TIDMUKOG
RNS Number : 7889V
UK Oil & Gas PLC
16 April 2021
UK Oil & Gas Plc
("UKOG" or the "Company")
Annual Review and Accounts for the year ended 30 September
2020
UK Oil & Gas Plc (AIM: UKOG), a UK and internationally
focused energy company, is pleased to announce its full year
results for the full year ended 30 September 2020. A copy of the
full annual report and details of the Company's annual general
meeting will be posted to shareholders in due course. A copy of the
full annual report will also be made available on the Company's
website: www.ukogplc.com
Qualified Person's Statement
Matt Cartwright, UKOG's Commercial Director, who has 38 years of
relevant experience in the global oil industry, has approved the
information contained in this announcement. Mr Cartwright is a
Chartered Engineer and member of the Society of Petroleum
Engineers.
STRATEGIC REPORT FOR THE YEARED 30 September 2020
OUR BUSINESS
UK Oil & Gas Plc ("UKOG" or the "Company") is an energy
company currently primarily focused upon oil & gas exploration
and production. We specialise in creating new geological ideas,
concepts and methodologies to find and produce oil & gas from
previously unexplored or overlooked rock formations within
established petroleum producing provinces.
Our current operational focus is on the UK and Turkey onshore
sectors, where we aim to build a sustainable oil & gas
production base that can act as a springboard to further worldwide
opportunities. UKOG has operated safely and environmentally
responsibly in the UK since 2013.
Our current UK onshore portfolio consists of direct and indirect
interests in six oil & gas exploration, appraisal, development
and production assets, all situated within the Weald and
Purbeck-Wight Basins of southern England. We are the largest
acreage holder in the south of England, with assets covering 689
gross km(2).
We hold majority interests in four UK onshore oil & gas
discoveries, the most notable being at Horse Hill and Loxley in
Surrey, together with a significant position in the Kimmeridge
Limestone (KL) oil deposit or "play". UKOG holds the largest
acreage position within the play's most prospective area or "sweet
spot", covering 489 gross km(2).
Our UK oil & gas portfolio contains a good balance of
low-risk production, appraisal and development assets as well as
upside exploration assets within both the Kimmeridge Limestone and
Portland conventional plays.
Our expanding portfolio in Turkey consists of a 50% non-operated
working interest in the 305 km(2) Resan licence in south east
Turkey, containing the potentially significant undeveloped
Basur-Resan oil discovery plus further exploration prospects. This
project is assessed to contain significantly greater discovered oil
volumes than any of our UK projects and, if successful, offers
potentially transformational growth for the Company.
A joint application with our Turkish partner for four further
blocks offsetting the Resan licence, all of which contain undrilled
geological lookalikes to the Basur-Resan discovery, has also been
submitted to the Turkish regulatory authorities.
In order to move our business forwards, we maintain a high level
of operational activity, conducting near-continuous drilling and
flow testing operations since May 2017.
Our portfolio, notably Basur-Resan in Turkey and Loxley in the
UK, has the potential to generate significant returns for the
Company and its shareholders.
As a diversification, we are increasingly active in the newly
emerging geothermal energy field, where we possess the key
subsurface and engineering skills necessary to make such projects
work. As well as new standalone geothermal projects, we are
currently investigating the viability of hybrid energy sites
envisaged to derive power from both petroleum and geothermal. We
are a founder member of the newly formed Geothermal Energy
Advancement Association.
We are actively investigating hybrid geothermal projects at two
of our UK sites and will review geothermal opportunities onshore
Turkey.
OUR STRATEGY
UKOG aims to build a diverse, sustainable and self-funding
energy business which has the following strategic objectives:
Oil & Gas:
1. Find and Develop Low-Cost and Long-life Assets
- Continuing to invest in our potential near-term production assets is a key priority.
- Once in production, the revenues from these assets will
provide free cash flow to re-invest and deliver shareholder
returns.
2. Resource and Reserve Growth
- Building our recoverable resources, reserves and future
production through targeted and disciplined high-impact
exploration, appraisal projects and acquisitions.
Geothermal and Renewables:
1. UK Energy Diversification - Reduce Carbon Footprint of
Company's Existing Petroleum Producing Sites
- Where viable, implement geothermal and/or solar energy
cogeneration plus battery storage from existing wells/sites.
- Where viable, add new standalone geothermal and battery storage for grid/heat export.
2. Find and Develop New Stand-alone Geothermal Projects
- Ground floor entry, either operated or as joint venture partner.
- UK initial focus, international expansion if successful or
commercially viable opportunities arise.
Targeted Portfolio Management:
Continuously review and high-grade our portfolio to either
acquire or divest further stakes in existing assets. We also look
to acquire assets at any stage in the life cycle and are not
limited by geography, where we can create significant value for
shareholders.
UKOG shares this vision and strategy through internal dialogue
with employees and externally with shareholders and stakeholders
via public announcements and dissemination of information through
our website and the Annual Report and Accounts.
STATEMENT FROM THE CHAIRMAN
The worldwide Covid-19 pandemic has dominated our thoughts and
our industry for the reporting period, yet I salute the Chief
Executive and his team for thinking one step ahead and looking to
broaden horizons internationally.
This has been my third year as Chairman of UKOG and I take this
opportunity to repeat my applause for the volume of work undertaken
by a small team of professionals. The core of that team, with the
invaluable assistance from experts, has managed to overcome a
series of hurdles and has taken the Company towards fresh fields
and fresh opportunities that have the capability, if successful, to
provide a step change in recoverable reserves and revenues.
Signing the Resan participation agreement with Aladdin Middle
East Ltd in Turkey and applying for three further exploration
licences exhibit our determination to achieve one of our strategic
objectives of growing our reserves and resource. Along with a
growing portfolio in Turkey, our Loxley, Arreton and Horse Hill
assets will remain a significant part of UKOG's plans and thoughts
in the coming year.
Over the past 18 months the team expended much effort in
positioning our excellent Loxley asset ready for action in 2021.
Consequently, we were all disappointed by November's rerun of
Surrey County Council's planning consent meeting and the same 6
votes to 5 rejection as the original legally unsound June meeting.
The UKOG team went to great lengths to answer all the questions
raised in June, provide significant additional mitigations and to
propose strong arguments about how development of hydrogen from the
gas field would play a key part in the UK's net zero ambitions.
However, some of the committee appeared not to listen to the
objective evidence presented to them and stuck rigidly to a narrow
agenda which went against the conclusions and recommendations of
the council's planning and highways officers. They preferred to
focus on subjective local issues and failed to see the many
positives at local, regional and national levels. So be it. Now
UKOG has taken its case to a higher authority, who will hopefully
decide upon facts not perceived fiction. The Loxley appeal will
occupy much of this year with a decision expected by year end.
On the Isle of Wight, due to pandemic related delays, we now
understand that our Arreton project's planning application should
likely be determined in late second quarter, which, if granted,
will allow us to schedule site construction and drilling once the
pandemic situation stabilises.
Horse Hill has also proved to be another challenge, including
the unlawful activities of climate change activists who have twice
occupied the site in contravention of the UKOG injunction. The oil
field has behaved like a talented but troublesome teenager: plenty
of promise but with the expected problems too. In addition to the
constant and mounting regulatory workload, the oil field's geology
has proved unexpectedly complex. The team is determined to find
technical solutions to make it the economic success story we want
it to be.
From my base in Houston, Texas, I am in constant communication
with Stephen Sanderson and his team. In addition, I monitor various
chatrooms and blog sites and I read some of the frustration about
the falling share values. Oil exploration is a complicated and
time-consuming business. There are no guarantees of success and the
regulatory procedure in the UK is clearly far lengthier and more
intricate than we experience here in the States. It also has a
habit of absorbing considerable time and money.
UKOG has no control over the day-to-day share price, it has no
control over the price of Brent Crude and no control over the UK's
complex attitude towards the oil & gas industry. Until our
growing portfolio of appraisal projects produces reserves and
positive cash flows, raising funds to keep developing, appraising
and exploring in the interests of investors can only realistically
be achieved via equity funding, but it will only be used when
necessary.
We now look forward to a continued rise in Brent values and for
a worldwide picture which offers stability and more reasons for
optimism.
Allen D Howard
CHIEF EXECUTIVE'S STATEMENT
This has been a uniquely challenging year for the nation and our
industry as we have wrestled with the dual shock of Covid-19 and
the subsequent collapse of Brent Crude prices. I have experienced
many oil price downturns in my career, but none have been as
unexpected or severe as 2020. Fortunately, the Company and industry
have been resilient enough to survive and adapt and to witness the
hoped for bounce back in oil price. We all hope this will be long
lived.
During these uncertain times at UK Oil & Gas Plc we have
deliberately adopted a positive half-glass-full mindset, prudently
reducing our costs where possible and making positive steps by
acquiring new, highly material opportunities at a time when entry
prices were low.
Despite the pandemic I am delighted to report that the addition
of the Turkey Basur-Resan discovery into our portfolio plus
Loxley's significant gas volumes has seen our total net discovered
resources increase significantly to 37.48 mmboe, the highest level
in the Company's short history. This represents a highly material
increase of 129% compared to last year and, similarly, our reserves
also increased by 13% compared to the last reporting period. Our
plan remains to convert as much of our discovered resources into
reserves and production as we can in 2021 via our appraisal
drilling programme.
Although we significantly increased our recoverable reserve and
resource base, the challenging price environment over the past
year, coupled with the less than hoped for results at Horse Hill,
has had an inevitable effect on the value of some of our assets.
Consequently, in line with many other oil & gas companies,
including many of our peers in the onshore UK, this year we have
written down some GBP17.25 million of our historic investments,
primarily at Horse Hill and the newly relinquished PEDL143 licence.
The write down this year will therefore not impact upon any future
success or revenues from our Turkish assets.
I would also like to stress, that in the current pricing
environment, the significant cost reductions achieved at Horse Hill
over the year and the forecast reduction in water handling costs
via the conversion of HH-2z into a water injector means that, going
forwards, Horse Hill production is forecast to be profitable. The
planned HH-3 and HH-4 infill wells are also designed to boost
production as we move forward in developing our asset. Horndean,
which continues to produce very steadily, also remains profitable
with current rates and prices.
As it had long been my vision to transform UKOG into an
international organisation that could operate in areas that offer
greater upside, lower costs and more rapid payback than the UK,
these unprecedented times also provided the catalyst for action and
a move to expand into pastures new.
Hence, in July 2020, we signed an agreement with Aladdin Middle
East Ltd ("AME"), to take a 50% non-operated working interest in
the Resan licence in Turkey, containing the material undeveloped
Basur-Resan oil discovery, together with a subsequent application
for four further exploration blocks containing similar potential to
Resan. AME have operated successfully in Turkey for 60 years and we
are fortunate to have them as our new partner.
I see this move into Turkey as crucial to the Company's
continued success and prosperity. Our Weald Basin assets, although
some of the best in the UK onshore, particularly Loxley and the
Kimmeridge, simply do not offer the same step-change growth
potential we aspire to and, due to the increasing regulatory
burden, take far too long to monetise. In the Company's view, and
as supported by published reserve metrics, the petroleum system and
potential resource size in South East Turkey is simply in a
different league from the Weald Basin and the UK onshore.
The Resan licence offers the rare opportunity to appraise a
discovered oil accumulation with recoverable volumes greater than
all of the Weald Basin's historic oil production and reserves
combined. The new blocks, if awarded to us, each have the potential
to add additional significant recoverable oil volumes to
Basur-Resan.
What further drives our enthusiasm for Turkey is the low-cost
environment and the ability to rapidly monetise any success in
under a year, compared to 3-5 years in the UK. This has been ably
demonstrated by our partner AME's success at their East Sadak
field, the closest producing look alike field to Basur-Resan.
Unlike the UK, Turkish Petroleum Law supports explorers and
producers, as indigenous oil is given strategic importance by the
government. If only that were the case in the UK.
Adding Basur-Resan into the portfolio was thus fully compliant
with our stated growth strategy. It added a potentially long-life
asset which can operate at a lower cost base than the UK and which
significantly boosted our overall net attributable resources. The
addition of Prospect A within the licence also more than
compensated the loss of the volumes attached to the relinquishment
of the PEDL143 A24 prospect.
Entry into the project also exemplifies our ongoing strategy of
active portfolio management, in which we continually high grade our
portfolio, both adding new higher potential value assets and
divesting lower ranking assets as and when opportunities present
themselves. In this way we can harness each asset's organic growth
through the project execution stage.
This past year in the UK, we also submitted new planning
applications for Arreton oil appraisal on the Isle of Wight and
Loxley gas appraisal in Surrey, the latter of which is now the
subject of a formal Appeal to the Planning Inspectorate to be heard
via public inquiry in July 2021. We remain confident that the
Appeal will be successful and that the Loxley project, one of the
UK onshore's largest ever gas discoveries, can take its place as a
source of feedstock for reformation into hydrogen, a key new sector
to help the UK meet net zero.
We have also spent significant time looking at the feasibility
of enhancing our UK sites to include renewable energy. Our vision
is that our UK sites could become integrated hybrid energy hubs,
encompassing solar, closed loop geothermal, petroleum and battery
storage. We have also been evaluating stand-alone closed-loop
geothermal activities as an addition to our traditional UK
business. Whilst this sector is still in its infancy in the UK, we
believe we have the key technical and project management skills
necessary to make such projects work.
In order to further our geothermal projects and credentials we
became a founder member of a new geothermal stakeholder
organisation, the Geothermal Energy Advancement Association.
Further prudent financial decisions were also made during the
reporting period, which, in response to rapidly falling oil prices
included a 55% reduction in overall Administration expenses,
representing a GBP2.18 million saving from the last reporting year.
The saving included management and staff electing to take an
effective 20% temporary reduction in salary.
In an ongoing series of cost cutting measures, the Company also
significantly reduced the Horse Hill oil field's operating costs.
From January 2020, operating costs were reduced by a substantial
66% overall, even though water handling costs increased
substantially. The savings place Horse Hill in a good position to
take advantage of the strengthening Brent crude prices seen post
reporting period.
Horse Hill was also granted full long-term production consent by
the Oil and Gas Authority ("OGA") in March 2020, which thus moved
the status of HH-1 production into the proven developed producing
("PDP") reserves category, a pre-requisite for any future potential
debt-based funding to help finance further Portland and Kimmeridge
infill wells.
Market Place
From September 2019 until the impact of the pandemic was felt,
oil prices remained remarkably stable, with Brent hovering around
the low $60s per barrel ("bbl."). However, this was not to last, as
the value of Brent crude reached an unprecedented low on 21 April
2020 in direct response to a worldwide pandemic-induced slump in
demand. An American analyst described that day as "crazy" and "a
moment we never ever expected to see". The crazy day saw Brent
plummet to $15.98 per bbl as unimaginable negative values were
experienced in US benchmark prices.
A month after the beginning of the UK's initial lockdown, the
Covid-19 pandemic created a 30 per cent collapse in the global
demand for oil, with the dramatic cut in air travel having a huge
impact. In 2020, total demand for primary oils in the UK dropped 19
per cent compared to 2019 with refinery production following suit
and dropping to its lowest ever level.
In the UK transport demand, which usually accounts for almost
70% of domestic oil consumption, dropped 28 per cent compared to
2019, led by a fall in aviation demand, which itself fell 60 per
cent compared to pre-pandemic levels. Similarly, UK diesel demand
fell by 17 per cent and petrol demand dropped 21 per cent in
2020.
Whilst petrol and diesel have shown a recovery, jet fuel
consumption remains in the doldrums due to the international travel
ban. All this took the use of oil & gas in UK transport down to
levels last seen in the mid-1980s.
Following the pandemic's first wave, the OPEC cartel, plus
Russia and other significant producers, agreed to cut supplies by
10 per cent to lessen the burden on over-flowing oil storage
facilities. This, combined with a slowing of infection rates in
developed countries corresponding with summer in the northern
hemisphere, saw prices recover to around $40 per bbl. by June 2020
and stay at the same level through summer and autumn. Developing
countries who rely heavily on their oil exports, including Algeria,
Iran, Iraq and Libya, were particularly adversely affected. Even
the global majors, BP, Shell and Exxon Mobil, suffered
multi-billion-pound losses.
Post the reporting period, in response to successful Covid-19
vaccine trials announced in November 2020, the global picture
improved, with prices rising consistently, now reaching over $60
per bbl. from end February 2021, recently briefly exceeding
pre-Covid levels. A far cry from the values of $140 in the early
noughties, but still a healthy bounce back. The vaccination
programme worldwide has had a positive impact on the financial mood
of the markets, although the position remains volatile.
Interestingly in Q4 2020 indigenous UK production of primary
oils was down 9.5 per cent compared to Q4 2019, following delayed
maintenance and lack of investment, both direct results of the
pandemic. Going forward it therefore remains a possibility that a
similar lack of investment in oil supply within the global sector
over the past year, notably in US shale and non-core Opec
production, could limit supply levels to below pre-pandemic levels
even with a return to pre-pandemic demand once vaccinations are
fully rolled out and wider global travel resumes.
Such a potential global supply shortfall could also potentially
be exacerbated by the prospect of the marginal cost of US oil being
raised via President Biden's possible 'carbon taxes' on the 3
MMMBop of oil from federal lands. This 'tax' could see US marginal
shale and conventional projects remain shut in. A wider post-Covid
economic surge could further exacerbate any upwards price pressure
due solely to supply limitations. Consequently, there is room for
cautious optimism for future oil prices.
Those projects with low operating costs and set within fiscal
and operating regimes that allow rapid monetisation and payback
could therefore stand to benefit more from any price increase
cycle. Such projects will also likely be able to better compete for
capital as they offer greater returns. The Company's exposure to
operations in Turkey is therefore well positioned to take advantage
of this scenario should it materialise.
As per oil demand, UK gas demand in 2020 fell by 6.2 per cent
compared to 2019, resulting in a weakening of prices. Partly due to
a colder than expected winter, prices recovered this year. Whilst
UK imports dropped to around 59% of demand, the make-up of imports
appears to have changed significantly, seeing a 12% reduction in
gas imported via pipeline and a 4.8 per cent increase in Liquefied
Natural Gas ("LNG") compared to 2019. The willingness of
continental Europe to pay more for gas during the pandemic resulted
in a significant shortfall of pipeline supply from Norway, mostly
taken up by cheaper opportunistic LNG supply from Trump's USA.
Overall, LNG made up 42 per cent of all gas imports, up from 39
per cent in 2019. Imports of LNG were particularly high in the
first half of 2020, reaching 62 per cent of total imports in Q2.
Qatar, which has shareholding influence in the UK's National Grid,
remains the dominant import source of LNG, contributing 48 per cent
of total LNG in 2020, stable on 2019 levels. As new projects have
come on stream, the number of LNG import sources has increased in
recent years. Notably in 2020, imports from the US increased by 72
per cent on 2019. Ironically much of the US LNG derives from tight
or fracked gas projects which would currently not be possible in
the UK due to the moratorium relating to induced seismicity
concerns.
As LNG has 3-4 times the carbon footprint of indigenous UK gas,
such as UKOG's Loxley, any longer term UK import increase in LNG is
potentially problematic with respect to reaching UK net zero
targets. Given the UK Government's backing for low carbon (blue)
hydrogen and BP's recently announced large scale Teesside blue
hydrogen plant (which will reformulate natural gas into clean
burning hydrogen) it would be ironic if the blue hydrogen were to
rely upon high carbon footprint imports at the expense of lower
footprint indigenous gas like Loxley.
Consequently, in order to meet UK net zero targets and to
generate inward UK investment, the Company envisages that
conventional indigenous gas such as Loxley will continue to play an
important role in supplying the lowest carbon footprint gas for
reformation into hydrogen through the projected 15-20 year life of
the project. Additionally, if the government were committed to a
level carbon footprint playing field, it is also conceivable that
any future carbon taxes might 'protect' low footprint indigenous
gas, further enhancing the viability of projects like Loxley.
Financials
I acknowledge the concerns of private investors about 'dilution'
of shares in the Company. However, it is our view that until such
time as the Company has sufficient positive cash flow and or
significant proven and probable reserves upon which to secure debt
funding, raising funds from equity remains the most sensible and
realistic way to fund projects for forward growth.
All oil and gas companies, from majors to relative minnows, must
find ways to survive and flourish and our liquidity in the market
is a valuable tool when there are no other funding options
available.
That said, we believe that success in Turkey could dramatically
improve the Company's financial strength in the near term due to
the sheer magnitude of the potential prize and the ability to
rapidly monetise a successful well.
Just before the first Covid-19 lockdown in March 2020, the
Company paid the final GBP1 million to complete the acquisition of
Magellan Petroleum (UK) Investment Holdings Limited. This was the
deferred consideration element to Tellurian Investments LLC, the
former owner. Via this payment, UKOG now holds irrevocable
ownership of Magellan, renamed UKOG (137/246) Ltd, which owns a
direct 35% interest in the Horse Hill oil field and the surrounding
highly prospective PEDL137 and PEDL246 licences. As a result, UKOG
holds a controlling 85.635% in the field and surrounding
licences.
In June 2020, the Company fully repaid its convertible loan with
Riverfort Global Opportunities PCC Limited and YA II PN Ltd. The
repayment of the outstanding balance of GBP1.825 million eliminated
the uncertainty attached to loan note conversion timings and
pricing, something the Company believed was having a negative
influence on UKOG's share price.
During the reporting period we raised GBP2.0 million in December
2019 from a single institutional investor, partly to accelerate
long-lead time surface facilities and other related works necessary
to bring the field into stable long-term oil production. An
additional GBP1.275 million was raised in April 2020 to implement a
series of cost reduction measures and we then added a further
GBP4.2 million in June 2020 to fund full repayment of the
convertible loan, as detailed above, and f or the purchase of key
surface facilities at Horse Hill . Post period in October 2020 we
raised a further GBP2.2 million to fund our share of initial costs
in Turkey.
Operations
UKOG's UK operational activities concentrated upon the Horse
Hill oil field, located near Gatwick Airport, plus we also pushed
ahead with our other Weald Basin licences at Loxley in Surrey and
Arreton on the Isle of Wight.
By end February 2021, post period, the Horse Hill field had
produced and exported over 137,000 bbl of Brent quality crude from
its Kimmeridge and Portland oil pools, providing the Company with a
solid revenue base.
Activity at the Horse Hill field centred around reducing
operating costs and a series of interventions on Horse Hill-1
("HH-1"), designed to optimise pumping efficiency and minimise the
expected water cut i.e., standard conventional oil field routine.
