30 June 2022

Scirocco Energy plc

("Scirocco Energy" or "the Company")

Full-Year Results 2021

Scirocco Energy (AIM: SCIR), the AIM investing company targeting attractive assets within the European sustainable energy and circular economy markets, is pleased to announce its audited annual results for the period ended 31 December 2021.

The Annual Report & Accounts will be posted to the Company's website later today, and physically to Shareholders, where appropriate. The Company will shortly be posting its Notice of AGM and a further announcement will be made in this regard as and when appropriate.

 Period and Post-Period Highlights

·      During 2021 the Group developed and progressed its strategy to invest in sustainable energy assets

·      In June 2021, the Group announced a joint venture investment in EAG to support the acquisition of a portfolio of Anaerobic Digestion ("AD") plants in Northern Ireland and the rest of the UK.

·      In July obtained shareholder approval for the adoption of the new investment policy

·      In September, supported EAG's first acquisition - of 100% of shares of Greenan Generation Limited ("GGL")

o  Since completion the asset has performed very well exceeding EBITDA forecasts.

·      In Q1, sold significant part of its holding of Helium One plc ("HE1") realising £3.4m and leaving the Group's holding in HE1 as less than 1%.

·      On 13 June 2022 (post period) the Group announced that it had entered into a conditional binding agreement with Wentworth Resources plc (AIM: WEN) to divest its 25% non-operated interest in the Ruvuma asset, Tanzania, for a total consideration of up to US$16 million

·      Proposed Transaction was approved by way of an ordinary resolution at a General Meeting on 29th June 2022

Commenting on the Results, Alastair Ferguson, Non-Executive Chairman, said:

"The Group has made significant steps through the course of 2021 and into the first half of 2022 to re-position itself as a renewables business focused on delivering green energy solutions alongside generating revenue and returns for our shareholders.

With the establishment of the Joint Venture with EAG, the Group has demonstrated the ability to work with a management team to construct a business with attractive growth prospects and follow on investment opportunities. This is our template which as we move forward will be used in other renewable energy assets.

With the sale of Ruvuma moving ahead following the vote in favour at the General Meeting on 29th June 2022, the Group's resources are now released to fund follow-on and new investments in the target space and elements of the consideration will provide additional investing firepower as they arrive."

 

For further information:

Scirocco Energy plc Tom Reynolds, CEO Doug Rycroft, COO	+44 (0) 20 7466 5000
Strand Hanson Limited, Nominated Adviser James Spinney / Ritchie Balmer / Rory Murphy	+44 (0) 20 7409 3494
WH Ireland Limited, Broker Harry Ansell / Katy Mitchell	+44 (0) 0207 220 1666
Buchanan, Financial PR Ben Romney / Jon Krinks	+44 (0) 20 7466 5000

 

The information contained within this announcement is considered to be inside information prior to its release, as defined in Article 7 of the Market Abuse Regulation No. 596/2014, and is disclosed in accordance with the Company's obligations under Article 17 of those Regulations.

Chairman's Statement

On behalf of the Board of Directors, I hereby present the financial statements of Scirocco Energy plc (the "Company") and its subsidiaries (the "Group") for the year ended 31 December 2021.

2021 was a year of transition for the Group as we looked to accelerate our strategic pivot into the renewable energy and climate technology sector. 2021, like 2020 before, remained a challenging year for all companies in the energy sector regardless of size primarily due to the global pandemic. I am confident that the Group has made the correct decision in pursuing a strategy that looks to capitalise on the macro-environmental factors driving at the heart of investment in the "new world order" of greener energy solutions. In my capacity as Non-Executive Chairman of the Group, I am pleased to provide a review of the financial year for 2021, as well as the outlook for 2022. I would also like to take this opportunity to thank shareholders for their patience as we implement a refreshed strategy in a difficult environment.

Strategy and Portfolio

During 2021 the Group developed and progressed its strategy to invest in sustainable energy assets through a number of workstreams including a review of opportunities which meet the core target areas, obtaining shareholder approval for the adoption of the new investment policy and executing its first investment in a sustainable energy platform company - Energy Acquisitions Group Limited ("EAG").

Tanzanian Legacy Assets - Ruvuma Disposal

In line with this strategy and previous guidance to the market the Group continued the sales process for legacy assets in Tanzania which was launched in 2020. Engagement took place throughout 2021 with various interested parties although no transaction was agreed within the period.

 

On 13 June 2022 (post period) the Group announced that it had entered into a conditional binding agreement with Wentworth Resources plc (AIM: WEN) to divest its 25% non-operated interest in the Ruvuma asset, Tanzania, for a total consideration of up to US$16 million comprised of.

 

·      Initial consideration of US$3 million payable on completion of the Proposed Transaction;

·      US$3 million payable upon final investment decision being taken by the parties to the Ruvuma Asset Production Sharing Agreement or the JOA as the case may be;

·      Deferred consideration of up to US$8 million payable in the form of a 25% net revenue share from the point when Ruvuma commences delivery of gas to the gas buyer;

·      Contingent consideration of US$2 million payable on gross production reaching a level equal to or greater than 50Bcf.

