RNS Releases
21 October 2016 - CPR of the gas storage market and economic model for Islandmagee PDF Print E-mail

InfraStrata plc (AIM:INFA), the gas storage company focussed on the UK, is pleased to announce the publication of a competent person report (the “Report”) on the gas storage market in the UK and a review of the revenue assumptions for InfraStrata’s economic model of the Islandmagee gas storage project (the “Project”) by The Energy Contract Company (“ECC”), a leading commercial consultancy in the global oil and gas industry.

The full report titled “The gas storage market in the UK and review of revenue assumptions in economic model for the Islandmagee gas storage project” will be available shortly on the Company’s website, www.infrastrata.co.uk, with a summary of its findings below.

The revenue model for the Project was based on assumptions of volatility and summer-winter price spreads by Baringa Partners (“Baringa”), an independent business and technology consultancy, for InfraStrata. ECC concluded that the underlying assumptions in the Baringa model are reasonable.

This revenue model formed the basis for InfraStrata determining the Project’s cashflow over a 20 year period. InfraStrata’s economic model assumes a capital expense and pre-operations operating expense of £308m in aggregate, utilising 65% debt. InfraStrata has estimated the net present value (NPV) of the Project to be £67m at an 8% discount rate and £38m at a 10% discount rate. ECC has not reviewed these NPV estimates.

The report was commissioned as part of the Company’s strategy to seek funding arrangements to sit alongside a grant of up to €4.024m from the EU in order to commence a Front-End Engineering Design (FEED) and commercialisation process by year end, and in order to proceed to a Final Investment Decision (FID) for the Project in late 2017.

Commenting, Andrew Hindle, CEO of InfraStrata said:

" With the majority of UK gas storage in two ageing facilities, the Board of InfraStrata considers it imperative for new investment in modern flexible facilities in the UK in order to meet the gas demands of the future. Gas is assuming an important role in supporting renewable generation in the UK, whilst it continues to heat the nation, provide energy for cooking and contributes to wider lower carbon transportation in the form of Compressed Natural Gas (CNG) and Liquefied Natural Gas (LNG). The Report convincingly confirms our beliefs.

The Report by ECC is third party confirmation for what are attractive revenue assumptions for the Project and these revenues demonstrate the potential value of the project."

The executive summary points in the Report are as follows:

  • Most gas sold in the UK is used for space heating, so demand has always varied significantly from day to day, due to temperature variations. In future these short term variations in demand should become significantly greater. UK Government energy policy now emphasises the need to replace power generation from fossil fuels with electricity generated from renewable sources, such as wind. As wind does not blow every day, gas fired generation will have to make up the deficit. Short term gas demand levels will therefore vary increasingly, depending on whether the wind is blowing or not.
  • Many of the traditional means of meeting peak gas demand such as swing from offshore fields and interruptible gas sales contracts have almost disappeared now, but have been replaced by other sources of peak supply, such as pipeline gas imports from the rest of Europe and LNG imports. However, there are some drawbacks to reliance on these sources in future. Historic data shows gas suppliers in the rest of Europe are reluctant to supply the UK in cold winter conditions, if it means that they might be short of gas themselves. There are also problems with LNG as a source of peak gas, as the long-time lags for the delivery of LNG cargoes mean that it is difficult for LNG producers and traders to react to high prices in the UK market, which might have collapsed by the time a cargo arrives in the UK.
  • In the rest of Europe the traditional means of supplying supplementary gas to meet peak demand was to use gas storage, although this was always less common in the UK. Gas storage levels in the UK are very low compared to the rest of Europe. Average storage capacity is only equivalent to 6.4% of annual demand in the UK compared to 25-35% in the other major markets in Europe.
  • The problem in the UK has been exacerbated by recent technical problems on the Rough storage facility, which has severely restricted injection this summer. There have also been problems on the Hornsea storage facility. Both of these facilities, which account for almost 75% of UK gas storage capacity, are now over 30 years old and their continuing availability in the longer term must be subject to some doubt.
  • The cessation of injection at Rough this summer seems to have led to a surge in price volatility from late August onwards. From October 2013 to July 2016 the Short term Gas Volatility Index averaged 34%. However in the last month or so this has more than trebled to 126%. This surge in volatility has potentially great significance for the Islandmagee project. Salt cavern storage projects such as Islandmagee depend on short term volatility to enable the users to gain from injecting gas on low price days and producing later on when prices have risen. The greater the volatility the more profitable the project.
  • Overall the conclusion is that due to the increased use of renewable generation, gas demand will become even more variable on a short term basis in future. The existing means of meeting this variation in demand may well be inadequate in future, so price volatility is likely to increase in future and could increase significantly.
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26 September 2016 - Revision to Baron Oil option PDF Print E-mail

InfraStrata plc (AIM:INFA), announces that it has agreed to a modification of the option held by Baron Oil Plc (“Baron”) to acquire equity in Islandmagee Storage Limited (“IMSL”), the gas storage development company owned 90% by the Company.

