first phase of the contract is for 2.5 years with a
commitment to drill one exploration well to a depth of 2,500m or to
the Basement Formation. Under the PSC terms, Empyrean has the
option of entering the second phase after relinquishing 25% of the
current area. The second phase has a commitment of drilling one
additional exploration well to a depth of 2,500m or to the Basement
Formation within a further 2 years.
Gaffney, Cline and Associates Independent Audit increases Total
Mean Oil-in-place to 884 MMbbl
In November 2018 Empyrean announced the results of an
independent audit completed by Gaffney, Cline & Associates, an
independent petroleum advisory firm, of the Company's oil initially
in place estimates over the Jade, Topaz and Pearl prospects at
Block 29/11 (the 'STOIIP Audit') .
Empyrean requested that GCA undertake the STOIIP Audit and an
assessment of the geological chance of success ('GCoS') of the
three prospects identified on Block 29/11 following the
comprehensive internal processing and interpretation of the 3D
seismic data that the Company had completed. GCA's audit primarily
consisted of reviewing, checking and validating the available data
and existing interpretations and auditing the technical work that
has been performed by EME and its contractors.
GCA used a probabilistic method to generate its results and
estimated the STOIIP using a 1D Monte Carlo model based on
estimates of gross rock volume and reservoir parameters.
GCA's estimates of STOIIP for the Jade, Topaz and Pearl
Prospects together with GCA's estimates of GCoS are shown in Table
3 below. Of particular note is that, as well as validating the
Company's internal estimates, Total Mean Oil in-place increased by
9% to 884 MMbbl on an un-risked basis and GCA estimated the GCoS of
the Jade and Topaz prospects at 32% and 30% respectively. Total P10
estimates increased by 47% to 1588 MMbbl from 1081 MMbbl on an
un-risked basis.
Table 3: EME and GCA estimates of STOIIP (November 2018)
Block 29/11 China: Oil in-place MMbbl
EME Internal Estimate GCA STOIIP Audit
----------------------------------- ------------------------------
June 2018 November 2018
----------------------------------- ------------------------------
Prospect P90 P50 P10 Mean P90 P50 P10 Mean GCoS
---- ---- ----- ---- ---- ----- -----
Jade 110 183 230 202 93 187 395 225 32%
---- ---- ---- ----- ---- ---- ---- ----- -----
Topaz 298 431 631 453 211 434 891 506 30%
---- ---- ---- ----- ---- ---- ---- ----- -----
Pearl 105 152 220 159 38 121 302 153 15%
---- ---- ---- ----- ---- ---- ---- ----- -----
Cautionary Statement: The volumes presented in this announcement
are STOIIP estimates only. A recovery factor needs to be applied to
the undiscovered STOIIP estimates based on the application of a
future development project. The subsequent estimates, post the
application of a recovery factor, will have both an associated risk
of discovery and a risk of development. Further exploration,
appraisal and evaluation is required to determine the existence of
a significant quantity of potentially movable hydrocarbons.
Duyung PSC, Indonesia (10% WI)
Background
In April 2017, Empyrean acquired from Conrad Petroleum a 10%
shareholding in West Natuna Exploration Ltd ('WNEL'), which held a
100% Participating Interest in the Duyung Production Sharing
Contract ('Duyung PSC') in offshore Indonesia and is the operator
of the Duyung PSC.
The Duyung PSC covers an offshore permit of approximately
1,100km(2) in the prolific West Natuna Basin. The permit includes
the Mako gas discovery. The Mako gas field is an enormously large,
shallow structural closure, with an area extent of over 350km(2) ,
approximately 16km from the closest third party access point to the
WNTS pipeline system which delivers gas from Indonesia to
Singapore.
Figure 3: Mako Gas field, Duyung PSC, Indonesia
The Mako gas field was discovered by Mako South-1 well drilled
by WNEL in 2017. The drilling operations included the acquisition
of two conventional core in the main reservoir followed by
comprehensive testing operations. The Mako reservoir flowed up to
10.8MMscf/d of dry gas on test, proving commercial viability of the
gas discovery. The commercial viability is further supported by
four wells drilled by previous operators that have penetrated the
reservoir section. As a result, the reservoir distribution is
reasonably well understood.
An independent resource audit of the Mako gas field was
completed by Gaffney, Cline and Associates in January 2019,
resulting in the following gross resource certification:
Category Gas Recoverable
(Bcf)
1C 184
----------------
2C 276
----------------
3C 392
----------------
Reduction of Interest for Cash and Shares
In February 2019 Empyrean announced that it had entered into a
binding, conditional purchase agreement ('the Agreement') pursuant
to which AIM listed Coro Energy plc ('Coro') would acquire a 15%
interest in the Duyung PSC from WNEL for aggregate consideration in
cash and Coro shares of US$4.8 million and the contribution of
US$10.5 million by Coro toward the 2019 drilling campaign at the
Mako gas field ('Coro Transaction'). The cash and share component
of the consideration were paid pro rata to the existing owners of
WNEL, being Empyrean, which currently had a 10% effective interest
in the Duyung PSC, and Conrad, which currently had a 90% effective
interest in the Duyung PSC, each through shareholding in WNEL.
The consideration paid comprised US$2.95 million in cash and
US$1.85 million in the form of 60,905,037 new ordinary shares in
Coro ('Consideration Shares'). Empyrean received cash consideration
of US$295,000 and Consideration Shares with a value of US$185,000
for the transfer to Coro of 1.5% of its current 10% interest in the
Duyung PSC, reducing its interest to 8.5% once the transaction is
completed (currently only subject to government and regulatory
approval).
Following completion of the transaction, including the payment
by Coro of US$10.5 million which was received in April 2019 as
partial funding of the 2019 drilling programme at the Mako gas
field and receipt of the necessary Government and regulatory
approvals, WNEL will make a direct transfer of interest in the
Duyung PSC to Empyrean and the other owners. Empyrean's interest
therefore will be a direct ownership in the PSC and no longer held
through WNEL. The owners of the Duyung PSC will be Conrad (76.5%),
Empyrean (8.5%) and Coro (15%).
Plan of Development Approval for Mako Gas Field
In March 2019 Empyrean announced that the Ministry of Energy and
Minerals in Indonesia had approved the Plan of Development ('POD')
for the Mako Gas Field, securing tenure until 2037. The POD
approval was required ahead of the upcoming drilling programme at
the Duyung PSC, as detailed below. The approval is also an
important step in advancing negotiations and ultimately executing a
Gas Sales Agreement ('GSA') with the buyer in Singapore for the
off-take of Mako gas.
Mako Gas Field Appraisal and Drilling Program
In April 2019 Empyrean, Conrad and Coro agreed the upcoming
drilling programme in the Duyung PSC. The campaign will comprise
two wells, one exploration well designed to test the Tambak
prospect beneath the central area of the Mako gas field, and one
appraisal well designed to appraise the intra-Muda sandstone
reservoir in the southern area of the Mako field. The drilling
campaign is anticipated to start in Q4 2019, with each well taking
approximately 33 days to drill and test. The gross cost of the
programme is expected to be approximately US$17-19 million on a
fully tested basis, including rig mobilisation and de-mobilisation,
with the high range assuming the exploration well success. As part
of the transaction to acquire its 15% interest in the PSC, Coro
will be contributing US$10.5 million to the total cost of the
drilling campaign with the balance to be covered by the Partners
pro rata to their respective interests. Empyrean will retain an
8.5% interest in the PSC.
The Tambak prospect is an inverted anticlinal structure located
beneath the main Mako gas field in the central area of the field.
The prospect contains approximately 250 Bcf of prospective
resources in the mid-case and is risked at a 45% chance of success.
The well will be drilled to a total depth of approximately 1,370
metres true vertical depth sub-sea ('TVDSS'), with a testing suite
planned for both the intra-Muda Mako reservoir level as well as the
Lower Gabus prospective target horizons.
Figure 4: Tambak Prospect, Duyung PSC, Indonesia
The second well in the programme Tambak-2 (Mako-2),
approximately 12.5km south of the Mako South-1 well, is an
appraisal well which is designed to intersect the intra-Muda
reservoir at approximately 380 metres TVDSS. A full evaluation
suite including coring, wireline logging and open hole testing of
the reservoir section is planned. The well will provide an
important calibration point for the southern area of the field and
is planned to demonstrate further contingent resource, which in
turn will support the gas marketing efforts.
Figure 5: Mako Gas field appraisal drilling programme, Duyung
PSC, Indonesia
Multi Project Farm-in in Sacramento Basin, California (25%-30%
WI)
Background
In May 2017, Empyrean agreed to farm-in to a package of
opportunities including the Dempsey and Alvares prospects in the
Northern Sacramento Basin, onshore California. The rationale for
participating in this potentially significant gas opportunity was a
chance to discover large quantities of gas in a relatively 'gas
hungry' market. Another attractive component of the deal was the
ability to commercialise a potential gas discovery using existing
gas facilities that are owned by the operator.
Figure 6: California Projects Location Map
The first exploration well, Dempsey 1-15, was drilled to a TD of
2,970 metres (9,747 feet) in September 2017. Comprehensive data was
collected including wireline logs in the Dempsey 1-15 well. The
analysis confirmed numerous potentially gas-bearing zones. A
comprehensive production testing programme was conducted to assess
the production capability of these zones through Q4 2017 and Q1
2018.
A total of three zones (Zone 2, 3, and 4) in the well were
tested.
