3,512% increase in net profits to £2.384m

20 December 2013

 

Empyrean Energy Plc

("Empyrean" or the "Company"; Ticker: (EME))

 

Interim Results for the six months ended 30 September 2013

 

Empyrean Energy, the profitable US onshore oil, gas and condensate exploration, development and production company with assets in Texas and California, is pleased to provide its Interim Report for the six months ended 30 September 2013.

 

Highlights

 

Financial

 

·     Net Profit up 3,512% to £2,384,000 (6 months to 30 September 2012: £66,000)

·     Net Profit is 18% higher than the Net Profit for the full year ended 31 March 2013

·     Revenue up 136% to £3,829,000 (6 months to 30 September 2012: £1,622,000)

·     Gross Profit up 354% to £3,152,000 (6 months to 30 September 2013: £694,000)

 

Sugarloaf AMI

 

·     There were 101 gross producing wells on Sugarloaf AMI as at end of September 2013, an increase of 50 wells since the end of September 2012

·     Since 30 September 2013, 15 wells have been brought on production to 20 December 2013 bringing the total number of wells on production in the Sugarloaf AMI to 116 wells

·     Recent acquisitions, including Devon Energy Corporation's purchase of GeoSouthern Energy Corporation's Eagle Ford Shale assets (82,000 net acres) for US$6 billion in cash, further validate the attractiveness and high value of quality Eagle Ford Shale Assets

·     Significant upside potential with a significantly increased well inventory and accelerated drilling pace planned for 2014 (guidance indicates 100-110 wells compared to 48 in 2013)

·     Two wells targeting the Austin Chalk, the formation directly above the Eagle Ford Shale, commenced production in July 2013 with similar flow rates to a nearby Eagle Ford Shale well observed

·     Co-development of the Austin Chalk and Eagle Ford Shale from pad drilling planned

·     Partners agree that Austin Chalk covers a large portion of the AMI and that there is potentially a similar volume of hydrocarbons in the Austin Chalk compared to the Eagle Ford Shale - further testing required to validate

·     Austin Chalk delineation drilling planned for 2014

·     Well down-spacing initiatives successful with over 90% of 2013 wells being drilled at less than 60 acre spacing

·     Wells drilled at 40-60 acre spacing achieved higher initial production than wells previously drilled at 80-160 acre spacing

·     Selected areas to be developed at 40 acre spacing and also to be trialled for 30 acre infill density spacing

·     Marathon has forecast a reduction in gross drilling costs with a well cost target of US$6.5- 7.5 million per well during 2014

·     Drilling time reduced by 50% and stimulation cycle time reduced by 40% since 2012

·     Additional processing facilities and pipeline capacity planned for 2014

 

Empyrean CEO, Tom Kelly said, "Empyrean is delighted with the increase in Net Profit for the half year which already demonstrate significant uplift in comparison to the full year results for the period ended 31 March 2013, as well as in comparison to the previous comparable six month period.  This is partly due to the successful results of well down-spacing and an increasing pace of drilling at our flagship Sugarloaf AMI project, which has had a positive effect on production, and we are pleased to receive indications from our operator, Marathon, that this initiative will continue into 2014.  However, potentially more important in terms of ultimate value is the Austin Chalk, which is indicated as a strong focus for future drilling in 2014.  Two wells are already on production and these demonstrate the very real prospect that this formation will add significant reserves with delineation drilling and co-development with the Eagle Ford Shale in the near term. 

 

"With this in mind, the coming six months look very exciting for the Company and we look forward to announcing specific 2014 plans for our Eagle Ford Shale acreage, once received from Marathon.  Based on results from pilots and activity to date, we are confident that these will substantially enhance production, reserves and revenues and we look forward to reporting on these developments, alongside the various initiatives on-going across other parts of our US onshore portfolio, on a regular basis."

