Strategic report

 

Strategy and business model 

 

Reabold invests in the E&P sector. The Company's investing policy is to acquire direct and indirect interests in exploration and producing projects and assets in the natural resources sector, and consideration is currently given to investment opportunities anywhere in the world.  

 

As an investor in upstream oil and gas projects, Reabold aims to create value from each asset by investing in undervalued, low-risk opportunities with near-term activity and by identifying potential monetisation plans prior to investment. 

 

Reabold's long-term strategy is to re-invest capital generated through monetisation of its investments into new projects in order to grow the Company and create value for its shareholders. Reabold aims to gain exposure to assets with limited downside and high potential upside, capitalising on the value created between the entry stage and exit point of its projects. The value realisation of a project is determined by monetising the asset (putting it into production or selling it).  The value increase of an asset from the acquisition entry point to monetisation is achieved through successful appraisal and/or development drilling.   

 

Reabold's non-operator model helps to keep costs low and allows the Company to manage a diversified portfolio.   

 

Reabold has a specific strategy to fund other operators' appraisal wells where the Company has assessed such opportunities to be high quality, high return projects from previous drilling activity that has de-risked the asset.  The projects targeted have relatively quick cycle times to monetisation as the projects are in areas with access to infrastructure and services. 

 

In order to maximise the return profile, identifying the optimal time to exit a project is critical to Reabold's strategy. Doing so effectively will allow the Company to scale and attract more capital over time thereby creating value for the Company's shareholders. Monetisation of investments is determined by, amongst other factors, the extent of successful activity in the project area and industry and capital market conditions. Pathways to monetisation include: 

 

i)              an asset sale or IPO; and/or 

ii)             putting the asset into production. 

                       

Reabold has a highly-experienced management team, which possesses the necessary background, knowledge and contacts to carry out the Company's strategy. The biographies of the Board are summarised on pages 20-21.  Management believes that distress in the oil and gas industry over several years presents an opportune time to deploy capital in undervalued assets with huge potential.

 

Reabold portfolio and operational annual summary

 

Rathlin Energy (UK) Limited / PEDL183

 

2021 was an extremely important year for Reabold's involvement in the West Newton project, as well as the broader Zechstein play in the PEDL183 licence area.  During the year, extensive testing was carried out at both the B-1Z and A-2 discovery wells, which is leading to a significant increase in our understanding of the Kirkham Abbey formation in the West Newton field.  We continue to formulate optimised drilling and completion techniques for the future West Newton production wells, and thoughts are moving on to development planning.    

 

Reabold holds a c. 56% economic interest in West Newton via its c. 59% shareholding in Rathlin, which, in turn, has a 66.67% interest in PEDL183. In addition, Reabold has a 16.665% direct licence interest in PEDL183.

 

West Newton B-1Z testing: 

 

On 20 March 2021, Reabold announced that Rathlin had received a draft of the permit variation from the Environmental Agency that was needed to accommodate completion, well clean-up and EWT operations.  The first phase of the evaluation would commence in April 2021 and initially consist of a customised cased hole logging programme and vertical seismic profiling survey, before moving onto the main EWT operations.  On 20 April 2021, Reabold announced that the first phase was complete and that the EWT phase would commence during May with an anticipated four week duration, and on 25 May 2021 it was announced that equipment had been mobilised to site. Reabold also announced on 20 April 2021 that thin section images obtained from core plugs taken from West Newton B-1Z showed porosity throughout the core including samples of between 12% and 15% porosity.

 

On 21 July 2021, Reabold announced that well testing operations had commenced on 7 June, with an initial focus on the lower portion of the Kirkham Abbey pay zone.  Significant inflow of completion fluids into and subsequently out of the reservoir indicated a functioning permeability system, and liquids and gas were recovered to surface. Gas analyses exhibited a strong similarity to analyses obtained from the West Newton A site wells with samples showing approximately 90% methane and no native H₂S.  An additional 19 metre pay zone in the upper Kirkham Abbey formation was identified for perforation and flow testing. 

 

On 31 August 2021, Reabold announced a further update to the test programme at B-1Z.  Testing of the well had yielded significant information to help understand the West Newton field, with both gas and liquid hydrocarbons recovered to surface, which is consistent with information gathered from the A site wells and further evidence that we have a substantial hydrocarbon column and resource in place.  As expected, the reservoir demonstrated a dual permeability system, with natural fractures alongside a lower permeability matrix.  Completion fluids were injected into the formation at a rate constrained by the pumps on site at 5.7 barrels per minute (8,208 barrels per day).

 

However, the Kirkham Abbey reservoir appeared to be sensitive to the drilling and completion fluids.  We saw clear signs of reservoir damage in near wellbore areas.  This was probably preventing more significant flow at that time. Testing to date had not yet returned all the completion fluids injected into the formation and a measurable flow of hydrocarbons had not yet been achieved.

 

The B-1Z well was therefore suspended with pressure gauges monitoring pressure build up in the well bore, with a view to further potential testing following the results at the A-2 well.

 

West Newton A-2 testing: 

 

On 13 October 2021, following the conclusion of testing at the A-2 well, Reabold provided a further update in respect of the overall testing operations at West Newton. 

