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Tuesday, 14 November 2017

Wentworth Resources Limited : Q3 2017 Financial Statements and MD&A

Wentworth Resources Limited    

Published: 08:00 CET 14-11-2017 /GlobeNewswire /Source: Wentworth Resources Limited / : WRL /ISIN: CA9506771042

Wentworth Resources Limited : Q3 2017 Financial Statements and MD&A

 

 

PRESS RELEASE

14 November 2017


Wentworth Resources Limited

("Wentworth" or the "Company")

Q3 2017 Financial Statements and MD&A

 

Wentworth Resources Limited, the Oslo Stock Exchange (OSE: WRL) and London Stock Exchange (AIM: WRL) listed independent, East Africa-focused oil & gas company, today announces its results for the quarter and nine months ended 30 September 2017.

 

Financial


Gas sales revenue of $4.1 million for the quarter, compared to $2.15 million in Q2 2017 and $2.38 million in Q3 2016.  For the first nine months of 2017 revenue was $9.20 million compared to $9.02 million in 2016. 

  • Net profit of $0.7 million and net loss of ($0.95) million for the three and nine month periods of 2017 respectively compared to losses of ($3.59) million and ($4.67) million in 2016 respectively.
  • Capital expenditures of $0.84 million and $2.14 million for the three and nine month periods respectively compared to $0.97 million and $3.79 million in 2016 respectively.
  • Cash and cash equivalents on hand of $3.36 million at 30 September 2017 compared with $0.98 million on hand at 31 December 2016.
  • Working capital of $13.48 million at 30 September 2017 compared to $9.08 million at 30 June 2017 and $4.96 million at 31 December 2016.
  • At the date of the press release TPDC has initiated payment for the October 2017 gas sales invoice totalling $2.6 million cash net to Wentworth.

 

Operational

 

Tanzania

  • The level of gas demand has stabilized during 2017 compared to 2016.
  • The Mnazi Bay field achieved average gross daily gas production of 60 MMscf/d during Q3 2017 and 45 MMscf/d year to date 2017. Full year 2017 production forecast remains within Management's previously guided range of between 40 and 50 MMscf/d. 
  • During the course of 2017 receivables increased but have stabilized at between four and five months outstanding from the main purchaser of Mnazi Bay gas.  The Company continues to manage working capital with creditors to match the settlement of obligations with the timing of payments for gas sales.
  • Cash payments of $5.18 million were received relating to gas sales invoices, net to Wentworth, during Q3.

 

Mozambique

  • Completed the analysis of the Tembo-1 well drilled in 2014 and the reprocessing of existing 2-D vibroseis seismic data from the Rovuma Onshore Block while continued mapping and interpretation of all existing data.
  • Continued planning of the drilling activities for an appraisal of the Tembo-1 gas discovery, including designing the appraisal well, selecting a well location, obtaining necessary environmental permits and initiating preliminary procurement activities.
  • Continued the farm-out process to secure an industry partner to participate in the appraisal programme in advance of drilling the appraisal well in 2018.

 

Geoff Bury, Managing Director, commented:

 

"Q3 2017 was the strongest production performance in the Company's history with gross gas sales averaging 60 MMscf/d, a level anticipated to be achieved for the remainder of 2017.  In the near term, the Company is in a dominant position to take full advantage of increasing gas demand in Tanzania from the electrical power generation and industrial demand and reduced gas volumes supplied into the transnational pipeline by peers.  There is near-term incremental gas demand expected from the start of the commissioning of the newly constructed, government owned, Kinyerezi-2 power station and commencement of gas fired power generation at the Dangote Cement plant.  The combined gas demand is expected to initially require 10-12 MMscf/d of gas, at the time of start-up in the next two to four months, increasing to approximately 60 MMscf/d when these facilities become fully operational, which is expected during the second half of 2018.

 

We have substantially advanced pre-drilling activities for the Tembo appraisal well in our oil and gas concession in Mozambique with a plan to commence drilling operations late in Q2 2018.  The Company has completed the Tembo-2 well design and has commenced the procurement process for long lead items.  Furthermore, we have identified drilling rigs in the region capable of drilling to the planned depth and are in the process of determining the civil works necessary to prepare the well site location.  In parallel, we are actively seeking one or more industry partners to participate in the drilling of this prospect and to-date have received positive interest.  If successful, it will provide significant running room within the block and should add substantial value to the investment in Mozambique."

 

A conference call for investors, analysts and other interested parties will be held this morning at 01.30 MST (Calgary) / 08.30 GMT (London) / 09.30 CET (Oslo). 

 

Dial in numbers:

Please dial in 5-10 minutes prior to the start time and join the call by referencing "Wentworth Resources Q3 Results".

