Scirocco Energy, the AIM investing company targeting attractive assets within the European sustainable energy and circular economy markets, is pleased to announce its unaudited interim results for the six months ended 30 June 2022.
· In line with the Investing Policy approved at AGM in July 2021, the Company continued to support Energy Acquisitions Group Limited ("EAG"), where Scirocco has a 50% ownership interest, to identify additional investment opportunities building on the acquisition by EAG of 100% of Greenan Generation Limited ("GGL") and associated 0.5 MWe Anaerobic Digestion ("AD") plant located in County Londonderry, Northern Ireland. AD is a process that creates biogas, a renewable energy source that will help the UK deliver on its decarbonisation commitments
· During the period, GGL has continued to out-perform original expectations:
• Revenue supported by higher NIROC payment levels and higher power sales prices
• EBITDA for H1 2022 was £253k on track for a 2022 full year estimated EBITDA of c. £600k.
· Following an exhaustive sales process over c. 24 months, the Company announced on 13th June 2022 that it had reached agreement with Wentworth Resources plc to sell its 25% interest in the Ruvuma asset for a total consideration of up to $16 million:
• Initial consideration of US$3 million payable on completion of the Proposed Transaction;
• US$3 million payable upon final investment decision being taken by the parties to the Ruvuma Asset Production Sharing Agreement or the JOA as the case may be;
• Deferred consideration of up to US$8 million payable in the form of a 25% net revenue share from the point when Ruvuma commences delivery of gas to the gas buyer;
• Contingent consideration of US$2 million payable on gross production reaching a level equal to or greater than 50Bcf.
· The Ruvuma disposal was approved by Shareholders at a general meeting held on 29th June 2022
· The Prolific Basins financing facility outstanding balance was part settled through the issuance of Scirocco shares on two occasions and a waiver fee associated with approval of the Ruvuma divestment with the outstanding balance at 30 June of $545,000;
· The Company disposed of part of its remaining shareholding in Helium One realizing c. £160k in proceeds during the period;
· Continued the Company's focus on cost discipline and cash preservation; and
· Held cash at 30 June 2022 of £1.03 million
Post Period Highlights:
· On 12 July 2022 the Company received formal notice from ARA Petroleum Tanzania Limited ("APT"), the current 50% interest holder and operator of Ruvuma, that it was exercising its pre-emption rights with regards to Scirocco's proposed divestment of the Ruvuma asset ("Ruvuma") to Wentworth Resources plc ("Wentworth") in addition to a separate letter received from the Tanzania Petroleum Development Corporation ("TPDC") stating that it is considering exercising its statutory rights of first refusal in relation to the Ruvuma pursuant to Section 86(5) of the Petroleum Act 2015. On 19 August 2022, the Company received written confirmation from the Tanzania Petroleum Development Corporation ("TPDC") that it was not exercising its statutory right of first refusal with respect to the Company's divestment of its 25% interest in the Ruvuma asset.
· On 31 August 2022, APT and Scirocco entered into binding agreements which, inter-alia, provides access to cash call cover through the previously announced loan facility (with Wentworth Resources plc) and 1st drawdown notice for $1.614 million. Other than for adjustments with respect to conditions precedent then fulfilled, APT entered into all of the same agreements (and on the same terms) as Wentworth Resources plc (as detailed in the Company's announcement of 13 June 2022).
· On 2 September 2022, the Company received a letter from a group of shareholders of the Company requesting the Company to convene a general meeting of the Company's shareholders pursuant to section 303 of the Companies Act 2006 (the "Act"). Pursuant to this request on 15 September 2022, the Company published a Circular to Shareholders, along with accompanying Notice of General Meeting and Form of Proxy.
· On 14 September 2022, the Company noted the announcement by Reabold Resources plc regarding the conditional sale of its investee company, Corallian Energy Limited in which Scirocco owns 83,333 shares following a subscription by Scirocco in 2018 at a price of £1.50 per share. A price of up to 3.20 per share will be paid to Corallian shareholders as a combination of initial cash plus contingent payments offering a profitable exit with up to 267k of proceeds net to Scirocco (based on estimated 3.20 per share).
