Europa Oil & Ga, the AIM traded Ireland, Morocco and UK focused oil and gas exploration, development and production company, announces its final results for the 12 month period ended 31 July 2020. 

Operational highlights

Onshore UK – production on course to more than double to over 200 bopd

• Wressle Development granted planning consent on appeal
• First oil at Wressle set to commence at an estimated gross rate of 500bopd late 2020
• Estimated break-even oil price (excluding Europa’s corporate overheads) of US$17.6 per barrel for Wressle, well below current oil prices
• 92boepd produced from Europa’s three existing UK onshore fields during the year – matches FY 2019 performance

Offshore Ireland - portfolio refocused on proven gas play in the Slyne Basin

• Acquisition of a 100% interest in Frontier Exploration Licence (‘FEL’) 3/19, offshore Ireland, from DNO (pending regulatory approval)
  • Located close to the ~1tcf producing Corrib gas field in the Slyne basin and the 1.5 tcf Inishkea prospect on Europa’s 100%-owned FEL 4/19
  • Includes the 1.2 tcf Edge prospect

• Applications submitted for the relinquishment of four licences offshore Ireland where primary prospectivity is oil - LO16/19, LO16/22, FEL2/13 and FEL3/13
• Total non-cash write-off of £4.0 million
• Forward plan to include FEL 3/19 in a relaunch of the farmout of its strategic position in the Slyne Basin

Offshore Morocco - awarded 11,228 square km Inezgane licence in the Agadir Basin

• Area equivalent to about 50 UKCS North Sea blocks
• 14 prospects and 16 leads with the potential to hold in aggregate close to 10 billion barrels of unrisked oil resources mapped in the Lower Cretaceous fan sand play, a prolific producer in West Africa
• The 14 prospects each have mean resources in excess of 150 mmboe which add up to total resources in excess of 5 billion barrels of oil equivalent
• The 827 mmboe Falcon and 204 mmboe Turtle prospects have been assigned a geological chance of success of 20-35% by Europa
• Licence attracting interest from a number of operators looking to farm-in
• Shell, ENI, Repsol, Hunt, Chariot, SDX, Sound, Schlumberger and Genel are currently active in the area

COVID-19

• At the reporting date of 31 July 2020 there was minimal impact from Covid-19 on operations
• Operations have continued at the three production sites
• Brent crude price fell dramatically (with Russia and Saudi Arabia increasing production as the scale of the pandemic became apparent) but recovered somewhat by period-end
• Directors, London based staff and consultants have been working from home since March 2020, and agreed a temporary salary/rate cut of 20% since 1 April 2020
• Given the success of home working, the Company has given notice to terminate the London office lease from December 2020, which will further cut costs

Financial performance

• Revenue £1.2 million (2019: £1.7 million)
• Pre-tax loss before exploration write-off / write-back £1.2 million (2019: £0.9 million)
• Pre-tax loss of £5.4 million including write-offs taken following relinquishment of Irish licences (see post period reporting events below) (2019: pre-tax loss £0.7 million)
• Net cash used in operating activities £0.8 million (2019: £0.7 million)
• Cash balance: £0.8 million (31 July 2019: £2.9 million)

Board

• Hugh Mackay stepped down as CEO, Simon Oddie was appointed as Interim CEO and Executive Chairman
• Appointment of Stephen Williams as independent Non-Executive director, replacing Roderick Corrie

Post reporting period events

• Commencement of site works at Wressle Oil Field
• Appointment of Simon Oddie as CEO on a permanent basis
• Senior Independent non-executive Director Mr Brian O’Cathain appointed non-executive Chairman
• Since 1 August 2020 the Board increased the reduction in their salary and fees to 50%

Simon Oddie, CEO of Europa, said: 
“The award of the Inezgane permit offshore Morocco, the granting of planning consent for the Wressle Oil Field, the refocus of the Offshore Ireland portfolio onto the proven gas play of the Slyne Basin following the acquisition of FEL3/19 and the 1.2 tcf Edge prospect – much progress has been made during the year under review.  While the ongoing pandemic and volatility in oil and gas prices may impact exact timings of planned activity, we are confident that the momentum behind our various projects will continue to build in the year ahead. 

“In Morocco, work carried out to date has seen our team map up to 30 prospects and leads which we believe, in aggregate, have the potential to hold close to 10 billion barrels of unrisked oil resources. The size of 50 blocks in the UK North Sea, our Inezgane licence had already attracted the attention of existing operators in the area and, while there is more work to be done to de-risk the prospectivity further, we are growing more and more confident that this attention is set to increase as we build a prospect inventory ahead of the launch of a farm-out. Onshore UK, the Wressle Oil Field remains on track to be brought online at an initial gross rate estimated at 500bopd in late 2020 following the commencement of site works in the summer. At this rate and with a c.$18 per barrel breakeven oil price, Wressle will more than double Europa’s production to over 200bopd and in the process transform the Company’s financial profile. Offshore Ireland, once the acquisition of FEL 3/19 has been completed, Europa will own 100% of the most material gas prospects that lie in the same play as Corrib, Ireland’s biggest producing gas field.  We will soon look to launch the farmout of what we view as an unrivalled strategic position in offshore Ireland’s only gas producing basin.