Participant Dial in Numbers:

All locations: + 44 20 3059 8125


United Kingdom (Local): 020 3059 8125


United States (Local): +1 724 928 9460


Canada (Toll Free): +1 855 318 8291


Norway (Toll Free): 800 69 940

 

-Ends-

 

Enquiries: 

Wentworth

Lance Mierendorf

Chief Financial Officer

lance.mierendorf@wentworthresources.com

+1 403 680 8773

 

 

Katherine Roe

Vice President Corporate Development & Investor Relations

 

katherine.roe@wentworthresources.com

+44 7841 087 230

Stifel Nicolaus Europe Limited

AIM Nominated Adviser and Broker (UK)

Callum Stewart

Ashton Clanfield

+44 (0) 20 7710 7600

GMP FirstEnergy

Broker (UK)

Hugh Sanderson

Jonathan Wright

+44 (0) 20 7448 0200

Peel Hunt LLP

 

 

Broker (UK)

Richard Crichton

Ross Allister

Chris Burrows

+44 (0) 20 7418 8900

 

FTI Consulting

Investor Relations Adviser (UK)

Edward Westropp

Kim Camilleri

wentworth@fticonsulting.com

+44 (0) 20 3727 1000

Crux Advisers

Investor Relations Adviser

(Norway)

Carl Bachke

+47 909 808 48

 

 

Key extracts of the Q3 2017 Management Discussion and Analysis are set out below and should be read in conjunction with the complete Q3 2017 Management Discussion and Analysis which is available on the Company's updated website at http://www.wentworthresources.com.

 

Operations Overview

 

Mnazi Bay Concession, Tanzania

 

Mnazi Bay gas sold to Tanzania Petroleum Development Corporation ("TPDC") is primarily utilized by Tanzania Electricity Supply Company Limited ("TANESCO") as a fuel source to power its electrical generation plants serving the National Electricity Grid in Tanzania.  During Q3 2017, Mnazi Bay gas was used to fuel two TANESCO-owned power stations located within the city of Dar es Salaam: Kinyerezi-1 and Ubungo-II.  Additional gas-fired power generation is expected to materialize within the next three to eighteen months with the completion and commissioning of the Kinyerezi-2 power station and the Kinyerezi-1 Extension.  The 240 MW Kinyerezi-2 power station is expected to commence the commissioning process in December 2017 with the first of six gas power turbines being tested and becoming operational.  Completion of the commissioning process for the entire Kinyerezi-2 power station is expected by Q3 2018.  Demand for Mnazi Bay gas to power this facility is expected to be 5 MMscf/d at start up and reach 36 MMscf/d by the end of Q3 2018.  Commissioning of the 185 MW Kinyerezi-1 Extension is expected to commence during Q4 of 2018 and, once fully operational in 2019, is expected to require an additional 35 MMscf/d to generate electrical power.

 

For the three and nine months of 2017, the Mnazi Bay gas field delivered 59.9 MMscf/d and 44.7 MMscf/d respectively compared to 34.3 MMscf/d and 44.2 MMscf/d respectively during 2016.  Both the Kinyerezi-1 and Ubungo-II power stations operated at near full capacity during the entire third quarter of 2017 resulting in a 75 percent increase compared to the same quarter during 2016.   In addition, higher quantities of Mnazi Bay gas were used for electrical power generation during Q3 2017 compared to Q2 2017 as hydro power generation as a substitute for natural gas was significantly reduced following the end of the rainy season and lower quantities of gas were supplied by industry competitors. 

 

Production from Mnazi Bay gas has recently peaked at over 70 MMscf/d in October 2017 while full year 2017 production is anticipated to be in the high end of Management's guidance of between 40 - 50 MMscf/d.

 

During Q2 2017, TPDC commenced delivery of Mnazi Bay gas to its first industrial customer, a newly constructed ceramic tile factory, Goodwill Ceramics.  Gas demand to power the factory is expected to reach 7 MMscf/d by the end of 2017 and be sustained at that level thereafter.  At the end of Q3 2017, gas deliveries to the ceramic tile company were approximately 5.5 MMscf/d.

 

Additional gas demand from growth in the industrial sector in Tanzania is expected to be realized in the near future.  During 2017, TPDC concluded a commercial arrangement to supply gas to a Dangote cement plant for power generation and for firing its klinker kilns used in the production of cement.  A new gas pipeline connecting the temporary power generation unit to the TPDC owned 36-inch transnational pipeline is currently in the process of being installed. The installation of a 35MW power generation unit and associated power supply to the Dangote cement plant is expected to be commissioned during Q1 2018.  Dangote also announced a plan to eliminate coal and convert the entire plant to gas, including the kiln furnaces for roasting the klinker, envisaging a permanent combined cycle power plant being built on the premises of the Dangote Cement factory. 

