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TOWER RESOURCES PLC — Earnings Release 2017
Nov 14, 2017
7980_rns_2017-11-14_a252e21d-ee3a-453c-8825-59ed9d23c284.html
Earnings Release
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Wentworth Resources Limited : Q3 2017 Financial Statements and MD&A
Wentworth Resources Limited : Q3 2017 Financial Statements and MD&A
PRESS RELEASE
14 November 2017
Wentworth Resources Limited
("Wentworth" or the "Company")
Q3 2017 Financial Statements and MD&A
Wentworth Resources Limited, the Oslo Stock Exchange (OSE: WRL) and London Stock
Exchange (AIM: WRL) listed independent, East Africa-focused oil & gas company,
today announces its results for the quarter and nine months ended 30 September
Financial
Gas sales revenue of $4.1 million for the quarter, compared to $2.15 million in
Q2 2017 and $2.38 million in Q3 2016. For the first nine months of 2017 revenue
was $9.20 million compared to $9.02 million in 2016.
* Net profit of $0.7 million and net loss of ($0.95) million for the three and
nine month periods of 2017 respectively compared to losses of ($3.59)
million and ($4.67) million in 2016 respectively.
* Capital expenditures of $0.84 million and $2.14 million for the three and
nine month periods respectively compared to $0.97 million and $3.79 million
in 2016 respectively.
* Cash and cash equivalents on hand of $3.36 million at 30 September 2017
compared with $0.98 million on hand at 31 December 2016.
* Working capital of $13.48 million at 30 September 2017 compared to $9.08
million at 30 June 2017 and $4.96 million at 31 December 2016.
* At the date of the press release TPDC has initiated payment for the October
2017 gas sales invoice totalling $2.6 million cash net to Wentworth.
Operational
Tanzania
* The level of gas demand has stabilized during 2017 compared to 2016.
* The Mnazi Bay field achieved average gross daily gas production of 60
MMscf/d during Q3 2017 and 45 MMscf/d year to date 2017. Full year 2017
production forecast remains within Management's previously guided range of
between 40 and 50 MMscf/d.
* During the course of 2017 receivables increased but have stabilized at
between four and five months outstanding from the main purchaser of Mnazi
Bay gas. The Company continues to manage working capital with creditors to
match the settlement of obligations with the timing of payments for gas
sales.
* Cash payments of $5.18 million were received relating to gas sales invoices,
net to Wentworth, during Q3.
Mozambique
* Completed the analysis of the Tembo-1 well drilled in 2014 and the
reprocessing of existing 2-D vibroseis seismic data from the Rovuma Onshore
Block while continued mapping and interpretation of all existing data.
* Continued planning of the drilling activities for an appraisal of the Tembo-
1 gas discovery, including designing the appraisal well, selecting a well
location, obtaining necessary environmental permits and initiating
preliminary procurement activities.
* Continued the farm-out process to secure an industry partner to participate
in the appraisal programme in advance of drilling the appraisal well in
Geoff Bury, Managing Director, commented:
"Q3 2017 was the strongest production performance in the Company's history with
gross gas sales averaging 60 MMscf/d, a level anticipated to be achieved for the
remainder of 2017. In the near term, the Company is in a dominant position to
take full advantage of increasing gas demand in Tanzania from the electrical
power generation and industrial demand and reduced gas volumes supplied into the
transnational pipeline by peers. There is near-term incremental gas demand
expected from the start of the commissioning of the newly constructed,
government owned, Kinyerezi-2 power station and commencement of gas fired power
generation at the Dangote Cement plant. The combined gas demand is expected to
initially require 10-12 MMscf/d of gas, at the time of start-up in the next two
to four months, increasing to approximately 60 MMscf/d when these facilities
become fully operational, which is expected during the second half of 2018.
We have substantially advanced pre-drilling activities for the Tembo appraisal
well in our oil and gas concession in Mozambique with a plan to commence
drilling operations late in Q2 2018. The Company has completed the Tembo-2 well
design and has commenced the procurement process for long lead items.
Furthermore, we have identified drilling rigs in the region capable of drilling
to the planned depth and are in the process of determining the civil works
necessary to prepare the well site location. In parallel, we are actively
seeking one or more industry partners to participate in the drilling of this
prospect and to-date have received positive interest. If successful, it will
provide significant running room within the block and should add substantial
value to the investment in Mozambique."
A conference call for investors, analysts and other interested parties will be
held this morning at 01.30 MST (Calgary) / 08.30 GMT (London) / 09.30 CET
(Oslo).
Dial in numbers:
Please dial in 5-10 minutes prior to the start time and join the call by
referencing "Wentworth Resources Q3 Results".