· On 27 September 2022, the Company announced that the subscriber (the "Subscriber") under the share subscription deed governing the investment facility ("Investment Facility"), the details of which were announced to the market on 29 June 2020, had issued the Company a settlement notice for US$100,000. Accordingly, the Company issued and allotted 44,923,630 ordinary shares, with a deemed price of 0.0020 ("Settlement Shares") to the Subscriber. The Subscriber's investment was made as a prepayment for ordinary shares in the Company, the number (and price) of which were to be determined at the time the Subscriber elected to receive such shares, according to the average of five daily volume-weighted average prices during the twenty trading days prior to the date of such election.
At the time the Company sent out its Notice of its 2022 AGM held on 3 August, and continuing through the actual AGM, it was not aware it would be able to rely on the authority granted at the 2020 AGM, hence why Resolution 5 was proposed. Following the defeat of Resolution 5, the Company therefore believed, at that time, and as stated in the Result of AGM RNS on 3 August, that it was in default of the Prolific Basins facility.
Subsequent to the 2022 AGM, the Company reviewed prior authorities as part of a discussion with Prolific Basins regarding settlement of the facility. At the 2020 AGM, approval was taken to allot shares on a non-pre-emptive basis in favour of Prolific and the resolution included the wording as follows: "… save that the Company may make an offer or agreement before the expiry of the authority which would or might require shares to be allotted or Rights to be granted after expiry of the authority and the Directors of the Company may allot shares and grant Rights in pursuance of that offer or agreement as if the authority had not expired."
This is a standard formulation in non-pre-emptive authorities (derived from s.570(4) of the Companies Act 2006) to allot to cover agreements reached prior to the expiry of that authority to allow allotments to be made after the expiration of such authority.
Therefore the Company considers that the £1m authority taken at the 2020 AGM can be used to allot shares to Prolific on a continuing basis given there is sufficient headroom remaining thereunder. Any subsequent authorities requested (such as at the 2022 AGM), part of an assessment of risk about potential headroom, are not necessary given the share price and amount remaining under the 2020 authority suffices to allot shares to Prolific.
The Company does not have a general authority to allot on a non-pre-emptive basis given this has expired and that resolution did not pass at the 2022 AGM. It is only the ability to allot shares to Prolific that continues pursuant to the authority described above
Commenting on the Interim Results, Alastair Ferguson, Non-Executive Chairman said:
"The first half of 2022 has continued to see significant change for the Company as it continued to implement the Investment Policy which targets assets within the European sustainable energy and circular economy markets. This policy will see Scirocco allocating capital in assets which support the energy transition and offer a stable, growing source of cash flow going forward.
With the pivot to investment in assets within the sustainable energy and circular economy we made clear that we intend to recycle value delivered from Scirocco's legacy assets to fund new investment activities.
I was pleased that the Company was able to announce the sale of its legacy interest in Ruvuma following the agreement with Wentworth Resources plc in June for up to $16 million, subsequently pre-empted by our joint venture partner APT. We are now working closely with APT to deliver a timely completion of the sale, which we expect to be by the year end. The proceeds of the divestment - both at completion and any future contingent payments - will be available for reinvestment in assets which comply with the company's investment policy.
Following the end of the period the Company has also received initial loan funds from APT which are available for investment and general corporate purposes.
The Company is now in a strong position: it has an agreed sale for its most significant legacy asset which is expected to deliver further proceeds in the future to fund new investment and the cash calls for Ruvuma are being funded by the loan arrangement with APT. Taken together the Company represents a solid platform for further investment in its target assets.
We now look forward to growing the portfolio and the team are working hard to deliver this."
I am pleased to be providing this statement in my capacity as Non-Executive Chairman of Scirocco. At the end of 2021, the Company had established a new investment policy which was approved by shareholders and made its first related investment to support EAG in acquiring GGL. The Company had also seen positive developments within its legacy asset portfolio which had the potential to support improved interest by prospective acquirers. The Board's singular focus has been to turn legacy assets into capital available for reinvestment in line with the investment policy. The Company has made progress in this respect through the partial sale of its Helium One holding and the recent news regarding the sale of Corallian Energy Limited, a private company where Scirocco holds shares.
With the sale of the Company's legacy 25% interest in Ruvuma clarified, as announced on 13 June and subsequently approved by shareholders on 29 June, and initial drawdown received from APT following its pre-emption, we can now focus our efforts on our core objectives which remain the same as I shared at the same time last year:
o To Implement the new investment policy to invest in attractive assets within the sustainable energy and circular economy with a view to growing a portfolio of cash generative assets over time;
o To Grow the company's access to resources and personnel within the target space; and
o To Identify new opportunities and progress the EAG investment.
