Infrastrata PLC (INFA) - Final results for the year ended 31 July 2012 RNS Number : 9416R Infrastrata PLC 26 November 2012 26 November 2012 For Immediate Release InfraStrata plc ("InfraStrata" or the "Company") Final results for the year ended 31 July 2012 InfraStrata plc (AIM:INFA), the independent petroleum exploration and gas storage company, is pleased to announce final results for the year ended 31 July 2012. The Company is also separately releasing an update on its exploration activities. Operational highlights · Increasing focus on exploration activities - significant prospective resources have been identified through a work programme largely funded to date by partners. · In January 2012 Islandmagee Storage Limited (65% owned by the Company) entered into agreements with BP Gas Marketing Limited ("BPGM") for the appraisal of the project and the option for BPGM to acquire a 50.495% equity interest. · Subject to consents and project funding, plans are underway to drill an exploration well in County Antrim, an appraisal well of an existing discovery in Dorset, and an appraisal well funded by BPGM at Islandmagee, all during 2013. · Planning permission received in October 2012 for the Islandmagee gas storage project. · Potential for Portland project gas pipeline to provide an export route for gas production from the Company's P1918 licence. · Potential for salt production at Portland site has also been identified and being evaluated - enabling the future option for gas storage to be retained. Financial highlights · Exploration programme of £2,261,262 undertaken with cash cost to the Company of only £34,564. · New equity issued to raise £1,400,000 before expenses. · Portland project has been impaired - non-cash transaction. · BPGM funded the Islandmagee gas storage project to the extent of £475,689 during the financial year. · General and administrative expenditure well controlled. · Loss for the year of £19,727,362 (2011: profit of £4,310,311) after £18,420,125 charge (2011: gain of £2,511,925) relating to Portland. · Cash and cash equivalents at 31 July 2012 of £1,918,201 (2011: £714,969). Commenting on the results and outlook, Andrew Hindle, CEO of InfraStrata plc said: "The Company has continued to focus on oil and gas activities in two areas: County Antrim in Northern Ireland and Dorset in Southern England. InfraStrata works alongside strong and experienced partners in projects in both areas. During the past two years the focus has shifted towards the exploration projects in both areas where significant progress has been made and two wells are being planned for 2013, which together with the planned appraisal well for the Islandmagee gas storage project, have the potential to unlock very significant value for shareholders." For further information please contact: InfraStrata plc Andrew Hindle, Chief Executive Officer 020 8332 1200 Craig Gouws, Chief Financial Officer Financial PR - Buchanan Richard Darby/Gabriella Clinkard 020 7466 5000 Nominated Advisor and Broker - Arden Partners plc Richard Day/Justine Waldisberg 020 7614 5917 Notes to Editors: Background on InfraStrata plc InfraStrata is an independent petroleum exploration and gas storage company. The Company is focused on two areas in the UK, in Dorset, England and Antrim, Northern Ireland. Further information is available on the Company's website www.infrastrata.co.uk. In accordance with the AIM Rules - Note for Mining and Oil and Gas Companies, the information contained in this announcement has been reviewed and signed off by the Chief Executive Officer of InfraStrata plc Dr Andrew Hindle, a Chartered Geologist with over 25 years' experience. CHAIRMAN'S STATEMENT The past few years have been challenging and in response to a fundamental shift in market conditions, I am pleased to report that we have worked successfully to reposition the business and identify routes to build significant shareholder value within a realistic timeframe. We have made considerable progress on our exploration projects and we have advanced the Islandmagee gas storage project through to successful receipt of planning approval. Chronologically, your company was created on the back of a single large gas storage project based at Portland in Dorset and our difficulties in securing funding or otherwise realising value from the project have been well documented during an unprecedented shift in the fundamental economics and markets for seasonal gas storage facilities. In seeking to broaden our base we have embraced a smaller, more flexible and commercially attractive gas storage project, at Islandmagee in Northern Ireland. In addition to being able to meet the demands of seasonal storage, this facility would also be able to meet short-term fluctuations in demand on the gas network throughout the year, resulting in a greater value to the traded markets. We have also capitalised on our knowledge of the areas near to our storage projects and secured exploration licences PL1/10 and P1918 close to each and in this respect the emphasis of the Company's development has changed. Meanwhile we have continued to preserve the planning permissions for the Portland project and looked for additional or alternative projects to use both the site and those permissions. The greater flexibility of the Islandmagee project compared to Portland has meant that, with our partner Mutual Energy, we were able to secure investment from BP Gas Marketing in the Islandmagee storage project. Our association with BP Gas Marketing and Mutual Energy in respect of the Islandmagee project is poised to enter a new phase now that planning permission has been granted and we expect shortly to be assessing how best to unlock value for shareholders in the near term. The current poor market conditions for seasonal storage mean that we do not consider that it is likely we can realise the Portland gas storage project in the short term. As a result, we have been obliged to look critically at the cost pool. As a Board, we consider it is