Interim Results for six-months ended 31 Dec 2021

25 March 2022

The Parkmead Group plc

("Parkmead", "the Company" or "the Group")

Interim Results for the six-month period ended 31 December 2021

Parkmead, the independent energy group focused on growth through gas, oil and renewable energy projects, is pleased to report its interim results for the six-month period ended 31 December 2021.

HIGHLIGHTS

Revenue tripled, gross profit up 389% and profits recorded at operating and pre-tax levels

·      Revenue tripled to £4.6 million for the period (2020: £1.5 million) as the Company benefited from the continued increase in gas prices

·      Gross profit increased by 389% to £3.8 million (2020: £0.8 million), demonstrating the high-quality nature of Parkmead's onshore Netherlands assets and strong operating leverage

·      Gross profit margin increased to 82% (2020: 50%)

·      Operating profit achieved of £1.9 million (2020: £1.1 million loss) or 1.7p on a per share basis

·      Profit before tax of £1.3 million (2020: £1.4 million loss)

·      Well capitalised, with cash balances of US$32.2 million (£24.1 million) as at 31 December 2021, equivalent to 22.1 pence per share

·      Net cash generated from operating activities of £1.7 million (2020: £0.3 million used in operating activities)

·      Total assets of £80.5 million at 31 December 2021 (2020: £86.8 million)

·      The strong recovery in gas prices continued during the period with prices in June 2021 of around €25/MWh, increasing to around €95/MWh in December 2021

·      Due to ongoing geopolitical events, the current gas price has reached €160/MWh in March 2022; Parkmead is 100% unhedged

New two-well drilling campaign in the Netherlands; gas royalty acquisition proving highly beneficial

·      Firm budget agreed for the 'LDS' two-well drilling campaign from the Diever site

·      The LDS project will target a combined Pmean GIIP of 37.2 billion cubic feet ("Bcf"), in the prolific Rotliegendes reservoirs found on the licence

·      Papekop gas development has successfully progressed through the concept select gate and is now in the permitting stage; planned gas development targeting 35.6 Bcf of gross reserves with oil upside

·      Acquisition of Netherlands gas royalty completed in July 2021 for a consideration of €565k, doubling Parkmead's effective financial interest from 7.5% to 15% in the Grolloo, Geesbrug and Brakel gas fields

·      Parkmead is benefitting strongly from this gas royalty deal, completed ahead of the recent increase in energy prices

·      Low-cost onshore gas portfolio in the Netherlands produces from four separate gas fields with an average field operating cost of just US$8.6 per barrel of oil equivalent, generating strong cash flows

·      Average netback over the six-month period to 31 December from the Netherlands of approximately $72.9 per barrel of oil equivalent

·      Average gross production for the period across the Group's Netherlands assets was 22.2 MMscfd, approximately 3,810 barrels of oil equivalent per day ("boepd")

Oil price upside from Perth project; excellent progress on large Skerryvore prospect

·      Every $10/bbl increase in the long-term oil price assumption adds approximately £130 million to the modelled P50 post-tax NPV of the Perth field development alone

·      Parkmead is assessing commercial offers received for the potential tie-back of the Greater Perth Area ("GPA") and is in discussions with operators in the GPA vicinity where new opportunities have arisen

·      GPA has the potential to deliver 75-130 million barrels of oil equivalent ("MMBoe") on a P50 basis

·      Extension to the Skerryvore licence has been successfully awarded to Parkmead (as operator) and joint venture partners

·      Completed reprocessing of Skerryvore 3D seismic, allowing final rock physics and inversion scopes to begin

·      Multiple exploration and development activities centred around Skerryvore prospect in 2021/22

·      Skerryvore's main prospects are three stacked targets, at Mey and Chalk level, which together could contain 157 MMBoe

Operational wind farm acquired, delivering immediate electricity revenue

·      Acquisition of 1.5MW onshore wind farm in Scotland through purchase of Kempstone Hill Wind Energy Limited ("KHWEL") for £3.29 million in cash (post period end)

