Prospex Oil and Gas Announces 2019 Final Results

Source: 5/22/2020, Location: Europe

Prospex Oil and Gas Plc, the AIM quoted investment company, is pleased to announce its audited annual results for the year ended 31 December 2019.

Advancing a portfolio of late stage, onshore European gas projects focused on the foredeep play

Portfolio Overview

· Podere Gallina Exploration Permit, onshore Italy - first production at Selva gas field ('Selva') at an initial rate of up to 150,000 scm/day expected early 2021

o Preliminary award of production concession from the Italian Government in January 2019

o Post period end, formal technical environmental approval for the development of Selva from the Italian Environment Ministry

o Awaiting final sign off by Ministerial decree, the issuing of the required INTESA (intergovernmental agreement) and the final grant of a production concession from Italy's Economic Development Ministry

o Expect early discussions regarding non equity funding of Prospex's c. €400,000 share of Selva development costs to mature as permitting process progresses

o Updated CPR confirming reserves and additional contingent resources at Selva's North and South flanks provides significant follow-up development opportunities

· EIV-1 Suceava Concession, onshore Romania - revenue at Bainet field in line with expectations

o Revenue in line with 2019 budgeting - higher prices offset slightly lower than expected average production of 14,000m3 per day

o Enlargement of Suceava Exploration Concession to 984

o Bainet-2 well targeting Bainet West, a lookalike Bainet gas prospect, drilled at all in cost of €260,000 net to Prospex - no commercial hydrocarbons encountered

o Ongoing evaluation of the concession's gas prospectivity to determine licence extension and next drilling targets

· Tesorillo Gas Project, onshore Spain - de-risking up to 830 billion cubic feet ('Bcf') of gas (Best Estimate) of gross un-risked prospective resources

o Multiple potential gas traps identified following reprocessing and interpretation of historic 2D seismic data

o Four promising leads identified in the northern half of the concession following integration of new structural maps and cross sections with well reinterpretation and satellite images

o Working towards decision to drill and increase stake to 49.9% from current 15%

· El Romeral, onshore Spain - integrated gas and power project

o Acquisition of 49.9% interest in El Romeral for net consideration of €375,000 includes existing gas production, multiple development opportunities, and operational power station

o Significant potential to increase gas production via two development locations with 5 Bcf of gross contingent resources and 11 prospects with 90 Bcf of gross, unrisked prospective resources with high Chance of Success of >70% (in most cases)

o Power plant currently constrained to operating at c. 22% capacity due to current wells' tail production - offers significant upside potential from future discoveries

Financial Overview

· Total Assets of £6,341,890 as at 31 December, providing significant asset backing

· Administrative expenses, slightly down to £1,091,871 (2018: £1,103,279), other operating income £198,528 (2018 £99,729)

· £800,000 raised via placing of 400,000,000 new ordinary shares to fund the Company's share of costs for the 2019 Suceava work programme, including drilling Bainet-2 well

· Post period end, £720,000 raised via an oversubscribed placing of 600,000,000 new ordinary shares to help fund the Company's acquisition of a 49.9% indirect stake in El Romeral

o Certain Directors acquired new shares in the Company with an aggregate value of £140,000 as part of the Placing

Edward Dawson, Managing Director of Prospex, said, "The acquisition of a 49.9% interest in a fourth core asset, the integrated El Romeral gas and power project in Spain; the participation in the drilling of a fourth well, Bainet-2 in Romania; the assignment of maiden 2P reserves, which today stand at 2.97 bcf of gas - the momentum behind the Company that has been building in recent years was maintained during the year under review. Thanks to the progress made, a roadmap setting out a clear path towards a step-up in Prospex's net gas production and internally generated revenues is in place and as a result, 2020 has the potential to be another year of major progress.

"Of course, there is no way of knowing what the true impact will be of the ongoing Covid-19 pandemic on the global economy and how long it will take for societies to recover. Timeframes for the development of certain of our projects may well therefore have to be extended. Since the turn of year Prospex has been in discussions with the various project operators who are adjusting to the current environment and taking a cautious approach to discretionary expenditure. Prospex itself has cut costs to its general and administrative since the start of March. This has been helped by a one third deferment of salaries from April to last during COVID-19 lockdown. Importantly the COVID-19 situation appears to be improving in Italy and Spain and reassuringly operators report continued dialogue and progress with regulators throughout the various lock down periods.

"Subject to final award of a production concession, the roadmap to a significant step-up in production and revenues is expected to start with the Selva gas field in Italy coming online early next year at an initial rate of up to 150,000 scm/day. As the final permitting process progresses, we will look to secure our c€400,000 share of the capital expenditure. The ambition, believed possible thanks to the low capital cost, the short payback from production, even in a depressed price environment, and Selva's booked reserves, is to access non equity funding for the project, in line with common industry practice. If achievable on reasonable terms this would be a good option for all stakeholders.

"Once this milestone has been achieved, and following the acquisition of a 49.9% interest in El Romeral, Prospex's portfolio of producing wells will stand at five which, combined, have the potential to produce over 7,800,000 scm net to Prospex in 2021. This in turn would generate material revenues which we would then look to deploy to fund further growth opportunities across our portfolio including the drilling of additional gas wells at El Romeral to bring electricity generation at the power plant closer to its 100% capacity. Together with multiple follow-up targets identified in Italy and Romania and potentially up to 830 Bcf of un-risked prospective gas resources to go for at Tesorillo in Spain, our existing portfolio offers much run room to grow the Company further. What gives us considerable confidence is that we now have a clear path to build a highly cash flow generative platform with which to capitalise on these opportunities."

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