appropriate to take a conservative approach to the applicable accounting treatment of the project and the carrying value of the asset in the Company's accounts. This has resulted in a substantial reduction in the financial asset value of the project cost carried on our balance sheet. There are no cash cost implications on the re-assessment and there remain clear commercial opportunities for the Portland site, which the Group will continue to assess and explore. Not least of these are those historic costs associated with the gas pipeline which has potential value for the P1918 petroleum licence or gas imports. The costs incurred in drilling the Portland-1 well and acquiring the Portland seismic data have been recognised as an exploration and evaluation intangible asset in the Group's financial statements. In the shorter term, the use of the brownfield site and attendant planning permissions are currently under appraisal as a potential for a salt solution mining facility, in its own right. The Company also made significant progress during the year to 31 July 2012 with the petroleum exploration project in Northern Ireland where we are at an advanced stage of reviewing the additional seismic data acquired earlier this year. The data looks very encouraging and the prospects of drilling our first exploration well during 2013 appear strong. In offshore Dorset the exploration is at an earlier stage following the formal award of the P1918 licence in first half 2012, but the presence of existing oil and gas discoveries within the licence area marks it out as prospective for the Company and good progress is anticipated in the coming year. These exciting developments encourage me to believe that there exists potential within these exploration projects to unlock significant shareholder value. May I conclude by offering my thanks to our small but highly effective team for the progress made over the past eighteen months across both the exploration acreage and the Islandmagee gas storage project and also to our shareholders for their support. 2012 has been another challenging year but one in which significant progress has been made, one in which the emphasis of the Company has been repositioned and one in which our progress justifies my expectation that 2013 could be a very good year for your Company. CHIEF EXECUTIVE'S OPERATING REVIEW The Company has continued to focus on oil and gas activities in two areas within the United Kingdom; County Antrim in Northern Ireland; and Dorset in Southern England. InfraStrata works alongside strong and experienced partners in projects in both areas. During the past two years the focus has shifted towards the exploration projects in both areas where significant progress has been made and two wells are being planned for 2013, which together with the planned appraisal well for the Islandmagee gas storage project - all have the potential to unlock very significant value for shareholders. County Antrim, Northern Ireland Islandmagee Project Islandmagee Storage Limited ("IMSL") was granted planning permission for a £400 million natural gas storage facility at Islandmagee, Co Antrim, in October 2012. IMSL was also granted a Gas Storage Licence from the Utility Regulator in October 2012. IMSL plans to create seven caverns, capable of storing up to a total of 500 million cubic metres of gas in Permian salt beds approximately 1,500 metres beneath Larne Lough. IMSL is an independent Northern Ireland registered company; a joint venture between a wholly-owned subsidiary of InfraStrata plc (65% shareholder) and Moyle Energy Investments Limited, part of the Mutual Energy group of companies (35% shareholder). In January 2012 we were very pleased to announce that IMSL had entered into agreements with BP Gas Marketing Limited ("BPGM") for the appraisal of the project and the option for BPGM to acquire a 50.495% equity interest in IMSL. Under the terms of a Joint Appraisal Agreement, BPGM has agreed to fund the activities necessary to develop the project, including the drilling of the first borehole, up to the point where a decision can be made on whether to proceed with its detailed engineering design. BPGM has also paid IMSL a total of £600,000 (a third on signing of an option agreement in September 2011, a third on signing the agreement in January 2012 and the remainder on the grant of planning permission in October 2012). The first payment was used to complete a land purchase for the project and the remaining funds were used to settle a portion of InfraStrata's loan account to IMSL. The Islandmagee project has a number of advantages which enhance its commercial case. These include being immediately adjacent to gas and electrical infrastructure, the salt being at an optimum depth for gas storage and close to a water source for solution mining of the salt to create the caverns. The project is also designed to access the extrinsic value of the gas storage market in the UK and Ireland by being able to respond to short-term volatility. The proposed gas storage facility will make a significant contribution to the security of gas supplies for the whole island of Ireland. Ireland is dependent on gas for around 65% of electricity generation with 90% of the island's gas imported via a single pipeline from Scotland. The facility, when complete, will store enough gas to satisfy Northern Ireland's demand for around 60 days. Northern Ireland has a target to generate 40% of electricity from renewables by 2020 - this will primarily be achieved through wind-powered generation. A shift to renewable energy sources is likely to result in an increasing reliance on gas-fired power stations to support the inherently intermittent supply from wind. Rapid cycle gas storage facilities, such as this planned project, will be important to respond to the increasingly fluctuating demands for gas to fuel this electricity generation requirement. The estimated timescale for the project is approximately seven years, with the first cavern becoming operational