In July 2018, Dempsey 1-15 commenced production of sales gas
into pipeline at an approximate rate of 1,300 mcf per day from
combined zones in Kione Sandstone and deeper cretaceous zones.
However, the flow rate was not sustainable longer term due to a
relatively tight and poor-quality reservoir and subsequent water
ingress into the well resulted in the well being shut in for
technical evaluation to determine the zone from which the water was
entering and to provide for forward program alternatives. A
workover is required to reduce water flow (interpreted to be from
separate wet reservoirs) in the wellbore. A detailed and
comprehensive analysis of subsurface data is to be undertaken with
the aim of finding a better-quality reservoir along the "Dempsey
trend".
The joint venture is now integrating the subsurface data with
regional geology and seismic data to evaluate additional more
attractive targets in thicker reservoir units for future drilling.
An option remains to side-track the well to evaluate a new section
of the Stoney Creek reservoirs.
The Dempsey Trend AMI, in which Empyrean will earn a 30%
interest, extends to approximately 250,000 acres (including the
Dempsey structure) and includes at least three large Dempsey style
identified follow up prospects, including the Anzus and Borba
prospects which have shown promising initial interpretation
results.
In parallel to the above, the joint venture continues evaluation
work at the Alvares-1 well. The initial plan at Alvares was
designed to re-enter and assess the integrity of the wellbore as
the basis for a decision to either record modern logs through
casing or to identify the more prospective zones for
perforation.
Figure 7: Dempsey 1-15 well
In August 2018 Sacgasco obtained regulatory approval to test the
potential of gas in the over-looked natural gas in the Alvares-1
well.
Empyrean can earn a 25% working interest in the Alvares
appraisal prospect by paying 33.33% of the costs of the next
Alvares appraisal well.
Empyrean will provide technical assistance to Sacgasco to
further mature prospects within the Dempsey Trend AMI and will also
have an option to participate in the already identified prospects
on the following basis:
-- Prospect #1: EME pays 60% of dry hole cost (i.e. to testing
and setting production casing or abandonment) to earn 30% WI
-- Prospect #2: EME pays 45% of dry hole cost (i.e. to testing
and setting production casing or abandonment) to earn 30% WI
-- Prospect #3: EME pays 45% of dry hole cost (i.e. to testing
and setting production casing or abandonment) to earn 30% WI
Riverbend Project (10%)
Located in Jasper County, Texas, USA, the Cartwright No.1
re-entry well produces gas and condensate from the arenaceous
Wilcox Formation.
The Cartwright No.1 well is currently virtually suspended
producing only nominal amounts of gas condensate.
Little or no work has been completed on the project in the year
and no budget has been prepared for 2019/20 whilst the Company
focuses on other projects. The Company fully impaired the carrying
value of the asset at 31 March 2017 and any subsequent expenditure,
mainly for license fees, has been expensed through the profit and
loss statement.
Eagle Oil Pool Development Project (58.084% WI)
The Eagle Oil Pool Development Projects is located in the
prolific San Joaquin Basin onshore, southern California.
No appraisal operations were carried out during this period. It
is anticipated that, should there be a sustained improvement in the
oil price, a vertical well test of the primary objective, the
Eocene Gatchell Sand, followed by a horizontal appraisal well,
would be the most likely scenario.
Little or no work has been completed on the project in the year
and no budget has been prepared for 2019/20 whilst the Company
focuses on other projects. The Company fully impaired the carrying
value of the asset at 31 March 2017 and any subsequent expenditure,
mainly for license fees, has been expensed through the profit and
loss statement.
The information contained in this report was completed and
reviewed by the Company's Executive Director (Technical), Mr
Gajendra (Gaz) Bisht, who has over 30 years' experience as a
petroleum geoscientist.
Definitions
2C: Contingent resources are quantities of petroleum estimated,
as of a given date, to be potentially recoverable from known
accumulations by application of development projects, but which are
not currently considered to be commercially recoverable. The range
of uncertainty is expressed as 1C (low), 2C (best) and 3C
(high).
*CAUTIONARY Statement: The estimated quantities of oil that may
potentially be recovered by the application of a future development
project relates to undiscovered accumulations. These estimates have
both an associated risk of discovery and a risk of development.
Further exploration, appraisal and evaluation is required to
determine the existence of a significant quantity of potentially
movable hydrocarbons.
____________________
Gajendra Bisht M.Sc. (Tech) in Applied Geology
Executive Director (Technical)
9 August 2019
Strategic Report
Business Overview and Likely Future Developments
The Company and its partners continued to progress exploration
and development activities at each of its three projects during the
year, with the aim of de-risking these projects and ultimately
maximising value for its shareholders. Further details on these
activities is provided in the Operations and Outlook section
below.
In November 2018 the Company raised funds of US$1.31 million
(GBP1.03 million) through a placing of 10,280,000 shares at 10p per
share. The funds raised were to support the current exploration
programs and for working capital purposes.
The strategy is to continue to add value for shareholders by
participating in late-stage, mature exploration projects with low
assessed geological risks. The Board and management recognise that
exploration for hydrocarbons is a risky venture and there will be
failures and challenges, however the Company has a team with a
proven track record of finding hydrocarbons and advancing projects
through exploration, appraisal and into production. The oil price
remains robust and supports the current business strategy.
Management continually evaluates project opportunities that meet
strict investment guidelines with an aim of adding value for all
shareholders.
Operations and Outlook
As at 31 March 2019 the Company has the following interests:
The Company has an interest in Block 29/11 offshore China (100%
during exploration and 49% upon any commercial discovery). Empyrean
is the operator with 100% of the exploration rights of the
1800km(2) permit during the exploration phase of the project.
Empyrean completed a 608km(2) 3D seismic acquisition survey in
August 2017 and comprehensive processing and interpretation of the
3D seismic data, in addition to further geological work, has
confirmed the structural viability and substantial prospective
(un-risked) resources at the three key prospects ('Jade, Topaz and
Pearl'). These internal estimates were subsequently independently
audited and revised upwards. The Company has successfully completed
an oil migration study which has confirmed potential oil migration
pathways into all three prospects and subsequent to year-end
further enhanced the technical merits of the Jade and Topaz
prospects through the identification of well-defined gas clouds
over those prospects. The Company signed a PSC for Block 29/11 with
CNOOC in September 2018 with the first phase commitment being the
drilling of one exploration well within a 2.5 year period.
The Company acquired a 10% interest in the 1,100km(2) Duyung
PSC, offshore Indonesia, from Conrad Petroleum Ltd ('Conrad') in
April 2017. The main asset in the permit is the Mako shallow gas
discovery which has Gross 2C (contingent) resources of 276 Bcf
(48.78 MMboe) of recoverable dry gas and 3C resources of 392 Bcf
(69.3 MMboe), as verified by an independent audit during 2019. The
appraisal well, Mako South-1, was spudded in June 2017 with results
exceeding expectations encountering excellent reservoir quality
rock with high permeability sands. On the back of results from the
Mako South-1 well the operator has received approval from the
Indonesian regulator of a detailed Plan of Development, and the JV
partners have an agreed drilling campaign comprising two wells. The
first well is an exploration well designed to test the Tambak
prospect beneath the central area of the Mako gas field, and the
second well is an appraisal well designed to appraise the
intra-Muda sandstone reservoir in the southern area of the Mako
field. The Tambak prospect is an inverted anticlinal structure
located beneath the main Mako gas field in the central area of the
field. The prospect contains approximately 250 Bcf of prospective
resources in the mid-case and is risked at a 45% chance of success.
The drilling campaign is anticipated to start in Q4 2019.
Following a transaction with AIM-listed Coro Energy plc during
early 2019, both the operator, Conrad Petroleum, and Empyrean
divested part of their interest in the Duyung PSC. Empyrean's
interest reduced from 10% to 8.5% interest, having received cash
and shares from Coro. As part of this transaction Coro is funding
US$10.5 million of the costs of the 2019 drilling programme.
The Company entered into an agreement with ASX listed Sacgasco
Limited (Sacgasco), a Sacramento Basin focused natural gas
developer and producer, in May 2017, to test a group of projects in
the Sacramento Basin California, including two mature, multi-TcF
gas prospects in Dempsey (EME 30%) and Alvares (EME 25%) and
further identified follow up prospects along the Dempsey trend (EME
30%). Following completion of an appraisal and exploration well,
Dempsey 1-15, the operator tested multiple gas zones which resulted
in the production of commercial gas flows before the well was shut
in for technical evaluation following water ingress into the well.
The joint venture is now integrating the subsurface data with
regional geology and seismic data to evaluate additional attractive
targets in thicker reservoir units for future drilling at Dempsey.
An option remains to side-track the well to evaluate a new section
of the Stoney Creek reservoirs. In parallel to the above, the joint
venture continues evaluation work at the Alvares-1.
The Company also has a 58.084% working interest in the Eagle Oil
Pool Development Project asset in California and a 10% working
interest in the Riverbend Project in Texas. Further detailed
analysis on all projects is provided in the Operational Review.
Going Concern
The Company's principal activity during the year has been the
exploration, evaluation, appraisal and development of its
exploration projects. At year end the Company had a cash balance of
US$0.33m (2018: US$0.39m) and made a profit after income tax of
US$0.15m (2018: loss of US$2.63m).
