10 October 2018
COLUMBUS ENERGY RESOURCES PLC
("Columbus" or the "Company")
Business, Operational and Financial Update - Q3 2018
Columbus, the oil and gas producer and explorer focused on onshore Trinidad with the ambition to grow in South America, is pleased to provide an update on business, operational and financial activities during Q3 2018.
Following the announcement by the Company of the completion of the acquisition (the "Acquisition") of Steeldrum Oil Company Inc ("Steeldrum") on 8 October 2018, the Company has incorporated Steeldrum's business performance into Columbus' financial accounts with effect from 13 July 2018, the effective date of the Acquisition.
Key Highlights in Q3 2018:
· Average production of 735 barrels of oil per day ("bopd") achieved during Q3 2018 by the Columbus Group with 751 bopd produced on average in September 2018 (Q2 2018: average of 553 bopd).
· Peak production of 879 bopd, achieved in September 2018 (Q2 2018: 648 bopd).
· Gross Revenues of US$3.85 million achieved (Q2 2018: US$3.01 million).
· 62,658 barrels sold during Q3 2018 (Q2 2018: 50,314 barrels).
· Average realised sales price from operations in Q3 2018: US$60.90 per barrel (US$60.00 per barrel in Q2) - peaking at US$62.14 per barrel in September 2018.
· Strong progress made delivering Columbus' strategy roadmap of being cash flow positive from operations and providing a foundation for creating value though production and M&A growth.
· Completion of the acquisition of Steeldrum achieved in early Q4 2018, adding significant optionality to increasing production going forward. Excellent collaboration between Columbus and Steeldrum management/staff in Q3 2018 with the integration of the two organisations well-advanced and the collaboration already delivering positive production growth in the Steeldrum fields.
· Cashflow positive position maintained from operations delivering US$0.54 million after taking account of intensive field maintenance and well workover campaign during Q3 2018 costing US$0.72 million.
· Continued focus on capital discipline, with cash balance of US$1.97 million at 30 September 2018 (30 June 2018: US$2.35 million).
· US$0.31 million also held as restricted cash at 30 September 2018, these payments made in Q3 2018 address legacy Performance Bond and abandonment fund requirements in Trinidad.
· Further reduction of G&A costs with significant downscaling of London office to now just support administrative and technical/engineering requirements.
· Group remains on track for production from Trinidad to exceed 1,000 bopd by the end of 2018 and the consolidated group, post the Steeldrum transaction, is expected to remain operationally cash flow positive.
· Integration of Columbus and Steeldrum to be completed by end Q4 2018, with Steeldrum sub-surface team immediately joining the Columbus sub-surface team at the Company's expanded Trinidad office in San Fernando, optimising co-ordination across all seven fields/assets.
· Operational teams from both entities, collaborating on implementing various newly identified opportunities to increase production across the expanded Columbus portfolio, all to be funded from production revenues and available cashflow.
· Technical work continuing to identify the optimal drilling locations for the SWP exploration programme, planned for mid-2019 onwards.
· Continuing to work actively on new acquisition opportunities in Trinidad and South America using the following investment screening criteria: onshore; operatorship, easy export routes, mature oil provinces in the Caribbean or South America; close to infrastructure; funded in a manner which is accretive for Columbus' current shareholders.
Leo Koot, Executive Chairman of Columbus, commented:
"It has been an exciting few months for all at Columbus as we sought to complete the acquisition of Steeldrum after it was announced in early Q3 2018. We are delighted that this was achieved just after the quarter-end following a huge amount of hard work by management, staff and advisers from both entities.
"We are already seeing the real benefits of having increased optionality for production and joining the two entities together provides a stronger platform for growth and helps de-risk our portfolio in Trinidad, with Group production averaging 735 bopd in Q3 2018 and hitting a peak of 879 bopd during the quarter. The collaboration between our technical and operational staff since early July, which has included the introduction of operational techniques which we have successfully employed at Goudron, has already seen some early gains in the Steeldrum fields with, for example, production at the Innis Trinity field peaking at 217 bopd in September 2018, which is greater than has been achieved for some time.
"Gross revenues from oil sales from the expanded Columbus portfolio increased to over US$3.85 million during the quarter and further production growth over the coming months should provide additional revenues and cashflow to allow us to chase additional growth opportunities.