The final intervention cycle finished in November 2020, seeing the
safe reperforation of the full Portland oil producing section,
insertion of a new simplified production tubing string and the
downhole pump set at a deeper level to increase Portland pumping
efficiency.
A further series of multi-week production optimisation trials to
achieve the best balance between oil revenues and water handling
and other operational costs were also undertaken, achieving stable
water influx levels by the end of 2020. Work is also in hand,
subject to regulatory permissions, to convert HH-2z into a water
injector which should significantly reduce current water handling
costs and help maximise oil recovery by supporting reservoir
pressure.
It is expected that the further HH-3 Portland and HH-4
Kimmeridge infill wells will be planned in detail and drilled at
Horse Hill following the completion of the Company's potentially
transformational initial Turkey Basur-Resan appraisal drilling
campaign.
As part of our UK energy diversification strategy, at Horse Hill
we are actively evaluating the addition of 250 kW of photovoltaic
solar power and 100 kW of battery storage to reduce site energy
consumption, CO (2) emissions and operating costs, further
underpinning long term site economic value and reducing greenhouse
gas emissions. Alongside this we have also invested in a scoping
study aimed at cogeneration and standalone geothermal energy at
Horse Hill.
As operator of PEDL143, and as part of our portfolio management
strategy, we carried out a detailed study examining the viability
of drilling the A24 (formerly Holmwood) Portland and Kimmeridge
prospect from selected sites outside the Surrey Hills Area of
Outstanding Natural Beauty. We concluded this was not economically
feasible and as a result UKOG and its partners relinquished their
interests in the licence. It remains a source of irritation and
regret that the prior operator did not drill this handsome prospect
when it had planning permission to do so.
It should be noted, however, that the additional exploration
potential of our Resan licence, namely the drill ready Prospect A,
resulted in a net 13% gain to the Company's prospective resources,
more than compensating for the relinquishment of PEDL143.
Turkey
In July 2020 and after much prior consideration, we decided to
broaden our horizons with an agreement to take a 50% non-operated
working interest in the 305 km(2) Resan oil appraisal and
exploration licence in south east Turkey. Applications for three
further follow-on exploration licences, comprising four 150 km(2)
blocks, were also submitted to the Turkish regulatory authorities,
again with 50% non-operated working interests.
UKOG's board views the forthcoming 2021 Basur-Resan appraisal
drilling programme, aimed initially at proving the commerciality of
the Basur-Resan oil discovery, to present a compelling and
potentially transformational growth opportunity. If awarded the
additional licences could each add similar oil resource potential
as Basur-Resan to the Company's portfolio.
Post period, we received formal government consent for the Resan
acquisition and subsequently completed the transaction with
AME.
Having recently begun construction of the Basur-3 drilling pad,
both the Company and AME will now work towards finalising the
design and delivery of a successful first appraisal well, aimed at
establishing the commerciality of the aerially extensive and as yet
undeveloped Basur-Resan oil discovery. Work is also ongoing to
design and shoot a c. 120 km 2D seismic programme this year and a
further Resan-6 appraisal well.
The Basur-Resan oil discovery was assessed by Xodus Group Ltd to
contain an estimated mean case discovered recoverable oil volume of
approximately 34 million bbl gross, potentially delivering to UKOG
approximately 17 mmbbl for its net 50% interest. The high case
target offers approximately 67 mmbbl gross and 33.5 mmbbl net UKOG.
Rapid monetisation of the discovery's success case is possible
within a year in Turkey, plus drilling and operating costs are
significantly lower than the UK.
Basur-Resan, therefore, has the potential to significantly
surpass the recoverable oil & gas volumes currently assigned by
Xodus to both our Loxley and Arreton appraisal projects and the
entire aggregate sum of the Company's UK portfolio. As previously
mentioned, to add a comparative scale, Resan's mean case gross
discovered recoverable oil volume of approximately 34 million bbl
exceeds the 32 million bbl of the total historic production and
current remaining reserves of all the Weald Basin's historic 13
producing fields.
We also look forward to hearing the outcome of our application
with AME for three further exploration licences in south east
Turkey, lying to the south and south east of our Basur-Resan
Licence. The most northerly block, M47-b3, is interpreted to
contain a potentially significant extension of Basur-Resan and the
most south easterly block, M48-d1, an extension of the recent
Bukat-1 discovery well.
Covid-19
The Covid-19 emergency has provided us all with extraordinary
new challenges. In early March 2020 we implemented a wide series of
Covid-19 procedures and practices that protect the health and
safety of our staff, consultants and stakeholders.
The policy adopts the Government's medical guidance at all
times, including social distancing, and ensures appropriate levels
of manpower and resources are maintained to ensure the safety of
our operations as well as the health and safety of our team. At
Horse Hill, we have adopted the policy of deploying essential staff
only, all of whom are designated as "key workers" under the
Government's emergency legislation.
Strict hygiene and distancing practices are in place to ensure
that production continues at Horse Hill whilst protecting our
team's health. As the plan minimises external contractor visits to
those essential for safety, regulation and crude export, the
planned series of further well interventions have been put on
temporary hold until the current emergency passes.
Our Guildford office staff have also been adhering to best
advice and practices, by working from home and communicating
remotely using video conferencing technology which, fortunately,
had been in active use within UKOG prior to the emergency.
Loxley
Following a post period rerun of the June 2020 Loxley planning
committee meeting in November 2020, brought about by the Company's
legal challenge to the lawfulness of the original meeting's
conduct, Surrey County Council ("SCC") repeated their June
performance, with the members voting 6 to 5 to narrowly refuse
planning permission for appraisal drilling and testing at the
Loxley gas exploration site near Dunsfold in Surrey.
This disappointing decision was, for the second time, contrary
to the recommendation of the Council officers' report which
recommended approval, all issues concerning planning, environmental
and highways having been resolved to their professional
satisfaction.
Crucially, the decision also ignored the key role domestic
natural gas plays in the government's stated future low-carbon
hydrogen policy in which natural gas is reformed into clean burning
hydrogen. This new sector is an integral element of UK
infrastructure strategy designed to help achieve net zero and
underpin the UK's recovery from record Covid-19 induced debt
levels.
Post period, on 8(th) February 2021, an appeal against SCC's
refusal was lodged with the Planning Inspectorate, with a public
inquiry lasting up to nine days now scheduled to commence on 27(th)
July. We expect that a decision should be handed down some time in
Autumn 2021.
Leading Counsel continues to advise that there are strong
grounds to expect a positive appeal outcome, as the cited grounds
for refusal are in direct conflict with the advice of its
professional Planning and Highway Officers and their respective
recommendations for approval.
High Court Injunction
During the 14 months prior to the writing of this report UKOG's
Horse Hill oil field was the subject of some 6 short-lived unlawful
incidents by a small group of protesters carrying out their actions
under the name of Extinction Rebellion ("XR"). These actions were
dealt with successfully by the police and on-site personnel and
were of a temporary nature.
Whilst the Company has never sought to obstruct any peaceful
protest or curb the right to freedom of expression, solely to
restrain unlawful activities that impede its staff's right to go
about their lawful business, it sought additional protection from
the High Court via an interim injunction defining those behaviours
considered beyond the limits of reasonable peaceful protest.
In the light of the pandemic and Surrey Police's increased
efficacy in dealing with slow walks on the public highway, the
Company recently sought to invite the High Court to revise the
scope of the injunction to focus upon Horse Hill and to retain
protection solely from trespass into the site and obstruction of
the site's entrance.
At the post period High Court Hearing of 9(th) February 2021,
Mrs. Justice Falk DBE, found that "there was a sufficiently real
and imminent risk to justify the continuance of the interim
injunction order and its revised scope, which prohibits trespass to
the site's land, obstruction of the main entrance and lorry
surfing. The injunction is a reasonable and proportionate
restriction on protesters' activities. The order does not prevent
slow walking or simply standing outside the site (to protest),
provided that this does not physically obstruct anybody entering or
leaving the site."
The judge also found that the Injunction should be extended to
include six named protesters associated with XR. In addition, two
named XR protesters, who trespassed into the site on 10(th) October
2020, offered undertakings to the court to abide by the terms of
the injunction in return for UKOG not seeking to pursue committal
for a breach of the injunction.
The injunction now remains in force until a final two-day trial,
to be heard on 28(th) June 2021. We trust that protesters will take
heed of the Judge's ruling.
Horse Hill Judicial Review
During the reporting period we learnt that opponents of Horse
Hill had, at a third attempt, obtained consent for a judicial
review ("JR") of SCC's September 2019 planning consent for
long-term oil production at the site. As an interested party to
SCC's defence against the claim, UKOG 's counsel, David Elvin QC
actively participated in the post period High Court hearing on
17-18(th) November 2020.
Just before Christmas 2020, we were delighted to announce that,
following the JR hearing, the Hon Mr. Justice Holgate
comprehensively dismissed the challenge to the lawfulness of SCC's
planning consent. The written judgement rejected the challenge's
three grounds.
This was a victory for planning law and common sense, although
one can only wonder why a comprehensively unsound claim with a
clear political agenda was permitted so many bites at the same
legal cherry, it having been rejected for JR twice before. Justice
Holgate made it abundantly clear in his judgement that the courts
are not responsible for making political, social, or economic
choices.
Disappointingly, we have also just learnt that subsequent to the
JR, the claimant (Finch) has been granted leave to appeal Mr
Justice Holgate's decision. We remain confident that based upon
planning regulations and law, the Court of Appeal will arrive at
the same conclusion as Justice Holgate. Interestingly, leave to
appeal was granted by Mr Justice Lewison, the same judge who
granted the JR to the claimant at the third attempt.
The Company's production planning consent currently remains in
full force.
Energy White Paper
To our opponents, many of whom fail to see the irony of burning
oil to drive to oil & gas sites to protest, or to disregard the
safety and health of others by violating the prevailing Covid-19
gathering and social distancing regulations, I bring to their
attention 2020's Energy White Paper and the Climate Change
Committee's carbon budget, in which indigenous oil & gas
remains a part of the UK's energy transition to net zero and
beyond.
This is because we not only need to keep the lights on while
other energy sources transition to fill demand but will also
continue to need non-combusted industrial petroleum feedstocks to
manufacture key 21(st) century materials. Without ready access to
such materials there will be no electric vehicles, green aviation
or wind turbine blades.
On a simpler level we might also consider that the humble PPE
the country continues to depend upon to combat the pandemic are
also primarily derived from such non-combusted petroleum
feedstocks. Where would we be without face masks and visors,
gloves, protective gowns, aprons, syringes, sterile tubes and pipes
in intubators and ventilators, catheters, let alone vital function
computers and screens and much more?
It must surely be preferable that such transitional fuel and
vital feedstocks should come from domestic sources rather than
those beyond the UK's control and regulation. We have already seen
during last year's scramble for PPE what can happen if sectors are
offshored.
Our future energy and materials needs are a complex problem
requiring complex solutions, not a simple yes or no approach.
We also welcome the White Paper's aim to "...provide
opportunities for oil and gas companies to repurpose their
operations away from unabated fossil fuels to abatement
technologies such as carbon capture, utilisation and storage (CCUS)
or clean energy production such as renewables and hydrogen." At
UKOG we plan to be part of today's and tomorrow's energy solution
by diversifying our UK business to provide both energy and
feedstocks from hydrocarbons, energy from gas reformed into clean
hydrogen and via new geothermal and renewable energy
opportunities.
Finally, with the prospect of stable profitable production from
Horse Hill, exciting new drilling in Turkey and a return to
pre-Covid oil price levels, I now look forward with confidence to a
more settled financial picture for the Company as we do everything
in our control to bring more value to our shareholders. Our planned
activities as well as our continued search for further 'quality'
international production opportunities
Stephen Sanderson
Chief Executive
For further information, please contact:
UK Oil & Gas Plc
Stephen Sanderson / Kiran Morzaria Tel: 01483 941493
WH Ireland Ltd (Nominated Adviser
and Broker)
James Joyce / James Sinclair-Ford Tel: 020 7220 1666
Communications
Brian Alexander Tel: 01483 941493
The information contained within this announcement is deemed by
the Company to constitute inside information under the Market Abuse
Regulation (EU) No. 596/2014.
PRINCIPAL RISKS AND UNCERTAINTIES
UKOG continuously monitors its risk exposures and reports its
review to the board of directors ("The Board"). The Board reviews
these risks and focuses on ensuring effective systems of internal
financial and non-financial controls are in place and
maintained.
Key Risk Areas
The high-risk areas surrounding our existing business is
tabulated below; the key areas are Strategic, Operational and
Financial.
Risk Mitigation Magnitude and likelihood
Strategic risks
--------------------------------- -------------------------
Exposure to political Through industry associations Magnitude- High
risk, we operate and and direct contact, Likelihood - Medium
may seek new opportunities the Company engages
in countries, regions with Government and
and cities where political, other appropriate organisations
economic and social to ensure the Company
transition may take is kept abreast of
place. Political instability, expected potential
changes to the regulatory changes and takes an
environment or taxation, active role in making
international trade appropriate representations.
disputes and barriers
to free trade, international
sanctions, expropriation
or nationalisation of
property, civil strife,
strikes, insurrections,
acts of terrorism, acts
of war and public health
situations (including
the continued impact
of the COVID-19 pandemic
or any future epidemic
or pandemic) may disrupt
or curtail our operations
or development activities
and could affect the
ability of UKOG to deliver
to its Strategy
--------------------------------- -------------------------
Operational risks
--------------------------------- -------------------------
Permitting risk, planning, During the period the Magnitude- High
environmental, licensing Company faced several Likelihood - High
and other permitting challenges in obtianing
risks associated with all the required permits.
our operations particularly This is despite UKOG's
with exploration drilling compliance with regulations,
operations. proactive engagement
with regulators, communities
and the expertise and
experience of the management
teams. We believe this
is because of changing
priorities within the
United Kingdom and
the Company has sought
to further diversify
this risk by seeking
investments outside
the United Kingdom
--------------------------------- -------------------------
Exploration risk, the Analysis of available Magnitude- High
Company fails to locate technical information Likelihood - High
and explore hydrocarbon-bearing to determine the work
prospects that have programme. Risk-sharing
the potential to deliver arrangements entered
commercially, e.g. key to reduce downside
wells are dry or less risk
successful than anticipated
--------------------------------- -------------------------
Oil production, oil Analysis of available Magnitude- High
is not produced in the technical information Likelihood - Medium
anticipated quantities to improve our understanding
from the Group's assets, of the reservoir and
or it cannot be produced continue to review
economically cost structure to target
low production costs
--------------------------------- -------------------------
Operational risks (continued)
Price and markets , During the reporting Magnitude- High
our financial performance period the Group entered Likelihood - High
is impacted by fluctuating into production at
prices of oil, gas and the Horse Hill assets.
refined products. Oil, The Group determined
gas and product prices that given its stage
are subject to international of development the
supply and demand and costs of hedging would
margins can be volatile. be prohibitive. The
Political developments, Group will keep this
increased supply from under review. At this
new oil and gas or alternative point the Group continues
low carbon energy sources, to review costs where
technological change, appropriate.
global economic conditions,
public health situations
(including the continued
impact of the COVID-19
pandemic or any future
epidemic or pandemic.
--------------------------- ---------------------
Loss of key staff Provide and maintain Magnitude- High
competitive remuneration Likelihood - Low
packages to attract
the right calibre of
staff. Build a strong
and unified team
--------------------------- ---------------------
Financial risks
--------------------------- ---------------------
Liquidity risk , exposure The Board regularly Magnitude- High
through its operations reviews UKOG's cash Likelihood - Medium
to liquidity risks. flow forecast and the
availability or adequacy
of its current facilities
to meet UKOG's cash
flow requirements
--------------------------- ---------------------
OPERATIONAL REVIEW
Whilst UKOG's operational activities were concentrated on the
Horse Hill oil field, located near Gatwick Airport, the Company has
also pushed ahead with its other Weald Basin licences at Loxley and
Arreton. In addition, we have significantly enhanced our business
with the acquisition of a 50% non-operated working interest in the
305 km(2) Resan licence in south east Turkey, containing the
undeveloped Basur-Resan oil discovery. Applications for three
further exploration licences containing geological lookalikes to
Basur-Resan have also been submitted to the Turkish regulatory
authorities, again with 50% non-operated working interests.
Horse Hill Oil Field, PEDL137 and PEDL246 (UKOG 85.64%)
The field and surrounding licence is operated by UKOG's
subsidiary company Horse Hill Developments Ltd ("HHDL") in which
UKOG has 77.9% ownership. The Licensees are HHDL (65% interest) and
UKOG (137/246) Ltd (35% interest).
The reporting period has seen an unprecedented level of
operational activity at Horse Hill including drilling, continuous
test production and several well intervention operations, including
during the Covid-19 restrictions. It is testament to the team that
these operational activities have been planned and executed
successfully on budget and without compromises in terms of health,
safety, environmental impact and quality ("HSEQ"). In addition to
these operational activities, key regulatory approvals have been
obtained for long term production.
At the beginning of the reporting period, drilling operations
for the new Horse Hill-2/2z ("HH-2/2z") Portland well commenced
with the British Drilling & Freezing 28 drilling rig spudding
HH-2 on 29(th) September 2019. HH-2/2z, in the field's Portland oil
pool, was designed to take Portland core and then be retained as a
future horizontal production well. P lanning consent for long term
oil production over 25 years was granted by Surrey County Council
on 27(th) September 2019.
We continued with a significant amount of activity leading up to
Christmas 2019. October 2019 saw s imultaneous drilling and test
production operations at Horse Hill with continuous Kimmeridge oil
production from HH-1 maintained during the HH-2/2z horizontal
drilling campaign.
In order to optimise the placement of the HH-2z horizontal
section, the near vertical HH-2 borehole successfully acquired
241ft of Portland core and electric logs. Following completion of
HH-2 operations the well was successfully sidetracked and a 2,433ft
long 6" horizontal section was drilled within the Portland
reservoir.
The horizontal drilling of the Portland HH-2z was completed in
November 2019, with the length of the horizontal curtailed by the
intersection with natural fractures in the reservoir and the onset
of drilling mud losses at the toe of the well. All technical well
construction, operational and HSEQ objectives of the HH2/2z
drilling campaign were successfully achieved.
Clean up and flow testing of HH-2z was conducted from December
2019 through to October 2020. Initial flow tests were encouraging
with established rates up to 1087 bpd and oil cuts up to 60%.
Unfortunately, as the test progressed the formation water cut
significantly increased to over 70% rendering production of the
well technically and commercially challenging. A decision was made
to undertake a water shut-off at the toe of the horizontal
section.
In early March, following the identification of the water
ingress source via production logging, a plug was set over a zone
of open natural fractures clustered at the deepest part or "toe" of
the wellbore. Initial testing of HH-2z demonstrated a continuous
flow of dry oil to surface, confirming that the plug had eliminated
underlying formation water ingress into HH-2z. Testing continued
but over time HH-2z oil production rates continued to be lower than
expectations coinciding with rapidly increasing water cuts, thought
to be from natural fractures along the wellbore.
UKOG has now determined that the most commercial future usage
for HH-2z is to utilise it as a water injector in the field rather
than as a producer. This will both remove the need for expensive
off-site water disposal via tanker and also help maximise oil
reserves recovery by supporting reservoir pressure
Operations continued at Horse Hill under Covid-19 restrictions
with essential personnel only. No cases of Covid-19 have been
reported within the company's operations.
Also in March, the Oil and Gas Authority ("OGA") approved the
revised Horse Hill Field Development Plan and consented to the
start of long-term production from the field, a significant
milestone for Horse Hill. An addendum to the Field Development Plan
for the conversion of HH-2z to a water injector has been submitted.
Other regulatory consents for water injection are underway, with
permissions currently forecast for some time in Q2 2021, subject to
any pandemic related delays.
In July, agreement was reached to purchase key surface
facilities deployed at the Horse Hill site from facility owner PW
Well Test. This acquisition allowed the rental contract to be
terminated and operating costs per barrel to be significantly
reduced by up to $4/bbl. Whilst some further facility addition and
automation will be required over a period of time for long term
production in line with Control Of Major Accident Hazards
regulations, the acquisition allows Horse Hill to control this
process, own and operate its equipment, manage maintenance and
procedures and direct hire field personnel. In addition, the
acquisition provides production continuity and negates having to
shut down the field for an extended period to design, build and
commission new facilities.
At the end of the accounting period, further well intervention
operations on HH-1 were safely completed, optimising oil flow by
isolating the Kimmeridge perforations, by reperforating the full
Portland oil producing section, by insertion of a new simplified
production tubing string and by setting the downhole pump at a
deeper level to increase pumping efficiency. These improvements set
HH-1 up for long term continuous and optimised oil production from
the Portland. Water injection plus further infill development of
both Portland (HH-3 well) and Kimmeridge (HH-4 well) offer upside
for the Horse Hill field.
Post-period the intervention was immediately followed by an
ongoing series of multi-week production optimisation trials to
achieve an optimum balance between oil revenues and water handling
and other operational costs. Trials include well-cycling (i.e.,
shutting in the well for a set period each day to reduce water
inflow) and pump fill optimisation. The trials continued for
several months. Early results are encouraging, with stable oil and
water influx levels achieved by early 2021.
As of end-February, over 137,000 bbl of Brent quality crude had
been produced and exported from the Kimmeridge and Portland
pools.
In line with the challenging oil price environment, significant
further efforts have also been made in managing and reducing
operational costs. From January 2020 to January 2021 our total
operating costs have reduced by 66%. The savings will help place
Horse Hill in a good position to take advantage of the
strengthening Brent crude prices seen in the past month.
It is expected that further HH-3 Portland and HH-4 Kimmeridge
infill wells will be planned in detail and drilled at Horse
Hill.
Loxley, Broadford Bridge, PEDL234 (UKOG (234) 100%)
OGA approved an amendment to the PEDL234 Retention Area work
programme, wherein Loxley-1 is to be drilled by December 2021.
Following SCC's initial 29(th) June 2020 planning committee
meeting, in which the members voted by 6 to 5 against SCC's
planning officer's recommendation to approve UKOG's Loxley planning
application, the Company sent SCC a formal legal letter of
complaint outlining a series of procedural and other legal issues
that potentially affected the lawfulness of decisions made during
the meeting. SCC also acknowledged that they received in excess of
100 similar complaints alleging that there were procedural
irregularities that invalidated the result.
SCC decided that the Loxley Gas project should be redetermined
post period on 27(th) November. However, again contrary to the
recommendation of its own planning team, SCC refused Loxley
planning consent. In February UKOG filed an appeal to the Planning
Inspectorate, with our leading legal counsel advising that there
are strong grounds to expect a positive appeal outcome. The appeal
is to be heard via a public inquiry commencing on 27(th) July
2021.
