TIDMNTOG
RNS Number : 6254R
Nostra Terra Oil & Gas Company PLC
01 July 2020
1 July 2020
Nostra Terra Oil and Gas Company plc
("Nostra Terra" or the "Company")
2019 Audited Annual Results
Nostra Terra Oil and Gas (AIM: NTOG), the oil & gas
exploration and production company with a portfolio of assets in
the USA and Egypt, is pleased to announce its final results for the
year ended 31 December 2019.
Nostra Terra is in the process of sending out hard copies of the
Annual Report to its shareholders today and this is now available
to download on the Company's website: www.ntog.co.uk .
Highlights during the period:
-- 276% increase in net 2P (Proved & Probable) reserves to
2,429,660 barrels of oil, up from 646,280 barrels of oil (1P at
Pine Mills and Permian Basin from 2017)
-- Net Present Value at 9% discount ("NPV9") estimated at $24.0 million
-- Revenue for the period was $1,795,000 (2018: $2,267,000)
-- Production for the period was 33,179 barrels of oil equivalent (boe) (2018: 37,384 boe)
-- Twin well (Permian Basin) beat expectations, reached 100% payback in year one
-- Placing raised additional GBP1,150,000, cornerstoned by institutional investor
-- Successful workovers at Pine Mills
Post year end highlights:
-- Strong hedges in place at $55 - $57 per barrel, for over half production, through 31 Dec 2020
-- New Chairman appointed to the Board
-- Placing raised additional GBP318,000
-- Over 60% reduction in monthly overheads, versus 2019 monthly average
-- Pine Mills farmout - 32.5% WI in well, NTOG carried for 25% in first well
Stephen Staley, Nostra Terra 's Chairman, said:
"Since the end of the reporting period the world has changed; as
I write this it remains to be seen what the new world will look
like. However, following deep cost-cutting and a keen refocusing on
extracting maximum value from existing and new assets, Nostra Terra
is well placed to take advantage of the opportunities it will
present."
Matt Lofgran , Nostra Terra 's Chief Executive Officer,
said:
"In 2019 the strength of the Company's assets was reflected in
the Twin Well in the Permian Basin which achieved payback in less
than one year and at Pine Mills where payback on the entire
acquisition cost was achieved in 2 years and 3 months. Both assets
continue to be strong producers and areas where we are planning
further growth in 2020."
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014
For further information, contact:
Nostra Terra Oil and Gas Company
plc
Matt Lofgran, CEO Email: +1 480 993 8933
Strand Hanson Limited
(Nominated & Financial Adviser
and Joint Broker)
Rory Murphy / Ritchie Balmer /
Jack Botros Tel: +44 (0) 20 7409 3494
Novum Securities Limited (Joint
Broker)
Jon Belliss
Tel: +44 (0) 207 399 9425
Lionsgate Communications (Public
Relations)
Jonathan Charles Tel: +44 (0) 7791 892509
Chairman's Report
For the international oil industry 2019 was a generally less
volatile year than 2018, with oil trading within a relatively
narrow range. Nostra Terra's benchmark crude, West Texas
Intermediate ("WTI"), 2019 saw prices fluctuate between $47 and $66
per barrel with an average price of around $57. However, the
average WTI price in 2019 was about $7 less than the average for
2018 (source: EIA).
Against this background the Company continued to produce oil
efficiently and safely from its Texan Permian Basin and Pine Mills
properties. The average total daily production rates for 2019 was
92 barrels (net) compared to 102 barrels (net) in 2018, this
illustrates the stability of our production base. Net proven and
probable reserves increased by 276%, from 646,280 to 2,429,660
barrels, showing the progress Nostra Terra has continued to make in
developing its US asset portfolio.
An approach by Cypress Minerals LLC during 2019 has, after the
end of the reporting period, resulted in a signed farm-in agreement
to an 80-acre sub-area of our Pine Mills asset. This should give
Nostra Terra a 32.5% interest in a new, low-risk well in H2 2020.
25% of the well costs are to be carried by Cypress and, with
success, it should increase our daily production volumes and
revenues substantially.
In the Permian Basin the Twin Well, drilled in 2018, achieved
payback in less than one year. Engineering and economics studies by
Trey Resources Inc. of the Mesquite asset carried out during the
year indicated 2,429,660 barrels of gross recoverable oil with an
indicative NPV9 of USD $24 million.
The Company continued to benefit during the year from oil price
hedges put in place over approximately half of its production
volumes and from its $5 million Senior Lending Facility with
Washington Federal bank. Both are highly valuable facilities, the
latter of which enhances Nostra Terra's ability to take advantage
of opportunities as they arise.
In February 2019 Nostra Terra conducted a successful capital
raise of GBP1.15 million (before expenses) to support development
of the Company's assets and to further strengthen its balance
sheet.
In November 2019 the Company's wholly-owned subsidiary, Nostra
Terra, Inc., reached an agreement with North Petroleum
International Company SA which allowed Nostra Terra Inc., to exit
the East Ghazalat Concession, onshore Egypt, whilst avoiding any
past or future liabilities.
Since the end of the reporting period the world has changed; as
I write this it remains to be seen what the new world will look
like. However, following deep cost-cutting and a keen refocusing on
extracting maximum value from existing and new assets, Nostra Terra
is well placed to take advantage of the opportunities it will
present.
I should like to thank our shareholders for their support; I
expect the coming months to be exciting ones for Nostra Terra's
investors.
Dr Stephen Staley
Non-Executive Chairman
30 June 2020
Chief Executive Officer's Report
In 2019 The strength of the Company ' s assets was reflected in
the Twin Well in the Permian Basin which achieved payback in less
than one year and at Pine Mills where payback on the entire
acquisition cost was achieved in 2 years and 3 months. Both assets
continue to be strong producers and areas where we are planning
further growth in 2020.
During 2019 we progressed development of the Mesquite Asset in
the Permian Basin. We completed a Field Development Plan that saw a
significant increase in our reserves, primarily at Mesquite. We
decided not to continue with the East Ghazalat permit in Egypt.
Finally, we maintained operations at Pine Mills, successfully
undertaking a workover on a well in early 2020.
Revenues for the year were $1,795,000 down from $2,267,000 in
2018, reflecting the lower commodity price environment and a small
decline in production. Operating losses increased largely due to
one-off legal fees of approximately US$320,000 associated with the
arbitration and disposal of the East Ghazalat license, which are
accounted for in Administration Expenses). During the year we
raised an additional GBP1,150,000, without a discount to the
prevailing bid of Nostra Terra's share price, allowing us to bring
a new institutional investor to the Company in order to strengthen
the balance sheet and progress our position at the Mesquite
Asset.
United States
All of Nostra Terra ' s operations in the US target conventional
reservoirs (i.e. not shale), with lower lifting costs and long-life
reserves.
Pine Mills - Texas (100% Working Interest)
Pine Mills remains the core asset for Nostra Terra providing
stable production. Following prior successful workovers we
performed an additional workover that had good initial results. In
2020 a new powerline was run, equipment upgraded and the well was
put into continuous production.
Permian Basin - Texas (50 - 75% Working Interest)
In prior years, we made three different acquisitions in the
Permian Basin. These were leases that had existing, albeit nominal
rates of, production. The reason for the acquisitions was to gain
upside through additional drilling locations on the leases, in a
proven oil field, and during a lower oil price environment. In
2018, we brought two new wells into production. In February 2019 we
announced that the first well paid out in under one year, meaning
production rates were strong enough to generate a return of all our
well costs in a rapid manner. The second well is performing to
expectations. We have numerous other potential drilling locations
that we keep in inventory to potentially drill in the future.
Mesquite - Permian Basin Texas (100% Working Interest)
T he Mesquite Asset , in the Permian Basin , i s located in a
field that is proven to produce from multiple stacked-pay
reservoirs with long-established producing vertical wells that were
drilled on 40 - acre spacing. In recent years operators have
successfully drilled wells with tighter spacing. Nostra Terra
believes the Mesquite Asset has much greater development potential
if drilled horizontally. The target formations at the Mesquite
Asset are "tight", meaning the oil-bearing rock formations are of
low permeability. As such, they have characteristics that make them
ideal targets for horizontal drilling and have delivered
substantial oil production in other nearby areas of the Permian
Basin. This combination of multiple stacked pay targets and the
potential uplift provided by drilling horizontally supports our
view that the Company can achieve significantly better production
and revenues compared to historical operations .
Egypt
East Ghazalat - Western Desert (50% Working Interest)
There was a dispute inherited from a prior partner regarding the
Joint Operating Agreement . Since the acquisition of interest from
that partner, Nostra Terra did not make any further investment in
the asset. During the year we went through an arbitration process
to address cash calls from the operator. In May the hearing was
held at the London Court of International Arbitration ( " LCIA " ).