 

Initial gas demand of between 5 and 7 MMscf/d for temporary power generation is expected to commence towards the end of Q1 2018.   The kilns are expected to be fired by natural gas commencing Q2 2018, and will require an additional 8 and 10 MMscf/d of natural gas, increasing to between 20 and 25 MMscf/d in 2019. The temporary 35MW gas fired plant is planned to be replaced by the combined cycle plant using steam turbines in Q1 2019.

 

On a much smaller scale, Mnazi Bay gas is sold directly to TANESCO for electrical power generation at a 18MW power plant at Mtwara. The power station provides electricity to the isolated grid serving the region and includes the towns of Mtwara, Madimba, Lindi, Msassi and Newala.  Gas quantities of between 2 and 2.5 MMscf/d are being supplied to the power plant through an 8-inch pipeline which is owned by the Mnazi Bay joint venture.

 

During the third quarter of 2017, minor works continued the expansion of the Mnazi Bay joint venture owned processing facilities at Msimbati.  Primary processing of the Mnazi Bay gas is required at Msimbati to remove free liquids before the gas enters the sub-marine pipeline that connects into the Madimba Gas Processing Facility.  The expansion of the processing facilities, together with tying-in all 5 wells completes all the necessary field infrastructure work to enable delivery of gas volumes expected to be in excess of 100 MMscf/d to the TPDC owned pipeline to Dar es Salaam. Commissioning of these new facilities is expected in December 2017.  With the completion of these capital investments it is anticipated that there will not be a need for significant additional capital expenditure until the average daily demand exceeds 100 MMscf/d for an extended period of time.

 

During July 2017, the Government of Tanzania enacted the following laws: the Natural Wealth and Resources (Permanent Sovereignty) Act, 2017, the Written Laws (Miscellaneous Amendments) Act, 2017, and the Natural Wealth and Resources Contracts (Review and Re-Negotiation of Unconscionable Terms) Act, 2017 which cover activities within the energy and mining sectors. The first and second of these acts are forward looking and only apply to agreements entered into on or after the date of the legislative changes. These acts contain new regulations including but not limited to regulations that all arbitration processes must be heard within Tanzania and place restriction on the ability to move funds out of Tanzania. The third act covers existing agreements and provides, among other things, the right to the Government of Tanzania to renegotiate clauses within existing agreements that are deemed to have unconscionable terms.  The Company has undertaken a review of these new laws to determine their implications on the Company's Tanzania operations. Based on our current understanding of this new legislation and given the existing terms and conditions of our relevant agreements, we do not anticipate any material impact on our existing operations in the short to medium term.  It is unclear whether there will be any material impact in the long-term.  

 

Appraisal of the Rovuma Onshore Block, Mozambique

 

Extension of the Rovuma Onshore Exploration Concession to conduct an appraisal of the Tembo-1 gas discovery was granted to Wentworth by the Government on June 15, 2016. On that same date, Wentworth was approved as the operator of the concession and now holds an 85 percent participation interest, with the Government holding the remaining 15 percent.  The anticipated work program includes drilling of an appraisal well, which is scheduled to commence operations by June 2018. 

 

During Q3 2017, activities mainly involved reprocessing and analysis of existing seismic data with a view to identifying a well site location, obtaining environmental licenses, planning for the drilling of an appraisal well and compilation of tenders for the procurement of a drilling rig and long lead items such as casing and tubing for the well.

 

The Tembo-2 well will appraise the discovery made at Tembo-1 Well in December 2014. Tembo-1 was drilled to 4,553m measured depth.  All data available from the Tembo 1 well has been thoroughly examined by the Company. The Tembo 2 appraisal well is designed to reach a total depth of 3,200m and is planned as a vertical appraisal well to the Lower Cretaceous.  Wentworth has started a process to procure the drilling rig and long lead items for the appraisal well. Expressions of interest (EOI) have been prepared for supply of the drilling rig and casing and tubing. The Company has identified several drilling rigs currently located within the region which are capable of drilling the planned appraisal well. The two EOIs are expected to be published in a Mozambican newspaper by the end of 2017 with an invitation to tender being sent to prospective bidders prior to year end.

 

Finalization of the well location and subsequent site visits to further inspect the site for the design of the well pad and site preparation, have been delayed due to the deteriorating security situation in and around the Macimboa da Praia region which is adjacent to the Company's concession area.  Clashes between police and extremists have increased during October resulting in a heightened risk profile.  Wentworth is monitoring the security situation closely and has sought advice from the Mozambican Authorities, the Canadian High Commission, other companies operating in the region and local security and risk management companies.

 

In July 2017, a formal farm-out process was initiated to secure one or more industry partners to share in the risk of drilling of the Tembo-2 appraisal well.  The exercise is ongoing, and Wentworth anticipates securing an industry partner prior to commencing drilling operations in 2018.  Funding of the drilling of the Tembo-2 appraisal well will be through internally generated cash flows and sharing of the cost with one or more industry partners.