For the Loxley Portland gas discovery, Xodus Group provided an
updated volumetric report which calculates the discovery contains a
significant mean case gross gas initially in place ("GIIP"), i.e.,
gas in the ground before any future production) of 49 billion cubic
feet ("bcf"). The portion of GIIP estimated to be recoverable to
surface via any future production, the mean gross recoverable
resource, is cited as 34 bcf, representing an estimated recovery
factor of approximately 70%.
In June 2020 the Environment Agency ("EA") issued UKOG with the
necessary permit to drill and test Loxley, covering all
environmental aspects of the proposed scheme of works including a
Loxley-1z sidetrack well.
West Sussex County Council's ("WSCC") Planning Committee
approved, by a significant 10-1 majority vote, a 2-year planning
permission extension to its Broadford Bridge-1/1z Kimmeridge oil
discovery, located in licence PEDL234 (UKOG 100%). The planning
extension, which was recommended by WSCC's planning officer, will
expire on 31(st) March 2022.
Arreton, Isle of Wight, PEDL331 (UKOG 95%)
UKOG filed a planning application with the Isle of Wight Council
for the appraisal drilling and flow testing of the Arreton oil
discovery. The Company has spent considerable time and undertaken
much research to minimise the potential noise and visual impact of
the site, which will be largely screened from public view.
The Company has chosen a site adjacent to land which already
supports non-agricultural commercial uses. The land immediately to
the east supports the Wight Farm Anaerobic Digestion Energy Power
Station and to the west supports the Blackwater Quarry and
ancillary operations connected to the working of aggregates. Post
period UKOG also filed a permit application with EA.
Turkey, Resan Licence (UKOG 50%)
Post period, in October 2020, UKOG completed a Participation
Agreement and Joint Operating Agreement with Aladdin Middle East
Ltd ("AME"), an independent oil company with 60 years of
operational experience in Turkey, to take a 50% non-operated
working interest in the 305 km(2) Resan Licence. UKOG will take an
active technical role in a 4-well oil appraisal and step-out
exploration drilling programme designed primarily to assess the
commercial viability of the significant Basur-Resan oil discovery.
The transaction was approved by the Turkish government and
completed in January.
The Resan Licence lies within the SE Anatolian basin, a
geological continuation of the prolific Zagros "fold-belt"
petroleum system within the foothills of the Taurus-Zagros
mountains in Iraq, Iran and Turkey, one of the Middle East's major
oil producing areas. Multiple producing oil fields lie to the
immediate west and south east of the Licence, containing
significant proven recoverable reserves.
In November 2020 UKOG quickly built on this exciting entry into
Turkey by submitting an application for three further exploration
licences covering four blocks, again with a 50% interest and AME as
operator. The four blocks contain identified undrilled geological
lookalikes to Basur-Resan. UKOG is awaiting the Turkish
government's decision on our application.
Other Assets
As operator of PEDL143 (UKOG 67.5%), UKOG carried out a detailed
study examining the viability of drilling the A24 (formerly
Holmwood) Portland prospect from selected sites outside the Surrey
Hills Area of Outstanding Natural Beauty, each over 3 km from the
target. UKOG concluded that the required long-reach/shallow
target-depth wells were neither technically viable nor economically
feasible. Consequently, UKOG and its partners have relinquished
their interests in the licence. The associated investment into the
licence has been written down.
Stable oil production with low water cut continues from the
Horndean oil field in Hampshire (UKOG 10%).
UKOG completed the restoration and replanting of the Markwells
Wood well site. UKOG also relinquished the related PEDL126
licence.
Kris Bone Matt Cartwright
Operations Director Commercial Director
FINANCIAL REVIEW
Income Statement
During the period long term oil production commenced at Horse
Hill via HH-1, which along with the oil production from Horndean,
generated revenues of GBP0.91 million (2019: GBP0.21 million).
However, as interventions and optimisation work were required at
HH-1 to achieve stable Portland production, overall costs for the
year were necessarily higher than would be normally expected under
any future stable production scenario (as is currently the case).
These pre-stable production period costs thus resulted in a gross
loss for the period of GBP1.63 million inclusive of Depletion,
Depreciation and Amortisation costs of GBP1.37 million (2019 gross
profit GBP0.12 million).
The reporting period saw a significant reduction in
Administration expenses from GBP3.94 million during the period
ending 30 September 2019 to GBP1.76 million during the period
ending September 2020.
As Horse Hill was granted regulatory permissions to commence
long-term oil production via HH-1, the investment in HH-1 was
transferred from an exploration and evaluation asset to tangible
assets. This was initially transferred at the carrying value and
subsequently impaired. Based on a net present value calculation of
HH-1, GBP4.783 million was capitalised as a tangible asset. The
carrying value of our investments in HH-1 was higher than GBP5.03
million and therefore the variance was impaired and expensed during
the year. The lower net present value assessment was primarily due
to a combination of lower than expected flow rates resulting from
earlier than expected water ingress and slightly lower than
expected Brent crude oil prices.
Therefore, alongside our relinquishment of the PEDL143 licence
there has been an Impairment expenses of GBP14.195 million (2019:
GBP0.02 million).
In addition, at Horse Hill the investment in HH-2/2z of GBP5.79
million was written down due to the sub-economic flow rates, again
resulting from early and significant water ingress. Going forwards,
and as detailed above, HH-2z is now scheduled to be utilised as a
water injector to support reservoir pressure for HH-1.
The net effect of the above was to increase the retained losses
for the year (i.e. the total over the Company's history) to
GBP19.04 million compared to GBP5.39 million in the previous
financial year.
Balance Sheet
During 2020, as a result of the effects of the impairments and
write downs to our exploration and oil & gas assets,
non-current assets decreased to GBP37.78 million (2019: GBP46.65
million). These were charged to the income statement as highlighted
above. Total current assets decreased from GBP8.07 million at 30
September 2019 to GBP2.38 million at 30 September 2020. The main
reduction in current assets being in our cash position which
reduced from GBP6.89 million at 30 September 2019 to GBP1.63
million at 30 September 2020.
Our total liabilities decreased to GBP5.07 million (2019:
GBP13.50 million) which was as a result of repaying our convertible
loan note in its entirety and reducing our trade and other
payables.
Cash Flow and Financing
During the reporting period net cash outflow from operating
activities prior to cash outflows in relation to investing
activities was GBP2.77 million (2019: cash outflow of GBP5.73
million). The reduced outflow is primarily attributable to lower
administration costs.
UKOG raised GBP7.73 million during the reporting period via the
issue of equity, which along with the cash and cash equivalents at
the beginning of the period of GBP6.89 million was used primarily
to fund our investing activities (GBP7.74 million). In addition,
the funds raised were used to fully repay the outstanding balance
of our convertible loan notes and associated fees (GBP1.83
million).
As a result, UKOG had a GBP5.23 million net decrease in cash,
and GBP1.63 million in cash and cash equivalents at the end of the
period.
Kiran Morzaria
Finance Director
KEY PERFORMANCE INDICATORS
UKOG has adopted both financial and non-financial key
performance indicators (KPI's) to measure progress against our
strategy. These KPI's will develop and new ones added as we
progress our strategy.
Financial KPI's
Production (bopd) Operating costs Operating Cashflow
(GBP/bbl)* GBPm
------------------------- ---------------------------- ---------------------------
Year 2020 2019 Year 2020 2019 Year 2020 2019
(bopd) 128 137 (GBP/bbl) 28 18 GBPm (2.77) (5.74)
----- ----- ----- ----- ------- -------
HH-1 entered During March 2020 Operating cash
into production HH-1 entered into outflows reduced
during March production, however, during the reporting
and are included due to optimisations period as a result
in the current and interventions of lower administrative
year rates. The which were carried expenses.
rates are reported out during the
on a gross basis period costs were
elevated and have
reduced since
stable production
was reached.
------------------------- ---------------------------- ---------------------------
Reason for The Company production Operating costs Our cashflow is
choice will provide per bbl will be key to providing
operating cashflow a key focus for funding investing
to fund our investments our operations in the business
and deliver shareholder and the focus and pursue our
value. At this for the Company strategy. This
point in time will be to keep has to date predominantly
we receive production these costs low been via equity
from our ownership so as to improve and debt funding
in the Horndean the cash we can
oil field which generate from
is not under our producing
our control and assets. Currently
the Horse Hill the operating
oil field of costs are in relation
which we own to our ownership
85.635% of the Horndean
oil field (10%
ownership), which
is not under our
control and the
Horse Hill oil
field of which
we own 85.635%
------------------------- ---------------------------- ---------------------------
How we measure Daily and weekly Operating costs C ashflow forecasts
production is will be monitored are reported to
monitored for closely, to ensure the Board on a
all producing that budget targets regular basis,
assets and reported are being met. to ensure our
to senior management. progress is within
Production forecasts our budget. Long-term
are prepared forecasts are
during the year also provided
to measure progress to ensure that
against the production the strategy of
target. the business can
be adequately
funded
------------------------- ---------------------------- ---------------------------
* Operating costs exclude depreciation of the oil asset and
indirect management charges from UKOG
Non-Financial
KPI's
Lost time injuries (LTI & LTI Frequency)
---------------------------------------------------
2020 - 0, LTI Frequency 0; 2019 - 0, LTI Frequency
0
---------------------------------------------------
Reason for Health & safety is our highest priority and we
choice look to provide the highest level of protection
to all our stakeholders
---------------------------------------------------
How we measure We track HSE lagging indicators during the year,
which are reported to the Board. We aim to have
zero LTI's. If we have an LTI it is investigated
and a clear remedial action is identified and
implemented
---------------------------------------------------
RESERVES AND RESOURCES
The reporting period saw significant material growth across all
net attributable reserve and resource categories, with mid or P50
case contingent resources more than doubling in 2020 (see Table 1,
below).
Total aggregate net discovered 2C (mid case) contingent
resources and 2P (mid case) reserves now stand at 37.48 mmboe, the
largest in the Company's history.
Table 1: Significant growth in UKOG net attributable reserves
& resources during the reporting period
Period UKOG 2P Reserves UKOG 2C Resources UKOG P50 Prospective
(producing, mmbbl) (discovered, mmboe) Resources
(undiscovered,
mmbbl)
2019-20 0.13 37.35 13.38
-------------------- --------------------- ---------------------
2018-19 0.11 16.30 10.00
-------------------- --------------------- ---------------------
Increase
(%) 13% 129% 34%
-------------------- --------------------- ---------------------
Contingent resources (i.e., recoverable resources discovered by
drilling, see Table 3, below) increased significantly, with net 2C
(mid or P50 case) resources increasing by 129% compared to the last
reporting period. The increase was primarily via the acquisition of
the Basur-Resan discovery in Turkey (net UKOG 2C 15.3 mmbbl) and by
the addition of recoverable Loxley gas volumes from Xodus'
September 2020 competent person's ("CP") volumetric study (net UKOG
5.5 mmboe or 32 bcf).
The Company's net attributable reserves increased by 13% versus
last year due to better than predicted performance at the Horndean
field, where the past year's production history demonstrated a
lower than expected field decline rate.
At Horse Hill, the start of long term Portland production from
HH-1 has clearly added proven producing, probable and possible
reserves. However, following October 2020's intervention and
subsequent production optimisation trials, which concluded in
January 2021, there has only been a few months 'stable' producing
conditions to assess well declines upon which to base reserves.
Consequently, as CP's generally require around a minimum of one
year's stable production history to adequately capture and predict
the longer term decline performance of a well (Horndean's
performance, as above, demonstrates the importance of a year-long
decline period), it was decided that the best practice was to
assess reserves only when a more robust and fully representative
decline curve analysis could be undertaken. The Company will thus
wait until the next reporting period to calculate the field's
reserves following the first full year of stable production.
For guidance purposes only, the Company's qualified persons
("QP") consider that the 1C value of 0.6 mmbbl carried for Horse
Hill in Table 3, below, provides a reasonably representative view
of HH-1's likely technical recoverable Portland reserves at the end
of 2020. UKOG's QP's also currently expect that much of Horse
Hill's Portland contingent resources, less produced volumes, will
likely transfer into reserves following a future external CP
review.
Discovered prospective resources (i.e., undiscovered but drill
ready within identified exploration prospects) also significantly
increased, with the best case (mid or P50 case) rising by 34% from
last year. This is primarily due to the addition of Prospect A in
the Turkey Resan M47-b1,b2 licence, which more than offsets the
relinquishment of the A24 prospect in PEDL143.
Should the Company's joint application with AME for four further
exploration blocks to the south and southwest of the Resan licence,
prove successful, it is likely that net attributable contingent and
prospective resources could both increase by a further significant
amount. The identified extensions to oil discoveries and undrilled
leads and prospects within these four blocks are currently
estimated to be of similar size to the Company's Basur-Resan
discovery.
Table 2: Recoverable Reserves mmbbl: Producing Fields, Gross and
Net (as of 31 December 2020)
Asset UKOG Gross mmbbl Net Attributable Operator
% Interest mmbbl
1P 2P 3P 1P 2P 3P
----- ----- ----- ------ ------ -----
Horndean (1) 10 1.12 1.26 1.41 0.11 0.13 0.14 IGas
------------ ----- ----- ----- ------ ------ ----- ---------
TOTAL (mmbbl)(2)
(3) 0.11 0.13 0.14
------------ ----- ----- ----- ------ ------ ----- ---------
N otes:
1. DeGolyer and MacNaughton ("D&M") for IGas Feb 2021, 2.
Horse Hill reserve volumes await external CP verification following
12 months of stable production history, see text above, 3. Avington
is temporarily shut-in, consequently no reserves are attributable,
recoverable resources shown in Table 3 below.
Table 3: Contingent Resources mmbbl/mmboe (i.e., discovered and
drill ready recoverable volumes)
Asset Licence UKOG Gross Net Attributable Operator
% mmbbl/mmboe mmbbl/mmboe
1C 2C 3C mean 1C 2C 3C mean
----- ----- ----- ----- ----- ----- ----- -----
Turkey, M47
Basur-Resan b1,
(4) b2 50 14.9 30.5 67.0 37.2 7.5 15.3 33.5 18.6 AME
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Horse-Hill
Portland
(1) PEDL137 85.64 0.6 1.5 3.6 1.9 0.5 1.3 3.1 1.6 HHDL
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Horse-Hill
Kimmeridge
(6) PEDL137 85.64 0.4 1.6 6.1 2.7 0.3 1.4 5.2 2.3 HHDL
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Loxley
Gas (3
,5) PEDL234 100 3.1 5.5 9.3 5.9 3.1 5.5 9.3 5.9 UKOG
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Arreton
Portland
(1) PEDL331 95 1.4 3.7 10.3 5.1 1.3 3.5 9.8 4.9 UKOG
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Arreton
Oolite
(1) PEDL331 95 6.2 10.8 17.6 11.5 5.9 10.3 16.7 11.0 UKOG
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Avington
(2) PEDL070 5 0.5 0.7 1.0 0.7 0.03 0.04 0.05 0.04 IGas
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Horndean
(2) PL211 10 0.3 0.8 1.3 0.8 0.03 0.08 0.13 0.08 IGas
--------- ------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
TOTAL mmboe 18.6 37.3 77.8 44.4
------ ----- ----- ----- ----- ----- ----- ----- ----- ---------
Notes:
1. Xodus June 2018, estimates for Horse Hill are deterministic
based upon per well recoveries , 2. D&M for IGas Feb 2021,
estimates for Horndean and Avington are deterministic, not
probabilistic, 3. Xodus September 2020, probabilistic based upon
range of recovery factors, 4. Xodus June 2020, probabilistic based
upon range of recovery factors, 5. 1 million bbl oil equivalent
(mmboe) = 5.8 bcf, 6. RPS Jun 2019.
Table 4: Prospective Resources (i.e., exploration, drill ready
but as yet undiscovered recoverable volumes)
Asset Licence UKOG Gross mmbbl Net Attributable
% mmbbl
Low Best High Mean Low Best High Mean
---- ----- ----- ----- ---- ------ ------ -----
Turkey, Prospect
A (2) M47 b1,b2 50 4.0 8.7 17.0 9.9 2.0 4.4 8.5 5.0
----------- ----- ---- ----- ----- ----- ---- ------ ------ -----
Godshill Portland
(1) PEDL331 95 1.7 6.8 17.4 8.6 1.6 6.5 16.5 8.2
----------- ----- ---- ----- ----- ----- ---- ------ ------ -----
Arreton North
(1) PEDL331 95 0.5 2.7 7.6 3.6 0.5 2.6 7.2 3.4
----------- ----- ---- ----- ----- ----- ---- ------ ------ -----
TOTAL 4.1 13.4 32.3 16.6
----- ---- ----- ----- ----- ---- ------ ------ -----
Notes:
1. Xodus June 2018, Godshill possesses the same underlying Lower
Oolite potential as Arreton but this target was not reviewed by
Xodus in 2018, to be included in any subsequent external CP review,
2. Xodus June 2020
HEALTH, SAFETY AND THE ENVIRONMENT
UKOG is committed to providing, so far as is reasonably
practicable, a quality working environment that is safe and one
that poses no risks to the health and safety of our employees,
contractors, the local community and stakeholders.
The health & safety of employees and the public, and the
protection of the environment are core business objectives of UKOG.
They rank equally with the company's other business objectives.
Health, safety and environmental (HSE) risks associated with the
business practices of UKOG are addressed through the effective
implementation of our HSE Policy, which is designed to ensure that
every person who works for UKOG is responsible for ensuring that
health and safety is managed in all aspects of our business.
The Company's HSE aspirations are: "get it right, first time,
every time with no accidents, no harm to people, the ecology and
the environment".
To achieve the identified objectives, we will ensure that all
necessary and reasonable resources are made available. We will
confirm that objectives are being met by reviewing and reporting on
performance and auditing the implementation and operation of UKOG's
HSE Management System.
Our full HSE framework is available on our website:
http://www.ukogplc.com/page.php?pID=101
Health & Safety Review
UKOG has completed drilling and testing operations and initiated
production activities at Horse Hill. In addition, the Markwells
Wood well site was restored and re-planted.
There were no lost time injuries on any of UKOG's sites during
the reporting period or post period. The lost time injury frequency
was also zero. Two minor injuries occurred during Horse Hill-2z
drilling operations. There was also a minor fire in the engine
housing of the BDF28 drilling rig. The fire was quickly
extinguished by site operatives, without injury.
The Environment Agency (EA) and Health and Safety Executive made
a number of site visits, linked to Horse Hill well operations and
production equipment.
The Competent Authority (CA) under Regulation 6 of the Control
of Major Accident Hazards Regulations (2015) ("COMAH") was notified
of the intention of the Horse Hill site to operate as a COMAH
facility. UKOG is engaged with the CA to define a scope for Horse
Hill to operate within COMAH regulations following its transition
from well test to long-term production.
UKOG continues to keep good housekeeping standards on its sites.
The Company continuously monitors all its live operations for
noise, ensuring noise from its sites is kept to a minimum and is
compliant with the levels set by the relevant site planning
approval. UKOG only utilises service companies that can demonstrate
commitment to our HSE standards.
Any complaints received are reviewed and responded to.
Communication links have been established with the residents close
to our sites, who can call UKOG at any time.
At Horse Hill, the Company successfully operated an enclosed
flare for the well testing programme and in production operations.
The flare, commonly used at landfill sites, is clean burning,
without odour and produces low emissions. It was the first such
clean-burn, fully enclosed flare employed in the UK onshore oil
& gas industry.
Community Engagement
Our plans to be as open as possible on our dealings with local
residents, particularly at Horse Hill, were hampered by illegal
activities by Extinction Rebellion. On one occasion, we invited
dozens of our neighbours to visit the site, but were forced to
cancel at short notice because the date and time of the visit was
leaked to activists who had threatened to disrupt the meeting.
Because of our strict Covid-19 policy to ensure the safety of
our staff and visitors, we kept visits to Horse Hill to a
minimum.
Ahead of submitting a planning application to the Isle of Wight
Council, UKOG held a Community Engagement Day for Arreton residents
in mid-December 2019. The seven-hour exhibition was attended by an
estimated 150 neighbours and interested parties, including local
politicians and councillors.
The Company meets and communicates regularly with local police
to give operational updates.
Route to Development
UKOG operates within a highly regulated industry, led by the Oil
and Gas Authority, a Government agency reporting to the Department
for Business, Energy & Industrial Strategy, who among other
things are responsible for checking a company's financial and
operational competency before issuing a Petroleum Exploration and
Development Licence ("PEDL") and other regulatory approvals.
Once a potential site has been identified, UKOG must secure
landowner consent and a land lease to operate on the land, before
EA assess any risk to water and air quality, as well as the
arrangements for waste management.
In parallel with seeking EA permits, discussions with local
planning authorities begin. They in turn seek the views of the
local community and statutory consultees. The Health and Safety
Executive also regulates and monitors all onshore oil & gas
exploration and production activities.
DIRECTORS' SECTION 172 STATEMENT
The following disclosure describes how the Directors have had
regard to the matters set out in section 172(1)(a) to (f) and forms
the Directors' statement required under section 414CZA of The
Companies Act 2006. This new reporting requirement is made in
accordance with the new corporate governance requirements
identified in The Companies (Miscellaneous Reporting) Regulations
2018, which apply to company reporting on financial years starting
on or after 1 January 2019.
The matters set out in section 172(1) (a) to (f) are that a
Director must act in the way they consider, in good faith, would be
most likely to promote the success of the Company for the benefit
of its members as a whole, and in doing so have regard (amongst
other matters) to:
-- the likely consequences of any decisions in the long term;
-- the interests of the company's employees;
-- the need to foster the company's business relationships with suppliers/customers and others;
-- the impact of the company's operations on the community and environment;
-- the company's reputation for high standards of business conduct; and
-- the need to act fairly between members of the company.
As set out above in the Strategic Report the Board remains
focused on providing for shareholders through the long term success
of the Company. The means by which this is achieved is set out
further below.
Likely Consequences of any Decisions in the Long Term
The Chairman's Statement, the Chief Executive Officer's
Commentary and the Strategic Review set out the Company's strategy.
In applying this strategy, particularly in seeking new projects and
developing current ones to deliver reserves and resource growth.
The Board assesses the long term future of our projects and
investments with a view to shareholder return. The approach to
general strategy and risk management strategy of the group is set
out in the Statement of Compliance with the QCA Code of Practice
(Principles 1 and 4).