"We can see many opportunities for achieving quick production growth across the new Columbus portfolio, which now includes five producing fields, one development project and our highly prospective South West Peninsula ("SWP") exploration opportunity, and we will be implementing those projects in the coming weeks with the objective of exceeding 1,000 bopd in Trinidad by the end of 2018. This programme includes our ongoing water injection campaign at Goudron where we have already injected over 79,000 barrels of water into one well and are seeing clear signs of connectivity to adjacent wells.
"As announced in early September, we also plan to bring the Snowcap Field in the Cory Moruga Licence onto production through re-starting the Snowcap-1 well before the end of 2018, using existing infrastructure and available funds, following the received formal confirmation of the extension of the licence by the Trinidad authorities. We believe this will achieve a quick production "win" for Columbus towards the year-end production target highlighted above.
"We continue to address a number of legacy issues which have been un-avoidable during the quarter, including ongoing issues in Spain and the need to undertake a "financial catch-up" on both abandonment fund provisions in Trinidad and also the placement of performance bonds on our Trinidad fields, both involving costs which should have been incurred a number of years ago. This will all help in establishing a more solid platform for growth in Trinidad going forward. The closure of our main London office in July was another example of where we will take action, as required, to reduce our running costs and create a better support basis for the future.
"Finally, I would like to thank all management, staff and stakeholders at Steeldrum for their support since we announced our acquisition in early July. We look forward to working with them as we move forward together to unlock the many real growth opportunities we are planning to chase in the coming months."
During Q3 2018, the Company released a number of announcements relating to the acquisition of Steeldrum, including on 8 October 2018 when completion of the Acquisition was confirmed. These announcements are available on the Company's website.
Steeldrum is the parent company for the West Indian Energy Group Ltd and is the owner of the licences for the Innis-Trinity field (100% and operator), South Erin field (100% and operator) and the Cory Moruga development project (83.8% and operator), all located in southern Trinidad and close to Columbus's existing assets. The Innis-Trinity field and South Erin field have remaining 2P reserves of approximately 4 million barrels of oil ("mmbbl") and 1.6 mmbbl respectively. The Cory Moruga development is expected to have recoverable reserves of approximately 1.1 mmbbl.
The Company will now focus on growing production and revenues in Innis Trinity and South Erin, through the adoption of a similar operational strategy to our existing fields and will commence further appraisal including commercial sales from the Snowcap-1 well as the first step of moving the Snowcap Field in the Cory Moruga License towards a full field development, with this being funded from available cash resources.
New Operating Strategy:
The growth in the number of producing fields and active wells that the combined organisation brings about, allows a new approach to managing operations to be implemented. The sharing of experience, resources and services is allowing new opportunities to be identified for production growth in all fields. With each field being run as a cash positive asset, Operations Management have the opportunity to allocate people, inventory and services to the greatest operational benefit of the combined organisation.
The learnings from successful well reactivations, active well optimisations and sand control techniques employed in Goudron are being extended to the Inniss-Trinity and South Erin Fields with the strong cost control focus of the Steeldrum organisation being brought to focus the combined team on fast cash return wellwork activities. Combined field inventories also allow wellwork and drilling planning to progress with a renewed focus on production gains per dollar invested.
The combined Operations team to be co-located in the San Fernando office is planning the use of short-term cashflow growth-based prioritisation tools to high-grade the wellwork activities across the fields. Individual producing well optimisation, common to all fields, will include the shared use of field-based petroleum engineers to extend the fluid level-based approach to maximising rates across all active wells. Initiatives specific to each field, such as Goudron water injection pilot work, is being assigned to teams responsible for implementation. This has allowed a target-based approach to be adopted allowing peak rates of 1,000 bopd to be set by year end.
Continued operation of the Waterflood Pilot "A" is planned in Q4 2018 to add to the cumulative 79,000 Barrels of produced water already injected into GY-667. Following the injection of twice the historical produced fluid volume of GY-667, the Company has obtained positive evidence that the well is not in its own compartment and pressure responses show evidence of reservoir charge. This is a positive result within the expected water injection timeframe and the Company will continue injection whilst awaiting an oil response in the adjacent offtake wells.
Monitoring of offset wells for definitive production gains continues with a decision on adding injection into GY-209 planned by year end. The availability of over 1,500 BWPD of produced water allows plans to be drawn up for submission of a separate Goudron Mayaro reservoir layer water injection to complement the existing Pilot A, "C" sand injection which targets prolific production wells GY-664 and GY-665.