In August 2019 the LCIA ruled that the cash calls needed to be paid
in accordance with the Joint Operating Agreement . Nostra Terra
then made a strategic decision to exit the asset, to avoid further
operational and financial risk not in its control. In November the
Company reached an agreement to transfer its interest in the
Concession to the operator with no cash paid nor liabilities for
any past losses.
Senior Lending Facility
Nostra Terra has a $5 million Senior Lending Facility. The
borrowing base at the end of the year was $1. 78 million at a 5 . 0
% interest rate, ( with a variable rate of the greater of 4.25% and
WS J Rate plus 25 basis points ) . Post-year end the Facility was
extended a further two years to 29 January 2022. This flexible
facility provides an attractive opportunity to use non-dilutive
funds to grow the Company.
Outlook
2020 has so far been a difficult time for the industry with WTI
oil prices reaching negative (for a couple of days) for the first
time in history. Throughout all of the downturn we have been
supported by very strong hedges that we put in place, from $55.15 -
$57.15 per barrel for just over half of our production through 31
December 2020. As a result , the Board has had the time to assess
and implement further changes, both corporate and operational, to
ensure we make it through the difficult times that the industry and
the economy in general is experiencing due to Covid-19. The Board
feels that we are very well positioned to grow during this time. We
have started to demonstrate this, with a farmout for an undrilled
area of Pine Mills, and will look to continue delivering in the
weeks and months to follow.
Matt Lofgran
Chief Executive Officer
30 June 2020
Consolidated Income Statement
For the year ended 31 December 2019
2019 2018
Notes $'000 $'000
Continuing operations
REVENUE 1,795 2,267
COST OF SALES
Production costs (1,166) (1,325)
Exploration - (298)
Well impairment (67) (32)
Depletion, depreciation, amortisation (272) (238)
-------- --------
Total cost of sales (1,505) (1,893)
GROSS PROFIT 290 374
Share based payment (8) (42)
Administrative expenses (1,614) (1,324)
Gain on sale - 38
Foreign exchange gain/(loss) (114) 17
OPERATING LOSS 7 (1,446) (937)
Finance costs 5 (194) (207)
Other (charges)/ income 6 (99) 214
-------- --------
LOSS BEFORE TAX (1,739) (930)
Income tax 8 - -
LOSS FOR THE YEAR (1,739) (930)
ATTRIBUTABLE TO:
Owners of the company (1,739) (930)
EARNINGS PER SHARE
-------- --------
Continued operations
Basic & diluted (cents per share) 10 (0.92) (0.65)
LOSS FOR THE PERIOD (1,739) (930)
OTHER COMPREHENSIVE INCOME:
Currency translation differences - -
Total comprehensive income for the year (1,739) (930)
------------------------------------------------------- ------- -----
TOTAL COMPREHENSIVE LOSS FOR THE YEAR ATTRIBUTABLE TO:
Owners of the company (1,739) (930)
Consolidated Statement of Financial Position
As at 31 December 2019
2019 2018
Notes $'000 $'000
--------------------------------------------------- ------ --------- ---------
ASSETS
NON-CURRENT ASSETS
Other intangibles 11 1,787 1,873
Property, plant and equipment, Oil and gas assets 12 690 536
Total non-current assets 2,477 2,409
CURRENT ASSETS
Trade and other receivables 15 352 402
Deposits and prepayments 18 96
Other assets 108 263
Cash and cash equivalents 16 240 72
Total current assets 718 833
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 17 763 642
Borrowings 18 941 723
Lease liabilities 13 16 -
Total current liabilities 1,720 1,365
NET CURRENT LIABILITIES (1,002) (532)
NON-CURRENT LIABILITIES
Decommissioning liabilities 239 217
Borrowings 18 1,753 1,955
Lease liabilities 13 16 -
Total non-current liabilities 2,008 2,172
NET LIABILITIES (533) (295)
========= =========
EQUITY
Share capital 19 7,435 6,770
Share premium 20,842 19,978
Share based payment reserve 92 120
Translation reserve (676) (676)
Retained losses (28,226) (26,487)
--------- ---------
Total equity (533) (295)
========= =========
The financial statements were approved and authorised for issue
by the Board of Directors on 30 June 2020 and were signed on its
behalf by:
M B Lofgran
Director
Company registration number: 05338258
The accompanying accounting policies and notes are an integral
part of these financial statements
Company Statement of Financial Position
As at 31 December 2019
2019 2018
Notes $'000 $'000
----------------------------- ------ --------- ---------
ASSETS
NON-CURRENT ASSETS
Fixed asset investments 14 - -
Total non-current assets - -
CURRENT ASSETS
Trade and other receivables 15 6 26
Cash and cash equivalents 16 152 30
Total current assets 158 56
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 17 546 367
Borrowings 18 940 722
Total current liabilities 1,486 1,089
NET CURRENT LIABILITIES (1,328) (1,033)
NET LIABILITIES (1,328) (1,033)
========= =========
EQUITY
Share capital 7,435 6,770
Share premium 20,842 19,978
Share based payment reserve 92 120
Translation reserve (676) (676)
Retained losses (29,021) (27,225)
--------- ---------
Total equity (1,328) (1,033)
========= =========
The financial statements were approved and authorised for issue
by the Board of Directors on 30 June 2020 and were signed on its
behalf by:
M B Lofgran
Director
Company registration number: 05338258
The accompanying accounting policies and notes are an integral
part of these financial statements
Consolidated Statement of Changes in Equity
For the year ended 31 December 2019
Share Deferred Share Share option Translation Retained Total
capital shares premium reserve reserve losses
$'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------- -------- -------- -------- ------------ ----------- -------- -------
As at 1 January
2018 192 6,549 19,105 78 (676) (25,557) (309)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
Loss for the
year - - - - - (930) (930)
Total comprehensive
loss for the
year - - - - - (930) (930)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
Shares issued 29 - 873 - - - 902
Share based
payments - - - 42 - - 42
As at 31 December
2018 221 6,549 19,978 120 (676) (26,487) (295)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
Loss for the
year - - - - - (1,739) (1,739)
Total comprehensive
loss for the
year - - - - - (1,739) (1,739)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
Shares issued 665 - 941 - - - 1,606
Cost of shares
issued - - (77) - - - (77)
Share based
payments - - - (28) - - (28)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
As at 31 December
2019 886 6,549 20,842 92 (676) (28,226) (533)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
The accompanying accounting policies and notes are an integral
part of these financial statements
Share capital is the amount subscribed for shares at nominal
value.
Share premium represents the excess of the amount subscribed for
share capital over the nominal value of those shares net of share
issue expenses. Share issue expenses in the year comprise costs
incurred in respect of the issue of new shares.
Share based payment reserve i s a reserve used to recognize the
cost and equity associated with the fair value
of issues of share options and warrants.
Translation reserves arose due to the adoption of US dollars as
the presentational currency at the start of the prior accounting
period. Further information on the adjustment can be found in n ote
1.
Retained loss represents the cumulative losses of the company attributable to
owners of the company.
Company Statement of Changes in Equity
For the year ended 31 December 2019
Share Deferred Share Share option Translation Retained Total
capital shares premium reserve reserve losses
$'000 $'000 $'000 $'000 $'000 $'000 $'000
-------------------- -------- -------- -------- ------------ ----------- -------- -------
As at 1 January
2018 192 6,549 19,105 78 (676) (26,100) (852)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
Loss for the
year - - - - - (1,125) (1,125)
Total comprehensive
loss for the
year - - - - - (1,125) (1,125)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
Shares issued 29 - 873 - - - 902
Share based
payments - - - 42 - - -
As at 31 December
2018 221 6,549 19,978 120 (676) (27,225) (1,033)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
Loss for the
year - - - - - (1,796) (1,796)
Total comprehensive
loss for the
year - - - - - (1,796) (1,796)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
Shares issued 665 - 941 - - - 1,606
Cost of shares
issued - - (77) - - - (77)
Share based
payments - - - (28) - - (28)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
As at 31 December
2019 886 6,549 20,842 92 (676) (29,021) (1,328)
-------------------- -------- -------- -------- ------------ ----------- -------- -------
The accompanying accounting policies and notes are an integral
part of these financial statements
Share capital is the amount subscribed for shares at nominal
value.
Share premium represents the excess of the amount subscribed for
share capital over the nominal value of those shares net of share
issue expenses. Share issue expenses in the year comprise costs
incurred in respect of the issue of new shares.
Share based payment reserve i s a reserve used to recognize the
cost and equity associated with the fair value
of issues of share options and warrants.
Translation reserves arose due to the adoption of US dollars as
the presentational currency at the start of the prior accounting
period. Further information on the adjustment can be found in n ote
1.
Retained loss represents the cumulative losses of the company attributable to
owners of the company.