Interest of Employees
The Group has a very limited number of employees and all have
direct access to the Executive Directors on a daily basis and to
the Chairman, if necessary. The Group has a formal Employees'
Policy manual which includes processes for confidential report and
whistleblowing.
Need to Foster the Company's Business Relationships with
Suppliers/Customers and Others
The Group continuously interacts with a variety of suppliers and
customers important to its success. The Group strives to strike the
right balance between engagement and communication. Furthermore,
the Company works within the limitations of what can be disclosed
to the various stakeholders with regards to maintaining
confidentiality of market and/or commercially sensitive
information. Our suppliers are fundamental to ensuring that the
Group can execute its development and production strategy on time
and on budget. Using quality suppliers ensures that as a business
we meet the high standards of performance that we expect of
ourselves and vendor partners. Our management team work closely
with our suppliers, via one on one meetings and where possible
supplier site visits and facility reviews to ensure our suppliers
are able to meet our requirements.
Impact of the Company's Operations on the Community and
Environment
The Group takes its responsibility within the community and
wider environment seriously. Its approach to its social
responsibilities is set out in the Statement of Compliance with the
QCA Code of Practice (Principle 3).
The Desirability of the Company Maintaining a Reputation for
High Standards of Business Conduct
The Directors are committed to high standards of business
conduct and governance and have adopted the QCA Code of Practice.
Where there is a need to seek advice on particular issues, the
Board will consult with its lawyers and nominated advisers to
ensure that its reputation for good business conduct is
maintained.
The Need to Act Fairly Between Members of the Company
The Board's approach to shareholder communication is set out in
the Statement of Compliance with the QCA Code of Practice
(Principle 2). The Company aims to keep shareholders fully informed
of significant developments in the Group's progress. Information is
disseminated through Stock Exchange announcements, website updates
and, where appropriate, video-casts.
During 2020 the Company issued numerous stock exchange
announcements on operational issues. All information is made
available to all shareholders at the same time and no individual
shareholder, or group of shareholders, is given preferential
treatment.
CORPORATE GOVERNANCE
Introduction to Governance
The Directors recognise that good corporate governance is a key
foundation for the long-term success of the Company. As the Company
is listed on the AIM market of the London Stock Exchange and is
subject to the continuing requirements of the AIM Rules. The Board
has therefore adopted the principles set out in the Corporate
Governance Code for small and midsized companies published by the
Quoted Companies Alliance ("QCA Code"). The principles are listed
below with an explanation of how the Company applies each
principle, and the reasons for any aspect of non-compliance.
1. Establish a strategy and business model which promote long-
term value for shareholders
UK Oil & Gas Plc provides shareholders with a full
discussion of corporate strategy within our Annual Report. A
dedicated section explains how we will establish long term
shareholder value.
The Company is focused around 3 key strategic goals: Increase
production and recovery from its existing asset portfolio, grow the
asset portfolio through select onshore development and appraisal
projects, actively manage costs and risks through operational and
management control of the entire process of exploring, appraising
and developing its assets.
The Management team actively evaluates projects that
simultaneously de-risk the current portfolio and create long-term
shareholder value. Projects are evaluated based on many
characteristics to mitigate risk to our current activities they
include but are not limited to alignment with the Company's core
competencies, geography, time horizon and value creation. Further,
a core component of the Company's activities includes an active
dialogue with our legal and legislative advisors to ensure the
Company remains up to date on current legislation, policy and
compliance issues.
Key business challenges and how they may be mitigated are
detailed in the Strategic Report.
2. Seek to understand and meet shareholder needs and
expectations
UKOG encourages two-way communication with institutional and
private investors. The Company's major shareholders maintain an
active dialogue to and ensure that their views are communicated
fully to the Board. Where voting decisions are not in line with the
company's expectations the Board will engage with those
shareholders to understand and address any issues. The Company
Secretary is the main point of contact for such matters.
The Company seeks out appropriate platforms to communicate to a
broad audience its current activities, strategic goals and broad
view of the sector and other related issues. This includes but is
not limited to media interviews, website videos in -person investor
presentations and written content.
Communication to all stakeholders is the direct responsibility
of the Senior Management team. Managers work directly with
professionals to ensure all inquiries (through established channels
for this specific purpose such as email or phone) are addressed in
a timely matter. And that the Company communicates with clarity on
its proprietary internet platforms. Senior management routinely
provides interviews to local media, and business reporters in
support of the company's activities. The Board routinely reviews
the Company communication policy and programmes to ensure the
quality communication with all stakeholders.
3. Take into account wider stakeholder and social
responsibilities and their implications for long-term success
In all endeavours, the Company gives due consideration to the
impact on its neighbours. The Company seeks out methodologies,
processes and expertise in order to address the concerns of the
non-investment community. As such, it actively identifies the
bespoke needs of local communities and their respective
planners.
For example, the company provides for local hotlines and
establishes community liaison groups to address local questions and
concerns.
UKOG seeks to maintain positive relationships within the
communities we operate. As such, UKOG is dedicated to ensuring:
-- Open and honest dialogue;
-- Engagement with stakeholders at all stages of
development;
-- Proactively address local concerns;
-- Actively minimise impact on our neighbours; and
-- Adherence to a strict health and safety code of conduct
As a responsible OGA approved and EA permitted UK operator, UKOG
is committed to utilising industry best practices and achieving the
highest standards of environmental management and safety.
Our operations:
-- Continuously assess and monitor environmental impact;
-- Promote internally and across our industry best practices for
environmental management and safety; and
-- Constant attention to maintaining our exemplary track record
of safe oil & gas production.
For more information please refer to the Annual Report as well
as the Community section within the Company's corporate
website.
4. Embed effective risk management, considering both
opportunities and threats, throughout the organization
Risk Management in the Annual Report details risks to the
business, how these are mitigated and the change in the identified
risk over the last reporting period.
The Board considers risk to the business at every Board meeting
(at least 4 meetings are held each year) and the risk register is
updated at each meeting. The Company formally reviews and documents
the principal risks to the business at least annually.
Both the Board and senior managers are responsible for reviewing
and evaluating risk and the Executive Directors meet at least
monthly to review ongoing trading performance, discuss budgets and
forecasts and new risks associated with ongoing trading.
5. Maintain the Board as a well-functioning, balanced team led
by the chair
Oversight of UKOG is performed by the Company's Board of
Directors. Allen Howard, the Non-Executive Chairman, is responsible
for the running of the Board and Stephen Sanderson, the Chief
Executive, has executive responsibility for running the Company's
business and implementing Company strategy. All Directors receive
regular and timely information regarding the Company's operational
and financial performance.
Relevant information is circulated to the Directors in advance
of meetings. In addition, minutes of the meetings of the Directors
of the UK subsidiaries are circulated to the Board. All Directors
have direct access to the advice and services of the Company
Secretary and are able to take independent professional advice in
the furtherance of the duties, if necessary, at the company's
expense.
The Board comprises two Executive Directors and two
Non-Executive Directors with a mix of significant industry and
business experience within public companies. The Board considers
that all Non-Executive Directors bring an independent judgement to
bear. All Directors must commit the required time and attention to
thoroughly fulfil their duties.
The Board has a formal schedule of matters reserved to it and is
supported by the Audit, Remuneration, Nomination and AIM Rules
compliance committee. The Schedule of Matters Reserved and
Committee Terms of Reference are available on the Company's website
and can be accessed on the Corporate Governance page of the
website.
6. Ensure that between them the Directors have the necessary
up-to-date experience, skills and capabilities
The Nomination Committee will determine the composition of the
Board of the Company and appointment of senior employees. It will
develop succession plans as necessary and report to the Directors.
Where new Board appointments are considered the search for
candidates is conducted, and appointments are made, on merit,
against objective criteria and with due regard for the benefits of
diversity on the Board, including gender.
The Company Secretary supports the Chairman in addressing the
training and development needs of Directors.
As a small company, all members of the Board share
responsibility for all Board functions. As such the Board will from
time to time engage outside consultants to provide an independent
assessment.
7. Evaluate Board performance based on clear and relevant
objectives, seeking continuous improvement
The Board intends to carry out an internal evaluation on
individual Directors on an ad-hoc basis in the form of peer reviews
and appraisals. The individual reviews and appraisals are used to
identify group and individual targets which are reviewed and
assessed at the end of the financial year.
8. Promote a corporate culture that is based on ethical values
and behaviours
The Company is committed to maintaining and promoting high
standards of business integrity. Company values, which incorporate
the principles of corporate social responsibilities (CSR) and
sustainability, guide the Company's relationships with clients,
employees and the communities and environment in which we operate.
The Company's approach to sustainability addresses both our
environmental and social impacts, supporting the Company's vision
to remain an employer of choice, while meeting client demands for
socially responsible partners.
Company policy strictly adheres to local laws and customs while
complying with international laws and regulations. These policies
have been integral in the way group companies have done business in
the past and will continue to play a central role in influencing
the Group's practice in the future.
The ethical values of UKOG including health, safety,
environmental, social and community and relationships, are set out
in the Annual Report.
9. Maintain governance structures and processes that are fit for
purpose and support good decision-making by the Board
The Company has adopted a model code for directors' dealings and
persons discharging managerial responsibilities appropriate for an
AIM company, considering the requirements of the Market Abuse
Regulations "MAR"), and take reasonable steps to ensure compliance
is also applicable to the Company's employees (AIM Rule 21 in
relation to directors' dealings).
The Corporate Governance Statement details the company's
governance structures, the role and responsibilities of each
director. Details and members of the Audit Committee, Remuneration
Committee, Nomination Committee and AIM Rules compliance committee
can be found in the Annual Report.
10. Communicate how the company is governed and is performing by
maintaining a dialogue with shareholders and other relevant
stakeholders
The Company encourages two- way communication with both its
institutional and private investors and responds quickly to all
queries received. The Chief Executive talks regularly with the
Company's major shareholders and ensures that their views are
communicated fully to the Board.
The Board recognises the AGM as an important opportunity to meet
private shareholders. The Directors are available to listen to the
views of shareholders informally immediately following the AGM.
To the extent that voting decisions are not in line with
expectations, the Board will engage with shareholders to understand
and address any issues.
In addition to the investor relations activities carried out by
the Company as set out above, and other relevant disclosures
included on this Investor Relations section of the Company's
website, reports on the activities of each of the Committees during
the year will be set out in the Annual Report.
While building a strong governance framework we also try to
ensure that we take a proportionate approach and that our processes
remain fit for purpose as well as embedded within the culture of
our organisation. We continue to evolve our approach and make
ongoing improvements as part of building a successful and
sustainable company.
Board of Directors
The Board consists of a team of experienced multidisciplinary
members who are committed to delivering shareholder value.
Allen D Howard, Non-Executive Chairman
Allen Howard was Senior Vice President of Houston-based Premier
Oilfield Laboratories, having been Chief Operating Officer of well
analysis experts Nutech. Allen also held senior positions with
Schlumberger. He holds a degree in Chemical Engineering from Texas
Tech University and an MBA from Mays Business School in Texas.
Stephen Sanderson, Chief Executive
Stephen Sanderson joined UK Oil & Gas Plc in September 2014
was appointed Executive Chairman and Chief Executive in July 2015
and in August 2018 ceded his role as Executive Chairmen to Allen D
Howard as part of UKOG improvements in corporate governance. A
highly experienced petroleum geologist, oil industry veteran and
upstream energy business leader, with over 30 years operating
experience, Stephen is a proven oil finder and has been
instrumental in the discovery of more than 12 commercial
conventional fields, including the Norwegian Smorbuk-Midgaard field
complex.
Stephen held a variety of senior management roles for ARCO
(which was acquired by BP in 2000), Wintershall AG (a subsidiary of
German chemical giant BASF) and three junior start-ups. He created
and ran successful new exploration businesses in Africa, Europe and
South America. He has significant technical and commercial
expertise in the petroleum systems of Africa, the North Sea,
Norway, onshore UK & Europe, South America, the South Atlantic,
Middle East, Asia, India, Australia and the USA. He is a graduate
and Associate of the Royal School of Mines, Imperial College,
London, a Fellow of the Geological Society of London and a member
of the American Association of Petroleum Geologists.
Kiran Morzaria, Finance Director
Kiran Morzaria holds a Bachelor of Engineering (Industrial
Geology) from the Camborne School of Mines and an MBA (Finance)
from CASS Business School. He has extensive experience in the
mineral resource industry working in both operational and
management roles. Mr Morzaria spent the first four years of his
career in exploration, mining and civil engineering. He then
obtained his MBA and became the Finance Director of Vatukoula Gold
Mines Plc for seven years. He has served as a director of a number
of public companies in both an executive and non-executive
capacity; he is a non-executive director of European Metals
Holdings Ltd and the Chief Executive Officer for Cadence Minerals
Plc.
Nicholas Mardon Taylor, Non-Executive Director
Nicholas Mardon Taylor served as the Chief Financial Officer of
Hurricane Energy PLC from May 2012 until January 2016. He has
worked in the oil industry for over 35 years, his first involvement
in the North Sea being in the early licensing rounds. He was with
Hurricane from 2005 to January 2016 when he was the Company's first
CFO and was subsequently responsible for the Company's
Environmental Management System.
Board and Committee Membership
Member Board Title Audit Committee Remuneration Committee
Title Title
Allen D Howard Non-Executive Member Member
Chairman
----------------- ---------------- -----------------------
Stephen Sanderson Chief Executive
----------------- ---------------- -----------------------
Kiran Morzaria Finance Director
----------------- ---------------- -----------------------
Nicholas Mardon Non-Executive Chairman Chairman
Taylor Director
----------------- ---------------- -----------------------
The Board and its Committees
The Board of the Company consists of two Executive Directors and
two Non-Executive Directors. The Non-Executive Directors are not
considered independent under the FRC Code as they hold options in
the Company. However, the Board considers that the Non-Executive
Directors are independent of management under all other measures
and is able to exercise independence of judgement .
The Board is responsible for formulating, reviewing and
approving the Company's strategy, financial activities and
operating performance. Day-to-day management is devolved to the
executive directors, who are charged with consulting the Board on
all significant financial and operational matters. The Board
retains ultimate accountability for governance and is responsible
for monitoring the activities of the executive team.
The roles of Chairman and Chief Executive are split in
accordance with best practice. The Chairman has the responsibility
of ensuring that the Board discharges its responsibilities. The
Chairman is also responsible for the leadership and effective
working of the Board, for setting the Board agenda, and ensuring
that Directors receive accurate, timely and clear information. No
one individual has unfettered powers of decision.
The two Executive Directors are the Chief Executive and Finance
Director. The Chief Executive has the overall responsibility for
creating, planning, implementing, and integrating the strategic
direction of the Company. This includes responsibility for all
components and departments of the business. The Chief Executive
ensures that the organisation's leadership maintains constant
awareness of both the external and internal competitive landscape,
opportunities for expansion, customer base, markets, new industry
developments and standards.
The Finance Director works alongside the Chief Executive and has
overall control and responsibility for all financial aspects of
company strategy. The Finance Director takes overall responsibility
of the Company's accounting function and ensures that Company's
financial systems are robust, compliant and support current
activities and future growth. The Finance Director will coordinate
corporate finance and manage company policies regarding capital
requirements, debt, taxation, equity and acquisitions as
appropriate.
The Board met regularly during the year. Tubulated below is the
attendance of Board Members during the reporting period. The
majority if the meetings held during the year were in relation to
the issue of equity associated with a convertible loan note, given
that this was largely procedural it was not deemed necessary for
the non-executive board members to attend these meetings.
Board Member Meetings
attended
(out of
a total
possible)
Allen D Howard 9/20
-----------
Stephen Sanderson 20/20
-----------
Kiran Morzaria 20/20
-----------
Nicholas Mardon Taylor 9/20
-----------
Audit Committee
The audit committee consists of Nicholas Mardon Taylor
(Chairman) and Allen D Howard. Prior to 1 August the audit
committee consisted of Allen D Howard (Chairman) and Kiran
Morzaria. As part of The Company's adoption of the QCA Code on 1
August 2019 it was resolved that the Audit Committee will consist
of two Non-Executive Members of the Board. The Audit Committee met
once during the year.
Board member Meetings attended (out of
a total possible)
Allen D Howard 1/1
--------------------------
Nicholas Mardon Taylor (Appointed
as Chairman 1 August 2019) 1/1
--------------------------
The principal duties and responsibilities of the Audit Committee
include:
-- Overseeing the Company's financial reporting disclosure
process; this includes the choice of appropriate accounting
policies
-- Monitoring the Company's internal financial controls and assess their adequacy
-- Reviewing key estimates, judgements and assumptions applied
by management in preparing published financial statements
-- Annually assessing the auditor's independence and objectivity
-- Making recommendations in relation to the appointment,
re-appointment and removal of the company's external auditor
Remuneration Committee
The Remuneration Committee consists of Nicholas Mardon Taylor
(Chairman) and Allen D Howard. Prior to 1 August the Remuneration
Committee consisted of Allen D Howard (Chairman) and Kiran
Morzaria. As part of The Company's adoption of the QCA Code on 1
August it was resolved that the Remuneration Committee will consist
of two Non-Executive Members of the Board. The Remuneration
Committee did not meet during the year.
The principal duties and responsibilities of the Remuneration
Committee include:
-- Setting the remuneration policy for all Executive Directors
-- Recommending and monitoring the level and structure of remuneration for senior management
-- Approving the design of, and determining targets for,
performance related pay schemes operated by the company and approve
the total annual payments made under such schemes
-- Reviewing the design of all share incentive plans for
approval by the board and shareholders
None of the Committee members have any personal financial
interest (other than as shareholders and option holders), conflicts
of interest arising from cross-directorships or day-to-day
involvement in the running of the business. No director plays a
part in any financial decision about his or her own
remuneration.
Internal Controls
The Board is responsible for establishing and maintaining the
Company's system of internal controls and reviewing its
effectiveness. The procedures that include financial, operational,
health and safety, compliance matters and risk management (as
detailed in the Strategic Report) are reviewed on an ongoing
basis.
The Company's internal control procedures include the
following:
-- Board approval for all significant projects, including
corporate transactions and major capital projects;
-- The Board receives and reviews regular reports covering both
the technical progress of projects and the Company's financial
affairs to facilitate its control;
-- There is a comprehensive budgeting and planning system for
all items of expenditure with an annual budget approved by the
Board;
-- The Company has in place internal control and risk management
systems in relation to the Company's financial reporting process
and the Company's process for preparing consolidated accounts.
These systems include policies and procedures to ensure that
adequate accounting records are maintained, and transactions are
recorded accurately and fairly to permit the preparation of
consolidated financial statements in accordance with IFRS; and
-- The Audit Committee reviews draft annual and interim reports
before recommending their publication to the Board. The Audit
Committee discusses with the Finance Director, Financial Controller
and external auditors the significant accounting policies,
estimates and judgements applied in preparing these reports.
The internal control system can only provide reasonable and not
absolute assurance against material misstatement or loss. The Board
has considered the need for a separate internal audit function but,
bearing in mind the present size and composition of the Company,
does not consider it necessary at the current time.
UK Bribery Act
UKOG has reviewed the appropriate policies and procedures to
ensure compliance with the UK Bribery Act. The Company continues
actively to promote good practice throughout the Company and has
initiated a rolling programme of anti-bribery and corruption
training for all relevant employees.
Relations with Shareholders
Communications with shareholders are considered important by the
Directors. The primary contact with shareholders, investors and
analysts is the Chief Executive. Other senior management, however,
regularly speak to investors and analysts during the year.
Company circulars and press releases have also been issued
throughout the year for the purpose of keeping investors informed
about the Company's progress and in accordance with AIM
regulations.
The Company also maintains a website (www.ukogplc.com) that is
regularly updated and contains a wide range of information about
the Company.
DIRECTORS' REMUNERATION REPORT
This report explains our remuneration policy for Directors and
sets out how decisions regarding Directors' pay for the period
under review have been taken.
Directors' Remuneration Policy
The Company's policy is to maintain levels of remuneration
sufficient to attract, motivate and retain senior executives.
Executive Director remuneration currently consists of basic
salary, pensions, annual bonus (based on annually set targets) and
long-term incentives (to reward long term performance).
The Company seeks to strike an appropriate balance between fixed
and performance-related reward so that the total remuneration
package is structured to align a significant proportion to the
achievement of performance targets, reinforcing a clear link
between pay and performance. The performance targets for staff,
senior executives and the Executive Director are each aligned to
the key drivers of the business strategy, thereby creating a strong
alignment of interest between staff, Executive Directors and
shareholders.
The Remuneration Committee will continue to review the Company's
remuneration policy and make amendments, as and when necessary, to
ensure it remains fit for purpose and continues to drive high
levels of executive performance and remains both affordable and
competitive in the market.
Annual Statement
During the year no annual cash bonus scheme was adopted, as the
current remuneration was viewed as sufficient to attract, motivate
and retain senior executives. At the end of July the Directors
agreed to an interim salary cut of between 20% and 50% of their
monthly salary; this was agreed due to the impact COVID-19 had on
the Group's revenues due to a significant reduction in the price of
oil.
During the year and as required under the Pensions Act of 2008
the Company implemented an automatic enrolment pension scheme and
contributed up to 3% of executive directors qualifying earnings.
During a review of option awards in September 2020 the Remuneration
Committee approved the issue of options to Directors. Further
details can be found below.
Remit of the Remuneration Committee
The remit of the Remuneration Committee is provided in the
Corporate Governance section.
Share Price Movements During the Year
The Company's share price as at 30 September 2020 was GBP0.0016
per share. The share price range during the year was GBP0.0016 to
GBP0.0115 (2019 - GBP0.0082 to GBP0.0208).
Current Arrangement in Financial Year (Audited)
Executive Directors are employed under rolling contracts with
notice periods of 12 months or less from the Company. The
Non-Directors are employed under rolling contracts with notice
period of three months, under which they are not entitled to any
pension, benefits or bonuses.