Participant Dial in Numbers:
All locations: + 44 20 3059 8125
United Kingdom (Local): 020 3059 8125
United States (Local): +1 724 928 9460
Canada (Toll Free): +1 855 318 8291
Norway (Toll Free): 800 69 940
-Ends-
Enquiries: Lance Mierendorf [email protected]
Wentworth Chief Financial +1 403 680 8773
Officer
Katherine Roe [email protected]
Vice President +44 7841 087 230
Corporate
Development &
Investor Relations
Stifel Nicolaus AIM Nominated +44 (0) 20 7710 7600
Europe Limited Adviser and Broker
(UK)
Callum Stewart
Ashton Clanfield
GMP FirstEnergy Broker (UK) +44 (0) 20 7448 0200
Hugh Sanderson
Jonathan Wright
Peel Hunt LLP Broker (UK) +44 (0) 20 7418 8900
Richard Crichton
Ross Allister
Chris Burrows
FTI Consulting Investor Relations [email protected]
Adviser (UK) +44 (0) 20 3727 1000
Edward Westropp
Kim Camilleri
Crux Advisers Investor Relations +47 909 808 48
Adviser
(Norway)
Carl Bachke
Key extracts of the Q3 2017 Management Discussion and Analysis are set out below
and should be read in conjunction with the complete Q3 2017 Management
Discussion and Analysis which is available on the Company's updated website at
http://www.wentworthresources.com.
Operations Overview
Mnazi Bay Concession, Tanzania
Mnazi Bay gas sold to Tanzania Petroleum Development Corporation ("TPDC") is
primarily utilized by Tanzania Electricity Supply Company Limited ("TANESCO") as
a fuel source to power its electrical generation plants serving the National
Electricity Grid in Tanzania. During Q3 2017, Mnazi Bay gas was used to fuel
two TANESCO-owned power stations located within the city of Dar es Salaam:
Kinyerezi-1 and Ubungo-II. Additional gas-fired power generation is expected to
materialize within the next three to eighteen months with the completion and
commissioning of the Kinyerezi-2 power station and the Kinyerezi-1 Extension.
The 240 MW Kinyerezi-2 power station is expected to commence the commissioning
process in December 2017 with the first of six gas power turbines being tested
and becoming operational. Completion of the commissioning process for the
entire Kinyerezi-2 power station is expected by Q3 2018. Demand for Mnazi Bay
gas to power this facility is expected to be 5 MMscf/d at start up and reach 36
MMscf/d by the end of Q3 2018. Commissioning of the 185 MW Kinyerezi-1
Extension is expected to commence during Q4 of 2018 and, once fully operational
in 2019, is expected to require an additional 35 MMscf/d to generate electrical
power.
For the three and nine months of 2017, the Mnazi Bay gas field delivered 59.9
MMscf/d and 44.7 MMscf/d respectively compared to 34.3 MMscf/d and 44.2 MMscf/d
respectively during 2016. Both the Kinyerezi-1 and Ubungo-II power stations
operated at near full capacity during the entire third quarter of 2017 resulting
in a 75 percent increase compared to the same quarter during 2016. In
addition, higher quantities of Mnazi Bay gas were used for electrical power
generation during Q3 2017 compared to Q2 2017 as hydro power generation as a
substitute for natural gas was significantly reduced following the end of the
rainy season and lower quantities of gas were supplied by industry competitors.
Production from Mnazi Bay gas has recently peaked at over 70 MMscf/d in October
2017 while full year 2017 production is anticipated to be in the high end of
Management's guidance of between 40 - 50 MMscf/d.
During Q2 2017, TPDC commenced delivery of Mnazi Bay gas to its first industrial
customer, a newly constructed ceramic tile factory, Goodwill Ceramics. Gas
demand to power the factory is expected to reach 7 MMscf/d by the end of 2017
and be sustained at that level thereafter. At the end of Q3 2017, gas
deliveries to the ceramic tile company were approximately 5.5 MMscf/d.
Additional gas demand from growth in the industrial sector in Tanzania is
expected to be realized in the near future. During 2017, TPDC concluded a
commercial arrangement to supply gas to a Dangote cement plant for power
generation and for firing its klinker kilns used in the production of cement. A
new gas pipeline connecting the temporary power generation unit to the TPDC
owned 36-inch transnational pipeline is currently in the process of being
installed. The installation of a 35MW power generation unit and associated power
supply to the Dangote cement plant is expected to be commissioned during Q1
2018. Dangote also announced a plan to eliminate coal and convert the entire
plant to gas, including the kiln furnaces for roasting the klinker, envisaging a
permanent combined cycle power plant being built on the premises of the Dangote
Cement factory.
Initial gas demand of between 5 and 7 MMscf/d for temporary power generation is
expected to commence towards the end of Q1 2018. The kilns are expected to be
fired by natural gas commencing Q2 2018, and will require an additional 8 and
10 MMscf/d of natural gas, increasing to between 20 and 25 MMscf/d in 2019. The
temporary 35MW gas fired plant is planned to be replaced by the combined cycle
plant using steam turbines in Q1 2019.
