CHAIRMAN'S REVIEW
Dear Shareholder,
Over the last year the Company has continued to deliver on its carbon reduction strategy focusing on the production of gas as a key transition energy source and carbon capture and sequestration ("CCS").
The Company's goal of monetising it's significant gas reserves at the Cambay field in India received a major boost via the signing of a farm-out agreement with Selan Exploration Technology Limited ("Selan") on 14 February 2024. Government of India approval for the Selan JV was gained on 19 July 2024. The aim of the 18-month, US$20 million work program in which Synergia is being carried by Selan in exchange for a 50% interest in the Cambay production sharing contract is increased production, and on completion of the work program, sufficient cash flow to self-fund the full field development.
Gas production from the Cambay field can help displace coal as fuel for power stations in India, thereby reducing carbon emissions.
CCS is central to global CO2 emissions reduction strategies and the Company is actively engaged in CCS in both the UK and India.
In the UK, Synergia are operators of the CS019 Camelot carbon storage license in the Southern North Sea which is central to its Medway Hub CCS project. Together with JV partners, Wintershall Dea, the Company has been progressing the NSTA-defined work program on the license as part of the early risk assessment and site characterisation phase of the project. The Medway Hub Camelot CCS project has the goal to permanently store 6.5 million tonnes of CO2 per annum from 2029/2030.
In India the Company is progressing its Cambay CCS scheme which seeks to store CO2 emissions from gas- and coal-fired power stations in the vicinity into the extensive Olpad formation that underlies the hydrocarbon reservoirs in the Cambay PSC. The Company aims to be in the vanguard of CCS development in India.
Synergia's management team's experience and expertise in gas storage projects and field development projects has given the Company an advantage in progressing its CCS and Cambay field development projects. The team is being expanded to incorporate additional technical resources.
Corporate development continues with emphasis on shareholder interaction and marketing activities to AIM institutional investors aided by the Company's brokers, Panmure Liberum.
The tangible progress made by the Company over the last 12 months would not have been possible without the ongoing support of its long-term shareholders, who have provided the management team the scope to transform the Company towards its goal of being a significant transition-orientated company in the energy sector. The outlook for the Company remains positive and Synergia's management team and the board of directors are committed to demonstrating added value to its shareholders.
On behalf of the Board, I wish to thank our staff, contractors, local communities, shareholders and stakeholders for their ongoing support of the Company.
BUSINESS REVIEW
Industry Overview
The global energy sector has adapted to the new geo-political realities with sustained high oil and gas prices caused by multiple conflict zones and the need to reduce fossil fuel reliance to address climate change concerns being the overriding factors.
In the UK and in Europe in general, the trend towards renewable energy continues to gain momentum with the realisation that natural gas for flexible power generation will be required for at least the next few decades. European governments, including the new UK government, seek to reduce fossil fuel production via licensing restrictions and higher taxation. This will result in increased reliance on imported oil and gas, the latter in the form of both pipeline gas and LNG.
In India, the Directorate of Hydrocarbons ("DGH") has publicly announced the urgent need for increased domestic production of oil and gas to address the current high levels of imports. The DGH seeks to reduce the 80% level of oil imports and the high cost of imported LNG that has driven the use of coal-fired power stations to even higher levels.
Carbon Capture and Storage ("CCS") has been adopted by most of the major industrial nations' governments as the primary method to reduce CO2 emissions. The new UK government is believed to wish to continue the momentum for CCS developments in the UK. In India, the DGH has underlined its commitment to CCS.
The supply chain for energy sector services and equipment appears to be improving as suppliers adapt to the Covid pandemic hiatus. The cost of equipment and services is nonetheless significantly higher than pre-pandemic levels.
Synergia Energy Strategy
The Company's overarching strategy is one of carbon reduction, and we have positioned ourselves at the forefront of some very exciting initiatives. The development of the Cambay gas field in India has the potential to displace LNG imports and to reduce the reliance on coal-fired power stations thereby reducing overall CO2 emissions. Furthermore, the Company's two CCS projects (one in the UK and one in India) have the potential to affect a material reduction in CO2 emissions from power stations and other significant industrial CO2 emitters.