The Directors' emoluments for the year were as follows:
Year ended 30 September 2020
Salary Bonus Pension Share Total
Based
Payments
------------------------ ------------------------ --------
Director Board Title GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- -------- -------- ---------- --------
Allen D Howard Non-Executive Chairman 54 - - - 54
------------------------ -------- -------- -------- ---------- --------
Stephen Sanderson Chief Executive 297 - 1 - 298
------------------------ -------- -------- -------- ---------- --------
Kiran Morzaria Finance Director 115 - - - 115
------------------------ -------- -------- -------- ---------- --------
Nicholas Mardon Taylor Non-Executive Director 49 - - - 49
------------------------ -------- -------- -------- ---------- --------
Total Directors 515 - 1 - 516
-------- -------- -------- ---------- --------
Year ended 30 September 2019
Salary Bonus Pension Share Total
Based
Payments
------------------------ ------------------------ --------
Director Board Title GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------- -------- -------- ---------- --------
Allen D Howard Non-Executive Chairman 60 - - 29 89
------------------------ -------- -------- -------- ---------- --------
Stephen Sanderson Chief Executive 314 310 1 142 766
------------------------ -------- -------- -------- ---------- --------
Kiran Morzaria Finance Director 116 - - 37 153
------------------------ -------- -------- -------- ---------- --------
Nicholas Mardon Taylor Non-Executive Director 55 - - 23 78
------------------------ -------- -------- -------- ---------- --------
Total Directors 545 310 1 231 1,086
-------- -------- -------- ---------- --------
As at 30 September 2020, the outstanding long-term incentives,
in the form of options, held by the Directors who served during the
period are set out in the table below.
At 1 Issued lapsed At 30 Exercise Date from Expiry
October during / exercised September price which date
2019 the year during 2020 exercisable
the year
Share options No. No. No. No. GBP
million million million million
--------- ---------- ------------- ----------- --------- ------------- -----------
Stephen Sanderson 25 - (25) - 0.0040 21/01/2015 31/12/2019
--------- ---------- ------------- ----------- --------- ------------- -----------
Stephen Sanderson 25 - 25 0.0115 25/05/2017 24/05/2022
--------- ---------- ------------- ----------- --------- ------------- -----------
Stephen Sanderson 25 - 25 0.0130 27/09/2020 25/09/2024
--------- ---------- ------------- ----------- --------- ------------- -----------
Total 75 - 50
--------- ---------- ------------- ----------- --------- ------------- -----------
At 1 Issued lapsed At 30 Exercise Date from Expiry
October during / exercised September price which date
2019 the year during 2020 exercisable
the year
Share options No. No. No. No. GBP
million million million million
--------- ---------- ------------- ----------- --------- ------------- -----------
Kiran Morzaria 20.0 20.0 0.0115 25/05/2017 24/05/2022
--------- ---------- ------------- ----------- --------- ------------- -----------
Kiran Morzaria 6.5 6.5 0.0130 27 /09/2020 25/09/2024
--------- ---------- ------------- ----------- --------- ------------- -----------
Total 26.5 26.5
--------- ---------- ------------- ----------- --------- ------------- -----------
At 1 Issued lapsed At 30 Exercise Date from Expiry
October during / exercised September price which date
2019 the during 2020 exercisable
year the year
Share options No. No. No. No. GBP
Million million million million
--------- -------- ------------- ----------- --------- ------------- -----------
Allen Howard 10 10 0.0115 25/05/2017 24/05/2022
--------- -------- ------------- ----------- --------- ------------- -----------
Allen Howard 5 5 0.0130 27 /09/2020 25/09/2024
--------- -------- ------------- ----------- --------- ------------- -----------
Total 15 15
--------- -------- ------------- ----------- --------- ------------- -----------
At 1 Issued lapsed At 30 Exercise Date from Expiry
October during / exercised September price which date
2019 the during 2020 exercisable
year the year
Share options No. No. No. No. GBP
million million million million
--------- -------- ------------- ----------- --------- ------------- -----------
Nicholas Mardon
Taylor 4 4 0.0130 27 /09/2020 25/09/2024
--------- -------- ------------- ----------- --------- ------------- -----------
Total 4 4
--------- -------- ------------- ----------- --------- ------------- -----------
REPORT OF THE DIRECTORS
The Directors present their annual report together with the
audited consolidated financial statements of the Group for the Year
Ended 30 September 2020.
Business Review and Future Developments
A review of the business and future developments are outlined in
the Strategic Report.
Principal Activity and Business Review
The principal activity of the Group is exploring for, appraising
and developing oil & gas assets.
Results and Dividends
Loss on ordinary activities of the Group after taxation amounted
to GBP18,957,000 (2019: Loss GBP5,394,000). The Directors do not
recommend the payment of a dividend (2019: GBPnil). The Company has
no plans to adopt a dividend policy in the immediate future.
Principal Risks and Uncertainties
Information of the principal risks and uncertainties facing the
Group is included in the Principal Risks and Uncertainties section
of the Strategic Report.
Financial Risk Management Objectives and Policies
The Group's principal financial instruments are trade
receivables, trade payables and cash at bank, and borrowings. The
main purpose of these financial instruments is to fund the Group's
operations.
It is, and has been throughout the period under review, the
Group's policy that no trading in financial instruments shall be
undertaken. The main risk arising from the Group's financial
instruments is liquidity risk. The Board reviews and agrees
policies for managing this risk and this is summarised below.
Liquidity Risk
The Group's objective is to maintain a balance between
continuity of funding and flexibility through the use of equity and
its cash resources. Further details of this are provided in the
principal accounting policies, headed 'going concern'.
Key Performance Indicators
During the reporting period the Group readmitted as an operating
company and adopted Key Performance Indicators, which are detailed
in the Key Performance Indicator section of the Strategic
Report.
Going Concern
The Directors note the substantial losses that the Group has
made for the year ended 30 September 2020. The Directors have
prepared cash flow forecasts for the period ending 31 December
2022, which takes into account anticipated costs savings, the
current forward curve of Brent crude oil and external funding. In
addition, within the forecasts, the Group has delayed its capital
expenditure programme across its assets as the effects of Covid-19
have significantly constrained the supply of specialist oil sector
services, equipment and civil engineering activities.
The cost structure of the Group comprises a high proportion of
discretionary spend and therefore in the event that cash flows
become constrained, costs can be quickly reduced to enable the
Group to operate within its available funding.
The oil price assumptions within the cash flow forecasts are
based on forward rates. However, given the current effects of
Covid-19 and recent "OPEC+" meetings there is a high degree of
uncertainty around these forward rates.
These forecasts demonstrate that the Group has sufficient cash
funds available to allow it to continue in business for a period of
at least twelve months from the date of approval of these financial
statements. Accordingly, the financial statements have been
prepared on a going concern basis.
Events After the Reporting Period
Events after the Reporting Period are outlined in Note 26 to the
Financial Statements.
Corporate Governance
Information in relation to the Corporate Governance of the Group
is contained within the Corporate Governance Section of the
Strategic Report.
Suppliers' Payment Policy
The Group's policy is to agree terms and conditions with
suppliers in advance; payment is then made in accordance with the
agreement provided the supplier has met the terms and conditions.
Suppliers are typically paid within 30 days of issue of
invoice.
Charitable Contributions
During the year the Group made charitable donations amounting to
GBPNil (2019 - GBPNil).
Substantial Shareholdings
As at 17 March 2021, the Company had been notified of the
following substantial shareholdings in the ordinary share
capital:
Shareholder Number of Ordinary Holding %
Shares
Hargreaves Lansdown (Nominees)
Limited 1,614,977,774 12.47%
------------------- ----------
Interactive Investor Services
Nominees Limited 1,341,630,240 10.36%
------------------- ----------
Hargreaves Lansdown (Nominees)
Limited 1,227,889,628 9.48%
------------------- ----------
HSDL Nominees Limited 975,377,241 7.53%
------------------- ----------
Barclays Direct Investing Nominees
Limited 897,198,462 6.93%
------------------- ----------
Hargreaves Lansdown (Nominees)
Limited 819,468,309 6.33%
------------------- ----------
Interactive Investor Services
Nominees Limited 761,268,945 5.88%
------------------- ----------
HSDL Nominees Limited 617,244,442 4.76%
------------------- ----------
HSBC Client Holdings Nominee
(Uk) Limited 474,611,762 3.66%
------------------- ----------
Pershing Nominees Limited 407,951,557 3.15%
------------------- ----------
Current Board & Directors Interests
Allen D Howard Non-Executive
Chairman
Stephen Sanderson Chief Executive
Officer
Kiran Morzaria Finance Director
Nicholas Mardon Non-Executive
Taylor Director
The directors hold options to purchase new ordinary shares in
the Company, details of which are specified in the Renumeration
Report. In addition, Kiran Morzaria holds 4,508,178 ordinary shares
in the Company.
Auditor
A resolution to reappoint PKF Littlejohn LLP as auditor will be
proposed at the forthcoming Annual General Meeting ("AGM").
Annual General Meeting
Notice of the forthcoming Annual General Meeting has been
enclosed separately.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the annual report
and financial statements in accordance with applicable law and
regulations.
Company law requires the directors to prepare consolidated
financial statements for each financial year. The Directors have
prepared the consolidated accounts in accordance with International
Financial Reporting Standards as adopted by the EU ("adopted
IFRS"). The consolidated financial statements are required by law
to give a true and fair view of the state of affairs of the Group
and Company and of the profit or loss for that period. In preparing
these financial statements, the Directors are required to:
-- Select suitable accounting policies and then apply them consistently;
-- Make judgements and estimates that are reasonable and prudent;
-- State whether applicable IFRS's have been followed, subject
to any material departures disclosed and explained in the financial
statements; and
-- Prepare the consolidated financial statements on the going
concern basis unless it is inappropriate to presume that the Group
will continue in business.
The Directors are responsible for keeping adequate accounting
records, which disclose with reasonable accuracy at any time the
financial position of the Group and to enable them to ensure that
the consolidated financial statements comply with the Companies Act
2006. They are also responsible for safeguarding the assets of the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity
of the corporate and financial information included on the
Company's website. The Company's website is maintained in
accordance with AIM Rule 26.
Legislation in the United Kingdom governing the preparation and
dissemination of consolidated financial statements may differ from
legislation in other jurisdictions.
Statement as to Disclosure of Information to the Auditor
As at the date of this report the serving directors confirm
that:
-- So far as each Director is aware, there is no relevant audit
information of which the Group's auditors are unaware, and
-- They have taken all the steps that they ought to have taken
as Directors in order to make themselves aware of any relevant
audit information and to establish that the Group's auditor are
aware of that information.
ON BEHALF OF THE BOARD
Stephen Sanderson
Director
REPORT OF THE INDEPENT AUDITOR TO THE MEMBERS OF UK OIL &
GAS PLC
OPINION
We have audited the financial statements of UK Oil & Gas plc
(the 'parent company') and its subsidiaries (the 'group') for the
year ended 30 September 2020 which comprise the Consolidated
Statement of Comprehensive Income, the Consolidated and Parent
Company Statements of Financial Position, the Consolidated and
Parent Company Statements of Changes in Equity, the Consolidated
and Parent Company Statements of Cash Flow and notes to the
financial statements, including a summary of significant accounting
policies. The financial reporting framework that has been applied
in their preparation is applicable law and international accounting
standards in conformity with the requirements of the Companies Act
2006 and as regards the parent company financial statements, as
applied in accordance with the provisions of the Companies Act
2006.
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's and of the parent company's affairs as at 30
September 2020 and of the group's and parent company's loss for the
year then ended;
-- the group financial statements have been properly prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006;
-- the parent company financial statements have been properly
prepared in accordance with international accounting standards in
conformity with the requirements of the Companies Act 2006 and as
applied in accordance with the provisions of the Companies Act
2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
BASIS FOR OPINION
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
and parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK,
including the FRC's Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
CONCLUSIONS RELATING TO GOING CONCERN
We have nothing to report in respect of the following matters in
relation to which the ISAs (UK) require us to report to you
where:
-- the directors' use of the going concern basis of accounting
in the preparation of the financial statements is not appropriate;
or
-- the directors have not disclosed in the financial statements
any identified material uncertainties that may cast significant
doubt about the company's ability to continue to adopt the going
concern basis of accounting for a period of at least twelve months
from the date when the financial statements are authorised for
issue.
OUR APPLICATION OF MATERIALITY
For the purposes of determining whether the financial statements
are free from material misstatement, we define materiality as a
magnitude of misstatement that makes it probably that the economic
decisions of a reasonable knowledgeable person, relying on the
financial statements, would be changed or influenced. We also
determine a level of performance materiality which we use to assess
the extent of testing needed to reduce an appropriately low level
in the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality for the financial statements as a
whole.
Materiality for the group financial statements was set at
GBP788,000. This was calculated based in 1.5% of net assets for the
year. Net assets was used as the benchmark for the basis of
materiality being the key area of relevance to stakeholders in
assessing the financial performance of the group in its early years
of production. The same basis for the calculation of materiality
for the parent company financial statements was used, however
restricted to GBP787,999, to ensure a level below that of group
materiality as required by ISA (UK) 600.
We also determine a level of performance materiality which we
use to assess the extent of testing needed to reduce to an
appropriately low level probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for
the financial statements as a whole. Performance materiality for
the group and part company was set at GBP472,800 and GBP472,799
respectively, being 60% of materiality for the financial statements
as a whole.
We agreed to report to those charged with governance all
corrected and uncorrected misstatements we identified through our
audit with a value in excess of GBP39,400 for both the group and
parent company. We also agreed to report any other audit
misstatements below that threshold that we believe warranted
reporting on qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
The scope of our audit was influenced by our application of
materiality. The quantitative and qualitative thresholds for
materiality determine the scope of our audit and the nature, timing
and extent of our audit procedures.
As part of our planning, we assessed all components of the group
for their significance under ISA (UK) 600 in order to determine the
scope of the work to be performed. Those entities of the group
which were considered to be significant components, being UK Oil
& Gas plc, Horse Hill Developments Limited and UKOG (137/246)
Holdings Limited, were subject to full scope audit procedures, and
those considered to be material, being UKOG (234) Limited and UKOG
(37/246) Limited were subject to audit procedures on significant
and identified risk areas only, in accordance with ISA (UK) 600 for
group reporting purposes. Procedures were then performed to address
the risks identified and for the most significant assessed risks of
material misstatement, the procedures are outlined below in the key
audit matters section of this report. The remaining components were
subject to analytical review procedures.
We did not rely on the work of any component auditors.
KEY AUDIT MATTERS
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
Key Audit Matter How the scope of our audit responded
to the key audit matter
Carrying value and classification Our work in this area included:
of exploration and evaluation assets * Reviewing the impairment workings prepared by
(Note 11) management, and reconciling the key inputs into the
calculation to supporting documentation and ensuring
There is a risk that the assets the carrying value of the assets is not impaired;
are incorrectly valued or need
to be impaired. As Horse Hill entered
the production stage this year, * Vouching a sample of additions in the period to
there is also a risk that assets supporting documentation and ensuring they have been
are incorrectly included as intangibles capitalised in line with the relevant IFRSs;
when they should be reclassified
to Property Plant and Equipment
("PPE"). * Reviewing the effect of COVID-19 on the group and the
potential profitability of said assets; and
* Vouching a sample of assets at the year end to the
licences in place and ensure they are valid.
====================================================================
Carrying value and classification Our work in this area included:
of producing assets (Note 12) * Reviewing managements valuation workings, and
reconciling the key inputs into the calculation to
There is a risk of material misstatement supporting documentation and ensuring the carrying
around the carrying value of PPE, value of the assets is fairly stated;
whether any impairment is required
and if the correct assets have
been included within PPE as opposed * Reviewing the effect of COVID-19 on the group and the
to Exploration and Evaluation Assets. potential profitability of said assets;
* Reviewing of the unit of production method of
depletion and performing a recalculation thereto and
ensuring the value is fairly stated;
* Verifying the mathematical accuracy of the
calculations prepared by management;
* Reviewing the key inputs used within the calculations
and challenging all estimates used and obtaining the
relevant support; and
* Testing a sample of assets to support to ensure
existence and correct classification.
====================================================================
OTHER INFORMATION
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor's report thereon. The directors are responsible for the
other information. Our opinion on the group and parent company
financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon. In
connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
OPINIONS ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT
2006
In our opinion, based on the work undertaken in the course of
the audit:
-- the information given in the Strategic Report and the
Directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements; and
-- the Strategic Report and the Directors' report have been
prepared in accordance with applicable legal requirements.
MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION
In the light of the knowledge and understanding of the Group and
the Parent Company and its environment obtained in the course of
the audit, we have not identified material misstatements in the
Strategic report or the Directors' report.
We have nothing to report in respect of the following matters in
relation to which the Companies Act 2006 requires us to report to
you if, in our opinion:
-- adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the Parent Company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of Directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
RESPONSIBILITIES OF DIRECTORS
As explained more fully in the Directors' responsibilities
statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's and the Parent Company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
AUDITOR'S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL
STATEMENTS
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities .
This description forms part of our auditor's report.
USE OF OUR REPORT
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Alistair Dominic Roberts (Senior Statutory Auditor)
15 Westferry Circus
For and on behalf of PKF Littlejohn LLP Canary Wharf
Statutory Auditor
London E14 4HD
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR YEARED 30 September 2020
30 Sep 30 Sep
Notes 2020 2019
GBP'000 GBP'000
---------------------------------------------- ------ --------- --------
Revenue 908 213
Cost of sales
Depletion, Depreciation and Amortisation (1,367) (225)
Other Cost of Sales (1,171) (97)
Gross (loss)/profit) (1,630) 109
---------------------------------------------- ------ --------- --------
Operating expenses
Administrative expenses (1,755) (3,939)
Impairment expense 11 (10,652) (2)
Foreign exchange gains/(losses) (16) (45)
Share based payments expense 22 0 (693)
Operating (loss) 6 (14,053) (4,788)
---------------------------------------------- ------ --------- --------
Gain on settlements of financial instruments
Finance Income 0 1
Finance Cost 8 (286) (607)
Share of associate loss 14 - -
Decommissioning Expense 20 - -
Exploration Write-off 11 (6,598) -
(Loss) before taxation (20,937) (5,394)
---------------------------------------------- ------ --------- --------
Taxation 9 -
---------------------------------------------- ------ --------- --------
Retained (Loss) for the year (20,937) (5,394)
---------------------------------------------- ------ --------- --------
Retained (loss) attributable to;
Equity holders of the Parent (20,937) (5,394)
Non-Controlling Interests - -
---------------------------------------------- ------ --------- --------
(20,937) (5,394)
---------------------------------------------- ------ --------- --------
There are no other comprehensive income or expenses during the
two reported periods to disclose.
Earnings per share Pence Pence
-------------------- --- ------- -------
Basic and diluted 10 (0.24) (0.09)
The accompanying accounting policies and notes form an integral
part of these financial statements
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 September 2020
Notes 2020 2019
GBP'000 GBP'000
--------------------------------- ------ --------- ---------
Assets
Non-current assets
Exploration & evaluation assets 11 29,259 27,224
Decommissioning Asset 11 285 354
Goodwill 11 - 17,443
Oil & Gas properties 12 6,380 1,434
Property, Plant & Equipment 12 1,852 193
Investment in associate 14 - -
--------------------------------- ------ --------- ---------
Total non-current assets 37,776 46,648
--------------------------------- ------ --------- ---------
Current assets
Inventory 15 1 1
Trade and other receivables 16 742 1,179
Cash and cash equivalents 17 1,634 6,892
--------------------------------- ------ --------- ---------
Total current assets 2,378 8,072
--------------------------------- ------ --------- ---------
Total Assets 40,154 54,720
--------------------------------- ------ --------- ---------
Current liabilities
Trade and other payables 18 (1,981) (6,026)
Borrowings 19 (3,084) (7,473)
--------------------------------- ------ --------- ---------
Total current liabilities (5,065) (13,499)
--------------------------------- ------ --------- ---------
Non-current Liabilities
Provisions 20 (1,031) (427)
--------------------------------- ------ --------- ---------
Total non-current liabilities (1,031) (427)
--------------------------------- ------ --------- ---------
Total liabilities (6,096) (13,926)
--------------------------------- ------ --------- ---------
Net Assets 34,058 40,794
--------------------------------- ------ --------- ---------
Equity
Share capital 21 12,694 12,250
Share premium account 99,528 85,773
Share based payment reserve 23 1,811 1,811
Accumulated losses (80,088) (59,153)
--------------------------------- ------ --------- ---------
33,944 40,681
--------------------------------- ------ --------- ---------
Non-controlling interest 113 113
Total shareholders' equity 35,058 40,794
--------------------------------- ------ --------- ---------
These financial statements were approved by the Board of
Directors on 15 April 2021 and are signed on its behalf by:
Stephen Sanderson Kiran Morzaria
Director Director
The accompanying accounting policies and notes form an integral
part of these financial statements.
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 30 September 2020
Notes 2020 2019
GBP'000 GBP'000
------------------------------------ ------ --------- ---------
Assets
Non-current assets
Exploration & evaluation assets 11 1,644 2,301
Investment in subsidiary companies 13 21,406 26,206
Property, Plant and Equipment 12 1,773 108
------------------------------------ ------ --------- ---------
Total non-current assets 24,823 28,615
------------------------------------ ------ --------- ---------
Current assets
Trade and other receivables 16 546 310
Intercompany balances 26,690 26,974
Cash and cash equivalents 17 1,346 6,196
------------------------------------ ------ --------- ---------
Total current assets 28,583 33,480
------------------------------------ ------ --------- ---------
Total Assets 53,406 62,095
------------------------------------ ------ --------- ---------
Current liabilities
Trade and other payables 18 (1,419) (4,430)
Borrowings 19 - (4,500)
------------------------------------ ------ --------- ---------
Total Current Liabilities (1,419) (8,930)
------------------------------------ ------ --------- ---------
Total liabilities (1,419) (8,930)
------------------------------------ ------ --------- ---------
Net Assets 51,986 53,165
------------------------------------ ------ --------- ---------
Shareholders' Equity
Share capital 21 12,694 12,250
Share premium account 99,528 85,773
Share Based Payment Reserve 23 1,811 1,811
Accumulated losses (62,046) (46,669)
------------------------------------ ------ --------- ---------
Total shareholders' equity 51,986 53,165
------------------------------------ ------ --------- ---------
As permitted by section 408 of the Companies Act 2006, the
profit and loss account of the parent company has not been
separately presented in these accounts. The parent company loss for
the year was GBP15,378,000 (2019: loss GBP3,905,000).