 

GLOSSARY OF ABBREVIATIONS

 

"bbls"                           barrels of oil, each barrel representing 34.972 Imperial gallons or 42 U.S. gallons

"boe"                            barrels of crude oil equivalent derived by converting natural gas to crude oil in the ratio of six thousand cubic feet of natural gas to one barrel of crude oil

"boe/day"         barrels of crude equivalent per day

"mcf"               one thousand cubic feet of natural gas

 

Please find below the Chairman's and Technical Director's statement and the interim accounts.

 

For further information please visit www.empyreanenergy.com or contact the following:

 

Tom Kelly	Empyrean Energy plc	Tel: +618 9480 0111
Neil McDonald	Cenkos Securities plc	Tel: +44 (0) 131 220 9771 / +44 (0) 207 397 1953
Beth McKiernan	Cenkos Securities plc	Tel: +44 (0) 131 220 9778 / +44 (0) 207 397 1950
Hugo de Salis	St Brides Media & Finance Ltd	Tel: +44 (0) 20 7236 1177
Elisabeth Cowell	St Brides Media & Finance Ltd	Tel: +44 (0) 20 7236 1177
Lottie Brocklehurst	St Brides Media & Finance Ltd	Tel: +44 (0) 20 7236 1177

 

Chairman's Statement

 

I am pleased to report that Empyrean Energy Plc ('Empyrean' or 'the Company') has continued to experience excellent growth from its flagship Sugarloaf AMI project (3% WI), which targets the prolific Eagle Ford Shale formation, operated by oil and gas major Marathon Oil. A number of drilling initiatives conducted over the period have had a dramatic effect on the asset's oil and gas production and in turn, the Company's revenue and its profit versus the same period last year.  The Company looks forward to continuing this theme over the coming six months following the publication of Marathon's development plan which has outlined its strategy to significantly increase its activity at its Eagle Ford Shale assets during 2014.  This will focus on further down-spacing and drilling including the overlying Austin Chalk formation offering substantial additional potential.

 

Revenue in the first half of the year was £3.829 million, representing a 136% increase above the same period last year and compares very favourably with £5.893 million for the full year to March 2013.  At £3.152 million, the gross profit for the half year is 354% higher than the same period last year, and net profit has increased substantially by 3,512% above the same period last year to £2.384 million, primarily due to increasing revenue as the number of wells in production continues to grow.  Notably, this is 18% above the £2.014 million for the whole of the full year up to 31 March 2013 which bodes well for the coming period.

 

At the end of September 2013, the Company had an interest in 101 wells producing condensate, gas and natural gas liquids in the Sugarloaf AMI, up from 81 wells at the end of March.  Marathon is continuing a number of activities aimed at improving the economics for the project. On the drilling front Marathon has implemented various initiatives such as longer laterals, pad drilling to reduce well costs and well down-spacing.  On the completion front Marathon is using techniques such as Zipper Fracs, HiWAY Fracs, choke management, artificial lift optimisation, proppant optimisation and fluid optimisation - all of which are aimed at driving efficiency, reducing costs and/or improving production.    

 

Over the period the Company confirmed a hedging contract with Macquarie Bank which commenced on 1 September 2013 in order to lock in prices for part of the Company's expected production in the following twelve months.  This is a form of insurance which the Board considered prudent in light of WTI price rises and the Company's US$50 million debt facility with Macquarie.  Recent cashflow from the Company's interest in the Sugarloaf AMI has enabled two repayments of US$1million on this three year term facility without further drawdowns and reduces the amount currently outstanding on the facility to US$8,520,664.

 

On a corporate level, in August 2013 the Company appointed St Brides Media and Finance Ltd as its Finance and Public Relations advisor, and in October 2013 the Company appointed Cenkos Securities plc as its Nominated Adviser and sole broker. To complete the programme of changes, BDO were appointed as Auditor to the Company in November 2013.  Together these changes reflect the Company's changing needs and priorities as it adjusts to growth, and to its changing status.

 

The Riverbend Project in the San Joaquin Basin, southern California, and the Eagle Oil Pool Development Project in Texas offer possible additional opportunities for future development and the Company has also recently recommenced its activity in the Sugarloaf Block A in the Eagle Ford Shale operated by Conoco with participation in two new wells.  The following technical report provides details of all the projects in which Empyrean is currently engaged.