 

In addition Wentworth will provide Scirocco with a loan of up to $6,250,000 to meet all cash calls pursuant to the Ruvuma JOA arising between 1 January 2022 and expected Completion date.

The first $3m to be drawn under the loan is interest free however any amounts drawn in excess of $3m will incur interest at a rate of 7% per annum until such time as the grant of the security in respect of the loan is approved by the Minister for Energy in Tanzania.

The total consideration represents over a significant premium to Scirocco's prevailing market capitalisation and the deal strengthens Scirocco's balance sheet and, critically, removes the imminent need to raise capital to fund the Ruvuma work programme.

Pursuant to Rule 15 of the AIM Rules for Companies, the Proposed Transaction was presented for shareholder approval by way of an ordinary resolution at a General Meeting scheduled for 29th June 2022, The resolution was approved by 63.44% of shareholders voting.

The Group began 2021 with a developing strategy to invest in sustainable energy assets.

 As part of this development in the strategy, Scirocco announced the appointment of Mr Muir Miller to the Board on 18 March 2021. Muir brings a wealth of skills and experience in the low carbon sector and has taken an active role in the review of new opportunities in the transition energy space as well as joining the board of EAG to assist in the stewardship of this important asset.

During 2021 the Group sold a significant part of its holding of Helium One plc ("HE1") taking advantage of an attractive valuation offered in Q1. Scirocco realised £3,406,805 from the sale of 17,841,300 HE1 shares in 2021 leaving the Group's holding in HE1 as less than 1%. This capital allowed the Group to make its first investment under the new strategy as well as funding the ongoing development plan in Ruvuma.

In June 2021, the Group announced a joint venture investment in EAG to support the acquisition of a portfolio of Anaerobic Digestion ("AD") plants in Northern Ireland and the rest of the UK. This investment remained contingent on a revised shareholder mandate for investment policy.

In July 2021, the Group presented the following new investment policy to shareholders at the Annual General Meeting.

Scirocco's investing policy is to acquire a diverse portfolio of direct and indirect interests in sustainable energy and circular economy assets within the European energy market. The Board is seeking to invest in opportunities which meet the following criteria:

 

·      cash generative, with the potential to re-invest operational cash flow in further growth;

·      situated within the European energy space;

·      acquisition targets within the low-carbon space, including renewable energy, circular economy and energy storage and transfer sectors;

·      assets which can attract the necessary investment capital, taking appropriate account of growing investor sentiment towards ESG and SRI indicators; and

·      assets which deliver stable returns, with lower exposure to global commodity prices.

The investment policy was approved with a supportive vote of 99.6%  of those voting.

Scirocco then supported EAG's first acquisition - of 100% of shares of Greenan Generation Limited ("GGL") - which was completed in September 2021 and was funded from the proceeds of sale of HE1 shares. Since completion the asset has performed very well exceeding EBITDA forecasts.

In December 2021, the Group announced the agreement of an exclusivity and supply arrangement with SEM Energy Limited to access technology which will allow the processing of digestate material from Anaerobic Digestion ('AD') plants into organic fertiliser. This provides EAG a significant lever to add value to each of the AD plants it acquires as well as to third party AD plants through the installation of merchant digestate management equipment.

 Outlook

Scirocco is now well placed to capitalise on the broad range of investment opportunities within the sustainable energy and circular economy sectors.

With the establishment of the Joint Venture with EAG, the Group has demonstrated the ability to work with a management team to construct a business with attractive growth prospects and follow on investment opportunities. This is our template which as we move forward will be used in other renewable energy assets.

With the sale of Ruvuma moving ahead following the vote in favour at the General Meeting on 29 June 2022, the Group's resources are now released to fund follow-on and new investments in the target space and elements of the consideration will provide additional investing firepower as they arrive.

With respect to the Ruvuma interest, the Board expects to support Wentworth in its effort to deliver a prompt completion of the transfer of ownership which will deliver the first of a series of payments under the APA.

This now clears the way for the Group to aggressively pursue incremental investment opportunities by supporting EAG as well as other platform companies.

EAG has now signed up a further three investment sites and has the potential to grow rapidly in 2022 and 2023.

The Group has screened a number of additional investment opportunities through 2021 and 1H 2022 and expects to pursue them.

Recognising that growth will require funding, the Board has been investigating sources of parallel investment which would reduce the call on Scirocco's balance sheet in the short term by bringing in third party capital alongside Scirocco balance sheet cash.

 

Section 172 (1) Statement

 

The Group was admitted to the AIM Market of the London Stock Exchange on 12 April 2007 and has been a public company from this date. The Group is required to provide a Section 172(1) statement under the terms of its AIM listing. This disclosure aims to describe how the Directors have acted to promote the success of the company for the benefit of its members as a whole, taking into account (amongst other matters) the matters set out in section 172(1)(a) to (f) of the Companies Act which are set out below.