These financial statements were approved by the Board of
Directors on 15 April 2021 and are signed on its behalf by:
Stephen Sanderson Kiran Morzaria
Director Director
The accompanying accounting policies and notes form an integral
part of these financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 September 2020
Share based Non
payment Accumulated Controlling
Share capital Share premium reserve losses Total Interests Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
Balance at 1
October 2018 12,141 75,799 1,590 (53,393) 36,137 651 36,788
Loss for the
year - - - (5,394) (5,394) - (5,394)
Movement on
reserves re
acquisitions - - - (838) (838) (538) (1,376)
Total
comprehensive
income - - - (6,232) (6,232) (538) (6,770)
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
Issue of shares 109 10,183 - - 10,292 - 10,292
Cost of share
issue - (209) - - (209) - (209)
Share option
expired - - (472) 472 - - -
Share based
payments - - 693 - 693 - 693
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
Total
transactions
with
owners 109 9,974 221 (5,760) 4,544 (538) 4,006
Balance at 30
September
2019 12,250 85,773 1,811 (59,153) 40,681 113 40,794
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
Loss for the
year - - - (20,937) (20,937) (20,937)
Movement on - - - - - - -
reserves re
acquisitions
Total
comprehensive
income - - - (20,937) (20,937) (20,937)
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
Issue of shares 444 14,240 14,684 14,684
Cost of share
issue (485) (485) (515)
Total
transactions
with
owners 444 13,755 - (20,937) (6,738) - (6,7378)
Balance at 30
September
2020 12,694 99,528 1,811 (80,088) 33,944 113 34,058
---------------- -------------- -------------- --------------- ------------ --------- --------------- ---------
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEARED 30 September 2020
Share based Accumulated
Share capital Share premium payment reserve losses Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- -------------- -------------- ----------------- ------------ ---------
Balance at 1 October 2018 12,141 75,799 1,590 (43,236) 46,294
Loss for the year - - - (3,905) (3,905)
Total comprehensive income - - - (3,905) (3,905)
-------------------------------- -------------- -------------- ----------------- ------------ ---------
Issue of shares 109 10,183 - - 10,292
Cost of share issue - (209) - - (209)
Share option expired - - (472) 472 -
Share based payments - - 693 - 693
-------------------------------- -------------- -------------- ----------------- ------------ ---------
Total transactions with owners 109 9,974 221 472 10,776
Balance at 30 September 2019 12,250 85,773 1,811 (46,669) 53,165
-------------------------------- -------------- -------------- ----------------- ------------ ---------
Loss for the year - - - (15,378) (15,378)
Total comprehensive income - - - (15,378) (15,378)
-------------------------------- -------------- -------------- ----------------- ------------ ---------
Issue of shares 444 14,240 - - 14,684
Cost of share issue - (485) - - (485)
Total transactions with owners 444 13,755 - - 14,199
Balance at 30 September 2020 12,694 99,528 1,811 (62,047) 51,986
-------------------------------- -------------- -------------- ----------------- ------------ ---------
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEARED 30 September 2020
2020 2019
GBP'000 GBP'000
------------------------------------------- --------- --------
Cash flows from operating activities
Loss from operations (14,053) (4,788)
Depletion & impairment 11,995 228
Share based payment charge - 693
Cash movement on provisions (8) (936)
(Increase) in inventories (1) 4
(Increase) / decrease in trade &
other receivables 437 36
Increase / (decrease) in trade &
other payables (1,142) (964)
-------------------------------------------- --------- --------
Net cash (outflow) / inflow from
operating activities (2,773) (5,726)
-------------------------------------------- --------- --------
Cash flows from investing activities
Expenditures on exploration & evaluation
assets (7,360) (3,125)
Expenditures on oil & gas properties (4) -
Expenditures on plant, property &
equipment (371) (128)
Payments for acquisition of subsidiary - (5,060)
Net cash acquired on acquisition
of subsidiary - 6
Net cash (outflow) from investing
activities (7,735) (8,307)
-------------------------------------------- --------- --------
Cash flows from financing activities
Proceeds from issue of share capital 7,734 3,520
Share issue costs (485) (209)
(Repayments)/Proceeds of convertible
loan note (1,825) 5,500
Convertible loan financing fees (175) (313)
-------------------------------------------- --------- --------
Net cash inflow from financing activities 5,249 8,498
-------------------------------------------- --------- --------
Net change in cash and cash equivalents (5,258) (5,535)
-------------------------------------------- --------- --------
Cash and cash equivalents at beginning
of the period 6,892 12,427
Cash and cash equivalents at end
of the period 1,634 6,892
-------------------------------------------- --------- --------
COMPANY STATEMENT OF CASH FLOW
FOR THE YEARED 30 September 2020
2020 2019
GBP'000 GBP'000
------------------------------------------- --------- ------------------
Cash flows from operating activities
Operating profit / (loss) (15,675) (4,239)
Add back: depreciation & impairment 14,226 -
Share based payment charge 0 693
Decrease in trade & other receivables (236) 217
Increase in trade & other payables (111) 234
--------------------------------------------
Net cash (outflow) from operating
activities (1,797) (3,095)
-------------------------------------------- --------- ------------------
Cash flows from investing activities
Expenditures on exploration & evaluation
assets (645) (288)
Expenditures on property, plant &
equipment (324) (116)
Loan advanced to subsidiary (7,332) (3,687)
Payments on acquisition of subsidiary - (4,276)
Net cash (outflow) from investing
activities (8,302) (8,367)
-------------------------------------------- --------- ------------------
Cash flows from financing activities
Proceeds from issue of share capital 7,734 3,520
Share issue costs (485) (209)
(Repayments)/Proceeds of convertible
loan note (1,825) 5,500
Convertible loan financing fees (175) (313)
Net cash inflow from financing activities 5,294 8,498
-------------------------------------------- --------- ------------------
Net change in cash and cash equivalents (4,850) (2,964)
-------------------------------------------- --------- ------------------
Cash and cash equivalents at beginning
of the period 6,196 9,160
Cash and cash equivalents at end
of the period 1,346 6,196
-------------------------------------------- --------- ------------------
NOTES TO THE FINANCIAL STATEMENTS
1. Corporate Information
The consolidated financial statements of UK Oil & Gas Plc
(the Company) and its subsidiaries (collectively, the Group), for
the year ended 30 September 2020 were authorised for issue by the
directors on 15 April 2021. UK Oil & Gas Plc (the Company &
parent) is a public limited company incorporated and registered in
the United Kingdom and listed on the Alternative Investment Market
(AIM). The registered office is located at The Broadgate Towers, 20
Primrose Street, London EC2A 2EW.
The Group is principally engaged in oil production and oil &
gas exploration and evaluation (see Note 6). Information on the
Group's structure is provided in Note 13 and information on other
related parties is provided in Note 27.
2. Principal Accounting Policies
a) Basis of preparation
The consolidated financial statements of the UK Oil & Gas
plc (the Company) and subsidiaries (the Group) have been prepared
in accordance with International Financial Reporting Standards in
conformity with the requirements of the Companies Act 2006
("IFRSs") as they apply to the Group for the year ended 30
September 2020 and with the Companies Act 2006.
The accounting policies have been applied consistently
throughout the preparation of these financial statements, the
financial report is presented in Pound Sterling (GBP) and all
values are rounded to the nearest thousand pounds (GBP'000) unless
otherwise stated. The consolidated financial statements provide
comparative information in respect of the previous period.
Subsidiary Undertakings Exempt from Audit
UK Oil & Gas Plc has guaranteed the liabilities of the
subsidiaries listed below under section 479A of the Companies Act
2006 in respect of the year ended 30 September 2020.
UKOG (234) Ltd - 07055133
UKOG (GB) Limited - 04050227
UKOG Solent Limited - 0500092
UKOG Weald Limited - 04881234
UKOG (137/246) Holdings Ltd - 09010542
UKOG (137/246) Ltd - 06807023
UK Oil & Gas Investments Ltd - 11252712
UKOG Turkey Ltd - 10212262
New and Amended Standards and Interpretations
During the year, the Group adopted the following new and amended
IFRSs for the first time for the reporting period commencing 1
October 2019:
IFRS 16 Leases
IFRIC Interpretation 23 Uncertainty over Income Tax
Treatment
Amendments to IAS 28: Long-term interests in associates and
joint ventures
There is no material impact on the financial statements
following the adoption of these new standards and
interpretations.
New Standards and interpretations Not Yet Adopted
Certain new standards, interpretations and amendments to
existing standards have been published that are effective for
reporting periods starting 1 January 2020. These have not been
early adopted by the Group and are not expected to have a material
impact on the entity in the current or future reporting
periods:
IAS 1 and IAS 8 Definition of Material
IFRS 3 Definition of a Business - Amendments to IFRS2
The Conceptual Framework for Financial Reporting
b) Going Concern
The Directors note the substantial losses that the Group has
made for the year ended 30 September 2020. The Directors have
prepared cash flow forecasts for the period ending 30 September
2022, which takes into account anticipated costs savings, the
current forward curve of Brent crude oil and external funding.
The Group closely monitor and manage its liquidity risks. Cash
forecasts for the Group are regularly produced based on, inter
alia, management's best estimate of the Group's production and
expenditure forecasts and future oil prices. In addition, within
the forecasts, the Group has delayed its capital expenditure
programme across its assets as the effects of Covid-19 have
significantly constrained the supply of specialist oil sector
services, equipment and civil engineering activities. The cost
structure of the Group comprises a high proportion of discretionary
spend and therefore in the event that cash flows become
constrained, costs can be quickly reduced to enable the Group to
operate within its available funding.
In the first quarter of 2020, the oil price has been affected by
the global spread of COVID-19 and the resultant reduction in oil
demand. This situation has since been compounded by the failure of
OPEC to reach an agreement on constraining supply and the decision
of several countries to increase output. At the date of this
report, there remains significant uncertainty over the impact of
COVID-19 on future global demand for oil and therefore the price of
oil.
The Group's base case going concern model was run with average
oil prices of $51.5/bbl. for March 2021 to September 2022. There is
a high degree of uncertainty around these forward rates. These
forecasts demonstrate that the Group has sufficient cash funds
available to allow it to continue in business for a period of at
least twelve months from the date of approval of these financial
statements. Accordingly, the financial statements have been
prepared on a going concern basis.
It is the prime responsibility of the Board to ensure the Group
remains a going concern. At 30 September 2020 the Company had cash
and cash equivalents of GBP1,634,000 and borrowings of
GBP3,084,000. These borrowings are due by the Company's subsidiary,
Horse Hill Developments Ltd, to its shareholders, There is no
repayment schedule associated with this loan and repayment is
determined by the directors of Horse Hill Developments Ltd. The
intent is to repay this loan from the free cash flow generated from
the HH-1 well or any other further developments on the license
areas of Horse Hill Developments Ltd. The Company has minimal
contractual expenditure commitments and the Board considers that in
conjunction with equity financing, the present funds are sufficient
to maintain the working capital of the Company for a period of at
least 12 months from the date of signing the Annual Report and
Financial Statements. For these reasons the Directors adopt the
going concern basis in the preparation of the Financial
Statements.
c) Basis of consolidation
The consolidated financial statements present the results of UK
Oil & Gas Plc and its subsidiaries as if they formed a single
entity. The financial statements of subsidiaries used in the
preparation of consolidated financial statements are based on
consistent accounting policies to the parent. All intercompany
transactions and balances between Group companies, including
unrealised profits arising from them, are eliminated in full.
At 30 September 2020, the Group comprised the Company and
entities controlled by UK Oil & Gas Plc (its subsidiaries). No
new subsidiaries were acquired during the year, and none were
dissolved / struck off or liquidated.
d) Business combinations
The acquisition method of accounting is used to account for all
business combinations, regardless of whether equity instruments or
other assets are acquired. The consideration transferred for the
acquisition of a subsidiary comprises the:
a) fair values of the assets transferred
b) liabilities incurred to the former owners of the acquired business
c) equity interests issued by the group
d) fair value of any asset or liability resulting from a
contingent consideration arrangement, and
e) fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with limited
exceptions, measured initially at their fair values at the
acquisition date. The group recognises any non-controlling interest
in the acquired entity on an acquisition-by-acquisition basis
either at fair value or at the non-controlling interest's
proportionate share of the acquired entity's net identifiable
assets. Acquisition-related costs are expensed as incurred.
Where settlement of any part of the consideration is deferred or
contingent, the amounts payable in the future are recognised at
their fair value at the acquisition date. The discount rate used is
the entity's incremental borrowing rate, being the rate at which a
similar borrowing could be obtained from an independent financier
under comparable terms and conditions.
Contingent consideration is classified either as equity or a
financial liability. Amounts classified as a financial liability
are subsequently remeasured to fair value with changes in fair
value recognised in profit or loss.
Contingent consideration classified as equity is not remeasured
and its subsequent settlement is accounted for within equity.
Goodwill is initially measured at cost (being the excess of the
consideration transferred and the amount recognised for
non-controlling interests and any previous interest held of the net
identifiable assets acquires and liabilities assumed). If the fair
value of the net assets acquired is in excess of the aggregate
consideration transferred, the difference is recognised in profit
or loss.
If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer's previously held
equity interest in the acquiree is remeasured to fair value at the
acquisition date. Any gains or losses arising from such
remeasurement are recognised in profit or loss.
e) Joint arrangements
Certain of the Group's licence interests are held jointly with
others under arrangements whereby unincorporated and jointly
controlled ventures are used to explore, evaluate and ultimately
develop and produce from its oil & gas interests. The Group's
share of assets, liabilities, income and expenditure of these joint
operations, have been classified in the appropriate balance sheet
and income statement headings, except where its share of such
amounts remain the responsibility of another party in accordance
with the terms of carried interests.
When the Group, acting as an operator or manager of a joint
arrangement, receives reimbursement of direct costs recharged to
the joint arrangement, such recharges represent reimbursements of
costs that the operator incurred as an agent for the joint
arrangement and therefore have no effect on profit or loss.
f) Revenue
Revenue comprises the invoiced value of goods and services
supplied by the Group, excluding value added tax and trade
discounts. Revenue is recognised when control passes to the
customer and there is no unfulfilled obligation that could affect
the customer's acceptance of the goods. In the case of oil and
petroleum products, this generally occurs when the product is
physically transferred into a vessel, pipe or other delivery
mechanism.
Revenue from the production of oil, from fields in which the
Group has an interest with other producers, is recognised based on
the Group's working interest and the terms of the relevant
production sharing contracts. Differences between oil lifted and
sold and the Group's share of production are not significant.
Revenues from the sale of oil produced as a by-product of the
evaluation or "testing" phase of a well are offset against the cost
of the intangible asset that is being created. This can be seen by
reference to Note 11.
g) Non-current assets
Goodwill
Goodwill is measured as described in Business Combinations.
Goodwill on acquisitions of subsidiaries is included in intangible
assets. Goodwill is not amortised but it is tested for impairment
annually, or more frequently if events or changes in circumstances
indicate that it might be impaired and is carried at cost less
accumulated impairments.
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 units or groups of units are identified at the
lowest level at which goodwill is monitored for internal management
purposes, being the operating segments (Note 5).
Intangible Exploration & Evaluation Assets
The Group accounts for exploration and evaluation costs in
accordance with the requirements of IFRS 6 Exploration for and
Evaluation of Mineral Resources as follows:
-- Pre-licence costs (costs incurred prior to obtaining the
legal rights to explore an area) are expensed immediately to the
Income Statement
-- Exploration licence and leasehold land and property
acquisition costs are capitalised in intangible assets.
-- Licence costs paid in connection with a right to explore in
an existing exploration area are capitalised and amortised over the
term of the permit.
-- Costs directly associated with an exploration well are
capitalised as exploration and evaluation intangible assets until
the drilling of the well is complete and the results have been
evaluated. These costs include directly attributable employee
remuneration, materials and consumables, drilling (including coring
and sampling), evaluation of technical feasibility and commercial
viability (including appraisal drilling and production
testing).
-- Revenues generated from the sale of hydrocarbons during this
phase are offset against the cost of the intangible asset.
Exploration and evaluation assets are assessed for impairment at
each reporting date, before reclassification and whenever facts and
circumstances suggest that they may be impaired . If no future
activity is planned, the licence has been relinquished or has
expired, or where development is likely to proceed but there are
indications that the exploration and evaluation asset costs are
unlikely to be recovered in full either by development or through
sale, the carrying value of the asset is written off to the Income
Statement.
Property, Plant and Equipment - Oil & Gas Properties
Oil & gas properties and other property, plant and equipment
are stated at cost, less accumulated depreciation and accumulated
impairment losses.
The initial cost of an asset comprises its purchase price or
construction cost, any costs directly attributable to bringing the
asset into operation, the initial estimate of the decommissioning
obligation and, for qualifying assets (where relevant), borrowing
costs. The purchase price or construction cost is the aggregate
amount paid and the fair value of any other consideration given to
acquire the asset. The capitalised value of any associated finance
lease is also included within property, plant and equipment.
Oil & gas properties are depreciated/amortised on a
unit-of-production basis over the total proved developed and
undeveloped reserves of the field concerned. The unit-of-production
rate calculation for the depreciation/amortisation of field
development costs takes into account expenditures incurred to date,
together with sanctioned future development expenditure.
The Group's interests in oil & gas properties are assessed
for indication so impairment including events or changes in
circumstances which indicate that the carrying value of an asset
may not be recoverable. Any impairment in value is charged to the
Income Statement.
Other Property, Plant and Equipment
Other property, plant and equipment is stated at cost to the
Group less accumulated depreciation. These assets are generally
depreciated on a straight-line basis over their estimated useful
lives, which is between 2 and 10 years depending on the type of
asset.
Decommissioning
A provision for decommissioning is recognised where a liability
for the removal of production facilities or site restoration
exists. A corresponding asset is included in the appropriate
category of the Group's non-current assets (intangible exploration
and evaluation assets and property, plant and equipment) depending
on the underlying accounting treatment for the operations or asset
leading to the decommissioning provision. The asset is assessed for
impairment and depleted as necessary.
h) Financial Instruments
Financial Assets
Financial assets are divided into the following categories:
loans and receivables and available-for-sale financial assets.
Financial assets are assigned to the different categories by
management on initial recognition, depending on the purpose for
which they were acquired, and are recognised when the Group becomes
party to contractual arrangements. Both loans and receivables and
available for sale financial assets are initially recorded at fair
value.
Loans and receivables are non-derivative financial assets with
fixed or determinable payments that are not quoted in an active
market. Trade receivables, most other receivables and cash and cash
equivalents fall into this category of financial assets. Loans and
receivables are measured subsequent to initial recognition at
amortised cost using the effective interest method, less provision
for impairment. Any change in their value through impairment or
reversal of impairment is recognised in the income statement.
Cash and cash equivalents comprise cash on hand and short term
deposits. Any interest earned is classified as interest income
within finance income.
A financial asset is derecognised only where the contractual
rights to the cash flows from the asset expire or the financial
asset is transferred, and that transfer qualifies for
derecognition. A financial asset is transferred if the contractual
rights to receive the cash flows of the asset have been transferred
or the Group retains the contractual rights to receive the cash
flows of the asset but assumes a contractual obligation to pay the
cash flows to one or more recipients.
A financial asset that is transferred qualifies for
derecognition if the Group transfers substantially all the risks
and rewards of ownership of the asset, or if the Group neither
retains nor transfers substantially all the risks and rewards of
ownership but does transfer control of that asset.
Financial Liabilities
Financial liabilities are obligations to pay cash or other
financial assets and are recognised when the Group becomes a party
to the contractual provisions of the instrument.
All financial liabilities initially recognised at fair value
less transaction costs and thereafter carried at amortised cost
using the effective interest method, with interest-related charges
recognised as an expense in finance cost in the income statement. A
financial liability is derecognised only when the obligation is
extinguished, that is, when the obligation is discharged or
cancelled or expires.
Derivative Financial Instruments
Derivative instruments are recorded at cost and adjust for their
market value as applicable. They are assessed for any equity and
debt component which is subsequently accounted for in accordance
with IFRS's.
Impairment of Financial Assets
At the end of each reporting period, a provision is made if
there is sufficient evidence that a financial asset or group of
financial assets has been impaired. Provision against trade
receivables is made when there is objective evidence that the Group
will not be able to collect all amounts due to it in accordance
with the original terms of those receivables. The amount of the
write-down is determined as the difference between the asset's
carrying amount and the present value of estimated future cash
flows.
i) Inventories
Inventories are stated at the lower of cost and net realisable
value. The cost of materials is the purchase cost, determined on
first-in, first-out basis. The cost of crude oil and refined
products is the purchase cost, the cost of refining, including the
appropriate proportion of depreciation, depletion and amortisation
and overheads based on normal operating capacity, determined on a
weighted average basis. The net realisable value of crude oil and
refined products is based on the estimated selling price in the
ordinary course of business, less the estimated costs of completion
and the estimated costs necessary to make the sale.
j) Taxation
The tax charge includes both current and deferred tax.
Current tax assets and liabilities are measured at the amount
expected to be paid to or received from the tax authorities,
calculated using tax rates that have been enacted or substantively
enacted by the balance sheet date. Taxable profits or losses differ
from the reported profit or loss before taxation in the Income
Statement as it excludes items that are taxable or deductible in
different periods, as well as items that are never deductible or
taxable.
Deferred income taxes are calculated using the liability method
on temporary differences. Deferred tax is generally provided on the
difference between the carrying amounts of assets and liabilities
and their tax bases. However, deferred tax is not provided on the
initial recognition of goodwill, nor on the initial recognition of
an asset or liability unless the related transaction is a business
combination or affects tax or accounting profit.
Deferred tax on temporary differences associated with shares in
subsidiaries and joint ventures is not provided if reversal of
these temporary differences can be controlled by the Company and it
is probable that reversal will not occur in the foreseeable future.
In addition, tax losses available to be carried forward as well as
other income tax credits to the Company are assessed for
recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no
discounting. Deferred tax assets are recognised to the extent that
it is probable that the underlying deductible temporary differences
will be able to be offset against future taxable income. Deferred
tax assets and liabilities are calculated at tax rates that are
expected to apply to their respective period of realisation,
provided they are enacted or substantively enacted at the balance
sheet date.
Changes in deferred tax assets or liabilities are recognised as
a component of tax expense in the income statement, except where
they relate to items that are charged or credited directly to
equity in which case the related deferred tax is also charged or
credited directly to equity.
k) Share-Based Payments
The Group operates a number of equity-settled, share-based
compensation plans, under which the entity receives services from
employees as consideration for equity instruments (options) of the
Company. The fair value of the employee services received in
exchange for the grant of the options is recognised as an expense.
The total amount to be expensed is determined by reference to the
fair value of the options granted:
-- Including any market performance conditions;
-- Excluding the impact of any service and non-market
performance vesting conditions (for example, profitability or sales
growth targets, or remaining an employee of the entity over a
specified time period; and
-- Including the impact of any non-vesting conditions (for
example, the requirement for employees to save).
Non-market vesting conditions are included in assumptions about
the number of options that are expected to vest. The total expense
is recognised over the vesting period, which is the period over
which all of the specified vesting conditions are to be
satisfied.