On a much smaller scale, Mnazi Bay gas is sold directly to TANESCO for
electrical power generation at a 18MW power plant at Mtwara. The power station
provides electricity to the isolated grid serving the region and includes the
towns of Mtwara, Madimba, Lindi, Msassi and Newala. Gas quantities of between
2 and 2.5 MMscf/d are being supplied to the power plant through an 8-inch
pipeline which is owned by the Mnazi Bay joint venture.
During the third quarter of 2017, minor works continued the expansion of the
Mnazi Bay joint venture owned processing facilities at Msimbati. Primary
processing of the Mnazi Bay gas is required at Msimbati to remove free liquids
before the gas enters the sub-marine pipeline that connects into the Madimba Gas
Processing Facility. The expansion of the processing facilities, together with
tying-in all 5 wells completes all the necessary field infrastructure work to
enable delivery of gas volumes expected to be in excess of 100 MMscf/d to the
TPDC owned pipeline to Dar es Salaam. Commissioning of these new facilities is
expected in December 2017. With the completion of these capital investments it
is anticipated that there will not be a need for significant additional capital
expenditure until the average daily demand exceeds 100 MMscf/d for an extended
period of time.
During July 2017, the Government of Tanzania enacted the following laws: the
Natural Wealth and Resources (Permanent Sovereignty) Act, 2017, the Written Laws
(Miscellaneous Amendments) Act, 2017, and the Natural Wealth and Resources
Contracts (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 which
cover activities within the energy and mining sectors. The first and second of
these acts are forward looking and only apply to agreements entered into on or
after the date of the legislative changes. These acts contain new regulations
including but not limited to regulations that all arbitration processes must be
heard within Tanzania and place restriction on the ability to move funds out of
Tanzania. The third act covers existing agreements and provides, among other
things, the right to the Government of Tanzania to renegotiate clauses within
existing agreements that are deemed to have unconscionable terms. The Company
has undertaken a review of these new laws to determine their implications on the
Company's Tanzania operations. Based on our current understanding of this new
legislation and given the existing terms and conditions of our relevant
agreements, we do not anticipate any material impact on our existing operations
in the short to medium term. It is unclear whether there will be any material
impact in the long-term.
Appraisal of the Rovuma Onshore Block, Mozambique
Extension of the Rovuma Onshore Exploration Concession to conduct an appraisal
of the Tembo-1 gas discovery was granted to Wentworth by the Government on June
15, 2016. On that same date, Wentworth was approved as the operator of the
concession and now holds an 85 percent participation interest, with the
Government holding the remaining 15 percent. The anticipated work program
includes drilling of an appraisal well, which is scheduled to commence
operations by June 2018.
During Q3 2017, activities mainly involved reprocessing and analysis of existing
seismic data with a view to identifying a well site location, obtaining
environmental licenses, planning for the drilling of an appraisal well and
compilation of tenders for the procurement of a drilling rig and long lead items
such as casing and tubing for the well.
The Tembo-2 well will appraise the discovery made at Tembo-1 Well in December
2014. Tembo-1 was drilled to 4,553m measured depth. All data available from the
Tembo 1 well has been thoroughly examined by the Company. The Tembo 2 appraisal
well is designed to reach a total depth of 3,200m and is planned as a vertical
appraisal well to the Lower Cretaceous. Wentworth has started a process to
procure the drilling rig and long lead items for the appraisal well. Expressions
of interest (EOI) have been prepared for supply of the drilling rig and casing
and tubing. The Company has identified several drilling rigs currently located
within the region which are capable of drilling the planned appraisal well. The
two EOIs are expected to be published in a Mozambican newspaper by the end of
2017 with an invitation to tender being sent to prospective bidders prior to
year end.
Finalization of the well location and subsequent site visits to further inspect
the site for the design of the well pad and site preparation, have been delayed
due to the deteriorating security situation in and around the Macimboa da Praia
region which is adjacent to the Company's concession area. Clashes between
police and extremists have increased during October resulting in a heightened
risk profile. Wentworth is monitoring the security situation closely and has
sought advice from the Mozambican Authorities, the Canadian High Commission,
other companies operating in the region and local security and risk management
companies.
In July 2017, a formal farm-out process was initiated to secure one or more
industry partners to share in the risk of drilling of the Tembo-2 appraisal
well. The exercise is ongoing, and Wentworth anticipates securing an industry
partner prior to commencing drilling operations in 2018. Funding of the
drilling of the Tembo-2 appraisal well will be through internally generated cash
flows and sharing of the cost with one or more industry partners.