 

The results of the EWT confirmed that the WNA-1, WNA-2 and WNB-1z wells are substantial hydrocarbon discoveries. Gas and light oil/condensate were recovered to surface from the WNA-2 and WNB-1z wells, although sustained flow rates were not achieved, and multiple samples were gathered for geochemical analysis.

 

The large suite of data accumulated during the EWTs including downhole logs, pressure data, geochemical and core analysis are being used to progress a reservoir modelling study to determine the optimum production design for the Kirkham Abbey reservoir.

 

A number of external studies, utilising the knowledge of specialist carbonate reservoir modelling consultants are being conducted, encompassing a wide range of potential reservoir stimulation treatments, the results of which could be applied to the West Newton series of wells, in order to achieve optimum flow rates.

 

The "Greater West Newton" area has been confirmed to contain material resources. The method by which to produce this known accumulation of hydrocarbons is still being assessed. 

 

This data will be used to inform the drilling of the next well on the West Newton field, which will be designed to deliver an optimal flow rate from the Kirkham Abbey formation.

 

West Newton Site Planning: 

 

On 22 January 2021, Rathlin received a Screening Opinion from the East Riding of Yorkshire Council in response to its screening request for the proposed West Newton A site extension.  The proposed extension of the existing WNA wellsite and associated work programme would provide for testing, appraisal and production from the two existing wells (WNA-1 and WNA-2) and the potential for drilling, testing, appraisal and production from up to six new wells on the WNA site over a 25-year period.  The East Riding of Yorkshire Council's Screening Opinion considered that the proposed development would not require an environmental impact assessment. On 22 March 2021, Reabold announced that Rathlin was carrying out a public consultation regarding the development of the WNA site.  

 

On 1 October 2021, Rathlin's planning application for the West Newton A well site expansion was refused by a narrow margin by The East Riding of Yorkshire Council Planning Committee, despite it being recommended for approval by The East Riding of Yorkshire Council's own planning officers.  On 26 November, Rathlin noted an intention to submit a new application, taking into account the concerns associated with the earlier application. 

On 17 March 2022, at an East Riding of Yorkshire Council Planning committee, planning applications for drilling and production at Rathlin's West Newton A site as well as a time extension to allow for further exploratory drilling at the West Newton B site were approved.  These approvals pave the way for the next phase of activity at West Newton as the partnership continues to move the project forward towards development.

 

West Newton CPR

 

On 10 May 2021, Reabold announced that Gaffney, Cline & Associates Limited, an international energy consultancy, had been appointed to prepare a Competent Person's Report in respect of PEDL183, to be executed following the testing of the B-1Z and A-2 wells.  Given the ambiguity associated with potential flow rates immediately following the testing operations, the execution of the CPR was put on hold whilst additional analysis was carried out.

 

Reabold California

 

Following an active five well drilling campaign in 2018-2019, the last two years focused on maintaining cash generative production throughout and beyond the oil price downturn. 

 

Most importantly, the decision was taken to explore ways in which Reabold could participate in ongoing growth of its business in California, by accessing external capital to facilitate additional drilling, without calling on Reabold's own cash resources, which are currently focused on other areas of the Reabold portfolio. 

 

This led to the agreement to merge Reabold California with Daybreak, a US OTC listed E&P business with producing assets in California.  This creates a California focused upstream entity with a larger footprint, significant running room across both sets of licences, and the ability to use its listing to raise capital to achieve growth. 

 

On 21 October 2021, Reabold announced the signing of a conditional equity exchange agreement with Daybreak, which would result in Reabold becoming a major shareholder of Daybreak via the issuance of new Daybreak shares to Reabold, in exchange for Daybreak acquiring Reabold California, Reabold's subsidiary which holds, inter alia, Reabold's licence interests in California.

 

Per the conditions of the Equity Exchange Agreement, prior to completion of the transaction, Daybreak is required to raise a minimum of US$2.5 million via an equity raise; the proceeds of which will be used to grow production across Daybreak's enhanced portfolio. In addition, Daybreak will be required to complete a conversion of certain of its debt into equity. On 20 May 2022, at a Special Shareholder Meeting for Daybreak, shareholders voted to approve the Equity Exchange Agreement. On 26 May 2022, Reabold announced the completion of the equity exchange agreement with Daybreak. Reabold California LLC, Reabold's subsidiary which holds, inter alia, Reabold's licence interests in California, has now become a wholly owned subsidiary of Daybreak, which, in exchange, has issued 160,964,489 new Daybreak shares to Gaelic Resources Limited, a wholly owned subsidiary of Reabold. Reabold now owns 42% of Daybreak's share capital, as enlarged by the completion of the transaction.

 

 

Transaction Rationale:

 

·      Creates a self-funded, OTC traded, Californian oil and gas operator, with a strong balance sheet, in which Reabold will have a major shareholding

 

·      Daybreak will utilise its existing in-state management team and expertise to grow the portfolio through development of existing licences as well as considering strategic acquisition opportunities

o  Daybreak's management team have 12 years' experience operating in California

o  Daybreak is led by James F. Westmoreland

 

·      With a clear focus in California, Daybreak can utilise significant market opportunities for consolidation in the state, creating further opportunities for synergistic growth

 

·      As a result of the transaction, Reabold's interests in California will be exchanged for shares of an OTC traded entity, creating flexibility and funding opportunities going forward

 

Reserves:

 

The proved reserves attributable to the California business, net to Reabold, are shown below:

 

	Oil bbl	Gas mcf	Total oil and gas boe*
1P reserves as at 1 April 2021	606,860	36,790	612,992

 

* Total gas reserves at 1 April 2021 have been converted to barrels of oil equivalent using a factor of 6.0 mcf per boe for reporting purposes.

