Interim Results to 30 June 2019

Tower Resources plc

Interim Results to 30 June 2019

 

11 September 2019

 

Tower Resources plc (the "Company" or "Tower" (TRP.L, TRP LN)), the AIM-listed oil and gas company with its focus on Africa, announces its Interim Results for the six months ended 30 June 2019.

 

HIGHLIGHTS

 

§ January 2019 placing of 170 million new ordinary shares at 1p to raise £1.7 million (gross), together with issuance of placing warrants, broker warrants, and agreement of directors to accept warrants in lieu of fees;

§ February 2019 announcement by Total of a 1 billion boe gas-condensate discovery at its Brulpadda well in the Outeniqua basin, on its Blocks 11B/12B in South Africa, which is immediately adjacent to the Company's 50%-owned Algoa-Gamtoos license;

§ Release of Operator's estimates of 510 Million boe of mean unrisked recoverable resource potential in the Algoa-Gamtoos license, including a 346 million boe prospect in the Outeniqua basin section of the license;

§ April 2019 announcement of a Bridging Loan of US$750,000, with associated warrants, provided by Pegasus Petroleum Ltd and other parties to fund working capital while the Company pursues a farm-out of its Thali license in Cameroon;

§ June 2019 subscription of 15 million new ordinary shares at 1p to raise £150,000 of further working capital.

 

POST REPORTING PERIOD EVENTS

 

§ July 2019 award in the Company's favour by the First-Tier Tribunal (Tax Chamber) in respect of the Company's VAT dispute with HMRC (where HMRC has subsequently requested leave to appeal to the Higher Tribunal);

§ Ongoing well planning and preparatory work for the intended 2019 Thali drilling programme in Cameroon;

§ Continuation of farm-out processes in respect of both the Thali license in Cameroon and the Algoa-Gamtoos license in South Africa;

§ Substantial farm-out discussions in respect of Thali

§ Extension of bridging loan until 31 August 2019 with grace period until 30 September 2019

§ Now seeking funding for working capital and to repay bridging loan.

 

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

 

Contacts

 

Tower Resources plc	[email protected]
Jeremy Asher Chairman and CEO
Andrew Matharu VP - Corporate Affairs
SP Angel Corporate Finance LLP Nominated Adviser and joint broker	+44 20 3470 0470
Stuart Gledhill Caroline Rowe
Whitman Howard Limited Joint Broker Nick Lovering Hugh Rich	+44 20 7659 1234
Turner Pope Investments (TPI) Limited Joint Broker Andy Thacker	+44 20 3621 4120
Yellow Jersey PR Limited
Sarah Hollins Henry Wilkinson	+44 7764 947 137 +44 7951 402 336

 

CHAIRMAN AND CHIEF EXECUTIVE OFFICER'S STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2019

 

In the months since we released our Annual Report we have been working towards two key objectives: resolving the logistical challenges associated with site preparation for our Njonji-3 well in Cameroon; and obtaining financing for that well.

The site preparation issue arose when we found out in late April that the previous license operator, Total, had not conducted a full site survey with boreholes prior to its own drilling on this location a few years ago. Until late April, this information had simply been missing from the files provided to us when we took over the license. While having boreholes drilled prior to jacking up a rig is not a requirement for some operators and rigs, the owners of both the Topaz Driller and the COSL Seeker and their marine insurance providers do require such surveys to be performed. One consequence of the relatively low level of drilling activity recently is that there are not a large number of vessels capable of conducting this kind of borehole survey that are active in the Atlantic Basin, and we have to work around the existing commitments and schedules of those vessels. We have identified a suitable vessel some time ago, but it has been working on the other side of the Atlantic and is only coming to West Africa later this month. We are currently negotiating an LOI to use this vessel for the survey.

This has required us to build more flexibility into our rig arrangements to accommodate this uncertain schedule. We already switched rigs from the Topaz Driller to the COSL Seeker for this reason. The two rigs are former sister vessels, and Vantage, who own the Topaz Driller, have been as flexible as they could be; but the COSL Seeker provides greater flexibility as the rig is already in Cameroon, having just completed a series of wells for Addax, and is due to have its 5-year survey in Cameroon as well, which provides further flexibility.

