TIDMENW
RNS Number : 8968X
Enwell Energy PLC
28 April 2023
28 April 2023
Enwell Energy plc
("Enwell" or the "Company")
Quarterly Operations Update
Enwell Energy plc (AIM: ENW), the AIM-quoted oil and gas
exploration and production group, provides an update on its
operational activities in Ukraine, where it operates the
Mekhediviska-Golotvshinska (MEX-GOL), Svyrydivske (SV) and
Vasyschevskoye (VAS) gas and condensate fields, as well as the
Svystunivsko-Chervonolutskyi (SC) exploration licence .
Production - Q1 2023
The average daily production of gas, condensate and LPG from the
MEX-GOL, SV and VAS fields over the period from 1 January 2023 to
31 March 2023 was as follows:
Field Gas Condensate LPG Aggregate
(MMcf/d) (bbl/d) (bbl/d) boepd
Q1 2023 Q1 2022 Q1 2023 Q1 2022 Q1 2023 Q1 2022 Q1 2023 Q1 2022
-------- -------- -------- -------- -------- -------- -------- --------
MEX-GOL
& SV 9.9 11.6 394 487 434 286 2,449 2,730
-------- -------- -------- -------- -------- -------- -------- --------
VAS 1.7 2.2 19 24 - - 338 434
-------- -------- -------- -------- -------- -------- -------- --------
Total 11.6 13.8 413 511 434 286 2,787 3,164
-------- -------- -------- -------- -------- -------- -------- --------
The ongoing war in Ukraine continues to cause disruption to
operations at the Company's fields, where issues with the supply of
equipment and fuel and interruptions to the supply of electricity
are affecting field activity. Production volumes were lower when
compared with Q1 2022 due to natural field decline, with the
exception of LPG recoveries, which improved significantly following
the completion of upgrade works to the gas processing facilities at
the MEX-GOL and SV fields in mid-2022. The comparative average
production figures for Q1 2022 are based on the days that the
respective fields were actually in production as there were periods
of suspension of production from these fields immediately following
the Russian invasion of Ukraine in February 2022 (namely, 76 days
of production from the MEX-GOL and SV fields and 55 days of
production from the VAS field in Q1 2022).
Operations
Production operations are continuing at the MEX-GOL and SV
fields, and, currently, the production rate is approximately 2,400
boepd. Field operations are currently continuing relatively
normally, but the supply of equipment and fuel has been
significantly disrupted, which has caused delays to the progress of
some activities. In general, the operating environment in Ukraine
remains challenging.
In December 2022, the GOL-107 well was spudded. This well has a
target depth of 5,190 metres and is a development well, aiming to
achieve production from the V-20 and V-23 horizons in the Visean
formation. Drilling operations are scheduled to be completed by the
end of Q3 2023, and, subject to successful testing, production
hook-up is scheduled during Q4 2023.
At the VAS field, production operations are continuing, and the
current production rate is approximately 310 boepd.
The Company continues to be cautious and vigilant in continuing
with its operations and is taking the appropriate measures
available to protect and safeguard its personnel and business. The
safety and wellbeing of its personnel and contractors is paramount
and the Company will continue to take all possible steps to ensure
their safety.
Cash Holdings
At 31 March 2023, the Company's cash resources were
approximately $90.7 million, comprised of $8.8 million equivalent
in Ukrainian Hryvnia and the balance of $81.9 million equivalent in
a combination of US Dollars, Pounds Sterling and Euros.
Gas Sales and Sales Receivables
While the Company has continued to supply gas to its existing
ultimate off-takers, the volumes ordered by such off-takers have
reduced during the war, which has meant that the Company has been
selling a higher proportion of its gas through the Ukrainian
electronic gas trading market. The situation in Ukraine has meant
that it has been necessary for the Company to allow some
flexibility in the recovery of gas sales receivables from certain
ultimate off-takers, while sales through the Ukrainian electronic
market are made on a prepayment basis. The Company's gas sales
receivables have built up to approximately $36.8 million, and as a
result, the Company is taking action to restructure its contractual
relationships relating to the sale of its gas. This restructuring
involves ceasing to sell gas to LLC Smart Energy, and, in the
future, selling its gas directly to its off-takers, and assigning
the receivable liabilities so that these are directly recoverable
from the relevant debtors. Documentation to achieve this
restructuring is currently being finalised.