 

Proved reserves at 1 April 2021 shown here have been extracted from an independent report prepared by Petrotech Resources Company Inc. ("Petrotech") in accordance with the reserve definitions guidelines defined in the Society of Petroleum Engineers (SPE) Petroleum Resources Management System 2007.

 

 

Operational update and production:

 

Production (net to Reabold)	2021	2020
Crude Oil (boe)	23,518	31,035
Natural gas (boe)	1,029	2,855
Total hydrocarbons (boe)	24,457	33,890
Average realizations
Total hydrocarbons ($/bbl)	65.4	38.4
Total hydrocarbons (net of royalties) ($/bbl)	52.3	30.7

 

Corallian Energy Limited

 

Reabold has a 49.99% equity holding in Corallian, a private UK oil and gas exploration and appraisal company, with an experienced in-house team to execute its programmes.  In addition to the Victory project, Corallian's project portfolio, includes the West of Shetland (Laxford discovery and Scourie prospect in Licence P2605, and the Sandvoe prospect in Licence P2493), the Viking Graben (Unst and Quoys prospects in Licence P2464, and the Oulton discovery in Licence P2504), the Inner Moray Firth (Dunrobin and Golspie prospects in Licence P2478) and in the Central Graben (Curlew-A discovery in Licence P2396). 

 

Victory Development Project 

  

We believe Victory to be a straightforward, low-risk gas development which has been fully appraised and requires no additional pre-development drilling. Victory is located near to existing local infrastructure, with the development of Victory expected to be via a single-well sub-sea tieback. The licence was originally offered to Texaco in 1972 and it drilled a discovery well in 1977 that flowed at circa 9 mmcf/d from 200 feet (circa 60.6 metres) of net gas pay in Lower Cretaceous sandstones, proving reservoir commerciality.

 

On 25 June 2021, Reabold announced the completion of the environmental baseline survey (EBS) at Victory.  Data acquisition for the Victory EBS was successfully completed on 23 June 2021, with the survey completed within the budget estimate and with zero health and safety incidents. Data acquired included side-scan sonar, multibeam echosounder, seabed sediment samples, and video and camera stills over the proposed project sites. This data was used to complete an Environmental Impact Assessment and ultimately an Environmental Statement for the Victory project.

 

On 20 October 2021, Reabold announced that a CPR had recently been completed by RPS, following the finalisation of both static and dynamic modelling, together with well / network optimisation studies for the development. RPS estimates a total Victory field 2C or best / mid case technically recoverable resource of 179 bcf dry gas. This estimate represents a 14% increase over the previous interim CPR completed by SLR Consulting in December 2020 of 157 bcf of technically recoverable gas.

 

On 23 December 2021, Corallian confirmed that it had submitted a draft FDP for the Victory gas field to the Oil and Gas Authority, now known as the North Sea Transition Authority.

 

Further investment in Corallian 

 

Reabold continued to invest in Corallian in 2021 mainly to support progression of the Victory project.  On 22 February 2021, Reabold announced that it had entered into a conditional convertible loan instrument (the "Instrument") with Corallian pursuant to which Reabold would advance £1 million to Corallian (the "Convertible Loan").  The completion of the transaction was announced on 24 February 2021.

 

Corallian intended to utilise the proceeds of the Convertible Loan to support workstreams related to the submission of a draft FDP for the Victory gas field, which Corallian had aimed to do before the end of 2021, and for general working capital purposes.

 

The Convertible Loan, including interest at a rate of 15% per annum (accruing daily), will convert into new ordinary shares in Corallian ("Corallian Shares") within 21 months from the date of the Instrument. If, during this period, Corallian is acquired, undertakes a material disposal of assets, an initial public offering or a reverse takeover, where the relevant valuation (each, a "Corporate Action") is greater than £3.20 per share, the Convertible Loan will convert at £3.20 per share. If the relevant valuation is below £3.20 per share, then the Convertible Loan will convert at a price equal to the relevant valuation.  If no such Corporate Action has taken place within 21 months, the Convertible Loan will automatically convert at a price of £1.50 per share.

 

On 3 March 2021, Reabold announced that it had initiated the sale of a portion of the convertible loan notes in Corallian with a principal value of £500,000, to a group of strategic investors (the "Strategic Investors"), in exchange for cash proceeds of £500,000. Reabold will retain £500,000 principal value of the CLN.

 

The Strategic Investors had indicated their support of an initial public offering, reverse takeover or similar for Corallian, which is in line with Reabold's strategy of clearly identifying monetisation opportunities across its portfolio. The strategic investors also signalled their intention to support Reabold in facilitating further potential strategic value creation opportunities across the wider Reabold portfolio.

 

On 27 April 2021, Reabold announced a conditional offer to acquire up to an additional 13.12% of Corallian, at a ratio of 474 Reabold shares for 1 Corallian share, potentially increasing Reabold's shareholding in Corallian to a maximum of 49.99%. 

By increasing its position in Corallian, Reabold increased its economic interest in the 100% Corallian-owned Victory Gas Discovery, West of Shetland, in which Reabold management sees significant value.