Financial Overview
Revenue
Gas sales to TPDC
The Company recorded net sales to TPDC of 1,256,662MMBtu during the three months
ended September 30, 2017, an increase from 2016 of 78%. On a year-to-date
basis, 2017 sales volumes were consistent with 2016. A more constant level of
gas demand from gas fired electrical power facilities was experienced during
2017 as many of the start-up, commissioning, repairs to power plants and
problems with Government owned electrical power transmission and distribution
infrastructure experienced during 2016 were less prevalent.
The gas sales price was $3.04/MMBtu (Q3 2016 - $3.01/MMBtu) for total revenue
during Q3 2017 of $3.82 million (Q3 2016 - $2.12 million).
Gas sales to TANESCO
Gas sales to an 18 MW gas-fired power plant in Mtwara, Tanzania during the third
quarter and nine months ended September 30, 2017 were 51,186 MMBtu (Q3 2016 -
49,256 MMBtu) and 153,116 MMBtu (2016 - 144,473 MMBtu) respectively while the
gas price remained fixed and unchanged at $5.36/MMBtu. The power plant generally
operates at below capacity and consumes on average between 2.0 and 2.5 MMscf/d.
Total revenue earned during the quarter was $0.27 million compared to $0.26
million during the same quarter in 2016.
Production and operating expense
Production costs within the Mnazi Bay Concession comprise the Company's share of
field operating costs, Operator's administration and Operator's overhead
required to manage production operations. Management expects that, on a per
Mscf basis, production costs will generally reduce as gas volumes increase as
most of the field operating costs are fixed in nature. Gross third quarter
production was 59.9 MMscf/d compared to 34.3 MMscf/d during the third quarter of
2016. On a year-to-date basis, production averaged 44.7 MMscf/d in 2017 compared
to 44.2 MMscf/d during 2016. Production and operating expenses during the third
quarter were $0.92 million (quarter ended September 30, 2016 - $0.78 million)
and were higher in Q3 2017 as the operator billed higher overhead costs compared
to the same quarter in 2016. For the nine months of 2017, operating expenses
were $0.96 per Mcf compared to $0.87 per Mcf for the same period in 2016.
Third quarter operating expenses were $0.72 per Mcf compared to $1.05 per Mcf
for Q3 2016 as higher production volumes were experienced during 2017.
General and administrative ("G&A") expense
G&A expenses during the third quarter of 2017 were $1.10 million compared to
$1.07 million for the same period in 2016. During the nine months of 2017, G&A
expenses were $3.12 million compared to $4.13 million, a reduction of 25%. Cost
saving initiatives and capitalization of costs for Mozambique operation after
the Company became the operator in Q3 2016 have contributed to a reduction in
ongoing expenses. The table below shows the breakdown of G&A expenses:
The table below shows the breakdown of G&A expenses:
Three months ended Nine months ended
September 30, September 30,
(Figures in $000's) 2017 2016 2017 2016
-----------------------------------------
Employee salaries and benefits 423 406 1,246 1,682
Contractors and consultants 166 198 342 605
Travel and accommodation 114 130 267 407
Professional, legal and advisory 143 94 508 471
Office and administration 122 131 398 536
Corporate and public company costs 134 106 354 432
-----------------------------------------
1,102 1,065 3,115 4,133
-----------------------------------------
The Company maintains offices in Calgary, Canada, Dar es Salaam, Tanzania and
Maputo, Mozambique and is listed on the public stock exchanges in both Oslo,
Norway (Oslo Stock Exchange) and London, UK (AIM). Many G&A expenditures are
fixed in nature and include such items as corporate and public company costs
(exchange listing, transfer agent and directors' fees), legal fees supporting
the compliance with corporate and public obligations (Canada, UK and Norway) and
professional advisory (external audit, resources engineering and Nomad for our
AIM listing).
Following the appointment as Operator of the Rovuma Onshore Block in Mozambique
in June 2016, the Company established an operational presence in Mozambique;
directly attributable costs relating to the appraisal activities within the
Rovuma Onshore Block are being capitalized. Directly attributable costs during
the third quarter and year to date totaling $0.20 million (Q3 2016 - $0.39
million) and $0.91 million (YTD 2016 - $0.53 million) were capitalized.
Share based compensation
During the third quarter of 2017, the Company recognized $0.03 million (Q3 2016
- $0.11 million) as share based compensation expense. For the nine months of
2017, $0.18 million was recognised compared to $0.47 million during the same
period in year 2016.
During the third quarter of 2017, no options were granted, exercised or
forfeited (during Q3 2016 - 350,00 options were forfeited, and no options were
granted or exercised). A total of 10,600,000 stock options were outstanding at
September 30, 2017 with 9,266,671 vested and exercisable with an average
exercise price per share of NOK 4.36 ($0.55).