 

 

Outlook

With Marathon significantly stepping up its activity in the Eagle Ford Shale, 2014 is set to be an exciting year for your Company.  Through a combination of down-spacing, the targeting of the overlying Austin Chalk formation and Marathon's continual optimisation of its acreage the Company hopes to report a corresponding growth in 2P reserves in the year ahead.  Empyrean's revenues and profits have grown year on year and with this in mind the Company looks forward to commencing 2014 and stepping up efforts to further increase value for shareholders.

 

Dr Patrick Cross

Chairman

20 December 2013

 

 

Technical Overview

 

Sugarloaf AMI

Empyrean 3% Working Interest

 

The East Texas onshore Sugarloaf Project involves the exploitation of the Sugarkane Field, part of which falls in the Sugarloaf AMI (previously referred to in earlier reports as 'Block B').

 

The primary objective in the AMI is the Eagle Ford Shale. This formation is mooted to be a hydrocarbon source for the overlying Austin Chalk which has always been a secondary target in the development of the field. Depending on well location, and thus geological provenance, hydrocarbon production can vary in character from so-called "black oil" to dry gas. Empyrean has a 3% working interest in the gas condensate - rich area, and this working interest equates to approximately 729 net acres.

 

Production in the Sugarloaf AMI commenced in 2008.  Marathon became operator in late 2011 and embarked on an accelerated drilling programme on 12 January 2012 with the spudding of Pfeifer Bell 1.  During its operatorship Marathon has been continuously testing a number of technical initiatives aimed at achieving optimum productivity with maximum economic efficiency. These initiatives have included the use of varying horizontal lengths for the producing interval in different wells, applying different well spacing from common pad drilling, and utilising a variety of sophisticated fraccing procedures including the "zipper" and "HiWay" fraccing techniques.

 

Marathon has spudded 91 wells during the 21 month period from 1 January 2012 to 30 September 2013 in the AMI.  The vertical depths approximate 12,000 ft, with horizontal distances occupying between 4,000 ft and 6,500 ft.

 

Of the 27 wells drilled between 1 April and 30 September 2013 (inclusive), 15 wells have reached target depth ('TD') in 13 days or less, which is a strong achievement.  Since April 2013 the drilling costs have ranged between $US2.8 and $US5.1 million with completion costs between $US3.5 - $US5.4 million.  The drilling and completion costs have been decreasing over time.  The more recent wells costs have varied between approximately $US 7.5 - $US8.5 million in total cost, of which Empyrean shares usually a 3% working interest.  Marathon has recently forecast well costs to reduce during 2014 to between US$6.5 - US$7.5 million total cost, which will have a positive impact on Empyrean.

 

The primary objective, the Eagle Ford Shale, is an "unconventional" play, similar also to the overlying secondary objective, the Austin Chalk.  Hydrocarbons entrapped in microfractured, impermeable shales are being extracted economically by employing horizontal drilling techniques and sophisticated fraccing procedures.  

 

Initiatives to reduce the spacing between wells have the potential to increase productivity and ultimate hydrocarbon recovery.  Marathon has consequently instigated a number of pilot programmes to investigate which spacing might be the more appropriate, both technically and economically.  Of particular interest has been the recent drilling and completion of the three wells, Weston Gas Unit-1 10H (TD 17,930 ft), 11H (TD 19,347 ft) and 12H ( TD 17,708 ft).  All three wells have been drilled from the one pad and the horizontal spacing decreased to 250ft between wells (30 acre spacing).  Weston Gas Unit-1 10H and 12H produce from the Austin Chalk and 11H produces from the underlying Eagle Ford Shale.  Production commenced on the 6 July 2013 with encouraging results.  During August 2013 the three wells produced similar volumes of gas of between 72.7 mm c.ft and 86.7 mm c.ft and condensate varying 7,300 bbls to 8,700 bbls.  It would appear from these results that the two formations share similar potential.  If these first two Austin Chalk wells reflect the suspected potential in the AMI, it could mean at least an additional 150-300 development wells at an assumed spacing of 160-80 acres between wells would need to be added to the original 280 wells ascribed to the Eagle Ford Shale development.  Additionally, if closer spacing is optimal then a proportionate increase in wells will be required.