 

 

Financial Overview

Revenue

 

Gas sales to TPDC

 

The Company recorded net sales to TPDC of 1,256,662MMBtu during the three months ended September 30, 2017, an increase from 2016 of 78%.  On a year-to-date basis, 2017 sales volumes were consistent with 2016. A more constant level of gas demand from gas fired electrical power facilities was experienced during 2017 as many of the start-up, commissioning, repairs to power plants and problems with Government owned electrical power transmission and distribution infrastructure experienced during 2016 were less prevalent.

 

The gas sales price was $3.04/MMBtu (Q3 2016 - $3.01/MMBtu) for total revenue during Q3 2017 of $3.82 million (Q3 2016 - $2.12 million). 

 

Gas sales to TANESCO

 

Gas sales to an 18 MW gas-fired power plant in Mtwara, Tanzania during the third quarter and nine months ended September 30, 2017 were 51,186 MMBtu (Q3 2016 - 49,256 MMBtu) and 153,116 MMBtu (2016 - 144,473 MMBtu) respectively while the gas price remained fixed and unchanged at $5.36/MMBtu. The power plant generally operates at below capacity and consumes on average between 2.0 and 2.5 MMscf/d.  Total revenue earned during the quarter was $0.27 million compared to $0.26 million during the same quarter in 2016.  

Production and operating expense

 

Production costs within the Mnazi Bay Concession comprise the Company's share of field operating costs, Operator's administration and Operator's overhead required to manage production operations.  Management expects that, on a per Mscf basis, production costs will generally reduce as gas volumes increase as most of the field operating costs are fixed in nature.  Gross third quarter production was 59.9 MMscf/d compared to 34.3 MMscf/d during the third quarter of 2016. On a year-to-date basis, production averaged 44.7 MMscf/d in 2017 compared to 44.2 MMscf/d during 2016. Production and operating expenses during the third quarter were $0.92 million (quarter ended September 30, 2016 - $0.78 million) and were higher in Q3 2017 as the operator billed higher overhead costs compared to the same quarter in 2016.  For the nine months of 2017, operating expenses were $0.96 per Mcf compared to $0.87 per Mcf for the same period in 2016.   Third quarter operating expenses were $0.72 per Mcf compared to $1.05 per Mcf for Q3 2016 as higher production volumes were experienced during 2017.

General and administrative ("G&A") expense

G&A expenses during the third quarter of 2017 were $1.10 million compared to $1.07 million for the same period in 2016. During the nine months of 2017, G&A expenses were $3.12 million compared to $4.13 million, a reduction of 25%. Cost saving initiatives and capitalization of costs for Mozambique operation after the Company became the operator in Q3 2016 have contributed to a reduction in ongoing expenses.  The table below shows the breakdown of G&A expenses:

The table below shows the breakdown of G&A expenses:

 

Three months ended

 September 30,

Nine months ended

September 30,

(Figures in $000's)

2017

2016

2017

2016

Employee salaries and benefits

423

406

1,246

1,682

Contractors and consultants

166

198

342

605

Travel and accommodation

114

130

267

407

Professional, legal and advisory

143

94

508

471

Office and administration

122

131

398

536

Corporate and public company costs

134

106

354

432

 

1,102

1,065

3,115

4,133

 

The Company maintains offices in Calgary, Canada, Dar es Salaam, Tanzania and Maputo, Mozambique and is listed on the public stock exchanges in both Oslo, Norway (Oslo Stock Exchange) and London, UK (AIM). Many G&A expenditures are fixed in nature and include such items as corporate and public company costs (exchange listing, transfer agent and directors' fees), legal fees supporting the compliance with corporate and public obligations (Canada, UK and Norway) and professional advisory (external audit, resources engineering and Nomad for our AIM listing).

 

Following the appointment as Operator of the Rovuma Onshore Block in Mozambique in June 2016, the Company established an operational presence in Mozambique; directly attributable costs relating to the appraisal activities within the Rovuma Onshore Block are being capitalized.  Directly attributable costs during the third quarter and year to date totaling $0.20 million (Q3 2016 - $0.39 million) and $0.91 million (YTD 2016 - $0.53 million) were capitalized.

 

Share based compensation

 

During the third quarter of 2017, the Company recognized $0.03 million (Q3 2016 - $0.11 million) as share based compensation expense.  For the nine months of 2017, $0.18 million was recognised compared to $0.47 million during the same period in year 2016.

During the third quarter of 2017, no options were granted, exercised or forfeited (during Q3 2016 - 350,00 options were forfeited, and no options were granted or exercised). A total of 10,600,000 stock options were outstanding at September 30, 2017 with 9,266,671 vested and exercisable with an average exercise price per share of NOK 4.36 ($0.55).