·      The Kempstone Hill wind farm provides power for up to 1,000 homes and has an attractive inflation-linked, Feed-in Tariff through until 2036

·      Electricity is sold through a power purchase agreement which provides valuable upside through rising wholesale electricity prices

·      It is expected that annual PPA redetermination will capture increased electricity prices

·      This acquisition significantly increases Parkmead's presence in the renewable energy and electricity markets

Substantial oil and gas reserves

·      2P reserves of 45.6 MMBoe as at 1 March 2022 (45.7 MMBoe as at 1 March 2021)

Well positioned for further acquisitions and opportunities

Parkmead's Executive Chairman, Tom Cross, commented:

"I am delighted to report excellent growth in the six-month period to 31 December 2021. We have delivered a tripling of our revenue, led by our high-quality Dutch assets and the significant rise in gas prices.

The innovative royalty deal we completed last summer is proving to be highly advantageous and is adding considerable value to Parkmead. Parkmead is 100% unhedged and is directly benefitting from these additional gas sales at higher prices.

We now plan to increase our activity in the Netherlands with a firm drilling campaign planned for 2022/23.

Parkmead's acquisition of the Kempstone Hill wind farm provides another revenue-generating asset to the Group, which has a long-life and a very steady stream of cash flow. This operational wind farm is complementary to our earlier stage, high-upside renewable energy projects.

Our team continues to carefully evaluate further potential gas, oil and renewable energy acquisitions that would enhance our existing business.

Parkmead is well positioned for the future. We have excellent UK and Netherlands regional expertise, strong financial discipline, and a growing portfolio of high-quality assets. The Group will continue to    build upon the inherent value in its existing interests with a balanced, acquisition-led, growth strategy to secure opportunities that maximise future value for our shareholders"

Enquiries:

Financial Performance

During the six-month period to 31 December 2021, the Group tripled its revenue to £4.6 million (2020: £1.5 million). This large increase was driven by the significant uplift in gas prices, with prices rising from around €25/MWh in June 2021 to approximately €95/MWh in December 2021. In addition, the Company benefitted from a greater proportion of production from certain of its licences in the Netherlands following the completion of the gas royalty acquisition in July 2021. Gross profit increased by 389% to £3.8 million (2020: £0.8 million), demonstrating the high-quality nature of Parkmead's onshore Netherlands, assets and strong operating leverage. An outstanding gross profit margin of 82% was achieved as a result (2020: 50%).

Due to ongoing geopolitical events, the current TTF gas price has reached €160/MWh. Parkmead remains 100% unhedged, thus giving exposure to these higher Dutch gas prices for the remainder of the year.

Parkmead delivered an operating profit of £1.9 million for the half year (2020: £1.1 million loss), or 1.7p on a per share basis. The Group moved into profit before tax of £1.3 million (2020: £1.4 million loss). Taxation for the period was £1.7 million (2020: £0.2 million), mainly due to the very low Netherlands cost base and payment timing. Net cash generated from operating activities was £1.7 million (2020: £0.3 million used in operating activities). Administrative expenses amounted to £1.5 million (2020: £1.1 million).

Parkmead's total assets as at 31 December 2021 stood at £80.5 million (2020: £86.8 million). Parkmead is very carefully managed and maintains a strong financial discipline. Cash and cash equivalents at 31 December 2021 were £24.1 million (30 June 2021: £23.4 million), equivalent to 22.1 pence per share. Interest bearing loans receivable were £2.9 million (2020: £2.9 million). Debt was reduced significantly during the period to £0.5 million (2020: £3.1 million).

Review of Activities

Parkmead has delivered substantial growth in its high-quality asset portfolio across the UK and the Netherlands.

High-quality Netherlands asset base

In July 2021, Parkmead completed the acquisition of a gas royalty associated with the Group's existing interests in the Drenthe IV, Drenthe V and Andel Va licenses in the Netherlands from Vermilion Energy. These licences contain the Grolloo, Geesbrug and Brakel onshore gas fields, respectively.

