Star Energy Group (LSE:STAR) — Interim Results for the six months ended 30 June 2026

0:01 Good morning, and welcome to the STAR ENERGY GROUP PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and they can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. Before we begin, I would like to submit the following poll. And I would now like to turn you over to CEO, Ross Glover. Good morning to you. Good morning, everybody. Thank you very much for joining us this morning. We're very pleased to present our interim results up until the 06/30/2026. I'm joined by Francis, and we will take you through a relatively brief presentation and then go through your questions.

0:51 So I think just to sort of set the scene, we're really proud of where the business has come from over the last year. A couple of sort of key metrics to put out of the slide, we've turned from a net debt position to a net cash position. We obviously completed a fundraise over the last six months, but we've also continued to invest in our business, pay down debt as well. So the net cash position is really pleasing to see. As well as that, there's obviously a really decent cash position within the business. In fact, that's probably slightly higher today. I actually had a couple of months of of oil revenues in.

1:37 But I think, really, in in over the past year, we've we've turned the business from one where we are sort of managing the decline in existing in existing assets. We're trying we've been trying to simplify things and reduce costs. Well, as at sort of today, we've done that. We've got a much more focused cash generative business, and we've got a bit of a war chest now to go off and really grow the business, focusing on trying to acquire some oil and gas production. I'll have Frances to talk you through the results. Okay. So morning, everybody. We've had a very good first half with strong operating cash flow generation, 6,000,000, which is a 25% increase on last year.

2:30 As Ross said, we've built a strong cash position at 15,700,000, and we've changed our our move from net debt at the end of twenty twenty five to a net cash position of 4,600,000 at the end of June. In terms of our p and l, we did make a loss on our hedges. Those hedges were put in place before the conflict in The Middle East and at a time when people were expecting buses of 50 to $60 per barrel. We've continued with our operating cost reduction, reduced those from $1,010,800,000 to 10.5, and and, again, controlling our admin costs and keeping those offsetting inflation, the increases for those.

3:21 In terms of our balance sheet, we as you know, we raised 8,500,000 net proceeds from our equity raise earlier in the year. Our cash balance doesn't include the the proceeds from these Croatia sale, 1,100,000, and it also doesn't include our restricted cash of €5,200,000, which will be released on completion. In terms of our finance facility, at the end of the year, we'll have a remaining drawn amount of 6,000,000 and expect to pay that back over twenty twenty seven, twenty twenty eight. And then we also have 1,200,000 of asset financing for our singleton generators.

4:08 Slide. So I think just going to our oil and gas operations. We when we raised money, we said we would spend the money on growing our production, that could be organic or in inorganic growth. You know that we've we've been spending or we have spent money on our singleton gas wire project. Frustratingly, that's not online yet. We are everything is on-site. We literally need the distribution network operator to hook it up, and we are waiting, working hard to try and get that done. We expect that online in October.

4:54 But then some of the sort of the the one of the other more mature shovel ready projects is Glenworth. We've had that we've had planning consent for that for a couple of years now. What we're now doing is we're discharging all the planning conditions on that and obviously repricing everything, looking at the economics again. And by the end of this year or very early next year, we will be in a position where we're making an investment decision on that. I think the important thing to note there is that each project that we have has got to stand on a certain two feet. It's got to compete for capital with all the other opportunities that might be out there for us. And that's, think, the important thing to note with with all of our our investments is that they will be high graded and ranked.

5:46 Just heading to some of the the the longer term, more strategic stuff. We've done a lot of work over the last few years around operational optimization. What we haven't done so much of is looking at how we get more of our reserves out of the ground. And so we've started to turn we have turned to that. An example of that is up at Welton. It's our largest operating field up in the East Midlands. We have done quite a lot of preliminary work there, and we did we hope in the next few months, year, we'll be bringing forward a a a comprehensive project around how we get more of those reserves out the ground up at Wellington.

6:34 So I think it's summer. We've got a pretty material reserve space. Now we need to start to mature some of the options that are out there so that we can bring those forward into production, extend field life, all of those good things. So turning to our geothermal business now. With the sale of Croatia, we're obviously focused purely on The UK now. The whole principle around our UK business is that we are pushing forward on a very capital light development platform. We are looking to use government grants and third party capital to push that business forward. And the two key projects or most mature projects there are really an example of this.