During the period between 1 April and 30 September 2013, 19 wells have been placed on production.  The monthly volumes produced vary from well to well depending partly, but not wholly, on well location.  The fractured nature of the shales means that extrapolation of reservoir behavior, based on short term results, is challenging.

 

Marathon increased the number of wells in the drilling schedule during the course of 2013, up from the original 28 wells programme and have averaged approximately four wells per month.  Initial indications are for a substantial increase to the programme for 2014 with a range of 100-110 wells planned.  More details on the target formations and confirmation of the schedule are expected in due course, although a recent presentation of its 2014 strategy to analysts highlighted that Marathon plans to implement the following initiatives across its entire Eagle Ford Shale acreage, which includes the Sugarloaf AMI: accelerate Eagle Ford Shale rig activity across their entire EFS acreage by 20%; increase rig count to 18 rigs; and allocate a US$2.3 billion budget for the development of its entire Eagle Ford Shale acreage in 2014.  There were 101 gross producing wells on Sugarloaf AMI as at end of September 2013, an increase of 50 wells since the end of September 2012.  Since 30 September 2013 9 further wells have been spudded to 20 December 2013 and 14 wells have been brought on production to 20 December 2013 bringing the total number of wells on production in the Sugarloaf AMI to 116 wells.

 

In conclusion, the results have been most encouraging and augur well for continued success, particularly in light of Marathon's recent announcement described above.  Well costs have fallen, due in part to the practice of drilling multiple wells from the one pad.  The fraccing experimentation using a 15-17 stage operation have borne positive results; and not one well has been lost due to technical mishap, which is most unusual in a development project of this magnitude.  Marathon has reported that well spacing initiatives have been successful, with wells drilled at 40 to 60 acre spacing achieving higher initial production than wells previously drilled at 80 to 160 acre spacing.  During 2013 over 90% of wells drilled were at less than 60 acre spacing.  Marathon has announced selected areas will be developed using 40 acre spacing and that 30 acre spacing infill pilot programme will be commenced during 2014.  Based on an 80 acre spacing, the early predictions indicated that a 280 well programme would be needed to efficiently and economically exploit the Eagle Ford Shale in the Sugarloaf AMI.  With the successful results using 60, 50, 40 and 30 acre spacings, the total well number may increase.  The recent Austin Chalk results certainly add a new dimension to potential reserve and production increases, and the additional Wilcox and Pearsall formations, the potential of which has already been demonstrated in adjacent blocks, may also show their worth in the AMI as field development matures.

 

Sugarloaf Block A

 

In September 2013, Empyrean Energy announced its participation in two new wells in the Eagle Ford Shale, Texas as part of its interest in 'Sugarloaf Block A' operated by Burlington Resources Oil & Gas Company LP ('Burlington') a subsidiary of ConocoPhillips Company ('Conoco').  This symbolised the recommencement of activity in Block A, which is nearby to the Company's flagship Sugarloaf AMI.

 

The Baker Trust-4 well, in which Empyrean has an approximate 2.45% working interest, reached an approximate measured depth of 17,948 feet on 28 August 2013 with a lateral length of approximately 5,000 feet.  This well is currently awaiting completion.  The estimated net drilling cost to Empyrean is US$225,000.  Should the well be successful there will be completion and connection costs to follow.

 

The Marlene Olson-3 well ('Marlene Olson'), in which Empyrean has an approximate 0.85% working interest, was drilling ahead as at 30 September 2013 and subsequently reached a measured TD of 20,601 feet on the 3 October 2013 at an estimated net drilling cost of US$100,000 (excluding completion and connection costs) to Empyrean, with a lateral length of approximately 7,700 feet. The well is at present undergoing completion operations.