The Directors have prepared cash flow forecasts for the Company
covering the period to 31 August 2020 and show that the Company
will require further funding within the next 12 months. The
Directors have an appropriate plan to raise additional funds as and
when it is required, either through the sale of existing assets,
through joint ventures of existing assets or through equity or debt
funding. In addition, near term funding requirements for the Duyung
PSC exploration and appraisal drilling are now largely funded by
Coro Energy through the recently completed transaction.
The Directors have therefore concluded that it is appropriate to
prepare the Company's financial statements on a going concern
basis. However, in the absence of additional funding being in
place, at the date of this report, these conditions indicate the
existence of a material uncertainty which may cast significant
doubt over the Company's ability to continue as a going concern
and, therefore, that it may be unable to realise its assets and
discharge its liabilities in the normal course of business. The
financial statements do not include the adjustments that would
result if the Company was unable to continue as a going
concern.
Post Reporting Date Events
Significant events post reporting date were as follows:
In April 2019 Empyrean advised that it has received its pro-rata
share of the final cash and share component of the Coro
transaction. The total cash and share consideration paid by Coro
was US$2.95 million in cash and US$1.85 million in Coro shares, to
acquire a 15% interest in the Duyung PSC. Empyrean received cash of
US$295,000 and shares with a value of US$185,000. Coro also paid
US$10.5 million toward the 2019 drilling campaign at the Duyung
PSC.
In April 2019 Empyrean, Conrad Petroleum, and Coro agreed the
upcoming drilling programme in the Duyung PSC. The campaign will
comprise two wells, one exploration well designed to test the
Tambak prospect beneath the central area of the Mako gas field, and
one appraisal well designed to appraise the intra-Muda sandstone
reservoir in the southern area of the Mako field. The drilling
campaign is anticipated to start in Q4 2019, with each well taking
approximately 33 days to drill and test. The gross cost of the
programme is expected to be approximately US$17-19 million on a
fully tested basis, including rig mobilisation and de-mobilisation,
with the high range assuming the exploration well success. As part
of the transaction to acquire its 15% interest in the PSC, Coro
will be contributing US$10.5 million to the total cost of the
drilling campaign with the balance to be covered by the Partners
pro rata to their respective interests.
In May 2019 the Company announced that comprehensive analysis of
the excellent quality 3D seismic data acquired by Empyrean during
2017 has confirmed the presence of well-defined low reflectivity
zones ('gas clouds') in the overburden strata above the Jade and
Topaz structures on offshore China Block 29/11. On good quality 3D
seismic, the presence of gas clouds has been used as an effective
exploration tool in prolific basins worldwide including the North
Sea, Gulf of Mexico, and the Malaysian Sabah basin, resulting in
the discovery of significant amounts of oil. CNOOC gave
authorisation to Empyrean to independently analyse their 3D seismic
data immediately west of Block 29/11 over 4 large oil discoveries
located close to Block 29/11. This analysis confirmed the presence
of gas clouds in the overburden on all 4 discoveries. At the same
time, three dry wells drilled by CNOOC in proximity to the
discoveries, outside Block 29/11, have been analysed, and the 3D
seismic data over these wells confirms the lack of any gas clouds.
Similar technical work was carried out over two dry wells in Block
29/11. These wells were drilled prior to Empyrean's involvement and
without any 3D seismic data. Both wells confirm the lack of any gas
clouds in the overburden. As a result, it is Empyrean's
interpretation that the presence of well-defined gas clouds in the
overburden on both the Jade and Topaz structures mitigates the
exploration risk on these prospects significantly. The Pearl
prospect does not have 100% coverage with 3D seismic to enable the
same comprehensive analysis and assessment at this point in
time.
On 9 July 2019 Tom Kelly exercised 15,000,000 options at an
exercise price of GBP0.02. The closing share price of the Company
on 9 July 2019 was GBP0.0905.
Statement of Comprehensive Income
For the Year Ended 31 March 2019
2019 2018
Notes US$'000 US$'000
Revenue - 30
-------- --------
Cost of sales
Operating costs - (1)
Impairment of oil and gas properties 2, 8 (47) (48)
Total cost of sales (47) (49)
Gross loss (47) (19)
Administrative expenditure
Administrative expenses (375) (397)
Compliance fees (212) (225)
Directors' remuneration (386) (415)
Foreign exchange differences (49) 114
Total administrative expenditure (1,022) (923)
Operating loss 2 (1,069) (942)
Finance income/(expense) 3 1,114 (2,558)
Fair value revaluation 8 98 -
-------- --------
Profit/(loss) from continuing operations
before taxation 143 (3,500)
Tax benefit in current year 5 2 797
-------- --------
Profit/(loss) from continuing operations
after taxation 145 (2,703)
-------- --------
Profit on discontinued operations net
of tax - 73
-------- --------
Profit/(loss) after taxation 145 (2,630)
Total comprehensive profit/(loss) for
the year 145 (2,630)
======== ========
Earnings per share from continuing operations
(expressed in cents)
- Basic 6 0.03c (0.71)c
- Diluted 0.03c (0.71)c
Earnings per share from discontinued
operations (expressed in cents)
- Basic 6 - 0.02c
- Diluted - 0.02c
The accompanying accounting policies and notes form an integral
part of these financial statements.
Statement of Financial Position
For the Year Ended 31 March 2019
Company Number: 05387837 2019 2018
Notes US$'000 US$'000
Assets
Non-current assets
Oil and gas properties: exploration and
evaluation 7 9,075 7,820
Investments 8 3,200 2,572
--------- ---------
Total non-current assets 12,275 10,392
Current assets
Trade and other receivables 9 37 183
Corporation tax receivable 5 - 1,320
Cash and cash equivalents 332 388
--------- ---------
Total current assets 369 1,891
Liabilities
Current liabilities
Trade and other payables 10 374 374
Provisions 54 54
Derivative financial liabilities 11 1,349 2,463
Total current liabilities 1,777 2,891
Net current liabilities (1,408) (1,000)
Net assets 10,867 9,392
========= =========
Shareholders' equity
Share capital 13 1,232 1,205
Share premium reserve 26,524 25,280
Share based payment reserve 69 10
Retained losses (16,958) (17,103)
--------- ---------
Total equity 10,867 9,392
========= =========
The Financial Statements were approved by the Board of Directors
on 9 August 2019 and were signed on its behalf by:
______________________________ ____________________
Patrick Cross Thomas Kelly
Chairman Chief Executive Officer
The accompanying accounting policies and notes form an integral
part of these financial statements.
Statement of Cash Flows
For the Year Ended 31 March 2019
2019 2018
Notes US$'000 US$'000
Payment for operating activities - continuing
operations (971) (1,002)
Receipt of corporation tax 1,322 17
---------- ----------
Net cash inflow/(outflow) from operating
activities 12 351 (985)
Net proceeds from disposal of discontinued
operations - 73
Purchase of oil and gas properties: exploration
and evaluation - continuing operations (1,424) (7,725)
Acquisition of investments (530) (2,572)
Prepayments received - proceeds from disposal 175 -
of investments
Receipt of/(payment for) exploration bonds
and bank guarantees 150 (150)
Net cash outflow for investing activities (1,629) (10,374)
---------- ----------
Issue of ordinary share capital 1,314 5,635
Payment of equity issue costs (43) (108)
Net cash inflow from financing activities 1,271 5,527
---------- ----------
Net decrease in cash and cash equivalents (7) (5,832)
Cash and cash equivalents at the start
of the year 388 6,106
Forex gain/(loss) on cash held (49) 114
---------- ----------
Cash and cash equivalents at the end of
the year 332 388
========== ==========
The accompanying accounting policies and notes form an integral
part of these financial statements.
Statement of Changes of Equity
For the Year Ended 31 March 2019
Share Share premium Share Retained Total
capital reserve based loss equity
payment
reserve
Note US$'000 US$'000 US$'000 US$'000 US$'000
Balance at 1 April
2017 754 18,466 2,421 (16,894) 4,747
========= ============== ========= ========= ========
Loss after tax for
the year - - - (2,630) (2,630)
Total comprehensive
loss for the year - - - (2,630) (2,630)
--------- -------------- --------- --------- --------
Contributions by
and distributions
to owners
Shares issued in
the period 13 451 6,922 - - 7,373
Equity issue costs - (108) - - (108)
Transfer of expired
options - - (2,421) 2,421 -
Share based payment
expense - - 10 - 10
--------- -------------- --------- --------- --------
Contributions by
and distributions
to owners 451 6,814 (2,411) 2,421 7,275
--------- -------------- --------- --------- --------
Balance at 1 April
2018 1,205 25,280 10 (17,103) 9,392
========= ============== ========= ========= ========
Profit after tax
for the year - - - 145 145
Total comprehensive
profit for the year - - - 145 145
--------- -------------- --------- --------- --------
Contributions by
and distributions
to owners
Shares issued in
the period 13 27 1,287 - - 1,314
Equity issue costs - (43) - - (43)
Share based payment
expense - - 59 - 59
--------- -------------- --------- --------- --------
Contributions by
and distributions
to owners 27 1,244 59 - 1,330
Balance at 31 March
2019 1,232 26,524 69 (16,958) 10,867
========= ============== ========= ========= ========
The accompanying accounting policies and notes form an integral
part of these financial statements.
Notes to the Financial Statements
For the Year Ended 31 March 2019
Basis of preparation
The Company's financial statements have been prepared in
accordance with International Financial Reporting Standards
("IFRS") as adopted by the European Union and Companies Act 2006.
The principal accounting policies are summarised below. The
financial report is presented in the functional currency, US
dollars and all values are shown in thousands of US dollars
(US$'000).