The Synergia management team has proven in-depth experience concerning gas storage in the UK, which directly informs our strategy. Three of the Synergia team were instigators of the last commercial gas storage facility to be built in the UK - the Humbly Grove gas storage facility in Hampshire. The same three team members were founders of Star Energy, which in addition to oil and gas production and power generation, became a leading gas storage development company. Star Energy studied most of the UKCS depleted reservoirs for gas storage suitability and had multiple gas storage projects under development. This provides us with an excellent opportunity to assist in the development of the CCS industry in the UK.
In the year to 30 June 2024, the Company maintained its focus on the development of the significant reserves in its Cambay gas field in India, and also the positioning of the Company as a CCS developer via its Medway Hub Camelot CCS project in the UK and the Cambay CCS scheme in India.
In order to de-risk projects with significant capital requirements, the Company decided to farm out a 50% share of its Cambay field in India and also its UK CCS project. A successful farm out was achieved for the former whilst we continue to progress the latter.
Cambay Field, Onshore Gujarat, India
(Synergia Energy: Joint Operator and 50% Participating Interest at Report Date)
The Cambay licence area is located onshore in the state of Gujarat. Located close to gas infrastructure, the field production was resumed in April 2022 after a 3.5-year hiatus, with production of both gas and condensate from two gas wells (C-77H and C-73) in addition to oil from several intermittent legacy oil wells.
The Cambay field's 206 BCF of P50 reserves are centred on the Eocene EP-IV reservoir which extends across the field and has been penetrated by over 30 wells. The EP-IV reservoir comprises low permeability ("tight") siltstones and requires fracture stimulation to provide economic gas production rates.
Since the resumption of production in 2022, the Company has expended considerable effort in de-risking the full field development of the Cambay field.
In July 2022, the C-77H well was re-fracked to demonstrate plateau production using a heavily-revised fracking methodology; the re-fracked zones have been on continuous production demonstrating the efficacy of the revised fracking approach.
In Q3 2023, the Company commissioned a jet pump to lift the gas condensate produced in association with the gas from the reservoir.
The successful re-fracturing operation gave the Company confidence that new wells can be drilled and fracked with initial production rates of circa 4 mmscfd of gas in conjunction with the jet pump artificial lift.
Safety and Environmental Responsibility
The Company has emphasised the importance of safety and environmental responsibility relating to all aspects of its operations.
The Company has enjoyed an enviable safety record, with the last Lost Time Incident ("LTI") being recorded in 2014. The cumulative LTI rate is currently 0.82.
The Company aims to maintain excellent relationships with stakeholders and neighbours in proximity to its operations on the Cambay PSC.
Cambay PSC Production
Production on the Cambay field combined gas and gas condensate production from two Eocene gas wells, C-73 and C-77H with intermittent oil production from legacy oil wells, C-8, C-19z, C-20, C-63, C-64, C-70, C-72 and C-74.
The primary producing well, C-77H (a horizontal well drilled in 2014), produced gas and gas condensate continuously after the re-frack operation in July 2022. Since the re-frack, the well has produced at rates up to 275,000 scfd despite severe fluid loading from the associated gas condensate. In Q3 2023 a jet pump was installed in the well and the bridge plug isolating the original 4 fracked zones was removed. After the jet pump installation, increased water influx was noticed, thought to originate from the re-connected 4 original frack zones, with gas production of 150,000 scfd. Echometer surveys showed the continued presence of a liquid column in the wellbore and a workover is planned as part of the Selan JV work program to improve jet pump efficiency by increasing the diameter of the production tubing.
Oil production from legacy oil wells has made a contribution to cash flow and indicates potential "low hanging fruit" for the Selan JV work program. None of the legacy oil wells have artificial lift and the installation of pumps in selected wells could lead to continuous material production.