(a) the likely consequences of any decision in the long term

As discussed above, the decision to propose and adopt the new investment policy - approved and adopted by shareholder vote at the AGM in July 2021 - and the decision to sell the Ruvuma asset to Wentworth Resources plc have been taken with the long term future of the company in mind. In taking these decisions the Board has taken account of the relative risk involved in each of the relevant investments and chosen a sustainable course of action which allows the company to be developed in a more predictable manner by targeting investment assets with significantly lower levels of uncertainty and which deliver cash flow in the short term which is then available to be reinvested. The Group has not made any other decisions which will likely affect the company in the long term in the current financial year.

(b) the interests of the company's employees

Aside from the Directors, the Group has one employee and the decisions to promote the success of the company for the benefit of its members as a whole as described above are entirely consistent with the interests of the company's employee.

(c) the need to foster the company's business relationships with suppliers, customers and others

Aside from a small number of service providers, the success of the Group's investment strategy will be driven in part by the business relationships that exist between the Directors and the management of the Group's investee companies and as such the maintenance of such relationships is given a very high priority by the Directors.

 (d) the impact of the company's operations on the community and the environment

During the current investment phase the Group has no operations. The Directors are nevertheless cognisant of the potential impact of future investments on affected communities and the environment and such factors will continue to be considered as part of investment appraisal and decision making.

(e) the desirability of the company maintaining a reputation for high standards of business conduct

The Group's standing and reputation with other energy companies, equity investors, providers of debt, advisers and the relevant authorities are key in the Company achieving its investment objectives and the Group's ethics and behaviour, as summarised in the Group's Business Principle and Ethics, will continue to be central to the conduct of the Directors. The Group is advised by blue-chip experienced advisers which also assist in maintaining high standards of conduct.

(f) the need to act fairly as between members of the company

The Directors will continue to act fairly between the members of the Group as required under the Companies Act, the AIM Rules and QCA corporate governance principles.

Conclusion

 

The Group has made significant steps through the course of 2021 and into the first half of 2022 to re-position itself as renewables business focused on delivering green energy solutions alongside generating revenue and returns for our shareholders. It feels like there has been a generational shift in thinking which is going to lead to significant changes and opportunities in the transition of the energy sector. The companies that recognize this and move quickly to transform will be the beneficiaries, and the Board feels that the Group is already well down this path and hopes to pay a leading role in the public markets for investment in greener energy solutions. I was delighted that we were able to complete our first deal in the transition energy space and in doing so create a platform for future investment in the anaerobic digestion sector and associated technologies, a market segment ripe for consolidation.

 

The Board is excited and fully engaged in the transformation to the transition energy space.

 

We see significant opportunities for value creation for a Group with the right strategy, the right partners and focused on the right opportunities. We remain convinced that the future lies in the low carbon sector. We have been laying the building blocks to ensure we can be a part of this future, and believe that 2022 will be the year when our hard work behind the scenes results in value accretive transactions for the benefit of the Group and its shareholders.

 

Once again I would like to thank the Board and the Executive Team for their dedication and commitment and thank our shareholders for their patience and understanding.

 

Alastair Ferguson         

Non-Executive Chairman           

Date: .....................     

 

Strategic Report

Energy Acquisitions Group Limited

In June 2021, Scirocco Energy announced its first transaction in the European transition energy market in line with the Group's new growth strategy. The Group made an investment into Energy Acquisitions Group Ltd ("EAG"), a specialist acquisition and operating vehicle in the sustainable energy sector, and in which Scirocco holds a 50% interest.

This initial investment was be used by EAG to acquire 100% of Greenan Generation Limited ("GGL") and associated 0.5 MWe Anaerobic Digestion plant located in County Londonderry, Northern Ireland. GGL is a cash generative, operational AD plant which the EAG team will focus on optimizing to enhance EBITDA margins and free cash flow from the project.

Anaerobic digestion is a process that creates biogas, a renewable energy source that will help the UK deliver on its decarbonisation commitments.

The investment into EAG was funded by cash on the balance sheet and the EAG team has identified further opportunities to invest in a pipeline of AD plants in the UK totalling c. £30 million in value.

The investment positives supporting the investment in the EAG platform are as follows:

·      Low carbon sustainable energy. The carbon intensity of sources of energy is under critical review. As a result of the ability to generate natural gas from agricultural waste, the carbon footprint of the biogas is therefore lower.

·      Index linked revenue streams. The assets targeted by EAG benefit from government subsidised revenue streams which are escalated on an annual basis in line with inflation. For example, at GGL, the NIROC credits representing c. 60% of revenue are government backed and index linked.

In December 2021 the Company announced that its subsidiary, Scirocco Energy (UK) Limited ('SEUK') signed an exclusivity agreement with leading sustainability technology provider, SEM Energy Limited. The exclusivity accrues to SEUK, its affiliates and its investee company EAG.