Consolidated and Company Statement of Cash Flows
For the year ended 31 December 2019
GROUP COMPANY
------------------ ------------------
2019 2018 2019 2018
$'000 $'000 $'000 $'000
-------- -------- -------- --------
LOSS FOR THE YEAR (1,739) (930) (1,796) (1,125)
ADJUSTMENTS FOR:
Depreciation 138 93 - -
Amortisation 134 145 - -
Well impairment 67 32 - -
Share based payments (28) 42 (28) 42
Operating cash flows (1,428) (618) (1,824) (1,083)
Decrease/(increase) in receivables 50 (212) 20 (3)
(Increase)/decrease in other
assets 153 (263) - -
(Decrease)/increase in payables 129 (137) 179 35
(increase)/decrease in deposits
& prepayments 78 234 - -
Interest paid 194 (41) 83 -
Net cash used in operating activities (824) (1,037) (1,542) (1,051)
--------------------------------------- -------- -------- -------- --------
Cash flows from investing activities:
Purchase of plant and equipment (244) - - -
Purchase of intangibles (115) (639) - -
Purchase of investment - (271) - -
Net cash from investing activities (359) (910) - -
--------------------------------------- -------- -------- -------- --------
Cash flows from financing activities
Shares issued 1,606 902 1,606 902
Costs of shares issued (77) - (77) -
Net borrowing 16 979 218 101
Finance costs (178) - (83) -
Lease payments (16) - - -
Net cash from financing activities 1,351 1,881 1,664 1,003
--------------------------------------- -------- -------- -------- --------
Net (decrease)/increase in cash
and cash equivalents 168 (66) 122 (48)
Cash and cash equivalents at
the beginning of the year 72 138 30 78
Cash and cash equivalents at
the end of the year 240 72 152 30
--------------------------------------- -------- -------- -------- --------
The accompanying accounting policies and notes are an integral
part of these financial statements .
Notes to the Financial Statements
For the year ended 31 December 2019
General Information
Nostra Terra Oil and Gas Company plc (Nostra Terra) is a company
incorporated in England and Wales and quoted on the AIM market of
the London Stock Exchange. The address of the registered office is
disclosed on the company information page of this annual report.
The principal activity of the group is described in the directors'
report.
1. Summary of significant accounting policies
The financial statements are presented in United States Dollars,
rounded to the nearest $'000, as that is the currency of the
primary environment in which the Group operates.
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the years presented, unless
otherwise stated.
Basis of preparation
These financial statements have been prepared in accordance with
International Financial Reporting Standards and IFRIC
interpretations issued by the International Accounting Standards
Board (IASB) as adopted by the European Union and with those parts
of the Companies Act 2006 applicable to companies reporting under
IFRS.
The financial statements have been prepared under the historical
cost convention.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the accounting policies. The areas involving a higher
degree of judgement or complexity, or areas where assumptions and
estimates are significant to the financial statements, are
disclosed in note 2.
Going concern
The financial statements have been prepared on the assumption
that the group is a going concern. When assessing the foreseeable
future, the directors have looked at a period of 12 months from the
date of approval of this report.
The G roup's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chief Executive Officer's report and Directors
report. In addition, note 20 to the financial statements includes
the group's objectives, policies and processes for managing its
capital; its financial risk management objectives; and its
exposures to credit risk and liquidity risk.
The G roup's forecasts and projections, taking account of
reasonable possible changes in trading performance, show that the
group should be able to operate within the level of its current
cash resources. This takes into account the post year end share
issue for GBP 318k and draw downs on the facility with Washington
Federal Bank, which wa s extended to 2022 in January 2020., and/or
potential equity issue. The directors have no reason to believe
that drawdown on the facility cannot be achieved . One of the loan
covenants is that a n intercompany loan between the company and New
Horizon Energy LLC is capitalised. This has yet to occur.
The directors are aware of this and are taking steps to resolve
this issue.
After making enquiries, the directors have a reasonable
expectation that the company and group have adequate resources to
continue in operational existence for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in
preparing the annual report and financial statements.
New standards, amendments and interpretations adopted by the
Group and C ompany
The Group and Company have applied the following new and amended
standards for the first time for its annual reporting period
commencing 1 January 2019:
-- IFRS 16 Leases
-- Annual improvements to IFRS Standards 2015-2017 Cycle
-- Interpretation 23 'Uncertainty over Income Tax Treatments'
These new and amended standards have not had a material effect
on the Group and Company financial statements.
The Group has adopted the following new accounting pronouncement
which bec a me effective this year :
IFRS 16 Leases
IFRS 16 'Leases' replaces IAS 17 'Leases' along with three
Interpretations (IFRIC 4 'Determining whether an a rrangement
contains a Lease', SIC 15 'Operating Leases-Incentives' and SIC 27
'Evaluating the Substance of Transactions Involving the Legal Form
of a Lease').
The adoption of this new Standard has resulted in the Group
recognising a right-of-use asset and related lease liability in
connection with a former operating lease.
The new Standard has been applied using the modified
retrospective approach, with the cumulative effect of adopting IFRS
16 being recognised in equity as an adjustment to the opening
balance of retained earnings for the current period. Prior periods
have not been restated.
For contracts in place at the date of initial application, the
Group has elected to apply the definition of a lease from IAS 17
and IFRIC 4 and has not applied IFRS 16 to arrangements that were
previously not identified as lease under IAS 17 and IFRIC 4.
The Group has elected not to include initial direct costs in the
measurement of the right-of-use asset for operating leases in
existence at the date of initial application of IFRS 16, being 1
January 2019. At this date, the Group has also elected to measure
the right-of-use assets at an amount equal to the lease
liability
adjusted for any prepaid or accrued lease payments that existed at the date of transition.
Instead of performing an impairment review on the right-of-use
assets at the date of initial application, the Group h as relied on
its historic assessment as to whether leases were onerous
immediately before the date of initial application of IFRS 16.
On transition to IFRS 16 the weighted average incremental
borrowing rate applied to lease liabilities recognised under IFRS
16 was 6.5%.
The Group has benefited from the use of hindsight for
determining the lease term when considering options to extend and
terminate leases.
The following is a reconciliation of the financial statement
line items from IAS 17 to IFRS 16 at 1 January 2019:
IFRS 16 carrying
Carrying amount amount at
at 31 December 1 January
2018 Reclassification Remeasurement 2019
$'000 $'000 $'000 $'000
------------------- ---------------- ----------------- -------------- -----------------
Property, plant
and equipment 536 - 48 584
Lease liabilities - - (48) (48)
------------------- ---------------- ----------------- -------------- -----------------
Total 536 - - 536
New standards, amendments and interpretations adopted by the
Group and C ompany (continued)
The following is a reconciliation of total operating lease
commitments at 31 December 2018 (as disclosed in the financial
statements to 31 December 2018) to the lease liabilities recognised
at 1 January 2019:
$'000
------
Total operating lease commitments disclosed -
at 31 December 2018
Recognition exemptions:
Operating lease liabilities before discounting 49
Discounted using incremental borrowing rate (1)
------
Operating lease liabilities 48
Finance lease obligations (Note 13) -
------
Total lease liabilities recognised under IFRS
16 at 1 January 2019 48
New standards, amendments and interpretations not yet
adopted
There are no other IFRSs or IFRIC interpretations that are not
yet effective that would be expected to have a material impact on
the Group and Company.
Basis of consolidation
Where the company has the power, either directly or indirectly,
to govern the financial and operating policies of another entity or
business so as to obtain benefits from its activities, it is
classified as a subsidiary. The consolidated financial statements
present the results of the company and its subsidiaries ("the
Group") as if they formed a single entity. Intercompany
transactions and balances between group companies are therefore
eliminated in full.
The consolidated financial statements incorporate the results of
business combinations using the purchase method. In the statement
of financial position, the acquiree's identifiable assets,
liabilities and contingent liabilities are initially recognised at
their fair values at the acquisition date. The results of acquired
operations are included in the consolidated statement of
comprehensive income from the date on which control is obtained.
They are deconsolidated from the date control ceases.
Subsidiaries
The purchase method of accounting is used to account for the
acquisition of subsidiaries by the group. The cost of an
acquisition is measured as the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any minority interest. The excess of
the cost of acquisition over the fair value of the group's share of
the identifiable net assets acquired is recorded as goodwill. If
the cost of acquisition is less than the fair value of the net
assets of the subsidiary acquired, the difference is recognised
directly in the income statement.
Inter-company transactions, balances and unrealised gains on
transactions between group companies are eliminated. Unrealised
losses are also eliminated but considered an impairment indicator
of the asset transferred. Accounting policies of subsidiaries have
been changed where necessary to ensure consistency with the
policies adopted by the group.
Goodwill
Goodwill represents the excess of the cost of an acquisition
over the fair value of the group's share of the net identifiable
assets of the acquired subsidiary or associate at the date of
acquisition. Goodwill on acquisitions of subsidiaries is included
in 'intangible assets'. Separately recognised goodwill is tested
annually for impairment and carried at cost less accumulated
impairment losses. Impairment losses on goodwill are not reversed.