7:26 You I think we've spoken to you all about what these projects are, but in summary, they are both large utility scale geothermal heat supply projects delivering tens of gigawatt hours per year into district heat networks. How are we gonna fund those going forward? Well, we've applied for Green Heat Network Fund grants for both of those projects. The grant, if we receive it or grants, if we receive them, will fund all of the future dev ex and a large portion and the first portion of the CapEx going forward. Alongside those grant applications, we had to demonstrate that there were there were funds to to to sort of fill the other the or the unfunded element or the non grant funded element, and we've got less support from various infrastructure funds on those.

8:24 So we really see certainly those two projects as as setting the the the tone for how we develop these projects. Firstly, relying on grant monies, and then secondly, relying on on infrastructure or third party funding to to develop those. In terms of where we are with the grants, we applied for those grants in May 2026. We have been through various rounds of clarification questions, all relatively standard stuff. We understand that a recommendation has been made to the minister, and we were expecting ministerial decisions. And this is not just on these two projects. There is a large or a round of grant grants issued.

9:14 So we were expecting ministerial decision on that round at the end of August, and we haven't had it yet. We are pretty hopeful, though. Just turning to sort of our outlook and and our priorities for the remainder of this year, Francis. K. Well, obviously, we raised 8,500,000, so a key priority for us is m and a. We have looked at a number of not see acquisition opportunities, and we're continuing to assess a number of those. However, what we've found is with the volatile commodity prices and and the policy uncertainty around things like the EPL, it does make transactions challenging because people want a bit of certainty before deciding what they they do with their assets.

10:06 But we do know that a number of operators in the have assets that are considered noncore, and and we're actively talking to people about this. We also are looking at opportunities in other jurisdictions. And just to be clear, we are looking at producing assets. We're generating cash. But but, you know, from a from a management team, we're pretty focused and and dedicating a lot of our resources to M and A at the moment. Other pieces of our outlook, production for the year is expected to be between 1,900 and $19.50 per week. We have cash CapEx of about 6.6, and we're also spending about 1,300,000 on decommissioning our Abington field.

10:58 The Croatian sale is expected to complete in October, and Ross mentioned about our geothermal projects, which are grant dependent. In terms of hedging, we have a requirement under our debt facility to hedge a portion of our production. And as you know, we have mature fields, which are relatively high cost, so we also look to protect the downside of hedging strategy. So for 2027 well, '26, we've got 54% hedged at this average seeding price of $71 per barrel. Going into 2027, our our strategy is to hedge 20 to 30% with swaps at 80 around $80 per barrel, and then using cuts, spreads, and collars to protect our downside or give some downside protection, but retain upside exposure.

11:57 So in place at the moment, we've got 21% hedge for h 01/27 of the date at $79 per barrel and a further 21% with cuts and collars with an average ceiling price of $97 per barrel. And then for h 21% hedged with cuts and collars at a average ceiling price of $79 per barrel. Okay. So I suppose just to round off, I think the the the headline for us over the last six months has really been fundraise. That was off the back of a much more focused business having agreed to sell Croatia and a more streamlined oil and gas business.

12:49 So, you know, we we are with as Francis mentioned, we're very focused on the m and a side of things. We think we're a very low risk counterparty. We've got operational capability. We've got immediately deployable cash. And when we are looking at UK assets, we've got our ring fenced tax loss position, which is hugely valuable. As a management team, we've got real intent and real ambition around growing this business. And now we've got the sort of armory to be able to go off and do that. So we're very, very pleased with with where the business sits as of today. And with that, I think we'll just jump straight into some questions.

13:38 So I think first up, what kind of size of investments in oil and gas in barrels are you looking for? Is it something like a few 100 barrels per day, or are you looking for something that could double the size of your production? Francis? So I guess we we are looking for something that that will materially change that or increase the scale of our business. So we don't have fixed production number in mind because every asset is different with different risks. And operating costs, you know, life field, decommissioning liabilities all feed into the equation and and can be very different by asset. But to to give you some sense of the scale with the equity raise and and the level of corporate debts that we could raise on that, plus our our cash generation, we're we're looking we probably have a sum of between 40 and $50,000,000 to deploy, that could give us production by production anywhere between a thousand and 2,500 theory.

