Latest Results

Interim Results

International Oil and Gas Technology Limited (LSE:OGT), an authorised closed-ended investment company incorporated in Guernsey, today announces its interim results for the six months ended 30 June 2014.

 

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Highlights

Christopher Hill, Chairman of International Oil and Gas Technology Limited, said,

"The most significant development of the past six months has been the verdict of the High Court to dismiss the claim against the Company brought by a former joint investment manager. The disruption caused to the Company by this litigation has also been damaging to the portfolio companies. Companies of their size need investment capital in order to grow and the Company has found it impossible to raise any material amounts of capital since the litigation was launched in January 2012. The Board, working closely with the Investment Manager, will continue to strive to maximise shareholder value."

Linton Capital, the Investment Manager, said,

"The portfolio has suffered for the lack of availability of growth capital from the Company. Strata's recovery this year makes it an even more valuable constituent of IOGT, while Crest and SR2020 both require growth capital resources beyond the Company's capacity. We will continue to execute the plan to exit these investments in an orderly manner and at the right time for each investment, as outlined at the time of the capital raise in October 2013, in such a way as to maximize shareholder returns."

In this statement of Interim Results, all references to currency are to lawful currency of the
United States of America unless otherwise stated

 

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CHAIRMAN'S LETTER

Dear shareholder

Since I wrote to you at the end of April, the Company has continued to execute on the plan set out in the circular issued at the time of the fundraising last October. I report on progress below.

The most significant development of the past four months has been the verdict of the High Court to dismiss the claim against the Company brought by a former joint investment manager. Although the claim, which in 2012 exceeded US$18.3 million, was reduced to approximately US$5.1 million on the opening day of the trial, the long-lasting litigation has prevented the Company from raising any material amounts of new capital, either at investee or at Company level, and has involved significant expenditure in defending the claim. The Company is now seeking to recover a material proportion of these costs. An interim payment on account to the Company of £0.5 million (approximately US$0.8 million) has been agreed and we will now apply for a detailed costs assessment through the court in order to determine the quantum of the final costs award in the Company's favour.

As I mention above, the disruption caused to the Company by this litigation has been similarly damaging to the portfolio companies. Companies of their size need investment capital in order to grow and the Company has found it impossible to raise any material amounts of capital since the litigation was launched in January 2012.

Crest Energy Services ("Crest") has continued to report modest but profitable trading and has a good pipeline of potential work for its limited asset base. We are currently in discussions with a potential purchaser of the business that may lead to an offer. Crest requires further capital in order to prosper and we are also investigating a number of alternative routes and sources.

SR2020 has continued to suffer from a lack of further capital to support its market-leading processing and interpretation services. We are currently in discussions with companies interested in integrating the team into a broader down-hole business.

Strata Energy Services ("Strata") has continued to exceed budget in FY/14. The spring thaw period in Canada had less effect on Strata's results, primarily because of its increased proportion of business in the US. The increased element of pad drilling was a contributory factor to the maintenance of Canadian revenues. There have inevitably been problems with the business in Kurdistan, where conditions have been challenging and could be subject to further disruption. We are watching developments carefully. We have left the valuation of our minority stake in Strata at the same level as at December, although the valuation metrics alone would have justified a small increase.

The net asset value per Preferred Share reduced in the six-month period from US$4.10 to US$3.70, primarily a result of the need to provide for legal fees to defend the litigation. We have been conservative in making no allowance for the recovery of costs from our successful defence of this action.

As I stated in my letter in April, the Board, working closely with the Investment Manager, will continue to strive to maximise shareholder value.

 

Christopher Hill
Chairman
International Oil and Gas Technology Limited
Guernsey, Channel Islands

28 August 2014

 

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MANAGER'S REPORT

INTRODUCTION

The performance of each portfolio company during the past two years has been seriously damaged by the effects of the litigation pursued by a former joint-investment manager to the Company. Although the board consistently and correctly predicted that the Company would succeed in defending this claim, it was not possible during this period to raise further significant capital to support the portfolio companies and replenish the Company's cash reserves. This necessitated the cessation of meaningful growth-capital investments and overall support to the portfolio companies.