On 19 August 2016, the Company announced that it had repaid a loan from Baron and had amended the option which accompanied the loan from Baron, so that Baron had an option to acquire a 15% interest in IMSL for a payment of £1,536,498 until 31 March 2017. This option has been revised, so that Baron now has an option to acquire the number of ordinary shares of 1p in InfraStrata that represents 16.666% of the enlarged ordinary share capital of InfraStrata (from time to time) for a payment of £1,536,498, until 31 March 2017. Exercise of the option in full is conditional on InfraStrata having the requisite authorities under the Companies Act 2006 to issue new ordinary shares in the Company, which will be sought at the Company’s next general meeting of shareholders (or earlier if required).

This is part of an ongoing programme of re-structuring of the Company, as it seeks to focus entirely on the Islandmagee gas storage project. This also follows the Company’s announcement on 13 September 2016 that it had increased its interest in IMSL to 90%.

The Directors of InfraStrata have also decided to divest the Company’s remaining oil and gas exploration interests and intend to commence a process to achieve this shortly.

Following these changes, InfraStrata will also seek a re-classification of the Company’s sector classification. It is proposed to reclassify the Company to the Utility sector 7573 Gas Distribution. If the Industry Classification Benchmark approves this re-classification, then the change is anticipated to be implemented in December 2016.

Commenting, Andrew Hindle, CEO of InfraStrata said:

“The amendment to Baron’s option and the other proposals announced today are important aspects of InfraStrata’s transition to the only AIM-quoted company entirely focused on gas storage and we will be reviewing our management and technical requirements to ensure that all resources will be entirely dedicated to development of the project. ”

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13 September 2016 - Acquisition of additional equity in Islandmagee Storage Limited PDF Print E-mail

InfraStrata plc (AIM:INFA), the independent petroleum exploration and gas storage company, is pleased to report that its wholly owned subsidiary, InfraStrata UK Limited (“IS-UK”), has acquired an additional 25% equity stake in Islandmagee Storage Limited (“IMSL”), the developer of the gas storage facility in Northern Ireland which is a joint venture with Moyle Energy Investments Limited (“Moyle”), a wholly owned subsidiary of Mutual Energy Limited (“Mutual”).

Following the acquisition IS-UK will own 90% of Islandmagee Storage Limited with Moyle holding 10%.

These changes in interests are achieved by IMSL issuing IS-UK with an additional 250 ordinary shares fully paid for cash at par. For Moyle, who joined the project in May 2008, the transaction will mean that at Final Investment Decision (“FID”) it will no longer have the shareholder obligation to advance its share of outstanding funding to date to IMSL of approximately £2m plus interest (LIBOR + 1%) to retain its interest. This sum has been loaned to IMSL by IS-UK. Instead going forward Moyle will be required to advance IMSL 10% of any future shareholder loans made by IS-UK prior to FID. IMSL will however remain liable to repay all existing funding provided by IS-UK.

Gas storage is essential for storing surplus gas for use during high demand periods and to offset any interruptions in the supply chain. It is envisaged that the Islandmagee gas storage facility will play an important role in future gas supply to Northern Ireland, Republic of Ireland and Great Britain, particularly the fast supply of gas to meet shortterm demand surges. High injection and withdrawal flow rates are two unique properties associated with fast acting salt cavern gas storage such as Islandmagee.

The Company is seeking to complete funding arrangements to sit alongside a grant of up to €4.024m from the EU in order to commence a Front-End Engineering Design (“FEED”) and commercialisation process by year end, in order to proceed to a FID for the project in late 2017. The Company is in receipt of €1.6m from the EU as the initial 40% advance of the €4.024m.