 

On 10 May 2021, Reabold announced that the offer had been oversubscribed and all conditions precedent fulfilled.  As such, Reabold acquired 989,439 Corallian shares, equivalent to 13.12% of Corallian, and issued 468,994,086 Reabold shares.

 

Corallian Strategic Review

  

On 20 October 2021, Reabold announced that Corallian had decided to conduct a formal review of the various strategic options available to maximise value for all of its shareholders. In May 2022, as noted in the Chairman's Statement, we announced that Corallian had received a non-binding, conditional offer to acquire the Victory Project held by Corallian, by way of the acquisition of 100% of the issued capital of Corallian. As part of the sale process, Reabold announced that it had entered into a conditional SPA to acquire Corallian's working interest in all the non-Victory licences within the Corallian portfolio for a cash consideration of £250,000.

 

Danube Petroleum Limited

 

Reabold has a 50.8% equity interest in Danube, with ASX listed ADX Energy Ltd ("ADX") holding the remaining 49.2%. Danube is active in Romania through its ownership of the Parta Licence.  Danube has a 100% interest in the Parta licence as well as the Iecea Mare production licence which includes the IMIC-1 discovery drilled in 2019.

 

A planned 3D seismic work programme is designed to target appraisal opportunities within the Iecea Mare production licence as well as both exploration and appraisal targets in the large Parta exploration licence.  The Parta 3D seismic programme was deferred in September 2020 following the default by ASK listed Tamaska Oil & Gas Limited pursuant to a farm-in agreement to fund a 100 km² 3D seismic program.

 

On 21 June 2021, Reabold and ADX announced that the Romanian National Agency for Mineral Resources had approved an 18-month work programme extension of the current phase 1 (exploration phase) for the Parta exploration licence. The extension was granted without additional work programme obligations. 

 

Funding

 

During the reporting period, Reabold carried out an equity capital raise in January 2021, raising gross proceeds of £7.5 million.  Such fundraise was completed at a price of 0.55 pence per new Ordinary Share, representing a 2.8% premium to the mid-market closing price on 27 January 2021, being the last practicable closing price prior to the announcement of the fundraise. 

 

The net proceeds of the fundraise were to be used, alongside existing cash resources, to provide incremental capital to fund the Company's share of:  

i) additional appraisal and development activity at the Company's landmark West Newton project, potentially one of the largest oil and gas discoveries onshore UK, notably drilling and testing of the B-2 well; 

ii) activity to assess and define the prospectivity of the wider PEDL183 licence, which includes West Newton, including a seismic programme and exploration work to identify additional future drilling opportunities; 

iii) potential costs associated with the fully appraised Victory gas development, which was recently awarded to investee company, Corallian Energy, including an environmental assessment in order to move the development towards FDP; and 

iv) additional contingency to provide capital flexibility across the Company's investment portfolio and working capital. 

 

 

 

Section 172(1) statement

 

In accordance with the requirements of Section 172 of the Companies Act 2006, the directors consider that, during the financial year ended 31 December 2021, they have acted in a way that they consider, in good faith, would most likely promote the success of the company for the benefit of the members as a whole, having regard to the likely consequences of any decision in the long term and the broader interests of other stakeholders, as required by the Act. The board delegates day-to-day management of the business of the company to the Co-CEOs, save for those matters which are reserved for the board's approval. More information on how the board has regard to the Section 172 factors are outlined below.

 

S172(1) (A) "The likely consequences of any decision in the long term" 

 

The Board of Directors is collectively responsible for the decisions made towards the long-term success of the Company and the way in which the strategic, operational and risk management decisions have been implemented throughout the business is detailed in our Strategy and business model on page 5 and throughout the Strategic Report.

 

S172(1) (B) "The interests of the company's employees" 

 

During 2021, the only employees of the Company were three Executive Directors. In March 2022, the company hired its first employee, who is not a director. The Board recognises that Reabold employees, currently principally its executives, are fundamental and core to our business and delivery of our strategic ambitions. The success of our business depends on attracting, retaining and motivating employees. From ensuring that we remain a responsible employer, from pay and benefits to our health, safety and workplace environment, the Directors factor the implications of decisions on employees and the wider workforce, where relevant and feasible. The Board ensures that:

·      It has meaningful and regular dialogue with the workforce to capture key insights and to bring the employee voice into the boardroom.

·      Annual pay and benefit reviews are carried out to determine whether all levels of employees are benefitting fairly and to retain and encourage skills vital for the business.

·      Employees are informed of the results and important business decisions and are encouraged to feel engaged and to improve their potential.

·      Working conditions are favourable.

 

S172(1) (C) "The need to foster the company's business relationships with suppliers, customers and others" 

 

Delivering our strategy requires strong mutually beneficial relationships with suppliers, customers, governments, and joint-venture partners. We aim to have a positive and enduring impact on the communities in which we operate, through partnering with national and local suppliers, and through payments to governments in taxes and other fees.  The Group values all of its suppliers and aims to build strong positive relationships through open communication and adherence to trade terms.  The Group is committed to being a responsible entity and doing the right thing for its customers, suppliers and business partners. The Board upholds ethical business behaviour across all of the Company's activities and encourages management to seek comparable business practices from all suppliers and customers doing business with the Company. We value the feedback we receive from our stakeholders and we take every opportunity to ensure that where possible their wishes are duly considered.   

