Kistos, the low carbon intensity gas producer pursuing a strategy to acquire assets with a role in energy transition, is pleased to provide its audited results for the period to 31 December 2021. A copy of the Company's annual report and accounts will be made available shortly on the Company's website at www.kistosplc.com.
The numbers referred to as "actual" in this announcement include the results of Kistos plc from incorporation on 14th October 2020 to 31 December 2021 and the results of Kistos NL1 and Kistos NL2 from acquisition on 20 May 2021 to 31 December 2021. The "pro forma" numbers include the results of Kistos plc and the results of Kistos NL1 and Kistos NL2 from 1 January 2021, which was the effective date of the acquisition and so the date from which Kistos economically benefitted from the assets to 31 December 2021.
Strategic & operational
§ Completed the acquisition of Tulip Oil Netherlands B.V. and Tulip Oil Netherlands Offshore B.V. (subsequently renamed Kistos NL1 B.V. and Kistos NL2 B.V. respectively) in May 2021.
§ Year-end 2P reserves of 18.1 MMboe in the Q10-A gas field (Kistos 60% and operator).
§ Q10-A gas field produced at an average gross rate of 1.31 MM Nm3 per day on a pro forma basis in the year to 31 December 2021.
§ Average gross production since completion of the Tulip acquisition of 1.17 MM Nm3 per day.
§ Successful drilling campaign commenced in July 2021 and completed in February 2022:
o Appraisal of the Orion oil field tested 3,200 b/d. Development studies are underway.
o Appraisal of the Q11-B discovery successfully flowed at a combined rate of over 0.27 MM Nm3 per day from the Bunter and Zechstein reservoirs. Development studies are underway.
o Sidetrack of the A-04 well at Q10-B increased production by >0.8 MM Nm3 per day.
§ The wind turbines on the renewably powered Q10-A platform were upgraded in 2021 to help minimise CO2.emissions.
§ In January 2022, Kistos announced that it had reached agreement with TotalEnergies to acquire a 20% interest in the Greater Laggan Area (GLA) West of Shetland. This transaction is expected to complete in the second quarter of 2022, subject to customary regulatory and partner consents.
§ On a pro forma basis, this transaction is expected to add 6.2 MMboe of 2P reserves and 2.5 MMboe of 2C resources plus net production in 2022 of approximately 6,000 boe/d. This will increase Group production in 2022 to approximately 12,000 boe/d (net).
§ Pro forma adjusted EBITDA of €102.9MM in the 12 months to 31 December 2021
§ Loss after tax of €40.1MM reflects total impairments of €121.0MM.
§ Impairments of €121.0MM include €119.8MM related to the result of the Q11-B appraisal well, which did not encounter gas in the Slochteren formation.
§ Issued €150MM of Nordic Bonds (€60M of new bonds and €90M of refinancing) in conjunction with the €223MM Tulip Oil acquisition.
§ Raised over €100MM from equity investors between incorporation (October 2020) and the end of 2021.
§ Capital expenditure in 2021 was €23.8MM on an accruals basis, 95% of which occurred in the second half of the year when the drilling campaign was underway.
§ Cash balances on 31 December 2021 were €77.3MM (30 June 2021, €59.1MM).
§ The Group is unhedged as of 1 April 2022.
§ Given its financial strength and in line with its strategy, the Group continues to evaluate several business development opportunities in the energy transition space.
After listing on AIM in the final quarter of 2020, the first half of 2021 saw Kistos commence the execution of its strategy to acquire assets with a role to play in the energy transition. We did so by purchasing Tulip Oil Netherlands (renamed Kistos NL1) and its subsidiary, Tulip Oil Netherlands Offshore (renamed Kistos NL2), from Tulip Oil Holding B.V. (the "Acquisition"). This transaction brought with it 60% interests in and operatorship of the producing Q10-A gas field as well as the Orion oil discovery and the Q11-B gas discovery exploration and evaluation assets in the Dutch sector of the North Sea.
In the six months to the end of June 2021, production from Q10-A averaged 1.43 MM Nm3 per day. Two months after the completion of the acquisition, Kistos announced the commencement of a six-month drilling campaign, which resulted in Q10-A exiting the year with output significantly higher at 1.8 MM Nm3 per day. In addition, an appraisal of the Orion oil discovery tested at a rate of 3,200 b/d and an appraisal of the Q11-B gas discovery flowed gas from the Bunter and Zechstein formations, although it failed to encounter gas in the primary Slochteren target, leading to an impairment of €119.8MM. Studies are now underway to establish the optimum way of developing both fields.