Change of Broker
On 26 January 2023, the Company announced that Zeus Capital
Limited had assumed the role of the Company's broker with immediate
effect.
New Auditor
The Company is currently finalising the appointment of a new
Auditor and a further announcement will be made shortly.
New Natural Resources Legislation in Ukraine
As announced on 4 January 2023, new legislation, Law No.
2805-IX, relating to the natural resources sector has been enacted
in Ukraine, which came into force on 28 March 2023. This
legislation is a substantial package of new procedures and reforms
designed to improve the regulatory process relating to the
exploration and development of natural resources in Ukraine.
However, the legislation includes provisions that if the ultimate
beneficial owner of a mineral or hydrocarbon licence becomes the
subject of sanctions in Ukraine, then the Ukrainian State
Authorities may suspend or revoke that licence. In light of the
imposition of the restrictive measures (sanctions) by the Ukrainian
Authorities, as announced on 9 December 2022, against Vadym
Novynskyi, who previously held a major indirect shareholding
interest in the Company, the Company had been investigating whether
the Company's hydrocarbon extraction licences may be adversely
affected by these provisions in the new law. However, as announced
on 17 and 26 January 2023, Vadym Novynskyi notified the Company
that he had ceased holding any indirect shareholding interest in
the Company on 1 December 2022, and therefore, it appeared that the
new law would not affect the Company's hydrocarbon licences.
Subsequently, the Ukrainian authorities have nevertheless taken
certain regulatory actions against various Group companies in
Ukraine as referred to below.
Regulatory Actions by Ukrainian Authorities
As announced on 12 April 2023, Ukrainian authorities have
recently undertaken a number of regulatory actions against certain
of the Company's subsidiary companies in Ukraine, including
conducting a search at the Group's Yakhnyky office, from where the
MEX-GOL and SV fields are operated, and placing certain physical
assets of two subsidiary companies (which respectively hold the
MEX-GOL and SV fields and the SC exploration licence) under
seizure, thereby restricting any actions that would change
registration of the property rights relating to such assets.
However, the use of such assets is not restricted and therefore the
Company is able to continue to operate and produce gas and
condensate from the MEX-GOL and SV fields. In addition, the
Ministry of Justice of Ukraine has made an Order cancelling the
registration entry made on behalf of a subsidiary of the Company
named LLC Regal Petroleum Corporation (Ukraine) Limited in the
Unified State Register of Legal Entities, Individuals-entrepreneurs
and Civil Institutions of Ukraine relating to the ultimate
beneficial owners of such company, thereby restoring the previous
entry in such Register, being Vadym Novynskyi. Furthermore, the
State Geologic and Subsoil Survey of Ukraine has issued an Order to
the Ukrainian branch (representative) office of Regal Petroleum
Corporation Limited requiring that additional information be
provided and/or violations be eliminated by 1 June 2023 in the
disclosures relating to the ultimate beneficial owners of the
MEX-GOL and SV licences respectively. The Company does not consider
that any of these regulatory actions are justified and is
consulting with its legal advisers in relation to legal action to
challenge these unjustified actions.
SC Licence Order for Suspension
As announced on 4 November 2022, there has been a further legal
challenge relating to the SC exploration licence, which is held by
LLC Arkona Gas-Energy ("Arkona"). Since the Company completed the
acquisition of Arkona in March 2020, there have been a number of
legal challenges relating to the SC licence. As announced on 3 July
2020, PJSC Ukrnafta ("Ukrnafta"), as claimant, brought legal
proceedings against Arkona, as defendant, in which Ukrnafta made
claims asserting that irregular procedures were followed in the
grant of the SC licence to Arkona in May 2017. Ukrnafta also
brought these proceedings against the State Geologic and Subsoil
Survey of Ukraine ("SGS"). Both Arkona and SGS disputed these
claims. In these proceedings, the First Instance Court in Ukraine
made a ruling in favour of Ukrnafta, determining that the grant of
the SC licence was irregular, and accordingly, the SC licence would
be invalid. Arkona filed an appeal of this decision in the
Appellate Administrative Court in Kyiv, and on 29 September 2020,
the Appellate Administrative Court ruled in favour of Arkona,
overturning the earlier decision of the First Instance Court.