The critical path item is the site survey, and we do not now see how this can be done in September. Assuming the site survey is completed in October or November, this makes December a more realistic date for spudding the well. This will of course require the agreement of the Société Nationale des Hydrocarbures ("SNH") and the Ministry ("MINMIDT") on behalf of the Government of Cameroon due to the license anniversary having passed during the intervening period, which we expect will be forthcoming as we have been keeping them closely informed of our progress and we believe that they understand the reasons for this delay. We will keep shareholders advised of both further progress on the well schedule and also of the outcome of discussions with MINMIDT.

At the same time we have also been working on the financing for the well. The initial feedback we have had from banks has been that the project should be suitable for bank financing after the NJOM-3 well has been completed and tested, since this should provide us with proven reserves at Njonji, but we have not been able to put either senior or mezzanine loans in place for the current well, so we have been looking for partners to farm in to the license to help fund the current well in order to minimise demands on shareholders. We currently have substantial discussions underway with several companies who are interested to farm in, but each of them requires more time to finalise their own financing and to be able to commit to the well. One positive consequence of the operational delay is that it has provided us with more time to complete these farm-out discussions which, provided they are successful, should allow us to finance the NJOM-3 well with little or no further demand on shareholders funds from that point on.

Overall, we remain confident about the Thali licence and the Njonji development. Since the OIL Reserve Report which was published last year, we have made substantial progress on well preparations, despite the delays, and our internally projected well costs are still running substantially below the cost estimates in that report, with our long lead items now already acquired and in place in Douala. The overall project economics remain robust and attractive, which is why we continue to attract farm-out interest.

However, in the meantime we will still need to raise some funds for working capital, because we have very little cash on hand. We already committed the funds we raised in January to long lead items and well planning (as promised at that time) and since April we have been relying on the limited funds we raised from the Bridging facility and a small share issue, together comprising less than US$1 million, to keep the well on schedule and our other operations working. As a result, the Company has substantial trade and other creditors and the Bridging facility, which was extended until 31 August 2019, is now overdue for repayment though remains subject to a grace period until 30 September 2019.

Our cash on hand and the funds we are expecting from our current VAT refund claim amount to just over US$160,000 at time of writing. HMRC has advised us that, as expected, they are seeking leave to appeal against the First Tier Tribunal (Tax Chamber) ("FTT") award in our favour, which was announced in July 2019; however HMRC's obligation is to process our VAT returns as usual pending the conclusion of their appeal process, which we expect will take more than a year. We are confident that the FTT award will be upheld; nevertheless, to be conservative, we have maintained the provision for VAT in our accounts and will maintain that provision until HMRC's appeal is finally resolved.

In respect of our other licenses, the main news (already discussed in our Annual Report) has been the successful Brulpadda well drilled by Total on their license adjoining our Algoa-Gamtoos license in South Africa, which is a 50-50 joint venture with our partner and operator, NewAge Energy Algoa (Pty) Ltd ("NewAge"). Total has announced a 1 billion boe gas-condensate discovery in the Outeniqua basin at Brulpadda, and our understanding is that Total is now planning further wells in the Outeniqua basin between the current discovery well and our own license. As NewAge has advised us that they have identified from our 2D seismic data a potential 364 million boe Deep Albian structure, analogous to Brulpadda, in the Outeniqua Basin Slope on the Algoa-Gamtoos license, this is an exciting development for us.

We are also working on finalisation of the JOA with Namcor and our local partner in respect of our new petroleum agreement in Namibia.

Altogether we have been busy all summer and making progress on our projects, even though we are quite frustrated at the delays to getting our NJOM-3 well underway in Cameroon. But we are continuing to press ahead as fast as we can, and we look forward to having more concrete news in the near future.