As detailed in the independent Competent Persons Report (CPR) published in conjunction with the Acquisition, the 2P reserves associated with the acquired assets were 20.0 MMboe as of 31 December 2020. After taking account of production from Q10-A during the course of last year, the figure was 18.1 MMboe on 31 December 2021. Kistos expects this to increase as we progress towards a Final Investment Decision (FID) with the Orion and Q11-B projects, enabling us to convert 2C resources to 2P reserves.
Crucially, Kistos achieved this increase in reserves and production while abiding by its founding principle of being part of the energy transition. Natural gas will be critical to Europe's transition to a low carbon economy, which is demonstrated by the European Commission's decision to categorise investments in natural gas production as 'transitional economic activities'. Our Q10-A platform has an extremely low carbon footprint thanks to the integration of wind turbines and solar panels into its design. We will take a similar approach to any future development projects.
Reported adjusted EBITDA for 2021 was €78.9MM (see Financial Review) while adjusted pro forma EBITDA, which includes a full 12 months contribution from Kistos NL1 and Kistos NL2, was €102.9MM. This was weighted towards the second half of the year, when gas prices were significantly higher and production responded to our drilling and workover campaign. Hence, we ended the year with cash balances of €77.3MM, which was achieved after capital expenditure of €20.0MM on a cash basis. With high gas prices carrying over into 2022 and production from the Q10-A gas field significantly higher than when we acquired it, the current year has started strongly.
Central to our operations is our health, safety, and environmental (HSE) performance. I am pleased to report that we did not suffer any Lost Time Injuries in 2021 despite undertaking more than five months of drilling and testing operations. Neither did we suffer any disruption to our operations from COVID-19 thanks to the rigorous procedures we have in place to combat and, if necessary, contain the virus. Meanwhile, the wind turbines, which were upgraded in 2021, and the solar panels on the Q10-A platform continue to minimise our CO2 emissions.
We expect to drive further operational progress across our portfolio in 2022. Currently, our plans to construct a new gas export pipeline from Q10-A to IJmuiden, are on hold while we review alternatives that have been proposed by other stakeholders, thus ensuring that we pursue the option that adds most value for shareholders. Similarly, with the help of Rockflow Resources, our technical team in the Netherlands is taking a rigorous approach to the Concept Assess and Concept Select phases of the Q-10 Orion oil field development project.
In January 2022, we announced that we had reached agreement with TotalEnergies to acquire a 20% interest in the Greater Laggan Area ('GLA') offshore the UK. Once this transaction completes, which we expect to occur during the second quarter of 2022, Kistos' output is expected to increase by approximately 6,000 boe/d. Importantly, with an effective economic date of 1 January 2022, the Company secured exposure to the high commodity prices that have prevailed since the beginning of the year has been for our account and will be reflected in the amount payable to the vendor at completion.
Although we do not set explicit long-term targets for reserves or production, believing instead that shareholder value is a more important metric, we remain committed to growing the business. From a standing start in the fourth quarter of 2020, we have built an excellent platform from which to do so, and we will seek to deploy further capital for the right opportunities. With that in mind, we continue to evaluate potential acquisitions. However, it is critical that we maintain capital discipline and we must be prepared to walk away from transactions if we do not believe they will be accretive to shareholder value.
The Remuneration Committee seeks to ensure that all employees are appropriately incentivised to deliver results for the Company. The Company announced on 15 and 16 February 2022 an intention to establish a Value Creation Plan ("VCP") to maintain alignment of the Company's executive directors with shareholders, to achieve exceptional levels of performance, and to deliver further returns. Since these announcements, the Board confirms that it has commenced a consultation process with its major shareholders. No decision has yet been made as to the terms, structure, or timing of implementing any incentive plan and a further announcement will be made at the appropriate time.
Finally, I would like to thank all our stakeholders for their work and commitment to the Company and to thank staff, contractors, co-venturers and others for their continued support. I believe we are well- placed to continue generating substantial returns for investors and look forward to reporting further progress during 2022. Andrew Austin, Executive Chairman