TIDMMOIL
RNS Number : 6300A
Madagascar Oil Limited
30 September 2015
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR
INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA OR
JAPAN
30 September 2015
MADAGASCAR OIL LIMITED
("Madagascar Oil", or the "Company")
Half Year Results
Madagascar Oil (AIM: MOIL), which has over 1.7 billion barrels
of contingent resources in the onshore Tsimiroro oil field in
Madagascar (the "Tsimiroro Field" or "Tsimiroro"), today announces
its half year results for the six month period ended 30 June
2015.
Highlights
-- Approval received from the Malagasy Government for Block 3104
Tsimiroro Development Plan ("TDP") covering 6,670km(2) and
containing 1.7 billion barrels of contingent resources;
-- 25 year Exploitation Period commenced in April 2015;
-- Board and management team strengthened with the appointment
of Robert Estill as Chief Executive Officer and Michael Duginski as
Non-Executive Director, bringing extensive technical and
operational heavy oil expertise;
-- Average oil production from the Tsimiroro Steam Flood Pilot
("SFP") for H1 2015 increased to 325 barrels of oil per day
("BOPD") (2014: 317 BOPD);
-- Continuous operation of the SFP Plant in H1 2015 with all
four steam generators commissioned and running on 100% Tsimiroro
crude oil;
-- All 16 production wells and nine continuous steam injection
wells in the pilot area remained active during H1 2015, under a
combination of continued Cyclic Steam Stimulation ("CSS") and Steam
Flooding;
-- Planning for the Phase 1 (Anchor Stage) Development targeting
production of 7,000-10,000 BOPD on track, including:
o completion of facilities engineering studies;
o twelve Development Evaluation Wells ("DEW") completed with
core analysis ongoing; and
o submission of the Environmental Impact Assessment ("EIA");
and
-- Jefferies International Limited ("Jefferies") engaged to
assist in the process to identify and secure a strategic partner(s)
on the development and funding of the world class Tsimiroro Field
("Partner Process"). The Partner Process is currently expected to
run through to the end of 2015, with the Board targeting the
finalisation of any transaction by the end of Q1 2016.
Financial
-- On 15 April 2015, the Company was awarded the Development
Mining Title for Tsimiroro Block 3104 leading to a transfer of
non-current assets totaling $191.0 million from Exploration and
Evaluation assets to Development assets;
-- Cash in hand at 30 June 2015 was $1.8 million (FY 2014: $13.7
million) plus further restricted cash balances of $0.22 million (FY
2014: $0.22 million);
-- H1 2015 total loss of $6.6 million (H1 2014: $5.9 million);
-- Total capitalised expenditure on the Tsimiroro Field amounted
to $8.9 million (H1 2014: $10.0 million) primarily relating to the
operation of the SFP; and
-- Three-month $5.0 million working capital facility secured
from Outrider Management LLC ("Outrider Facility"), on 29 June
2015.
Post Period End
-- On 29 September 2015 the Company announced a Bridge Financing
Facility of up to $21.9 million provided by its four major
shareholders, which replaces the Outrider Facility. All conditions
precedent have been satisfied and drawdown requests have been
submitted for $8.9 million as of 29 September 2015. This Bridge
Financing Facility is designed to fund the Company through to the
conclusion of the Partner Process;
-- As at 28 September 2015 the Company had over 130,000 barrels
of crude oil in its storage tanks at Tsimiroro which is available
for domestic sale; and
-- Due to storage capacity constraints at Tsimiroro and in
response to the challenging oil price environment, the Company has
decided to take a conservative approach and scale down its current
operations and production from the SFP until such time as an
offtake agreement has been signed for domestic sale of its crude
oil and the Partner Process has come to a successful
conclusion.
Chief Executive Officer, Robert Estill, commented:
"We are pleased to present our results for the period to 30 June
2015, a period of significant progress for the Company. The recent
financing from our major shareholders has secured our short term
funding position and enables us to focus on meeting our strategic
objectives through the Partner Process."
Contact Information:
Madagascar Oil Limited
Robert Estill, Chief Executive Officer
Stewart Ahmed, Chief Operating Officer +44 (0)20
Gordon Stein, Chief Financial Officer 3356 2731
Strand Hanson Limited - Nominated
and Financial Adviser
Stuart Faulkner, Angela Hallett, +44 (0)20
James Dance 7409 3494
Jefferies International Limited
- Strategic Advisor +44 (0)20
Richard Kent, Nima Mehdian 7029 8102
Mirabaud Securities LLP - Joint
Broker +44 (0)20
Rory Scott, Edward Haig-Thomas 7878 3360
VSA Capital Ltd - Joint Broker +44 (0)20
Andrew Monk, Andrew Raca 3005 5000
Camarco - PR +44 (0)20
Billy Clegg, Georgia Mann 3757 4980
www.madagascaroil.com
Competent Person's Statement:
The information contained in this announcement has been reviewed
and approved by Stewart Ahmed, Chief Operating Officer of the
Company, who has 30 years of relevant experience in the oil
industry. Mr. Ahmed is a member of the Society of Petroleum
Engineers ("SPE").
Notes to Editors:
Madagascar Oil (AIM: MOIL) is the leading independent oil and
gas company in Madagascar and is quoted on the AIM market of the
London Stock Exchange.
The Company has a variety of exploration and development
opportunities, through its five licence interests in western
Madagascar, with significant upside potential from the Tsimiroro
oil field, which includes over 1.7 billion barrels of contingent
resources, and additional exploration prospectivity from its four
exploration licences.
Madagascar Oil has a strong track record of operational success
in country and, in April 2015, received Field Development Plan
approval from the Malagasy Government, securing the first-ever
25-year development licence to be issued in Madagascar, for the
Tsimiroro Block 3104, thereby moving the Company's flagship asset
from the exploration to the development phase. The 25-year licence
period may be extended to up to 50 years if the field is still
commercial beyond 25 years.
The Company is currently in the process of identifying and
securing a strategic partner(s) with Jefferies International
Limited to assist the Company with the development and funding of
the world class Tsimiroro field. The Company is focused on
delivering profitable future development and significant long term
value to its shareholders and the people of Madagascar.
Chairman and Chief Executive Officer's Statement:
To date, 2015 has been another period of significant progress
for Madagascar Oil. Although the Company continues to face ongoing
challenges, not least the low oil price environment and
unfavourable market conditions, we now have a foundation to deliver
our strategy of taking our large, high longevity and early stage
resource, converting it to reserves and delivering profitable
developments with sustainable future cash flows for our
shareholders, whilst also creating long term value for the people
of Madagascar.
Market conditions
The macro economic conditions and current low oil price
environment have had a significant impact on the global oil
industry as a whole and have inevitably had a knock on effect for
Madagascar Oil. Without doubt, capital providers are becoming more
selective in the projects in which they will invest and oil
companies are high-grading their exploration portfolios. However,
Madagascar Oil is in a unique position compared to its peers due to
the size of our globally significant contingent resource of 1.7
billion barrels, with the potential to produce over 100,000 BOPD by
2025. The Board estimates that the breakeven price for the project
is in the range of $40-50 per barrel, making this an economically
attractive project even at today's forward oil price curve.