Selan Joint Venture
In February 2024 the Company signed a joint venture agreement with Selan Exploration Technology Limited ("Selan"), which was approved by the Government of India on 19 July 2024. The farm-out agreement with Selan was closed on 1 August 2024.
Selan is an Indian oil and gas operator listed on the Bombay Stock Exchange and the National Stock Exchange of India. Selan has currently entered into a scheme of amalgamation with Antelopus Energy Private Limited, another highly respected Indian oil and gas operator, which is currently awaiting regulatory approvals.
The terms of the joint venture agreement are summarised as follows:
- The Company agreed to farm out 50% of the 100% interest held by the Synergia Group in the Cambay PSC to Selan.
- Synergia and Selan will be joint operators of the Cambay PSC with Selan to be appointed as Lead Joint Operator.
- Both Synergia and Selan are focussed on developing the Cambay PSC Eocene gas and gas condensate reservoir which contains independently certified 2P gas reserves of 206 BCF (as at 1 June 2022).
- Synergia and Selan have executed a joint operating agreement for the Cambay PSC.
- In exchange for the 50% interest, Synergia will be carried by Selan through an agreed US$20 million work programme ("WP") comprising 3 new wells focussed on the Eocene reservoir and at least 3 well work-overs.
- The WP is to be completed within 18 months of the close of the farm-out agreement, extendable by a further six months in certain circumstances.
- Synergia received a cash payment of US$2.5 million immediately following the close of the farm-out agreement.
- Synergia retains a 50% interest in the Cambay PSC and a 50% share of the future production and revenues.
- Synergia will be entitled to bonuses of up to US$9 million, linked to future cumulative gas sales thresholds being achieved as follows:
- US$0.5 million, if cumulative gross gas sales from the Cambay PSC exceeds 5 Bcf;
- US$1.0 million, if cumulative gross gas sales from the Cambay PSC exceeds 10 Bcf;
- US$1.5 million, if cumulative gross gas sales from the Cambay PSC exceeds 15 Bcf;
- US$2 million, if cumulative gross gas sales from the Cambay PSC exceeds 35 Bcf; and
- US$4 million, if cumulative gross gas sales from the Cambay PSC exceeds 70 Bcf.
- Selan has the option to participate in the Cambay CCS scheme on terms to be agreed.
The Company anticipates the incremental production and cash flow resulting from the WP will self-finance a full field development of the Cambay PSC beyond the 18-month WP period.
The work programme will commence in Q3/Q4 2024 with workovers on a number of legacy wells followed by the drilling of two new vertical wells. The drilling of a new horizontal, fracked Eocene well will comprise the final part of the WP. In addition, the WP will include an upgrading of the surface facilities on the Cambay PSC, including additional artificial lift equipment and process equipment.
Carbon Capture and Storage ("CCS")
United Kingdom Continental Shelf
Medway Hub Camelot CCS Project
The Company, together with its joint venture partner Wintershall Dea Carbon Management Solutions UK, was formally awarded a Carbon Dioxide Appraisal and Storage Licence (the "CS019 Camelot licence") by the UK Government's North Sea Transition Authority on 17 August 2023.
Under the terms of the joint venture with Wintershall Dea Carbon Management Solutions UK, the Company is the operator of the joint venture and the CS019 license.
The CS019 licence award, which covers the former Camelot gas field, marks a significant milestone for the Company's Medway Hub CCS project. The Medway Hub CCS project provides for the capture and transportation of CO2 emissions from coastal Combined-Cycle Gas Turbine power stations in liquid form by marine tanker to a Floating Injection, Storage and Offloading vessel (FISO) from which the CO2 would be injected into depleted gas fields and saline aquifers, which are situated in the UK Continental Shelf, for permanent sequestration. In addition, the FISO will be able to accept CO2 cargoes transported by marine tankers originating from Continental European locations.
On 21 December 2023 Wintershall DEA's parent company BASF and key shareholder LetterOne announced that it had reached agreement with UK-listed company Harbour Energy, for the latter to acquire the majority of Wintershall DEA's Exploration and Production global assets. The deal completed on 3 September 2024.