SEM is a developer of technologies within the circular economy sector. It is anticipated that SEM will provide EAG with digestate management and nutrient recovery technology, known as the H2OPE System.

The system processes digestate, a by-product of the biogas process, into nutrient dense, high-quality fertiliser, nutritionally balanced growth media and a sustainable peat substitute which can be used within a range of growing environments. It also produces re-usable water, and significantly reduces CO2 emissions compared to traditional practices.

Key terms of the agreement:

·      SEM will exclusively supply to SEUK, its Affiliates, EAG (the "Scirocco Parties"), the H2OPE System for the application to digestate generated from AD plants within the UK and Ireland;

·      The exclusive period runs until end June 2023, unless extended by the parties in accordance with the agreement;

·      SEUK will use reasonable endeavours to purchase or procure that the Scirocco Parties purchase a minimum of five units of the H2OPE System within the exclusivity period;

·      If Scirocco Parties do not meet certain order requirements during the exclusivity period, the exclusivity may fall away, but Scirocco Parties are still able to order units of the H2OPE System from SEM during the term on a non-exclusive basis.

 EAG intends to apply the technology to its operating plant at Greenan, as well as working with owners of other operational AD plants to assess the potential benefits of funding the installation of a 'bolt-on' nutrient recovery system on a merchant basis.The addition of the H2OPE System technology to existing AD plants has the potential to deliver an additional revenue stream through the creation of high value co-product, depending on the level of refinement required for a specific market sector while simultaneously reducing the carbon intensity of the process.

Financial performance

In Q1 2022 the revenue received for the quarter by Greenan totalled £323k (unaudited) supported by high power prices through the period. This compares to the same period in 2021 where revenue was £240k (unaudited) - a 34.5% year on year increase. EBITDA for Q1 2022 was £158k and at current power prices, EBITDA for the first 12 months of EAG's ownership of GGL is on target to exceed £600k.

Operational

During Q1 2022, in order to future proof the plant at its Greenan site, the EAG team completed the replacement and recommissioning of a number of elements of critical equipment, at a total cost of c. £230k funded from operational cash flow:

·      all mixers in the premix tank

·      all primary digester mixers, and refurbishment of all mixer infrastructure including winches, winch motors and guide rails

·      Full Edina CHP (Combined Heat & Power) engine block change, and completing major service

·      Upgrade and replacement of augers and pumps in feed and recirculation system including installation of automatic recirculation system

 

Tanzania         

Scirocco continues to hold two licence interests in natural gas in Tanzania.

A.         Ruvuma PSA

            ARA Petroleum Tanzania Limited ("APT")            50%      *

            Aminex plc ("AEX")       25%     

            Scirocco Energy plc      25%     

            * APT became operator in October 2020 following the completion of its farm-in to the AEX working interest         

In 2021 Scirocco held a 25% working interest in the Ruvuma Petroleum Sharing Agreement ("Ruvuma PSA") in the south-east of Tanzania covering an area of 3,447 square kilometres of which approximately 90% lies onshore and the balance offshore. The Ruvuma PSA is in a region of southern Tanzania where very substantial gas discoveries have been made offshore in recent years and where gas has also been discovered onshore and along the coastal islands at Ntorya, Mnazi Bay, Kiliwani North and Songo-Songo.

As a result of a review of the strategic options available to the Group the Tanzanian assets were identified as held for sale during 2020 and a sale process was launched.

On 13 June 2022 the Group announced that it has entered into a conditional binding agreement with Wentworth Resources plc (AIM: WEN) to divest its 25% non-operated interest in the Ruvuma asset, Tanzania, for a total consideration of up to US$16 million comprised of.

 

·      Initial consideration of US$3 million payable on completion of the Proposed Transaction;

·      US$3 million payable upon final investment decision being taken by the parties to the Ruvuma Asset Production Sharing Agreement or the JOA as the case may be;

·      Deferred consideration of up to US$8 million payable in the form of a 25% net revenue share from the point when Ruvuma commences delivery of gas to the gas buyer;

·      Contingent consideration of US$2 million payable on gross production reaching a level equal to or greater than 50Bcf.

In addition Wentworth will provide Scirocco with a loan of up to $6,250,000 to meet all cash calls pursuant to the Ruvuma JOA arising between the Economic Date of 1 January 2022 and expected Completion timeline.

The first US$3 million to be drawn under the loan is interest free however any amounts drawn in excess of US$3 million will incur interest at a rate of 7% per annum until such time as the grant of the security in respect of the loan is approved by the Minister for Energy in Tanzania.