It is clear that significant capital will be required for this
project to fulfil its potential, and the Company continues to take
a cautious approach to its operations and planning in order to
protect its assets and the future growth of the Company. On 22 June
2015, the Company announced the engagement of Jefferies to assist
in the process to identify and secure a strategic partner(s), which
could include supermajors, traders, oilfield service providers,
national oil companies and private equity firms, to work with
Madagascar Oil on the development and funding of the Tsimiroro
project (the "Partner Process"). The Partner Process is making
steady progress with interest being expressed by a number of
credible parties and we will report on the outcome of this in due
course.
Short Term Financing
In parallel with the Partner Process, during H1 2015, the
Company undertook an extensive and thorough process whereby the
Company and its advisers have discussed short term financing
options with a wide range of potential counterparties. As of the 30
June 2015 the Company had secured a $5.0 million Working Capital
Facility from an associate of major shareholder, Outrider
Management LLC. and as announced on 29 September replaced this
facility with a more substantial Bridge Financing Facility (the
"Facility") of up to $21.9 million, provided by the Company's four
major shareholders (see Note 11 for further details). This Facility
is designed, in two tranches, to fund the Company through the
conclusion of the Partner Process and we would like to thank our
major shareholders for their continued support, especially in these
challenging markets.
(MORE TO FOLLOW) Dow Jones Newswires
September 30, 2015 02:02 ET (06:02 GMT)
Despite the fact that, at the time of reporting, the Facility
has been secured and the Partner Process is making steady progress,
the outcome of the Partner Process cannot be predicted and
therefore while the Directors have a reasonable expectation that
this will provide adequate resources for the foreseeable future,
there remains material uncertainty in this regard. This uncertainty
is discussed further in Note 1 of these interim financial
statements.
Continued operational success
The biggest event of the first half of the year was undoubtedly
the award of the Development Mining Title for the Tsimiroro Block
3104 following the approval of the Tsimiroro Development Plan
("TDP") by the Malagasy Government. This initiated the commencement
of an extendable 25 year Exploitation Period (the "Development
Licence") and is the first such licence ever awarded in Madagascar,
demonstrating not only our open and collaborative relationship with
the Government but also the Government's support and commitment to
the country's oil and gas industry and its future development.
The award was a major step forward for the Company following 11
years of successful exploration and appraisal activity in country
with the drilling of 138 wells and delivery of the SFP. With the
approval in place, the Company has a strong platform from which to
grow and begin delivering, once appropriate funding is secured, on
the TDP which is targeting between 7,000-10,000 BOPD gross
production during Phase 1 (Anchor Stage) in the period up to the
end of 2018/early 2019; 50,000 BOPD gross production during Phase 2
(Fast Track Stage) by 2021/2022, and 50,000 to over 100,000 BOPD
gross production by 2025.
As explained further in the Operational Review below, the Steam
Flood Pilot ("SFP") has continued to operate in line with
expectations, and provide valuable information for our development
planning. We also continued our Development Evaluation Programme
("DEP") which included magnetometry work as well as drilling,
coring and wire-line logging wells to help delineate the reservoir.
We successfully drilled 12 Development Evaluation Wells ("DEWs") in
the period, focussed on the area close to the SFP which will
encapsulate the Phase 1 (Anchor Stage) areas and, as a result, we
have now finalised the resource to be targeted in the initial Phase
1a. A comprehensive Facilities Engineering Study has also confirmed
that the existing facilities can be leveraged and upgraded to
handle Phase 1 (Anchor Stage) volumes.
Turning to our Southern licences, which provide additional
exploration prospectivity, the Company has applied for a two year
extension of the exploration periods for Blocks 3105, 3106 and 3107
from the Madagascar authorities. This formal request was made ahead
of the scheduled end date of the current exploration periods of 14
December 2014 and the Company is hopeful of receiving these
extensions in the near future.
Domestic demand
Selling our product, initially locally, remains a priority for
both the Company and the country of Madagascar, which currently
imports 100% of its crude oil products. The Tsimiroro crude is fit
for purpose either as a refinery feedstock, stand-alone fuel, or
when blended, as a Heavy Fuel Oil ("HFO") product, and we are
committed to making our current inventories (over 130,000 barrels
as at 28 September 2015) and future production from Phase 1 (Anchor
Stage) available in-country.
The power sector is a significant potential market for Tsimiroro
crude, and we were encouraged by the recent announcement from USA
based electricity provider Symbion Power that it has signed an
agreement with the Malagasy national utility provider, Jirama,
whereby Symbion Power will rehabilitate and operate the Mandroseza
power plant in Antananarivo at its full capacity for 20 years.
Symbion Power also entered into a Protocol D'Accord directly with
the President of the Republic of Madagascar to develop seven new
power plants in country including a potential Tsimiroro field based
power station, utilising heavy fuel oil, biomass and solar as
primary fuel sources. We have commenced discussions with Jirama and
Symbion Power over the provision of Tsimiroro oil as fuel for the
generation of the power plants and the Board is pleased with the
progress made to date.
Although offtake discussions continue, the Company has not yet
secured an offtake agreement for its crude oil, meaning that the
Company faces potential storage capacity constraints at Tsimiroro
during the upcoming rainy season. As a result of this, and the
challenging oil price environment faced by ourselves and many other
oil and gas companies, as well as the ongoing Partner Process, we
have decided that it is appropriate to take a conservative approach
to our operations at this time and to scale down current operations
and production from the SFP until such a time as an offtake
agreement has been signed for the domestic sale of our product and
the Partner Process has come to a successful conclusion.
Strong Board and senior management team with heavy oil
expertise
In anticipation of the award of the Development Licence, the
Company strengthened its management and Board, most notably with
the appointment of Robert Estill as Chief Executive Officer in
January 2015, who brings extensive experience of significant oil
and gas developments globally and, most importantly, hands on
experience of heavy oil thermal projects, including both the Duri
project in Indonesia and Bakersfield thermal fields of California.
At Board level, we were also able to enhance our thermal experience
with the appointment of Michael Duginski as Non-Executive Director
in January 2015, former COO of Berry Petroleum, who has already
provided invaluable technical insights. Peter Godfrey, a seasoned
oil and gas professional, also joined the Board as a Non-Executive
Director in July 2015.
Continued commitment to the environment and communities
We are committed to working to the highest environmental and
safety standards in the areas where we operate and are delighted to
report that the Exploration Phase of the project was closed out in
April 2015 with a cumulative 3,293,786 man-hours without a Lost
Time Incident. Compliance with the existing Environmental Permit,
issued by the National Environment Office under the Environmental
Code of Madagascar, has continued, and the EIA covering Phase 1a of
the TDP area was submitted in June 2015. The statutory consultation
process is ongoing with an expected completion date by the
year-end.
We continue to have strong collaborative working relationships
with relevant government departments, including the Ministry to the
Presidency of Mines and Petroleum, L'Office des Mines Nationales et
des Industries Strategiques ("OMNIS") and the National Environment
Office and we look forward to working with them as we move through
the Development Phase.
