Angus Energy LON:ANGS the AIM-listed, junior oil and gas exploration and production company has had a bit of a rally since we last visited the Chiswick-headquartered firm in March.
Having opened the year at 1.5p, Angus shares breached the 1p level in February. However since 8th March, when The Armchair Trader last wrote about the company shares were 1.32p and started moving in a positive direction.
At the beginning of April they were up to 1.45p. By the end of March they were up to 1.6p and by the beginning of April they were closer to 2p than 1p at 1.85p. Falling back a bit, Angus opened the week (2nd May) at 1.55p, but were up around 1.7p in the morning session. The shares have seen a 22% uplift since 8th March.
I know in the grand scheme of things; this is small beer. But it seems that a corner is being turned given that back in March things were looking a bit ropey for the company. Finance was a real problem, and the company raised a flag saying it would need to raise new funds to keep operating.
Legacy issues
The firm was also enmeshed in something of an internecine conflict with shareholders trying to unseat directors and former directors suing the company for breach of contract.
Most worryingly the company was having operational and production-related issues, and the Oil and Gas Authority (OGA) ordered the company to temporarily halt production at its Saltfleetby gas field in October 2020, due to concerns about the company’s ability to safely operate the facility.
However, the company’s management have been trying to tick one after another of these issues off its to-do list.
First up, funding. At the end on March, Angus afforded itself some vital breathing room by securing a GBP3m bridging loan with shareholder Kemexon, a commodity trading house. Although the finance wasn’t cheap, at Sterling Overnight Index Average (a widely used interest rate benchmark that reflects the average of the interest rates paid by banks to borrow sterling overnight from other financial institutions) +15% for three months with a 3% roll fee to extend for a further three months and the requirement to issue 150 million warrants at 1.65p a share; it did allow Angus to extended drilling operations as well as initial studies around the development of natural gas and hydrogen storage at Saltfleetby.
The bridging loan was also not cheap to arrange, with Angus agreeing to pay arranger, Aleph Commodities an upfront 5% arrangement fee and a further 3% break fee should the bridging loan not be rolled beyond its initial three-month term. Aleph will be paid in shares at the 30-day volume-weighted average price of 1.36379p/share prior to the date of issue of the facility. Just like Kemexon, Aleph is an existing shareholder of Angus.
The company hopes to pay back the Kemexon loan from revenues from the existing operations and the sidetrack from its main Saltfleetby well.
Angus also gave up a bit more of its equity as another long-term shareholder, Knowe Properties took the option of converting its GBP1.4m 2020 loan, plus interest, into 145,293,100 Ordinary Shares, taking Knowe’s holding in the company to 6.73%.
Financial strengthening
Chairman, George Lucan said at the time: “This bridge facility demonstrates the strong support for Angus that exists as well as our commitment to our shareholders to deliver growth and shareholder returns through share price appreciation and distributions. With the new SF07v well expected to come online shortly, the Company’s financial position is strengthening and we will be able to access lower costs of funds.”
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With immediate funding concerns dealt with – or at least the can kicked down the road for another three-to-six-months – the company also has started to address its production issues.
The initial phase of Angus’ Saltfleetby sidetrack cleanup was concluded at the beginning of April with the steady removal of residual drilling fluids. As part of the operation, Angus’ sidetrack SF07V well-testing programme was, according to the company, “progressing satisfactorily.” The company reported 2.1 million standard cubic feet per day (mmscfd) when started-up and increased to 4mmscfd and was increasing on a linear basis.
Ten million cubic feet target
By way of comparison, the pre-existing wells averaged around 5.4 mmscfd per quarter. The company has set a sidetrack target of 10 mmscfd for the three wells. As soon as the clean-up operations are completed, Angus plans to hook up the combined flows of its three wells to a gas processing and export plant.
One of the big issues we highlighted in March was a GBP110m hole in its balance sheet from a derivative contract that the O&G production company took out with Mercuria Energy Trading Services in June 2021 as part of a GBP12m loan agreement and based on future production and calculated using forward gas prices as at 30th September 2022.
The contract was agreed originally to mitigate price risk on the expected future cash flow from the production of Saltfleetby Gas Field. However, such contracts are delicate balancing acts and the swap swung into loss as a result of the steep rise in the prices of natural gas in 2022, affecting the company, as the floating price payer as of reporting date.
Angus reported gas volumes produced and sold as 5.4 million therms in January, February and March combined – 1.8 million therms ahead of the hedge requirement. January was the best month for production, as February and March were affected by work on one of the well’s compressors. Angus also pleasantly surprised itself with 120 bbl/day of liquid production which the company quite coyly said was: “somewhat higher than expected.”
By the middle of last month, Angus had completed its clean-up operations at Saltfleetby B7T and believes “the well is capable of 4-5 mmscfd.”
Confirmed appointments
The company also moved on making management changes, appointing Richard Herbert as chief executive director, George Lucan as executive chairman and Patrick Clanwilliam as non-executive director. The company also appointed Tim Kaye as non-board director of UK Operations and granted 103 million share options, representing 2.87% of the company’s issued share capital, under the company’s existing employee incentive schemes to directors and other members of staff.
It’s too early to know how the rest of the year will play out for Angus. Remember, the company was considering putting itself up for sale in January 2021. Its viability depends upon it making Saltfleetby profitable and hoping that it can keep production values up – something that it has had a patchy record on so far – and hope it stays on the right side of gas prices per the derivative contract. It also needs to concentrate on its knitting. The company was considering fracking in West Sussex, something it has been greenlighted to progress and was exploring geothermal opportunities.
Angus has made some steps in the right direction, but it is a long road ahead.