Depreciation and depletion

 

Depreciation and depletion of gas producing assets of $1.24 million (Q3 2016 - $0.83 million) or $0.97/Mscf (Q3 2016 - $1.07/Mscf) were recorded during third quarter of 2017. For the nine months of 2017, $2.79 million (Q3 2016 - $3.14 million) or $0.97/Mscf (Q3 2016 - $1.06/Mscf). At September 30, 2017, the net book value of natural gas property, plant and equipment was $91.25 million (September 30, 2016 - $94.16 million).

 

Finance income and costs

 

Finance income and costs that are settled in cash are interest income, interest expense and realized foreign exchange gain/(loss) on current transactions.  All other finance income and costs are non-cash in nature.

 

During the quarter ended September 30, 2017, interest expense on the long-term loans totalled $0.35 million (Q3 2016 - $0.52 million).  For the nine months of 2017, interest expense was $1.23 million compared to $1.73 million for the same period in 2016. During the quarter and nine months ended September 30, 2017, non-cash accretion of the TPDC receivable of $0.69 million (2016 - $1.27 million) and $1.46 million (2016 - $3.38 million) was recorded in finance income. During the first quarter, the Company revised the accounting estimates used to determine the expected amounts and timing of future revenue streams to determine collection of the TPDC receivable resulting from revised gas demand estimates for future periods obtained from industry sources.  This resulted in a $0.87 million being charged to finance costs (2016 - $2.13 million).   The accounting estimates used to determine the balance of amortized cost of the TPDC receivable remain unchanged for the third quarter of 2017.

 

Non-cash accretion of the Tanzanian Government receivable (Umoja/power) of $0.16 million (2016 - $0.12 million) and $0.31 million (2016 - $0.35 million) for the quarter and nine months ended September 30, 2016 was recorded in finance income during the quarter ended September 30, 2017.  Similar to the determination of the TPDC receivable, during Q1 2017, the Company revised the accounting estimates resulting in an amount of $0.49 million being charged to finance cost (2016 - $0.09 million).  The accounting estimates used to determine the balance of amortized cost of the Tanzanian Government receivable remain unchanged for the third quarter of 2017.

 

Deferred tax expense/recovery

 

At September 30, 2017, the deferred tax asset of $30.86 million reflects the estimated future tax benefit of accumulated tax losses within the Tanzanian operations. The commencement of commercial production and sales of gas under the long-term Gas Sales Agreement ("GSA") allowed for the recognition of deferred tax asset on the accumulated tax losses estimated to be utilized in the future.  A non-cash deferred tax expense of $0.52 million (2016 - expense of $2.70 million) and $0.29 million (2016 - expense of $3.08 million) has been recorded in the quarter and nine months ended September 30, 2017 respectively. 

 

Receivables from gas delivered to TANESCO

 

The Company's ongoing exposure to receivables from TANESCO is associated with gas sales from the Mnazi Bay Concession to the 18 MW gas-fired power plant located in Mtwara, Tanzania.  At September 30, 2017, the Mnazi Bay joint venture partners were owed nine months of gas sales, with $1.54 million owed to Wentworth. Subsequent to quarter end, TANESCO has paid three months of invoices relating to the outstanding balance at September 30, 2017 totaling $0.54 million (inclusive of the Company's share of the TPDC receivable amount relating to this gas sale).

 

Receivables from gas delivered to TPDC

 

An amount of $10.43 million is owed to Wentworth at September 30, 2017, of which four months invoices are past due. Subsequent to quarter end, TPDC has paid $1.59 million for the February 2017 gas sales invoice and, as of the date of this MD&A, has initiated payment of $2.61 million for the October 2017 gas sales invoice.  The total amount of these two invoices is $4.20 million net to Wentworth (inclusive of the Company's share of the TPDC receivable amount relating to this gas sale). At December 31, 2016, two months worth of invoices were outstanding. TPDC's ability to settle gas sales invoices to the Mnazi Bay joint venture in a timely manner is directly impacted by the timeliness of TPDC receiving payment for gas it sells to TANESCO owned electrical power generation plants. Recently, TANESCO has been inconsistent with paying TPDC in a timely manner for the gas that TANESCO purchase.  This has a direct impact on the cash flows of the Mnazi Bay joint venture partners. Wentworth and the operator of the Mnazi Bay Concession continue to engage with both TPDC and TANESCO on finding ways to improve the timeliness of settling obligations.

 

Long-term receivable - TPDC

The Company has a receivable from TPDC, a 20 percent participating interest partner in the Mnazi Bay Concession, for TPDC's share of past development and operating costs that were paid by the Company prior to June 30, 2009. In addition, the Company has been paying its proportionate share of TPDC's share of development and operating costs incurred subsequent to June 30, 2009, the value of which has been added to the TPDC receivable balance. The Company will recover this receivable from an agreed percentage of TPDC's share of current and future revenue from the Mnazi Bay Concession.  The undiscounted face value of the TPDC receivable at September 30, 2017 is $20.59 million (December 31, 2016 - $27.15 million).  Due to its long-term nature, the TPDC receivable has been discounted to $18.34 million (December 31, 2016 - $24.84 million).  With the passage of time and as gas sales are realized, the carrying amount of the TPDC receivable is accreted up to the face value with a corresponding credit to finance income. 