Outlook
In these challenging markets, we remain dedicated to operating
our business in a safe and responsible manner, so that the long
term potential of the Company's assets is fulfilled for the benefit
of all stakeholders, including the country of Madagascar.
The approval of the TDP was a significant milestone for the
Company and we are pleased to have appointed Jefferies to help us
attract and secure a suitable strategic partner with the financial
resources to deliver the development of Tsimiroro profitably,
particularly given the size and longevity of our asset and the
multiple strategic options it provides. We look forward to updating
the market on our progress in the future.
Robert Estill Andrew Morris
Chief Executive Officer Chairman
Operational Review:
The TDP, submitted in October 2014, was the first submission of
its type in the history of Madagascar. The approval of the TDP
followed a period of detailed technical and commercial review by
the Madagascar authorities. The TDP was prepared in compliance with
the Block 3104 Production Sharing Contract ("Block 3104 PSC"),
international standards and in consultation with OMNIS. The TDP
provides subsurface and production facilities definition, along
with the crude oil transport, environmental, financial, logistical,
commercial and social plans necessary to achieve a successful major
heavy oil field development.
The Presidential Decree of 15 April 2015 allowed the issuance of
the Exploitation Period Mining Title for the licence to OMNIS,
which also resulted in the conversion of the Block 3104 PSC to the
first 25 year Exploitation Period. Specifically, the Development
Plan submission provides details on the first development phase,
which is characterized by the requirement to deliver oil sales by
trucking routes. A follow up Block 3104 Development Plan revision
is to be prepared by the end of 2018, in which further detail on a
crude transport pipeline and marine export solution will be
provided. Commitments to perform seismic acquisition and appraisal
drilling on identified structures in the southern half of the
license area are included in the approved TDP.
The Block 3104 Tsimiroro Phase 1a Development Area EIA was
submitted to the National Environment Office (O.N.E.) in June 2015.
The EIA was prepared in accordance with the Madagascar
Environmental Code and will be subject to an extensive review
process, including a multi-location local consultation process. The
O.N.E. will decide upon the issuance of an Environmental Permit,
which will allow the Phase 1a Development work to proceed and
provide any conditions of the permit required to achieve statutory
environmental compliance. This review process is expected to be
complete by year end 2015.
(MORE TO FOLLOW) Dow Jones Newswires
September 30, 2015 02:02 ET (06:02 GMT)
The predominant activity of the Company during the period has
remained the operation of the Tsimiroro SFP, which has produced oil
continuously since the onset of steam injection in April 2013. The
initial purpose of the SFP was to gather information on the
technical and commercial applicability of thermal recovery
techniques and this has been achieved successfully. Operation of
the wells comprising the SFP area has continued into the
Development Phase, providing additional thermal response
information, as well as making oil production available for
domestic market sales.
The first two years of SFP operation has involved applying both
CSS and steam flooding thermal recovery techniques to all wells in
the pilot area. The CSS method has been a technical success with
all of the 16 designated production wells yielding oil production
from several CSS cycles.
Continuous steam injection has been occurring in all of the nine
"5-spot" patterns that comprise the pilot area. The Madagascar
based sub-surface team has been managing the thermal recovery
mechanism on a pattern by pattern basis to optimize the oil rates
through continuous review of steam injection allocation. Steam
generation has been continuous with all four existing generators
being available. All four are being fuelled by crude oil produced
by Block 3104 ("Tsimiroro Crude") without diesel dilution. The low
frequency of planned maintenance clean-outs on the steam generation
units continues symptomatic of the clean-burning qualities of
Tsimiroro Crude.
Average oil production from the SFP for H1 2015 was 325 barrels
of oil per day ("BOPD"), compared to the H1 2014 average of 317
BOPD.
As of 28 September 2015, cumulative oil production had reached
239,695 barrels from a cumulative steam injection of 1,216,322
barrels of water equivalent.
The SFP operations crew, consisting of local Madagascar-sourced
personnel, under the supervision of experienced North American
managers, continued to gain experience in the operation of the
facilities and the Exploration Phase of the project was closed out
in April 2015 with a cumulative 3,293,786 man-hours without a Lost
Time Incident.
As of 28 September 2015, over 130,000 barrels of crude oil were
held in the storage tanks at the SFP and were available for oil
sales. Separated oil is being stored in the oil storage tanks after
going through two stages of separation; first in the group line
tester, then the wash tank. In H2 2015, a centrifugal sales-quality
polishing separator is being installed in the field to ensure sales
specification of below 0.5% Base Sediment and Water (BS&W)
content for fuel delivered to the domestic Madagascar market.
The main domestic Madagascar end-users of HFO, are expected to
be the electrical generation power stations operated by Jirama, the
state utilities provider. Tsimiroro Crude reaches imported HFO
specification when blended with a lower viscosity diluent such as
diesel. Additional domestic industrial end-users of HFO exist in
the form of mining operations, cement works and agri-businesses
such as brewing and textiles. Madagascar Oil has entered into
discussions with a number of potential end-users, with a view to
becoming the supplier of choice for HFO in Madagascar. Regional HFO
and refinery markets are also being reviewed for potential
customers for Tsimiroro Crude, following production meeting the
domestic market demand.
Projections of Tsimiroro oil production and steam oil ratios
have been applied to the development scenarios for Block 3104.
Predictions of future thermal recovery performance have been
derived under both CSS and CSS plus steam-flood mechanisms. The
geological interpretation of the Tsimiroro Main Field is being
regularly updated using new surface geology, magnetometer derived
dyke presence and Development Evaluation Well ("DEW") data. The 12
new DEWs drilled in H1 2015 have been wireline-logged and cored
across the Amboloando reservoir section providing valuable
confirmation of the thermally effective Oil in Place in the Phase
1a development area. The new wells have concentrated on the initial
Phase 1a development area to allow the drill-up plan for the area
to be further refined. The 5-spot 1.5 acre spacing from the pilot
area is planned to be extended in a series of well clusters
adjacent to the SFP. Vertical wells are planned where the surface
terrain allows, with the application of slant drilling being
studied for areas of difficult surface access.
Refinement of drilling and facilities design work is continuing.
Market conditions in the oil and gas sector allow the potential for
improved competitive quotations for materials and services as well
as reduced delivery times. Competitive tendering for long lead
items such as casing and tubulars are under way and further tenders
will be issued shortly for downhole/surface pumps, drilling fluids
& cement materials.
Although planning for Phase 1 (Anchor Phase) is well advanced,
given that the Company has not yet secured an offtake agreement for
its crude oil, it faces potential storage capacity constraints at
Tsimiroro during the upcoming rainy season. As a result of this,
the Company has decided that it is appropriate to take a
conservative approach to ongoing operations at this time and will
scale down its operations and production from the SFP until such a
time as an offtake agreement has been signed for the domestic sale
of the product and suitable financing is in place.