 

Ultimately, Board decisions are taken against the backdrop of what it considers to be in the best interest of the long-term financial success of the Group and its stakeholders, including shareholders, employees, the community and environment, our suppliers and customers. We value our customer relationships and aim to work closely with our customers to develop and maintain strong relationships, and understand their evolving needs so that we can improve and adapt to meet them. 

 

More information on this can be found below within our Environmental, Social and Governance (ESG) Statement. 

 

S172(1) (D) "The impact of the company's operations on the community and the environment" 

 

This aspect is inherent in our strategic ambitions, most notably on our ambitions to thrive through the energy transition and to sustain a strong societal licence to operate. As such, the Board receives information on these topics to both provide relevant information for specific Board decisions.  Executive Directors conducted site visits of various investee company operations and held external stakeholder engagements, where feasible. 

 

Given the tragic events in Ukraine, the need to supply our own energy is more important than ever. As outlined by the Secretary of State for Business, Energy and Industrial Strategy, those calling for an immediate end to domestic oil and gas ignore the fact that this would simply make the UK more reliant on foreign imports - it would not, in fact, lead to greater decarbonisation globally. Producing more of our own energy will protect us into the future to ensure greater energy independence.

 

More information on this can be found below within our Environmental, Social and Governance (ESG) Statement. 

 

S172(1) (E) "The desirability of the company maintaining a reputation for high standards of business conduct" 

 

The Company is incorporated in the UK and governed by the Companies Act 2006. The Company has adopted the Quoted Companies Alliance Corporate Governance Code 2018 (the "QCA Code") and the Board recognises the importance of maintaining a good level of corporate governance, which together with the requirements to comply with the AIM Rules ensures that the interests of the Company's stakeholders are safeguarded.

 

Reabold aims to achieve the production of hydrocarbons that meet the world's growing need for energy solutions in ways which are economically, environmentally and socially responsible. The Board periodically reviews and approves clear frameworks, such as Reabold's Code of Conduct, and specific Ethics & Compliance policies, to ensure that its high standards are maintained both within Reabold and the business relationships we maintain. This, complemented by the various ways the Board is informed and monitors compliance with relevant governance standards, help ensure its decisions are taken and that Reabold investee companies act in ways that promote high standards of business conduct. 

 

S172(1) (F) "The need to act fairly as between members of the company" 

 

The Board is committed to maintaining good communication and having constructive dialogue with its shareholders. The Company has close ongoing relationships with its private shareholders. Institutional shareholders and analysts have the opportunity to discuss issues and provide feedback at meetings with the Company. All shareholders are encouraged to attend the Company's Annual General Meeting and any general meetings held by the Company, subject to any COVID-19 restrictions.

 

The primary communication tool with our shareholders is through the Regulatory News Serviced ("RNS") on regulatory matters and matters of material substance. The Company's website provides details of the business, investor presentations and details of the Board and Board Committees, changes to major shareholder information and QCA Code disclosure updates under AIM Rule 26. Changes are promptly published on the website to enable the shareholders to be kept abreast of Company's affairs. The Company's Annual Report and Notice of Annual General Meetings are available to all shareholders. The Interim Report and investor presentations are also available on our website.  

 

Culture 

 

Whilst Reabold currently comprises a small team of people, the Board recognises that it has an important role in assessing and monitoring that our desired culture is embedded in the values, attitudes and behaviours we demonstrate, including in our activities and stakeholder relationships. The Board has established honesty, integrity and respect for people as Reabold's core values. 

 

Principal decisions 

 

We outline some of the principal decisions made by the Board over the year, and how directors have performed their duty under Section 172.

 

Additional investment in Corallian

 

The Board approved to acquire an additional 13.12% in Corallian. The decision was made with due regard to Reabold's financial framework and it was determined that this could add further value to shareholders.

 

Creation of Enhanced California E&P Company

 

The Board approved the equity exchange agreement with Daybreak resulting in Reabold becoming a major shareholder in Daybreak in exchange for Daybreak acquiring Reabold California. The decision was made to create a self-funded Californian operator that can utilise significant market opportunities for consolidation in the state, creating further opportunities for synergistic growth, offering potential upside for the Group and its shareholders.

 

Environmental, Social and Governance (ESG) Statement

 

Reabold is committed to preserving and protecting our natural environment for future generations. We conduct our business in a manner that respects the environment and addresses climate challenges. Our focus is on minimising our emissions and footprint whilst continuing to contribute positively to the growing demand for energy and products that require hydrocarbons in the supply chain.  

 

While the pace of transition to a lower carbon economy is uncertain, oil and natural gas demand is expected to remain a key element of the energy mix for many years based on stated policies, commitments and announced pledges to reduce emissions. The challenge is to meet the world's energy needs sustainably, which requires managing and reducing harmful emissions. Reabold actively encourages and expects its investee companies / operators of its oil and gas interests to respond to this by continuously striving to minimise the potential environmental impact of operations by:  

o  Implementing controls to identify and prevent potential environmental risks  

o  Implementing controls during operations to avoid accidental spills, or leaks of polluting materials  

o  Managing water with due consideration  

o  Targeting high energy efficiency levels in drilling and other activities  

o  Limiting unnecessary wastage  

o  Handling waste products in an environmentally responsible manner  

o  Regularly assessing the environmental consequences of operations  

 

The operators have developed systems, controls and processes to integrate climate related considerations, in order to meet these objectives. Reabold complies with the applicable standards of the international oil industry, environmental laws and regulations. We recognise and support the basis of the Paris Agreement to strengthen the global response to the threat of climate change. Furthermore, extraction activities at sites in which Reabold is invested are significantly lower in carbon intensity than the industry average.  