after five years. The initial appraisal well drilling is planned, subject to confirmation on the regulatory framework for the project, in 2013. Samples of the Permian salt will provide the technical confirmation and final design parameters for the project. Petroleum Exploration Project - PL1/10 Larne-Lough Neagh Basin A group led by InfraStrata plc was awarded Petroleum Licence PL1/10 in March 2011 by the Department of Enterprise, Trade and Investment ("DETI"). The licence covers an area of 663 square kilometres over what the Company believes is a very prospective largely unexplored sedimentary basin. The licence term is five years with a drill-or-drop decision required by March 2014. InfraStrata plc has a direct operated interest of 30%, with a further 40% shareholding in Brigantes Energy Limited which holds a 40% interest in the licence - resulting in an overall net licence interest of 46%. The other partners in the licence are Cairn Energy (20%) and Terrain Energy (10%). The licence is located within the Larne-Lough Neagh Basin, a SW-NE trending Permo-Triassic Basin, overlying an older Carboniferous sequence. The basin has historically received little attention from explorers - the primary reason is the thick development of Palaeocene Antrim Flood Basalts overlying the target horizons. This has been a barrier to effective seismic imaging but with the recent technological advances in data processing, it is now opening up. The group has acquired, using onshore specialist contractor Tesla Exploration International Limited, a total of 400 kilometres of 2D seismic data over two campaigns, the first in October/November 2011 and the second in June 2012. Following the first survey, structures were identified below the basalt and large leads mapped in the east of the licence area. This eastern area became the focus for the second survey. The Company believes the new data has the potential to open up an exciting new area for petroleum exploration with significant potential. There has been a limited amount of drilling in the Larne-Lough Neagh Basin over the past 40 years; largely for coal exploration and geothermal feasibility. However this has confirmed the development of good sandstone reservoirs and seals within the thick Permo-Triassic sedimentary section, similar to those found in our analogue, the prolific East Irish Sea Basin. Oil-prone source rocks have been identified on the margins of the Basin within the Carboniferous section, and gas-prone coals have also been mined to the west in the Coalisland area, and along the North Antrim coast. The basin is also along trend from the Midland Valley of Scotland where oil and gas prone rocks of Carboniferous age are well known. It is anticipated that in the more deeply buried areas of the Larne-Lough Neagh Basin the Carboniferous will have been buried sufficiently to generate oil and possibly also gas. As with any new exploration province anywhere, the presence of a working petroleum basin remains the highest risk of the play and can only be resolved by drilling. The 2011 data, together with the new 2012 survey were both processed by Fugro Seismic Imaging Limited, a world leader in the processing of challenging land data, during July to October 2012. Since October 2012 the interpretation has been on-going. A trend of large structures within the eastern half of the licence has been high-graded. The initial licence term commitments to DETI have now been exceeded. The joint venture proposes to drill its first exploration well during 2013. Work is now commencing on identifying a suitable surface site from which to drill, and engaging with local stakeholders. It is hoped that it will be possible to drill the well in a coordinated programme with the first well on the Islandmagee gas storage project, to realise technical synergies and in particular to save costs for both projects. Dorset, Southern England Portland Project - Gas storage and salt solution mining Planning permission was granted for a 1,000 million cubic metres gas storage facility and associated infrastructure in 2008. The Company has run two formal processes to unlock value in the project. The first in 2007/8 had to be halted when interested parties withdrew from the process as the financial markets collapsed in the autumn of 2008. A second process was run in 2009/10 and resulted in US company, eCORP International LLC ("eCORP"), taking a 50% interest in the project during 2010 in return for funding the project through the next stage of pre-construction activity. Between 2010 and 2012, eCORP invested £1.9 million in the project, which included lease payments, securing the majority of landowner agreements for the 37 kilometre gas pipeline connection to the National Transmission System and undertaking works on the site to implement the main site planning permission. However this investment was against a backdrop of a closing of the summer-winter gas price spread, which undermines the financial case for all but the very flexible gas storage projects in the UK, such as the Islandmagee project, which are able to respond to the volatility in prices rather than longer-term seasonal trends. With the continuing poor market conditions for seasonal gas storage facilities and a refocusing of eCORP's European operations, InfraStrata reached agreement with eCORP in June 2012 whereby InfraStrata acquired 100% of the project again and eCORP's former funding obligations were restructured into an obligation to provide funding for a further US$2.88 million, in the form of monthly payments of US$120,000 until May 2014. The deal was structured so that eCORP would earn a 7.5% share of the future profits from the Portland project in return for its total investment in Dorset projects of approximately £3.7 million. The Company believes it is unlikely that the seasonal gas storage market will improve in the short-term, but it remains a longer-term play as pressure for reliable winter supplies increases and the UK's indigenous production reduces