Business, Operational and Financial Update - Q1
17 April 2019
COLUMBUS ENERGY RESOURCES PLC
("Columbus" or the "Company")
Business, Operational and Financial Update - Q1 2019
Columbus, the oil and gas producer and explorer focused on onshore Trinidad with the ambition to grow in South America, is pleased to provide an update on business, operational and financial activities during Q1 2019.
The Company's Executive Chairman, Leo Koot, has been interviewed by Proactive Investors and the recording of this interview is available on the Company's website on the link below:
Key Focus of Company in Q1 2019:
During Q1 2019, the Company was seeking to achieve the following objectives. The Company is pleased to announce that it has significantly achieved these objectives.
· Progress the detailed technical work on the South West Peninsula ("SWP") to identify well targets, de-risk the portfolio and establish a drilling programme which the Company would commence in Q3 2019, subject to relevant regulatory approvals. The objective has been to unlock, in a timely manner, this transformational opportunity, where the commercial terms are significantly more advantageous when compared to the Company's other production fields.
· Progress M&A opportunities sufficiently to enable Columbus to announce the establishment of a footprint in another South American country in 1H 2019 and which will enable the Company to grow production and commercial returns within that country within a short (1-2 year) timescale. Any opportunities should be complementary to existing assets and fundable from existing resources or new funds which are not dilutive for current shareholders.
· Optimise profits from operations and manage costs from the Company's producing assets, in a lower oil price environment where the impact of Special Petroleum Tax ("SPT") on cashflows is very real, not necessarily through continual production growth but through a programme of maximising commercial returns on each asset, through implementing cost reductions, where necessary, and managing well work activities. Focus has been not to simply grow production (for growth's sake) but to improve commercial returns on the assets through more effective well work and operational activities.
· To progress discussions for renewing the Company's Incremental Production Service Contracts, in particular for the Inniss-Trinity field and Goudron field. The Company is keen to ensure that the IPSC terms motivate operators to invest funds to grow production including at times of lower oil prices and notwithstanding the effect of SPT on cashflows.
Key Highlights in Q1 2019:
o Company has chosen a well location for the SWP, to be funded from available resources, and is undertaking the necessary pre-drill activities to commence drilling in Q3 2019, subject to receiving relevant Governmental approvals.
o Detailed technical work undertaken by EPI Group, independent geoscience specialists, on the SWP and follow-up drilling locations, the works largely complete with the final report due mid Q2 2019.
· Inniss-Trinity CO₂ Project:
o Company continues to progress the Inniss-Trinity CO₂ project with its partner Predator Oil & Gas Holdings plc ("Predator") and has commenced site preparation activities.
· New Country Entry:
o Company is in exclusive discussions for award of a concession in a South American country, after a successful three-month tender process. Potential for low-cost entry into a discovered onshore oilfield with a detailed work programme for 2019-2021 submitted as part of the Company's bid. Announcement of new concession forecast for late Q2/early Q3 2019.
o A number of additional M&A opportunities being considered, consistent with Company's strategy roadmap.
o Net cashflows from operations increased marginally during quarter despite lower production and lower average oil prices. Average production of 602 barrels of oil per day ("bopd") in Q1 2019 (Q4 2019: average of 670 bopd).
o Peak production of 1,000 bopd achieved in late January, production exceeding 860 bopd on three occasions during quarter confirming the combined field potential when economic and commercial conditions allow a more aggressive well work programme.
o Rig usage and opex costs being managed carefully to reflect current commercial circumstances and oil price environment. Focus remains on profit and not production growth.
o Cash balance of US$2.06 million (un-audited) at 31 March 2019 (31 December 2018: US$2.60 million, un-audited). Excess cashflow from operations largely used for technical work on the SWP and debt reduction during quarter.
o Average realised sales price from operations in Q1 2019: US$55.67/bbl (US$57.58/bbl in Q4 2018) - peaking at US$58.17/bbl in March 2019.
o Increased cashflow positive position achieved from operations, delivering US$0.40 million (Q4 2018: US$0.37 million) - despite 14% reduction in Gross Revenues (in Q1 2019 compared to Q4 2018).
o Outstanding Lind debt facility reduced to US$0.26 million at 31 March 2019 (US$0.40 million at end December 2018).
o New US$3.25 million Lind facility, announced in July 2018, allowed to lapse in January 2019 without drawdown.
o The initial stages of decommissioning of the La Lora Concession has recently commenced, consisting of removal of above ground facilities. Costs expected to be met from sale of equipment and scrap.