“Our objective is to expose our shareholders to significant value creating opportunities while minimising risk. Our UK production, which is set to dramatically increase once Wressle comes online, provides us with a low risk cash flow generative platform. Our offshore Ireland and offshore Morocco assets, which hold company-making volumetrics, provide us with multiple opportunities to generate significant value. We also intend to resume our efforts to add a third leg to our business by securing a late stage appraisal project, once market conditions improve. Our confidence in Europa’s assets and team remains as high as ever and with this in mind, I look forward to providing further updates on our progress in the year ahead.”

Chairman's statement

COVID-19, lockdowns, volatile energy markets - the world is a different place to what it was 12 months ago.  Award of the large Inezgane permit offshore Morocco, the pivot to gas offshore Ireland, the granting of planning permission for the development of the Wressle oil field in North Lincolnshire – Europa is a different junior oil and gas company to what it was 12 months ago.  Today, Europa’s portfolio of multistage licences is exposed to three jurisdictions: onshore UK, offshore Ireland, and offshore Morocco. Our strategic position offshore Ireland is now centred around the proven gas play of the Slyne basin and includes 100% interests in two prospects with the potential to hold 2.7tcf of gas, the most material prospects that lie in the same play as the nearby producing Corrib field. 

The above is in line with our objective to expose shareholders to potentially value creating events while minimising risk.  We intend to achieve this by building a production-based, cash flow generative platform in the UK which covers both our low cost base as well as exploration activity focused on de-risking prospects to the point at which partners can be secured to drill high impact wells.  While the ongoing pandemic and measures taken to combat it may affect timings, work streams in line with our corporate objective are underway in all three of our licence areas.  As a result, I am confident that in 12 months’ time, Europa will once again be a different junior oil and gas company to the one it is today, one which has a financial profile that has been transformed by the commencement of production at Wressle and one that has a prospect inventory comprised of multiple company-making targets located in not just one but two jurisdictions.

Onshore UK

Europa produces oil from three fields in the East Midlands.  Due to the natural decline of the fields, net production has been on a downward trajectory for a number of years.  Thanks to our active management programme, production during the 12 months to 31 July 2020 averaged 92boepd, a rate slightly up on the previous year’s.  This is a highly creditable outcome and one which is testament to our excellent operations and technical teams. 

Active management of old fields can only go so far.  To achieve a step-change in production, new fields need to be brought online.  Following the granting of planning consent in January 2020, the Wressle Development Project on licences PEDL180 & 182 in North Lincolnshire, is one such new field which is expected to lead to a step-change in Europa’s net production.  Work is currently underway at the site to bring Wressle into production at an initial gross rate estimated at 500bopd in late 2020.  At this rate, Wressle will more than double Europa’s existing UK onshore production to over 200bopd.  Moreover, production at Wressle is expected to be highly geared to oil price recovery: a stress testing exercise of the economic model demonstrated that, with an estimated break-even oil price of US$17.6 per barrel excluding Europa’s corporate overheads, the development plan for the field is economically robust at today’s oil prices. 

While the focus is very much on bringing Wressle online, there are a number of low cost/low risk follow-up opportunities on PEDLs 180 & 182. During testing at Wressle, a total of 710 barrels of oil equivalent per day were recovered from three separate reservoirs: the Ashover Grit; the Wingfield Flags; and the Penistone Flags. Producing reserves in the Penistone Flags at Wressle is one area of development which we, along with our partners, expect to pursue in the future.  PEDL 180 also holds Broughton North, a prospect adjacent to an historic discovery which was assigned gross mean un-risked prospective resources of 0.6 million boe and a geological chance of success of ~50% in a CPR.  Wressle therefore does not just represent a one-off scaling up of our production profile, but opens up a series of potential step-ups going forward. 

However, in the absence of incremental production from Wressle in 2020, additional funding for the Company would be required, either via the issuance of new shares, the addition of a layer of debt funding or the sale of assets. If additional funding were not able to be secured on satisfactory terms, there is a risk that commitments could not be fulfilled, or that assets may be relinquished.