Gains and losses on the disposal of an entity include the carrying
amount of goodwill relating to the entity sold.
Goodwill is allocated to cash-generating units for the purpose
of impairment testing. The allocation is made to those
cash-generating units or groups of cash-generating units that are
expected to benefit from the business combination in which the
goodwill arose. The group allocates goodwill to each business
segment in each country in which it operates.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example
goodwill, are not subject to amortisation and are tested annually
for impairment. Assets that are subject to amortisation are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. An
impairment loss is recognised for the amount by which the asset's
carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset's fair value less costs to sell
and value in use. For the purposes of assessing impairment, assets
are grouped at the lowest levels for which there are separately
identifiable cash flows (cash-generating units). Non-financial
assets other than goodwill that suffered impairment are reviewed
for possible reversal of the impairment at each reporting date.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (cash-generating unit) is increased to the
revised estimated of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognised as income immediately, unless the
relevant asset is carried art a revalued amount in which case the
reversal of impairment loss is treated a revaluation increase.
Property, plant and equipment
Tangible non-current assets are stated at historical cost less
depreciation. Historical cost includes expenditure that is directly
attributable to the acquisition of the items.
Subsequent costs are included in the asset's carrying amount or
recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item
will flow to the group and the cost of the item can be measured
reliably. The carrying amount of the replaced part is derecognised.
All other repairs and maintenance are charged to the income
statement during the financial year in which they are incurred.
Depreciation is provided at the following annual rates in order to
write off each asset over its estimated useful life:
Plant and machinery - over 7 years
The assets' residual values and useful economic lives are
reviewed, and adjusted if appropriate, at each statement of
financial position date. An asset's carrying amount is written down
immediately to its recoverable amount if the asset's carrying
amount is greater than its estimated recoverable value. Gains and
losses on disposals are determined by comparing the proceeds with
the carrying amount and are recognised within other (losses) or
gains in the income statement. When revalued assets are sold, the
amounts included in other reserves are transferred to retained
earnings.
Investments
Investments are stated at cost less provision for any impairment
value.
Cash and cash equivalents
Cash and cash equivalents include cash in hand, deposits held on
call with banks, other short-term highly liquid investments with
original maturities of three months or less, and bank
overdrafts.
Trade receivables
Trade receivables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method, less provision for impairment. A provision for
impairment is established when there is objective evidence that the
group will not be able to collect all amounts due according to the
original terms of the receivables. Significant financial
difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganisation, and default or delinquency
in payments are considered indicators that the trade receivable is
impaired.
Functional currency translation
(i) Functional and presentation currency
Items included in the financial statements of the group are
measured using the currency of the primary economic environment in
which the entity operates (the functional currency), which is
mainly United States Dollars (US$). The financial statements are
presented in United States Dollars (US$), which is the group's
presentation currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the
presentational currency using exchange rates prevailing at the
dates of the transactions. Foreign exchange gains and losses
resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and
liabilities denominated in foreign currencies are recognised in the
income statement.
(iii) Group Companies
All consolidated entities are presented in US$ and so no
translation is required on consolidation.
Trade payables
Trade payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
interest method.
Borrowings
Borrowings are recognised initially at fair value, net of
transaction costs incurred. Borrowings are subsequently stated at
amortised cost; any difference between the proceeds (net of
transaction costs) and the redemption value is recognised in the
income statement over the year of the borrowings using the
effective interest method.
Borrowings are classified as current liabilities unless the
group has an unconditional right to defer settlement of the
liability for at least 12 months after the balance sheet date.
Share capital
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of tax,
from the proceeds.
Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax. The tax currently payable is based on the taxable
profit for the year. Taxable profit differed from net profit as
reported in the income statement because it excludes items of
income or expense that are taxable or deductible in other years and
it further excludes items that are never taxable or deductible. The
entity's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the statement of
financial position date.
Deferred tax
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the statement of financial
position liability method. Deferred tax liabilities are generally
recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities
are not recognised if the temporary arises from goodwill or from
the initial recognition) other than in a business combination) of
other assets and liabilities in a transaction that affects neither
the taxable profit nor the accounting profit.
The carrying amount of deferred tax is reviewed at each
statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset
realised. Deferred tax is charged or credited directly to equity;
in which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Company intends to settle
its current tax assets and liabilities on a net basis.
Financial instruments
Financial assets and financial liabilities are initially
classified as measured at amortised cost, fair value through other
comprehensive income, or fair value through profit and loss when
the group becomes a party to the contractual provisions of the
instrument. Financial assets are derecognised when the contractual
rights to the cash flows expire, or the group no longer retains the
significant risks or rewards of ownership of the financial asset.
Financial liabilities are derecognised when the obligation is
discharged, cancelled or expires.
Financial assets are classified dependent on the group's
business model for managing the financial and the cash flow
characteristics of the asset. Financial liabilities are classified
and measured at amortised cost except for trading liabilities, or
where designated at original recognition to achieve more relevant
presentation. The group classifies its financial assets and
liabilities into the following categories:
Financial assets at amortised cost
The group's financial assets at amortised cost comprise trade
and other receivables. These represent debt instruments with fixed
or determinable payments that represent principal or interest and
where the intention is to hold to collect these contractual cash
flows. They are initially recognised at fair value, included in
current and non-current assets, depending on the nature of the
transaction, and are subsequently measured at amortised cost using
the effective interest method less any provision for
impairment.
Impairment of trade and other receivables
In accordance with IFRS 9 an expected loss provisioning model is
used to calculate an impairment provision. We have implemented the
IFRS 9 simplified approach to measuring expected credit losses
arising from trade and other receivables, being a lifetime expected
credit loss. This is calculated based on an evaluation of our
historic experience plus an adjustment based on our judgement of
whether this historic experience is likely reflective of our view
of the future at the balance sheet date. In the previous year the
incurred loss model is used to calculate the impairment
provision.
Financial liabilities at amortised cost
Financial liabilities at amortised cost comprise finance lease
obligations and trade and other payables. They are classified as
current and non-current liabilities depending on the nature of the
transaction, are subsequently measured at amortised cost using the
effective interest method.
Financial assets at fair value through profit and loss
The group holds a derivative against the price of oil held for
operation purposes. These are recognised and measured at fair value
using the most recent available market price with gains and losses
recognised immediately in the profit and loss.
The fair value measurement of the group's financial and non-
financial assets and liabilities utilises market observable inputs
and data as far as possible. Inputs used in determining fair value
measurements are categorised into different levels based on how
observable the inputs used in the valuation technique utilised are
(the 'fair value hierarchy').
Level 1 Quoted prices in active markets
Level 2 Observable direct or indirect inputs other than Level 1 inputs
Level 3 Inputs that are not based on observable market data
The group measures financial instruments relating to platform
holdings at fair value using Level 1.
The company provides financial guarantees to licensed banks for
credit facilities extended to a subsidiary company. The fair value
of such financial guarantees is not expected to be significantly
different as the probability of the subsidiary company defaulting
on the credit lines is remote.
Oil and gas assets
The group applies the successful efforts method of accounting
for oil and gas assets and has adopted IFRS 6 Exploration for and
evaluation of mineral resources.
Exploration and evaluation ("E&E") assets
Under the successful efforts method of accounting, all licence
acquisition, exploration and appraisal costs are initially
capitalised in well, field or specific exploration cost centres as
appropriate, pending determination. Expenditure incurred during the
various exploration and appraisal phases is then written off unless
commercial reserves have been established or the determination
process has not been completed.
Pre-licence costs
Costs incurred prior to having obtained the legal rights to
explore an area are expensed directly to the income statement as
they are incurred.
Exploration and evaluation ("E&E") costs
Costs of E&E are initially capitalised as E&E assets.
Payments to acquire the legal right to explore, together with the
directly related costs of technical services and studies, seismic
acquisition, exploratory drilling and testing are capitalised as
intangible E&E assets.
Tangible assets used in E&E activities (such as the group's
drilling rigs, seismic equipment and other property, plant and
equipment used by the company's exploration function) are
classified as property, plant and equipment. However, to the extent
that such a tangible asset is consumed in developing an intangible
E&E asset, the amount reflecting that consumption is recorded
as part of the cost of the intangible asset. Such intangible costs
include directly attributable overheads, including the depreciation
of property, plant and equipment utilised in E&E activities,
together with the cost of other materials consumed during the
exploration and evaluation phases.
E&E costs are not amortised prior to the conclusion of
appraisal activities.
Treatment of E&E assets at conclusion of appraisal
activities
Intangible E&E assets relating to each exploration
licence/prospect are carried forward until the existence (or
otherwise) of commercial reserves has been determined, subject to
certain limitations including review for indications of impairment.