The preparation of financial statements in compliance with
adopted IFRS requires the use of certain critical accounting
estimates. It also requires Company management to exercise judgment
in applying the Company's accounting policies. The areas where
significant judgments and estimates have been made in preparing the
financial statements and their effect are disclosed below.
Basis of measurement
The financial statements have been prepared on a historical cost
basis, except for the following items (refer to individual
accounting policies for details):
- Investments
- Derivative financial liability
Nature of business
The Company is a public limited company incorporated and
domiciled in England and Wales. The address of the registered
office is 200 Strand, London, WC2R 1DJ. The Company is in the
business of financing the exploration, development and production
of energy resource projects in regions with energy hungry markets
close to existing infrastructure. The Company has typically focused
on non-operating working interest positions in projects that have
drill ready targets that substantially short cut the life-cycle of
hydrocarbon projects by entering the project after exploration
concept, initial exploration and drill target identification work
has largely been completed.
Going concern
The Company's principal activity during the year has been the
acquisition and development of its exploration projects. At year
end the Company had a cash balance of US$0.33m (2018: US$0.39m) and
made a profit after income tax of US$0.15m (2018: loss of
US$2.63m).
The Directors have prepared cash flow forecasts for the Company
covering the period to 31 August 2020 and show that the Company
will require further funding within the next 12 months. The
Directors have an appropriate plan to raise additional funds as and
when it is required, either through the sale of existing assets,
through joint ventures of existing assets or through equity or debt
funding. In addition, near term funding requirements for the Duyung
PSC exploration and appraisal drilling are now largely funded by
Coro Energy through the recently completed transaction.
The Directors have therefore concluded that it is appropriate to
prepare the Company's financial statements on a going concern
basis. However, in the absence of additional funding being in place
at the date of this report, these conditions indicate the existence
of a material uncertainty which may cast significant doubt over the
Company's ability to continue as a going concern and, therefore,
that it may be unable to realise its assets and discharge its
liabilities in the normal course of business. The financial
statements do not include the adjustments that would result if the
Company was unable to continue as a going concern.
Basis of accounting and adoption of new and revised
standards
(a) New and amended standards adopted by the Company:
IFRS 15 'Revenue from Contracts with Customers' was issued by
the IASB in May 2014. It is effective for accounting periods
beginning on or after 1 January 2018. The adoption of IFRS 15 has
no impact on the 31 March 2019 financial statements as material
revenues were not earned in this period or the comparative
period.
IFRS 9 'Financial Instruments' was published in July 2014 and it
is effective for accounting periods beginning on or after 1 January
2018. It is applicable to financial assets and financial
liabilities, and covers the classification, measurement, impairment
and de-recognition of financial assets and financial liabilities
together with a new hedge accounting model. The Company has
assessed the impact of this standard on the accounting for the
investment in West Natuna Exploration Limited, which has resulted
in the investment being valued at fair value through profit or
loss. Refer to Note 8 for details on the fair value assessment,
which did not result in a material adjustment on transition to IFRS
9.
There were no other new standards effective for the first time
for periods beginning on or after 1 April 2018 that have had a
significant effect on the Company's financial statements.
(b) Standards, amendments and interpretations that are not yet
effective and have not been early adopted:
Any standards and interpretations that have been issued but are
not yet effective, and that are available for early application,
have not been applied by the Company in these financial statements.
International Financial Reporting Standards that have recently been
issued or amended but are not yet effective have not been adopted
for the annual reporting period ended 31 March 2019:
IFRS 16 'Leases' was issued by the IASB in January 2016 and is
effective for accounting periods beginning on or after 1 January
2019. The Directors are currently evaluating the financial and
operational impact of this standard, however do not consider that
it will have a material impact as the Company does not currently
have any material lease arrangements.
Tax
The major components of tax on profit or loss include current
and deferred tax. Current tax is based on the profit or loss
adjusted for items that are non-assessable or disallowed and is
calculated using tax rates that have been enacted or substantively
enacted by the reporting date. Tax is charged to the income
statement, except when the tax relates to items credited or charged
directly to equity, in which case the tax is also dealt with in
equity.
(a) Deferred tax
Deferred tax assets and liabilities are recognised where the
carrying amount of an asset or liability in the statement of
financial position differs to its tax base. Recognition of deferred
tax assets is restricted to those instances where it is probable
that taxable profit will be available, against which the difference
can be utilised. The amount of the asset or liability is determined
using tax rates that have been enacted or substantively enacted by
the reporting date and are expected to apply when the deferred tax
liabilities/(assets) are settled/(recovered). The Company has
considered whether to recognise a deferred tax asset in relation to
carried-forward losses and has determined that this is not
appropriate in line with IAS 12 as the conditions for recognition
are not satisfied.
Foreign currency translation
Transactions denominated in foreign currencies are translated
into US dollars at contracted rates or, where no contract exists,
at average monthly rates. Monetary assets and liabilities
denominated in foreign currencies which are held at the year-end
are translated into US dollars at year-end exchange rates. Exchange
differences on monetary items are taken to the Statement of
Comprehensive Income. Items included in the financial statements
are measured using the currency of the primary economic environment
in which the Company operates (the functional currency).
Oil and gas assets: exploration and evaluation
The Company applies the full cost method of accounting for
Exploration and Evaluation ('E&E') costs, having regard to the
requirements of IFRS 6 'Exploration for and Evaluation of Mineral
Resources'. Under the full cost method of accounting, costs of
exploring for and evaluating oil and gas properties are accumulated
and capitalised by reference to appropriate cash generating units
('CGUs'). Such CGUs are based on geographic areas such as a
concession and are not larger than a segment. E&E costs are
initially capitalised within oil and gas properties: exploration
and evaluation. Such E&E costs may include costs of license
acquisition, third party technical services and studies, seismic
acquisition, exploration drilling and testing, but do not include
costs incurred prior to having obtained the legal rights to explore
an area, which are expensed directly to the income statement as
they are incurred. Plant, Property and Equipment ('PPE') acquired
for use in E&E activities are classified as property, plant and
equipment. However, to the extent that such PPE is consumed in
developing an intangible E&E asset, the amount reflecting that
consumption is recorded as part of the cost of the intangible
E&E asset. Intangible E&E assets related to exploration
licenses are not depreciated and are carried forward until the
existence (or otherwise) of commercial reserves has been
determined. The Company's definition of commercial reserves for
such purpose is proven and probable reserves on an entitlement
basis.
If commercial reserves have been discovered, the related E&E
assets are assessed for impairment on a CGU basis as set out below
and any impairment loss is recognised in the income statement. The
carrying value, after any impairment loss, of the relevant E&E
assets is then reclassified as development and production assets
within property, plant and equipment and are amortised on a unit of
production basis over the life of the commercial reserves of the
pool to which they relate. Intangible E&E assets that relate to
E&E activities that are not yet determined to have resulted in
the discovery of commercial reserves remain capitalised as
intangible E&E assets at cost, subject to meeting impairment
tests as set out below. E&E assets are assessed for impairment
when facts and circumstances suggest that the carrying amount may
exceed its recoverable amount. Such indicators include the point at
which a determination is made as to whether or not commercial
reserves exist. Where the E&E assets concerned fall within the
scope of an established CGU, the E&E assets are tested for
impairment together with all development and production assets
associated with that CGU, as a single cash generating unit. The
aggregate carrying value is compared against the expected
recoverable amount of the pool. The recoverable amount is the
higher of value in use and the fair value less costs to sell. Value
in use is assessed generally by reference to the present value of
the future net cash flows expected to be derived from production of
commercial reserves. Where the E&E assets to be tested fall
outside the scope of any established CGU, there will generally be
no commercial reserves and the E&E assets concerned will
generally be written off in full. Any impairment loss is recognised
in the income statement.
Investments
Under IFRS 9, all investments in equities are required to be
measured at fair value. The Company's interest in the Duyung PSC is
classified under IFRS 9 as a financial asset at fair value through
profit or loss, due to the Company's 10% shareholding and lack of
significant influence over operations. Financial assets designated
as fair value through the profit or loss are measured at fair value
through profit or loss at the point of initial recognition and
subsequently revalued at each reporting date. The purchase
agreement detailed in Note 8(c) has formed the basis for the fair
value assessment at 31 March 2019.
Discontinued operations
A discontinued operation is a component of an entity that either
has been disposed of, or that is classified as held for sale, and
represents a separate major line of business or geographical area
of operations; and is a part of a single coordinated plan to
dispose of a separate major line of business or geographical area
of operations; or is a subsidiary acquired exclusively with a view
to resale. Non-current assets held for sale and discontinued
operations are carried at the lower of carrying value or fair value
less costs to sell. Any gain or loss from disposal of a business,
together with the results of these operations until the date of
disposal, is reported separately as discontinued operations. The
financial information of discontinued operations is excluded from
the respective captions in the financial statements and related
notes for the current and comparative period and disclosed as
results from discontinued operations.
Joint operations
Joint arrangements represent the contractual sharing of control
between parties in a business venture where unanimous decisions
about relevant activities are required. Joint venture operations
represent arrangements whereby joint operators maintain direct
interests in each asset and exposure to each liability of the
arrangement. The Company's interests in the assets, liabilities,
revenue and expenses of joint operations are included in the
respective line items of the financial statements.
Financial instruments
Financial assets and liabilities are recognised in the statement
of financial position when the Company becomes party to the
contractual provision of the instrument.