The acquisition doubled the Group's effective financial interest from 7.5% to 15% (in line with Parkmead's working interest in the licences). This royalty was previously held by NAM (a Shell and ExxonMobil joint venture) and came with the licences when they were acquired by Parkmead. The consideration for the royalty was €565k.

The acquisition is already proving to be of significant benefit to Parkmead as it was completed ahead of the recent increase in energy prices. It is expected that the royalty deal will also significantly extend the producing life of these fields, through greater partner alignment.

Parkmead and its joint venture partners have now agreed a firm budget which includes a new two-well drilling campaign, expected to take place in late 2022/early 2023, targeting the LDS-A-SW, LDS-A-CE and LDS-B prospects (previously named Leemdijk and De Bree). Drilling will target up to 37.3 Bcf of gross gas resources, on a Pmean basis, in the prolific Rotliegendes reservoirs found on the licence (CoS of between 40 and 49%). If successful, the prospects offer a fast-track tie-in opportunity.

Our Netherlands production was some of the most efficient and profitable in Europe during 2021, on a per-barrel basis. Production across the fields remained uninterrupted throughout national and local COVID-19 lockdowns. Average gross production for the period across the Group's Netherlands assets was 22.2 MMscfd, approximately 3,810 barrels of oil equivalent per day ("boepd").

The operating cost of the combined fields is very low at just $8.6 per barrel of oil equivalent. These high-quality assets, combined with the operating leverage from a fixed cost base, underpins the outstanding gross profit margin during the period and allows us to invest in further opportunities. Parkmead's onshore gas production continues to form a key part of the Group and an important role in our transition to a lower-carbon environment. On our Drenthe VI licence, the Diever gas field remains in the top three most prolific producing onshore fields in the Netherlands. Given the production from Parkmead's Netherlands assets, especially in the context of current gas prices, a key near term focus for the Company will be to maximise the opportunities within these licences. The planned two-well drilling campaign is part of this strategy.

Finally, we are pleased to report that our Papekop development has successfully progressed through the concept select gate and we will now carry out further engineering studies and continue the permitting process. Transportation discussions are also maturing. A potential gas development is planned at Papekop targeting 35.6 Bcf of gross reserves, with oil upside.

UK Oil and Gas Projects

Greater Perth Area ("GPA")

The Greater Perth Area (GPA) development continues to form a part of our balanced portfolio of assets. Transportation studies for our base case development concept were previously completed. These have confirmed there are no technical hurdles associated with the transportation and processing of fluids from the Perth producing wells all the way through the offshore infrastructure to the onshore facilities. Parkmead continues to engage with leading, supply chain companies in order to optimise the commercial solution. 

Parkmead is assessing draft commercial offers received from the Scott field partnership for the potential tie-back of the GPA project. Scott lies just 10km southeast of the GPA project and a tie-back could yield a number of mutually beneficial advantages for both the Scott partnership and Parkmead. A tie-back to Scott is just one path to potentially unlock the substantial value of the GPA project.

The GPA project has the potential to deliver 75-130 MMBoe on a P50 basis. For the Perth field development alone, every $10/bbl increase in the long-term oil price assumption adds approximately £130 million of value to the modelled P50 post-tax NPV of the project. We believe that projects like GPA play an important role in underpinning the supply of energy that the UK requires in its transition to net zero. As a fuel that is primarily used for transportation, manufacturing and petrochemicals, oil will continue to feature as a vital commodity in the UK over the coming years. Therefore, it is very important that the UK continues to develop such projects in order to reduce reliance on less-regulated, more carbon-intensive imports. Parkmead believes that production of hydrocarbons from GPA can be done in a sustainable fashion in alignment with the UK government's most recent targets on carbon emissions. 