 

Jeremy Asher                                                                                   

Chairman and Chief Executive

 

10 September 2019

 

 

 

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		Six months ended 30 June 2019  (unaudited)		Six months ended 30 June 2018  (unaudited)
	Note	$		$
Revenue		-		-
Cost of sales		-		-
Gross profit		-		-
Other administrative expenses		(811,925)		(444,354)
Share-based payment charges incurred on issue of new equity	8	(301,222)		-
Share-based payment charges incurred on incentivisation of staff and consultants	8	(125,549)		(102,155)
Pre-licence expenditures		(810)		(3,584)
Impairment / (reversal of impairment) of exploration and evaluation assets	4	(30,924)		(2,806,166)
Total administrative expenses		(1,270,430)		(3,356,259)
Group operating loss		(1,270,430)		(3,356,259)
Finance income		655		1,043
Finance expense		(328,259)		3,792
Loss for the period before taxation		(1,598,034)		(3,351,424)
Taxation		-		-
Loss for the period after taxation		(1,598,034)		(3,351,424)
Other comprehensive income		-		-
Total comprehensive expense for the period		(1,598,034)		(3,351,424)
Basic loss per share (USc)	3	(0.30c)		(0.89c)
Diluted loss per share (USc)	3	(0.30c)		(0.89c)

 

 

 

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

		30 June 2019 (unaudited)	31 December 2018 (audited)
	Note	$	$
Non-current assets
Property, plant and equipment		-	-
Exploration and evaluation assets	4	22,107,324	19,646,399
		22,107,324	19,646,399
Current assets
Trade and other receivables	5	33,385	23,979
Cash and cash equivalents		330,029	331,395
		363,414	355,374
Total assets		22,470,738	20,001,773
Current liabilities
Trade and other payables	6	2,127,944	1,292,492
Total liabilities		2,127,944	1,292,492
Net assets		20,342,794	18,709,281
Equity
Share capital	7	18,244,493	15,599,626
Share premium		142,219,109	142,376,317
Retained losses		(140,120,808)	(139,266,662)
Total shareholders' equity		20,342,794	18,709,281

 

Signed on behalf of the Board of Directors

Jeremy Asher

Chairman and Chief Executive

10 September 2019

 

 

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

	Share capital	Share premium	1 Share-based payments reserve	Retained losses	Total
	$	$	$	$	$
At 1 January 2018	15,558,095	142,361,529	6,387,408	(141,969,571)	22,337,461
Shares issued on settlement of third party fees	41,531	14,788	-	-	56,319
Total comprehensive income for the period	-	-	102,155	(3,351,424)	(3,249,269)
At 30 June 2018	15,599,626	142,376,317	6,489,563	(145,320,995)	19,144,511
Shares issued on settlement of third party fees	-	-	-	-	-
Total comprehensive income for the period	-	-	35,029	(470,259)	(435,230)
At 31 December 2018	15,599,626	142,376,317	6,524,592	(145,791,254)	18,709,281
Shares issued for cash	2,405,461	-	-	-	2,405,461
Shares issued on settlement of fees	44,062	-	-	-	44,062
Shares issued on settlement of staff remuneration	195,344	-	-	-	195,344
Shares issue costs	-	(157,208)	-	-	(157,208)
Total comprehensive income for the period	-	-	743,888	(1,598,034)	(854,146)
At 30 June 2019	18,244,493	142,219,109	7,268,480	(147,389,288)	20,342,794

 

¹ The share-based payment reserve has been included within the retained loss reserve and is a non-distributable reserve.

 

 

 

 

INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS                       

		Six months ended 30 June 2019  (unaudited)	Six months ended 30 June 2018  (unaudited)
	Note	$	$
Cash outflow from operating activities
Group operating loss for the period		(1,270,430)	(3,356,259)
Depreciation of property, plant and equipment		-	415
Share-based payments	8	743,888	102,155
Impairment of intangible exploration and evaluation assets	4	30,924	2,806,166
Operating cash flow before changes in working capital		(495,618)	(447,523)
Decrease / (increase) in receivables and prepayments		(9,406)	2,572
Increase / (decrease) in trade and other payables		835,452	39,456
Cash used in operations		330,428	(405,495)
Interest received		655	1,043
Cash used in operating activities		331,083	(404,452)
Investing activities
Exploration and evaluation costs	4	(2,491,849)	(716,554)
Net cash used in investing activities		(2,491,849)	(716,554)
Financing activities
Cash proceeds from issue of ordinary share capital net of issue costs	7	2,487,659	56,319
Finance costs		(328,259)	3,792
Net cash from financing activities		2,159,400	60,111
Decrease in cash and cash equivalents		(1,366)	(1,060,895)
Cash and cash equivalents at beginning of period		331,395	2,151,476
Cash and cash equivalents at end of period		330,029	1,090,581