Background to the Proposed Transaction

In March 2020 the Group announced its intention to sell its 25% interest in the Ruvuma PSA, onshore Tanzania. As a further development of this initiative, in November 2020 the Group outlined a strategic pivot to invest in sustainable energy assets. In the Board's view, the main drivers for the pivot were the following:

 

·      access to capital for small cap E&P investment was facing numerous challenges due to a significant shift of investor sentiment away from the sector;

·      availability of investable assets. With the increasing momentum to decarbonize the energy sector the Board expected to be able to identify a strong supply of investable opportunities in that space;

·      ability to build cashflow. The nature of assets being targeted would allow the Group to build immediate cashflow which would then be available for re-investment in further growth; and

·      manageable investment scale. The type of investments being targeted are expected to support capital investments at smaller scale allowing the Group to grow its asset base in smaller incremental steps with a lower average capital expenditure requirement per investment.

If the Proposed Transaction completes, Scirocco will no longer be exposed to the costs (or the potential upside) associated with the Ruvuma Asset and will be free to pursue its Investing Policy approved in July 2021, with a view to building a portfolio of sustainable energy assets.  An update on the Group's recent activities and the Board's intentions in respect of the Investing Policy are set out at the end of this section.

The Proposed Transaction will involve the disposal of the Group's entire interest in the Ruvuma Asset for an initial consideration of US$3 million in cash payable upon completion of the Proposed Transaction, plus deferred consideration of up to US$13 million in aggregate, payment of which is contingent upon fulfilment of certain conditions and milestones set out in the Asset Purchase Agreement (and as detailed below).

In addition to entering into the Asset Purchase Agreement, the Group and Wentworth have entered into the Facility Agreement under which Wentworth has agreed, subject to the satisfaction of certain conditions, to provide loan funding to the Group to allow it to meet its cash call obligations pursuant to the Ruvuma JOA prior to completion of the Proposed Transaction.

Reasons for the Proposed Transaction

Throughout the course of 2021 and in early 2022, the Group conducted an extensive asset marketing process with a view to divesting its Tanzanian assets in line with its strategy re-fresh in 2020 and in furtherance of its Investing Policy.

The Group and the Directors are of the view that early-stage hydrocarbon assets remain a challenging investment space for micro-cap companies that ultimately lack the balance sheet strength or the depth of portfolio to absorb the range of potential outcomes for such assets. Additionally, the ability for micro-cap companies to access capital in the oil and gas sector has been significantly impaired in the last few years. These dynamics have primarily been driven by:

·      overall lack of returns in the sector for investors, driven by persistently low oil prices for a number of years until the recent increases witnessed; and

·      an exodus of capital from the oil and gas sector in light of the ongoing pressure to decarbonize the global energy sector.

Against that backdrop, the Directors announced in 2021 that they intended to deliver on a new investment strategy focused on sustainable energy assets and the circular economy, which culminated in the adoption by the Group of the Investing Policy. The primary objective of this strategy is to create a business capable of delivering a return premium for its shareholders while not exposing them to the bifurcated outcomes of success and failure that are often associated with the oil and gas sector (and, in particular, early-stage assets such as the Ruvuma Asset).

 

The Directors believe that the Proposed Transaction will be beneficial in the following respects:

·      if the maximum potential consideration is received, the Proposed Transaction will be a highly-accretive deal for Scirocco, representing a premium of over 200% against Scirocco's current market cap (assuming a market cap of approximately £3.4 million);

·      the Proposed Transaction is firmly aligned with the Group's strategy to divest its oil and gas assets and focus on opportunities in the circular economy and sustainable energy assets;

·      the terms of the Proposed Transaction are the result of extensive negotiations with Wentworth and, before that, a two-year sales process that exhausted all other reasonably viable purchasers;

·      the Proposed Transaction strengthens Scirocco's balance sheet and, critically, removes the imminent need to raise capital equivalent to or potentially in excess of the current market cap to fund the 2022 work programme for the Ruvuma Asset (the estimated funding gap at present being equal to c. £3.5 million);

·      the contingent aspects of the Proposed Transaction provide exposure to material upside potential in the event certain key project milestones are achieved, while also reducing exposure to the downside risks associated with the uncertain prospects of the Ruvuma Asset;

·      Wentworth is a particularly suitable counterparty given its existing relationships and presence in Tanzania, which should reduce execution risk;

·      the Proposed Transaction is appropriately structured to reflect the ongoing risk associated with the Ruvuma Asset, as well as the challenges of operating in the current macro environment as described above;

·      exiting the Ruvuma Asset will enable the Group to accelerate its strategy of building a portfolio of cash generative assets focused on renewables and the circular economy, as well as streamlining its activities and strengthening its strategic narrative to appeal to a broader range of potential investors;

·      the Proposed Transaction provides cash that can be deployed to fund near-term non-dilutive growth for the Group; and

·      while the Ruvuma Asset represents a compelling project, it has technical and commercial risk that is in the Directors' view not suitable for a Group of Scirocco's size and strategic direction as highlighted by the Board when proposed the new Investing Policy in 2021.