A reduction in workover rig activity has occurred in Q3 2018 which, although resulting in oil production compromises, has resulted in higher positive cash generation. The activation of the Columbus owned workover rig will form one focus of Q4 2018 activities.
Three wells were reactivated in the Bonasse Field through wellbore clean-out workovers in August 2018 - Bonasse -3, 5 and 10 to add to the active Bonasse-1, 2, and 4 production. Additional productivity stimulation is planned on these active wells in addition to the planned reactivation of wells Bonasse-8, 9 and 11.
Steady gross field production of 22-24 bopd continues on the three active Icacos wells IC-1, IC-2 and IC-9 with the transfer of operator responsibilities being planned during the course of the quarter. Active wellwork on the Icacos Field and elsewhere within the licence is being planned.
A successful rig workover programme was performed in August 2018, resulting in the reinstatement of wells including AT-12 and AT-80 allowing the highest production rates year to date to be achieved in September with production peaking at 217 bopd.
Combined planning of well optimisation, well reactivation and stimulations with ongoing Goudron operations is occurring, including the benefits of active joint inventory optimisation to fast-track positive gains and reduce incremental costs.
The facilitation of the planned pilot injection of Carbon Dioxide (CO2) as an Enhanced Oil Recovery methodology suited to the Innis Trinity Field is actively being planned with Predator Oil and Gas.
Active well optimisation of South Erin wells is being practiced including the application of potential well stimulation techniques and sand production alleviation. The ER-105 well, delivering 65 bopd of the field typical 85 bopd monthly production has been the focus of well optimisation efforts.
Drilling planning for a well targeting the ER-105 compartment has involved the combined Columbus/Steeldrum subsurface team, as well as additional appraisal well location reviews to work up a multi-well drilling programme with the combined group assets.
Columbus announced on 10 September 2018 that the Ministry of Energy and Energy Industries in Trinidad (the "Ministry") had granted an extension of the licence for the Cory Moruga Block (the "Licence"). The Licence will now run until 2032.
The Company will now proceed with a phased development of the Snowcap Field, the first step being commercial sales from the Snowcap-1 well using existing infrastructure, with this being funded from available cash resources. Columbus plans to commence production as soon as possible now that the acquisition by Columbus of Steeldrum has been completed.
Further field facilities and development wells will be added on a phased basis in subsequent years based on initial production performance.
Columbus is also considering other drilling opportunities on the Cory Moruga Licence and also at South Erin and Innis-Trinity, all to be funded from currently available resources. Further updates will be announced in due course.
HEALTH, SAFETY & ENVIRONMENT ("HSE"):
The Company passed 500,000 manhours without a Lost Time Incident ("LTI") in the Goudron Field on 5 October 2018. Total Goudron field manhours in Q3 2018 was 35,350, (24,526 manhours in Q2 2017) and the milestone signifies over 40 months since the last LTI.
SOUTH WEST PENINSULA ("SWP"):
The Bonasse, Cedros and Icacos licences make up a dominant position in the onshore acreage of the South West Peninsula of onshore Trinidad. A geological review of the shallow, undrilled exploration targets underlying the Bonasse Field was undertaken. A decision on progressing with testing enhanced 3D seismic processing techniques on the existing dataset, which can improve definition of structural features used to identify hydrocarbon traps along the Southern Anticline, is planned in Q4 2018.
In Q3 2018, there was no material activity in Spain. The Company continues to maintain the Ayoluengo Field on a "care and maintenance" basis whilst awaiting the commencement of a new tender by the Spanish authorities.
The Company incurred costs of approximately US$0.40 million in maintaining its obligations in Spain during Q3 2018, with this including US$0.17 million of taxation payments to the Spanish authorities relating to the staff redundancy process undertaken in Q2 2018 and a further US$0.15 million placed in escrow relating to a historical legal issue which the Company is challenging.
UN-AUDITED Q3 2018 FINANCIAL SUMMARY:
· Gross Revenues of US$3.85 million achieved (Q2 2018: US$3.01 million)
· 62,658 barrels sold in Trinidad during Q3 2018 (Q2 2018: 50,314 barrels)
· Average realised sales price from Trinidad operations in Q3 2018: US$60.90 per barrel (US$60.00 per barrel in Q2) - peaking at US$62.14 per barrel in September 2018
· Cashflow positive position maintained from operations delivering US$0.54 million after taking account of intensive field maintenance and well workover campaign during Q3 2018 costing US$0.72 million to grow production
· Capex of US$0.17 million incurred in Q3 2018 (Q2 2018: US$0.5 million). Main cost focus in Q3 2018 has been on field optimisation and workover activities (see above)
· M&A costs of US$0.36 million in Q3 2018, including US$0.12m relating to the Steeldrum acquisition and US$0.24 million as part of the BOLT completion process.