 

Our growth strategy consists of expanding our existing asset base and to developing the world's limited but proven reserves of hydrocarbon fuels in the most efficient and sustainable manner possible.  

 

Reabold's assets are primarily small to medium sized, proven oil and gas fields at relatively shallow depth. As such, the intensity of drilling required is considered low relative to industry standards and we do not conduct energy intensive prospecting activities, reducing the impact on the environment. We continue to seek the most energy efficient drilling methods are utilised by the operators of our interests and as the energy mix evolves towards a higher percentage of renewables in the countries in which we operate (e.g. increasing wind power in the UK and Romania, solar in California), we anticipate a greater share of the energy consumption will be purchased from green sources.  

 

United Kingdom  

 

Our investee company sites in the United Kingdom are located close to areas with a high demand for energy. Consequently, we expect that hydrocarbons produced locally and consumed locally will displace imported hydrocarbons thereby resulting in lower carbon emissions overall. This will provide security of supply to the UK under a strict regulatory environment as well as providing jobs and supporting UK industry, compared to the alternative of importing fuel. The COVID-19 pandemic highlighted the importance of our critical national infrastructure and this has become even more apparent in recent times with the war in Ukraine.

 

We believe that natural gas has an important role to play in the energy transition, bridging the gap on the journey from fossil fuels to a renewable, zero-carbon future and helping to supply stable and affordable energy to UK homes and businesses as part of a lower-carbon energy supply mix. To that end, we continue to explore ways to invest in gas projects such as the Victory project.

 

Reabold is committed to being part of the overall reduction in carbon intensity in the UK. As part of this objective, in a significant environmental milestone for West Newton, we were very pleased with the West Newton development plan being given an AA rating by GaffneyCline in 2020 for carbon intensity, the best possible grade for low carbon emissions from potential upstream crude oil production. The study stated that the West Newton field has carbon intensities "significantly lower than the UK average and also compared to onshore analogues".  Based on the study, GaffneyCline estimated that West Newton could produce the equivalent of just 5 grams of CO₂ per megajoule of energy created ("gCO₂eq./MJ").  The study did not include the review of any carbon offsetting measures, which could further limit West Newton's net carbon emissions. The study also highlighted that this number could be further reduced to just 3.5 gCO₂eq./MJ by applying, inter alia, gas to grid technologies. The study used specific West Newton reservoir and fluid parameters, notional development plans and analogous field development plans. The result of this study was benchmarked against other field analogues using the Global field database. Reabold intends that the development at West Newton will seek to utilise the best fit for purpose technologies, including gas to grid technologies, and tight leak-rate specifications to minimise any venting, flaring or fugitive emissions.

 

California, USA

 

Reabold's investee company's US production sites are located in California, a state with very high renewable energy generation which feeds into the energy required for hydrocarbon extraction. By industry standards, our oil and gas activities require a very low level of energy to extract the hydrocarbons, ensuring it is one of the most energy efficient of its type in California. 

 

Romania

 

Romania is in the midst of creating a more sustainable energy mix by transitioning away from coal fired generation and ageing nuclear plants towards renewable energy sources. However, during this transition period, the country needs indigenously sourced natural gas as a fuel to ensure the security of supply of energy. By developing and producing gas from the Parta site, Danube Petroleum Limited is able to contribute to the country's efforts to implement this energy strategy.

 

Managing our environmental footprint and reducing our emissions are important objectives for Reabold Resources. We regularly review and revise our policies, as necessary.

 

Key performance indicators (KPIs)

 

The Group's main business is to invest in direct and indirect interests in exploration and producing projects. Reabold's long-term strategy is to re-invest capital generated through monetisation of its investments into new projects in order to grow the Company and create value for its shareholders. The Company tracks its new business development objectives through the building of a risk-balanced portfolio of assets. The company reviews its KPIs on an ongoing basis as it moves through the lifecycle of its strategy to ensure they continue to serve as a useful measure of our strategic performance.

 

Changes to KPIs

 

We have removed the commercial production KPI as it does not reflect the current position of the company in the lifecycle of its strategy. Reabold in an investor in E&P projects and therefore growth in net assets and total Shareholder Return serve as more useful measures of our strategic performance. The retention of key management KPI has also been removed as this is seen as a business risk rather than a performance indicator. See principal risks and uncertainties on pages 16-17.