The CS019 licence has a work program that incorporates an appraisal phase comprising seismic re-processing, technical evaluations and risk assessment, a contingent FEED study leading to the potential storage license application in 2028 following the final investment decision ("FID"). The Camelot license also includes a contingent appraisal well. First CO2 injection is anticipated for 2029/2030. The Company's share of the initial work phase is subject to funding as would be the FID, to be made in due course.
The Company aims to permanently store up to 6.5 million tonnes per annum (MTa) of CO2 when the project is fully operational.
Since the CS019 licence award in August 2023, the Company has managed the NSTA work programme including the delivery of an Early Risk Assessment report and re-processing and interpretation of the 3D seismic dataset on the licence. Currently a number of separate workstreams are underway including static and dynamic modelling, legacy well integrity, geochemical and geomechanical analyses as part of the site characterisation process.
India
Cambay CCS Scheme
The Company has developed the Cambay CCS scheme which comprises the transportation of CO2 from emissions from the many significant gas- and coal-fired power stations surrounding the Cambay gas field, via onshore pipeline, to a CCS hub located at the Cambay field. The CO2 would then be injected into the regionally extensive Olpad formation which underlies the Cambay Eocene gas reservoir. The initial goal is to provide a "Transportation and Storage" service to power stations and other significant CO2 emitters such as refineries. CO2 emissions from the currently targeted power stations in the proximity of the Cambay field total circa 45 MTa.
The Cambay CCS scheme is being given support by the key Government of India regulator, the DGH but its viability is contingent on, inter alia, the development of a regulatory framework that incentivises the CO2 emitter customers. Synergia plans to assist the regulators in the development of such a framework based on its UK CCS experience.
As an initial stage of the project, the Company has proposed a proof-of-concept pilot project comprising the drilling of an appraisal well and CO2 injectivity testing in the Olpad Formation. The pilot project is subject to funding.
JPDA 06-103, Timor Sea
In August 2020, on behalf of its Joint Venture Participants, Synergia Energy Ltd announced a Deed of Settlement and Release ("Deed") with the Autoridade Nacional Do Petroleo E Minerais ("ANPM"). Under the terms of the Deed, Synergia Energy committed to a settlement of US$800,000 payable up to the financial year 2024. This obligation was fully met when the Group made its final instalment on 7 September 2022.
To fund the settlement to ANPM, Synergia Energy entered into an unsecured loan facility agreement with two of the JPDA joint venture partners, Japan Energy E&P JPDA Pty Ltd ("JX") and Pan Pacific Petroleum (JPDA 06 103) Pty Ltd ("PPP"). The portion which was owing to PPP was fully repaid in December 2021. The portion which was owing to JX was fully repaid on 10 August 2023 when the Company made its final repayment of US$228,324 to JX, to settle the balance of the loan to nil. The details and movement in the loan payable during the current period are detailed in Note 16(a) of the Notes to the Consolidated Financial Statements.
On 13 October 2022, the non-defaulting parties to the JPDA joint venture agreed to terminate the Joint Operating Agreement. During the year, Synergia Energy continued the process of progressing the final closure of the joint venture accounts to conclude this matter.
Financial
Treasury Policy
The funding requirements of the Group are reviewed on a regular basis by the Group's Chief Financial Officer and reported to the Board to ensure the Group can meet its financial obligations as and when they fall due. Internal cash flow models are used to review and test investment decisions. Until sufficient operating cash flows are generated from its operations, the Group remains reliant on equity or debt funding, as well as assets divestiture or farmouts to fund its expenditure commitments.
Formal control over the Group's activities is maintained through a budget and cash flow monitoring process with annual budgets considered in detail and monitored monthly by the Board and forming the basis of the Company's financial management strategy.
Cash flows are tested under various scenarios to ensure that expenditure commitments can be met under all reasonably likely scenarios. Expenditures are also carefully monitored against the budget. The Company continues to actively develop funding options in order to meet its expenditure commitments and its planned future discretionary expenditure.