License Extension

In August 2021, the Joint Venture formally received the extension of the Mtwara Licence in respect to the Ntorya Location from the Ministry of Energy of Tanzania. The extension  is valid for a two years. Under the terms of the extension the Joint Venture must carry out the following work programme:

·      Acquired 200 square kilometres (surface coverage) of 3D seismic (min. expenditure of US $7 million)

·      Drill the Chikumbi-1 exploration well (min. expenditure of US$15 million)

·      Complete the negotiation of the Gas Terms for the Ruvuma PSA with the Tanzania Petroleum Development Corporation

 2021 Operational Update

Despite challenges to operational progress in 2021, due in part to the effect of COVID-19 on operations, the Board believes that all projects made progress from a technical evaluation and planning perspective.

The proposed gross 2021 work programme and budget for Ruvuma was US$22.9 million which included seismic acquisition work and drilling preparation. However due to delays in receiving the approvals for the seismic contract award and the restriction in international travel resulting from the COVID-19 pandemic the Joint Venture was unable to make significant operational progress on the asset during the period. Had the full work programme been executed as budgeted Scirocco would have been expected to fund approximately US$5.7 million.

 

During 2021, the operator, ARA Petroleum Tanzania Limited ("APT" or the "Operator") completed the tendering work for the acquisition of 454 km2 3D seismic and following approval of the contract award by the Tanzanian authorities for the issue of the seismic acquisition contract made the award in September 2021 to  Africa Geophysical Services Limited ("AGS").

The award followed an extensive tendering exercise conducted by the Operator for the seismic programme during which the joint venture was able to take advantage of favourable market conditions securing a Lumpsum contract considerably below the joint venture's expected budget for the activity.

The final contract consists of approximately 338 km² of 3D seismic data focusing on the area of primary interest.

AGS commenced mobilization to location in late 2021 and continue to progress with the data acquisition, weather permitting, and focus on the proposed location for the Chikumbi-1 well ("CH-1") to acquire as much data as possible before the start of the rainy season with the programme re-commencing after that with no additional cost to the JV partners.

The Chikumbi-1 exploration and appraisal well is now expected to spud in the fourth quarter of 2022. Assuming a successful outcome from the drilling of the Chikumbi-1 well, first gas from the project is anticipated to be delivered by the end of 2024. The work programme scheduling is in line with the Group's expected funding commitments towards it.

APT has also re-interpreted the existing 2D seismic dataset and considers the Ntorya gas reservoir to be the product of a stacked, high-energy, channelised sand system. The Operator's revised mapping and internal management estimates suggest a mean risked gas in place ("GIIP") for the Ntorya accumulation of 3,024 Bcf in multiple lobes and a mean risked recoverable gas resource of 1,990 Bcf which will be appraised by the planned seismic and drilling programme.

Technical Overview

During 2018 the Joint Venture conducted technical work with the support of RPS Energy Consultants Limited, on the resource estimates, and by IO Consulting, on the development engineering and economics, leading to the upgraded resource estimates included in Table 1. The independent studies now estimate gross 2C contingent resources of 763 bcf, of which 191 bcf are net to Scirocco's working interest, equivalent to approximately 31.8 mmbbls oil equivalent.

 Resource summary - Ntorya Field

 

            Gross Licence Basis (bcf)

            Licence             1C        2C        3C        Gross Mean unrestricted GIIP

            Mtwara  Development pending   26         81         213      

            Mtwara  Development unclarified            324       682       950       1870

            763      

Resource summary excluding Ntorya Field

            Prospective Resources (bcf)*

            Gross on Licence

            Prospect/Lead  1U        2U        3U        Mean unrisked   Pg %

            Chikumbi Jurassic         399       936       1,798    1,351**  8***

            *           Assuming development licence is ratified

            **          P50

            ***        RPS assessment of PG

 

B.         Kiliwani North Development Licence ("KNDL")

Scirocco holds a 8.3918% working interest in the Kiliwani North Development Licence. This interest was finalised following the exit of Bounty Oil and Gas NL from the Joint Venture. TPDC has a back-in right to take up an interest in the KNDL which would reduce Scirocco's interest to 7.975%. To date TPDC has not taken up that right.

2021 Operational Update

As a result of reservoir pressure decline and compartmentalisation, the Kiliwani North-1 well has not produced during the period.

The well has produced approximately 6.4 bcf of gas to date from a compartment estimated to contain approximately 10 BCF. Estimated gas resources have been independently audited by RPS Energy, who show the Kiliwani North structure to contain approximately 31 bcf (gross mean GIIP).

The Joint Venture has been exploring various options to reinstate production from the well. The Operator has prepared, and is awaiting approval for, a remedial work programme intended to establish fluid levels in the well bore, measure reservoir pressure and to unload fluid using foam treatment technology.