further. Against this backdrop, InfraStrata has conducted a review of all the potential projects which could be sited at Portland in the short-term to build upon the existing planning permissions. These included the generation and export of electricity, carbon capture & storage ("CCS"), salt production and export, gas imports and the siting of petroleum production facilities. An application for funding for a CCS pilot at the site to the Department of Energy and Climate Change ("DECC") in 2012 proved unsuccessful. The Company is now focused on the potential for salt production at the site. The location adjacent to a deep water port makes the export of salt to UK and international markets potentially attractive. If such a project could be established in the shorter-term it would enable the Company to retain the option for gas storage in the longer-term. The gas pipeline construction authorisation from DECC is viewed as being of considerable potential value and will be maintained pending its future use as a potential export line for gas from production in the area (discussed further below), or for gas imports. Petroleum Exploration Project - P1918, Wessex Basin A group led by InfraStrata plc was awarded Petroleum Licence P1918 in December 2011, effective February 2012. The licence term is four years with a drill-or-drop decision required by February 2014. InfraStrata has a direct operated interest of 70%, with a further 40% shareholding in Corfe Energy Limited which holds a 20% interest in the licence - resulting in an overall net licence interest of 78%. The other partner in the licence is Cairn Energy (10%). InfraStrata acquired a 50% licence interest from eCORP (subject to a 7.5% share of future profits) in June 2012. The P1918 licence covers three offshore Blocks 97/14, 97/15 and 98/11, with a total area of 584 square kilometres adjacent to the Dorset coast and close to the giant Wytch Farm oilfield. Within and immediately adjacent to the licence area there are a number of active oil and gas seeps. A total of seven wells have previously been drilled within the licence area, including the first UK offshore well in 1963 on Lulworth Banks in Block 97/14. Six of these wells encountered oil or gas shows and three flowed oil or gas on test. The advances in technology and higher petroleum prices mean that the licensees are hopeful of being able to develop one of the existing discoveries profitably as a base from which to appraise the full potential of the area. The focus has been on the offshore extension of the Purbeck Prospect, an anticline in the east of the licence, up dip of the onshore well Southard Quarry-1, which encountered petroleum at several stratigraphic levels in 1989 but was not tested. This large structure lies largely within Licence P1918. InfraStrata will commence reprocessing of existing data to define further the sub-surface target location for a new appraisal well. It is proposed to drill the well directionally from an onshore location, subject to planning permission and project funding, in the latter part of 2013. The gas pipeline consent for the Portland project may prove a key investment to export gas from the area and realise this potential. Funding review BPGM funded the Islandmagee gas storage project to the extent of £475,689 during the financial year under the terms of a Joint Appraisal Agreement. BPGM will continue funding the development of the Islandmagee gas storage project through 2013 including the drilling of an appraisal well. We anticipate that the drilling of this well will trigger the detailed engineering and design phase and an unlocking of value in the project for InfraStrata through a monetising of its interest in the project. The project proceeding to construction will also be a further cash boost to InfraStrata with settlement of partner Mutual Energy's share of the loan account which is due to InfraStrata and which currently stands at £1.2 million. The Company has no debt and has been successful in attracting investment into its projects. In addition, cash revenue of £253,932 has been earned from partners for managing the various projects, resulting in a net cash outflow (before legal costs relating to transactions) during the financial year of £78,000 per month. A placing of shares in February 2012 has secured the necessary funds to meet administration and general expenditure of the Company and support processes to unlock the inherent value in our range of projects. InfraStrata has been funded for its share of the PL1/10 seismic programme through the introduction of partners (gross expenditure to year end of £2.2 million). A portion of the first well in Northern Ireland is already funded under an existing farmout agreement. We expect to see continued significant interest from industry partners in our acreage and will assess the options for securing the balance of the funding for the first exploration well. In the Dorset projects, the restructuring agreement with eCORP has secured $120,000 per month funding until May 2014. At the same time as reaching agreement with eCORP, agreement was also reached with Portland Port Limited to modify the existing leases at the Portland site. Portland Gas Storage Limited is able to terminate, without financial penalty, the leases annually in June of each year until 2018. InfraStrata has funded the majority of its share of the initial work programme in the Dorset exploration project, comprising seismic mapping and prospect characterisation, through a farmout of an 8% interest to Corfe Energy Limited in August 2012. InfraStrata is likely to seek to farmout a further interest in the licence to fund the drilling and testing of an appraisal well. The Company holds a large equity position, following the eCORP licence acquisition, with which to manage a farmout funding process during 2013. InfraStrata plc also holds a shareholding in two independent exploration companies, Brigantes Energy and Corfe Energy, who are partners in its exploration projects