The Company continues to work closely in co-operation with its
partner, OMNIS and has maintained its excellent working
relationships with both the Ministry to the Presidency of Mines and
Hydrocarbons and OMNIS and has also ensured the President of the
Republic is informed of the progress of the development of the
Tsimiroro Field. The 2016 Work Programme and Budget will be
submitted to the authorities in H2 2015 for review and
approval.
Our dedication to the Company's ongoing Corporate Social
Responsibility ("CSR") programme continues, including the Income
Generation Programme initiatives in the communities neighbouring
the Tsimiroro Field area. Successful support to local agriculture
and construction material projects has been achieved. The annual
reforestation programme culminated in the planting of several
thousand saplings in the regions surrounding the field. Tendering
for the new Ankondromena Secondary school construction is now
complete and is expected to be implemented in H2 2015.
Financial Review:
The biggest change to the financial statements during the period
is the reclassification of the Tsimiroro Field from an Exploration
and Evaluation Asset to a Development Asset.
Cash in hand at 30 June 2015 was $1.8 million (FY 2014: $13.7
million) plus further restricted cash balances of $0.22 million (FY
2014: $0.22 million). The cash in hand has decreased significantly
in the last six months due to cash expenditure on the Tsimiroro
Field amounting to $8.9 million which has been capitalised and also
a further $2.7 million on operational activities.
On 29 June 2015, the Company secured a three-month $5.0 million
working capital facility from a company connected to one of its
major shareholders, Outrider Management LLC. This was undrawn as of
30 June 2015 but was subsequently drawn down between July and
September 2015. On 29 September 2015 this was replaced with a
Bridge Financing Facility (the "Facility") of up to $21.9 million
provided by the Company's four major shareholders. Detailed terms
of the Facility were announced by the Company on 29 September 2015
and are summarised in Note 11 of these interim financial
statements. This Facility is designed to fund the Company through
the conclusion of the Partner Process.
Current cash (at date of reporting) is approximately $0.38
million plus further restricted cash balances of $0.21 million. As
of 29 September cash drawdown requests under the Bridge Financing
Facility of $8.9 million had been submitted and funds are expected
in accordance with terms of the Facility. Further details on the
Company's funding situation are provided in Note 1 of these interim
financial statements.
The total loss for the six month period was $6.6 million (six
months ended 30 June 2014: $5.9 million) with the movement between
the periods mainly as a result of royalties being recognised as
Operating Costs. Overall, the costs have remained consistent
between the two periods.
Development assets and Exploration & Evaluation expenditures
were $8.9 million (six months ended 30 June 2014: $10.0 million)
primarily relating to the Tsimiroro SFP.
INDEPENDENT REVIEW REPORT TO MADAGASCAR OIL LIMITED
Introduction
We have been engaged by the company to review the condensed set
of interim financial statements in the half-yearly financial report
for the six months ended 30 June 2015, which comprises the
condensed consolidated statement of financial position, condensed
consolidated statement of comprehensive income, condensed
consolidated statement of cash flow, condensed consolidated
statement of changes in equity and related notes. We have read the
other information contained in the half-yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of interim financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the AIM Rules for Companies which require that the financial
information must be presented and prepared in a form consistent
with that which will be adopted in the company's annual financial
statements.
(MORE TO FOLLOW) Dow Jones Newswires
September 30, 2015 02:02 ET (06:02 GMT)
As disclosed in note 1, the annual financial statements of the
group are prepared in accordance with IFRSs as adopted by the
European Union. The condensed set of interim financial statements
included in this half-yearly financial report have been prepared in
accordance with International Accounting Standard 34, "Interim
Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the company a conclusion on
the condensed set of interim financial statements in the
half-yearly financial report based on our review. This report,
including the conclusion, has been prepared for and only for the
company for the purpose of the AIM Rules for Companies and for no
other purpose. We do not, in producing this report, accept or
assume responsibility for any other purpose or to any other person
to whom this report is shown or into whose hands it may come save
where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK and Ireland) and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of interim financial
statements in the half-yearly financial report for the six months
ended 30 June 2015 is not prepared, in all material respects, in
accordance with International Accounting Standard 34 as adopted by
the European Union and the AIM Rules for Companies.
Emphasis of matter - going concern
In forming our conclusion on the condensed set of interim
financial statements, which is not modified, we have considered the
adequacy of the disclosures in note 1 to the condensed set of
interim financial statements concerning the Group and Company's
ability to continue as a going concern which indicates there is a
material uncertainty regarding the outcome of the Partner Process
or alternative fundraising activity intended to support the Group
and Company's operations for the foreseeable future. Should the
Partner Process or alternative fundraising activity be
unsuccessful, the Group and Company may no longer be viable. This
condition indicates the existence of a material uncertainty that
may cast significant doubt about the Group and Company's ability to
continue as a going concern. The condensed set of interim financial
statements do not include the adjustments that would result if the
Group and Company were unable to continue as a going concern.
PricewaterhouseCoopers LLP
Chartered Accountants
London
29 September 2015
Notes:
(a) The maintenance and integrity of the Madagascar Oil Limited
website is the responsibility of the directors; the work carried
out by the auditors does not involve consideration of these matters
and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since
they were initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
MADAGASCAR OIL LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF
FINANCIAL POSITION
AT 30 JUNE 2015
30 June 30 June 31 December
2015 2014 2014
US $(000) US $(000) US $(000)
Note Unaudited Unaudited Audited
--------------------------------------------------- ----- ---------- ---------- ------------
Assets
Non-Current Assets
Property, plant and
equipment 2 13,644 16,889 15,370
Exploration and evaluation
assets 3 14,594 200,574 206,742
Development assets 4 195,675 - -
Other intangible assets 105 132 141
Non-current tax assets 5 10,884 12,416 11,708
Other receivables and
prepayments 320 - 339
Restricted cash 218 1,107 215
--------------------------------------------------- ----- ---------- ---------- ------------
Total non-current assets 235,440 231,118 234,515
--------------------------------------------------- ----- ---------- ---------- ------------
Current Assets
Inventory 6 10,811 500 4,718
Other assets 1,779 1,722 1,308
Cash and cash equivalents 1,754 10,106 13,724
--------------------------------------------------- ----- ---------- ---------- ------------
Total current assets 14,344 12,328 19,750
--------------------------------------------------- ----- ---------- ---------- ------------
Total Assets 249,784 243,446 254,265
--------------------------------------------------- ----- ---------- ---------- ------------
Equity and Liabilities
Capital and reserves
Issued capital 311,287 293,046 311,287
Equity-settled transactions
reserve 5,320 4,994 5,288
Accumulated deficit (79,874) (67,358) (73,318)
Translation reserve 36 - 71