 

The KPIs are:

 

KPI	Definition	Performance	Attainment
KPI 1	Grow value through material investments, project delivery and commercial discoveries	·      Acquired an additional 13.12% equity interest in Corallian bringing Reabold's total equity interest in Corallian to 49.99% increasing Reabold's position in the low-risk, high potential Victory Gas Discovery. ·      Draft FDP submitted by Corallian for the Victory gas field.	Achieved
KPI 2	Being adequately resourced for all corporate and JV-related financial matters sufficient for advancement of investment strategy	·      Oversubscribed placing and subscription at a premium to the market to raise £7.5m at 0.55p per share, supported by key existing and new institutional investors to support the Company's investment strategy.   ·      Reabold continues to have a healthy cash position and is fully funded for all intended activities and commitments in 2022.	Achieved
KPI 3	Growth in total net assets over the prior year	·      Net assets increased by £7.6 million from £38.9 million at the end of 2020 to £46.5 million at the end of 2021.	Achieved
KPI 4	Total shareholder return over a calendar year	·      The share price was down by 0.48p in the 2021 calendar year. ·      The share price rebounded in Q1 2022, increasing by 97% as at 31 March 2022.	Not achieved
KPI 5	Compliance with legal and regulatory requirements	·      The company successfully met all licence commitments relating to the company's asset portfolio during the year, maintained effective relationships at all levels with JV partners in compliance with Joint Operating Agreements (JOAs), operated within appropriate governance and HR policies, ensuring the Company had adequate in-house capability to manage its operations and third-party providers, and ensured all corporate legal obligations were met.	Achieved

 

 

Principal risks and uncertainties

 

The Company continuously monitors its risk exposures and reports to the board of directors (the "Board") on a regular basis.  The Board reviews these risks and focuses on ensuring effective systems of internal financial and non-financial controls are in place and maintained. 

 

Risks	Mitigation	Magnitude & likelihood
Strategic and Commercial risks
Investment Returns: Stock market support may be eroded lowering investor appetite and obstructing fundraising if we fail to scale our business at pace, make poor investment choices or fail to sustain and develop a high-quality portfolio of assets.	·      Management regularly communicates its strategy to shareholders. ·      Focus is placed on building a diverse and resilient asset portfolio capable of offering prospectivity throughout the business cycle. The Group continually reviews its portfolio of assets to identify internal growth opportunities. ·      The Company seeks to limit its financial dependence on any one single asset by holding a diversified portfolio and re-investing capital generated through monetisation of its investments into new projects in order to grow the Company and create value for its shareholders. ·      The Group engages with a range of advisers and active competitor monitoring to provide a range of opportunities for screening. ·      The Group also engages third-party assurance experts to review, challenge and, where appropriate, make recommendations to improve the processes for project management, cost control and governance of projects.	Potential impact - High  Likelihood - Medium
Prices and Markets: Decreases in oil and gas prices could have an adverse effect on revenue, margins, profitability and cash flows. If these reductions are significant or for a prolonged period, we may have to write down assets and investments and reassess the viability of certain projects, which may impact future cash flows, profit, capital expenditure, the ability to work within our financial frame and maintain our investment programme.	·      Contingency is built into the evaluation, planning and budgeting process to allow for the downside movements in commodity prices.  ·      The Reabold business model is to invest in undervalued oil and gas assets that would be able to deliver profitably under any reasonable oil/gas price assumptions, are at the lower end of the industry cost curve and will be competitive against other sources of hydrocarbons.  ·      The Group may consider it appropriate in the future to hedge a proportion of its production, particularly if the Group is reliant on the production to service debt.	Potential impact - Medium  Likelihood - Medium
Accessing and progressing hydrocarbons: Inability to access and progress hydrocarbon resources could adversely affect delivery of our strategy.	·      The Group and its investee companies undertake extensive analysis of available technical information to determine work programmes. ·      Appraisal programmes are designed to de-risk the overall field development. Well and seismic data is continually reviewed to best allocate capital and make drilling decisions. ·      Downside risk can be reduced by entering into risk sharing arrangements.	Potential impact - High  Likelihood - Medium
Liquidity, financial capacity and financial exposure: insufficient liquidity and funding capacity of the Group and its investee companies could adversely impact the implementation of the Group's strategy and restrict work programmes due to lack of capital.	·      Management has a clear strategy for value realisation and creation as evidenced by the conditional offer for Corallian in May 2022. ·      The Group maintains a strong balance sheet by maximising cash to ensure sufficient liquidity within the business. The Group has no debt. ·      Cash forecasts are monitored including considering multiple scenarios. ·      The Company demonstrated it can raise incremental capital if needed as it successfully raised new equity in Q1 2021. ·      The Group continually monitors its capital allocation and will only pursue programs that are of appropriate size and risk relative to the Group's capital resources.	Potential impact - High  Likelihood - Medium
Joint arrangements: Varying levels of control over the standards, operations and compliance of our partners could result in legal liability and reputational damage.	·      The Group continually engages with its operating partners and closely monitors the operation of its assets. ·      The Group completes thorough due diligence reviews before entering future partnerships to ensure that their strategic and operational objectives are aligned with those of the Group.	Potential impact - Medium Likelihood - Low
Climate change: A global transition to alternative energy sources could have an adverse impact on demand for oil and gas, commodity prices and/or the Group's access to and cost of capital.	·      Management looks for opportunities to deliver low carbon intensity production into the UK market by using low carbon intensity facilities, including potential re-use of existing infrastructure. ·      The Group's "investment horizon" is considered to fall within time frames too short to be materially affected by the Paris Agreement 2OC scenario.	Potential impact - High  Likelihood - Medium
Talent and capability: Inability to attract, develop and retain people with necessary skills and capabilities could negatively impact delivery of our strategy	·      Recruitment and retention of key staff through providing competitive remuneration packages and stimulating and safe working environment. Balancing salary with longer term incentive plans.	Potential impact - High  Likelihood - Low
Production risk: hydrocarbons are not able to be produced in the projected quantities by the operators/investee companies (as applicable) or cannot be produced economically.	·      The Group and investee companies undertake extensive analysis of the available technical information towards improving the understanding of the reservoir.	Magnitude - High  Likelihood - Medium
Geopolitical: Exposure to a range of political developments and consequent changes to the operating and regulatory environment (including the continued impact of COVID-19 and events relating to the Russia-Ukraine conflict) could cause business disruption.	·      Management maintains regular communication with regulatory authorities. ·      The Company aligns its standards and objectives with government policies as closely as possible ·      Reabold demonstrates a flexible approach to working from home whilst supporting appropriate working practices in London office spaces. ·      The Group does not consider it has a material adverse exposure to the geopolitical situation with respect to the sanctions imposed on Russia, although recognises the evolving situation is causing price volatility. The Group will continue to monitor its position to ensure it remains compliant with any sanctions in place.	Potential impact - Medium  Likelihood - Medium
Compliance and control risks
Regulation: planning, environmental, licensing and other permitting risks associated with the Group and its investee companies' operations particularly with exploration drilling operations.	·      The Group and its investee companies have to date been successful in obtaining the required permits to operate. Such risks are mitigated through compliance with regulations, proactive engagement with regulators, communities and the expertise and experience of the management teams of the Group and investee companies.	Potential impact - High  Likelihood - Medium