and are self-funding. InfraStrata Director William Colvin represents the Company's interest on the Board of each exploration company. Brigantes holds a 40% interest in licence PL1/10 in Northern Ireland, and Corfe a 20% interest in offshore Dorset licence P1918. The companies raised a further £750,000 each during 2012 in private share placings, diluting InfraStrata's shareholding from 50% to 40%. At an appropriate time InfraStrata could sell its interests in these companies to unlock the value of its investments for shareholders. OUTLOOK Good progress has been made in assessing and defining the prospectivity within the Company's exploration acreage. The coming year will see an increasing focus of the Company's activities towards its exploration portfolio. The upside potential of the licences for the Company is expected to be very significant. Characterisation of the primary prospects in each licence will continue as preparations commence for drilling and testing the plays, which are expected during the second half of 2013. The coming year will see the Islandmagee gas storage project progressing further following the successful granting of planning permission in October 2012. Drilling of the first well is expected to take place in 2013 subject to confirmation of the regulatory framework for the project. The data from the seismic acquisition on licence PL1/10 in Northern Ireland will be processed and interpreted and is expected to lead to an exploration well being drilled, hopefully using the same rig as the Islandmagee well. In Dorset, evaluation of existing data in licence P1918 will be progressed further with seismic reprocessing of data over the most prospective structure. It is anticipated that preparatory work, including the submission of a planning application, will be commenced to enable the joint venture to drill the first appraisal well in the licence from an onshore location. At Portland options to progress projects by building on existing technical work and consents will continue to be reviewed. Unlocking the inherent value of the Company's projects during the coming 12 months is management's primary objective. The Company looks forward to working with partners and stakeholders to progress all of our projects. Notes 2012 2011 £ £ Continuing operations Revenue 253,932 240,290 Cost of sales - - Gross profit 253,932 240,290 Administrative expenses (1,259,206) (1,180,485) Operating loss (1,005,274) (940,195) Finance income 2,596 11,139 Share of loss of Joint Venture 3 (10,306,395) (452,089) Impairment of interest in Joint Venture 3 (10,626,210) - Gain arising on assuming control of the former Joint Venture 3 2,512,480 - Share of loss of Associates (174,869) - Loss before taxation (19,597,672) (1,381,145) Taxation - - Loss for the year from continuing operations (19,597,672) (1,381,145) (Loss)/profit for the year from discontinued operations (129,690) 5,691,456 (Loss)/profit for the year attributable to the equity holders of the parent (19,727,362) 4,310,311 Other comprehensive income - - Total comprehensive (loss)/profit for the year attributable to the equity holders of the parent (19,727,362) 4,310,311 Basic and diluted earnings per share 2 Continuing operations (23.30)p (1.82)p Discontinued operations (0.15)p 7.49p Continuing and discontinued operations (23.45)p 5.67p Notes 2012 2011 £ £ Non-current assets Intangible fixed assets 3,399,473 - Property, plant and equipment 7,471 15,161 Investment in joint venture 3 - 22,473,516 Investments in associates 3 2,705,131 2,880,000 Other receivables 768,102 - Total non-current assets 6,880,177 25,368,677 Current assets Trade and other receivables 1,114,145 140,526 Available for sale financial assets 12,500 12,500 Cash and cash equivalents 1,918,201 714,969 3,044,846 867,995 Assets classified as held for sale 4 3,206,003 2,744,731 Total current assets 6,250,849 3,612,726 Current liabilities Trade and other payables (905,750) (104,158) Liabilities directly associated with assets classified as held for sale 4 (73,032) (29,928) Total current liabilities (978,782) (134,086) Net current assets 5,272,067 3,478,640 Non-current liabilities Deferred income tax liabilities (1,201,296) - Net assets 10,950,948 28,847,317 Shareholders' funds Share capital 9,099,160 7,826,433 Share premium 11,920,219 11,848,946 Merger reserve 8,988,112 8,988,112 Share based payment reserve 333,735 322,431 Retained earnings (19,865,967) (138,605) Attributable to owners of the parent 10,475,259 28,847,317 Non-controlling interests 5 475,689 - Total equity 10,950,948 28,847,317 Share Share Attributable Non-controlling premium based to the interest Share Merger payment Retained owners of capital reserve reserve earnings the parent Total equity £ £ £ £ £ £ £ £ Balance at 31 11,381,095 23,562,254 - July 2010 7,380,420 8,988,112 302,435 (4,489,808) 23,562,254 Profit for - - 4,310,311 - the year - - 4,310,311 4,310,311 Total comprehensive profit for - - 4,310,311 - the year - - 4,310,311 4,310,311 Shares issued 446,013 467,851 - - - 913,864 - 913,864 Share based - - - 60,888 - 60,888 - 60,888 payments Share options - - - (40,892) 40,892 - - - lapsed Balance at 31 11,848,946 28,847,317 - July 2011 7,826,433 8,988,112 322,431 (138,605) 28,847,317 Loss for the - (19,727,362) - year - - - (19,727,362) (19,727,362) Total comprehensive loss for the - (19,727,362) - year - - - (19,727,362) (19,727,362) Shares issued 1,272,727 71,273 - - - 1,344,000 - 1,344,000 Share based - 11,304 - payments - - 11,304 - 11,304 BP Gas Marketing Limited - Islandmagee Storage - - 475,689 Limited option (note 5) - - - - 475,689 Balance at 31 9,099,160 11,920,219 8,988,112 333,735 (19,865,967) 10,475,259 475,689 10,950,948 July 2012 Notes 2012 2011 £ £ Net cash (used in) operating activities 6 (266,553) (982,526) Investing activities Interest received 2,596 11,139 Purchase of intangible assets (34,564) (324,520) Purchase of plant and equipment (371,510) (108,706) Cash outflow on disposal of subsidiary - (6,264) Cash inflow on acquisition