Ukrnafta filed a further appeal in the Supreme Court in Kyiv, and
in February 2021, the Supreme Court ruled that the arguments raised
by Ukrnafta in the appeal were not substantiated, and that the
proceedings against Arkona should be dismissed. The decision of the
Supreme Court represented the final appeal procedure in
respect of these legal proceedings, and accordingly, these
proceedings against Arkona were exhausted.
Prior to the Company's acquisition of Arkona, Ukrnafta had
previously issued legal proceedings in 2018, raising substantially
the same claims, which proceeded through the First Instance Court
and Appellate Administrative Court, before a final appeal was
determined by the Supreme Court in October 2019, in which
Ukrnafta's claims were denied. In April 2021, an entity named JV
Boryslav Oil Company ("Boryslav"), which is 25.0999% owned by
Ukrnafta, issued a further legal claim, also claiming that
irregular procedures were followed in the grant of the SC licence,
which claim was denied by the First Instance Court in July 2021 and
by the Appellate Administrative Court in October 2021. There was no
further appeal in this case and so the decision of the Appellate
Administrative Court in these legal proceedings is final. In
September 2021, Boryslav issued a further legal claim, again
claiming that irregular procedures were followed in the grant of
the SC licence, against the SGS, the State Commission of Ukraine
for Mineral Resources ("SCP") and Arkona, as defendants, with
Ukrnafta named as a third party. In this claim, the First Instance
Court made a ruling in January 2022 in favour of Boryslav. This
ruling was appealed to the Appellate Administrative Court, and on 2
November 2022, the Appellate Administrative Court made a ruling in
favour of Boryslav, to uphold the decision of the First Instance
Court, with the effect that the SC licence is now ruled invalid.
The effect of this latest ruling is that the Company cannot conduct
any field activities on the SC licence area. The Company has filed
an appeal of the decision of the Appellate Administrative Court to
the Supreme Court.
VAS Licence Order for Suspension
As announced on 3 March 2023, the legal proceedings relating to
the Order for suspension (the "Order") in respect of the production
licence for the VAS field, announced on 12 March 2019 and 19 March
2019 respectively, have been finally resolved in the Company's
favour after the Supreme Court, by a decision dated 23 February
2023, upheld the Company's appeal and cancelled the Order . T he
Supreme Court is the final appellate court in these legal
proceedings and therefore this decision is final. Accordingly, the
licence continues to be valid.
Sergii Glazunov, Chief Executive Officer, said : "Although the
situation in Ukraine continues to be extremely challenging, w e are
pleased to be able to continue our production operations at both of
our producing fields, as well as undertaking some development
activities at the MEX-GOL field, where drilling of the GOL-107 well
is progressing on schedule. We are also pursuing our appeal of the
adverse Court ruling relating to the SC licence and are hopeful of
a successful outcome of this appeal in due course."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014, which forms part of United
Kingdom domestic law by virtue of the European Union (Withdrawal)
Act 2018, as amended by virtue of the Market Abuse (Amendment) (EU
Exit) Regulations 2019.
For further information, please contact:
Enwell Energy plc Tel: 020 3427
3550
Chris Hopkinson, Chairman
Sergii Glazunov, Chief Executive Officer
Bruce Burrows, Finance Director
Strand Hanson Limited Tel: 020 7409
3494
Rory Murphy / Matthew Chandler
Zeus Capital Limited Tel: 020 7614
5900
Alexandra Campbell-Harris (Corporate
Finance)
Simon Johnson (Corporate Broking)
Citigate Dewe Rogerson Tel: 020 7638
9571
Ellen Wilton
Dr Gehrig Schultz, BSc Geophysical Engineering, PhD Geophysics,
Member of the European Association of Geophysical Engineers, Member
of the Executive Coordinating Committee of the Continental European
Energy Council, and a Non-Executive Director of the Company, has
reviewed and approved the technical information contained within
this announcement in his capacity as a qualified person, as
required under the AIM Rules for Companies.
Definitions
bbl/d barrels per day
boepd barrels of oil equivalent per day
cf cubic feet measured at 20 degrees Celsius and
one atmosphere
LPG liquefied petroleum gas
MMcf/d million cubic feet per day
% per cent.
$ US Dollars
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END
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