 

Both wells are to be completed in the Eagle Ford Shale and are being drilled from the same pad along with a third well that is being completed in acreage that Empyrean has no interest in.  Empyrean's interest in these two wells is less than the 7.5% interest it holds in the acreage due to these wells traversing into acreage that Empyrean does not participate in - resulting in Empyrean participating in a pro-rata proportion.

 

Riverbend Project (10% WI)

 

Cartwright No 1 well has been re-entered by the new operator, Krescent Energy Partners II, LP ('KEPII').  A fresh interval between 9,584ft - 9,590ft in the Wilcox Formation was perforated and is producing gas and condensate.

 

Prior to re-completion, the obstruction in the production tubing, which severely impeded flow from the Austin Chalk, was isolated to allow the completion in the Wilcox Formation. The younger Wilcox Formation had exhibited encouraging "shows" during the drilling of the well.

 

The early production from this new zone of 30-40 bopd of condensate and 755,000 c.ft of gas per day was above expectations. The well is currently producing approximately 15 bopd and 400,000 c.ft of gas per day.

 

Eagle Oil Pool Development Project (57.2% WI)

 

Empyrean Energy increased its interest from 48.5% to 57.2% in March 2013 at no extra cost to the Company.

 

The Eagle Oil Pool is a proven accumulation of oil and gas.  It is estimated to contain between 7-22 million barrels of oil and 12-23 billion c.ft of gas.  Preliminary planning and discussions have commenced with the operator, Strata-X, and a vertical well test of the Gatchell sands, and possibly the Kreyenhagen Shale, is the next logical step.  The results of such a vertical well will influence the emplacement of horizontal drilling if required.

Mr Frank Brophy BSc (Hons)

Technical Director

20 December 2013

 

 

The technical information contained in this report was completed and reviewed by the Technical Director of Empyrean Energy Plc, Mr Frank Brophy BSc (Hons) who has over 40 years experience as a petroleum geologist.

 

 

 

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

FOR THE PERIOD ENDED 30 SEPTEMBER 2013

 

 

	Note	6 months to 30 September 2013 (unaudited) £'000	6 months to 30 September 2012 (unaudited) £'000	Year ended 31 March 2013 (audited) £'000
Revenue		3,829	1,622	5,893
Cost of sales
Operating costs (excluding oil and gas and exploration expenditure impairment)		(302)	(268)	(707)
Forex		438	60	(304)
Gain/(loss) on hedge contract		(34)	-	-
Amortisation		(779)	(720)	(1,579)
Gross profit		3,152	694	3,303
Administrative expenses		(88)	(71)	(274)
Amortisation of finance costs		(94)	(21)	(74)
Directors' remuneration		(258)	(321)	(557)
Compliance fees		(160)	(134)	(280)
Share based payments (Directors and Company Secretary)		-	-	-
Exploration expenditure (impairment)		(11)	(63)	(67)
Oil and gas properties (impairment)		-	-	-
Operating profit		2,541	84	2,051
Interest (payable)		(292)	(18)	(37)
Profit on ordinary activities before taxation		2,249	66	2,014
Taxation on profit on ordinary activities		-	-	-
Profit for the financial period		2,249	66	2,014
Other comprehensive income
Share based payment reversal		135	-	-

 

Total comprehensive income for the period		2,384	66	2,014
Attributable to
Equity shareholders of the Company		2,384	66	2,014
Basic earnings per share (expressed in pence)	3	1.02p	0.03p	0.93p
Diluted earnings per share (expressed in pence)	3	1.02p	0.04p	0.92p

All financial results presented are from continued operations.

