IGas today provides an update on its operations and measures that are being implemented to further, materially reduce the Company's cost base.
On 1 May, when the oil price was trading at c.$25/bbl, the Company took the prudent decision to temporarily shut-in a number of sites during May and June, as this had a positive impact on cash flow. The shut-in sites have continued to be under review and the Company has decided, in light of the recent oil price improvement and further clarity on furlough, to return nine fields to production and effect a reduction in the numbers of employees on furlough.
The remaining six shut-in fields, alongside Albury gas to grid, account for c.320 boepd. The Company will continue to keep these sites under review in light of, inter alia, commodity prices. Additionally, during the ongoing COVID-19 lockdown period we have been, and continue to be, impacted by supply chain interruptions, resource availability constraints and well servicing issues. We estimate that the resultant project delivery delays and lower productivity levels will have an annualised impact of c. 150 boepd.
Taking these elements into consideration, our current expectation for 2020 production is in the range of 1,850 - 2,050 boepd.
In light of the ongoing uncertainty and difficult markets, and as previously announced, the Company has undertaken an in-depth review of costs.
During the first five months of the year, cost reductions of c. £600,000 have already been achieved on an annualised basis compared to the year ended 31 December 2019.
The Company is now undertaking further cost reduction measures including a redundancy programme, salary replacement for the Board and senior executives, and a proposed reduction in benefits across the organisation. Whilst these measures reduce our costs, we are also seeking to ensure the retention of key capabilities and experience in the business.
The salary replacement initiative comprises a 15% reduction in monthly salary paid with a replacement to be awarded in nil cost options, save for one of the Non-executive Directors, whose entire monthly fee will be replaced with the issue of shares, on a quarterly basis, for the remainder of 2020 to Unconventional Energy Limited, the relevant shareholder of IGas. The options will be granted and exercised on a monthly basis (with the exception of PDMRs who will exercise less frequently). This temporary salary replacement will be reviewed by the Board periodically.
These measures are expected to reduce costs by a further c. £1.0 million such that from end of September 2020, our gross cash savings as compared to 2019 are anticipated to be c. £1.6 million per annum. The one-off cost of implementing these measures is c. £550,000 and will be incurred in 2020.
In addition to the above, particularly given the way in which the business has been able to react with many staff working effectively from home, the Company will exercise the break notice in the lease agreement for its London office at the earliest opportunity, which is towards the end of September 2020.
Commenting Stephen Bowler, Chief Executive Officer, said:
"I am extremely pleased with how all the teams have pulled together in these challenging times and how we have reacted to rapidly changing working practices and market conditions.
I would like to thank each and every one of our staff for their professionalism and hard work in these exceptional and difficult circumstances, and it is with regret that we have had to conduct a redundancy exercise. Like many other organisations across all sectors of the economy, we need to preserve cash and however difficult the decision, these are unfortunately very necessary steps which we need to take to be as well placed as possible for the future.
We continue to make the health and safety of our staff and local communities our priority whilst actively managing our asset base for the benefit of our shareholders."