--------------------------------------------------- ----- ---------- ---------- ------------
Total equity 236,769 230,682 243,328
--------------------------------------------------- ----- ---------- ---------- ------------
Non-Current Liabilities
Provisions 5,084 4,924 5,003
--------------------------------------------------- ----- ---------- ---------- ------------
Total non-current liabilities 5,084 4,924 5,003
--------------------------------------------------- ----- ---------- ---------- ------------
Current Liabilities
Trade and other payables 7,801 7,694 5,811
Provisions 130 146 123
--------------------------------------------------- ----- ---------- ---------- ------------
Total current liabilities 7,931 7,840 5,934
--------------------------------------------------- ----- ---------- ---------- ------------
Total Equity and Liabilities 249,784 243,446 254,265
--------------------------------------------------- ----- ---------- ---------- ------------
MADAGASCAR OIL LIMITED
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2015
30 June 30 June 31 December
2015 2014 2014
US $(000) US $(000) US $(000)
Note Unaudited Unaudited Audited
--------------------------------------------------- ----- ---------- ---------- --------------
Operating Expenses
Operating costs (944) (544) (1,186)
General and administrative
expenses (4,710) (4,501) (8,871)
Operating loss (5,654) (5,045) (10,057)
Finance income 9 16 35
Finance costs (81) (78) (157)
Net foreign exchange loss (830) (778) (1,791)
Loss before tax (6,556) (5,885) (11,970)
Tax expense - - -
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--------------------------------------------------- ----- ---------- ---------- --------------
Loss after taxation (6,556) (5,885) (11,970)
--------------------------------------------------- ----- ---------- ---------- --------------
Comprehensive income to
be reclassified to profit
or loss to be reclassified
to profit or loss in subsequent
periods when specific
conditions are met
Exchange difference on
translation of foreign
operations (35) - 71
--------------------------------------------------- ----- ---------- ---------- --------------
Total comprehensive loss
for the year (6,591) (5,885) (11,899)
Loss per share 7
Basic and diluted (US$) (0.01) (0.01) (0.02)
--------------------------------------------------- ----- ---------- ---------- --------------
MADAGASCAR OIL LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2015
30 June 30 June 31 December
2015 2014 2014
US $(000) US $(000) US $(000)
Unaudited Unaudited Audited
------------------------------------------ ---------- ---------- ------------
Cash Flows From Operating Activities:
Loss after taxation (6,556) (5,885) (11,970)
Finance income (9) (16) (35)
Finance costs 81 78 157
Loss on disposals of property,
plant and equipment - 1 7
Depreciation and amortization
of non-current assets 750 59 121
Impairment of Plant, property
and equipment - - -
Net foreign exchange loss 830 778 1,791
Share-based payments 32 238 657
Provision for employee benefit 7 31 8
------------------------------------------ ---------- ---------- ------------
(4,865) (4,716) (9,264)
Movements in working capital
(Increase) / decrease in other
assets (513) (775) (999)
Decrease / (increase) in inventories 512 524 201
Increase / (decrease) in trade
and other payables 2,075 1,412 (470)
------------------------------------------ ---------- ---------- ------------
Net cash used in operating activities (2,791) (3,555) (10,532)
Cash Flows From Investing Activities:
Interest received 5 16 35
Payments for equipment and intangible
assets (3) (116) (56)
Payments for property, plant
and equipment (323) - (619)
Note receivable advances - (5) -
Exploration and evaluation costs
paid (4,229) (9,955) (18,019)
Development assets costs paid (4,647) - -
------------------------------------------ ---------- ---------- ------------
Net cash used in investing activities (9,197) (10,060) (18,659)
Cash Flows From Financing Activities:
Proceeds from issues of equity
shares, net - - 18,241
Net cash provided by financing
activities - - 18,241
------------------------------------------ ---------- ---------- ------------
Net decrease in cash and cash
equivalents (11,988) (13,615) (10,950)
Release of restricted cash (3) - 892
Cash and cash equivalents at
beginning of period/year 13,724 23,721 23,721
Exchange gains on cash and cash
equivalents 21 - 61
Cash and cash equivalents at
end of period/year 1,754 10,106 13,724
------------------------------------------ ---------- ---------- ------------
MADAGASCAR OIL LIMITED
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOW
FOR THE SIX MONTH PERIOD ENDED 30 JUNE
2015
30 June 30 June 31 December
2015 2014 2014
US $(000) US $(000) US $(000)
Unaudited Unaudited Audited
---------------------------------------- ---------- ---------- ------------
Non-cash Investing and Financing
Activities:
Depreciation capitalized in
exploration and evaluation assets 1,338 1,984 3,986
Crude oil inventory recognised 1,946 - 3,895
Consumable inventory recognised 4,659 - -
MADAGASCAR OIL LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN EQUITY
FOR THE SIX MONTH PERIODS ENDED 30 JUNE
2015
Equity
Settled
Share Share Transactions Accumulated Translation
Capital Premium Reserves Deficit Reserve Total
equity
US $(000) US $(000) US $(000) US $(000) US $(000) US $(000)
--------------------------------- ---------- ---------- ------------- ------------ ------------ ----------
Balance at 1 January
2014 532 292,514 4,756 (61,473) - 236,329
Total comprehensive
loss for the period - - - (5,885) - (5,885)
Recognition of equity-settled
transactions
under employee share
option plan - - 238 - - 238
--------------------------------- ---------- ---------- ------------- ------------ ------------ ----------
Balance at 30 June
2014 (Unaudited) 532 292,514 4,994 (67,358) - 230,682
Total comprehensive
loss for the period - - - (6,085) 71 (6,014)
Transfer of equity-settled
transaction reserve (125) 125 - -
Recognition of equity-settled
transactions
under employee share
option plan - - 419 - - 419
Issue of ordinary
shares to shareholders,
net of issue costs 121 18,120 - - - 18,241
--------------------------------- ---------- ---------- ------------- ------------ ------------ ----------
Balance at 31 December
2014 (Audited) 653 310,634 5,288 (73,318) 71 243,328
Total comprehensive
loss for the period - - - (6,556) (35) (6,591)
Recognition of equity-settled
transactions
under employee share
option plan - - 32 - - 32
--------------------------------- ---------- ---------- ------------- ------------ ------------ ----------
Balance at 30 June
2015 (Unaudited) 653 310,634 5,320 (79,874) 36 236,769
--------------------------------- ---------- ---------- ------------- ------------ ------------ ----------
UNAUDITED NOTES FORMING PART OF THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDED 30 JUNE 2015
1. Accounting policies
Basis of Preparation
The interim financial statements have been prepared in
accordance with IAS 34 'Interim Financial Reporting' and using
policies consistent with International Financial Reporting
Standards (IFRS and IFRSIC interpretations) issued by the
International Accounting Standards Board (IASB) as adopted for use
in the European Union. The interim financial statements have been
prepared using the accounting policies applied for the year ended
31 December 2014 and updated for those which are expected to be
applied in the Group's statutory financial statements for the year
ended 31 December 2015. Statutory accounts for the year ended 31
December 2014 were approved by the Board of Directors on 29 June
2015.
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The condensed consolidated interim financial statements do not
include all of the information required for full annual financial
statements and should be read in conjunction with the Group's
consolidated financial statements for the year ended 31 December
2014 which were prepared in accordance with International Financial
Reporting Standards issued by the IASB as adopted for use in the
European Union. A copy of these financial statements is available
on the Company's corporate website (www.madagascaroil.com) or from
the Company's registered office.