 

 

STATEMENT OF FINANCIAL POSITION

AT 30 SEPTEMBER 2013

 

	Note	6 months to 30 September 2013 (unaudited) £'000	6 months to 30 September 2012 (unaudited) £'000	Year ended 31 March 2013 (audited)   £'000
Assets
Non-current assets
Intangible assets		5,720	4,689	5,640
Oil and gas properties		19,377	12,324	16,203
		25,097
			17,013	21,843
Current assets
Trade and other receivables		1,154	1,421	1,317
Cash and cash equivalents		309	596	230
		1,463	2,017	1,547
Total assets		26,560	19,030	23,390
Liabilities
Current liabilities
Trade and other payables		(2,562)	(4,298)	(75)
Provisions		4	-	-
Convertible loan note		-	(405)	-
Macquarie facility		(3,223)	(142)	(3,292)
		(5,781)	(4,845)	(3,367)
Net current assets / (deficiency)		(4,318)	(2,828)	1,820
Non-current liabilities
Macquarie facility		(1,562)	-	(3,447)
		(1,562)	-	(3,447)
Net assets		19,217	14,185	16,576
Shareholders' equity
Called up share capital	4	441	428	441
Share premium account		25,045	24,653	25,029
Other reserves		1,444	1,149	1,203
Retained loss		(7,713)	(12,045)	(10,097)
		19,217	14,185	16,576

 

 

STATEMENT OF CASHFLOWS

FOR THE PERIOD ENDED 30 SEPTEMBER 2013

 

	Note	6 months to 30 September 2013 (unaudited) £'000	6 months to 30 September 2012 (unaudited) £'000	Year ended 31 March 2013 (audited) £'000
Cash generated in operating activities		3,567	724	3,409
Net cash inflow / (outflow) from operating activities		3,567	724	3,409
Interest received		-	-	-
Interest paid		(292)	-	(19)
Net cash inflow from returns on investments		(292)	-	(19)
Purchase of intangible assets		(734)	(168)	(1,698)
Purchase of oil and gas properties		(1,204)	(1,657)	(9,722)
Net cash (outflow) from capital expenditure		(1,938)	(1,825)	(11,420)
Net cash (outflow) before financing		1,097	(1,101)	(8,030)
Issue of ordinary share capital	5	16	18	18
Proceeds from borrowings		-	142	6,945
Repayment of borrowings		(1,274)	-	(240)
Net cash inflow from financing		(1,258)	160	6,723
Increase/(decrease) in cash		79	(941)	(1,307)
Cash and cash equivalents at beginning of period		230	1,537	1,537
Cash and cash equivalents at end of period		309	596	230

 

 

 

STATEMENT OF CHANGES IN EQUITY

FOR THE PERIOD ENDED 30 SEPTEMBER 2013

 

	Called Up Share Capital £'000	Share Premium   £'000	Share Based Payment Reserve £'000	Cashflow Hedge Reserve	Retained Losses   £'000	Total Shareholders' Equity £'000
6 months ended 30 September 2013 (unaudited)
As at 1 April 2013	441	25,029	1,203	-	(10,097)	16,576
Shares issued during the period	-	16	-	-	-	16
Share issue expense	-	-	-	-	-	-
Equity-settled share-based payments	-	-	589	-	-	589
Share based payments reversal	-	-	(135)	-	135	-
Cashflow hedge transactions	-	-	-	(213)	-	(213)
Profit for the period	-	-	-	-	2,249	2,249
Balance as at 30 September 2013	441	25,045	1,657	(213)	(7,713)	19,217
6 months ended 30 September 2012 (unaudited)
As at 1 April 2012	426	24,602	1,128	-	(12,111)	14,045
Shares issued during the period	2	51	-	-	-	53
Share issue expense	-	-	-	-	-	-
Equity-settled share-based payments	-	-	21	-	-	21
Profit for the period	-	-	-	-	66	66
Balance as at 30 September 2012	428	24,653	1,149	-	(12,045)	14,185
Year ending 31 March 2013 (audited)
As at 1 April 2012	426	24,602	1,128	-	(12,111)	14,045
Shares issued during the period	15	427	-	-	-	442
Share issue expense	-	-	-	-	-	-
Share based payments (Macquarie Bank)	-	-	75	-	-	75
Profit for the period	-	-	-	-	2,014	2,014
Share based payments reversal	-	-	-	-	-	-
Balance as at 31 March 2013	441	25,029	1,203	-	(10,097)	16,576