During the year, the following took place in relation to the Company's debt and equity capital raisings undertaken to provide working capital for the Company's activities:
September 2023 quarter
- Placement of 704,545,454 ordinary shares ("July Placement") at an issue price of £0.0011 (A$0.0021) per share for gross proceeds of £775k (A$1.5 million);
- The last instalment of the US$800k loan facility which was owing to JX was fully repaid in August 2023.
December 2023 quarter
- Placement of 1,375,000,000 ordinary shares ("December Placement") at an issue price of £0.0008 (A$0.0015) per share for gross proceeds of £1.1 million (A$2.07 million);
March 2024 quarter
- 1,070 of the 6,500 convertible notes, plus interest, were converted into 140,455,821 shares at £0.0008 (A$0.0015) per share effective March 2024;
- 3,680 of the 6,500 convertible notes, plus interest, were redeemed in cash and repaid to their convertible note holders effective March 2024. The remaining 1,750 convertible notes, plus interest, had their repayment date extended to 30 September 2024 as requested by their convertible note holders;
- The Company also obtained short-term loans of £400,000 which bore interest at a fixed rate of 17.5% for the period of the loan (three months) and penalty interest at a fixed rate of 8% per month applicable from 11 June 2024; and
June 2024 quarter
- The Company obtained a short-term loan of £200,000 which bears interest at a fixed rate of 23.87% for the period to 11 September 2024, and penalty interest at a fixed rate of 8% per month from 11 September 2024.
After the end of the financial year, the Company obtained another short-term loan of £140,000, which bears interest at a fixed rate of 23.87% for the period to 11 September 2024 and penalty interest at a fixed rate of 8% per month thereafter.
The short-term loans obtained in March 2024 (£400,000), plus interest, were repaid after year-end on 11 September 2024.
Corporate
Following the Company's delisting on the Australian Securities Exchange ("ASX") in the previous financial year, the Company is now solely listed on the Alternative Investment Market ("AIM").
As at 30 June 2024 the Company had:
- Available cash resources of A$1,069,782;
- Borrowings of A$1,739,983 (refer to Note 16 of the Notes to the Consolidated Financial Statements); and
- Issued capital of 10,637,791,979 fully paid ordinary shares and 1,865,854,839 unlisted options.
Executive and Board Changes
On 24 January 2024, Mr Peter Schwarz, one of the Company's independent non-executive directors, was appointed as Deputy Chairman. On 24 January 2024, Mr Ashish Khare, the Company's Head of India Assets, was appointed as Executive Director. Mr Khare's appointment was finalised effective on 2 April 2024. There were no other board changes during the year.
Risk Management
The full Board undertakes the function of the Audit and Risk Committee and is responsible for the Group's internal financial control system and the Company's risk management framework. Management of business risk, particularly exploration, evaluation and appraisal, development and operational risk is essential for success in the oil and gas business. The Group manages risk through a risk identification and risk management system.
Health, Safety, Security and Environment
Synergia Energy is committed to protecting the health and safety of everybody who plays a part in our operations or lives in the communities where we operate. Wherever we operate, we will conduct our business with respect and care for both the local and global, natural and social environment and systematically manage risks to drive sustainable business growth. We will strive to eliminate all injuries, occupational illness, unsafe practices and incidents of environmental harm from our activities. The safety and health of our workforce and our environmental stewardship are just as important to our success as operational and financial performance and the reputation of the Company.
Synergia Energy respects the diversity of cultures and customs that it encounters and endeavours to incorporate business practices that accommodate such diversity and that have a beneficial impact through our working involvement with local communities. We strive to make our facilities safer and better places in which to work and our attention to detail and focus on safety, environmental, health and security issues will help to ensure high standards of performance. We are committed to a process of continuous improvement in all we do and to the adoption of international industry standards and codes wherever practicable. Through implementation of these principles, Synergia Energy seeks to earn the public's trust and to be recognised as a responsible corporate citizen.