These condensed consolidated interim financial statements have
not been audited, but were the subject of an independent review
carried out by the Company's auditors, PricewaterhouseCoopers
LLP.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chairman and Chief Executive Officer's
Statement, Operational Review and Financial Review. The Group
closely monitors and manages its capital position and liquidity
risk regularly throughout the year to ensure that it has sufficient
funds to meet forecast cash requirements and satisfy the planned
capital programme.
After making enquiries and careful consideration, the directors
have concluded that there is a reasonable expectation that the
Group and Company have access to adequate resources to continue in
operational existence for the foreseeable future. Thus they
continue to adopt the going concern basis of accounting in
preparing the consolidated interim financial statements. However in
making this assessment the directors have considered the following
matter which gives rise to a material uncertainty that may cast
significant doubt on the Group and Company's ability to continue as
a going concern. If as a result of this material uncertainty the
Group and Company were unable to continue as a going concern, it is
unlikely that it would be able to realise its assets and discharge
its liabilities in the normal course of business. The consolidated
interim financial statements do not include the adjustments that
may result if the Group and/or Company was unable to continue as a
going concern.
Funding requirements for ongoing operations
The Group held $2.0 million cash at the end of June 2015 with
this including $0.22 million of restricted cash. The Group has now
had the TDP approved by the Madagascar authorities and therefore
will need to raise additional funds to meet its obligations going
forward. The Group has developed a financing strategy to secure the
funds to support the next phase of the Group's planned activities
which will include the commencement of the Tsimiroro Development,
further appraisal drilling and seismic activity on the Tsimiroro
field, ongoing exploration licence activities and for corporate
working capital requirements. The estimated quantum of funds will
be determined by the pace of the Tsimiroro Development, the number
of development wells required and forecast revenues from
production.
The Company has engaged Jefferies International Limited to help
identify and secure a strategic partner(s) to work with the Company
on the development and funding of the Tsimiroro development
("Partner Process"). This process is ongoing and the Company is
seeking to secure a partner before the end of Q1 2016.
As of 30 June 2015 the Company had secured a $5.0 million
Working Capital Facility from an associate of major shareholder,
Outrider Management LLC. and on 29 September replaced this facility
with a Bridge Financing Facility (the "Facility") of up to $21.9
million provided by the Company's four major shareholders (the
"Lenders"). This Facility allows for immediate draw-down of $8.9
million of new funds and is designed to fund the Company through
the conclusion of the Partner Process. However, should the Majority
Lenders (representing 66% or more, by value, of the Lenders) decide
that insufficient progress is being made towards the Company's
objectives, including the Partner Process, then the Facility could
become repayable as early as 31 January 2016. Conversely, if the
Lenders are satisfied with progress then up to a further $8.0
million may be available for draw down.
The outcome of the Partner Process or any alternative
fund-raising activities cannot be predicted and so sufficient funds
may not be forthcoming to fund the Group's operations. In
particular, in the absence of a successful Partner Process or
alternative financing options, the Company will be unable to meet
its liability to repay the Facility when it falls due.
This represents a material uncertainty that may cast significant
doubt over the Group and/or Company's ability to continue as a
going concern.
At the time of reporting, the Partner Process is making steady
progress, despite the current adverse market conditions, with
interest being expressed by a number of credible parties. A
timetable has been established and the process is expected to run
through to the end of 2015, with the Board targeting the
finalisation of any transaction by the end of Q1 2016. Based on
this, the Directors have a reasonable expectation that there are
likely to be adequate resources to continue trading for the
foreseeable future and have therefore concluded that it is
appropriate to prepare the consolidated interim financial
statements on a going concern basis.
Development assets
Expenditure on the construction, installation or completion of
infrastructure facilities such as drilling of development wells,
including unsuccessful development or delineation wells, is
capitalised within development assets in single field cost centres.
All expenditure carried within each field is depreciated from the
commencement of long-term customer sales on a unit of production
basis in accordance with the Group's depletion and amortisation
accounting policy.
Where there has been a change in economic conditions that
indicates a possible impairment in a discovery field, the
recoverability of the net book value relating to that field is
assessed by comparison with the estimated discounted future cash
flows based on management's expectations of future oil and gas
prices and future costs. Where there is evidence of economic
interdependency between fields, such as common infrastructure, the
fields are grouped as a single cash generating unit for impairment
purposes.
Inventory
Consumable inventory relating to items of materials and
equipment has been recognised as Tsimiroro moved from the
Exploration and Evaluation to the Development phase and these
assets are expected to be consumed within the production process.
The inventory has been valued at the lower of cost and net
realisable value.
Royalties
Royalties are recognised on an accruals basis in accordance with
the substance of the relevant agreement. Royalties determined on a
time basis and recognized over the period of the agreement. Royalty
arrangements that are based on production, sales and other measures
are recognised by reference to the underlying agreement.
Changes in accounting policy
These interim financial statements should be read in conjunction
with the Group's consolidated financial statements for the year
ended 31 December 2014. There were no new standards,
interpretations or amendments to standards issued and effective for
the period which materially impacted the Group.
The interim financial statements for the periods 1 January 2015
to 30 June 2015 and 1 January 2014 to 30 June 2014 are unaudited.
In the opinion of the Directors the interim financial statements
for the period present fairly the financial position, and results
from operations and cash flows for the periods and are in
conformity with International Financial Reporting Standards as
adopted by the European Union incorporated within the Group's
accounting policies consistently applied. The interim financial
statements incorporate comparative unaudited figures for the
interim period 1 January 2014 to 30 June 2014 and the audited
financial year ended 31 December 2014.
2. Property, plant and equipment
Drilling
& Exploration
Cost Vehicles Equipment Other Equipment Total
----------------------- -------- --------- -------- -------------- --------
US$(000) US$(000) US$(000) US$(000) US$(000)
Balance at 1 January
2014 302 160 48 37,330 37,840
Additions - 45 - 574 619
Transfer to other
intangible assets - - - (47) (47)
Disposals - (12) (7) (19)
-------- -------------- --------
Balance at 31 December
2014 302 193 48 37,850 38,393
Additions - 308 1 14 323
Balance at 30 June
2015 302 501 49 37,864 38,716
------------------------ -------- --------- -------- -------------- --------
Drilling
Accumulated depreciation & Exploration
and impairment Vehicles Equipment Other Equipment Total
------------------------- -------- --------- -------- -------------- --------
US$(000) US$(000) US$(000) US$(000) US$(000)
Balance at 1 January
2014 (182) (105) (31) (18,674) (18,992)
Depreciation expense (33) (23) (1) (3,986) (4,043)
Disposals - 9 - 3 12
Balance at 31 December
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2014 (215) (119) (32) (22,657) (23,023)
Depreciation expense (17) (15) - (2,017) (2,049)
Balance at 30 June
2015 (232) (134) (32) (24,674) (25,072)
-------------------------- -------- --------- -------- -------------- --------
Drilling
& Exploration
Net book value Vehicles Equipment Other Equipment Total
----------------------- -------- --------- -------- -------------- --------
US$(000) US$(000) US$(000) US$(000) US$(000)
Balance at 31 December
2014 87 74 16 15,193 15,370
------------------------ -------- --------- -------- -------------- --------
Balance at 30 June
2015 70 367 17 13,190 13,644
------------------------ -------- --------- -------- -------------- --------
3. Exploration and Evaluation Assets
During the Exploration Period of the existing Production Sharing
Contracts the Group considers the exploration works performed in
the licences, 3105 Manambolo, 3106 Morondava and 3107 Manandaza as
intangible assets.