 

NOTES TO THE INTERIM FINANCIAL STATEMENTS

FOR THE PERIOD ENDED 30 SEPTEMBER 2013

 

1.         Basis of preparation

 

The interim report has been prepared in accordance with the AIM rules and the basis of accounting policies set out in the accounts for the year to 31 March 2014 and on the basis of all International Financial Reporting Standards (IFRS), as adopted by the European Union, that are expected to be applicable to the company's statutory accounts for the year ended 31 March 2014.  The interim financial statements do not constitute statutory accounts within the meaning of Section 435 of the Companies Act 2006. The interim financial statements have been prepared on a going concern basis in accordance with IFRS.

 

The sterling (£) amounts in the interim report for the periods ended 30 September 2013 and comparative 30 September 2012 are unaudited.  The amounts in this report for the year ended 31 March 2013 are extracted from the audited statutory accounts for that period and as such are not the company's statutory accounts for that financial year.  The 31 March 2013 accounts have been reported on by the company's auditors and delivered to the Registrar of Companies and received an unqualified audit report and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

 

The interim report of Empyrean Energy Plc was authorised for issue by the Board on 20 December 2013.

 

Going concern

The Directors have a reasonable expectation that Empyrean Energy Plc have adequate resources to continue in operational existence for the foreseeable future.  For this reason, they continue to adopt the going concern basis in preparing the interim accounts.

 

Intangible fixed assets

 

Exploration and development expenditure

Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest.  Restoration, rehabilitation and environmental costs necessitated by exploration and evaluation activities are expensed as incurred and treated as exploration and evaluation expenditure.

 

These costs are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves.  Accumulated costs in relation to an abandoned area are written off in full against the profit in the year in which the decision to abandon the area is made.  A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward the exploration and development costs in relation to that area of interest.

 

Oil and gas properties

Investments in unevaluated properties and development projects are not reclassified from exploration and development expenditure to oil and gas properties, until commercial production associated with the projects can be determined or until impairment occurs.  The capitalised costs of intangible oil and gas assets are subject to amortisation when they are determined to have commercial production, at which point the capitalised costs are amortised based on the estimated life of the reserves.

 

2.         Segmental Analysis

 

The primary segmental reporting format is determined to be the geographical segment according to the location of the asset.  The Directors consider the Company to have two business segments being the exploration for and development and production of oil and gas properties.

 

There is one geographical trading segment being North America which is involved in the exploration for, development and production of oil and gas properties.  The Company's registered office is located in the United Kingdom.

 

	Intangible Assets			Oil and Gas Properties			Total
Details	30 Sep 2013	30 Sep 2012	31 Mar 2013	30 Sep 2013	30 Sep 2012	31 Mar 2013	30 Sep 2013	30 Sep 2012	31 Mar 2013
	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Revenue	-	-	-	3,829	1,622	5,893	3,829	1,622	5,893
Cost of sales	(77)	(63)	(44)	(600)	(865)	(2,546)	(677)	(928)	(2,590)
Gross profit	(77)	(63)	(44)	3,229	757	3,347	3,152	694	3,303
Exploration expenditure impairment	(11)	(63)	(67)	-	-	-	(11)	(63)	(67)
Segment result	(88)	(126)	(111)	3,229	757	3,347	3,141	631	3,236
Unallocated corporate expenses							(600)	(547)	(1,185)
Operating profit							2,541	84	2,051
Interest (payable)							(292)	(18)	(37)
Profit on ordinary activities before taxation							2,249	66	2,014
Taxation							-	-	-
Profit for the financial period							2,249
Share based payment reversal							135	-	-
Total comprehensive income for the period							2,384	66	2,014
Segment assets	5,720	4,689	5,640	19,377	12,324	16,203	25,097	17,013	21,843
Unallocated corporate assets							1,463	2,017	1,547
Total assets							26,560	19,030	23,390
Segment liabilities	(34)	(5)	(13)	(2,093)	(4,199)	(5)	(2,127)	(4,204)	(18)
Unallocated corporate liabilities							(5,216)	(641)	(6,796)
Total liabilities							(7,343)	(4,845)	(6,814)