(a) Financial assets
The Company's financial assets consist of financial assets at
amortised cost (trade and other receivables, excluding prepayments,
and cash and cash equivalents) and financial assets classified as
fair value through profit or loss. Financial assets at amortised
cost are initially measured at fair value and subsequently at
amortised cost. Financial assets designated as fair value through
the profit or loss are measured at fair value through the profit or
loss at the point of initial recognition and subsequently revalued
at each reporting date. Movements in the fair value of derivative
financial assets are recognised in the profit or loss in the period
in which they occur.
(b) Financial liabilities
All financial liabilities are classified as fair value through
the profit and loss or financial liabilities at amortised cost. The
Company's financial liabilities at amortised cost include trade and
other payables and its financial liabilities at fair value through
the profit or loss include the derivative financial liabilities.
Financial liabilities at amortised cost, are initially stated at
their fair value and subsequently at amortised cost. Interest and
other borrowing costs are recognised on a time-proportion basis
using the effective interest method and expensed as part of
financing costs in the statement of comprehensive income.
Derivative financial liabilities are initially recognised at fair
value of the date a derivative contract is entered into and
subsequently re-measured at each reporting date. The method of
recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the
nature of the item being hedged. The Company has not designated any
derivatives as hedges as at 31 March 2018 or 31 March 2019.
(c) Impairment
At each reporting date, the Company assess whether there is
objective evidence that a financial instrument has been impaired.
Impairment losses are recognised in the Statement of Comprehensive
Income.
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
Incremental costs directly attributable to the issue of new shares
or options for the acquisition of a business are not included in
the cost of the acquisition as part of the purchase
consideration.
Share based payments
The Company issues equity-settled share-based payments to
certain employees. Equity-settled share-based payments are measured
at fair value at the date of grant. The fair value determined at
the grant date of the equity-settled share-based payments is
expensed over the vesting period, based on the Company's estimate
of shares that will eventually vest. The fair value of options is
ascertained using a Black-Scholes pricing model which incorporates
all market vesting conditions. Where equity instruments are granted
to persons other than employees, the income statement is charged
with the fair value of goods and services received.
Critical accounting estimates and judgements
The Company makes judgements and assumptions concerning the
future that impact the application of policies and reported
amounts. The resulting accounting estimates calculated using these
judgements and assumptions will, by definition, seldom equal the
related actual results but are based on historical experience and
expectations of future events. The judgements and key sources of
estimation uncertainty that have a significant effect on the
amounts recognised in the financial statements are discussed
below.
Critical estimates
The following are the critical estimates that management has
made in the process of applying the entity's accounting policies
and that have the most significant effect on the amounts recognised
in the financial statements.
(a) Carrying value of exploration and evaluation assets
The Company monitors internal and external indicators of
impairment relating to its exploration and evaluation assets.
Management has considered whether any indicators of impairment have
arisen over certain assets relating to the Company's exploration
licenses. Management consider the exploration results to date and
assess whether, with the information available, there is any
suggestion that a commercial operation is unlikely to proceed. In
addition, management have considered the likely success of renewing
the licences, the impact of any instances of non-compliance with
license terms and are continuing with the exploration and
evaluation of the sites. After considering all relevant factors,
management were of the opinion that no impairment was required in
relation to the costs capitalised to exploration and evaluation
assets.
(b) Investments
The Company's interest in the Duyung PSC is classified under
IFRS 9 as a financial asset at fair value through profit or loss,
due to the Company's 10% shareholding and lack of significant
influence over operations. Financial assets designated as fair
value through the profit or loss are measured at fair value through
profit or loss at the point of initial recognition and subsequently
revalued at each reporting date. The purchase agreement detailed in
Note 8(c) has formed the basis for the fair value assessment at 31
March 2019.
1. Segment analysis
The Directors consider the Company to have three geographical
segments, being China (Block 29/11 project), Indonesia (Duyung PSC
project) and North America (Sacramento Basin project), which are
all currently in the exploration and evaluation phase. Corporate
costs relate to the administration and financing costs of the
Company and are not directly attributable to the individual
projects. The Company's registered office is located in the United
Kingdom.
Details China Indonesia USA Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000
31 March 2019
Revenue from continued
operations - - - - -
Cost of sales of continued
operations - - (47) - (47)
Segment result - - (47) - (47)
Unallocated corporate expenses - - - (1,022) (1,022)
-------- ---------- -------- ---------- --------
Operating loss - - (47) (1,022) (1,069)
Finance income/(expense) - - - 1,114 1,114
Fair value revaluation - 98 - - 98
-------- ---------- -------- ---------- --------
Profit/(loss) before taxation - 98 (47) 92 143
Tax benefit in current
year - - - 2 2
-------- ---------- -------- ---------- --------
Profit/(loss) after taxation - 98 (47) 94 145
-------- ---------- -------- ---------- --------
Total comprehensive profit/(loss)
for the financial year - 98 (47) 94 145
======== ========== ======== ========== ========
Segment assets 5,222 3,200 3,853 - 12,275
Unallocated corporate assets - - - 369 369
-------- ---------- -------- ---------- --------
Total assets 5,222 3,200 3,853 369 12,644
======== ========== ======== ========== ========
Segment liabilities - 175 - - 175
Unallocated corporate liabilities - - - 1,602 1,602
-------- ---------- -------- ---------- --------
Total liabilities - 175 - 1,602 1,777
======== ========== ======== ========== ========
Details China Indonesia USA Corporate Total
US$'000 US$'000 US$'000 US$'000 US$'000
31 March 2018
Revenue from continued operations - - 30 30
Profit on sale of discontinued
operations - - 73 - 73
Cost of sales of continued
operations - - (48) - (48)
Cost of sales of discontinued
operations - - (1) - (1)
Segment result - - 54 - 54
Unallocated corporate expenses - - - (923) (923)
-------- ---------- -------- ---------- --------
Operating loss - - 54 (923) (869)
Finance income/(expense) - - - (2,558) (2,558)
-------- ---------- -------- ---------- --------
Loss before taxation - - 54 (3,481) (3,427)
Tax benefit in current year - - - 797 797
-------- ---------- -------- ---------- --------
Loss after taxation - - 54 (2,684) (2,630)
-------- ---------- -------- ---------- --------
Total comprehensive loss
for the financial year - - 54 (2,684) (2,630)
======== ========== ======== ========== ========
Segment assets 4,596 2,722 3,254 - 10,572
Unallocated corporate assets - - - 1,711 1,711
-------- ---------- -------- ---------- --------
Total assets 4,596 2,722 3,254 1,711 12,283
======== ========== ======== ========== ========
Segment liabilities 41 - 81 - 122
Unallocated corporate liabilities - - - 2,769 2,769
-------- ---------- -------- ---------- --------
Total liabilities 41 - 81 2,769 2,891
======== ========== ======== ========== ========
2019 2018
US$'000 US$'000
2. Operating loss
The operating loss is stated after charging:
Audit and tax fees (90) (46)
Impairment of oil and gas properties (47) (48)
(137) (94)
Auditor's Remuneration
Amounts paid to BDO LLP and their associates in respect of
both audit and non-audit services:
Fees payable to the Company's auditor for the
audit of the Company annual accounts 44 32
Fees payable to the Company's auditor and its
associates in respect of:
- Other services relating to taxation 15 14
----------------------- -------------
59 46
2019 2018
US$'000 US$'000
3. Finance income/(expense)
Fair value movement on derivative liability 1,114 (2,004)
Revaluation loss on contingent consideration
receivable - (554)
Total finance income/(expense) 1,114 (2,558)
======================= =============
4. Directors' emoluments
Fees and salary Bonus payment Social security Short-term employment
contributions benefits (total)
2019 2018 2019 2018 2019 2018 2019 2018
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Non-Executive
Directors:
Patrick Cross 24 24 - - 2 2 26 26
John Laycock 14 14 - - 1 1 15 15
Frank
Brophy(a) - 32 - - - - - 32
Executive
Directors:
Thomas
Kelly(b) 293 296 - - - - 293 296
Gajendra
Bisht(c)(d) 220 185 - - - - 220 185
551 551 - - 3 3 554 554
========= ======== ======== ======== ============= ======== ============= ========
(a) Services provided by F J Brophy Pty Ltd for technical
services. Frank Brophy retired as a Non-Executive Director on 31
December 2017.
(b) Services provided by Apnea Holdings Pty Ltd. In addition to
the Director fees above, Apnea Holdings Pty Ltd was paid US$43,000
for capital raising services for the November 2018 Placement
detailed in the Strategic Report, which raised US$1.31 million. On
13 June 2017 Tom Kelly exercised 15,000,000 options at an exercise
price of GBP0.02. The closing share price of the Company on 13 June
2017 was GBP0.0388. On 20 February 2018 Tom Kelly exercised
15,000,000 options at an exercise price of GBP0.04. The closing
share price of the Company on 20 February 2018 was GBP0.119. These
options were not granted to Mr Kelly as part of his remuneration
but were acquired by Mr Kelly in an arms-length transaction. Mr
Kelly has not sold any shares during the reporting period.
(c) Services provided by Topaz Energy Pty Ltd for technical
services. Gajendra Bisht was appointed as an Executive Director on
14 June 2017. 75% of Mr Bisht's fees are capitalised to exploration
and evaluation expenditure (Note 7), in addition to 100% of
consulting fees Mr Bisht received pre-appointment as director.