 

Based on the Company's internal estimates of potential gas sales volumes, the $20.59 million receivable as at September 30, 2017 is expected to be fully recovered by Q4 2018.  The recovery of the TPDC receivable is expected to provide a significant source of cash flows to the Company during this period of recovery.  As gas sales are realized, the current portion of the long-term receivable is transferred to accounts receivable and settled at the time cash payments are received from purchasers of Manzi Bay gas.

 

At September 30, 2017, the current portion of the TPDC receivable is $13.20 million compared to $12.28 million at December 31, 2016.  During Q3 2017, $3.57 million was recovered from TPDC's share of gas sales.  The current portion of the receivable is updated at each reporting period and is calculated taking into consideration the estimated timing and amounts of future gas sales.

 

Long-term receivable - Tanzanian Government (Umoja/power)

The Company has an agreement with the Government of Tanzania (TANESCO, TPDC and the Ministry of Energy and Mines ("MEM")) to be reimbursed, at cost, for past project development costs associated with transmission and distribution ("T&D") expenditures. An audit of the Mtwara Energy Project ("MEP") development expenditures was completed in November 2012 and costs of approximately $8.12 million were verified to be reimbursable. After deducting costs associated with the Tariff Equalization Fund and VAT input credits associated with the MEP totaling $1.61 million, the amount agreed to be reimbursed was $6.51 million.  The receivable is considered long-term in nature and has been discounted to reflect the anticipated timing of collection.  The undiscounted face value of the Tanzanian Government receivable (Umoja/power) at September 30, 2017 is $6.51 million (December 31, 2016 - $6.51 million) while the discounted value, taking into consideration the anticipated time of collection, is $5.31 million (December 31, 2016 - $5.48 million).  Management continues working with the Government of Tanzania on agreeing a mechanism to settle the outstanding balance and anticipates recovering the amounts from the Government's share of revenue generated from the Mnazi Bay Concession. Timing of reaching an agreement on the reimbursement procedure is indeterminable. The Government initiated a second audit of the costs to verify the balance owing, the results of which are expected to be received in the coming months.

  

Capital expenditures

During the third quarter of 2017, capital spending totaled $0.84 million which were primarily incurred on appraisal activities in Mozambique including technical evaluation of the Tembo-1 well, seismic reprocessing and interpretation, preliminary planning for drilling an appraisal well in 2018 and ongoing in-country operations.

 

(Figures in $000's)

Three months ended

 September

Nine months ended

 September

 

2017

2016

2017

2016

Exploration and evaluation assets

 

 

 

 

Mozambique

 

 

 

 

  Seismic reprocessing and interpretation

  and analysis of Tembo-1 well results

160

153

414

153

Drilling preparation and planning

180

-

180

-

  Exploration drilling

-

-

-

950

  Operator and indirect overhead

201

388

864

533

 

541

541

1,458

1,636

Tanzania

 

 

 

 

  Seismic acquisition, processing

  and interpretation

 

-

 

9

 

-

 

26

 

Property, plant and equipment

 

 

 

 

Tanzania

 

 

 

 

  Field infrastructure

99

317

402

1,724

  Other field development capital

204

98

279

393

 

303

415

681

2,117

Canada

 

 

 

 

  IT and office assets

-

-

-

9

 

 

 

 

 

 

844

965

2,139

3,788

 


 External debt facilities

 

Medium term $20 million credit facility

 

The principal balance outstanding on the $20.0 million credit facility at September 30, 2017 was $13.32 million.  During the nine months of 2017, principal payments of $3.35 million were made.

 

During the second quarter of 2017, the Company executed amendments to the credit facility agreement which include the restructuring of principal loan payments and the addition of the following new provisions:

  • the addition of a Debt Service Coverage Ratio and Loan Live Coverage Ratio as financial covenants;
  • a requirement to maintain a minimum cash balance;
  • a cash flow waterfall procedure to ensure certain cash proceeds from gas sales are used in settling obligations in priority; and
  • in the event the Company decides to accelerate principal payments using funds not generated internally a prepayment fee of 25 percent of interest forgone is required.

 

The Company and the lender are in ongoing discussions on agreeing the details and processes relating to implementing and monitoring the new provisions.

Principal repayments on the credit facility are set out in the following table. 