Commenting on the acquisition, Andrew Hindle, CEO of InfraStrata said:

“InfraStrata represents the only AIM-listed company with a focus on gas storage and this focus, and the importance of the project, has never been greater as we look to complete funding for a FEED and commercialisation process. There has been much reporting recently in the press about the potential for a structural change in the gas storage market partially due to the reduction of capacity at the Rough facility, which accounts for approximately two-thirds of UK storage capacity. Management believe that there has not been a better rationale for investing in gas storage for a number of years and the importance of new modern facilities to provide the necessary security. The acquisition of the additional interest in Islandmagee Storage Limited is part of a strategy for a focus of management resources on the successful delivery of maximum value from the project to InfraStrata’s shareholders. ”

Commenting on the acquisition, Paddy Larkin, CEO of Mutual said:

“Mutual is delighted that it will continue to have a key role in this strategically important project for Northern Ireland. The new shareholding level is better aligned with our long-term interests and capability and we look forward to working closely with all project stakeholders to make the project a success. ”

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19 August 2016 - Baron Oil Plc Option Revision PDF Print E-mail

InfraStrata plc (AIM:INFA), the independent petroleum exploration and gas storage company, is pleased to report that it has repaid the loan and agreed an amendment to the accompanying option under the Convertible Loan Facility Agreement (“Agreement”) with Baron Oil Plc (“Baron”) with respect to the Islandmagee gas storage project in Northern Ireland.

Under the terms of the Agreement, originally announced in May 2015, Baron provided a loan for €1.8 million to InfraStrata. These funds were used as working capital to bridge the receipt of the European Commission grant, the outstanding 70% of which (€1.8 million) was received on completion of the work programme as announced on 25 May 2016. The programme included the drilling of the Islandmagee-1 well, which was drilled successfully in May/June 2015, together with subsequent rock mechanical testing of salt cores and engineering work. The loan was subject to an interest rate of 8% of the funds drawn down. Baron originally had a right to extend the loan period until 31 December 2016.

Baron had an accompanying option to convert the entire balance of the loan into an equity participation of 15% of the share capital in InfraStrata’s subsidiary, Islandmagee Storage Limited (“IMSL”). Should the option be exercised, the equity would be provided pro-rata by InfraStrata and its project partner, Moyle Energy Investments Limited (”Moyle”), as the other shareholder of IMSL. The amendment to the Agreement results in the option continuing to 31 March 2017, but the loan has been repaid effective 1 August 2016 from the balancing monies received from the European Commission, thereby reducing the interest due under the loan had Baron extended it to the end of 2016. The option as amended enables Baron to acquire a 15% interest in the IMSL project for a payment of £1,536,498.

Commenting on the Agreement, Andrew Hindle, CEO of InfraStrata said:

“We are pleased to continue to be working with Baron to unlock the potential of the Islandmagee gas storage project. The Baron loan has facilitated the development of a key piece of gas infrastructure and whilst now repaid in full the amendment affords Baron the continued and extended option to participate in the project. As previously updated at the end of June 2016, the Company is continuing a process to seek new investors for Islandmagee over the summer months to enable the project to proceed through to a Final Investment Decision, targeted for 2017.”

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30 June 2016 - Islandmagee signs new EU Grant Agreement PDF Print E-mail

InfraStrata plc (AIM:INFA), the independent petroleum exploration and gas storage company, is pleased to announce it has now concluded a grant agreement with the European Commission under the Connecting Europe Facility (“CEF”) for 50%, up to a maximum of €4.024 million, of the costs associated with the Front End Engineering & Design (“FEED”) for its Islandmagee gas storage project (the “Project”) under development in County Antrim, Northern Ireland.

The Project is being developed in a joint venture between InfraStrata (65%) and local energy infrastructure company Mutual Energy Limited ("MEL") (35%).

The Company is working with MEL and advisers, as part of an ongoing process announced in March 2016, to secure the new investors who will take this strategically important project through to a Final Investment Decision, targeted for 2017.

The Company is focused on delivering the best outcome for its shareholders by securing new investors over the summer months to enable the FEED to proceed as programmed and to meet other project commitments as they fall due, including land option payments, adviser and project management costs. Discussions are ongoing with interested parties and further updates will be provided as appropriate.

As previously stated, InfraStrata has sufficient cash resources to cover its anticipated project management and administrative expenditure to the end of December 2016.

Commenting, Andrew Hindle, CEO of InfraStrata said:

“We are delighted by the continuing support of the European Commission's CEF programme for the Islandmagee gas storage project. The project will be important for years to come in providing security to gas and electricity supplies on the island of Ireland, in Great Britain and the wider European networks.

The grant support is available by virtue of the project’s Project of Common Interest (“PCI”) status afforded by the European Union and recognising the importance of the project to European energy security. In the context of the island of Ireland, the Project, as well as providing security of gas supplies, will support gas-fired power generation back-up for the roll-out of increased intermittent renewable power generation across the island and thereby help the UK and Ireland meet their carbon reduction targets.

The Company considers that it is premature at this time to make any statement on any longer term impact on the project’s PCI status in the context of the UK referendum result on 23 June and we will continue to engage with the European Commission on the progression of the FEED programme and the project’s development as before.”

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