Having reluctantly accepted that an exit from each of these high-potential companies needs to be accomplished without first completing the growth plans that we had envisaged, we have made some progress on executing this strategy. The Company will report specific further details at the appropriate time.

CURRENT INVESTMENTS

Strata

Strata has continued to exceed its budget for sales and EBITDA during the first seven months of its financial year. Full-year revenue is forecast at over C$31 million, a considerable improvement on C$23.7 million in FY/13, while EBITDA for the same period is forecast to exceed C$5.0 million (FY/13: C$1.4 million).

Revenues in the US continue to match those in Canada, while performance in Kurdistan has stood up well in spite of the problems in the region. Demand for managed-pressure drilling (MPD) services continues to grow, particularly in the US where Strata's market share remains small.  The market share is felt to be greatly expandable as Strata continues to perform well for customers of advanced drilling techniques.

Strata continues to work with a major customer on finalization of a contract in order to complete and implement the offshore solution. Following negotiations with the company's main lenders, PNC and BDC, the credit lines were renewed and the company is now trading within its covenants. If trading performance continues to exceed budget, we would expect that Strata will be in a position to bring its interest payments to IOGT up to date.

Crest

Crest has continued to achieve revenue levels consistent with FY/13 and has again managed its limited asset base to maximum effect. Revenues have been lower over the summer months, as is natural with a limited asset base once a large contract ends, but there are a number of significant and profitable contracts on the near-term horizon.

As the chairman states in his letter, the Company is in discussions with both potential acquirers and capital providers. While essentially cash-flow neutral with its current assets base, Crest requires further equipment in order properly to develop and leverage the hard work in successfully establishing operations in Saudi Arabia and originating considerable business opportunities elsewhere in Gulf region. Developments will be reported at the appropriate time.

SR2020

The Investment Manager and SR2020 have continued actively to seek external funding or an outright sale to an organisation that has the capital resources to leverage the company's first-class technical services. While a number of companies have recognised the intrinsic value of the business, its technology and its people, no transaction has yet been consummated.

Operationally, SR2020 has made some progress during the first half of the year, particularly considering the limited capital provided to it to support its development activities. The Company provided follow-on capital of US$0.3 million to SR2020 during the period as SR2020 does not yet have the volume of contracted work to generate sufficient cash flow to survive as an independent business. We are pursuing a number of routes to address this issue.

CONCLUSION

The conclusion to our report in April remains unchanged. The portfolio has suffered for the lack of availability of growth capital from the Company. Strata's recovery this year makes it an even more valuable constituent of IOGT, while Crest and SR2020 both require growth capital resources beyond the Company's capacity. We will continue to execute the plan to exit these investments in an orderly manner and at the right time for each investment, as outlined at the time of the capital raise in October 2013, in such a way as to maximize shareholder returns.

 

Linton Capital LLP
28 August 2014

 

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CONDENSED STATEMENT OF COMPREHENSIVE INCOME
for the six months to 30 June 2014

    30 June
2014
30 June
2013
  Note US$ US$
Operating income      
Interest income 6 40,094 59,614
Net realised gains on financial assets at fair value through profit or loss   - 65,400
Net unrealised losses on financial assets at fair value through profit or loss   (300,000) (9,256,897)
Net foreign currency (losses)/gains   (61,405) 2,519
Total operating loss   (321,311) (9,129,364)
       
Administrative expenses 7 (2,855,899) (754,161)
Operating loss   (3,177,210) (9,883,525)
Loss for the period   (3,177,210) (9,883,525)
       
Average number of preferred shares   7,999,595 7,292,367
Basic loss per preferred share 10 (0.40) (1.36)
Average number of preferred shares (diluted)   7,999,595 7,292,367
Diluted loss per preferred share 10 (0.40) (1.36)

The accompanying notes are integral to these condensed financial statements.