Leo Koot, Executive Chairman of Columbus, commented:
"It has been a very busy few months on many fronts as we have sought to ensure we are in a position to start unlocking the exciting SWP opportunities, expand our footprint into other countries, whilst managing our operations in Trinidad during a period when market and commercial conditions were not conducive to the continued chase for extra barrels of production. We have also been working with Predator and the relevant Trinidad authorities on securing the necessary approvals to enable the planned CO₂ project on Inniss-Trinity to commence in late Q2/early Q3 2019.
Nearly two years since I started with Columbus, we are now almost ready to start unlocking the huge potential that exists in the SWP, an asset located just a few miles from Venezuela and part of the biggest hydrocarbon basin in the world. During the past two years, we have successfully re-negotiated the commercial terms of the SWP licences in a manner which makes them far more attractive than the commercial terms we have for the other assets in our portfolio. Specialist independent technical consultants have also been working with our team to de-risk the SWP portfolio and identify well locations which will allow us to carry out a suitably risked drilling campaign over the next 6-24 months. I am delighted to confirm that the first well location has been chosen and we are undertaking the necessary pre-drill activities to allow us to commence this well in Q3 2019, subject to the necessary regulatory approvals. This well will be funded from available resources and will hopefully provide the stepping stone to an exciting and transformational drilling and development campaign in this prolific area over the coming months and years.
At the same time, we have been working to secure a concession in a new country for over a year and have recently successfully come through a three-month tender process. This would be a low-cost entry into an established hydrocarbons province. The Company has submitted a proposed three-year work programme for the concession and we hope to announce the signing of that contract late Q2/early Q3 2019. This entry into another country will start the process of expanding our footprint and reducing our exposure to just one country of operation. We believe our team have the skills to enable us to unlock a number of opportunities in that country and the region.
As I mentioned in early January, we have been managing our operations in Trinidad in a different manner, focussing on optimising profit as opposed to simply growing the total production numbers. With lower oil prices and the impact of SPT between US$50-US$60/bbl, we have taken action to reduce our rig activity and we have also reduced operating costs in a number of other areas. Despite the lower production and resultant lower revenues, we have slightly increased our cash netback from operations and will look to continue to maintain a tight ship until the economic conditions and commercial terms allow us to pursue real production growth again. There are more effective ways of spending operational profits at such times and during Q1 2019 the technical work on the SWP, the Inniss-Trinity CO₂ project and M&A activities took precedence over production growth.
The next quarter will be busy as we prepare for the SWP drilling campaign and progress other M&A opportunities. In Q1 2019, we made a number of offers for interesting opportunities in four countries and will seek to unlock those opportunities still in play if they make good sense for our shareholders. We believe we can bring new funding for the right opportunities in a manner which will be value-accretive for our shareholders, should these funds be required. These are exciting times and I believe Columbus is in a good place to take advantage of the various opportunities that our team have identified through our extensive networks."
· The Company has continued to progress the key strategic pursuit of exploration drilling in the SWP. A risked portfolio has been generated consisting of over a dozen shallow and deep prospects and leads. These range in size from an estimated 20mmbbl up to 400mmbl with the potential for stacked vertical targets. The Company intends to drill a risked portfolio of prospects commencing with a well in Q3 2019.
· The first planned well targets a Middle Cruse reservoir quality test within the area covered by existing Certificate of Environmental Compliance approvals.
· Following the completion of the first well, the Company may seek third parties to farm-in to the SWP when justified by cost and/or risk sharing.
Inniss-Trinity CO₂ Pilot Project:
· Heritage confirmed in mid-March 2019 that it had approved the conduct of the CO₂ pilot project, subject to all requisite regulatory consents.