The Group operates a number of equity-settled, share-based
compensation plans, under which the entity receives services from
employees as consideration for equity instruments (options) of the
Company. The fair value of the employee services received in
exchange for the grant of the options is recognised as an expense.
The total amount to be expensed is determined by reference to the
fair value of the options granted:
-- Including any market performance conditions;
-- Excluding the impact of any service and non-market
performance vesting conditions (for example, profitability or sales
growth targets, or remaining an employee of the entity over a
specified time period; and
-- Including the impact of any non-vesting conditions (for
example, the requirement for employees to save).
Non-market vesting conditions are included in assumptions about
the number of options that are expected to vest. The total expense
is recognised over the vesting period, which is the period over
which all of the specified vesting conditions are to be satisfied.
In addition, in some circumstances, employees may provide services
in advance of the grant date, and therefore the grant-date fair
value is estimated for the purposes of recognising the expense
during the period between service commencement period and grant
date.
At the end of each reporting period, the entity revises its
estimates of the number of options that are expected to vest based
on the non-market vesting conditions. It recognises the impact of
the revision to original estimates, if any, in profit or loss, with
a corresponding adjustment to equity.
When the options are exercised, the Company issues new shares.
The proceeds received, net of any directly attributable transaction
costs, are credited to share capital (nominal value) and share
premium.
l) Equity
Equity comprises the following:
-- "Share capital" representing the nominal value of equity shares.
-- "Share premium" representing the excess over nominal value of
the fair value of consideration received for equity shares, net of
expenses of the share issue.
-- "Share based payment reserve" represents the value of equity
benefits provided to employees and directors as part of their
remuneration and provided to consultants and advisors hired by the
Group from time to time as part of the consideration paid.
-- "Retained earnings" represents retained profits and (losses).
m) Foreign currencies
The consolidated financial statements are presented in UK pound
sterling, the functional currency of the Group. Transactions in
other currencies are translated at the exchange rate ruling at the
date of the transaction. Monetary assets and liabilities in foreign
currencies are translated at the rates of exchange ruling at the
balance sheet date. Non-monetary items that are measured at
historical cost in a foreign currency are translated at the
exchange rate at the date of the transaction. Non-monetary items
that are measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value
was determined.
Any exchange differences arising on the settlement of monetary
items or on translating monetary items at rates different from
those at which they were initially recorded are recognised in the
profit or loss in the period in which they arise. Exchange
differences on non-monetary items are recognised in other
comprehensive income to the extent that they relate to a gain or
loss on that non-monetary item taken to other comprehensive income,
otherwise such gains and losses are recognised in the income
statement. The Group and Company's functional currency and
presentational currency is Sterling.
3. Significant accounting judgements, estimates and assumptions
The preparation of the Group's consolidated financial statements
requires management to make judgements, estimates and assumptions
that affect the reported amounts of revenues, expenses during the
reporting period, and reported amounts of assets and liabilities,
and the disclosure of contingent liabilities at the date of the
consolidated financial statements. Estimates and assumptions are
continuously evaluated and are based on management's experience and
other factors, including expectations of future events that are
believed to be reasonable under the circumstances. However, actual
outcomes can differ from these estimates.
In particular, the Group has identified the following areas
where significant judgements, estimates and assumptions are
required, and where if actual results were to differ, this could
materially affect the financial position of financial results
reported in a future period. Further information on each of these
areas and how they impact the various accounting policies are
described below and also in the relevant notes to the financial
statements.
Judgements
(i) Contingencies
Contingent liabilities may arise from the ordinary course of
business in relation to claims against the Group, including legal,
contractor, land access and other claims. By their nature,
contingencies will be resolved only when one or more uncertain
future events occur or fail to occur. The assessment of the
existence, and potential quantum, of contingencies inherently
involves the exercise of significant judgement and the use of
estimates regarding the outcome of future events.
(ii) Estimates and assumptions
The key assumptions concerning the future and other key sources
of estimation uncertainty at the reporting date that have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are described below. The Group based its assumptions and estimates
on parameters available when the consolidated financial statements
were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market change or
circumstances arising beyond the control of the Group. Such changes
are reflected in the assumptions when they occur.
(iii) Hydrocarbon reserve and resource estimates
The Group estimates and reports hydrocarbon reserves in line
with the principles contained in the SPE Petroleum Resources
Management Reporting System (PRMS) framework. As the economic
assumptions used may change and as additional geological
information is obtained during the operation of a field, estimates
of recoverable reserves may change.
The volume of proved and probable oil & gas reserves is an
estimate that affects the unit of production depreciation of
producing oil & gas property, plant and equipment as well as
being a significant estimate affecting decommissioning provisions,
impairment calculations and the valuation of oil & gas
properties in business combinations. Contingent resources affect
the valuation of exploration and exploration assets acquired in
business combinations and the estimation of the recoverable value
of those assets in impairment tests. Proved and probable reserves
and contingent resources are estimated using standard recognised
evaluation techniques. Estimates are reviewed at least annually and
are regularly estimated by independent consultants. Future
development costs are estimated taking into account the level of
development required to produce the reserves by reference to
operators, where applicable, and internal engineers.
The current long-term Brent oil price assumption used in the
estimation of reserves is US$64/bbl. The carrying amount of oil
& gas development and production assets at 30 September 2020 is
shown in Note 12.
(iv) Recoverable value of intangible exploration and evaluation
assets and goodwill
The Group has capitalised intangible exploration and evaluation
assets in accordance with IFRS 6. Significant judgement is required
to determine whether it continues to be appropriate to carry these
costs on the balance sheet and whether the assets have been
impaired.
The key areas in which management have applied judgement include
the Group's intention to proceed with a future work programme for a
prospect or licence, the likelihood of licence and planning
permission renewal, plans for relinquishment, assessment of results
from wells or geological or geophysical studies, and the assessment
of whether the carrying value of the exploration and evaluation
assets is unlikely to be recovered in full from successful
development or by sale.
Goodwill is assessed in each reporting period to determine
whether there is any impairment.
In both the above areas, the assessments include estimates and
assumptions such as long-term oil prices, foreign exchange rates,
discount rates, reserves, production profiles and capital
expenditure, all of which are subject to risk and uncertainty. It
is possible therefore that changes in these estimates may impact
the recoverable values of goodwill and exploration and evaluation
assets.
Details of the Group's intangible exploration and evaluation
assets and goodwill are disclosed in Note 11 to the financial
statements.
(v) Recoverable value of property, plant and equipment
Management reviews the Group's reported property, plant and
equipment each reporting period to determine whether any indication
of impairment exists. Where an indicator of impairment exists, a
formal estimate of the recoverable amount is made, which requires
the use of key assumptions and judgements. such as long-term oil
prices, foreign exchange rates, discount rates, reserves,
production profiles and capital expenditure, all of which are
subject to risk and uncertainty.
Details of the Group's property, plant and equipment are
disclosed in Note 12 to the financial statements.
(vi) Decommissioning costs
The estimated cost of decommissioning at the end of the
producing lives of fields is periodically reviewed and is based on
forecast prices and technology at the balance sheet date. Provision
is made for the estimated cost using a discounted cash flow method
and a risk free rate of return.
Details of the Group's decommissioning provisions are disclosed
in Note 20 to the financial statements
(vii) Deferred tax asset recognition
Deferred tax assets are recognised for unused tax losses to the
extent that it is probable that taxable profit will be available
against which the losses can be utilised. Significant management
judgement is required to determine the amount of deferred tax
assets that can be recognised, based upon the likely timing and the
level of future taxable profits together with future tax planning
strategies.
Estimates of future taxable profits are based on cash flows
expected to be generated from internal estimates of projected
production and costs.
Details of the Group's deferred tax assets, including those not
recognised due to uncertainty regarding the future utilisation, are
disclosed in Note 9 to the financial statements.
4. Business Combinations and acquisition of non-controlling interests
During the reporting period there were no business combinations
or acquisition of non-controlling interests.
2019 Business Combinations:
Acquisition of the Magellan Petroleum (UK) Investment Holdings
Limited
On 11 September 2019 through UK Oil & Gas Plc, the Group
announced the completion of the acquisition of the Magellan
Petroleum (UK) Investment Holdings Limited ("Magellan"), for a
total consideration of GBP12,000,000, comprising GBP7,000,000 in
UKOG ordinary shares and GBP5,000,000 in cash. GBP8,000,000 was
paid at the acquisition date, with GBP3,000,000 deferred until 31
December 2019 and GBP1,000,000 deferred until 31 March 2020.
The acquisition increased the Group's direct interest in the
Horse Hill oil field, held through the PEDL137 and PEDL246
licences, from 50.635% to 85.635%. Following acquisition, Magellan
was re-named "UKOG (137/246) Holdings Ltd".
The Company issued 275,988,960 shares as initial consideration.
The fair value of the shares is calculated with reference to the
quoted price of the shares of the Company at the date of
acquisition, which was 1.087p per share. Transaction costs of
GBP217,000 were expensed and are included in administrative
expenses. The attributable costs of the issuance of the shares have
been charged directly to equity as a reduction in the share
premium.
The fair values of the identifiable assets and liabilities of
Magellan arising on the day of the business combination are as
follows:
Fair Value recognised
on acquisition
--------------------------------------------------- -----------------------
GBP'000
Assets
Intangible Assets: Exploration
Costs 840
Trade & other receivables 32
Cash 0
----------------------
872
----------------------
Liabilities
Trade & other payables (25)
Net identifiable assets acquired
at fair value 847
Total consideration / acquisition
cost 12,000
----------------------------------------------------- ----------------------
Excess value allocated to
value of the Licences 11,153
----------------------------------------------------- ----------------------
Purchase consideration
Cash paid 5,000
Shares issued 3,000
Deferred consideration liability 4,000
----------------------
Total consideration 12,000
----------------------
Analysis of cash flows on acquisition
Payment on acquisition of a subsidiary (5,000)
Net cash acquired on acquisition 6
Transaction costs of the acquisition (included in
cash flows from operating activities) (217)
Net cash flow on acquisition (5,211)
----------------------
Deferred consideration
As part of the purchase agreement with the previous owner of
Magellan, deferred consideration of GBP4,000,000 was agreed. This
has been paid in UKOG shares with 331,125,828 shares issued at
0.906p each (GBP3,000,000) for settlement on 31 December 2019 and
with 255,102,041 shares issued at 0.392 pence each (GBP1,000,000)
for settlement on 31 March 2020
Acquisition of Horse Hill Developments Ltd ("HHDL")
Acquisition of a 6% interest in Horse Hill Developments Ltd
On 21 February 2019, through UK Oil & Gas Plc, the Group
acquired an additional 6% interest in Horse Hill Developments Ltd,
increasing its ownership interest to 77.9%. Equity consideration of
GBP2,100,000 was paid to the non-controlling shareholders, through
the issuance of 129,629,630 UKOG shares at 1.62p per share. The
carrying value of the net assets of Horse Hill Developments Ltd
(excluding goodwill on the original acquisition) was GBP31,000.
Following is a schedule of additional interest acquired in Horse
Hill Developments Ltd:
GBP'000
--------
Equity consideration paid to non-controlling shareholders 2,100
Loan balances novated on acquisition (784)
Additional cash consideration paid to Gunsynd PLC
in relation to prior acquisition 60
Carrying value of the additional interest in Horse
Hill Developments Ltd (538)
--------
Difference recognised in retained earnings 838
--------
5. Segment Reporting
All of the Group's assets and operations are located in the
United Kingdom. For management purposes, the Group is organised
into business units based on the main types of activities and has
three reportable segments, as follows:
-- Oil exploration and production: includes producing business activities
-- Oil exploration and evaluation: includes non-producing activities.
-- Head Office, corporate and administrative, including parent company activities.
The Board of Directors monitors the operating results of its
business units separately for the purpose of making decisions about
resource allocation and performance assessment. Segment performance
is evaluated based on operating profit or loss and is measured
consistently with operating profit or loss in the consolidated
financial statements. However, the Group's financing (including
finance costs and finance income) and income taxes are managed on a
group basis and are not allocated to operating segments.
The accounting policies used by the Group in reporting segments
internally are the same as those used in the financial
statements.
Subject to further acquisitions and/or disposals, the Group
expects to further review its segmental information during the
forthcoming financial year, as it begins to see the full impact of
its acquisitions and/or disposals.
Group Oil exploration Corporate
Oil production & evaluation & Administrative Consolidated
Year ended 30 September GBP'000 GBP'000 GBP'000 GBP'000
2020
---------------------------- --------------- ---------------- ------------------ -------------
Revenue
External Customers 908 - - 908
Total revenue 908 - - 908
---------------------------- --------------- ---------------- ------------------ -------------
Results
Depreciation, Depletion
& Amortisation (756) (573) (38) (1,367)
Exploration and Production
Write offs & Impairment (10,652) (6,598) - (17,250)
Profit/(loss) before
& after taxation (17,870) (689) (2,378) (20,937)
---------------------------- --------------- ---------------- ------------------ -------------
Segment assets 10,011 4,641 25,502 40,154
---------------------------- --------------- ---------------- ------------------ -------------
Segment liabilities (3,788) (890) (1,418) (6,096)
---------------------------- --------------- ---------------- ------------------ -------------
Other disclosures:
Goodwill on acquisition - - - -
Capital expenditure
(1) 1,770 7,360 - 9,130
---------------------------- --------------- ---------------- ------------------ -------------
(1) Capital expenditure consists of capitalised exploration
expenditure, development expenditure, additions to oil & gas
properties and to other intangible assets including expenditure on
assets from the acquisition of subsidiaries.
Group Oil exploration Corporate
Oil production & evaluation & Administrative Consolidated
Year ended 30 September GBP'000 GBP'000 GBP'000 GBP'000
2019
------------------------- --------------- ---------------- ------------------ -------------
Revenue
External Customers 213 - - 213
Total revenue 213 - - 213
------------------------- --------------- ---------------- ------------------ -------------
Results
Depreciation, Depletion
& Amortisation (17) (200) (8) (225)
Exploration Write
offs & Impairment - (2) - (2)
Profit/(loss) before
& after taxation 21 (602) (4,813) (5,394)
------------------------- --------------- ---------------- ------------------ -------------
Segment assets 310 45,603 8,807 54,720
------------------------- --------------- ---------------- ------------------ -------------
Segment liabilities (101) (9,415) (4,410) (13,926)
------------------------- --------------- ---------------- ------------------ -------------
Other disclosures:
Goodwill on acquisition - 17,443 - 17,443
Capital expenditure
(1) - 3,253 - 3,253
------------------------- --------------- ---------------- ------------------ -------------
(1) Capital expenditure consists of capitalised exploration
expenditure, development expenditure, additions to oil & gas
properties and to other intangible assets including expenditure on
assets from the acquisition of subsidiaries.
6. Operating Loss
2020 2019
Group GBP'000 GBP'000
----------------------------------------- -------- --------
Operating (loss) is stated after
charging:
- Directors' remuneration - fees
& salaries 515 855
- Employee Benefit Trust charge 7 25
- Auditors' remuneration
Audit-related assurance services 56 43
Other compliance services - -
- Depletion of oil & gas properties 743 15
-------------------------------------------- -------- --------
7. Directors and Employees
The Company employed the services of an average of 13 Employees
in the year (2019: 11), of which an average of 4 (2019: 4) were
executive and non-executive Directors. Remuneration in respect of
these employees was:
2020 2019
Group GBP'000 GBP'000
------------------------------------------------ -------- --------
Employment costs, including Directors,
during the year:
Wages and salaries 1,423 1,401
Social security costs 179 180
Employee pension costs 11 7
Consultancy fees - 200
Benefits in kind 6 -
Share based payments - 693
-------- --------
1,619 2,481
-------- --------
Average number of persons, including executive
Directors employed No. No.
Administration 7 7
Operations 6 4
13 11
-------- --------
Directors' remuneration GBP'000 GBP'000
-------- --------
Emoluments 519 1,086
2020 2020
GBP'000 GBP'000
-------- --------
Stephen Sanderson 301 766
Kiran Morzaria 115 153
Allen Howard 54 89
Nicholas Mardon Taylor 49 78
Total Directors Emoluments 519 1,086
-------- --------
Fees and salaries Bonuses Pension Benefits in Kind Share based Total
payments (*)
2020 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
S Sanderson 297 - 1 3 - 301
K Morzaria 115 - - - - 115
A Howard 54 - - - - 54
N Mardon Taylor 49 - - - - 49
515 - 1 3 - 519
------------------ -------- -------- ----------------- -------------- --------
Fees and salaries Bonuses Pension Benefits in Kind Share based Total
payments (*)
2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
S Sanderson 313 310 1 142 766
K Morzaria 116 - - - 37 153
A Howard 60 - - - 29 89
N Mardon Taylor 55 - - - 23 78
545 310 1 - 231 1,086
------------------ -------- -------- ----------------- -------------- --------
* Share based payments are non-cash remuneration by way of the
issue of share options in the company.
8. Finance Costs
2020 2019
GBP'000 GBP'000
-------------------------------------- -------- --------
Loan interest due to non-controlling
interests 111 258
Convertible loan note fees 175 312
Unwind discount on decommissioning
provision 23 37
----------------------------------------- -------- --------
Finance Costs 309 607
----------------------------------------- -------- --------
9. Income Tax
There is no tax credit on the loss for the current or prior
year. The tax assessed for the year differs from the standard rate
of corporation tax in the UK as follows:
2020 2019
GBP'000 GBP'000
------------------------------------- --------- --------
Loss for the year before tax (19,041) (5,394)
Tax rate 40% (30% for ring
fence activities plus 10% ring
fence supplement) 40% 19%
---------------------------------------- --------- --------
Expected tax credit (7,616) (1,025)
Tax adjustment for non-deductible
expenditure 388 154
Tax impact of capital allowances (10) -
Impact of losses taxed at different
rates 576 -
Tax impact of losses carried
forward 6584 -
Future income tax benefit not
brought to account 78 871
---------------------------------------- --------- --------
Actual tax expense - -
---------------------------------------- --------- --------
The Group estimated carried forward tax losses are GBP6,529,000.
None of which are recognised as a deferred tax asset.
10. Earnings per Share
The calculation of the basic loss per share is calculated by
dividing the consolidated loss attributable to the equity holders
of the Company by the weighted average number of ordinary shares in
issue during the year.
2020 2019
Group GBP'000 GBP'000
------------------------------------- -------------- --------------
(Loss) attributable to ordinary
shareholders (20,937) (5,394)
-------------------------------------- -------------- --------------
Number Number
------------------------------------- -------------- --------------
Weighted average number of ordinary
shares for
calculating basic loss per share 8,577,532,755 5,857,965,158
-------------------------------------- -------------- --------------
Pence Pence
------------------------------------- -------------- --------------
Basic and diluted loss per share (0.24) (0.09)
-------------------------------------- -------------- --------------
As inclusion of the potential ordinary shares would result in a
decrease in the earnings per share they are considered to be
anti-dilutive, as such, a diluted earnings per share is not
included. The potential amount of dilutive shares is 351,931,372,
which represents the outstanding options and warrants.
11. Intangible assets
Group Company
Exploration Decommissioning Goodwill Total Exploration
& evaluation Asset & evaluation
costs costs
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ -------------- ---------------- --------- ---------- --------------
Cost & Net Book
Value
As at 1 October
2018 22,644 362 6,290 29,296 1,400
Acquired through
Business Combinations
(Note 4) 841 - 11,153 11,994 -
Additions 6,150 7 - 6,157 901
Revenues from
sale of by-product (2,411) - - (2,411) -
Exploration Write - - - - -
offs
Amortisation - (13) - (13) -
------------------------ -------------- ---------------- --------- ---------- --------------
As at 30 September
2019 27,224 355 17,443 45,021 2,344
------------------------ -------------- ---------------- --------- ---------- --------------
Reclassification
(Note 4) 17,443 - (17,443) - -
Additions 9,116 596 - 9,712 601
Revenues from
sale of by-product (1,755) - - (1,755) -
Transfers (14,869) (173) (15,042) -
Exploration Write
offs & (7,899) (494) - (8,392) (1,302)
Amortisation - - - - -
------------------------ -------------- ---------------- --------- ---------- --------------
As at 30 September
2020 29,259 285 - 29,544 1,643
------------------------ -------------- ---------------- --------- ---------- --------------
Revenues from the sale of hydrocarbons produced as a by-product
of testing and evaluation activities have been offset against the
costs of the intangible asset. These totalled GBP1,755,000 in the
year (2019: GBP2,411,000).
Directors have assessed the fair value of the exploration &
evaluation assets as at 30 September 2020. In March 2020 the first
Horse Hill well was put into production and as a result the
carrying value this well of GBP14.86 million was transferred from
exploration & evaluation assets to oil & gas
Properties.
An impairment review was carried out on the exploration &
evaluation assets. As a result the remaining intangible assets
associated with the first Horse Hill well and a sidetrack of the
second Horse Hill well were fully impaired, the latter being
impaired as it is currently planned to be used as a water injector
for the first Horse Hill well and forms part of the net present
value of the asset. During the period the Group also relinquished
PEDL143, therefore the exploration and evaluation assets associated
with this were also impaired.
As a result of the above there was an impairment charge of
GBP7.89 million during the period.
Exploration and evaluation activity involves the search for
hydrocarbon resources, the determination of technical feasibility
and the assessment of commercial viability of an identified
resource. The additions during the year reflect the associated
exploration and evaluation activities.
At this point the Company is still assessing the potential of
the remaining assets and will continue to develop and evaluate
these assets in the coming year. Since their acquisition dates
there has been no further material changes to the Licence areas.
The directors therefore consider that no further impairment is
required at 30 September 2020, other than detailed above.
12. Oil & Gas Properties
Decommissioning Property,
Asset plant
Oil & gas &
properties equipment Total Total
2020 2020 2020 2020 2019
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ------------ ---------------- ----------- --------- --------
Cost
As at 1 October 1,699 - 435 2,134 2,006
Transfers 14,869 173 - 15,042
Reclassifications - - - - -
Additions - 20 1,746 1,766 128
------------------------ ------------ --------
As at 30 September 16,568 193 2,180 18,941 2,134
------------------------ ------------ ---------------- ----------- --------- --------
Depletion & impairment
As at 1 October (265) - (243) (508) (297)
Depletion charge (743) (23) (84) (850) (210)
Impairment (9,350) - - (9,350) -
As at 30 September (10,358) (23) (328) (10,709) (507)
------------------------ ------------ ---------------- ----------- --------- --------
Carrying value
As at 30 September 6,210 170 1,852 8,238 1,709
------------------------ ------------ ---------------- ----------- --------- --------
Impairment Review
The Directors have carried out an impairment review as at 30
September 2020. The Directors determined that the net present value
of the HH-1 well was GBP4.78 million and therefore determined that
HH-1 should be impaired by GBP9.35 million. The net present value
utilised an internally generated depletion curve that was
independently reviewed. Costs we based on current costs less any
anticipated savings. A long-term Brent oil price of US$64/bbl. was
used, with a discount rate of 8.9% being the weighted average costs
of capital of Horse Hill Developments Ltd the holding company of
HH-1. Based on current production at Horndean no impairment was
deemed necessary.