Principal repayment date

Repayment amount

(Figures in $000's)

April 30, 2018

1,665

July 30, 2018

1,665

October 30, 2018

1,665

January 30, 2019

1,666

April 30, 2019

1,665

July 30, 2019

1,666

October 30, 2019

1,665

January 30, 2020

1,664

 

13,321

  

Medium term $6 million credit facility

 

At September 30, 2017, the principal amount outstanding on this facility was $3.0 million.  During the nine months of 2017, principal payments of $1.0 million were made.

 

All provisions of the $6.0 million credit facility remain unchanged from the original loan agreement executed in December 2014.   Interest is paid on a semi-annual basis, in arrears, on the principal repayment date.  The principal repayment dates are as follows:

 

Principal repayment date

Repayment amount

(Figures in $000's)

December 8, 2017

1,000

June 8, 2018

1,000

December 8, 2018

1,000

 

3,000

 

Overdraft $2.5 million credit facility

 

During 2017, the Company secured $2.5 million overdraft credit facility with a TIB Corporate Bank ("TIB Corp"). The overdraft facility has an interest rate of the lender's base lending rate minus 1% per annum to be paid monthly.  At September 30, 2017, the lender's base lending rate was 9%. 

A total of $1.09 million and $1.65 million was drawn from the overdraft credit facility during the three and nine months ended September 30, 2017 respectively. Subsequent to quarter end, a further $0.85 million was drawn and the overdraft credit facility has been fully drawn.

Security provided to the lender includes a debenture over the fixed and floating assets of the Company's Tanzanian assets and a deed of assignment equivalent to approximately 20% of the revenue/cash flow from sales of natural gas from the Tanzanian assets. The Company expects to draw on the full amount of the facility during the second half of 2017 and utilize funds for short-term working capital purposes.

Shares, share capital and dividends

 

On May 23, 2017, the Company completed a private placement and issued 16,953,496 new common shares, for cash consideration of $0.32 (GBP0.25 or NOK2.73) per share for total gross proceeds of $5.53 million (GBP4.2 million or NOK46.3 million).

Following the private placement offering the Company had 186,488,465 common shares issued and outstanding.  All outstanding shares at September 30, 2017 are of the same class and with equal voting and dividend rights. The Company's ordinary shares are listed on the Oslo Stock Exchange (ticker: WRL) and denominated in Norwegian Kroner. The Company's shares are also traded on the Alternative Investment Market of the London Stock Exchange (ticker: WRL) and denominated in British Pounds.

 

As the Company is in the early stage of its operations, it does not have a formal dividend policy. No dividends have ever been declared or paid by the Company. There are no restrictions on dividend distributions.  At the Annual General Meeting in 2017, the Board of Directors did not propose dividends to be paid for the year ended December 31, 2016.  Proposals for dividend distribution in future years will be subject to assessment of business performance, operating environment, and growth opportunities in determining the appropriate level in any specific year.

  

Related party transactions

 

There were no related party transactions during the three and nine months of 2017.

 

Financial Condition and Liquidity

 

At September 30, 2017, Wentworth had cash and cash equivalents of $3.36 million and trade and other receivables, prepaids and deposits, and current portion of the long-term receivable from TPDC of $25.51 million. The Company has started collecting substantial amounts of this long-term receivable from TPDC following the commencement of commercial quantities of gas sales to the transnational gas pipeline in 2015. Outstanding receivable for gas sales sold to TPDC and TANESCO total $11.97 million at September 30, 2017. A total of $2.13 million of the outstanding gas sales receivables has been settled subsequent to September 30, 2017 while a payment of $2.61 million relating to the October 2017 invoice for October gas sales to TPDC has been initiated by TPDC.

 

During May of 2017, the Company raised gross proceeds of $5.53 million through the issuance of 10% of the Company's share capital.  These additional funds provide the Company with required funding for working capital and the ongoing Mozambique appraisal activities.

 

Current liabilities include outstanding cash calls issued by the Operator of the Mnazi Bay Concession for 2016 operating cost of $1.26 million of which the Company settled the full amount subsequent to September 30, 2017. The Company's share of accrued Mnazi Bay activities for the nine months of 2017 was $4.10 million which is expected be settled through cash receipts from existing gas sales receivables. 

 

Current liabilities also include the principal repayment obligations on external credit facilities and the anticipated settlement of other liabilities also due within the next 12 months.  During Q1 2017, the Company reached agreement with its main corporate lender to enhance short-term liquidity by deferring payment of the January 28, 2017 principal payment of $3.33 million to Q2/Q3 2017, deferring the July 28, 2017 and January 28, 2018 principal payments and extending the term of the credit facility by one year.  Principal payments totaling $5.33 million are scheduled to be made within the next 12 months.  

 

The Company is working closely with the Operator of the Mnazi Bay Concession and the external lenders to make settlement of obligations coinciding with the receipt of cash from gas purchasers for settlement of gas sales invoices.  To date, the cooperation amongst all parties has allowed the company to effectively manage working capital. Existing gas sales receivables at September 30, 2017 of $11.97 million exceed the immediate obligations to the Operator of the Mnazi Bay Concession and to the external lenders thus allowing for certain flexibility in the precise timing of settling obligations.