(d) On 4 April 2017 the Company held a Shareholder General
Meeting whereby shareholders approved the allotment of 70,000,000
shares at 0.2p each to Topaz Energy Pty Ltd in relation with
services provided by Topaz Energy Pty Ltd (a company wholly owned
by and of which Gajendra Bisht is a Director) in relation to the
introduction of the opportunity and successful award of the permit
for 100% of the exploration rights for Block 29/11, China to the
Company. These shares were subsequently issued on 21 April 2017.
The share issue settled the total value of US$1,740,000 which was
accrued for at 31 March 2017, therefore is excluded from Mr Bisht's
Director fees in FY2018.
The average number of Directors was 4 during 2019 and 2018. The
highest paid director received US$293,000 (2018: US$296,000).
2019 2018
US$'000 US$'000
5. Taxation
UK corporation tax (benefit)/charge
at 20% - (396)
US corporation tax (benefit)/charge
at 35% - (924)
Total corporation tax (receivable)/payable - (1,320)
Factors affecting the tax charge for
the year
Profit/(loss) from continuing operations 143 (3,500)
Profit on discontinued operations - 73
Profit/(loss) on ordinary activities
before tax 143 (3,427)
Profit/(loss) on ordinary activities
at US rate of 21% (2018: 21%) 30 (720)
(Non-assessable income)/non-deductible
expenses (232) 534
Movement in provisions - 6
Over provision in prior year - (797)
Deferred tax assets not recognised 202 180
(2) (797)
Analysed as:
Tax (benefit)/charge on continuing operations (2) (797)
Tax (benefit)/charge on discontinued - -
operations
-------- --------
Tax (benefit)/charge in current year (2) (797)
Unrecognised deferred tax assets
Tax losses(a) 3,384 2,911
AMT Federal Credit 358 715
Temporary differences - exploration 1,331 1,425
Temporary differences - other 790 1,088
-------- --------
Deferred tax assets not brought to account 5,863 6,139
(a) If not utilised, carried forward tax losses begin to expire
in the year 2033.
2019 2018
6. Earnings per share
The basic earnings per share is derived by dividing the profit/(loss)
after taxation for the year attributable to ordinary shareholders
by the weighted average number of shares in issue being 417,825,466
(2018: 380,423,710).
Earnings per share from continuing
operations
Profit/(loss) after taxation from US$145,000 (US$2,703,000)
continuing operations
Earnings per share - basic 0.03c (0.71)c
Profit/(loss) after taxation from
continuing operations adjusted for US$145,000 (US$2,703,000)
dilutive effects
Earnings per share - diluted 0.03c (0.71)c
Earnings per share from discontinued
operations
Profit after taxation from discontinued - US$73,000
operations
Earnings per share - basic - 0.02c
Profit after taxation from discontinued
operations adjusted for dilutive effects - US$73,000
Earnings per share - diluted - 0.02c
For the current financial year there are dilutive options on issue.
The weighted average number of dilutive shares is 432,825,466.
Details of the potentially issuable shares that could dilute earnings
per share in future periods are set out in Notes 11 and 13. For
the prior financial year the exercise of the options was anti-dilutive
and as such the diluted earnings per share was the same as the
basic loss per share.
2019 2018
US$'000 US$'000
7. Oil and gas properties: exploration
and evaluation
Balance brought forward 7,820 87
Additions(a) 1,302 7,781
Impairment(b) (47) (48)
Net book value 9,075 7,820
======== ========
(a) The Company was awarded its permit in China in December
2016. Block 29/11 is located in the Pearl River Mouth Basin,
offshore China. Empyrean is operator with 100% of the exploration
right of the Permit during the exploration phase of the project.
The initial contractual term is for two years with a work programme
commitment of acquisition, processing and interpretation of
580km(2) of 3D seismic data. In May 2017 the Company also acquired
a working interest in the Sacramento Basin, California. Empyrean
entered into a joint project with ASX listed Sacgasco Limited, to
test a group of projects in the Sacramento Basin, California,
including two mature, multi-TcF gas prospects in Dempsey (EME 30%)
and Alvares (EME 25%) and also further identified follow up
prospects along the Dempsey trend (EME 30%).
(b) In light of current market conditions, little or no work has
been completed on the Riverbend or Eagle Oil projects in the year
and no substantial project work is forecast for either project in
2019/20 whilst the Company focuses on other projects. Whilst the
Company maintains legal title it has continued to fully impair the
carrying value of the asset at 31 March 2019.
Project Operator Working 2019 Carrying 2018 Carrying
Interest Value Value
US$'000 US$'000
Exploration and
evaluation
China Block 29/11 Empyrean Energy 100%* 5,222 4,596
Sacramento Basin Sacgasco 25-30% 3,853 3,224
Riverbend Huff Energy 10% - -
Eagle Oil Pool Development Strata-X 58.084% - -
9,075 7,820
*In the event of a commercial discovery, and subject to the Company
entering PSC, CNOOC Limited will have a back in right to 51% of
the permit. As at the date of these financial statements no commercial
discovery has been made.
2019 2018
US$'000 US$'000
8. Investments
Balance brought forward 2,572 -
Additions(a) 530 2,572
Fair value revaluation(b)(c) 98 -
-------- --------
Total investments 3,200 2,572
======== ========
(a) The Company acquired a 10% working interest in the Duyung
PSC, Indonesia during the 2018 financial year. For further
information, please refer to the Operational Review.
(b) The Company's interest in the Duyung PSC is classified under
IFRS 9 as a financial asset at fair value through profit or loss,
due to the 10% shareholding and lack of significant influence over
operations. Financial assets designated as fair value through
profit or loss are measured at fair value through profit or loss at
the point of initial recognition and subsequently revalued at each
reporting date. The purchase agreement detailed in Note 8(c) below
has formed the basis for the fair value assessment at 31 March
2019.
(c) In February 2019 Empyrean announced that it had entered into
a binding, conditional purchase agreement (the Agreement) pursuant
to which AIM listed Coro would acquire a 15% interest in the Duyung
PSC from WNEL for aggregate consideration in cash and Coro shares
of US$4.8 million (of which Empyrean received US$295,000 in cash
and 6,090,504 Coro shares) and the contribution of US$10.5 million
by Coro toward the 2019 drilling campaign at the Mako gas field.
The cash and share component of the consideration will be paid pro
rata to the existing owners of WNEL, being Empyrean, which
currently had a 10% effective interest in the Duyung PSC, and
Conrad Petroleum Ltd, which currently had a 90% effective interest
in the Duyung PSC, each through shareholding in WNEL.
The consideration paid comprised US$2.95 million in cash and
US$1.85 million in the form of 60,905,037 new ordinary shares in
Coro. Empyrean received cash consideration of US$295,000 and
Consideration Shares with a value of US$185,000 for the transfer to
Coro of 1.5% of its current 10% interest in the Duyung PSC,
reducing its interest to 8.5% once the transaction is completed
(currently only subject to government and regulatory approval).
As at 31 March 2019, Empyrean had received part cash proceeds of
US$175,000, recorded as a Prepayment Received in Trade and Other
Payables (Note 10). The remaining cash and share components were
received in April 2019.
2019 2018
US$'000 US$'000
9. Trade and other receivables
Trade and other receivables 1 1
Accrued revenue 30 30
VAT receivable 6 2
Bank guarantee - Duyung PSC - 150
-------- ------------------
Total trade and other receivables 37 183
======== ==================
2019 2018
US$'000 US$'000
10. Trade and other payables
Trade payables 157 283
Accrued expenses 42 91
Prepayments received - proceeds from 175 -
disposal of investment
Total trade and other payables 374 374
======== ==================
2019 2018
US$'000 US$'000
11. Derivative financial liabilities
Opening balance 2,463 459
Fair value movement (Note 3) (1,114) 2,004
Closing balance 1,349 2,463
======== ==================
Derivative financial liabilities represent the fair value
of 15,000,000 options granted to Macquarie Bank and linked
to the extension of a now repaid loan facility held with Macquarie
Bank. As announced on 13 March 2017, the Options were purchased
by Apnea Holdings Pty Ltd, a company which is wholly owned
by Tom Kelly, CEO of Empyrean. The options were granted on
27 July 2015 and are referred to as the Tranche 4 options.
At the date of grant these were considered to fall outside
of the scope of IFRS 2 and unlike Tranches 1-3 were not accounted
for as a share-based payment. The Macquarie Bank loan facility
was repaid in 2016 but the options did not expire at that
point.
During the 2017 financial year, the Company modified the exercise
price of the options. This was deemed to be a substantial
modification under IAS 32 and IAS 39. The value of the derivative
financial liability was extinguished at that point and the
fair value of the modified options recognised at the date
that they were granted. As a financial liability at fair value
through profit or loss these were revalued at period end.
The fair value is measured using a Black-Scholes Model with
the following inputs:
Fair value of share options and assumptions
31 March 2019 31 March 2018
Grant date 27 July 2015 27 July 2015
Expiry date 26 July 2019 26 July 2019
Share price GBP0.09 GBP0.138
Exercise price GBP0.02 GBP0.02
Volatility 77% 79%
Option life 0.33 1.33
Expected dividends - -
Risk-free interest rate (based on national government
bonds) 0.76% 0.74%
Expected volatility was determined by calculating the historical
volatility of the Company's share price over the expected
remaining life of the options.