The Board is aware that not all shareholders supported the divestment of Ruvuma and that a minority continue to actively frustrate our efforts to make progress. The Board is committed to grow value for all shareholders by the most appropriate investment of Company resources on a risk adjusted basis. This principle led to the adoption of the new investment policy, which was approved by over 99 per cent. of shareholders in 2021, and the decision to divest legacy assets. While the Board will engage with all shareholders on a reasonable basis the direction of travel has been set and we look forward to delivering on the objectives listed above.
Strategy and Business Development
With the progress made in divesting legacy assets the Board restates Scirocco's objective to build a portfolio of cash generative assets within the following three core areas:
· Energy - assets which generate energy for sale through sustainable or renewable means in the form of biogas or electrical power;
· Circular - assets which recover a valuable component of an industrial, municipal or agricultural waste stream for re-use, generally reducing the system carbon footprint in parallel; and
· Vector - assets involved in the storage, transmission, or delivery of energy within a low carbon context.
The Board believes it will offer Shareholders and investors exposure to an asset portfolio with an attractive risk/reward profile within the sustainable energy ecosystem. Over time, the Board believes shareholder value can be delivered through operational improvement, driving improved profitability; reinvestment of cash flow to fund further acquisition; the periodic refinancing of the portfolio as it grows, supporting lower cost asset finance; and ultimately the payment of a regular dividend.
The first half of 2022 has been a period of significant progress within Scirocco towards long term goals defined by the investment policy. The sale of the Company's Ruvuma interest to APT following its pre-emption of the deal originally announced with Wentworth Resources plc has removed a significant call over the Company's cash resources which can now be directed towards alternative investments.
We look forward to putting these resources to good effect in growing a cash generative portfolio of assets over the remainder of 2022 and into 2023.
In Q1 2022 the revenue received for the quarter by GGL totalled £323k (unaudited) supported by high power prices through the period. This compares to the same period in 2021 where revenue was £240k (unaudited) - a 34.5% year on year increase. EBITDA for Q1 2022 was £158k and at current power prices, EBITDA for the first 12 months of EAG's ownership of GGL is on target to exceed £600k.
In Q2 2022, the revenue received for the quarter by GGL totalled £267k (unaudited) supported by consistently high power prices. This compares to the same period in 2021 where revenue was £266k (unaudited). Comparable performance was largely due to significant refurbishment downtime in Q1 2022 and a consequent reduction of £36k in NIROC income which would otherwise have been received in Q2. EBITDA for Q2 2022 was £95k (unaudited) bringing H1 2022 EBITDA to £253k (unaudited) on track for a 2022 full year estimated EBITDA of c. £600k.
During Q1 2022, in order to future proof the plant at its Greenan site, the EAG team completed the replacement and recommissioning of a number of elements of critical equipment, at a total cost of c. £230k funded from operational cash flow:
· All mixers in the premix tank
· All primary digester mixers, and refurbishment of all mixer infrastructure including winches, winch motors and guide rails
· Full Edina CHP (Combined Heat & Power) engine block change, and completing major service
· Upgrade and replacement of augers and pumps in feed and recirculation system including installation of automatic recirculation system
During Q2 2022, following the major upgrade and futureproofing works, the plant has enjoyed consistent performance with 95% + operational efficiency and an average power sales price of £163 per mw/hr
Q2 2022 was a period of stable operations and delivery, with operational efficiency consistently above 95%. Other than preventative maintenance, which is contracted with long term service providers, there are no further major upgrade projects planned in the next 24 months. As seen during Q2, the plant is expected to operate at over 95% efficiency for the foreseeable future, with no further scheduled downtime.
Throughout H1 2022, EAG carried out due diligence on three additional AD plants. Under the arrangement with SEM (announced by Scirocco in an RNS dated 9 December 2021) the Company and EAG gained exclusive access to a technical solution for the processing of digestate into a nutrient dense organic fertiliser. The EAG team engaged in discussions regarding up to seven merchant installations of the SEM equipment on third party AD plants. This is in addition to the planned nutrient recovery system at Greenan, which is expected to increase EBITDA for the entire Greenan complex to c. £1,500k per annum once operational.