Skerryvore

An extension to the Skerryvore licence, P.2400, was successfully awarded to Parkmead and its joint venture partners during the period. The joint venture has made excellent progress over the last 12 months, having completed reprocessing of the 3D seismic, rock physics, inversion, biostratigraphy and geochemistry scopes. Volumetrics and economics are currently being finalised ahead of a drilling decision.

The acreage around Skerryvore is currently seeing important activity on several fronts, with Harbour Energy close to a Final Investment Decision on the adjacent Talbot discovery, NEO continuing with the redevelopment of Affleck and Shell recently spudding the nearby Edinburgh well (March 2022). Development activity is also taking place in the Norwegian sector and in close proximity to Skerryvore at Tommeliten A (ConocoPhillips). Skerryvore's main prospects are three stacked targets, at Mey and Chalk level, which together could contain 157 million barrels of oil equivalent ("MMBoe"). Parkmead operates the Skerryvore licence with a 30% working interest. Our joint venture partners in the licence are Serica Energy (20%), CalEnergy Resources (20%) and NEO Energy (30%).

UK Renewables Portfolio

On 31 January 2022, Parkmead completed a major expansion of its UK renewable energy portfolio through the acquisition of Kempstone Hill Wind Energy Limited ("KHWEL"). This provides Parkmead with its first operational renewable energy asset, a 1.5MW wind farm in Scotland, which provides power for up to 1,000 homes.

The total consideration comprised £3.29 million in cash. In addition, Parkmead assumed a project loan of approximately £990k and £300k of cash within KHWEL on acquisition (which becomes a subsidiary of the Group).

The wind farm has an attractive inflation-linked, Feed-in Tariff through until 2036. Electricity is sold through a power purchase agreement which provides exposure to rising wholesale electricity prices. We anticipate that a new PPA, taking effect in Q3 2022, means that Parkmead should benefit from the considerable increase in electricity prices.

The acquisition of this wind farm sits well within the Board's strategy and increases the Group's presence in this rapidly growing sector. Furthermore, the Board believes that, as a successful wind farm already connected to the grid, the Group will benefit from Kempstone Hill's established relationships and expertise as it looks to advance the Group's other renewable energy opportunities.

Within its existing renewable energy portfolio, Parkmead has identified substantial wind energy potential at one location, some 15 miles west of Aberdeen. The acreage has excellent average wind speeds and lies adjacent to the Mid Hill Wind Farm which contains 33 Siemens wind turbines with a generating capacity of around 75 megawatts (MW). Technical studies are underway on this site.

Outlook

Parkmead has delivered significant growth across its portfolio in the six-month period to 31 December 2021 and in the three months post period end. This had been achieved whilst maintaining the Group's healthy financial position. The Directors believe that there are excellent opportunities to increase production from its Netherlands assets and we are focused on working with our partners in the Netherlands to drive forward a two-well drilling campaign. The current gas price environment provides excellent opportunities to capitalise on the low cost of production from these interests.

We are pleased with the Group's continuing progress in building a high-quality business of increasing breadth and scale. Parkmead has a strong core of profitable gas production and a balanced portfolio with significant growth potential.

As we move further into 2022, Parkmead maintains its appetite for acquisitions and is carefully analysing a number of opportunities. The Board is confident that the Parkmead team is well positioned to drive the business forward and to build upon the achievements already made to date.

Tom Cross

Executive Chairman

25 March 2022

Notes:

1.   Tim Coxe, Parkmead Group's Managing Director, North Sea, who holds a First-Class Master's Degree in Engineering and over 30 years of experience in the oil and gas industry, has overseen the review and approval of the technical information contained in this announcement. Tim is accountable for the company's HSE, Subsurface, Drilling, Production Operations and Development Project functions. Reserves and contingent resource estimates have been produced by Parkmead's subsurface team and are stated as of 1 March 2022. Parkmead's evaluation of reserves and resources was prepared in accordance with the 2007 Petroleum Resources Management System prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers and reviewed and jointly sponsored by the World Petroleum Council, the American Association of Petroleum Geologists and the Society of Petroleum Evaluation Engineers.

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