Property, plant
&
equipment
Company GBP'000
------------------------ ----------------
Cost
As at 1 October 116
Reclassifications
Additions 1,699
--------------------------- ----------------
As at 30 September 1,815
--------------------------- ----------------
Depletion & impairment
As at 1 October (8)
Depletion charge -
------------------------ ----------------
As at 30 September (34)
--------------------------- ----------------
Carrying value
As at 30 September 1,773
--------------------------- ----------------
13. Investment in Subsidiaries
Company 2020 2019
GBP'000 GBP'000
-------------------------- -------- --------
Cost and net book amount
At 1 October 26,206 12,785
Additions in the year - 13,421
Impairment (4,800) -
-------------------------- -------- --------
At 30 September 21,406 26,206
----------------------------- -------- --------
The Directors carried out and impairment review as at the 30
September 2020 of the Company's Investment in its subsidiaries. As
a result the Directors determined to impair its investment in Horse
Hill Developments Ltd by GBP4.8 million.
The Company holds more than 50 per cent of the share capital of
the following companies as at 30 September 2020:
Country Proportion Functional Nature of
Company of Registration held Currency business
UKOG (GB) Limited UK 100% GBGBP Oil production
UKOG Solent Limited UK 100% GBGBP Oil exploration
UKOG Weald Limited UK 100% GBGBP Oil exploration
UKOG (234) Limited UK 100% GBGBP Oil exploration
Horse Hill Developments
Ltd UK 77.9% GBGBP Oil exploration
UKOG (137/246) Holdings
Ltd UK 100% GBGBP Holding Company
UKOG (Turkey) Ltd UK 100% GBGBP Oil exploration
UK Oil & Gas Investments
Limited UK 100% GBGBP Dormant
All subsidiary undertakings are included in the consolidation.
The proportion of the voting rights in the subsidiary undertaking
held directly by the parent company do not differ from the
proportion of the ordinary shares held. The following companies are
taking an exception from the audit of the financial statements as
per S479A of the Companies Act; UKOG (GB) Limited (04050227), UKOG
Solent Limited (05000092), UKOG Weald Limited (04991234), UKOG
(234) Ltd (07055133), UKOG (137/246) Holdings Ltd (09010542).
14. Investment in Associate
Group and Company 2020 2019
GBP'000 GBP'000
------------------------------------------- --------- --------
Carrying Value as at 1 October - 5,003
Net equity additions at cost - 3,371
Share of associates loss for the
year - (419)
Transferred to investment in subsidiaries - (7,955)
-------------------------------------------- -------- --------
Carrying Value as at 30 September - -
-------------------------------------------- -------- --------
On 25 September 2019, the Company completed the acquisition of a
further 22% interest in Horse Hill Developments Ltd for a total
consideration of GBP6,600,000 (cash GBP425,000 and UKOG share
issues GBP6,175,000) and net loan acquisitions of GBP3,229,000.
This increase resulted in increasing the Company's holding to 77.9%
and reclassified the investment as a subsidiary. See Note 5 -
Business Combinations for further details
15. Inventory
2020 2019
Group GBP'000 GBP'000
------------------------- -------- --------
Inventories - Crude Oil 1 1
Total 1 1
-------------------------- -------- --------
16. Trade and Other Receivables
Group Company
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- -------- --------
Trade debtors 19 294 9 4
Other debtors 442 422 356 181
Loans to subsidiary companies - - 26,690 26,974
Prepayments and accrued
income 281 463 182 125
------------------------------- -------- -------- -------- --------
Total 742 1,179 27,236 27,284
------------------------------- -------- -------- -------- --------
The directors consider that the carrying amount of trade and
other receivables approximates to their fair value.
17. Cash and Cash Equivalents
Group Company
2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------- -------- -------- --------
Cash at bank and in hand 1,634 6,892 1,346 6,196
-------------------------- -------- -------- -------- --------
Total 1,634 6,892 1,346 6,916
-------------------------- -------- -------- -------- --------
18. Trade and Other Payables
Group Company
------------------ ------------------
2020 2019 2020 2019
Current trade and other GBP'000 GBP'000 GBP'000 GBP'000
payables
------------------------------ -------- -------- -------- --------
Trade creditors 1,362 637 1,199 63
Other creditors 483 62 49 60
Accruals and deferred income 136 1,327 171 307
Deferred consideration
payable - 4,000 - 4,000
Total 1,981 6,026 1,419 4,430
------------------------------ -------- -------- -------- --------
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value.
19. Borrowings
Group Company
------------------ ------------------
2020 2019 2020 2019
Borrowings GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- -------- -------- -------- --------
Loans payable to Non-Controlling
Interests 3,084 2,973 - -
---------------------------------- -------- -------- -------- --------
Convertible Loan Notes - 4,500 - 4,500
---------------------------------- -------- -------- -------- --------
Total 3,084 7,473 - 4,500
---------------------------------- -------- -------- -------- --------
At 30 September 2020, the outstanding loan balances owed to
HHDL's shareholders were; Alba GBP2.60 million (2019: GBP2.43m),
Doriemus GBP0.59 million (2019: GBP0.55) and UK Oil & Gas Plc
GBP16.60 million (2019: GBP11.67m). The loans are payable on
determination by the Board of HHDL. The loans currently attract an
interest rate of 10% above Bank of England base Rate.
Convertible Loan Financing
In August 2019, the Company entered into a GBP5.5 million loan
agreement (Loan) with Riverfort Global Opportunities PCC Limited
and YA II PN Ltd (Investors). The GBP5.5 million was drawn down on
16 August 2019. The draw downs of the loans attracted total fees of
GBP312,000 in accordance with the terms thereof.
The Loan attracted 0% interest and could at the sole discretion
of the Investors, be converted at the sole discretion of the
Investors into new ordinary shares in the Company. The conversion
price is the lower of either a share price of 130% of the Company's
average daily VWAP of the 5 days prior to the Loan drawdown (Fixed
Conversion Price), or 90% of the Company's lowest daily VWAP during
the 5 days prior to the conversion date (Variable Conversion
Price). The Fixed Conversion Price is 1.3664 pence being the
average daily VWAP for the 5 days preceding the date on which the
full GBP5.5m was drawn down.
The Loan was convertible by the Investors in tranches of not
less than GBP150,000, with a limit of GBP3 million per quarter,
unless otherwise agreed by the Company. The Company could elect to
repay in cash all or part of the Loan prior to term end.
The Loan also included a provision which prevents the Investors,
or any of their affiliates, from holding any net short position
with respect to UKOG's equity and, with full disclosure to UKOG,
restricts the Investors' trades, on any given day, to no more than
15% of the number of UKOG shares traded that day.
At 30 September 2020 the Loan had been fully repaid.
GBP2,675,000 was repaid through the issue of shares (621,406,132
during the period, at an average 0.43 pence per share) and
GBP1,750,000 was paid in cash. Early repayment fees / commissions
of GBP175,000 were also paid.
20. Provisions - Decommissioning
2020 2019
Group GBP'000 GBP'000
-------------------- -------- --------
As at 1 October 427 1,341
Additions 616 59
Release (11) (936)
Unwind discount - (37)
--------------------- -------- --------
As at 30 September 1,031 427
--------------------- -------- --------
The amount provided at 30 September 2020 represents the Group's
share of decommissioning liabilities in respect of the producing
Horndean and Avington fields, and the Broadford Bridge and Horse
Hill drilling sites.
The Company makes full provision for the future cost of
decommissioning oil production facilities and pipelines on a
discounted basis on the installation of those facilities. The
decommissioning provision represents the present value of
decommissioning costs relating to oil & gas properties.
These provisions have been created based on the Company's
internal estimates. Assumptions based on the current economic
environment have been made, which management believes are a
reasonable basis upon which to estimate the future liability. These
estimates are reviewed regularly to take into account any material
changes to the assumptions.
However, actual decommissioning costs will ultimately depend
upon future market prices for the necessary decommissioning works
required that will reflect market conditions at the relevant time.
Furthermore, the timing of decommissioning is likely to depend on
when the fields cease to produce at economically viable rates.
This, in turn, will depend upon future oil & gas prices, which
are inherently uncertain.
21. Share Capital
Number of
ordinary Nominal Total
Ordinary Shares shares Value Value
GBP GBP'000
Issued at 30 September 2018 5,566,654,230 0.0001 557
On 21 January 2019, for acquisition
at 1.44p per share 17,989,326 0.0001 2
On 20 February 2019, for acquisition
at 1.62p per share 129,629,630 0.0001 13
On 27 March 2019, placing for cash
at 1.05p per share 333,333,330 0.0001 33
On 31 May 2019, for acquisition at
1.16p per share 25,951,557 0.0001 3
On 31 May 2019, for acquisition at
1.16p per share 9,731,834 0.0001 1
On 11 September 2019, for acquisition
at 1.81p per share 275,988,960 0.0001 28
For conversion of loan notes (at prices
from 0.98p to 1.07p) 98,288,303 0.0001 9
On 30 September 2019, placing to Employee
Benefits Trust at par 201,000,000 0.0001 20
------------------------------------------- --------------- -------- --------
Issued at 30 September 2019 6,658,567,170 0.0001 666
On 2 December 2019, placing for cash
at 0.85p per share 235,294,117 0.0001 24
On 02 January 2020, for acquisition
at 0.91p per share 331,125,828 0.0001 33
On 01 April 2020, for acquisition
at 0.39p per share 255,102,041 0.0001 25
On 30 April 2020, placing for cash
at 0.20p per share 637,500,000 0.0001 64
On 3 June 2020, placing for cash at
0.20p per share 2,100,000,000 0.0001 210
On 24 June, warrant exercise at 0.20p
per share 129,375,000 0.0001 13
On 08 July 2020, for acquisition at
0.20p per share 131,014,768 0.0001 13
For conversion of loan notes (at prices
from 0.19p to 0.98p) 621,406,132 0.0001 62
Issued at 30 September 2020 11,099,385,057 0.0001 1,110
--------------- -------- --------
Deferred shares
The Company has in existence at 30 September 2020 and at 30
September 2019, 1,158,385,229 deferred shares of 0.001p. These
deferred shares do not carry voting rights.
Total Ordinary and Deferred Shares
The issued share capital as at 30 September 2020 is as
follows:
Number Nominal Value Total Value
of shares GBP GBP'000
Ordinary shares 11,099,385,057 0.0001 1,110
Deferred shares 1,158,385,352,229 0.00001 11,584
------------
12,694
============
22. Share Based Payments
No options were granted during the year (2019: 121.5
million).
As at 30 September 2020 the options
in issue were:
Options in
Exercise price Expiry date issue
30 September
2020
------------------------------------ -------------- -------------
1.15p 24 May 2022 117,000,000
1.6p 12 April 2023 17,500,000
25 September
1.13p 2024 121,500,000
256,000,000
------------------------------------ -------------- -------------
No options were exercised, and no options were cancelled during
the year (2019: 12,000,000 exercised).
45,000,000 options lapsed during the year (2019:
35,000,000).
Warrants
As of 30 September 2020, 40,931,372 warrants were in issue
(2019: nil).
153,638,706 warrants were issued during the year (2019:
30,555,000). No warrants lapsed during the year (2019: nil).
129,375,000 warrants were exercised during the year (2019:
30,555,000 exercised).
Employee Benefit Trust
The Company established on 29 September 2014; an employee
benefit trust called the UK Oil & Gas Employee Benefit Trust
(EBT) to implement the use of the Company's existing share
incentive plan over 10% of the Company's issued share capital from
time to time in as efficient a manner as possible for the
beneficiaries of that plan. The EBT is a discretionary trust for
the benefit of directors, employees and consultants of the Company.
The shares held in the EBT are intended to be used to satisfy
future awards made by the Company's Remuneration Committee under
the share incentive scheme
On 30 September 2019, the Trustees subscribed for 201,000,000
new ordinary shares of 0.01p each in the Company, at par value per
Ordinary Share at an aggregate cost to the Company of GBP20,100,
such new Ordinary Shares representing 3.1% of the existing issued
share capital of the Company.
The EBT did not subscribe to further shares during the year to
30 September 2020. The balance of new ordinary shares held by the
EBT on 30 September 2020 was 250,000,000 (2019: 49,000,000). Awards
of Ordinary Shares to beneficiaries by the EBT will be subject to
appropriate vesting and other performance conditions, in line with
normal market practice, which will be set by the Remuneration
Committee.
23. Share-Based Payments
Details of share options and warrants granted during the year to
Directors, consultants & employees over the ordinary shares are
as follows:
Issued lapsed At 30
At 1 during / exercised September
October the during 2020 Exercise Date from Expiry
2019 year the year price which exercisable date
No. No. No. No. GBP
Share options Million million million million
A Howard 10 10 0.0115 25/05/2017 24/05/2022
A Howard 5 5 0.0113 27/09/2019 25/09/2024
K Morzaria 20 20 0.0115 25/05/2017 24/05/2022
K Morzaria 6.5 6.5 0.0113 27/09/2019 25/09/2024
S Sanderson 25 (25) - 0.0040 13/04/2018 31/12/2019
S Sanderson 25 25 0.0115 25/05/2017 24/05/2022
S Sanderson 25 25 0.0113 27/09/2019 25/09/2024
N Mardon
Taylor 4 4 0.0113 27/09/2019 25/09/2024
120.5 115.5
Consultants 62 62 0.0115 25/05/2017 24/05/2022
Consultants 10 (10) - 0.0040 13/04/2018 31/12/2019
Consultants
& employees 17.5 - 17.5 0.0160 13/04/2018 12/04/2023
Consultants
& employees 81 81 0.0113 27/09/2019 25/09/2024
291 - 276
--------- -------- ------------- -----------
The share price range during the year was GBP0.0016 to GBP0.0115
(2019 - GBP0.0082 to GBP0.0208).
The disclosure of Weighted Average Exercise Prices, and Weighted
Average Contractual Life analysis is not viewed as informative
because of the minimal variation of options currently in issue, and
therefore has accordingly not been disclosed.
For those options granted where IFRS 2 "Share-Based Payment" is
applicable, the fair values were calculated using the Black-Scholes
model. The inputs into the model were as follows:
Risk free Share price Expected Share price
rate volatility life at date of
grant
13 April 2018 (0.4p) 0.8% 128.9% 1.72 years GBP0.015
13 April 2018 (1.6p) 0.9% 128.9% 5 years GBP0.015
27 September 2019
(1.13p) 0.4% 63.13% 5 years GBP0.011
Expected volatility was determined by calculating the historical
volatility of the Company's share price for 12 months prior to the
date of grant. The expected life used in the model has been
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations. The Company recognised total expenses of GBP0
(2019: GBP693,000) relating to equity-settled share-based payment
transactions during the year, and GBP0 (2019: GBP472,000) was
transferred via equity to retained earnings on the exercising or
lapse of options during the year.
24. Financial Instruments and Risk Analysis
Financial Assets by Category
The categories of financial asset, all included initially
measured at fair value and subsequently carried at amortised cost
in the balance sheet and the headings in which they are included
are as follows:
Current assets - Group 2020 2019
GBP'000 GBP'000
----------------------------- -------- --------
Inventory 1 1
Trade and other receivables 742 1,179
Cash and cash equivalents 1,634 6,892
------------------------------ -------- --------
2,377 8,072
----------------------------- -------- --------
Financial Liabilities by Category
The categories of financial liability all included at fair value
and subsequently carried at amortised cost in the balance sheet and
the headings in which they are included are as follows:
Current liabilities - Group 2020 2019
GBP'000 GBP'000
---------------------------- -------- --------
Trade and other payables 1,981 6,025
Borrowings 3,084 7,473
-------- --------
5,065 13,498
-------- --------
The group is exposed to market risk through its use of financial
instruments and specifically to credit risk, and liquidity risk
which result from both its operating and investing activities. The
group's risk management is coordinated at its head office, in close
co-operation with the board of Directors, and focuses on actively
securing the group's short to medium term cash flows by minimising
the exposure to financial markets.
Long term financial investments are managed to generate lasting
returns. The group does not actively engage in the trading of
financial assets for speculative purposes nor does it write
options. The most significant financial risks to which the group is
exposed to are described below.
Interest Rate Sensitivity
The group is not substantially exposed to interest rate
sensitivity, other than in relation to interest bearing bank
accounts. The Group only has borrowings at a fixed coupon rate of
1%+BOE and therefore minimal interest rate risk, as this is deemed
its only material exposure thereto.
Credit Risk Analysis
The group's exposure to credit risk is limited to the carrying
amount of trade receivables and cash at bank. The group
continuously monitors defaults of customers and other
counterparties, identified either individually or by Company, and
incorporates this information into its credit risk controls. Where
available at reasonable cost, external credit ratings and/or
reports on customers and other counterparties are obtained and
used.
The group's policy is to deal only with creditworthy
counterparties. Group management considers that trade receivables
that are not impaired for each of the reporting dates under review
are of good credit quality, including those that are past due. None
of the group's financial assets are secured by collateral or other
credit enhancements. The credit risk for liquid funds and other
short-term financial assets is considered negligible since the
counterparties are reputable banks with high quality external
credit ratings.
Liquidity Risk Analysis
The majority of the Group's liabilities are contractually due
within one year. The loan note due from HHDL to Alba and Doriemus
is payable on determination by the Board of HHDL.
The group's continued future operations depend on the ability to
raise sufficient working capital through the issue of equity share
capital. The Directors are confident that adequate funding will be
forthcoming with which to finance operations. Controls over
expenditure are carefully managed.
Capital Management Policies
The group's capital management objectives are to:
- Ensure the group's ability to continue as a going concern; and
- Provide a return to shareholders
- To provide capital for the purpose of strengthening the Group's risk management capability.
The Group actively and regularly reviews and manages its capital
structure, to ensure an optimal capital structure, and equity
holder returns, taking into consideration the future capital
requirements of the Group and capital efficiency, prevailing and
projected profitability, projected operating cash flows, projected
capital expenditures and projected strategic investment
opportunities. Management regards total equity as capital and
reserves, for capital management purposes.
Commodity Price Risk
The Group is exposed to the risk of fluctuations in prevailing
market commodity prices on the mix of oil & gas products it
produces. The Group's policy is to manage these risks through the
use of contract-based prices with customers.
Commodity Price Sensitivity
The table below summarises the impact on profit before tax for
changes in commodity prices. The analysis is based on the
assumption that the crude oil price moves 10% resulting in a change
of US$ 6.84/bbl (2019: US$ 6.68/bbl), with all other variables held
constant. Reasonably possible movements in commodity prices were
determined based on a review of the last two years' historical
prices and economic forecasters' expectations.
Increase/decrease in crude oil Effect on profit Effect on profit
prices before tax for before tax for
the year ended the year ended
30 September 30 September
2020 2019
Increase/(Decrease) Increase/(Decrease)
--------------------- ---------------------
GBP'000 GBP'000
Increase US$ 6.84 /bbl (2019: US$
6.68/bbl) 98 21
Decrease US$ 6.84 /bbl (2019: US$
6.68/bbl) (98) (21)
--------------------- ---------------------
Currency Risk
The Group has no significant monetary assets or liabilities that
are denominated in a foreign currency. The Group's exposed to
currency risk, with the price of Brent Crude Oil being denominated
in US$. The current exposure is not seen as material, with the
current level of revenue being generated therefrom. The Board will
continue to monitor this risk as the operations and/or revenues
increase.
25. Commitments & Contingent Liabilities
As at 30 September 2020, the Group had the following material
commitments;
Ongoing exploration expenditure is required to maintain title to
the Group's exploration permits. No provision has been made in the
financial statements for these amounts as the expenditure is
expected to be fulfilled in the normal course of the operations of
the Group.
There were no contingent liabilities at 30 September 2020.
26. Events after the Reporting Date
Apart from the those disclosed in the Strategic Report which
forms part of these Annual Report and Accounts, there are no events
to report after the reporting date.
27. Related Party Transactions
Transactions with Related Parties
In February 2019 the UK Oil & Gas Plc engaged Apex
Completions, LLC (Apex) as a consultant to the Company. Allen
Howard, UKOG's Non-Executive Chairman, is a Director of and a
shareholder in Apex and, as a result, the Agreement is considered a
related party transaction. Apex was engaged to help the Company
further develop its understanding of the Portland and Kimmeridge
reservoirs. The Agreement provides for Apex to periodically invoice
the Company for work carried out based upon the time spent by its
personnel. During the year Apex charged consultancy fees of
GBP82,000 (2019 - GBP531,000).
During the year, consultancy fees of GBPnil (2019 - GBP200,000)
were charged to the Company by Matt Cartwright Consulting Limited,
a company of which Mr Matt Cartwright, UKOG's Commercial Director
is the sole director. GBPnil was outstanding at the year-end (2019:
GBPnil).
Remuneration of Key Management Personnel
The remuneration of the directors, and other key management
personnel of the Company, is set out below in aggregate for
each of the categories specified in IAS24 Related Party Disclosures
2020 2019
GBP'000 GBP'000
--------------------------------------------------- ---------- ---------
Short-term employee benefits 1046 1,126
Consultancy fees - 200
Share-based payments - 516
--------------------------------------------------- ---------- ---------
1046 1,842
--------------------------------------------------- ---------- ---------
28. Ultimate Controlling Party
In the opinion of the directors there is no controlling
party.
COMPANY INFORMATION
Company registration number 05299925
Registered office The Broadgate Tower 8th Floor
20 Primrose Street
London
EC2A 2EW
Directors Allen Howard
Stephen Sanderson
Kiran Morzaria
Nicholas Mardon Taylor
Secretary Kiran Morzaria
Auditors PKF Littlejohn LLP
Chartered Accountants
Registered Auditor
15 Westferry Circus, Canary
Wharf
London, E14 4HD
Nominated Adviser WH Ireland Limited
24 Martin Lane
London, EC4R 0DR
Solicitors Hill Dickinson
The Broadgate Tower 8th Floor
20 Primrose Street
London, EC2A 2EW
Registrars Share Registrars Limited
The Courtyard,
17 West Street
Farnham,
Surrey, GU9 7DR
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