Details of financier options outstanding at 31 March 2019
and 31 March 2018 were as follows:
Option Class Financier
options (Tranche
4)
Grant Date 27 July 2015
---------------------------------------------------------------------------- -------- ---------------------
Options awarded 15,000,000
---------------------------------------------------------------------------- -------- ---------------------
Exercise price (GBP) GBP0.02
---------------------------------------------------------------------------- -------- ---------------------
Expiry date 26 July 2019
---------------------------------------------------------------------------- -------- ---------------------
2019 2018
US$'000 US$'000
12. Reconciliation of net loss to operating
cash flows
Net profit/(loss) before taxation 143 (3,500)
Finance (income)/expense (1,114) 2,004
Fair value revaluation (98) -
Revaluation loss on contingent consideration
receivable - 554
Forex loss/(gain) 49 (114)
Impairment - oil and gas properties 47 48
Share based payments 60 10
(Increase)/decrease in trade receivables
relating to operating activities (5) 64
(Decrease) in trade payables relating
to operating activities (53) (97)
Increase in provisions - 29
Net cash outflow from operating activities
before taxation (971) (1,002)
---------------- --------
Receipt of corporation tax 1,322 17
---------------- --------
Net cash inflow/(outflow) from operating
activities 351 (985)
================ ========
13. Called up share capital
Issued and fully paid 2019 2018
US$'000 US$'000
424,275,110 (2018: 413,995,110) ordinary
shares of 0.2p each 1,232 1,205
Opening balance (2019 number: 413,995,110)
(2018: 239,833,853) 1,205 754
Placement (number: 10,280,000) 27 -
Share issue (number: 70,000,000) - 180
Share issue (number: 34,316,551) - 89
Exercise of options (number: 15,000,000) - 38
Placement (number: 16,080,000) - 41
Placement (number: 12,000,000) - 31
Placement (number: 11,764,706) - 31
Exercise of options (number: 15,000,000) - 41
Closing balance (2019 number: 424,275,110)
(2018: 413,995,110) 1,232 1,205
---------------- --------
Share options
The number and weighted average exercise prices of share
options are as follows:
Weighted average exercise Weighted average exercise
price price
Number Number
of options of options
2019 2019 2018 2018
Outstanding at the
beginning of the year GBP0.042 17,500,000 GBP0.028 45,000,000
Issued during the year(a) - - GBP0.170 2,500,000
Exercised during the year - - GBP0.030 (30,000,000)
Outstanding at the end of
the year GBP0.042 17,500,000 GBP0.042 17,500,000
============================ ============ ========================== ==============
(a) On 20 January 2018, 2,500,000 unlisted options were issued to the Company Secretary, Jonathan
Whyte. The options have an exercise price of GBP0.17, expire on 30 January 2021 and have a
vesting date of 20 January 2019. The options are being expensed over the life of the options,
resulting in a share-based payment expense of US$59,608 to 31 March 2019 (US$9,799 to 31 March
2018).
Valuation and assumptions of employee options
31 March 2019 31 March 2018
Grant date 30 Jan 2018 30 Jan 2018
Expiry date 30 Jan 2021 30 Jan 2021
Share price GBP0.12 GBP0.12
Exercise price GBP0.17 GBP0.17
Volatility 79% 79%
Option life 3.00 3.00
Expected dividends - -
Risk-free interest rate (based on national government
bonds) 0.73% 0.73%
The options outstanding at 31 March 2019 have an exercise price in the range of GBP0.02 to
GBP0.17 (2018: GBP0.02 to GBP0.017) and a weighted average remaining contractual life of 0.54
years (2017: 1.54 years). The remaining 15,000,000 financier options have vested and are fully
exercisable at the date of this report.
Details of share options outstanding at 31 March 2019 and 31 March 2018 were as follows:
Option Class Employee Options Financier options (Tranche 4)
Grant Date 20 January 2018 27 July 2015
----------------- ------------------------------
Options awarded 2,500,000 15,000,000
----------------- ------------------------------
Exercise price (GBP) GBP0.17 GBP0.02
----------------- ------------------------------
Expiry date 20 January 2021 26 July 2019
----------------- ------------------------------
Details of share options outstanding at 31 March 2018 are as
follows:
Option Class Employee Options Financier options (Tranche 4)
Grant Date 20 January 2018 27 July 2015
----------------- ------------------------------
Options awarded 2,500,000 15,000,000
----------------- ------------------------------
Exercise price (GBP) GBP0.17 GBP0.02
----------------- ------------------------------
Expiry date 20 January 2021 26 July 2019
----------------- ------------------------------
14. Reserves
Reserve Description and purpose
Share premium Amount subscribed for share capital in excess
of nominal value.
Share based payment Records items recognised as expenses on valuation
reserve of employee share options.
Retained losses All other net gains and losses and transactions
with owners not recognised elsewhere.
15. Related party transactions
Directors are considered Key Management Personnel for the purposes
of related party disclosure.
There were no other related party transactions during the year
ended 31 March 2019 other than those payments made in regard to
Director remuneration disclosed in Note 4.
16. Financial risk management
The Company manages its exposure to credit risk, liquidity risk,
foreign exchange risk and a variety of financial risks in accordance
with Company policies. These policies are developed in accordance
with the Company's operational requirements. The Company uses different
methods to measure and manage different types of risks to which
it is exposed. These include monitoring levels of exposure to interest
rate and foreign exchange risk and assessment of prevailing and
forecast interest rates and foreign exchange rates. Liquidity risk
is managed through the budgeting and forecasting process.
Credit Risk
Exposure to credit risk relating to financial assets arises from
the potential non-performance by counterparties of contract
obligations that could lead to a financial loss to the Company.
Credit risk is managed through the maintenance of procedures
(such procedures include the utilisation of systems for approval,
granting and removal of credit limits, regular monitoring of
exposures against such limits and monitoring the financial
stability of significant customers and counterparties), ensuring to
the extent possible, that customers and counterparties to
transactions are of sound credit worthiness. Such monitoring is
used in assessing receivables for impairment. Credit terms are
generally 30 days from invoice date.
Risk is also minimised by investing surplus funds in financial
institutions that maintain a high credit rating.
Credit risk related to balances with banks and other financial
institutions are managed in accordance with approved Board policy.
The Company's current investment policy is aimed at maximising the
return on surplus cash, with the aim of outperforming the benchmark
within acceptable levels of risk return exposure and to mitigate
the credit and liquidity risks that the Company is exposed to
through investment activities.
The following table provides information regarding the credit
risk relating to cash and money market securities based on Standard
and Poor's counterparty credit ratings.
2019 2018
US$'000 US$'000
Cash and cash equivalents
AA- rated 332 388
------------ -----------
Total cash and cash equivalents 332 388
============ ===========
Liquidity risk
Liquidity risk arises from the possibility that the Company might
encounter difficulty in settling its debts or otherwise meeting
its obligations related to financial liabilities. The Company manages
liquidity risk by maintaining sufficient cash or credit facilities
to meet the operating requirements of the business and investing
excess funds in highly liquid short-term investments. The Company's
liquidity needs can be met through a variety of sources, including
the issue of equity instruments and short or long-term borrowings.
Alternative sources of funding in the future could include project
debt financing and equity raisings, and future operating cash flow.
These alternatives will be evaluated to determine the optimal mix
of capital resources.
The following table details the Company's non-derivative financial
instruments according to their contractual maturities. The amounts
disclosed are based on contractual undiscounted cash flows. Cash
flows realised from financial assets reflect management's expectation
as to the timing of realisation. Actual timing may therefore differ
from that disclosed. The timing of cash flows presented in the table
to settle financial liabilities reflects the earliest contractual
settlement dates.
Less than 6 months 1 to Total
6 months to 1 year 6 years
US$'000 US$'000 US$'000 US$'000
Trade and other payables (2019) 157 - - 157
Trade and other payables (2018) 283 - - 283
Capital
In managing its capital, the Company's primary objective is to
maintain a sufficient funding base to enable the Company to meet
its working capital and strategic investment needs. In making
decisions to adjust its capital structure to achieve these aims,
through new share issues, the Company considers not only its
short-term position but also its long-term operational and
strategic objectives.
Foreign exchange risk
The Company operates internationally and is exposed to foreign
exchange risk arising from various currency exposures. Foreign
exchange risk arises from future commitments, assets and
liabilities that are denominated in a currency that is not the
functional currency of the Company. The Company's borrowings and
deposits are largely denominated in US dollars. Currently there are
no foreign exchange hedge programmes in place. However, the Company
treasury function manages the purchase of foreign currency to meet
operational requirements.
As at 31 March 2019 the Company's net exposure to foreign
exchange risk was as follows:
2019 2018
US$'000 US$'000
Net foreign currency financial assets
Cash and cash equivalents - GBP 196 380
-------- --------
Total net exposure 196 380
======== ========
The effect of a 10% strengthening of the USD against the GBP at
the reporting date on the GBP-denominated assets carried within the
USD functional currency entity would, all other variables held
constant, have resulted in an increase in post-tax loss for the
year and decrease in net assets of US$19,600 (2018: US$38,000).
Fair value
Fair values are those amounts at which an asset could be
exchanged, or a liability settled, between knowledgeable, willing
parties in an arm's length transaction. Fair values may be based on
information that is estimated or subject to judgement, where
changes in assumptions may have a material impact on the amounts
estimated. Areas of judgement and the assumptions have been
detailed below.