 

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Condensed Balance Sheet
for the six months to 30 June 2014

    30 June
2014
31 December
2013
  Note US$ US$
Current assets      
Cash and cash equivalents   873,744 2,081,379
Receivables 11 372,931 427,590
Loan 12 75,000 130,570
Financial assets at fair value through profit or loss 2,13 31,127,950 31,127,950
Total assets   32,449,625 33,767,489
Liabilities      
Payables 14 2,865,318 1,005,972
       
Total liabilities   2,865,318 1,005,972
       
Net assets   29,584,307 32,761,517
       
Shareholders' equity      
       
Common (founder) shares 15 2 2
Participating redeemable preferred shares 15 7,999,595 7,999,595
Contributed surplus 2 63,678,704 63,678,704
Retained earnings   (42,093,994) (38,916,784)
       
Total equity   29,584,307 32,761,517
       
Net asset value per share   3.70 4.10

The accompanying notes are integral to these condensed financial statements.

 

Approved by the Board of Directors and signed on its behalf by:

Christopher Hill
Chairman

28 August 2014

 

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Condensed Statement of Changes in Shareholders' Equity
for the six months to 30 June 2014

  Share
capital
US$
Contributed
surplus
US$
Retained
earnings
US$


Total
US$
         
At 1 January 2014 7,999,597 63,678,704 (38,916,784) 32,761,517
Loss for the period - - (3,177,210) (3,177,210)
At 30 June 2014 7,999,597 63,678,704 (42,093,994) 29,584,307
At 1 January 2013 7,292,369 62,571,971 (1,785,415) 68,078,925
Loss for the period - - (9,883,525) (9,883,525)
At 30 June 2013 7,292,369 62,571,971 (11,668,940) 58,195,400

The accompanying notes are integral to these condensed financial statements.

 

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Condensed Statement of Cash Flows
for the six months to 30 June 2014

    30 June
2014
30 June
2013
  Note US$ US$
Cash flows from operating activities      
  Loss for the period   (3,177,210) (9,883,525)
       
  Adjustments for      
  Net realised gains on financial assets at fair value through profit or loss   - (65,400)
  Net unrealised losses on financial assets at fair value through profit or loss   300,000 9,256,897
  Decrease/(increase) in accounts receivable and prepaid expenses   54,659 (36,057)
  Increase/(decrease) in accounts payable and accrued expenses 11,14 1,859,346 (834,676)
  Net cash flows used in operating activities   (963,205) (1,562,761)
Cash flows from investing activities      
  Purchase of financial assets at fair value through profit or loss 13 (300,000) (1,200,000)
  Disposals of financial assets at fair value through profit or loss   - 599,696
  Advance of loan   (75,000) -
  Repayment of loans   130,570 74,315
  Net cash flows used in investing activities   (244,430) (525,989)
       
Net decrease in cash during the period   (1,207,635) (2,088,750)
Cash, beginning of period   2,081,379 5,055,889
Cash, end of period   873,744 2,967,139

The accompanying notes are integral to these condensed financial statements.

 

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Condensed Statement of Investment Portfolio
at 30 June 2014

    30 June
 2014
31 December
2013
  Par value/ number of securities Cost Estimated
 fair value
Cost Estimated
 fair value
Company/ type of security US$/No. US$ US$ US$ US$
INVESTMENT PORTFOLIO          
Crest Energy Services Limited          
Convertible secured debentures 6,996,499 7,399,683   7,399,683  
Promissory notes 3,089,858 3,151,858 2,000,000 3,151,858 2,000,000
SR2020 Inc          
Common stock 7,000,000 1   1  
Convertible and non-convertible secured debentures 5,161,821 5,161,821   5,161,821  
Promissory notes 9,293,368 9,317,224   9,017,224  
1474559 Alberta Ltd          
Secured promissory note 2,751,074 2,751,074 1,000,000 2,751,074 1,000,000
Strata Energy Services Inc          
Common shares 840,890 22,879,668 26,127,950 22,879,668 26,127,950
Secured promissory notes 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
           
Total   52,661,329 31,127,950 52,361,329 31,127,950

1) The investment in SR2020 is held both directly and through 1474559 Alberta Ltd, a wholly owned subsidiary of the Company.

 

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Notes

Notes to the Financial Statements are available in the printable PDF version