of subsidiary 53,574 - Net cash (used in) investing activities (349,904) (428,351) Financing activities Proceeds on issue of ordinary shares 1,344,000 864,864 Non-controlling interest 5 475,689 - Net cash generated from financing activities 1,819,689 864,864 Net increase/(decrease) in cash and cash equivalents 1,203,232 (546,013) Cash and cash equivalents at beginning of year 714,969 1,260,982 Cash and cash equivalents at end of year 1,918,201 714,969 Cash and cash equivalents consist of: Cash at bank £1,918,201 £714,969 Significant non-cash transactions The significant non-cash transaction for the year ended 31 July 2012 was the assumption of control over the previous joint venture - see note 3. Significant non-cash transactions for the year ended 31 July 2011 comprise the loss of control of three companies which were previously subsidiaries - see note 3. Cash flows arising from discontinued activities Cash flows arising from discontinued operations are analysed in note 6. 1. Basis of preparation The financial information set out in this announcement does not comprise the Company's statutory accounts for the years ended 31 July 2012 or 31 July 2011. The financial information has been extracted from the statutory accounts of the Company for the years ended 31 July 2012 and 31 July 2011. The auditor, Nexia Smith & Williamson, has reported on the statutory accounts for the years ended 31 July 2012 and 2011; the reports were unqualified and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. The statutory accounts for the year ended 31 July 2011 have been delivered to the Register of Companies; those for the year ended 31 July 2012 were approved by the Board on 23 November 2012 and will be delivered to the Registrar of Companies following the Company's Annual General Meeting. InfraStrata plc adopted International Financial Reporting Standards (IFRS) as adopted by the European Union effective in July 2012, as the basis for preparation of its financial statements. The financial information has been prepared under the historical cost convention as modified by the revaluation of certain financial assets. There was no change to the Group's accounting policies for the year ended 31 July 2012 as compared to those published in the statutory accounts for the year ended 31 July 2011. The Directors have prepared the financial statements on the going concern basis which assumes that the Group will continue in operational existence for the foreseeable future. The Islandmagee gas storage project in which InfraStrata plc currently holds a 65% interest is funded by BP Gas Marketing Limited ("BPGM"). Under the terms of a Joint Appraisal Agreement, BPGM agreed to fund the activities necessary to develop the project, including the drilling of the first well, up to the point where a decision can be made on whether to proceed with its detailed engineering design. The exploration of licence PL1/10 has largely been funded to date by partners, however InfraStrata plc will be required to fund its interest once the initial phase of exploration is complete and the partners decide to drill an exploration well. InfraStrata plc is currently funded for a third of its interest of a well and will be seeking to farmout a further interest to complete the funding. On 1 June 2012, eCORP agreed to subscribe for US$2.88 million of Portland Gas Limited preference shares over the following two years. It is anticipated that these funds will enable the Company to settle existing commitments. Petroleum exploration activities in P1918 have largely been and are expected to be funded through farmouts as and when considered necessary. The Directors believe that the disposal of an interest in Islandmagee Storage Limited is the best way of maximising shareholder value by allowing an entity other than InfraStrata plc to develop this project. It is expected that such a disposal will provide working capital for the Group and will transfer responsibility for funding future development of the Islandmagee gas storage project to the new partner. After making inquiries and considering all the relevant factors in relation to the Group, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. 2. Earnings per share 2012 2011 £ £ (Loss)/profit The (loss)/profit for the purposes of basic and diluted loss per share being the net loss attributable to equity shareholders: Continuing operations (19,597,672) (1,381,145) Discontinued operations (129,690) 5,691,456 Continuing and discontinued (19,727,362) 4,310,311 operations Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share 84,122,359 75,978,414 Basic and diluted earnings per share Continuing operations (23.30)p (1.82)p Discontinued operations (0.15)p 7.49p Continuing and discontinued (23.45)p 5.67p operations For 2012, the share options were not dilutive as a loss was incurred. For 2011 diluted earnings per share calculations are not presented as there was no material difference between the weighted average number of ordinary shares for the purposes of basic earnings per share and the weighted average number of ordinary shares for the purposes of diluted earnings per share; the basic and diluted earnings per share are the same for both years. 