Aminex (the operator) undertook preliminary remedial work to repair the downhole safety valve in late 2018. This resulted in the flow of a small volume of gas to the gas facility before the well quickly ceased flow, likely due to fluid build-up in the wellbore. Aminex has prepared a perforation strategy for a lower zone within the reservoir and an alternative remedial work programme intended to establish fluid levels in the wellbore, reservoir pressure and to unload potential fluid using foam treatment. The operator is working with the TPDC on agreed methods to handle wellbore fluids which will potentially be unloaded during operations on the well. Agreement and planning will be required prior to starting operations.

If successful, this operation is expected to re-establish gas production from the well. The Joint Venture has been waiting on final approvals for a significant period of time and whilst the Joint Venture is confident that the unloading and perforation operations can be carried out, there is no firm timeline on when the approvals will be granted which would allow the operation to commence. The Joint Venture estimates that once approvals are in place the work could be carried out within a 3 - 6 month time period subject to travel restrictions associated with the ongoing COVID-19 pandemic being lifted.

 A resource report by LR Senergy, completed in May 2015, attributed approximately 28 bcf gross best estimate contingent resource to the Kiliwani North field. These estimates were revisited by RPS in 2018 following production over an 18-month period totalling approximately 6.4 bcf. This resulted in a new Pmean GIIP of 30.8 bcf and a remaining gross 2P reserve of 1.94 bcf. It is felt that with further intervention additional gas can be recovered from the KN-1 well.

In October 2021, the Operator announced that on behalf of the Joint Venture, reached an agreement with the Tanzania Petroleum Development Corporation ("TPDC") for the payment of outstanding monies owed for past gas sales to the TPDC.

The agreed settlement followed constructive negotiations over the course of 2021 between Aminex and the TPDC.

The settlement between the parties involves netting off past gas sales of US$6.77 million due to the Kiliwani North Joint Venture ("KNJV"), of which Scirocco Energy holds an 8.39% working interest, against licence and training fees and the profit share on the unpaid gas sales owed to TPDC.

As at 30 June 2021, and as previously reported, the KNJV was owed US$8.34 million by the TPDC. Of this amount, the KNJV has agreed to waive its claim for interest of US$1.57 million under the Kiliwani North Gas Sales Agreement ("GSA") on the unpaid gas sales to settle the matter and secure payment by the TPDC.

Scirocco Energy shall receive US$0.15 million its share of the gas sales net of remittance of indirect taxes and export duties.

The well has not produced since the first quarter of 2018, during which the Kiliwani North-1 ("KN-1") well produced intermittently. The intermittent production was mainly as a result of increased water production, natural reservoir depletion and a relatively high inlet pressure at the Songo Songo Island Gas Processing Plant ("SSIGPP").

The Joint Venture has identified the possibility of perforating a lower and potentially gas saturated section of the reservoir. Operator conducted analysis indicates the possibility of providing up to 8 bcf of additional resource from KN-1. The Joint Venture will continue to consider plans for 3D seismic acquisition over Kiliwani North to support the identification of further drilling or side-track opportunities which may be required to drain the remainder of the structure.

Helium One     

Scirocco was an early investor in and largest (pre-IPO) shareholder of Helium One Limited ("Helium One") following an original equity subscription in 2017 and participation within a convertible loan note issuance in early 2019. Immediately prior to the company's IPO in December 2020 Scirocco held a c. 12% interest.

Helium One completed an IPO in early December 2020 when it completed its admission to the AIM market of the London Stock Exchange following the amalgamation with Attis Oil and Gas. The IPO highlights included;

 

·      Successfully raised £6 million by way of an oversubscribed placing of 211,267,597 ordinary shares with institutional and other investors at a price of 2.84 pence per Ordinary Share

·      Large-scale, high-grade primary helium project with un-risked prospective helium resource (2U/P50) of c. 138 bcf;

·      Management team with an extensive track record of exploration, development and operations in Africa

·      Fully funded for exploration programme commencing in Q1/Q2 2021 consisting of infill seismic acquisition and three well drilling programme targeting high priority Prospects over the Rukwa Project

Immediately following the IPO, Scirocco held a 4.29% interest in Helium One

Operational Update

Seismic campaign

In February 2021, Helium One announced that it had commenced the 150km infill seismic campaign with the objective of providing improved resolution over identified drill targets.

Close spaced seismic data acquisition will be focussed in areas of known prospectivity to assist in providing greater clarity on the subsurface structures which Helium One believe have the highest chances of successfully discovering Helium.  The seismic campaign is fully permitted and benefits from strong community and governmental support.

Drilling campaign

The company executed its first drilling campaign in Q2 2021, the highlight of which included:

•                       Securing all necessary drilling permits to execute its drilling campaign as planned

•                       Safe drilling of the Tai-1 exploration well

•                       Tai-1 well encountered elevated helium levels as connection gas

•                       Tai-1A completed to a depth of 1121m with helium shows identified in all three target formations

•                       Helium shows encountered over five intervals in the Karoo Formation

•                       A 130m thick claystone unit was encountered above the top Karoo sands, indicating good seal presence for the Karoo reservoir

•                       Wireline logging of the uppermost Karoo indicates good reservoir potential with 15-20% porosities.