The net book value at 30 June 2015 includes costs relating to
the following licences:
30 June 30 June 31 December
2015 2014 2014
---------------------------------- -------- -------- -----------
US$(000) US$(000) US$(000)
Licence 3102 Bemolanga (operated
by TOTAL) - - --
Licence 3104 Tsimiroro (operated) - 185,854 192,148
Licence 3105 Manambolo (operated) 4,504 4,546 4,504
Licence 3106 Morondava (operated) 5,190 5,232 5,190
Licence 3107 Manandaza (operated) 4,900 4,942 4,900
Total 14,594 200,574 206,742
----------------------------------- -------- -------- -----------
The Bemolanga Block covers an area of approximately 5,463km(2)
and is operated by Total E&P Madagascar S.A.S, which holds a
60% working interest. This block contains an extensive tar sand
deposit that exists at a shallow depth allowing potential surface
mining. A detailed evaluation by Total including a two year 160
well coring programme was conducted in 2009/2010 and the licence
has an expiration date for the mining title of 29 June 2016.
The other exploration blocks cover a total area of 17,400 km(2)
in the Morondava Basin and lie immediately to the south of the
Tsimiroro Block. Earlier operators discovered both gas and light
oil in the exploration blocks, but the number of wells drilled to
date using modern data is very low and Madagascar is still a
frontier area. As at the period end, the exploration licences for
blocks 3105, 3106 and 3107 had expired. On 9 December 2014, the
Company's wholly owned subsidiary, Madagascar Oil S.A., wrote to
the Office des Mines Nationales et des Industries Stratégiques
("OMNIS") formally requesting a two year extension to the
exploration period for all three blocks. These letters were
delivered on 12 December 2014 ahead of the scheduled end date of
the current exploration periods of 14 December 2014. The Group is
confident that these renewal applications will be accepted by OMNIS
however are still awaiting a final decision as at the date of these
interim financial statements.
In April 2015, the Company was awarded a Development Mining
Title for licence 3104 Tsimiroro. This was considered the point at
which technical feasibility and commercial viability of the project
was demonstrated in line with IFRS 6 Exploration for and evaluation
of mineral resources. As a result all costs associated with the
Tsimiroro project were moved from Exploration and Evaluation assets
to Development Assets - see note 5 for further details.
4. Development assets
30 June 30 June 31 December
2015 2014 2014
---------------------------------- -------- -------- -----------
US$(000) US$(000) US$(000)
Licence 3104 Tsimiroro (operated)
Opening balance - - -
Transfer from Exploration and
Evaluation Asset 190,994 - -
Additions 4,681 - -
195,675 - -
---------------------------------- -------- -------- -----------
Tsimiroro licence 3104 is located onshore 125km from the west
coast of Madagascar. On 16 April 2015, the Company was awarded a 25
year Development Mining Title for licence 3104 Tsimiroro with the
potential to extend for up to an additional 25 years provided
production remains commercial. This was considered the point at
which technical feasibility and commercial viability of the project
was demonstrated, triggering transfer of all Tsimiroro costs from
Exploration and Evaluation assets to Development Assets.
Depreciation will commence on a units of production basis once
sales from the field have commenced.
5. Non-current tax assets
30 June 30 June 31 December
2015 2014 2014
--------------- -------- -------- -----------
US$(000) US$(000) US$(000)
VAT receivable 10,884 12,416 11,708
---------------- -------- -------- -----------
VAT receivable is considered a non-current asset as over the
next 12 months, the input tax is expected to exceed the output tax
therefore the net assets are expected to increase.
6. Inventory
30 June 30 June 31 December
2015 2014 2014
------------ -------- -------- -----------
US$(000) US$(000) US$(000)
Crude oil 5,841 - 3,895
Diesel fuel 311 500 823
Consumables 4,659 - -
Total 10,811 500 4,718
------------- -------- -------- -----------
Crude oil has been recognised as fuel for steam generators and
is also held for resale and has been valued at net realisable
value, which management have determined to be lower than cost.
Consumable inventory has been recognised as Tsimiroro moved from
the Exploration and Evaluation to the Development phase requiring
consumable inventory to be inventoried and separated out from
previously capitalised E&E assets.
7. Loss per share
Basic loss per share amounts are calculated by dividing the loss
for the periods attributable to ordinary equity holders by the
weighted average number of ordinary shares outstanding during the
period.
Diluted loss per share amounts are calculated by dividing the
loss for the periods attributable to ordinary holders by the
weighted average number of ordinary shares outstanding during the
period, plus the weighted average number of shares that would be
issued on the conversion of dilutive potential ordinary shares into
ordinary shares. The effect of the share options are anti-dilutive
in 2015 and 2014.
30 June 30 June 31 December
2015 2014 2014
---------------------------------------- ----------- ----------- -----------
Net loss attributable to equity holders
used in basic calculation US$(000) (6,591) (5,885) (11,899)
Net loss attributable to equity holders
used in dilutive calculation US$(000) (6,591) (5,885) (11,899)
----------------------------------------- ----------- ----------- -----------
Basic weighted average number of
shares 652,076,379 531,372,909 563,898,813
Dilutive potential ordinary shares
Shares related to warrants n/a n/a n/a
Shares related to options n/a n/a n/a
---------------------------------------- ----------- ----------- -----------
Diluted weighted average number of
shares 652,076,379 531,372,909 563,898,813
Loss Per Share
Basic $(0.01) $(0.01) $(0.02)
Dilutive $(0.01) $(0.01) $(0.02)
8. Share-Based Payments
The Company issued no options (6 months to 30 June 2014: no
options) in the first half of 2015 to directors or employees.
Share-based expense related to outstanding stock option plans and
restricted shares totalled $31,622 (2014: $238,363) for the interim
period 1 January 2015 to 30 June 2015.
9. Financial instruments
Fair values of financial assets and financial liabilities -
Group
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Set out below is a comparison by category of carrying amounts
and fair values of the Group's financial instruments. Fair value is
the amount at which a financial instrument could be exchanged in an
arm's length transaction. Where available, market values have been
used (this excludes short term assets and liabilities).
Book and Fair value
---------------------------------------- -------------------------------
30 June 30 June 31 December
2015 2014 2014
---------------------------------------- -------- -------- -----------
US$(000) US$(000) US$(000)
Financial assets - loan and receivables
Cash and cash equivalents and
restricted cash (level 1) 1,972 11,213 13,939
Other receivables held at amortised
cost 876 413 456
----------------------------------------- -------- -------- -----------
2,848 11,626 14,395
---------------------------------------- -------- -------- -----------
Financial liabilities measured
at amortised cost
Trade and other payables 2,814 4,615 5,518
2,814 4,615 5,518
---------------------------------------- -------- -------- -----------
The directors consider that the carrying amounts of financial
assets and financial liabilities which are recorded at amortised
cost in the financial statements approximate their fair values.
