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IGas Energy PLC cuts production costs to $24 per barrel

A 25% reduction in operating costs, a shale farm out deal with INEOS and new onshore licensing were among 2015’s highlights for IGas.
IGas shale gas well site, Barton Moss near Manchester
Financials, however, show the impact of weak oil prices.

IGas Energy Plc (LON:IGAS) revealed it has been successful in cutting back production costs to levels more manageable in the current oil price environment.

Operating costs for the financial year, ended December 31, reduced to $24.6 per barrel of oil equivalent, down from $34.6 per boe in the prior year.

"In the period, we have continued to move the business forward significantly against a very difficult oil price environment, importantly reducing operating costs by 25% and strengthening our balance sheet through the farm-out to INEOS,” said Stephen Bowler, IGas chief executive.

He added: “In this protracted period of low oil prices, our focus remains on balance sheet strength and preserving cash whilst continuing to deliver value adding activity."

The big numbers - much like everyone in the sector - show the extent of financial damage caused by the continued oil price weakness.

IGas, a conventional oil and gas producer with unconventional upside, told investors that revenue fell to £25.1mln in 2015, down from 58.2mln in the year before.

Earnings (EBITDA) were reported at £18.3mln, down from £21,6mln.  

Having reported a profit of £5.2 in 2014, the group made a loss of £44.8mln last year. Much of the losses come from impairments and write-offs.

IGas wrote £10mln off exploration and evaluation assets, while some £48.1mln of impairments to production assets.

At the end of December, IGas had £28.6mln of cash and equivalents. Net assets were valued at £98.8mln. Debt had reduced to £73.3mln at year end, compared to £86.4mln in 2014.

Operationally, the conventional oil and gas business remains reasonably stable. Production averaged 2,570 boepd for the year, down from 2,737 boepd in 2014. And guidance for 2016 is pitched at between 2,500 and 2,700 boepd.

IGas highlighted that for 2016 it has some 390,000 barrels of oil hedged at an average floor price of $62 per barrel, and the mark-to-market value of the arrangement was £6.6mln.

The group’s strategic emphasis remains upon unconventional assets, namely its increasingly advanced UK shale interests.

In May, the group’s shale business was enhanced significantly with the completion of its partnership deal with INEOS - which paid £30mln upfront, and committed to a $255mln work programme which will advance IGas projects.

Later in the year the company was boosted further when it secured additional shale acreage via the UK government’s onshore licensing round.

IGas continues to pursue a five-year development plan for its shale business.

As part of this campaign it completed a new 3D seismic programme in the North West of England in November, and data interpretation is expected to be ready by the third quarter of this year.

Meanwhile, the timeline for company’s projects are largely influenced by the UK planning and permitting processes.

More information was recently requested for the group’s proposed Springs Road project, further consultation will follow and determination is expected in the third quarter.

Meanwhile, a new planning application is expected to be submitted for the Tinker Lane Site in the second quarter.

“We continue to make progress in line with our five year development plan for our shale assets, including the submission of planning applications in North Nottinghamshire and the interpretation and processing of the 3D seismic data in the North West,” Bowler said. 

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