3. Investments 2012 2011 £ £ Investment in joint venture (note 3A) At 1 August 22,473,516 - Additions - 22,925,605 Share of losses (10,306,395) (452,089) Impairment (10,626,210) - Disposal (1,540,911) - At 31 July - 22,473,516 Investment in associates (note 3B) At 1 August 2,880,000 - Additions - 2,880,000 Disposals - - Share of losses (174,869) At 31 July 2,705,131 2,880,000 Total investments at the end of the year 2,705,131 25,353,516 3. Investments (continued) A. Joint venture - Portland Gas Limited The Group held 50% of the ordinary shares of Portland Gas Limited as at 31 July 2011. Portland Gas Limited is involved in developing a gas storage facility on the Isle of Portland, Dorset and the related gas pipelines between Portland and Mappowder. This joint venture is a private company, registered in England and Wales and is not listed on any public exchange. Under the terms of a Restructuring Agreement on 1 June 2012, the 50% interest of the ordinary shares of Portland Gas Limited, held by eCORP, were converted into non-voting preference shares. Accordingly, as from that date, the Group owned all the ordinary shares and held all the voting rights. In accordance with IFRS, the change in the control is accounted for as the disposal of the interest in the joint venture and the acquisition of a subsidiary. Therefore the investment is accounted for as a wholly owned subsidiary in the Group financial statements at 31 July 2012. The primary reason for the Restructuring Agreement was the refocusing of eCORP's European operations. The provisions of the Restructuring Agreement include the following: • eCORP's 50% interest in Portland Gas Limited has been converted into preference shares and eCORP's former funding obligations have been restructured into an obligation to subscribe a further US$2,880,000 ($120,000 per month; eCORP receivable) for further preference shares of Portland Gas Limited over the next two years. The preference shares will provide eCORP with a 7.5% share of the future profits distributed by Portland Gas Limited. • InfraStrata plc has also acquired eCORP's 50% interest in the 26^th Round petroleum exploration licence P1918, offshore Dorset (increasing the Company's direct interest to 78%). In return InfraStrata plc has granted eCORP a 7.5% share of the future profits generated on the acquired licence interest. Portland Gas Limited fully impaired its investment in the Portland Project prior to the restructuring. The Portland gas storage project, like many other developing gas storage projects in the United Kingdom has not achieved full funding. This is largely due to the project being only marginally economic at the current winter/summer natural gas price differential and the project construction start date is thus uncertain. The Group's share of the impairment charge and other losses was £10,306,395. The Group's investment in the joint venture was then subject to an impairment review and as a result, an impairment loss of £10,626,210 was recognised. The impairment reduced the Group's investment in the joint venture to its estimated fair value. This fair value was estimated by considering the estimated value of the underlying assets of Portland Gas Limited; the only assets considered to have a value for accounting purposes is the Portland-1 well data and seismic data, which are described more fully below. The Portland Gas Limited gain on bargain purchase, as described below, arises due to the net assets acquired having a higher fair value than the fair value of the Group's 50% interest in the ordinary share capital of Portland Gas Limited immediately prior to the Restructuring Agreement. The gain on bargain purchase has been credited to profit or loss in the statement of comprehensive income and will not impact the Group income tax. 3. Investments (continued) Portland Gas Limited assets acquired at 1 June 2012: Book value of Fair value of assets acquired assets acquired Fair value adjustments £ £ £ Non-current assets Intangible assets - Portland-1 well data - 2,764,909 2,764,909 - P1918 licence interest - 600,000 600,000 Financial asset - eCORP receivable - 922,763 922,763 Current assets eCORP receivable - 935,356 935,356 Cash 53,574 - 53,574 Accounts receivable 226,111 - 226,111 Current liabilities Accounts payable (248,026) - (248,026) Non-current liabilities Inter-company balance (127,437) 127,437 - Deferred tax liabilities - (1,201,296) (1,201,296) Total identifiable net assets (95,778) 4,149,169 4,053,391 Consideration (fair value of interest previously accounted for as a joint venture) 1,540,911 Gain on bargain purchase 2,512,480 The fair value of the Portland-1 well data comprises the fair value of the well data obtained from the well which was drilled on Portland in 2006 and the seismic data acquired in the same year. Reference was made to the historic cost to estimate the fair value. The fair value of the 50% interest in the P1918 licence acquired from eCORP was determined by reference to the farmout of an 8% interest to Corfe Energy Limited in August 2012. The fair value of the eCORP receivable was determined by estimating the present value of future Portland Gas Limited preference share subscription receipts expected. The deferred tax liability raised is attributable to the assets acquired based on the difference between the respective fair values recognised and the tax based of the underlying assets at an enhanced tax rate of 23%. The fair value of the joint venture interest (£1,541,011) represents the Group's 50% share of the Portland-1 well data and seismic data value. 3. Investments (continued) Net cash inflow arising on acquisition: £ Cash consideration - Cash acquired 53,574 Amount of revenue and net loss of Portland Gas Limited since the acquisition date: Revenue - Net loss 183,430 Amount of revenue and net loss of the combined entity as if the acquisition date had been as of the beginning of the reporting period (the net loss presented below includes the impairment of the Portland Gas Limited net assets): Revenue 73,932 Net loss 21,121,970 B. Associates The Group has 40% interests (2011: 50%) in both of Corfe Energy Limited and Brigantes Energy Limited which are involved in the hydrocarbon exploration. The associates are private companies, incorporated in England and Wales and are not listed on any public exchanges. The following table summarises the Group's share of the assets and liabilities of each of these associates as recorded in each associates' audited financial statements made up to 31 July 2012 and after making adjustments to align the accounting policies of the associates with those of the Group: Corfe Energy Limited 2012 2011 £ £ Long-term asset 32,320 99,372 Current assets 781,356 719,694 Current liability (10,012) (106,334) Long-term liability (1,210) - Group's share