The estimated fair value of a financial instrument is the amount
at which the instrument could be exchanged in the market. For the
purpose of estimating the fair value of financial assets maturing
in less than one year, the Group uses the market value. For other
investments, the Group uses quoted prices in the market. In
relation to financial liabilities, since most loans are taken at
variable rates or fixed rates that approximate to market rates, the
fair value of loans approximates their carrying value. Set out
below is a comparison of the carrying amount and fair values of the
Group's financial instruments.
The different levels have been defined as follows:
Level 1: valued using trading prices (unadjusted) in active
markets for identical assets and liabilities;
Level 2: valued using inputs that are observable for the asset
or liability, either directly (that is as prices), or indirectly
(that are derived from prices); and
Level 3: valued using inputs that are not observable for the
asset or liability.
10. Commercial disputes
As highlighted in the 2014 Annual Accounts, Madagascar Oil SA
("MOSA") had received an initial VAT notification for the years
2007 - 2011 for disputed notional VAT (Foreign Services VAT) being
applied to services provided by foreign suppliers outside
Madagascar. Following negotiation a settlement of $4.476m (MGA
10.026 billion) was transferred to the Madagascan Tax
administration in final settlement of the VAT dispute relating to
2007 - 2011 which was agreed definitively and the case now
irrecoverably closed.
Management has recognised a provision in the interim financial
statements for the best estimate of the expected 2012, 2013, 2014
and first half of 2015 settlement and penalties.
11. Subsequent events
On 29 June 2015 the Company entered into a $5.0 million working
capital facility with Outrider Master Fund LP, a company connected
to Outrider Management LLC who is a substantial shareholder of
Madagascar Oil. No drawdown had been made from this facility in the
period ended 30 June 2015, however the full facility was drawn down
in tranches of $1.0 million between July and September 2015.
On 29 September 2015, the Company entered into an agreement with
its four major shareholders to provide a Bridge Financing Facility
(the "Facility") of up to $21.9 million.
The Facility is designed to fund the Company through to the
conclusion of its previously announced process to identify a
potential strategic partner(s) to work with the Company on the
development and funding of the world class Tsimiroro field (the
"Partner Process"), and will replace the existing $5.0 million
working capital facility. After taking into account the existing
$5.0 million facility, this new Facility will provide the Company
with new funds of up to $16.9 million.
The four major shareholders who have provided the Facility
through their associated entities, are Outrider Management LLC
("Outrider"), Benchmark Advantage Fund Ltd ("BMK"), SEP African
Ventures Ltd ("SEP") and the John Paul Dejoria Family Trust
("JEP"), together the "Lenders".
Under the terms of the Facility, $8.9 million of new funds will
become available immediately and will be used to fund the Company's
business activities and working capital requirements during the
Partner Process. The Facility has a 10% interest rate per annum and
a 5% commitment fee is payable on drawdown.
During January 2016, the Lenders will assess, amongst other
things, the progress of the Company in meeting its objectives
towards achieving a strategic transaction and may, on the 31
January 2016 (the "Review Date") choose between options including,
inter alia, a) releasing an additional tranche of funding under the
Facility of up to $8.0 million (each Lender making its own election
to release a drawdown of up to $2.0 million each) or b) calling for
the Facility to be immediately repaid in full (a decision requiring
the agreement of at least 66% of the Lenders).
There are certain other situations that require mandatory
prepayment of the Facility including change of control, equity
fundraisings and oil sales, as well as strategic transaction
proceeds or the sale of all or substantially all of the Group's
assets. In the absence of early repayment the Facility becomes
repayable on 30 September 2016. If the Loan is repaid prior to the
completion of a Strategic Transaction an additional fee of 20% is
payable.
12. Capital commitments
As at 30 June 2015, the minimum work commitments for Block 3104
Tsimiroro had been fulfilled and the total outstanding minimum work
commitments with respect to the exploration blocks were $750,000
(year ended 31 December 2014: $750,000). Bank guarantees will be
established in respect of the Group's obligations for minimum
exploration work commitments once the approval of the two year
extension of the exploration periods for Blocks 3105, 3106 and 3107
from the Madagascar authorities has been obtained. This formal
request was made ahead of the scheduled end date of the current
exploration periods of 14 December 2014 and the Company is hopeful
of receiving these extensions in the near future.
The licence contracts also include the following annual
expenditure commitments:
Administrative fees
- Three other exploration blocks: $162,500 per year per
block
The Block 3104 administrative fees of $250,000 per year are only
committed until the granting of an exploitation licence under the
terms of the Production Sharing Contract which occurred in April
2015. No further administration fees are payable on Block 3104
under the PSC.
Training fees
- Block 3104: $100,000 per year
- Three other exploration blocks: $50,000 per year per block
The licence contracts as part of the joint venture with the
group TOTAL for the licence 3102 Bemolanga include annual
expenditure commitments of $100,000 per year as administrative fees
and $40,000 as training fees.
13. Related parties
Key management includes Directors (executive and non-executive),
the Chief Executive Officer, the Chief Financial Officer and the
Chief Operating Officer. Key management compensation amounted to
$797k for the six months ended 30 June 2015 (six months ended 30
June 2014: $525k) with a share based payment charge of $32k (six
months ended 30 June 2014: $187k).
On the 29 June 2015 the Company entered into a $5.0 million
working capital facility with Outrider Master Fund LP, a company
connected to Outrider Management LLC who is a substantial
shareholder of Madagascar Oil. The facility is repayable on 6
October 2015 or is repayable in full if there is a change of
control or in the event of a fundraising of $5.0 million or more.
The credit facility has a 10% interest rate per annum and a
$250,000 commitment fee is payable on drawdown. No drawdown has
been made from this facility in the period ended 30 June 2015,
however subsequently the full facility has been drawn down in
tranches of $1.0 million between July and September 2015.
During the period, Outrider Management LLC, of which Stephen
Hope is a nominated director, acquired 500,000 common shares taking
their total holding at the period end to 187,790,232 common shares
representing 28.8% of the Company's issued share capital.
Post period-end, on 29 September 2015, the Company entered into
a Bridge Financing Facility of up to $21.9 million with its four
major shareholders. See Note 11 for further details.
Corporate Directory
Directors
Andrew Morris (Chairman)
Iain Patrick (Non-Executive Director)
Stephen Hope (Non-Executive Director)
Robert Estill (Chief Executive Officer) (appointed 21 January
2015)
Michael Duginski (Non-Executive Director) (appointed 21 January 2015)
Peter Godfrey (Non-Executive Director) (appointed 1 July 2015)
Gordon Stein (Chief Financial Officer) (resigned from the Board
21 January 2015)
Richard Laing (Non-Executive Director) (resigned 21 January 2015)
Company Secretary Company Advisers
(MORE TO FOLLOW) Dow Jones Newswires
September 30, 2015 02:02 ET (06:02 GMT)
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