Losses in IGas more than doubled in 2019 to more than £50m as the company turned its back on shale exploration in north west England, annual accounts have revealed.
The company said it had written off shale assets in parts of Warrington, Greater Manchester and Cheshire. It said it had no immediate plans for exploration or development in these licences.
Instead, IGas said it was focussing on shale gas assets in what it called its “core area”, the Gainsborough Trough in the East Midlands. It drilled exploration wells here at Tinker Lane in 2018 and Springs Road in 2019.
Other key points from the accounts:
- Capital spending cut for 2020
- Work temporarily ceased on proposed gas site near Dunsfold, Surrey
- Bletchingley gas-to-grid scheme in Surrey suspended
- No update on plans to frack or drill second well at Springs Road
Write-off of north west assets
The accounts show that IGas exploration write-offs rose to £53.9m in 2019, up from £21.6m in 2018. Almost all of this (£51.8m) related to shale assets in north west England, the company said.
IGas said it had written off in full previously capitalised assets in licences PEDLs 145, 193, 147 and 189.
These licences included developed or proposed sites at Doe Green, Barton Moss, Davyhulme, Thelwall Viaduct, Lesters Lane, Duttons Lane and Salters Lane.
Following last year’s moratorium on fracking for shale gas, IGas said it had been working with regulators to show that it could work “safely and environmentally responsibly”.
But it added:
“Following an impairment review, the Group impaired in full those assets outside our core area where the Group does not have plans in the near-term to continue exploration or development activities.”
East Midlands focus
IGas said it was concentrating on plans in the Gainsborough Trough, described as a “nationally-significant hydrocarbon resource” and an “area with significant shale potential”.
“should the moratorium be lifted we would focus on our core area of the Gainsborough Trough in the short to medium term.”
It said it was working with the regulator, the Oil & Gas Authority, to:
“simplify and focus the various work programmes so that more rapid and directed appraisal and then development of the shale resource can take place.”
The area includes IGas licences: PEDLs 12, 139, 140, 169, 200 and 210.
The accounts show the company has £31.6m of capitalised exploration spending in the area. It said it invested £2.7m in 2019 in its shale development programme.
The company said it had written off £800,000 of previously capitalised assets in licences it planned to relinquish in 2020: PEDL56-1 (Swallowcroft), PEDL146 (York) and EXL288 (Trumfleet).
Spending cuts and low oil prices
The accounts revealed that IGas revenues in 2019 were down £2m or 5%, largely because of low oil prices.
In response, the company said it had reduced planned capital spending for 2020 by £4m to £6m.
It said it had re-evaluated short-term priorities to “ensure we weather the current oil price disruption”.
“We are looking to maximise returns from our existing sites which could include electricity generation and storage.”
But it added:
“if oil prices remain low for a prolonged period of time, we cannot rule out future impacts on the business given the material uncertainty that currently exists.”
The company said it had produced a “downside forecast” of oil prices in 2020: $20/barrel (bbl) in the second quarter, rising to $30/bbl in the fourth quarter and $43-45/bbl in 2021.
Under this scenario, IGas said it has sufficient liquidity and financial headroom to meet commitments for the next 12 months.
But it warned said:
“should oil price or demand (and therefore revenue) fall further, the Company may not have sufficient funds available for 12 months from the date of approval of these financial statements.”
This and other material uncertainties “may cast significant doubt on the group’s ability to continue as a going concern”, the accounts said.
Springs Road, north Nottinghamshire
IGas said it was considering data from this well, alongside reprocessed 3D seismic for the area. It said:
“This will allow us to commence planning for both a future potential appraisal programme and a pilot development within the Gainsborough Trough, a geologically well understood and quiescent basin.”
The company said the Springs Road well was drilled 25% under budget and obtained 50% more core than planned. It added:
“Whilst protest did occur during the drilling of the well at Springs Road, the level of protest was negligible and generally took the form of monitoring as opposed to obstruction.”
The company has planning permission for a second well at the site. But the accounts did not refer to this or to any future plans to frack at Springs Road.
Tinker Lane, north Nottinghamshire
This site, where IGas failed to encounter the Bowland shale, has been restored after well plugging and abandonment. It was handed back to the landowner in September 2019, ahead of schedule, the accounts said.
Ellesmere Port, Cheshire
IGas said it had £5.9m of capitalised exploration spending at its Ellesmere Port site, where it appealed against the refusal of planning permission for a well test. A ministerial decision was due on 8 April but has been delayed.
Scampton North, Lincolnshire
The £2m waterflood project at this site will convert a suspended well into a water injector. IGas said it would be ready to deliver initial production in summer 2020 and forecast it would double current output to over 200 barrels of oil per day (bopd).
The second phase of the Welton waterflood project was expected to be online in summer 2020. It would increase field recovery by about 660mbbl, the accounts said.
IGas said this gas-to-wire project, which planned to install up to 6MW of electricity generating capability, had been shelved. The accounts said:
“[We] will not take this project further forward until energy prices improve”
Work on plans for a new gas site near Dunsfold had “temporarily ceased”, the accounts said.
IGas had announced plans in July 2019. But a public consultation meeting in August 2019 was cancelled and not rearranged.
The accounts said the Portland reservoir in the area was estimated at 5-10mmboe of recoverable gas. It said:
“when energy prices improve we will seek to submit a planning application given the significant returns available.”
IGas said it had spent £1.8m on abandoning five wells during 2019. This was up from £91,000 in 2018.
IGas said it recognised that fossil fuel consumption had an impact on the environment. But it added:
“we maintain that the oil and gas industry is an essential component in delivering secure, efficient and cost-effective energy, as the world tries to balance its energy requirements, and is a key enabler in the transition to increased supply of renewable energy.”
The company said it was “committed to supporting the British Government’s target of reducing greenhouse gas emissions to net zero by 2050”.
The company said engaging with local communities was “imperative to our success as a business”.
“We endeavour to build respectful, long-term relationships and earn the trust of those who host our activities.
“The more transparent we are about our activities, the better equipped our investors, communities and wider society are to decide whether we merit their trust.”
Revenue: £40.9; 2018 £42.9
Oil sales: £39.2m; 2018 £41.9m
Adjusted EBITDA (earnings before interest, tax, depreciation and amortization): £13.8m; 2018 £10.8m
Gross profit: £11.3m; 2018 £14.2m
Administrative expenses: £4.5m; 2018 £5.5m
Exploration write-offs: £53.9m; 2018 £29.1m
Abandonment costs: £1.7m (five wells); 2018 £0.09m
Operating loss: £55.0m; 2018 £21.2m
Total loss for the year: £50.2; 2018 £21.5
Loss after tax: £49.8m; 2018 21.4m
Underlying profit: £4.6m; 2018 £4m
Cost of sales: £29.6m; 2018 28.8m
Operating costs (excluding third party costs): $23.6/boe; 2018 $30.1
Net debt: £6.2m; 2018 £6.4m
Cash balances: £8.2m; 2018 £15.1m
Total assets: £199.5m; 2018 £244.8m
Net assets: £113.1m; 2018 £161.7m
Total liabilities: £86.4m; 2018 £83.2m
Average net production: 2,325 boepd; 2018 2,258 boepd
Investment in assets: £6.4m; 2018 £10.6m
Investment in shale: (including share of Tinker Lane well and Ellesmere Port appeal): £2.7m
Gross work programme: £161m; 2018 £170m
Predicted net production in 2020: 2,250-2,450 boepd
Predicted operation costs in 2020: $27.5/boe
Revised capital expenditure for 2020: Reduced to £6m from £10m (£2m on production and £4m on development assets)