 

 

	6 months to 30 September 2013 (unaudited)	6 months to 30 September 2012 (unaudited)	Year ended 31 March 2013 (audited)
3.         Earnings Per Share
The calculation of earnings per share is based on the earnings after taxation divided by the weighted average number of shares in issue during the period:
Net profit after taxation	£2,249,000	£66,000	£2,014,000
Weighted average number of ordinary shares of £0.002 used in calculating basic earnings per share	220,460,154	213,401,473	216,090,000
Basic earnings per share (expressed in pence)	1.02p	0.03p	0.93p
Profit adjusted for dilutive effects	£2,249,000	£81,000	£2,014,000
Weighted average number of ordinary shares of £0.002 in issue inclusive of outstanding options and convertible debt	220,460,154	226,552,498	217,799,000
Diluted earnings per share (expressed in pence)	1.02p	0.04p	0.92p
4.         Called Up Share Capital
The authorised share capital of the Company and the called up and fully paid amounts at 30 September 2013 were as follows:
Authorised
1,000,000,000 ordinary shares of 0.2p each	2,000	2,000	2,000
Issued and fully paid
220,633,853 ordinary shares of 0.2p each	441	428	441

 

Share Options
The following equity instruments have been issued by the Company and have not been exercised at 30 September 2013:

 

Equity	Number of Options	Exercise Price	Expiry Date
Incentive options	11,900,000	£0.0800	30 April 2014
Incentive options	14,800,000	£0.0800	2 March 2015
Finance options	15,000,000	£0.0800	19 July 2016
Finance options	15,000,000	£0.1000	19 July 2016
Finance options	15,000,000	£0.1200	25 March 2017

 

There have been no equity instruments granted by the Company during the period ended 30 September 2013.

 

The following equity instruments have been exercised during the period ended 30 September 2013:

 

Equity	Number of Options	Exercise Price	Expiry Date
Incentive options	200,000	£0.0800	30 April 2014

 

The following equity instruments expired during the period ended 30 September 2013:   Equity Number of Options Exercise Price Expiry Date Incentive options 8,875,000 £0.06 28 May 2013   Consultant options 500,000 £0.06 16 April 2013
Warrants
The following equity instruments have been issued by the Company and have not been exercised at 30 September 2013:

 

Equity	Number of Warrants	Exercise Price	Expiry Date
Warrants	4,000,000	£0.0875	1 March 2015

 

Macquarie Facility
The Macquarie Bank Facility totalling £5,280,000 was entered into on 30 May 2012, not drawn down on during the period and is repayable at an interest rate of 9%pa plus LIBOR.  The first repayment was made on 30 June 2013.  The Macquarie Bank Facility is secured by a fixed and floating charge over the Company, a Company guarantee and a specific charge over the Sugarloaf AMI asset.
5.         Dividend
The Directors do not recommend the payment of a dividend.
6.         Post Balance Sheet Events
No matter or circumstance has arisen since 30 September 2013 that has significantly affected, or may significantly affect the entity's operations, the results of those operations, or the entity's state of affairs in future financial years other than already disclosed in this report.

 

7.         Director's Responsibility Statement
The Directors confirm that, to the best of their knowledge the condensed set of financial statements for the six months ended 30 September 2013 have been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union.   The Directors of Empyrean Energy Plc and their functions are: Dr Patrick Cross (Chairman), Mr Thomas Kelly (Chief Executive Officer), Mr Frank Brophy (Technical Director) and Mr John Laycock (Finance Director).
8.         Availability of Accounts
Copies of these interim results are available from Empyrean Energy Plc, GPO Box 2517, Perth WA 6831, Australia.  Alternatively a downloadable version is available from the following web address: http://www.empyreanenergy.com/news/reports.html.