 

During the remainder of 2017 and 2018, the Company expects to have no significant capital commitments relating to exploration and development activities in Tanzania.  Anticipated development capital spending is limited to approximately $0.8 million for general field development maintenance capital. In Mozambique, spending on appraisal activities is expected to be limited to completing the necessary technical work to support drilling of an appraisal well in 2018, costs associated with securing an industry farm-in partner and administrative and support costs for managing the operation under the Rovuma Onshore Block in Mozambique.

  

Outlook

 

Realized gas sales during Q3 2017 were the highest quarterly sales volumes in the Company's history and the Company expects gas demand to grow in the coming months with the commissioning and start-up of the Kinyerezi-II power station and commencement of delivery of gas to the Dangote cement plant. Wentworth is well positioned to meet this growing demand as there is sufficient Mnazi Bay gas immediately available to produce thereby allowing for immediate delivery, along with a long-term gas sales agreement to deliver up to 130 MMscf/d which is well in excess of the current 60 MMscf/d production rate. The primary challenge continues to be the receipt of regular and timely cash receipts for gas sales made to TPDC and TANESCO.  While the timeliness of cash receipts from TANESCO has improved since the start of 2017, settlement of invoices for gas sales made to TPDC, remains at between four and five months. The Company continues to effectively manage working capital and is working with debtors and creditors to match cash receipts with the settlement of liabilities.  While the Company expects the situation to improve within the next 12 months, significant effort and patience will need to be exercised by all parties.

 

With the support of the Government of Mozambique, the Company plans to proceed with drilling an appraisal well and seeking an industry partner to participate in the Rovuma Onshore Block.  With information generated from analyzing the Tembo-1 well results, reprocessing existing seismic data and remapping the structure, there is sufficient information available to support drilling of an appraisal well, thereby deferring acquisition of new 2D seismic until after drilling.  The Company anticipates securing an industry partner prior to commencing drilling operations in 2018.

 

        

About Wentworth Resources

Wentworth Resources is a publicly traded (OSE:WRL, AIM:WRL), independent oil & gas company with: natural gas production; exploration and appraisal opportunities; and large-scale gas monetisation initiatives, all in the Rovuma Delta Basin of coastal southern Tanzania and northern Mozambique.

Inside Information

The information contained within this announcement is deemed by Wentworth to constitute inside information as stipulated under the Market Abuse Regulation (EU) no. 596/2014 ("MAR"). On the publication of this announcement via a Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

Cautionary note regarding forward-looking statements

This press release may contain certain forward-looking information.  The words "expect", "anticipate", believe", "estimate", "may", "will", "should", "intend", "forecast", "plan", and similar expressions are used to identify forward looking information.

The forward-looking statements contained in this press release are based on management's beliefs, estimates and opinions on the date the statements are made in light of management's experience, current conditions and expected future development in the areas in which Wentworth is currently active and other factors management believes are appropriate in the circumstances. Wentworth undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless required by applicable law.

Readers are cautioned not to place undue reliance on forward-looking information. By their nature, forward-looking statements are subject to numerous assumptions, risks and uncertainties that contribute to the possibility that the predicted outcome will not occur, including some of which are beyond Wentworth's control.  These assumptions and risks include, but are not limited to: the risks associated with the oil and gas industry in general such as operational risks in exploration, development and production, delays or changes in plans with respect to exploration or development projects or capital expenditures, the imprecision of resource and reserve estimates, assumptions regarding the timing and costs relating to production and development as well as the availability and price of labour and equipment, volatility of and assumptions regarding commodity prices and exchange rates, marketing and transportation risks, environmental risks, competition, the ability to access sufficient capital from internal and external sources and changes in applicable law.  Additionally, there are economic, political, social and other risks inherent in carrying on business in Tanzania and Mozambique. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such statements. See Wentworth's Management's Discussion and Analysis for the year ended December 31, 2016, available on Wentworth's website, for further description of the risks and uncertainties associated with Wentworth's business.

Notice

Neither the Oslo Stock Exchange nor the AIM Market of the London Stock Exchange has reviewed this press release and neither accepts responsibility for the adequacy or accuracy of this press release.

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.

 



Q3 2017 Financial Statements
Q3 2017 MDA
171114 Announcement



This announcement is distributed by Nasdaq Corporate Solutions (One Liberty Plaza, 165 Broadway, New York, NY 10006. Tel: +1 212 401 8700. www.nasdaqomx.com) on behalf of Nasdaq Corporate Solutions clients. Source: Wentworth Resources Limited, 630, 715 – 5th Avenue SW, Calgary, Alberta T2P 2X6, Canada
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