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IRG still confident of creating shareholder value from Egypt acquisition

Published: 05:00 30 Jun 2016 EDT

onshore oil operation
IRG continues to engage with the Egyptian authorities

Independent Resources plc (LON:IRG) is looking forward to establishing revenues from Egypt, where it made an entry though an acquisition during 2015.

The move encountered a bump along the way - there is currently a dispute with its Chinese owned joint venture partner - the group’s position in country is strengthening after the company’s status was recently approved by the Egyptian Petroleum authorities.

East Ghazalat was seen an opening transaction into a new Egyptian business.

At the time of the deal East Ghazalat was producing some 880 barrels of oil per day in total, though information about the operation has been more limited of late due to the ongoing dispute with the operator.

The company told investors that it continues to engage with the Egyptian authorities over the matter.

Explaining the nature of the dispute, IRG said that comprehensive diligence had made the company and its joint venture partner, Nostra Terra, aware that significant restructuring of the licence cost base was necessary.

“We therefore envisaged that there would be difficult discussions with the operator to ensure that activities on East Ghazalat would be prudently managed and ensure costs are appropriate for the scale of activity on the licence,” the company said.

“Post year end as disclosed in our regulatory announcements of 25th January 2016 we received notice of default in relation to cash calls raised by the operator.

“We believe those cash calls to be fundamentally erroneous and unjustifiable in the context of the licence, in comparison with other interests North has in Egypt and the business environment and we have therefore declined to pay them.”

It added: “We have formally rebutted the claims from North for payment and in relation to the alleged default and continue to engage with EGPC to promote our case in relation to East Ghazalat.”

Furthermore, the parties have been unable to agree budgets for 2016 and that has constrained activity, though in light of current oil prices IRG says it believes this is actually ‘an appropriate posture”.

IRG also noted that payments are due to the joint venture, and notice has been served in relation to the matter. Those amounts due from the operator relate to outstanding historical joint operating agreement audit claims, and the company said it also intends to have an audit of the licence costs for 2013 and 2014.

It told investors that due to a lack of robust financial information regarding the operations, it has agreed with its auditors that it is prudent to account for the group’s investment into Egypt at historical cost, therefor it will not consolidate any share of profit or loss for the period since July 1 2015 (the effective date of the transaction).

“The directors remain confident that our joint venture interest in East Ghazalat will create value for shareholders and therefore that no impairment is necessary in respect of the carrying value of the group's joint-venture investment in East Ghazalat at 31 December 2015,” it added.

Elsewhere, IRG continued to seek a partner for the Ksar Hadada project in Tunisia, though it says the drop in oil prices and security concerns connected to terror events in the region during 2015 added to the difficulty of securing a deal.

Nevertheless, the company told investors that talks continue with interested parties. During 2015, IRG took full control of the asset and secured an extension to the licence until August 2017.

IRG reported a consolidated loss of £1.91mln for the twelve months to December 31 2015.

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