If commercial reserves are discovered the carrying value, after any
impairment loss of the relevant E&E assets, is then
reclassified as development and production assets. If, however,
commercial reserves are not found, the capitalised costs are
charged to expense after conclusion of appraisal activities.
Development and production assets
Development and production assets are accumulated generally on a
field-by-field basis and represent the cost of developing the
commercial reserves discovered and bringing them into production,
together with the E&E expenditures incurred in finding
commercial reserves transferred from intangible E&E assets as
outlined above.
The cost of development and production assets also includes the
cost of acquisitions and purchases of such assets, directly
attributable overheads and the cost of recognising provisions for
future restoration and decommissioning.
Decommission liability
Where a material liability for the removal of production
facilities and site restoration at the end of the productive life
of the assets exist, a provision for decommissioning liability is
recognised. The amount recognised is the present value of estimated
future expenditure determined in accordance with local conditions
and requirements. An intangible asset of an amount equivalent to
the provision is recognised and depreciated on a unit production
basis. Changes in estimates are recognised prospectively, with
corresponding adjustments to the provision and the associated
intangible asset. Period changes in the present value arising from
discounting are included in depletion, depreciation and
amortisation cost in cost of sales.
Commercial reserves
Commercial reserves are proven and probable oil and gas
reserves, which are defined as the estimated quantities of crude
oil, natural gas and natural gas liquids which geological,
geophysical and engineering data demonstrate with a specified
degree of certainty to be recoverable in future years from known
reservoirs and which are considered commercially producible.
Depletion, amortisation and impairment of oil and gas assets
All expenditure carried within each field is amortised from the
commencement of production on a unit of production basis, which is
the ratio of oil and gas production in the period to the estimated
quantities of commercial reserves at the end of the period plus the
production in the period, on a field-by-field basis. Costs used in
the unit of production calculation comprise the net book value of
capitalised costs plus the estimated future field development costs
to access the related commercial reserves. Changes in the estimates
of commercial reserves or future field development costs are dealt
with prospectively.
Where there has been a change in economic conditions that
indicates a possible impairment in an oil and gas asset, the
recoverability of the net book value relating to that field is
assessed by comparison with the estimated discounted future cash
flows based on management's expectations of future oil and gas
prices and future costs. Any impairment identified is charged to
the income statement as additional depletion and amortisation.
Where conditions giving rise to impairment subsequently reverse,
the effect of the impairment charge is also reversed as a credit to
the income statement, net of any depreciation that would have been
charged since the impairment.
Share-based compensation
The fair value of the employee and suppliers' services received
in exchange for the grant of the options is recognised as an
expense. The total amount to be expensed over the vesting year is
determined by reference to the fair value of the options granted,
excluding the impact of any non-market vesting conditions (for
example, profitability and sales growth targets).
Non-market vesting conditions are included in assumptions about
the number of options that are expected to vest. At each statement
of financial position date, the entity revises its estimates of the
number of options that are expected to vest. It recognises the
impact of the revision to original estimates, if any, in the income
statement, with a corresponding adjustment to equity. The proceeds
received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium when
the options are exercised.
The fair value of share-based payments recognised in the
statement of comprehensive income is measured by use of the Black
Scholes model, which takes into account conditions attached to the
vesting and exercise of the equity instruments. The expected life
used in the model is adjusted; based on management's best estimate,
for the effects of non-transferability, exercise restrictions and
behavioural considerations. The share price volatility percentage
factor used in the calculation is based on management's best
estimate of future share price behaviour and is selected based on
past experience, future expectations and benchmarks against peer
companies in the industry.
The Group does not operate any cash-settled share-based payments
and as such are not affected by the amendments to IFRS 2 -
Share-based payments.
Revenue recognition
Revenue comprises the fair value of the consideration received
or receivable in relation to the proceeds by the prospects which
the company has a working interest in. Revenue is shown net of
value-added tax, returns, rebates and discounts and after
eliminating sales within the group. Revenue is recognised when the
oil and gas produced is despatched and received by the customers.
The directors consider this the point when the Company's
performance obligation is satisfied.
The directors consider that revenue generation is exclusively
for oil production in the US and so no further segmentation is
required.
Leased assets
As described in the New standards, amendments and
interpretations adopted by the Group and Company above , the Group
has applied IFRS 16 using the modified retrospective approach and
therefore comparative information has
not been restated. This means comparative information is still reported under IAS 17 and IFRIC 4.
Accounting policy applicable from 1 January 2019
The Group as a lessee
For any new contracts entered into on or after 1 January 2019,
the Group considers whether a contract is, or c ontains a lease. A
lease is defined as 'a contract, or part of a contract, that
conveys the right to use an asset (the underlying asset) for a
period of time in exchange for consideration'.
To apply this definition the Group assesses whether the contract
meets three key evaluations which are whether:
-- the contract contains an identified asset, which is either
explicitly identified in the contract or implicitly specified by
being identified at the time the asset is made available to the
Group
-- the Group has the right to obtain substantially all of the
economic benefits from use of the identified asset throughout the
period of use, considering its rights within the defined scope of
the contract
-- the Group has the right to direct the use of the identified
asset throughout the period of use. The Group assess whether it has
the right to direct 'how and for what purpose' the asset is used
throughout the period of use.
Measurement and recognition of leases as a lessee
At lease commencement date, the Group recognises a right-of-use
asset and a lease liability on the balance sheet. The right-of-use
asset is measured at cost, which is made up of the initial
measurement of the lease liability, any initial direct costs
incurred by the Group, an estimate of any costs to dismantle and
remove the asset at the end of the lease, and any lease payments
made in advance of the lease commencement date (net of any
incentives received).
The Group depreciates the right-of-use assets on a straight-line
basis from the lease commencement date to the earlier of the end of
the useful life of the right-of-use asset or the end of the lease
term. The Group also assesses the right-of-use asset for impairment
when such indicators exist.
At the commencement date, the Group measures the lease liability
at the present value of the lease payments unpaid at that date,
discounted using the interest rate implicit in the lease if that
rate is readily available or the Group's incremental borrowing
rate.
Lease payments included in the measurement of the lease
liability are made up of fixed payments (including in substance
fixed), variable payments based on an index or rate, amounts
expected to be payable under a residual
value guarantee and payments arising from options reasonably certain to be exercised.
Subsequent to initial measurement, the liability will be reduced
for payments made and increased for interest. It is remeasured to
reflect any reassessment or modification, or if there are changes
in in-substance fixed payments.
When the lease liability is remeasured, the corresponding
adjustment is reflected in the right-of-use asset, or profit and
loss if the right-of-use asset is already reduced to zero.
The Group has elected to account for short-term leases and
leases of low-value assets using the practical expedients. Instead
of recognising a right-of-use asset and lease liability, the
payments in relation to these
are recognised as an expense in profit or loss on a straight-line basis over the lease term.
On the statement of financial position, right-of-use assets have
been included in property, plant and equipment and lease
liabilities have been included in trade and other payables.
Leased assets (continued)
Accounting policy applicable before 1 January 2019
The Group as a lessee
Operating leases
All leases other than finance leases are treated as operating
leases. Where the Group is a lessee, payments on operating lease
agreements are recognised as an expense on a straight-line basis
over the lease term. Associated costs, such as maintenance and
insurance, are expensed as incurred.
2. Critical accounting estimates and judgements
The preparation of consolidated financial statements requires
the group to make estimates and assumptions that affect the
application of policies and reported amounts. Estimates and
judgments are continually evaluated and are based on historical
experience and other factors including expectations of future
events that are believed to be reasonable under the circumstances.
Actual results may differ from these estimates. The estimates and
assumptions which have a significant risk of causing a material
adjustment to the carrying amount of assets and liabilities are
discussed below:
Impairment of property, plant and equipment
Property, plant and equipment are reviewed for impairment if
events or changes in circumstances indicate that the carrying
amount may not be recoverable. When a review for impairment is
conducted, the recoverable amount is determined based on value in
use calculations prepared on the basis of management's assumptions
and estimates.
Recoverability of exploration and evaluation costs
E&E assets are assessed for impairment when circumstances
suggest that the carrying amount may exceed its recoverable value
including decommissioning costs. This assessment involves judgment
as to (i) the likely future commerciality of the asset and when
such commerciality should be determined, and (ii) future revenues
and costs pertaining to the asset in question, and the discount
rate to be applied to such revenues and costs for the purpose of
deriving a recoverable value.
Share-based payments
Note 1 sets out the group's accounting policy on share-based
payments, specifically in relation to the share options and
warrants that the company has granted. The key assumptions
underlying the fair value of such share-based payments are
discussed in note 23. The fair value amounts used by the group have
been derived by external consultants using standard recognised
valuation techniques.
3. Segmental analysis
In the opinion of the directors, the group has one class of
business, being the exploitation of hydrocarbon resources.
The group's primary reporting format is determined by
geographical segment according to the location of the hydrocarbon
assets. The group's reportable segments under IFRS 8 in the year
are as follows:
United Kingdom being the head office.