Depreciation and depletion
Depreciation and depletion of gas producing assets of $1.24 million (Q3 2016 -
$0.83 million) or $0.97/Mscf (Q3 2016 - $1.07/Mscf) were recorded during third
quarter of 2017. For the nine months of 2017, $2.79 million (Q3 2016 - $3.14
million) or $0.97/Mscf (Q3 2016 - $1.06/Mscf). At September 30, 2017, the net
book value of natural gas property, plant and equipment was $91.25 million
(September 30, 2016 - $94.16 million).
Finance income and costs
Finance income and costs that are settled in cash are interest income, interest
expense and realized foreign exchange gain/(loss) on current transactions. All
other finance income and costs are non-cash in nature.
During the quarter ended September 30, 2017, interest expense on the long-term
loans totalled $0.35 million (Q3 2016 - $0.52 million). For the nine months of
2017, interest expense was $1.23 million compared to $1.73 million for the same
period in 2016. During the quarter and nine months ended September 30, 2017,
non-cash accretion of the TPDC receivable of $0.69 million (2016 - $1.27
million) and $1.46 million (2016 - $3.38 million) was recorded in finance
income. During the first quarter, the Company revised the accounting estimates
used to determine the expected amounts and timing of future revenue streams to
determine collection of the TPDC receivable resulting from revised gas demand
estimates for future periods obtained from industry sources. This resulted in a
$0.87 million being charged to finance costs (2016 - $2.13 million). The
accounting estimates used to determine the balance of amortized cost of the TPDC
receivable remain unchanged for the third quarter of 2017.
Non-cash accretion of the Tanzanian Government receivable (Umoja/power) of $0.16
million (2016 - $0.12 million) and $0.31 million (2016 - $0.35 million) for the
quarter and nine months ended September 30, 2016 was recorded in finance income
during the quarter ended September 30, 2017. Similar to the determination of
the TPDC receivable, during Q1 2017, the Company revised the accounting
estimates resulting in an amount of $0.49 million being charged to finance cost
(2016 - $0.09 million). The accounting estimates used to determine the balance
of amortized cost of the Tanzanian Government receivable remain unchanged for
the third quarter of 2017.
Deferred tax expense/recovery
At September 30, 2017, the deferred tax asset of $30.86 million reflects the
estimated future tax benefit of accumulated tax losses within the Tanzanian
operations. The commencement of commercial production and sales of gas under the
long-term Gas Sales Agreement ("GSA") allowed for the recognition of deferred
tax asset on the accumulated tax losses estimated to be utilized in the future.
A non-cash deferred tax expense of $0.52 million (2016 - expense of $2.70
million) and $0.29 million (2016 - expense of $3.08 million) has been recorded
in the quarter and nine months ended September 30, 2017 respectively.
Receivables from gas delivered to TANESCO
The Company's ongoing exposure to receivables from TANESCO is associated with
gas sales from the Mnazi Bay Concession to the 18 MW gas-fired power plant
located in Mtwara, Tanzania. At September 30, 2017, the Mnazi Bay joint venture
partners were owed nine months of gas sales, with $1.54 million owed to
Wentworth. Subsequent to quarter end, TANESCO has paid three months of invoices
relating to the outstanding balance at September 30, 2017 totaling $0.54 million
(inclusive of the Company's share of the TPDC receivable amount relating to this
gas sale).
Receivables from gas delivered to TPDC
An amount of $10.43 million is owed to Wentworth at September 30, 2017, of which
four months invoices are past due. Subsequent to quarter end, TPDC has paid
$1.59 million for the February 2017 gas sales invoice and, as of the date of
this MD&A, has initiated payment of $2.61 million for the October 2017 gas sales
invoice. The total amount of these two invoices is $4.20 million net to
Wentworth (inclusive of the Company's share of the TPDC receivable amount
relating to this gas sale). At December 31, 2016, two months worth of invoices
were outstanding. TPDC's ability to settle gas sales invoices to the Mnazi Bay
joint venture in a timely manner is directly impacted by the timeliness of TPDC
receiving payment for gas it sells to TANESCO owned electrical power generation
plants. Recently, TANESCO has been inconsistent with paying TPDC in a timely
manner for the gas that TANESCO purchase. This has a direct impact on the cash
flows of the Mnazi Bay joint venture partners. Wentworth and the operator of the
Mnazi Bay Concession continue to engage with both TPDC and TANESCO on finding
ways to improve the timeliness of settling obligations.
Long-term receivable - TPDC
The Company has a receivable from TPDC, a 20 percent participating interest
partner in the Mnazi Bay Concession, for TPDC's share of past development and
operating costs that were paid by the Company prior to June 30, 2009. In
addition, the Company has been paying its proportionate share of TPDC's share of
development and operating costs incurred subsequent to June 30, 2009, the value
of which has been added to the TPDC receivable balance. The Company will recover
this receivable from an agreed percentage of TPDC's share of current and future
revenue from the Mnazi Bay Concession. The undiscounted face value of the TPDC
receivable at September 30, 2017 is $20.59 million (December 31, 2016 - $27.15
million). Due to its long-term nature, the TPDC receivable has been discounted
to $18.34 million (December 31, 2016 - $24.84 million). With the passage of
time and as gas sales are realized, the carrying amount of the TPDC receivable
is accreted up to the face value with a corresponding credit to finance income.
