ALK Alkemy Capital Investments Plc

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RNS Number : 6842C

Alkane Energy PLC

21 January 2015

21 January 2015

Alkane Energy plc

("Alkane" or "the Group")

Trading Update and Notice of Results

Notice of Results

Alkane (AIM: ALK), the independent gas to power producer, today announces an update on trading ahead of the results for the year ended 31 December 2014 (the "period"), which Alkane will publish on 11 March 2015.

Trading Update

For the period, the Group expects power sales to have reached close to 200GWh (2013: 192GWh) with an expected average base load price of circa GBP52/MWh in the year to 31 December 2014 (2013: GBP53/MWh). Alkane now has 27 sites with a combined operating capacity of 145MW. The three power response sites acquired from Carron Energy in July 2014 are now operating in line with expectations and we have brought on upgraded capacity at both Shirebrook and Wheldale just before the year end. We are pleased to report that we have seen record levels of production for the Group as we enter the new year.

As previously announced, there are a number of adjustable items in the 2014 results including the exceptional profit from the transfer of Alkane's shale interests to Egdon Resources plc, offset by non-developed licence impairments and mark to market adjustments at the year end. There were also the deal costs of this and the Carron Energy transaction as well as a provision against the remaining outstanding debt from the TEG Group. After accumulating these adjustable items we are expecting a contribution of circa GBP1.5m from these items in addition to the adjusted profit before tax.

There were a number of operational issues in the last few months of the year which have impacted on profit before tax. The upgraded capacity at Wheldale and Shirebrook were commissioned two months later than expected, and there were fewer than anticipated calls from National Grid under the STOR programme. We had 29 calls under STOR in the last quarter of 2014 (last quarter of 2013: 66 calls). As a result adjusted profit before tax for the period is now expected to be between GBP3.25 - GBP3.5m. Net debt is expected to be circa GBP17m.

We have a prudent medium term power selling policy which we are delighted to report has secured stable pricing in 2015 and into 2016. Alkane has contracted approximately 82% of the Group's expected 2015 base load output at an average price of GBP52/MWh and we have secured prices of GBP51/MWh on 30% of 2016 expected base load output. Current market prices for the balance of 2016 are around GBP45MW/h which we will continue to monitor. The drop in selling prices has a negative impact on baseload margins but we are seeing our power response activities benefiting from lower gas prices to partially offset base load.

Looking forward, the coal mine methane ("CMM") project pipeline is on schedule with a new drill starting in Stoke this year and the build phase of the successfully drilled Markham Main site in Yorkshire due to start during H2 2015. In addition, we have applied for a number of new CMM licences as part of the 14(th) Onshore Licensing Round. We are well placed to grow output during 2015.

On 5 January 2015 Alkane announced it had been awarded Capacity Mechanism Agreements giving us visibility on over GBP14m of new income from 2018 up to September 2033. The agreements are for 101MW of capacity, of which 46MW is new build sites, and we have commenced the process of procuring the new assets ahead of the delivery date in 2018.

Commenting on the update, Chief Executive Officer, Neil O'Brien, said:

"We have been busy integrating and upgrading sites in 2014, which was another year of good solid progress for Alkane. We have made a strong start to the new financial year with record production and have secured stable pricing for 2015. We are well placed to increase output in the coming year and are confident of reporting further growth."

For more information please contact:

 
 Alkane Energy plc 
  Neil O'Brien, Chief Executive 
  Officer 
  Steve Goalby, Finance Director      01623 827 927 
 Liberum Capital Limited 
  Clayton Bush 
  Joshua Hughes                       020 3100 2000 
 VSA Capital Limited 
  Andrew Raca                         020 3005 5000 
 Hudson Sandler 
  Nick Lyon 
  Alex Brennan                        020 7796 4133 
 

Background information

Alkane is one of the UK's fastest growing independent power generators. The Company operates mid-sized "gas to power" electricity plants providing both base load and fast response capacity to the grid. Following the acquisition of three power response sites from Carron Energy Limited and Dragon Generation Limited, Alkane has a total installed generating capacity of 145MW and an electricity grid capacity of 160MW.

Alkane's base load operations, where power is generated 24/7, are centred on a portfolio of coal mine methane ("CMM") sites. Alkane has the UK's leading portfolio of CMM licences, enabling the Company to extract gas from abandoned coal mines.

As CMM declines at any one site, Alkane retains valuable generating capacity and a grid connection which can be redeployed to power response. Power response sites are connected to mains gas and produce electricity at times of high electrical demand through peak running, or in order to balance the electricity grid through participation in the National Grid's short term operating reserve programme ("STOR"). Participants in STOR are paid premium rates when called upon by the Grid to meet temporary supply shortages. Alkane now operates 93MW of power response, one of the UK's largest power response businesses, with contracted STOR revenues extending out to 2025.

The Group operates from 27 mid-size (up to 25MW) power plants across the UK, 13 CMM only, 7 mains gas only, 6 using both fuel sources and 1 using kerosene only. Alkane uses a combination of standard modular reciprocating engines and gas turbines to generate the electricity and sells this power through the electricity network. The engine units and other plant are designed to be flexible and transportable allowing additional capacity to be brought onto growing sites and underutilised plant to be moved to new sites to maximise efficiency.

Alkane transferred in June 2014 its shale gas interests to Egdon Resources plc. Alkane received 40m Egdon shares making us the largest shareholder in Egdon, a significant player within the UK shale industry.

Alkane has a range of core skills encompassing the entire project development cycle including planning and permitting, sourcing plant and managing the build and commissioning stage. This has enabled Alkane to establish a design, build and operate ("DBO") business for third party clients in the biogas and oil & gas industries.

The Group has circa 800km(2) of acreage under various onshore Petroleum Exploration and Development Licences ("PEDLs").

More information is available on our website www.alkane.co.uk

This information is provided by RNS

The company news service from the London Stock Exchange

END

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