 

 

 

NOTES TO THE INTERIM FINANCIAL INFORMATION

 

1.         Accounting policies

a)      Basis of preparation

This interim financial report, which includes a condensed set of financial statements of the Company and its subsidiary undertakings ("the Group"), has been prepared using the historical cost convention and based on International Financial Reporting Standards ("IFRS") including IAS 34 'Interim Financial Reporting' and IFRS 6 'Exploration for and Evaluation of Mineral Reserves', as adopted by the European Union ("EU").

The condensed set of financial statements for the six months ended 30 June 2019 is unaudited and does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. They have been prepared using accounting bases and policies consistent with those used in the preparation of the audited financial statements of the Company and the Group for the year ended 31 December 2018 and those to be used for the year ending 31 December 2019. The comparative figures for the half year ended 30 June 2018 are unaudited. The comparative figures for the year ended 31 December 2018 are not the Company's full statutory accounts but have been extracted from the financial statements for the year ended 31 December 2018 which have been delivered to the Registrar of Companies and the auditors' report thereon was unqualified and did not contain a statement under sections 498(2) and 498(3) of the Companies Act 2006.

This half-yearly financial report was approved by the Board of Directors on 10 September 2019.

b)      Going concern

The Group will need to raise further funds or to agree a farm out or other transaction involving one or more of the Group's licenses in order to meet its liabilities as they fall due within the next 12 months. The Directors believe that they will need to raise funds of approximately £9.8 million in total over the coming twelve months to meet its minimum commitments (mainly to fund drilling activities in respect of the Thali license) but not all of this needs to be raised prior to the well spud. The Directors consider that there are a number of options available to them either through capital markets, farm-outs or asset disposals and are confident that these will be concluded satisfactorily within the necessary timeframes. The financial statements have therefore been prepared on a going concern basis.

However, there can be no guarantee that the required funds may be raised or transactions completed within the necessary timeframes. Consequently a material uncertainty exists that may cast doubt on the Group's ability to continue to operate and to meet its commitments and discharge its liabilities in the normal course of business for a period of not less than twelve months from the date of this report. The financial statements do not include the adjustments that would result if the Group was unable to continue in operation such as the impairment of the exploration assets.

2.         Operating segments

The Group has two reportable operating segments: Africa and Head Office. Non-current assets and operating liabilities are located in Africa, whilst the majority of current assets are carried at Head Office. The Group has not yet commenced production and therefore has no revenue. Each reportable segment adopts the same accounting policies. In compliance with IAS 34 'Interim Financial Reporting' the following table reconciles the operational loss and the assets and liabilities of each reportable segment with the consolidated figures presented in these Financial Statements, together with comparative figures for the period-ended 30 June 2018.

	Africa		Head Office		Total
	Six months ended 30 June 2019	Six months ended 30 June 2018	Six months ended 30 June 2019	Six months ended 30 June 2018	Six months ended 30 June 2019	Six months ended 30 June 2018
	$	$	$	$	$	$
Loss by reportable segment	30,539	2,822,162	1,567,495	529,262	1,598,034	3,351,424
Total assets by reportable segment 1	22,272,862	19,167,793	197,876	1,069,077	22,470,738	20,236,870
Total liabilities by reportable segment 2	(120,379)	(599)	(2,007,565)	(1,091,760)	(2,127,944)	(1,092,359)

 

¹ Carrying amounts of segment assets exclude investments in subsidiaries.

² Carrying amounts of segment liabilities exclude intra-group financing.