Based on the Company's internal estimates of potential gas sales volumes, the
$20.59 million receivable as at September 30, 2017 is expected to be fully
recovered by Q4 2018. The recovery of the TPDC receivable is expected to
provide a significant source of cash flows to the Company during this period of
recovery. As gas sales are realized, the current portion of the long-term
receivable is transferred to accounts receivable and settled at the time cash
payments are received from purchasers of Manzi Bay gas.
At September 30, 2017, the current portion of the TPDC receivable is $13.20
million compared to $12.28 million at December 31, 2016. During Q3 2017, $3.57
million was recovered from TPDC's share of gas sales. The current portion of
the receivable is updated at each reporting period and is calculated taking into
consideration the estimated timing and amounts of future gas sales.
Long-term receivable - Tanzanian Government (Umoja/power)
The Company has an agreement with the Government of Tanzania (TANESCO, TPDC and
the Ministry of Energy and Mines ("MEM")) to be reimbursed, at cost, for past
project development costs associated with transmission and distribution ("T&D")
expenditures. An audit of the Mtwara Energy Project ("MEP") development
expenditures was completed in November 2012 and costs of approximately $8.12
million were verified to be reimbursable. After deducting costs associated with
the Tariff Equalization Fund and VAT input credits associated with the MEP
totaling $1.61 million, the amount agreed to be reimbursed was $6.51 million.
The receivable is considered long-term in nature and has been discounted to
reflect the anticipated timing of collection. The undiscounted face value of
the Tanzanian Government receivable (Umoja/power) at September 30, 2017 is $6.51
million (December 31, 2016 - $6.51 million) while the discounted value, taking
into consideration the anticipated time of collection, is $5.31 million
(December 31, 2016 - $5.48 million). Management continues working with the
Government of Tanzania on agreeing a mechanism to settle the outstanding balance
and anticipates recovering the amounts from the Government's share of revenue
generated from the Mnazi Bay Concession. Timing of reaching an agreement on the
reimbursement procedure is indeterminable. The Government initiated a second
audit of the costs to verify the balance owing, the results of which are
expected to be received in the coming months.
Capital expenditures
During the third quarter of 2017, capital spending totaled $0.84 million which
were primarily incurred on appraisal activities in Mozambique including
technical evaluation of the Tembo-1 well, seismic reprocessing and
interpretation, preliminary planning for drilling an appraisal well in 2018 and
ongoing in-country operations.
(Figures in $000's) Three months Nine months
ended ended
September September
2017 2016 2017 2016
---------------------------------
Exploration and evaluation assets
Mozambique
Seismic reprocessing and interpretation 160 153 414 153
and analysis of Tembo-1 well results
Drilling preparation and planning 180 - 180 -
Exploration drilling - - - 950
Operator and indirect overhead 201 388 864 533
---------------------------------
541 541 1,458 1,636
---------------------------------
Tanzania
Seismic acquisition, processing
and interpretation - 9 - 26
---------------------------------
Property, plant and equipment
Tanzania
Field infrastructure 99 317 402 1,724
Other field development capital 204 98 279 393
---------------------------------
303 415 681 2,117
---------------------------------
Canada
IT and office assets - - - 9
---------------------------------
844 965 2,139 3,788
---------------------------------
External debt facilities
Medium term $20 million credit facility
The principal balance outstanding on the $20.0 million credit facility at
September 30, 2017 was $13.32 million. During the nine months of 2017,
principal payments of $3.35 million were made.
During the second quarter of 2017, the Company executed amendments to the credit
facility agreement which include the restructuring of principal loan payments
and the addition of the following new provisions:
* the addition of a Debt Service Coverage Ratio and Loan Live Coverage Ratio
as financial covenants;
* a requirement to maintain a minimum cash balance;
* a cash flow waterfall procedure to ensure certain cash proceeds from gas
sales are used in settling obligations in priority; and
* in the event the Company decides to accelerate principal payments using
funds not generated internally a prepayment fee of 25 percent of interest
forgone is required.
The Company and the lender are in ongoing discussions on agreeing the details
and processes relating to implementing and monitoring the new provisions.
Principal repayments on the credit facility are set out in the following table.