US Mid-Continent properties at year end included the
following:
-- Texas: 100% working interest in the Pine Mills Project Unit
-- Texas: 50-75% working interest in the Permian Basin
-- Texas: 100% working interest in the Mesquite assets in the Permian Basin
The chief operating decision maker's internal report for the
year ended 31 December 201 9 is based on the location of the oil
properties as disclosed in the below table:
SEGMENTAL RESULTS US mid-continent 2019 Head office Total
$'000 2019 2019
$'000 $'000
---------------------------------------------------------------------- ---------------------- ------------ --------
Revenue 1,795 - 1,795
Operating profit (loss) before depreciation, well impairment,
share-based payment charges,
restructuring costs and gain (loss) on sale of assets and foreign
exchange: 708 (1,694) (895)
Depreciation of tangibles (138) - (138)
Amortisation of intangibles (134) - (134)
Exploration - - -
Well impairment (67) - (67)
Share based payments - (8) (8)
---------------------------------------------------------------------- ---------------------- ------------ --------
Realised exchange loss (109) (5) (114)
Operating profit/ (loss) 261 (1,707) (1,446)
---------------------------------------------------------------------- ---------------------- ------------ --------
Finance expense (110) (84) (194)
Other income (expense) (99) - (99)
---------------------------------------------------------------------- ---------------------- ------------ --------
Profit/ (loss) before taxation 52 (1,791) (1,739)
---------------------------------------------------------------------- ---------------------- ------------ --------
SEGMENTAL ASSETS
Property, plant and equipment 690 - 690
Intangible assets 1,787 - 1,787
Cash and cash equivalents 240 152 392
Trade and other receivables 352 6 358
Other assets 126 - 126
---------------------------------------------------------------------- ---------------------- ------------ --------
3,195 158 3,353
---------------------------------------------------------------------- ---------------------- ------------ --------
The chief operating decision maker's internal report for the
year ended 31 December 201 8 is based on the location of the oil
properties as disclosed in the below table:
SEGMENTAL RESULTS US mid-continent 2018 Head office Total
$'000 2018 2018
$'000 $'000
----------------------------------------------------------------------- ---------------------- ------------ -------
Revenue 2,267 - 2,267
Operating profit (loss) before depreciation, well impairment,
share-based payment charges,
restructuring costs and gain (loss) on sale of assets and foreign
exchange: 812 (1,287) (475)
Depreciation of tangibles (93) - (93)
Amortisation of intangibles (145) - (145)
Exploration (289) - (289)
Well impairment (32) - (32)
Share based payments - 42 42
----------------------------------------------------------------------- ---------------------- ------------ -------
Realised exchange (loss)/gain - 17 17
Gain from sale of assets 38 - 38
----------------------------------------------------------------------- ---------------------- ------------ -------
Operating profit/ (loss) 291 (1,228) (937)
----------------------------------------------------------------------- ---------------------- ------------ -------
Finance expense (47) (160) (207)
Other income (expense) 226 (12) 214
----------------------------------------------------------------------- ---------------------- ------------ -------
Profit/ (loss) before taxation 195 (1,125) (930)
----------------------------------------------------------------------- ---------------------- ------------ -------
SEGMENTAL ASSETS
Property, plant and equipment 536 - 536
Intangible assets 1,873 - 1,873
Cash and cash equivalents 42 30 72
Trade and other receivables 376 26 402
Other assets 359 - 359
----------------------------------------------------------------------- ---------------------- ------------ -------
3,186 56 3,242
----------------------------------------------------------------------- ---------------------- ------------ -------
4. Employees and Directors
2019 2018
$'000 $'000
------ ------
Directors' fees 150 171
Directors' remuneration 250 250
Social security costs 14 -
------ ------
414 421
2019 2018
Number Number
------- -------
The average monthly number of employees
(including directors)
during the year was as follows:
Directors 6 3
======= =======
Directors' remuneration
Other than the directors, the group had no other employees.
Total remuneration paid to directors during the year was as listed
above.
The director's emoluments and other benefits for the year ended
31 December 2019 is as follows:
2019 2018
$'000 $'000
------ ------
M B Lofgran 250 250
====== ======
5. Finance expense
2019 2018
$'000 $'000
------ ------
Finance expense (194) (207)
====== ======
6. Other income
2019 2018
$'000 $'000
------ ------
Gain on disposal of assets - 38
Other (charge)/ income (99) 214
(99) 252
Other income relates to the aggregate recogni s ed and unrecogni
s ed gain on a commodity swap.
7. Operating loss
2019 2018
$'000 $'000
------ ------
The operating loss the year ended 31 December
is stated after
after charging/ (crediting)
Depreciation of property, plant and equipment 138 93
Amortisation of intangibles 134 145
Exploration - 298
Well impairment 67 32
The analysis of administrative expenses
in the consolidated income statement by
nature of expense:
Directors' remuneration 250 250
Social security costs 14 -
Director's fees 150 129
Travelling and entertainment 87 101
Accountancy fees 117 61
Legal and professional fees 690 487
Auditors' remuneration 19 30
Bad debt costs 12 18
Other expenses 275 248
------ ------
1,614 1,324
Exceptional legal costs increased in the year due to the
arbitration on East Ghazalat.
8. Income tax
The income tax charge for the year was as follows:
2019 2018
$'000 $'000
-------- ------
Current tax - -
Corporation tax - -
Overseas corporation tax - -
TOTAL - -
Loss before tax (1,739) (930)
Loss on ordinary activities before taxation
multiplied by the
standard rate of UK corporation tax of
19% (2018:19%) (330) (177)
Effects of:
Non-deductible expenses - -
Other tax adjustments 330 177
Foreign tax - -
-------- ------
CURRENT TAX CHARGE - -
======== ======
At 31 December 201 9, the Company had an estimated excess
management expenses to carry forward of $ 4,069,551 (2018:
$2,339,450). The deferred tax asset at 19% (2018: 19%) on these tax
losses of $ 773,215 ( 2018: $444,496 ) has not been recognised due
to the uncertainty of recovery. The current US corporate tax rate
is 21%.
9. Loss of Parent Company
As permitted by Section 408 of the Companies Act 2006, the
income statement of the parent company is not presented as part of
these financial statements. The parent company's loss for the
financial year was $ 1,796,333 (201 8 : $1,125,281).
10. Earnings per share
The calculation of earnings per ordinary share is based on
earnings after tax and the weighted average number of ordinary
shares in issue during the year. For diluted earnings per share,
the weighted average number of ordinary shares in issue is adjusted
to assume conversion of all dilutive potential ordinary shares. The
group had two classes of dilutive potential ordinary shares, being
those share options granted to employees and suppliers where the
exercise price is less than the average market price of the group's
ordinary shares during the year, and warrants granted to directors
and one former adviser.
Details of the adjusted earnings per share are set out
below:
2019 2018
GROUP
------------ ------------
Loss attributable to ordinary shareholders
($'000) (1,739) (930)
Weighted average number of shares 189,131,636 143,112,345
------------ ------------
CONTINUED OPERATIONS:
BASIC AND DILUTED EPS - LOSS (cents) (0.92) (0.65)
The diluted loss per share is the same as the basic loss per
share as the loss for the year has an antidilutive e ffect.
2019 2018
$'000 $'000
------ ------
Gross profit before depreciation, depletion,
amortisation and impairment 629 942
EPS on gross profit before depreciation,
depletion, amortisation and impairment
(cents) 0.33 0.66
RECONCILIATION FROM GROSS LOSS TO GROSS
PROFIT BEFORE DEPLETION, DEPRECIATION,
AMORTISATION AND IMPAIRMENT
Gross profit 290 374
ADD BACK:
Exploration - 298
Well impairment 67 32
Depletion, depreciation and amortisation 272 238
Gross profit before depletion, depreciation,
amortisation and impairment 629 942
11. Other intangibles
GROUP Exploration Development
& evaluation & production
Licences assets assets Total
$'000 $'000 $'000 $'000
--------- -------------- -------------- -------
COST
At 1 January 2018 524 1,951 2,102 4,577
Additions - - 639 639
Disposals - - (363) (363)
--------- -------------- -------------- -------
At 31 December 2018 524 1,951 2,378 4,853
Additions - - 115 115
Disposals - - - -
--------- -------------- -------------- -------
At 31 December 2019 524 1,951 2,493 4,968
PROVISON
At 1 January 2018 492 1,951 723 3,166
Charge for the year - - 145 145
Impairment 32 - - 32
Disposals - - (363) (363)
--------- -------------- -------------- -------
At 31 December 2018 524 1,951 505 2,980
Charge for the year - - 134 134
Impairment - - 67 67
Disposals - - - -
--------- -------------- -------------- -------
At 31 December 2019 524 1,951 706 3,181
CARRYING VALUE
At 31 December 2019 - - 1,787 1,787
--------- -------------- -------------- -------
At 31 December 2018 - - 1,873 1,873
The G roup assesses at each reporting date whether there is an
indication that the intangible assets may be impaired, by
considering the net present value of discounted cash flows
forecasts. If an indication exists an impairment review is carried
out by reference to available engineering information. At the year
end, $67,000 (201 8 : $ 32,000 ) was provided. Please note that
there were no other intangible assets held at Company level.