14:48 I suppose the other point to mention is is, you know, we don't expect to to stop here. This we see this very much as a first step in our growth journey. There will be more deals to come after we successfully do the first one. Okay. It's a good one. Actually, there's a couple of questions here. So how much money was lost in Croatia geothermal investment, the size of the purchase, sale price, and all CapEx that invested? Also, when will yeah. Sorry. When will Croatia complete? When will the sale complete? Single one. And why did you decide to exit Croatia?

15:34 So let's just take all of those together. I think in terms of how much we we we spent in Croatia, so we originally paid about £2,000,000 to acquire the Croatian assets. We invested further 3,000,000 into well reentry, you know, and testing of the well and things like that in Croatia. I think the important thing is why did we decide to exit. We've talked about this before, but it's worth reiterating. The, you know, the geology in Croatia is good. We believe in the geology in Croatia. The three licenses that we have have got good geothermal or or good potential for geothermal power generation. I think the problem was that the investment case depended on the introduction of a of a premium price support mechanism. So effectively, revenue a revenue support mechanism by the government. That support wasn't put in place within the time frame that we expect it to be, and actually, we've been led to believe.

16:40 All the while, we had commitments on various licenses, and it came to a point where we really had a choice whether we were going to put more put or at least carry on spending money with uncertainty around that support mechanism or whether we were going to try and get some value out of it and and remove those future commitments. So we decided on the latter. The ultimate buyer is a company called ENER. They are very well placed. They've got existing geothermal operations or licenses in Croatia and and a much wider operational base in Croatia anyway. I think the important thing for us is we have removed those longer term material commitments for us. We get €5,300,000 back that was sitting behind some performance bonds, and we get another 1.3 odd million euros of consideration. And there's some contingent consideration that we we may be in line to to receive. In terms of when will it complete, well, we hope that'll be by the end of October.

17:52 The buyer had to get competition clearance in four different bulking jurisdictions, or we've we've we've had or they have had all of those barring one, which they are working on at the moment. And so we're we're pretty hopeful about what we we we believe that in October, that that deal should complete. I think the broad lesson there for for us is around investing or committing material capital when project economics are dependent on a an unresolved government decision, similar in a way to some of the oil and gas stuff in in in this country at the moment. But, I mean, I think that is why we are very focused on looking at production, buying producing oil and gas assets as opposed to looking at exploration assets or anything like that.

18:55 Okay. So let's move on to another question, which was I mean Oh, what what do you expect net debt to be at the end of twenty twenty six? Francis? So, I mean, we it it's difficult to give a price precise number because our oil prices are very volatile, and we don't know what they are going to be for the second half. However, you know, we have net cash of 4,600,000 at the end of June. We expect to be cash generative in the second half. Our CapEx is weighted towards the second half as our abandonment expenditure, but we do believe at current prices that we should have cash over and above what we have from the equity raise.

19:47 So having additional cash and having the on completion of Croatia, having the funds from that, it just gives us a lot more financial flexibility moving forward. Okay. Do you have any do you have other opportunities in your portfolio given the size of remaining reserves? I suppose so this comes back to a little bit about similar theme to to what I talked about in the oil and gas slide. We as at today, our our most mature opportunity is Glenworth. We over the past so past couple of years, really, our our focus around our oil and gas assets has been trying to sort of improve reliability, simplify and making our opposite simplify our operations, make those operations more resilient and trying to reduce our regulatory burden.

20:51 And some of that around the regulatory burden, we've been investing money into the assets so that we can must have have them declassified from things like upper tier coma and and fairly burdensome regulation like that. So, you know, we've done a lot of that. What we haven't necessarily done is a lot of that sort of deep technical subsurface work, which is figuring out how do we get some of these reserves out of the ground economically. And so Wellesome is is an example of some work that is ongoing at the moment to identify those those bypass opportunities or near field extension opportunities.

21:37 So as of today, Glenworth is largely ready to go. There will be a bit of a gap while we while we mature other opportunities, but our focus is really around our larger producing fields so that that you know, that's Singleton. It's Glenworth sorry. Singleton, Welton, Hill Farm, or Stockbridge. We wanna try and focus our attention on on the reserves that are sitting in in those or in and around those fields. Okay. Next question. How competitive are The current UK geothermal opportunities versus your existing organic projects in the fight for capital?