Operations & Production:
· Producing field operational decision making has employed the strategy of assigning well work priorities based on short payback times for remedial and incremental workover rig jobs. This was carried out whilst maintaining momentum on targeted water injection in Goudron and planning for the CO₂ pilot project in Inniss Trinity. Production exceeded 860 bopd on three occasions during Q1 2019 with 1,000 barrels of oil per day ("bopd") being achieved in late January (Q4 2018: peak of 1,021 bopd in late December 2018).
· Lower production was due to significantly reduced well work activity. A single workover rig was utilised continuously in Q1 2019 compared to up to 4 units simultaneously in Q4 2018. Oil prices in the quarter remained in the $50-60/bbl zone where the step change in SPT adversely impacts short term incremental well work returns.
· Company prioritized preparations for the CO₂ pilot project in Inniss Trinity over the planned drilling of an ER-105 compartment well in South Erin.
· The water injection Pilot A implementation in the Goudron field that commenced in July 2018 through injection into GY-667, continues to show evidence of direct pressure communication with target offset production well GY-665 but without any sustained increases in oil production. Plans are in place to commence water injection into GY-209 in Q2 2019 to test support to offset well GY-664 as a continuation of Pilot A.
· An inventory of incremental stimulation workovers was generated for future implementation based on rig availability and hurdle economic returns being met. Peak instantaneous rates continue to demonstrate the upside potential of all the producing fields.
· The operational management of the Icacos Field was taken over by the Company on 1 January 2019.
· The Company continues to remain focussed on producing profitable barrels of oil rather than volume.
· Snowcap-2ST1 testing proved the existence of flowing oil from the equivalent reservoir unit to Snowcap-1. The Company will review whether the expected Snowcap levels of production justify continued investment in the field.
Health, Safety & Environment:
· No Lost Time Incidents were recorded during the quarter on any of the field operations.
· Company progressed Certificate of Environmental Compliance ("CEC") covering the planned Inniss-Trinity CO₂ injection pilot facilities.
· Gross Revenues of US$2.78 million achieved (Q4 2018: US$3.23 million) - reduction due to lower average production and lower average oil price achieved over the quarter.
· US$0.33 million of additional funds also held in escrow as restricted cash (31 December 2018: US$0.48 million).
· Group is forecast to remain operationally cash flow positive in 2019.
· Effective as of 1 January 2019, the Company entered into a new agreement with Gelco Energy Consultants ("Gelco") to provide Managing Director services for Columbus's Trinidad operations. Gelco will receive 50% of its payment in Company shares for the first twelve months of the term, calculated at a share price of 4.3 pence per share.
This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
Qualified Person's statement:
The information contained in this document has been reviewed and approved by Stewart Ahmed, Chief Technical Officer (Trinidad), for Columbus Energy Resources plc. Mr Ahmed has a BSc in Mining and Petroleum Engineering and is a member of the Society of Petroleum Engineers. Mr Ahmed has over 33 years of relevant experience in the oil industry.
Columbus Energy Resources plc
Leo Koot / Gordon Stein
+44 (0)20 7203 2039
VSA Capital Limited
Financial Adviser and Broker
Andrew Monk / Andrew Raca
+44 (0)20 3005 5000
Beaumont Cornish Limited
Roland Cornish / Rosalind Hill Abrahams
+44 (0)20 7628 3396
Public and Investor Relations
+44 (0)20 3757 4983
Notes to Editors:
Columbus Energy Resources Plc is an oil and gas producer and explorer focused on onshore Trinidad with the ambition to grow in South America. The Columbus Energy group has five producing fields, an appraisal/development project and a highly prospective exploration portfolio in the South West Peninsula ("SWP"), which lies in the extreme southwest of Trinidad and consists of stacked shallow and deep prospects. Columbus is cashflow positive and aims to create transformational growth by developing its portfolio in a capital efficient and disciplined manner.
Columbus is guided by the following core values; safe and sustainable, stronger together, creative excellence, positive energy, totally trusted and personally responsible.
The Company is led by an experienced Board and senior management team with supportive shareholders and intends on leveraging its expertise and experience to build an attractive and diversified portfolio of assets across South America in order to build an oil production led South American exploration business.
Barrel of oil
Barrels of oil per day
barrels of water per day
Lost Time Incident
Million barrels of oil
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