Amortisation, impairment charges and any profit or loss on
disposal of the capitalised intangible costs is included within
cost of sales in the consolidated income statement.
12. Property, plant and equipment
GROUP Office space - right of use Plant & equipment - oil and gas assets Total
$'000 $'000 $'000
---------------------------- --------------------------------------- -------
COST
At 1 January 2018 - 560 560
Additions - 271 271
Disposals - (95) (95)
---------------------------- --------------------------------------- -------
At 31 December 2018 - 736 736
Additions - 244 244
Adjustment on translation to IFRS 16 48 - 48
Disposals - - -
---------------------------- --------------------------------------- -------
At 31 December 2019 48 980 1,028
DEPRECIATION
At 1 January 2018 - 202 202
Charge for the year - 93 93
Disposals - (95) (95)
---------------------------- --------------------------------------- -------
At 31 December 2018 - 200 200
Charge for the year 16 122 138
Disposals - - -
---------------------------- --------------------------------------- -------
At 31 December 2019 16 322 338
CARRYING VALUE
At 31 December 2019 32 658 690
---------------------------- --------------------------------------- -------
At 31 December 2018 - 536 536
Depreciation charges are included within cost of sales in the
Consolidated Income Statement.
In addition, the directors are of the opinion that no impairment
should be provided.
13. Leases
Lease liabilities are presented in the statement of financial
position as follows:
2019 2018
$'000 $'000
------ ------
Current - within 1 year 16 -
Non-current - within 1 - 2 years 16 -
32 -
The Group has a lease for the office space in Dallas, Texas,
USA. The lease is reflected on the balance sheet as a right-of-use
asset and a lease liability. The Group classifies its right-of-use
assets in a consistent manner to its property, plant and equipment
(see Note 12). The remaining term on the lease at 31 December 2019
is 2 years. The Group does not hold any other leases.
14. Fixed Asset Investments
COMPANY Investment in subsidiaries Loans to subsidiaries Total
$'000 $'000 $'000
--------------------------- ---------------------- ---------
COST
At 1 January 2018 1 15,821 15,822
Additions - - -
Reductions - (387) (387)
At 31 December 2018 1 15,434 15,535
Additions - - -
Disposals - - -
--------------------------- ---------------------- ---------
At 31 December 2019 1 15,434 15,535
PROVISON
At 1 January 2018 - (15,821) (15,821)
Charge for the year - - -
Reductions - 387 387
At 31 December 2018 - (15,434) (15,434)
Charge for the year - - -
At 31 December 2019 - (15,434) (15,434)
CARRYING VALUE
At 31 December 2019 1 - -
At 31 December 2018 1 - -
14. Fixed Asset Investments (continued)
In the opinion of the directors, the aggregate value of the
company's investment in subsidiary undertakings is not less than
the amount included in the statement of financial position.
Historically, loans to participating interests are reported as
in increase in the Company's investment in the joint venture, but
have been provided for. As the Group acquired 100% shareholding in
the joint venture in 2017 this balance had been transferred to loan
to subs idiaries .
The details of the subsidiaries held at 31 December 2019 are as
set out below:
Shareholding Country of incorporation Nature of business
------------- ------------------------- ----------------------
New Horizon Energy 1 LLC (NHE) 100% USA Oil & gas exploration
Buccaneer Operating, LLC (Buccaneer) 100% USA Oil & gas exploration
Following the conclusion of the arbitration in November 2019
with regards to the Group's interest held in the East Ghazalat
Concession, Egypt, the interest in the concession has been wholly
transferred back to the operator. Further details are provided in
the Chief Executive Officer's Statement on page 3. There was no
gain or loss on disposal.
15. Trade and other receivables
GROUP COMPANY
-------------- --------------
2019 2018 2019 2018
$'000 $'000 $'000 $'000
------ ------ ------ ------
CURRENT
Trade and other receivables 92 376 - -
Other taxes and receivables 260 26 6 26
------ ------ ------ ------
352 402 6 26
The directors consider the carrying value of the receivables to
approximate their fair value .
16. Cash and cash equivalents
GROUP COMPANY
-------------- --------------
2019 2018 2019 2018
$'000 $'000 $'000 $'000
------ ------ ------ ------
Bank current accounts 240 72 152 30
====== ====== ====== ======
17. Trade and other payables
GROUP COMPANY
-------------- --------------
2019 2018 2019 2018
$'000 $'000 $'000 $'000
------ ------ ------ ------
CURRENT
Trade payables 560 447 373 231
Accruals and deferred income 201 189 171 130
Other taxes payables 2 6 2 6
------ ------ ------ ------
763 642 546 367
Trade payables and accruals principally comprise amounts
outstanding for trade purchases and on-going expenses. The
directors consider that the carrying amount of trade and other
payables approximates their fair value.
18. Financial liabilities - borrowing
GROUP COMPANY
-------------- --------------
Maturity of the borrowings is as follows: 2019 2018 2019 2018
$'000 $'000 $'000 $'000
------ ------ ------ ------
Repayable within one year
Bank loan 504 236 503 235
Other loans 437 487 437 487
Repayable after one year
Bank loan 1,753 1,955 - -
------ ------ ------ ------
2,694 2,678 940 722
Borrowings include a facility where the loans are secured
against the group's interest in its assets. At the year end the
outstanding balance was $1,753k (201 8 : $ 1,955k ). Interest is
charges for any day per annum at a variable rate equal to the
higher of (i) the WSJ Rate plus 25 basis points or (ii) 4.25%. In
January 2020 t he facility was extended by two years to 29 January
2022 .
Borrowings also include an unsecured loan with a balance at year
- end of $ 504 k (201 8 : $ 235 k). Interest is charged at 12% per
annum and loan is fully repayable within the year.
The group also has a loan agreement in place with related
parties, with a total outstanding balance as at the year- end of $4
37 k (2018: $487k). Further details can be found in note 22.
19. Share capital
Number Class Nominal 2019 2018
value $'000 $'000
------------------------------------- ---------- -------- ------- -------
197 million (2018: 147 million) Ordinary 0.1p 886 221
4,110 million (2018: 4,110 million) Deferred 0.098p 6,549 6,549
During the year there were a number of share issues:
-- 27 February 2019 - 47,916,665 new ordinary shares issued at
2.4p per share in respect of a placing.
-- 5 April 2019 - 1,304,628 new ordinary shares issued for 2.65p
per share in settlement of services rendered.
-- 5 April 2019 - 704,389 new ordinary shares issued at 3.08p
per share to E Ainsworth in respect of his annual director's and
consultancy fees.
Post year end:
-- 2 March 2020 - 1,474,323 - new ordinary shares issued at
1.13p per share to E Ainsworth in respect of his annual director's
and consultancy fees.
-- 8 April 2020 - 127,222,000 new ordinary shares issued at 0.25
p per share in respect of a placing and subscription . 8,000,000
new ordinary shares issued for 0.25p per share in advisory fees,
and 23,000,000 new ordinary shares issued for 0.25p per share to E
Ainsworth in respect of a partial loan conversion.
20. Risk and sensitivity analysis
The group's activities expose it to a variety of financial
risks: interest rate risk, liquidity risk, foreign currency risk,
capital risk and credit risk. The group's activities also expose it
to non-financial risks: market, legal and environment risk. The
group's overall risk management programme focuses on
unpredictability and seeks to minimise the potential adverse
effects on the group's financial performance. The board, on a
regular basis, reviews key risks and, where appropriate, actions
are taken to mitigate the key risks identified.
Capital risk
The group's objectives when managing capital are to safeguard
the ability to continue as a going concern in order to provide
returns for shareholders and benefits to other stakeholders and to
maintain an optimal capital structure to reduce the cost of
capital.
20. Risk and sensitivity analysis (continued)
Market risk
The group also faces risks in conducting operations in US
mid-continent, which include but are not limited to:
-- Fluctuations in the global economy could disrupt the group's
ability to operate its business in the US Mid-Continent and could
discourage foreign and local investment and spending, which could
adversely affect its production.
Environmental risk
The group faces environmental risks in conducting operations in
the US Mid-Continent which include but are not limited to:
-- If the group is found not to be in compliance with applicable
laws or regulations, it could be exposed to additional costs, which
might hinder the group's ability to operate its business.