22:24 I think it's pretty it's pretty important to note that we as I said, we are that I I would say that the geothermal opportunities are the organic and inorganic opportunities, Well, the oil and gas opportunities are almost fighting for different pools of capital. We're very much positioning our geothermal business as a business that will utilize grant money. It will then look to fund those projects using project finance, and it may even sell down those projects at FID. So I don't you know, what what we're not proposing is that STAR ENERGY will be investing material amounts of capital into those geothermal projects.

23:14 They have a very different return profile. We believe there's a big opportunity there. I think how we believe that the big opportunity certainly for us is being the developer, you know, an originator and a developer for a pool of capital that has different return expectations. K. Time. It's a next question. It's excellent to see the turnaround in the company's fortunes. As the company moves from stabilization to growth, what new skills or industry experience with management and the chair like to see added to the board to help accelerate the positive momentum?

24:02 Firstly, it's great that the positive momentum is being acknowledged. I'm very pleased about that. I think we've we've got we've actually we're very fortunate, I think, in the in the the composition of the board that we have has got is pretty broad and experienced skill set. They played a pretty big part in the in the stabilization of the of the business over the last couple of years. As always, as a board, we continually review the the the sort of the the the board composition and the skill sets that that we have within the board. We are, as you'd expect, currently looking at board composition and and understanding, you know, where we can augment or add to the to the skill set around the board table.

24:58 But we're pretty we're pretty happy. We're very happy with the board that we we have at the moment. Right. Gone on one too far. Right. It's unclear how cost effective the Singleton project will be to start. Can you give us some idea of how long the payback time or IRR will be on the project, please? I can take that. So I think the key thing to note with Singleton is it is a it fulfills two objectives. One, it's gotta have an economic return. It does have a a a reasonably good economic return. It's power generation, and so it's not oil revenues. But what it does do is it it largely eliminates the flaring at our Saint Dortons site, and that's a really, really important environmental and regulatory consideration.

25:57 Singleton was the largest onshore flaring operation or oil and gas flaring operation in The UK. The gas to wire project will largely will pretty much eliminate that. It has a reasonable payback, I think, about four to six years depending on power price. But, really, the fundamental thing is it secures that singleton production for the future. I think we've got one more question, and there's time for it. Has the competitive environment for The UK producing assets changed since the May fundraising, and are sellers becoming more or less realistic on valuation? Frances, do you wanna pick up on this?

26:42 I don't think it's changed dramatically since May, but but I think what has happened is is the expectation of oil prices staying higher for longer has has that has changed. I think sellers are realistic on valuation, but I think it's difficult for them to sell at a time of very high prices. However, you can deal with that in terms of of having some form of contingent consideration in in the acquisition price. I think the other thing possibly that's changed is is, you know, people are burning through their tax losses quite quickly at these prices. And so given our 250,000,000 of tax losses, it it does put us in a a good position to use those for an acquisition.

27:33 Do wanna give that anything else? I think well, I mean, I think the only thing I'd add to that is, you know, we're on it. We are we are we're dedicating a lot of time to this as a as a team. We we we've we've identified, you know, assets that that we like the look of, and we are in active discussions. It does feel, though, that that that buyers or sorry, sellers need to sort of get a better view on on where oil prices are changing. Not necessarily where they are today, but will they stay high for longer? Are they likely to fall? So there is a there is probably still a slight mismatch between buyer and sellers, but we are we are we're ready to go. We've got cash.

28:27 We've got the intent, and we've got those tax losses. Okay. I think that is the that that was the last question. That's great. Thank you very much indeed for addressing all those questions, guys. But, Ross, before we direct investors to provide you with a feedback question that's particularly important to yourself and the company, Could I please just ask you for a few closing comments? Yeah. Sure. Well, I think, you know, firstly, we'd like to say thank you very much for all the shareholder support we've had over the last few months. It it's been the the company is in a very different place now to where it was. That's down to a lot of hard work from all of the employees of of the company, but it's also down to the shareholder support.

29:14 We believe that this is is just the beginning of the story, though. So watch the space. We hope to bring you exciting news over the next few quarters. That's great, Ross Francis. Thank you once again for updating investors today. Could I please ask investors not to close this session as you now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we would like to thank you for attending today's presentation, and good morning to you all.