 

Financial review   

 

Group Income Statement

 

The loss for the year ended 31 December 2021 was £2.6million (2020: loss of £2.7 million).

 

Production on a working interest basis from our California assets was 24,457boe (2020: 33,890boe), delivering total revenues of £1.2 million (2020: £1.0 million). The lower production was primarily due to workover of wells and bringing enhanced storage infrastructure online. The realised sales price was 65.4 $/bbl (2020: 38.4 $/bbl).

 

The gross loss for 2021 was £152,000 compared to a gross profit of £4,000 in 2020. Overall cost of sales of £1.3 million compared to £1.0 million for 2020. This comprised £0.7 million of production costs (2020: £0.5 million), royalties of £0.2 million (2020: £0.2 million) and £0.4 million of non-cash depletion charges (2020: £0.3 million).

 

Administrative expenses were broadly in line with prior year at £1.7 million (2020: £1.6 million)

 

Group Balance Sheet

 

The Group retained a strong balance sheet during the year allowing it to sustain its capital investment programme. An increase in exploration and evaluation assets from £7.6 million in 2020 to £9.1 million at 31 December 2021 reflected appraisal work at West Newton during the year.

 

Total investment in associates increased from £25.3 million at year end 2020 to £27.7 million at 31 December 2021. Additions were related to the increased investment in Corallian of £3.2 million offset by combined total losses from associates of £0.8 million.

 

The group does not have any significant liabilities.

 

Overall net assets have increased from £38.9 million at year end 2020 to £46.5 million at 31 December 2021.

 

Group cash flow statement

 

Cash used in operating activities for the year ended 31 December 2021 was £1.8 million, £0.7 million lower than in 2020 reflecting favourable working capital movements.

 

Net cash used in investing activities for the year ended 31 December 2021 decreased by £1.9 million compared with 2020. The decrease reflected lower capital expenditure on exploration and evaluation rights.

 

Net cash provided by financing activities for the year ended 31 December 2021 was £6.9 million (2020: £0 million). Financing cash flows in 2021 reflect the issuance of 1,363,636,363 new ordinary shares at 0.55 pence per share, for gross proceeds of £7.5 million (£6.9 million net of issuance costs). The proceeds were primarily used to fund additional appraisal activity at West Newton as well as to provide additional contingency across the Group's investment portfolio.

 

Liquidity

 

Cash balances increased from £1.1 million at 31 December 2020 to £4.9 million. The Group has no debt.

 

Commitments

 

There are no significant commitments contracted for in 2022. Reabold's share of authorised capital expenditure for West Newton in 2022 is £0.4 million.

 

Our people

 

Our people are a key element in our success and the Company aims to attract, develop and retain talented people and to create a diverse and inclusive working environment, where everyone is accepted, valued and treated equally without discrimination, taking into account the current size of the Company.   

 

As at 31 December 2021, the Company comprises 6 directors and no other employees, with the workforce by gender summarised below: 

 

 

 

As at 31 December 2021	Male	Female	Female %
Executive Directors	3	-	-%
Non-Executive Directors	3	-	-%
Other employees	-	-	-%
All employees	6	-	-%

 

COVID-19 virus

 

At the time of writing, the world is still experiencing the effects of COVID-19. The pandemic has continued to disrupt work programmes in 2021, however the Reabold business model is designed to be robust, and it has not fundamentally affected our strategy.  

 

Outlook

 

The energy markets are being impacted by the military action in Ukraine, which is adding significant upside pressure to prices. As an investor in the E&P sector, Reabold is clearly exposed to the updside, however there remains, at this point in time, uncertainty. 2022 will be a pivotal year for Reabold and we look forward to delivering further phases of growth in 2022 and over the years ahead.

 

 

 

Sachin Oza and Stephen Williams

Co-Chief Executive Officers

 

26 May 2022