Where possible, valuation information used to calculate fair
value is extracted from the market, with more reliable information
available from markets that are actively traded. In this regard,
fair values for listed securities are obtained from quoted market
prices. Where securities are unlisted and no market quotes are
available, fair value is obtained using discounted cash flow
analysis and other valuation techniques commonly used by market
participants.
The following methods and assumptions are used to determine the
net fair values of financial assets and liabilities:
-- Cash and short-term investments - the carrying amount
approximates fair value because of their short term to
maturity;
-- Trade receivables and trade creditors - the carrying amount
approximates fair value;
-- Derivative financial assets and liabilities - initially
recognised at fair value through profit and loss at the date the
contract is entered into and subsequently re-measured at each
reporting date the fair value of the derivative financial liability
options is calculated using a Black-Scholes Model. Measurement
inputs include share price on measurement date, exercise price of
the instrument, expected volatility (based on weighted average
historic volatility adjusted for changes expected due to publicly
available information), weighted average expected life of the
instruments (based on historical experience and general option
holder behaviour), expected dividends, and the risk-free interest
rate (based on government bonds); and
-- Investments - The Company's interest in the Duyung PSC is
classified under IFRS 9 as a financial asset at fair value through
profit or loss, due to the Company's 10% shareholding and lack of
significant influence over operations. Financial assets designated
as fair value through the profit or loss are measured at fair value
through profit or loss at the point of initial recognition and
subsequently revalued at each reporting date. The purchase
agreement detailed in Note 8(c) has formed the basis for the fair
value assessment at 31 March 2019.
No financial assets and financial liabilities are readily traded
on organised markets in standardised form.
Financial Instruments Measured at Fair Value
The financial instruments recognised at fair value in the
statement of financial position have been analysed and classified
using a fair value hierarchy reflecting the significance of the
inputs used in making the measurements. The fair value hierarchy
consists of the following levels:
-- Quoted prices in active markets for identical assets or
liabilities (Level 1);
-- Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (as
prices) or indirectly (derived from prices) (Level 2); and
-- Inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
Financial instruments at fair value and methods used to estimate
the fair value are summarised below:
Financial Instruments at Fair Value 31 March 2019 31 March 2018
Fair Value Fair Value
US$'000 US$'000
Financial assets
Investments (Level 2)(a) 3,200 -
-------------- --------------
Total financial assets 3,200 -
============== ==============
Financial liabilities
Derivative financial liability (Level
3)(b) 1,349 2,463
-------------- --------------
Total financial liabilities 1,349 2,463
============== ==============
(a) The Company's interest in the Duyung PSC is classified under
IFRS 9 as a financial asset at fair value through profit or loss.
The purchase agreement detailed in Note 8(c) has formed the basis
for the fair value assessment at 31 March 2019.
(b) The fair value of the Level 3 derivative financial liability
has been determined using a Black-Scholes option pricing model,
refer to Note 11 for detailed valuation inputs and assumptions.
Increases or decreases in significant unobservable inputs would
cause an increase or decrease in fair value.
Financial instruments by category are summarised below:
Financial Instruments Fair Value Through Amortised Cost
by Category Profit or Loss
31 March 31 March 31 March 31 March
2019 2018 2019 2018
US$'000 US$'000 US$'000 US$'000
Financial assets
Cash and cash equivalents - - 332 388
Trade and other receivables - - 37 183
Investments 3,200 - - 2,572
---------- --------- --------- ---------
Total financial assets 3,200 - 369 3,143
========== ========= ========= =========
Financial liabilities
Trade and other payables - - 157 283
Derivative financial
liability 1,349 2,463 - -
---------- --------- --------- ---------
Total financial liabilities 1,349 2,463 157 283
========== ========= ========= =========
Cash and cash equivalents
Cash and short-term deposits in the Statement of Financial
Position comprise cash at bank and in hand and short-term deposits
with an original maturity of three months or less. For the purposes
of the Cash Flow Statement, cash and cash equivalents consist of
cash and cash equivalents as defined above and which are readily
convertible to a known amount of cash and are subject to an
insignificant risk of change in value, net of outstanding bank
overdrafts.
17. Events after the reporting date
In April 2019 Empyrean advised that it has received its pro-rata
share of the final cash and share component of the Coro
transaction. The total cash and share consideration paid by Coro
was US$2.95 million in cash and US$1.85 million in Coro shares, to
acquire a 15% interest in the Duyung PSC. Empyrean received cash of
US$295,000 and shares with a value of US$185,000. Coro also paid
US$10.5 million toward the 2019 drilling campaign at the Duyung
PSC.
In April 2019 Empyrean, Conrad Petroleum, and Coro agreed the
upcoming drilling programme in the Duyung PSC. The campaign will
comprise two wells, one exploration well designed to test the
Tambak prospect beneath the central area of the Mako gas field, and
one appraisal well designed to appraise the intra-Muda sandstone
reservoir in the southern area of the Mako field. The drilling
campaign is anticipated to start in Q4 2019, with each well taking
approximately 33 days to drill and test. The gross cost of the
upcoming drilling programme is expected to be approximately
US$17-19 million on a fully tested basis, including rig
mobilisation and de-mobilisation, with the high range assuming
exploration well success. As part of the transaction to acquire its
15% interest in the PSC, Coro will be contributing US$10.5 million
to the total cost of the drilling campaign with the balance to be
covered by the Partners pro rata to their respective interests.
In May 2019 the Company announced that comprehensive analysis of
the excellent quality 3D seismic data acquired by Empyrean during
2017 has confirmed the presence of well-defined low reflectivity
zones ('gas clouds') in the overburden strata above the Jade and
Topaz structures on offshore China Block 29/11. On good quality 3D
seismic, the presence of gas clouds has been used as an effective
exploration tool in prolific basins worldwide including the North
Sea, Gulf of Mexico, and the Malaysian Sabah basin, resulting in
the discovery of significant amounts of oil. CNOOC gave
authorisation to Empyrean to independently analyse their 3D seismic
data immediately west of Block 29/11 over 4 large oil discoveries
located close to Block 29/11. This analysis confirmed the presence
of gas clouds in the overburden on all 4 discoveries. At the same
time, three dry wells drilled by CNOOC in proximity to the
discoveries, outside Block 29/11, have been analysed, and the 3D
seismic data over these wells confirms the lack of any gas clouds.
Similar technical work was carried out over two dry wells in Block
29/11. These wells were drilled prior to Empyrean's involvement and
without any 3D seismic data. Both wells confirm the lack of any gas
clouds in overburden. As a result, it is Empyrean's interpretation
that the presence of well-defined gas clouds in the overburden on
both the Jade and Topaz structures mitigates the exploration risk
on these prospects significantly. The Pearl prospect does not have
100% coverage with 3D seismic to enable the same comprehensive
analysis and assessment at this point in time.
On 9 July 2019 Tom Kelly exercised 15,000,000 options at an
exercise price of GBP0.02. The closing share price of the Company
on 9 July 2019 was GBP0.0905.
No other matters or circumstances have arisen since the end of
the financial year which significantly affected or could
significantly affect the operations of the Company, the results of
those operations, or the state of affairs of the Company in future
financial years.
18. Committed expenditure
The Company has met all commitments on all three key projects
during the current financial year.
Block 29/11 offshore China
The Company's committed work program for the GSA phase for Block
29/11 included acquisition, processing and interpretation of 500km2
for a 3D seismic survey, and a financial commitment of US$3
million. The Company exceeded the work program commitments during
the 2018 financial year.
Having successfully completed the committed work program for the
first phase GSA, the Company exercised its option to enter a PSC on
the Block, on pre-negotiated terms, with CNOOC on 30 September
2018, with the date of commencement of implementation of the PSC
being 13 December 2018. The first phase of the contract is for 2.5
years with a commitment to drill one exploration well to a depth of
2,500m or to the Basement Formation.
Additional commitments for the 2020 financial year consist of an
annual assistance fee to CNOOC of US$60,000 and an annual personnel
representative fee to CNOOC of approximately US$160,000.
Duyung PSC offshore Indonesia
The Indonesian regulators have approved the Plan of Development
and the drilling programme for the Duyung PSC has been approved.
The gross cost of the programme is expected to be approximately
US$17-19 million to the joint venture partners on a fully tested
basis, including rig mobilisation and de-mobilisation, with the
high range assuming exploration well success. Financial commitments
and related cash calls will be finalised ahead of the drilling
commencement in Q4 2019. As advised, Coro Energy are contributing
USD$10.5 million to the costs of the drilling programme.
Depending on the results of the exploration and appraisal well
program, Empyrean expects its net costs to be approximately
US$550,000 to US$725,000.
Sacramento Basin assets onshore California
The Company earned a 30% interest in the Dempsey Prospect by
paying US$2,100,000 towards the costs of drilling the Dempsey 1-15
exploration well. These drilling costs had a promoted cap of
US$3,200,000 and the Company paid its share of additional costs at
Dempsey 1-15, including completion costs. At the time of this
report, the work plan, cost estimates and timing of further
expenditure for the Dempsey. prospect have not been finalised. The
Company will earn a 25% interest in the Alvares appraisal prospect
by paying 33.33% of the costs of the Alvares appraisal well. At the
time of this report, the work plan, cost estimates and timing of
expenditure for the Alvares prospect have not been finalised. The
Company incurs annual cash calls for its share of associated lease
obligations.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR CKCDNFBKKDFK
(END) Dow Jones Newswires
August 09, 2019 04:55 ET (08:55 GMT)
Empyrean Energy (LSE:EME)
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