3.         Loss per ordinary share

		Basic & Diluted
		30 June 2019	30 June 2018
		$	$
Loss for the period		1,598,034	3,351,424
Weighted average number of ordinary shares in issue during the period		541,483,262	375,151,046
Dilutive effect of share options outstanding		-	-
Fully diluted average number of ordinary shares during the period		541,483,262	375,151,046
Loss per share (USc)		0.30c	0.89c

 

4.         Intangible Exploration and Evaluation (E&E) assets

		Exploration and evaluation assets	Goodwill	Total
Period-ended 30 June 2019		$	$	$
Cost
At 1 January 2019		91,654,861	8,023,292	99,678,153
Additions during the period		2,491,849	-	2,491,849
Disposals during the period		-	-	-
At 30 June 2019		94,146,710	8,023,292	102,170,002
Amortisation and impairment
At 1 January 2019		(72,008,462)	(8,023,292)	(80,031,754)
Impairment during the period		(30,924)	-	(30,924)
Disposals during the period		-	-	-
At 1 January and 30 June 2019		(72,039,386)	(8,023,292)	(80,062,678)
Net book value
At 30 June 2019		22,107,324	-	22,107,324
At 31 December 2018		19,646,399	-	19,646,399

 

In accordance with the Group's accounting policies and IFRS 6 the Directors' have reviewed each of the exploration license areas for indications of impairment. This is inherently an extremely judgmental exercise requiring the Directors to place a value on exploration projects that by definition are not in the development stage and are not therefore cash generating units. Having done so, based on the financial constraints on the Group, and specific issues associated with each license it was concluded that no further impairment was necessary beyond the impairment of the Zambian licenses 40 and 41 already made in the 2018 accounts.

The additions during the period represent $2.4 million in Cameroon (2018: $708k), $80k in South Africa (2018: $nil) and $31k in Zambia (2018: $9k) (subsequently impaired). The focus of the Group's activities during this period has been on further evaluating the Thali block in Cameroon and delineating the most suitable drilling location on the Njonji discovery for a 2019 appraisal well.

5.         Trade and other receivables

	30 June 2019  (unaudited)	31 December 2018 (audited)
	$	$
Trade and other receivables	33,385	23,979

 

 

6.         Trade and other payables

	30 June 2019 (unaudited)	31 December 2018  (audited)
	$	$
Trade and other payables	1,958,399	1,246,863
Accruals	169,545	45,629
	2,127,944	1,292,492

 

Included within trade and other payables are amounts totalling $1.1 million (2018: $944k) with respect to UK VAT payable.

As has been previously noted, HMRC have issued assessments totalling £843k excluding interest and penalties. This was appealed and referred to the First-Tier Tribunal, which ruled in favour of the Company in July 2019.

Whilst Tower was successful in defending its position at the First-Tier Tribunal, it does not propose reflecting any changes in its financial statements until such time as the final position and the status of any HMRC appeal is fully known. The amount therefore included within trade and other payables represents the  £843k originally assessed against the Company (exclusive of interest). Provision has been made against all ongoing receivables at the balance sheet date, with any movements being charged to the income statement.

The Company continues to firmly believe that it has complied in all material respects with UK VAT legislation, which is further supported by the findings of the judge at the First-Tier Tribunal and discussions with its advisors.

 

7.         Share capital

		30 June 2019 (unaudited)	31 December 2018 (audited)
		$	$
Authorised, called up, allotted and fully paid
580,716,052 (2018: 377,335,427) ordinary shares of 1p		18,244,493	15,599,626

 

The share capital issues during the period are summarised below:

		30 June 2019  (unaudited)	31 December 2018 (audited)
		$	$
Authorised, called up, allotted and fully paid
580,716,052 (2018: 377,335,427) ordinary shares of 1p		18,244,493	15,599,626
	Number of shares	Share capital at nominal value	Share premium
Ordinary shares		$	$
At 1 January 2019	377,335,427	15,599,626	142,376,317
Shares issued for cash	185,000,000	2,405,461	-
Shares issued on settlement of fees	3,380,625	44,062	-
Shares issued on settlement of staff remuneration	15,000,000	195,344	-
Share issue costs	-	-	(157,208)
At 30 June 2018	580,716,052	18,244,493	142,219,109
Deferred shares		$	$
At 1 January and 30 June 2019	653,483,333	-	-