Offshore Ireland

Even before the Irish Government took the decision in September 2019 to phase out oil but not gas exploration, our flagship project offshore Ireland was the 1.5 tcf Inishkea gas prospect in Frontier Exploration Licence (‘FEL’) 4/19. Located in the proven gas play of the Slyne Basin and close to the producing Corrib field and associated processing facilities, we have long viewed Inishkea as lower risk infrastructure-led exploration compared to the higher risk unproven plays being targeted elsewhere in the Irish Atlantic Margin. When the opportunity arose to effectively double up our position in the Slyne for a nominal sum by acquiring a 100% interest in FEL 3/19, which holds the 1.2 tcf Edge prospect, we acted swiftly.

Following the acquisition, which is subject to regulatory sign-off, Europa will hold 100% interests in the only two tcf+ prospects which lie in the same gas play that has yielded the Corrib field. Corrib plays an important role in satisfying Ireland’s energy needs, but the field is in decline. This represents a major opportunity for Europa. With the Corrib gas field already in decline, nearby existing processing facilities are likely to have spare capacity in the future, which would potentially have positive implications for development costs. With gas being viewed by the Irish Government as a key transition fuel as the economy moves towards net zero emissions, the acquisition will give Europa an unrivalled strategic position, one which has the potential to hold gross unrisked prospective resources of 2.7 tcf.  With the above in mind, our intention is to relaunch the farm-out of our revamped position in the Slyne Basin once the acquisition of FEL 3/19 has received regulatory sign-off.

The flip side of the rebalance of our Irish portfolio towards gas is the streamlining of the Company’s exposure to oil plays in the Irish Atlantic Margin.  In line with this we have elected to relinquish all exploration licences offshore Ireland which were targeted on oil rather than gas.

Offshore Morocco

The Inezgane block, which lies offshore Morocco, is at an earlier stage of development when compared to Europa’s UK and Irish positions having only been awarded the licence in September 2019.  This has not however prevented significant progress being made during the period in terms of building a prospect inventory.  In July 2020, we announced that technical work centred around reprocessing and interpreting historic 3D seismic data had resulted in the mapping of 14 prospects and 16 leads in the Lower Cretaceous play, a prolific producer elsewhere in West Africa.  In aggregate these 30 targets have the potential to hold close to 10 billion barrels of unrisked oil resources. Two of the targets, the 827 mmboe Falcon and 204 mmboe Turtle prospects, have been assigned a geological chance of success of 20-35% by Europa.

Work is underway to further de-risk the targets ahead of launching a farm-out to secure partner(s) to drill wells. Europa continues to maintain dialogue with potential partners, a number of whom expressed an interest in Inezgane at the time of the award.   

Board Changes

Europa’s asset base is not the only area of the business to undergo major change since last year’s Annual Report.  The Board too has seen a change in personnel culminating in my appointment in August 2020 as non-executive Chairman of the Company, replacing Simon Oddie who took on the role of Chief Executive Officer on a permanent basis.  Simon had temporarily assumed this role in November 2019 following the departure of long-serving CEO Hugh Mackay. These were not the only changes to the Board during the year. In March 2020, we announced that Roderick Corrie had decided to step down from his position as non-executive Director after 12 years, and in July 2020 Finance Director Phil Greenhalgh informed the Board of his intention to retire having held this role since January 2008.  Stephen Williams, Co-CEO of Reabold Resources, has been appointed to the Board as an independent non-executive Director. Stephen has also agreed to take on the role of Chairman of the Audit committee, and Senior Independent Director. Following Phil’s departure, the responsibilities of the Finance Director will for now be divided and assigned to existing members of the Europa team.

Conclusions

This is my first Chairman’s Statement for Europa.  Having previously held the position of senior non-executive Director of the Company, I was of course already very familiar with Europa: with its focus on exposing shareholders to value creating events while minimising risk; with its asset base which combines stable production and high impact exploration; with its team, which has done much to increase the industry’s understanding of Ireland’s various basins and plays. 

With Wressle on course to commence production by the end of the year, the rebalancing of our Irish portfolio to gas, and the excellent results of ongoing technical work offshore Morocco, I believe I have stepped up to the role of Chairman at an exciting time in Europa’s development, albeit one that is set against a backdrop dominated by COVID-19, an unprecedented decline in global demand for oil and gas, and consequently low commodity prices. However, we know that this business is cyclical, and remain confident that demand and pricing will recover. The wellbeing of all those involved with Europa is of paramount importance to the Board and as we advance our various workstreams we will at all times adhere to the prevailing government advice and guidance. 

Finally, on behalf of the Board I would like to thank the management, employees and consultants for their hard work during what has been and continues to be an unprecedented period for everyone.  I look forward to continuing working with the team in the year ahead as we look to advance all our assets and at the same time seek to add a late stage appraisal venture to our portfolio so that Europa has exposure to all stages of the oil and gas cycle.

Mr Brian O’Cathain (non-executive Chairman)