· London office closed in July 2018 to reduce G&A costs, leaving a small office in central London for technical/engineering support going forward.
· Continued focus on capital discipline with cash balance of US$1.97 million at 30 September 2018 (30 June 2018: US$2.35 million).
· US$0.31 million also held as restricted cash at 30 September 2018, these payments made in Q3 2018 to address legacy Performance Bond and abandonment fund requirements in Trinidad.
· Lind Partners loan position: Loan balance reduced to US$0.48 million at end September 2018 (US$0.59 million at end June 2018) with all monthly repayments made in cash during quarter. With the acquisition of Steeldrum, the Group will have total loans outstanding of approximately US$2.24 million upon completion. Company will be drawing down a further US$1.25 million from a new Lind Partners facility (the "2018 Lind facility"), announced on 13 July 2018 alongside the announcement of the Steeldrum acquisition, to repay a US$1.25 million loan which Steeldrum holds with North Energy Capital AS ("North Energy and "North Energy Loan"). The new Lind loan that is drawn-down under the 2018 Lind Facility, which was specifically envisaged within the 2018 Lind Facility when it was established, will be repayable by the Company over a two-year period at approximately US$62,750 per month. The Company has made no decisions as to whether it will drawdown any of the US$2.0 million remaining under the 2018 Lind Facility, once the above-mentioned US$1.25 million has been drawn-down for repayment of the North Energy Loan.
· All planned activities, business costs and liabilities in 2018 in Trinidad, Spain and London, including loan repayments, will be funded from production revenues and available cash.
The Company continues to monitor its funding position and, as noted above, is able to fund its planned activities in 2018. It also has access to a further US$2 million from the 2018 Lind Facility which was established as a "financial insurance policy" given that there are always potential issues which may arise when integrating a new entity. The Company needs to retain financial flexibility going forward and continues to examine new business opportunities and funding possibilities including debt, equity and contractor financing for those opportunities with various external parties.
The Company continues to work actively on a number of acquisition opportunities in Trinidad and elsewhere in South America using the following investment screening criteria: onshore; operatorship, easy export routes, mature oil provinces in the Caribbean or South America; close to infrastructure; funded in a manner which is accretive for Columbus' current shareholders.
This announcement is inside information for the purposes of Article 7 of Regulation 596/2014.
Qualified Person's statement:
The information contained in this document has been reviewed and approved by Stewart Ahmed, Technical Director (Trinidad), for Columbus Energy Resources plc. Mr Ahmed has a BSc in Mining and Petroleum Engineering and is a member of the Society of Petroleum Engineers. Mr Ahmed has over 33 years of relevant experience in the oil industry.
Columbus Energy Resources plc
Leo Koot / Gordon Stein
+44 (0)20 7203 2039
VSA Capital Limited
Financial Adviser and Broker
Andrew Monk / Andrew Raca / Justin McKeegan
+44 (0)20 3005 5000
Beaumont Cornish Limited
Roland Cornish / Rosalind Hill Abrahams
+44 (0)20 7628 3396
Public and Investor Relations
Georgia Edmonds / James Crothers
+44 (0)20 3757 4983
Notes to Editors:
Columbus Energy Resources Plc is an oil and gas producer and explorer focused on onshore Trinidad with the ambition to grow in South America. The Columbus Energy group has five producing fields, one development project and a highly prospective exploration portfolio in the South West Peninsula ("SWP"), which lies in the extreme southwest of Trinidad and consists of stacked shallow and deep prospects. Columbus is cashflow positive and aims to create transformational growth by developing its portfolio in a capital efficient and disciplined manner.
Columbus is guided by the following core values; safe and sustainable, stronger together, creative excellence, positive energy, totally trusted and personally responsible.
The Company is led by an experienced Board and senior management team with supportive shareholders and intends on leveraging its expertise and experience to build an attractive and diversified portfolio of assets across South America in order to build an oil production led South American exploration business.
Barrels of oil per day
barrels of water per day
Lost Time Incident
Million barrels of oil
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