 

 

8.         Share-based payments

In the Statement of Comprehensive Income the Group recognised the following charge in respect of its share based payment plan:	Six months ended 30 June 2019  (unaudited)	Six months ended 30 June 2018  (unaudited)
	$	$
Included within administrative costs:
Share-based payment charges incurred on issue of new equity	(301,222)	-
Share-based payment charges incurred on incentivisation of staff and consultants	(125,549)	(102,155)
Included within finance expense:
Share-based payment charges incurred on issue of options and warrants as part of loan financing facilities	(317,117)	-
Total recognised share based payment plan charges	(743,888)	(102,155)

Options

Details of share options outstanding at 30 June 2019 are as follows:

 

			Number in issue
At 1 January 2019			1,617,400
Awarded during the period			70,000,000
At 30 June 2019			71,617,400

 

Date of grant	Number in issue	Option price (p)	Latest           exercise date
27 Dec 14	16,000	1.750	27 Dec 19
09 Dec 15	48,000	0.475	09 Dec 20
16 Mar 16	53,400	0.475	16 Mar 21
26 Oct 16	1,500,000	0.023	25 Oct 21
24 Jan 19	70,000,000	1.250	24 Jan 24
	71,617,400

These options vest in the beneficiaries in equal tranches on the first, second and third anniversaries of grant.

 

Warrants

Details of warrants outstanding at 30 June 2018 are as follows:

			Number in issue
At 1 January 2019			43,439,692
Awarded during the period			206,497,713
At 30 June 2019			249,937,405

 

Date of grant	Number in issue	Warrant price (p)	Latest           exercise date
09 Nov 17	31,853,761	1.000	09 Nov 22
01 Jan 18	2,542,372	1.000	01 Jan 23
01 Apr 18	2,083,333	1.500	01 Apr 23
01 Jul 18	2,272,726	1.780	30 Jun 23
01 Oct 18	4,687,500	1.575	30 Sep 23
24 Jan 19	112,211,999	1.250	23 Jan 24
16 Apr 19	90,000,000	1.000	14 Apr 24
30 Jun 19	4,285,714	1.000	28 Jun 24
	249,937,405

9.         Subsequent events

1 July 2019: The Company issued 4,285,714 warrants to Directors in lieu of £15,000 (in aggregate) of Directors fees to Peter Taylor (non-executive director) and Jeremy Asher (as Chairman) in partial settlement of fees due for the period from 1 July 2019 to 30 September 2019, to conserve the Company's working capital. The warrants are exercisable at a price of 1.00 pence ("Warrants"), which is a premium of 21% to the closing share price of 0.825 pence on 28 June 2019, and are exercisable for a period of 5 years from the date of issue;

9 July: The First-Tier Tribunal (Tax Chamber) has on 8th July 2019 delivered its decision in favour of the Company's appeal against HMRC's 2016 decisions to deny it credit for input VAT. HMRC has applied for leave to appeal to the Upper Tribunal;

30 July: The Company agreed an extension of its Bridging Loan Facility ("Facility") of US$750,000. The terms of the extension include the issue of 3 million of attached five-year 1.0 pence warrants with the Facility now being due for repayment on or before 31 August 2019, representing a two month extension from its original term;

28 August: The Company announced an update on operations on the Thali block in Cameroon and on well financing. As disclosed in the Company's operational update in May, the Company received additional data from the original Total wells at NJOM-1 and NJOM-2, which indicated that further site preparation work would be required before the drilling rig for the NJOM-3 well is moved to site. The most suitable vessel to undertake this site preparation work is now en route to West Africa with the expectation that this work can be completed during September 2019. The Company has also signed an LOI to use the COSL Seeker jack-up rig for the NJOM-3 well, in place of the Vantage Topaz Driller.