iGas LON:IGAS the AIM-listed, Lincoln-headquartered onshore oil and gas exploration and production company published its results for the year ended 31st December 2022, today (30th March).
As previously reported, iGas currently produces around 2,000 barrels of oil equivalent per day from some 100 sites across the UK, with, the company says: “significant potential yet to be delivered from our assets”. The company has also branched out into renewable energy, having acquired geothermal energy producer, GT Energy in 2020.
The company is focused on onshore wells in the East Midlands and the Weald Basin in the south of England. The company, as well as looking at geothermal production, is also exploring opportunities to reform its existing gas production into hydrogen partnered with Bayotech, a leading technologies business in hydrogen generation systems.
High prices
iGas has had its numbers buoyed by the high oil and gas prices over the past year, precipitated by the War in Ukraine that sent prices to record levels, but the company still reported a loss after tax of GBP11.8m which was up 96.7% from a GBP6m loss in 2021, despite underlying operating profit rising 705% from GBP2m to GBP16.1m.
Although revenues ticked up to GBP59.2m from GBP37.9m in 2021, iGas took a hit of GBP30m, following the impairment of the company’s shale assets as a result of the reimposition of the moratorium on hydraulic fracturing by the government. This is a bit of a problem for iGas, as they are wedded to fracking as part of their operations. However, iGas did sidestep Energy Profit Levy impact in 2022 due to its available capital allowances, something that other upstream producers in the UK have been complaining bitterly about.
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Chris Hopkinson, iGas’ chairman said in a statement to the market: “The higher oil and gas prices have been a welcome boost to revenue and cash generation giving us greater financial flexibility and enabling us to repay debt. However, we believe now is the right time, given the prevailing price environment, to focus on driving opportunities for production, that pay back in a short time frame, and to that end we will seek to finance these near-term projects.”
Debt was halved to GBP6.1m in 2022, a shrewd move given the rising interest rate environment, and cash on hand stayed fairly stable year-on-year at GBP3.1m. Adjusted earnings appreciably grew over 250% to GBP21.1m.
The company’s shares opened trading today at 16p, and has offered a -2.5% year-to-date return, a -39.4% one-year return, with shares trading in the range of 15p to 112p over a 52-week period. The company has a market capitalisation of GBP20.8m.
The company remains fundamentally a small, onshore upstream oil production company, but the interesting thing is the transition that the company is making to its own operations and stepping into geothermal energy production.
The UK has a significant geothermal potential. It’s not a new thing – Celtic kings and Romans were bathing in geothermically-warmed hot springs in Somerset 2,000 years ago. However, to date, there is no deep geothermal power generation facilities in the UK, but given the country’s geology, especially in South West England, the Lake District and the Eastern Highlands of Scotland, there are significant prospects for geothermal power generation and according to the Renewable Energy Association, geothermal could potentially provide up to 20% of the country’s electricity demands.
Geothermal emergence
With state of the current energy market the drive to become self-sufficient in energy terms is in the priority basket for many governments around the world. Geothermal, being a carbon-free technology, is one of a number of channels that could be explored in the UK, however to date the government has not developed a regulatory framework for the sub-sector, there is a lack of public awareness about geothermal and plants are expensive up-front to develop. But if these challenges are dealt with the UK could become a leading producer of geothermal energy, so iGas is fishing in the right well.
Hopkinson said: “We have made significant progress during the year in bringing our vision for decarbonisation of large-scale heat using geothermal energy, in the UK, closer to fruition. We have been working closely with government, academia and commercial partners to accelerate support for and understanding of this proven technology.”
The company is looking forwards to “…achieving financial close for the Stoke-on-Trent geothermal project and moving into the execution phase of that project during the year,” with the Etruria valley project that could provide heating to 4,000 homes, iGas’ premier move to transition from O&G to renewables.
But primarily, at the moment, iGas is focussed on its conventional assets, with company anticipating net production of at least 2,000 barrels of oil per day at a cost of USD41/barrel of oil in 2023.
The company could be turning a corner and moving from loss to breakeven and profit in the next few years. iGas’ exposure to the new geothermal industry (in the UK at least) augurs well for future profitability, something that is reflected in the potential name change to Star Energy Group PLC.
Bridgewise rates iGas as a ‘Buy’, saying: “iGas’ positive income, growth, and value factors indicate that it is likely to continue to produce impressive results for the foreseeable future. We expect that this positive performance will continue in the coming months, and anticipate that IGas will maintain good momentum even in a challenging environment. We therefore gave IGas a total score of 79 out of 100.”