Principal repayment date Repayment amount
(Figures in $000's)
April 30, 2018 1,665
July 30, 2018 1,665
October 30, 2018 1,665
January 30, 2019 1,666
April 30, 2019 1,665
July 30, 2019 1,666
October 30, 2019 1,665
January 30, 2020 1,664
----------------------
13,321
----------------------
Medium term $6 million credit facility
At September 30, 2017, the principal amount outstanding on this facility was
$3.0 million. During the nine months of 2017, principal payments of $1.0
million were made.
All provisions of the $6.0 million credit facility remain unchanged from the
original loan agreement executed in December 2014. Interest is paid on a semi-
annual basis, in arrears, on the principal repayment date. The principal
repayment dates are as follows:
Principal repayment date Repayment amount
(Figures in $000's)
December 8, 2017 1,000
June 8, 2018 1,000
December 8, 2018 1,000
----------------------
3,000
----------------------
Overdraft $2.5 million credit facility
During 2017, the Company secured $2.5 million overdraft credit facility with a
TIB Corporate Bank ("TIB Corp"). The overdraft facility has an interest rate of
the lender's base lending rate minus 1% per annum to be paid monthly. At
September 30, 2017, the lender's base lending rate was 9%.
A total of $1.09 million and $1.65 million was drawn from the overdraft credit
facility during the three and nine months ended September 30, 2017 respectively.
Subsequent to quarter end, a further $0.85 million was drawn and the overdraft
credit facility has been fully drawn.
Security provided to the lender includes a debenture over the fixed and floating
assets of the Company's Tanzanian assets and a deed of assignment equivalent to
approximately 20% of the revenue/cash flow from sales of natural gas from the
Tanzanian assets. The Company expects to draw on the full amount of the facility
during the second half of 2017 and utilize funds for short-term working capital
purposes.
Shares, share capital and dividends
On May 23, 2017, the Company completed a private placement and issued
16,953,496 new common shares, for cash consideration of $0.32 (GBP0.25 or
NOK2.73) per share for total gross proceeds of $5.53 million (GBP4.2 million or
NOK46.3 million).
Following the private placement offering the Company had 186,488,465 common
shares issued and outstanding. All outstanding shares at September 30, 2017 are
of the same class and with equal voting and dividend rights. The Company's
ordinary shares are listed on the Oslo Stock Exchange (ticker: WRL) and
denominated in Norwegian Kroner. The Company's shares are also traded on the
Alternative Investment Market of the London Stock Exchange (ticker: WRL) and
denominated in British Pounds.
As the Company is in the early stage of its operations, it does not have a
formal dividend policy. No dividends have ever been declared or paid by the
Company. There are no restrictions on dividend distributions. At the Annual
General Meeting in 2017, the Board of Directors did not propose dividends to be
paid for the year ended December 31, 2016. Proposals for dividend distribution
in future years will be subject to assessment of business performance, operating
environment, and growth opportunities in determining the appropriate level in
any specific year.
Related party transactions
There were no related party transactions during the three and nine months of
Financial Condition and Liquidity
At September 30, 2017, Wentworth had cash and cash equivalents of $3.36 million
and trade and other receivables, prepaids and deposits, and current portion of
the long-term receivable from TPDC of $25.51 million. The Company has started
collecting substantial amounts of this long-term receivable from TPDC following
the commencement of commercial quantities of gas sales to the transnational gas
pipeline in 2015. Outstanding receivable for gas sales sold to TPDC and TANESCO
total $11.97 million at September 30, 2017. A total of $2.13 million of the
outstanding gas sales receivables has been settled subsequent to September
30, 2017 while a payment of $2.61 million relating to the October 2017 invoice
for October gas sales to TPDC has been initiated by TPDC.
During May of 2017, the Company raised gross proceeds of $5.53 million through
the issuance of 10% of the Company's share capital. These additional funds
provide the Company with required funding for working capital and the ongoing
Mozambique appraisal activities.
Current liabilities include outstanding cash calls issued by the Operator of the
Mnazi Bay Concession for 2016 operating cost of $1.26 million of which the
Company settled the full amount subsequent to September 30, 2017. The Company's
share of accrued Mnazi Bay activities for the nine months of 2017 was $4.10
million which is expected be settled through cash receipts from existing gas
sales receivables.
Current liabilities also include the principal repayment obligations on external
credit facilities and the anticipated settlement of other liabilities also due
within the next 12 months. During Q1 2017, the Company reached agreement with
its main corporate lender to enhance short-term liquidity by deferring payment
of the January 28, 2017 principal payment of $3.33 million to Q2/Q3 2017,
deferring the July 28, 2017 and January 28, 2018 principal payments and
extending the term of the credit facility by one year. Principal payments
totaling $5.33 million are scheduled to be made within the next 12 months.
The Company is working closely with the Operator of the Mnazi Bay Concession and
the external lenders to make settlement of obligations coinciding with the
receipt of cash from gas purchasers for settlement of gas sales invoices. To
date, the cooperation amongst all parties has allowed the company to effectively
manage working capital. Existing gas sales receivables at September 30, 2017 of
$11.97 million exceed the immediate obligations to the Operator of the Mnazi Bay
Concession and to the external lenders thus allowing for certain flexibility in
the precise timing of settling obligations.
