The continuing fall in the oil price throughout 2015 has provided both challenges in managing the cost of the business and also opportunities to pursue our production led growth strategy in Canada. We recognise the ongoing volatility in the oil price and remain aware of the cyclical nature of commodity prices that impact our business. We remain vigilant in managing costs while making operational and strategic decisions that enable future growth.
During the year, the Group’s key activities included the consolidation of our production base in Canada, important progress in Italy, a successful equity raise in the fourth quarter and the management of costs, given the prevailing oil price environment. The steps the Group has taken in 2015 have strengthened our position to not only survive but potentially prosper as the oil price cycle develops.
As in previous cycles there has been a lag in the reduction of operating costs through the supply chain; the reduction in the revenue stream from production as oil prices fall is immediate whilst the delay in cost reduction takes time to have an impact. Consequently, in the first quarter of 2015 we took the decision to suspend production operations in Canada and firmly believe this was the prudent decision to preserve future value from our Canadian reserves.
In Italy there has been considerable progress. The farm out to Shell Italia of the Cascina Alberto permit, approvals of our Environmental Impact Assessments (“EIA”) and progress with the Ministry of Economic Development are all positive steps towards our strategic target of becoming a key player in the Adriatic. We continue to focus on how best to create shareholder value from our Italian portfolio.
Throughout 2015 we maintained close control on all our costs and have taken further steps to reduce our general and administrative expense.
This included relocation of the head office, staff reductions and reduced salaries for the Board and senior management. While I am confident that these actions have not, and will not, impair our ability to effectively manage our existing portfolio or secure future growth opportunities through our production led strategy, ongoing commodity price volatility and the possible requirement for further capital to sustain and grow our business will present their challenges in the coming 12 to 18 months.
In conjunction with a reduced overhead the Group successfully raised a total of £1.6 million through a combination of a subscription by the Group’s two key shareholders, raising £1.2 million, coupled with an open offer to all shareholders raising a further £0.4 million. This is a great achievement at a time of low commodity prices. I would like to express my thanks to our institutional shareholders and those shareholders who participated in the open offer. This vote of confidence in the Group’s future is appreciated.
The new capital allowed us to finalise the terms of the acquisition of reserves and production in the Rainbow area of north west Alberta and fund a modest work programme for 2016 to deliver growth in Canadian production.
2015 has been a difficult year and we foresee similar challenges through 2016. The combination of reduced overhead, the injection of new capital investing in cash generating production and a focus on operating costs have enhanced the Group’s position to trade through the downturn and create future shareholder value. Management are also focused on attracting new capital into the business through the farm out of existing assets and the raising of debt or equity, which may be required to secure the future of the business.
Given the difficulties we have faced through the year I want to add a note of personal thanks to our staff. The implementation of cost control initiatives, staff reduction and office relocation were done with the highest degree of professionalism.
As mentioned above, 2016 will be equally challenging and I look forward to the support of staff and shareholders as we continue to focus on a sustainable and profitable future for the business.
(Dichiarazione del Presidente – Jon Murphy)