of net assets of associate 802,454 712,732 3. Investments (continued) Brigantes Energy Limited 2012 2011 £ £ Long-term asset 376,234 108,284 Current assets 428,412 720,839 Current liability (7,335) (117,028) Long-term liability (1,210) - Group's share of net assets of 796,101 712,095 associate The revenue and net loss of each of these associates as recorded in each associates' audited financial statements made up to 31 July 2012 and after making adjustments to align the accounting policies of the associates with those of the Group: Corfe Energy Limited 2012 2011 £ £ Revenue 69,491 14,911 Total loss for the year 63,864 13,776 Group's share of losses 83,354 - Group's share of other - - - comprehensive loss Brigantes Energy Limited 2012 2011 £ £ Revenue 69,491 14,911 Total loss for the year 60,653 13,776 Group's share of losses 91,515 - Group's share of other comprehensive loss - - - The 2011 share of associate losses are accounted for in the 2012 financial year. 4. Assets held for sale and discontinued operations (disposal group) The Company has announced, together with Moyle, that it has entered into an agreement with BPGM regarding the acquisition of an equity interest in Islandmagee Storage Limited owned by InfraStrata plc (65%) and Moyle (35%). Under the agreements, the equity interest will arise through the issue of shares by Islandmagee Storage Limited rather than the sale of equity by the Group and the majority of the proceeds from the issue of equity will be retained in Islandmagee Storage Limited to fund project development. Islandmagee Storage Limited was classified as held for sale in 2011 and continues to be so classified as, in the opinion of the directors, it is highly probable that BPGM will exercise its option and the delay in the disposal was due to events outside the control of the company. Whilst the assets held for sale are classified as current assets, due to the nature of the arrangements described above, the Group does not expect to receive cash inflows equivalent to, or in excess of, the book value of the assets so classified. The measurement basis is the carrying amount. 2012 2011 £ £ Assets classified as held for sale Freehold land 440,100 - Intangible assets - gas storage development costs 2,631,755 2,700,345 Trade and other receivables 64,772 1,066 Cash and cash equivalents 69,376 43,320 3,206,003 2,744,731 2012 2011 Liabilities classified as held for sale £ £ Current liabilities Trade creditors 69,518 1,192 Accruals 3,514 28,736 73,032 29,928 5. Non-controlling interest BP Gas Marketing Limited ("BPGM") paid an amount of £475,689 to Islandmagee Storage Limited in relation to their option to acquire an interest in that Company during the financial year. Should BPGM exercise its option, as described below, this amount will form part of the consideration for the equity issued to BPGM. On 19 January 2012 an agreement was entered into with BPGM regarding the appraisal of the Islandmagee gas storage facility development project in County Antrim, and the grant of an option to BPGM to acquire a 50.495% equity interest in Islandmagee Storage Limited. Under the terms of a Joint Appraisal Agreement ("JAA"), BPGM has agreed to fund the activities necessary to develop the project up to the point where a decision can be made on whether to proceed with a detailed engineering design. The greatest item of the expenditure during the appraisal period is the drilling of the first well. The drilling of the well is subject to Islandmagee Storage Limited obtaining other key consents and approvals for the project, and a regulatory and operational framework being adopted by the Northern Ireland and Republic of Ireland authorities to facilitate commercial operations of the facility on a level playing field with storage elsewhere in the UK and Ireland. During the appraisal stage of the project, BPGM is responsible for managing surface and sub-surface engineering matters. Islandmagee Storage Limited is managing the regulatory, land and stakeholder relations together with drilling and operating the well. Islandmagee Storage Limited has received £200,000 on the grant of exclusivity to BPGM in 2011, £200,000 was paid on signature of the agreement and a further £200,000 was paid on the grant of planning permission for the project in October 2012. Islandmagee Storage Limited received £75,689 during the year for works undertaken on the project which BPGM undertook to fund in terms of the JAA. 6. Cash (used in) operations 2012 2011 Group £ £ Operating loss for the year from continuing operations (1,005,274) (940,195) Depreciation 7,690 9,499 Increase in trade and other receivables (35,128) (29,794) Increase/(Decrease) in trade and other payables 801,592 (174,449) Share option expense 11,304 60,888 Shares issued in lieu of salary or bonus 50,000 49,000 Loss on sale of subsidiary - 8,355 Cash (used in)/from discontinued operations (96,737) 34,170 Cash (used in) continuing and discontinued operations (266,553) (982,526) Cash flows arising from discontinued activities 2012 2011 Group £ £ Cash (used in)/from discontinued operations (96,737) 34,170 Investing activities (371,510) (415,846) Financing activities 475,689 - Cash from/(used in) operations 2012 2011 Company £ £ Operating loss for the year (23,793,664) (858,467) Depreciation 6,869 3,358 Decrease/(Increase) in trade and other receivables 8,142,456 (892,408) Increase/(Decrease) in trade and other payables 721,110 (174,050) Share option expense 11,304 60,888 Shares issued in lieu of salary or bonus 50,000 49,000 Loss on sale of subsidiary - 8,355 Impairment of inter-company receivables 15,247,011 - Cash from/(used) in operations 385,086 (1,803,324) 7. Approval This announcement was approved by the Board on 23 November 2012. This information is provided by RNS The company news service from the London Stock Exchange END FR BJBRTMBTTBRT -0- Nov/26/2012 07:00 GMT
Infrastrata PLC INFA Final results for the year ended 31 July 2012
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