During the remainder of 2017 and 2018, the Company expects to have no
significant capital commitments relating to exploration and development
activities in Tanzania. Anticipated development capital spending is limited to
approximately $0.8 million for general field development maintenance capital. In
Mozambique, spending on appraisal activities is expected to be limited to
completing the necessary technical work to support drilling of an appraisal well
in 2018, costs associated with securing an industry farm-in partner and
administrative and support costs for managing the operation under the Rovuma
Onshore Block in Mozambique.
Outlook
Realized gas sales during Q3 2017 were the highest quarterly sales volumes in
the Company's history and the Company expects gas demand to grow in the coming
months with the commissioning and start-up of the Kinyerezi-II power station and
commencement of delivery of gas to the Dangote cement plant. Wentworth is well
positioned to meet this growing demand as there is sufficient Mnazi Bay gas
immediately available to produce thereby allowing for immediate delivery, along
with a long-term gas sales agreement to deliver up to 130 MMscf/d which is well
in excess of the current 60 MMscf/d production rate. The primary challenge
continues to be the receipt of regular and timely cash receipts for gas sales
made to TPDC and TANESCO. While the timeliness of cash receipts from TANESCO
has improved since the start of 2017, settlement of invoices for gas sales made
to TPDC, remains at between four and five months. The Company continues to
effectively manage working capital and is working with debtors and creditors to
match cash receipts with the settlement of liabilities. While the Company
expects the situation to improve within the next 12 months, significant effort
and patience will need to be exercised by all parties.
With the support of the Government of Mozambique, the Company plans to proceed
with drilling an appraisal well and seeking an industry partner to participate
in the Rovuma Onshore Block. With information generated from analyzing the
Tembo-1 well results, reprocessing existing seismic data and remapping the
structure, there is sufficient information available to support drilling of an
appraisal well, thereby deferring acquisition of new 2D seismic until after
drilling. The Company anticipates securing an industry partner prior to
commencing drilling operations in 2018.
About Wentworth Resources
Wentworth Resources is a publicly traded (OSE:WRL, AIM:WRL), independent oil &
gas company with: natural gas production; exploration and appraisal
opportunities; and large-scale gas monetisation initiatives, all in the Rovuma
Delta Basin of coastal southern Tanzania and northern Mozambique.
Inside Information
The information contained within this announcement is deemed by Wentworth to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) no. 596/2014 ("MAR"). On the publication of this announcement via a
Regulatory Information Service ("RIS"), this inside information is now
considered to be in the public domain.
Cautionary note regarding forward-looking statements
This press release may contain certain forward-looking information. The words
"expect", "anticipate", believe", "estimate", "may", "will", "should", "intend",
"forecast", "plan", and similar expressions are used to identify forward looking
information.
The forward-looking statements contained in this press release are based on
management's beliefs, estimates and opinions on the date the statements are made
in light of management's experience, current conditions and expected future
development in the areas in which Wentworth is currently active and other
factors management believes are appropriate in the circumstances. Wentworth
undertakes no obligation to update publicly or revise any forward-looking
statements or information, whether as a result of new information, future events
or otherwise, unless required by applicable law.
Readers are cautioned not to place undue reliance on forward-looking
information. By their nature, forward-looking statements are subject to numerous
assumptions, risks and uncertainties that contribute to the possibility that the
predicted outcome will not occur, including some of which are beyond Wentworth's
control. These assumptions and risks include, but are not limited to: the risks
associated with the oil and gas industry in general such as operational risks in
exploration, development and production, delays or changes in plans with respect
to exploration or development projects or capital expenditures, the imprecision
of resource and reserve estimates, assumptions regarding the timing and costs
relating to production and development as well as the availability and price of
labour and equipment, volatility of and assumptions regarding commodity prices
and exchange rates, marketing and transportation risks, environmental risks,
competition, the ability to access sufficient capital from internal and external
sources and changes in applicable law. Additionally, there are economic,
political, social and other risks inherent in carrying on business in Tanzania
and Mozambique. There can be no assurance that forward-looking statements will
prove to be accurate as actual results and future events could vary or differ
materially from those anticipated in such statements. See Wentworth's
Management's Discussion and Analysis for the year ended December 31, 2016,
available on Wentworth's website, for further description of the risks and
uncertainties associated with Wentworth's business.
Notice
Neither the Oslo Stock Exchange nor the AIM Market of the London Stock Exchange
has reviewed this press release and neither accepts responsibility for the
adequacy or accuracy of this press release.
This information is subject of the disclosure requirements pursuant to section
5-12 of the Norwegian Securities Trading Act.