Response to COVID-19 pandemic

Deutsche Rohstoff AG considers itself prepared for the current COVID-19 crisis and the market environment in the oil and gas sector. The Group has sufficient liquidity to master the current crisis. As reported, the Group had about EUR 85 million available at the end of 2019. In January 2020, these funds were used for the partial repayment of the bond 16/21 of EUR 16 million.
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Adjustment of output/Withdrawal of forecast/Review of dividend

Mannheim. Deutsche Rohstoff AG considers itself prepared for the current COVID-19 crisis and the market environment in the oil and gas sector. The Group has sufficient liquidity to master the current crisis. As reported, the Group had about EUR 85 million available at the end of 2019. In January 2020, these funds were used for the partial repayment of the bond 16/21 of EUR 16 million. Other noteworthy current liabilities exist only at Cub Creek, which still has to pay parts of drilling and completion expenses from the previous year. However, this is partly offset by the proceeds from oil and gas production.

The Group is reacting to the current very low oil and gas prices with various measures:

  • Adjustment of production to the market situation: Due to the good liquidity situation and the technical feasibility, it is possible to reduce the production of the independently operated wells without any problems and to ramp it up again later. Last week, Cub Creek decided to limit oil production initially to 1,000 to 1,500 barrels/day until the end of June 2020. This is about 15 to 25 % of the actually planned production volume. If necessary, production could also be stopped completely if the customers no longer accept oil. Such a possibility is currently being discussed in parts of the USA, as inventories are already very high and there is little capacity left to increase them further.
  • The oil hedges (“hedge book”) of Elster Oil & Gas for 2020 were unwound at a WTI oil price of USD 22. This resulted in an income of around USD 1.8 million. The corresponding hedges at Cub Creek continue to exist. Management has decided to dissolve them if the oil price falls below USD 20 per barrel. This would generate income based on the current forward curve and an income of approximately USD 11 million.
  • Savings potentials are currently being identified and realized both in the running costs of production and in administrative costs. With immediate effect, salary payments for the Management of all Group companies will be reduced by 25 % over the next six months.
  • Cub Creek has postponed the decision to develop the Knight well pad until June.

The above-mentioned measures will have a significant impact on the planned revenues, EBITDA and profitability in 2020, as the development is mostly dependable on the volumes produced and the realized oil prices. Management is therefore taking back its forecast for 2020. A new forecast can only be published when the economic consequences of the current pandemic are much more predictable and oil prices have stabilized. At present, a statement on the dividend cannot be made either. However, it is likely that management and the Supervisory Board will propose a significantly lower dividend to the Annual General Meeting than in previous years or even recommend that the dividend be suspended. A decision on this will be taken by the time the final annual figures are published on 11 May 2020.

Management and the Supervisory Board of Deutsche Rohstoff AG have also decided to invest up to USD 25 million of free liquidity in a portfolio of oil and gas stocks and bonds and, to a lesser extent, gold stocks. With this, management intends to take advantage of the historically low valuations of oil stocks and the, in the opinion of the company, excellent prospects of gold companies and their also low valuation. Each investment is closely reviewed and tracked based on the Company’s geological and technical expertise.

Thomas Gutschlag, CEO of Deutsche Rohstoff said: “Our production is running smoothly, but we think it makes sense to produce as little as possible at current prices, as we expect prices to rise again in the second half of the year. In general, we want to conserve our liquid assets as much as possible in order to be prepared for a possible longer dry spell.

With regard to new investments, we currently consider investments in selected companies to be faster and more targeted than the purchase of acreage. We have excellent internal competence to filter out good projects and companies. Nevertheless, we are also examining the classic purchase of land and production, but we assume that a deal in this field is more likely to be concluded in a 6 to 12 month period. Experience shows, that potential sellers are hesitant to sell when oil prices are low and wait until prices rise again. Some companies in distress sell larger packages. In these cases, however, the quality is usually poor or the competition is strong.”

For a definition of EBITDA, please refer to the homepage of Deutsche Rohstoff AG at https://rohstoff.de/en/apm/.

Mannheim, 6 April 2020

Deutsche Rohstoff identifies, develops and sells attractive raw material deposits in North America, Australia and Europe. The focus is on the development of oil and gas deposits in the USA. Metals such as gold, copper, rare earths, tungsten and tin complete the portfolio. Further information can be found at www.rohstoff.de

Contact
Deutsche Rohstoff AG
Dr. Thomas Gutschlag, CEO
Phone +49 621 490 817 0
info@rohstoff.de

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