•                       Petrophysical analysis indicates no free gas in the uppermost thinly bedded Karoo sands associated with helium shows

•                       Helium shows within the deeper and thicker sandstone units of the main Karoo reservoir were not able to be logged due to poor and deteriorating hole conditions

•                       Subsequently the Tai-2 exploration well was drilled - although completed without identifying helium has, the well provided valuable information on shallow trap and seal potential.

Disposal

During 2021 Scirocco sold a substantial proportion of its holding in Helium One in a series of tranches as announced on 18 May 2021 and on 27 July 2021. The Group also exercised 1 million share options (with strike price US$0.035) that it held over Helium One's share capital.

Following the above transactions, Scirocco's holding in Helium One at 31 December 2021 was 4,456,088 ordinary shares, which represents c. 0.85% of Helium One's currently issued share capital.

In aggregate, Scirocco has realised c. £3.41 million in proceeds from its sale of Helium One shares since Helium One was admitted to trading on AIM.

Other investments - non-core

A.         Ausable Reef gas assets located in Ontario, Canada (28.56% interest)

On 22 March 2019, Scirocco announced that as part of the portfolio rationalisation, the Group had signed Heads of Terms ("HoT") with Levant Exploration and Production Corp. ("Levant") for the divestment of Scirocco's 28.56% in the Ausable Reef gas assets (the "Assets") to Levant.

In July 2020, the Group announced that it had entered into a conditional asset purchase agreement ("Agreement") with Reef Resources Limited ("Reef") and Levant for the sale of its 28.56% interest in the Assets to Levant.

 Unfortunately, Levant was unable to satisfy certain of the conditions to completion contained in the Agreement and consequently Reef and Scirocco elected to terminate the Agreement in March 2021.

Following the termination of the Agreement, Scirocco entered into a quit claim agreement with Reef on the 15 March 2021 pursuant to which Scirocco has transferred, for nominal consideration, its 28.56% interest in the Assets to Reef and Reef has assumed the associated liabilities, historic and future, in each case with effect from 1 December 2020.

The Group fully impaired the value of its holding in the Assets to zero in 2017 and incurred only nominal costs related to its holding in the Assets in 2021 in the lead up to executing the quit claim agreement with Reef.

Mr Tom Reynolds

Director           

Glossary and Notes
2D seismic	seismic data collected using the two dimensional common depth point method
3D	three-dimensional
AIM	London Stock Exchange Alternative Investment Market
API	American Petroleum Institute
barrel or bbl	45 US gallons
bbls	barrels of oil
bcf	billion cubic feet
best estimate or P50	the most likely estimate of a parameter based on all available data, also often termed the P50 (or the value of a probability distribution of outcomes ta the 50% confidence level)
billion	10 to the power of 9
bopd	barrels of oil per day
CNG	condensed natural gas
contingent resources	those quantities of petroleum estimated, at a given date, to be potentially recoverable from known accumulations, but the associated projects are not yet considered  mature enough for commercial development due to one or more contingencies
CPR	Competent Persons Report
discovery	a petroleum accumulation for which one or several exploratory wells have been established through testing, sampling and/or  logging the existence of a significant quantity of potentially moveable hydrocarbons
electric logs	tools used within the wellbore to measure the rock and fluid properties of the surrounding formations
GIIP	gas initially in place
GSA	gas sales agreement
HH-1	Horse Hill-1 well
HHDL	Horse Hill Developments Limited
KN-1	Kiliwani North-1 well
KNDL	Kiliwani North Development Licence
m	thousand (ten to the power 3)
mm	million (ten to the power 6)
mmbbls	milion barrels of oil
mmscf	million standard cubic feet of gas
mmscfd	millon standard cubic feet of gas per day
OGA	UK Oil and Gas Authority (formally the Department of Energy and Climate Change
oil in place or STOIIP	stock tank oil initially in place, those quantities of oil that are estimated to be known reservoirs prior to production commencing
pay	reservoir in portion of a reservoir formation that contains economically producible hydrocarbons. The overall interval in which pay sections occur is the gross pay; the portion of the gross pay that meets specific criteria such as minimum porosity, perme
PEDL	Petroleum Exploration and Development Licence
permeability	the capability of a porous rock or sediment to permit the flow of fluids through the pore space
petrophysics	the study of the physical and chemical properties of rock formations and their interactions with fluids
play	a set of known or postulated oil or gas accumulations sharing similar geologic properties
porosity	the percentage of void space in a rock formation
prospective resources	those quantities of petroleum which are estimated, at a given date, to be potentially recovered from undiscovered accumulations
proven reserves	those quantities of petroleum, which, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable (1P), from a given data forward, from known reservoirs and under defined economic conditions,
probable reserves	those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proven Reserves but more certain to be recovered than Possible Reserves. It is equally likely that actual remaining quantities recover