Credit risk
The group's principal financial assets are bank balances and
cash, trade and other receivables. The group's credit risk is
primarily attributable to its trade receivables. The amounts
presented in the balance sheet are net of allowances for doubtful
receivables. An allowance for impairment is made where there is an
identified loss which, based on previous experience, is evidence of
a reduction in the recoverability of the cash flows.
Volatility of crude oil prices
A material part of the group's revenue will be derived from the
sale of oil that it expects to produce. A substantial or extended
decline in prices for crude oil and refined products could
adversely affect the group's revenues, cash flows, profitability
and ability to finance its planned capital expenditure. West Texas
Intermediate ("WTI") oil prices ranged from $46.31 to $66.24 in 201
9 and $ 42.53 to $ 76.41 in 201 8 . The group has entered into two
commodity swap contracts securing the price of 1500 barrels of oil
per month for a total of 21 months, 12 of which are post year end.
A $10 increase in the price will result in a $10,000 gross profit
increase per month.
Interest rate risk
The group does not hedge this risk. At 31 December 2019, t he
group ha d borrowings of $ 2,694k (2018: $2,678) , with total
interest for the year of $197k (2018: $207k). A 100-basis point
change in the rates will increase finance costs by $23k.
Liquidity risk
The group expects to fund its exploration and development
programme, as well as its administrative and operating expenses
throughout 20 20 , principally using existing working capital and
expected proceeds from the sale of future crude oil production. The
group had a bank balance of approximately $ 261,000 at 31 December
201 9 (2018: $72,000) .
21. Financial commitments
Capital commitments
The group had no material capital commitments at the year
end.
22. Related party transactions
Group
No related party transactions other than those highlighted
below.
Company
During the year, the company advanced loans to its subsidiaries.
The details of the transactions and the amount owed by the
subsidiaries at the year-end were:
2019 2018
------------------------- ------------------------
Balance Loan advance/ Balance Loan advance/
repayment repayment
$'000 $'000 $'000 $'000
--------- -------------- -------- --------------
New Horizon Energy 1 LLC - (102) - (666)
Independent Resources (Egypt)
Ltd - - - (45)
- (102) - (711)
The intercompany loans are unsecured and interest-free. The
Company has fully impaired all intercompany balances.
The Company has three loans outstanding with related
parties:
Discovery Energy Ltd
Discovery Energy Ltd held a common director in the year ended
2019, E Ainsworth. There wer e no repayments made in the 2019 year.
Interest charged in the year was $20k. Net loan balance as at the
year-end is $328k.The loan is unsecured, bears interest at the rate
of 7.50% per annum and is fully repayable within one year.
Discovery Energy Ltd
Net loan balance as at the year-end is $52k . There were no
funds advanced in 2019 . Net repayment of principal made in the
year of $50k and the interest charged in the year was $5k..The loan
is unsecured , bears interest at the rate of 7.50% per annum and is
fully repayable within one year. There was also a balance due for
fees of $49k.
John Stafford
Net loan balance as at year-end is $52k . There were no funds
advanced in 2019. Net repayment of principal made in the year of $
45 k and the i nterest charged in the year was $8k. The loan is
unsecured, bears interest at the rate of 7.50% per annum and is
fully repayable within one year. There is also a balance of $18k
due for fees at the year end.
23. Share-based payments
The group has a share-ownership compensation scheme for senior
executives of the group whereby senior executives may be granted
options to purchase ordinary shares in company. The group has
previously issued warrants to senior executives as a welcome
incentive and additionally during the year issued warrants as
detailed below to third parties as consideration for their
services. A share - based payment charge of $ 8,000 (2018: $6,000)
for share options was expensed during the year , and $36,000 (2018:
$36,000) reversal of an amount included in the prior year for
services to be paid in shares.
Date At 31.12.18 Granted Exercised Forfeited At 31.12.19 Exercise Exercise/ vesting
of grant price date
From To
----------- ------------ -------- ---------- ---------- ------------ --------- --------- ---------
Warrants
24/06/15 1,000,000 - - - 1,000,000 8.77 26/06/15 24/06/20
07/02/17 750,000 - - - 750,000 2.55 06/02/17 06/02/22
Options
29/10/14 675,000 - - - 675,000 20 29/10/14 28/10/24
21/07/17 2,666,666 - - - 2,666,666 3 21/07/17 13/12/22
21/07/17 2,666,666 - - - 2,666,666 4.5 21/07/17 13/12/22
21/07/17 2,666,666 - - - 2,666,666 6 21/07/17 13/12/22
04/06/18 2,000,000 - - - 2,000,000 0.05 04/06/18 03/06/20
04/06/18 9,500,000 - - - 9,500,000 0.05 04/06/18 03/06/25
The total number of options and warrants outstanding at 31
December 2019 and 31 December 2018 are as follows:
Total at 31 December 2019: 21,924,998
Total at 31 December 2018: 21,924,998
The number of options and warrants outstanding to the directors
a t the year-end were as follows:
Director Warrants Options Total
-------------
2019 2018 2019 2018 2019 2018
------------- ---------- ---------- ----------- ----------- ----------- -----------
M Lofgran - - 12,600,000 12,600,000 12,600,000 12,600,000
E Ainsworth 333,333 333,333 3,999,998 3,999,998 4,333,331 4,333,331
Discovery
Energy
Ltd 666,667 666,667 - - 666,667 666,667
J Stafford 750,000 750,000 1,500,000 1,500,000 2,250,000 2,250,000
------------- ---------- ---------- ----------- ----------- ----------- -----------
Total 1,750,000 1,750,000 18,099,998 18,099,998 19,849,998 19,849,998
There were no options and warrants issued during the year.
23. Share-based payments (continued)
The estimated fair value of the warrants issued during the year
was calculated by applying the Black-Scholes option pricing model.
Expected volatility was originally stated at 30%. This has been
revised in the prior year to 50% because the volatility over the
past year has been used rather than the past 5 years. The directors
consider this is a more appropriate time scale due to a significant
share price drop in 2008 which is attributable to a one-off event
where work stopped during the opening of a well in Ukraine. The
assumptions used in the calculation were as follows:
4 June 2018 - Service 4 June 2018 - Directors 7 Feb 2017 21 July 2017 21 July 2017
provider
======================= ======================== =========== ============= =============
Share price at grant
date 2.50p 2.50p 2.55p 1.55p 1.55p
Exercise price 5.00p 5.00p 2.55p 3.00p 4.50p
Option life in years 2 years 7 years 5 years 5.4 years 5.4 years
Risk free rate 1.30% 1.30% 1.30% 1.30% 1.30%
Expected volatility 50.00% 50.00% 73.10% 73.10% 73.10%
Expected dividend yield 0% 0% 0% 0% 0%
Fair value of
option/warrant 0.26p 1.01p 1.22p 0.60p 0.50p
21 July 2017 23 June 2015 23 June 2015 28 October 2014
------------- ------------- ------------- ----------------
Share price at grant date 1.55p 1.60p 1.60p 2.65p
Exercise price 6.00p 0.80p 1.80p 4.00p
Option life in years 5.4 years 5 years 5 years 3.5 years
Risk free rate 1.30% 1% 1% 1.50%
Expected volatility 73.10% 50% 50% 50%
Expected dividend yield 0% 0% 0% 0%
Fair value of option/warrant 0.42p 0.24p 0.24p 0.43p
24. Contingent l iabilities and g uarantees
The G roup has no contingent liabilities in respect of legal
claims arising from the ordinary course of business and it is not
anticipated that any material liabilities will arise from
contingent liabilities other than those provided for.
25. Ultimate c ontrolling p arty
The company is quoted on the AIM market of the London Stock
Exchange. At the date of the annual report there was no one
controlling party.
26. Events after the reporting period
On 17 Jan 2020 the Company received a requisition from a
shareholder to remove Mr Lofgran as a Director. On 3 February 2020
the same shareholder added a second requisition to remove Mr
Ainsworth as a Director.
On 2 March 2020, Ewen Ainsworth resigned as Non-Executive
Chairman of the Company. T he Company has also issued 1,474,323 new
ordinary shares to Mr E Ainsworth for his services rendered from
April 2019 to February 2020. On 3 M a rch 2020 the Company agreed
to have Mr Andy Morrison and Dr Stephen Staley appointed as
directors and thereafter the requisitions were withdrawn. On 8
April 2020 Mr Morrison resigned as a Director.
On 8 April 2020, the Company raised GBP318,055 in a fund raise
before expenses in order to stren gthen its balance sheet and
position the Company for potential further growth in 2020 . In
addition Mr Ainsworth agreed to a partial loan conversion of
GBP57,500 at the placing price, reducing the Company ' s debt.
On 22 April 2020 the C o mpany announced a farmout of an
undrilled 80 acres of the Pine Mills Asset, wherein the Company
will receive a 25% carried working interest (all costs paid by the
operator for the first well).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GGGDRUUGDGGB
(END) Dow Jones Newswires
July 01, 2020 02:00 ET (06:00 GMT)
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