NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1.            General information

 

Angus Energy Plc (the "Company") is incorporated and domiciled in the United Kingdom. The address of the registered office is Building 3 Chiswick Park, 566 Chiswick High Road, London, W4 5YA.

 

The principal activity of the Company is that of investment holding. The principal activity of the Group is that of oil and gas extraction for distribution to third parties. The principal activities of the various operating subsidiaries are disclosed in note 13.

 

2.            Presentation of financial statements

 

The financial statements have been presented in Pounds Sterling (£) as this is the currency of the primary economic environment that the group operates in. The amount is rounded to the nearest thousand (£'000), unless otherwise stated.

 

3.            Accounting policies

 

The principal accounting policies applied in the preparation of these financial statements are set out below.

 

3.1          Basis of preparation

 

These financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006;. The financial statements have been prepared on the historical cost basis except for certain assets which are stated at their fair value.

 

3.2          New standards, amendments to and interpretations to published standards not yet effect

 

The Directors have considered those standards and interpretations, which have not been applied in the financial statements but are relevant to the Group's operations, that are in issue but not yet effective and do not consider that they will have a material impact on the future results of the Group.

 

IFRS 9 Phase 2 with amendments that address issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. The amendments are effective for annual periods beginning on or after 1 January 2021, with earlier application permitted.

 

3.3          Going concern

 

The consolidated financial statements have been prepared on a going concern basis. The Group made a loss for the year of £15.598 million which included an unrealized loss of £13.143 million for the derivative instrument resulting in an adjusted loss of £2.455 million (2020: loss of £2.516 million) and recorded a net cash outflow from operating activities of £4.797 million (2020: £1.59 million).

 

The Group meets its day to day working capital requirements through existing cash reserves. At 30 September 2021, the Group had £6.16 million of available cash. During the year, the Group raised gross proceeds of £1.899 million as a result of placing of new ordinary shares. The Group also entered into a £12m debt facility to fund the development of the Saltfleetby gas field.  

 

The COVID-19 pandemic has not had a significant immediate impact on the company's operations. The Oil and Gas industry has been deemed critical and thus we have been allowed to continue operations. The Directors are aware that if the current situation becomes prolonged then this may change. The consolidated financial statements have been prepared on a going concern basis.

 

In response to this extraordinary period, the Directors have taken the prudent decision to introduce cost saving measures where possible to preserve working capital. The Directors have assessed the Group's working capital forecasts for a minimum of 12 months from the date of the approval of these financial statements. In undertaking this assessment, the Directors have reviewed the underlying business risks, and the potential implications these risks would have on the Group's liquidity and its business model over the assessment period. This assessment included a detailed cash flow analysis prepared by the management, and    they also considered several reasonably plausible downside scenarios. The scenarios included potential delays to expected future revenues. In making their overall assessment the Directors took into account the advanced stage of the development of the Saltfleetby gas field and the impact of the derivative instrument if there were delays to first gas. As outlined in note 24 the Group has committed to future cash flows as a result of the derivatives in place which are due even if first gas is delayed.

 

In respect of Balcombe the Directors have considered the likelihood of a successful appeal.

 

Based on the current management's plan, management considered that the working capital from the expected revenue generation and the Saltfleetby Debt Financing are sufficient for the expenditure to date as well as the planned forecast expenditure for the forthcoming twelve months from the date of the approval of this financial statement. As a result of that review the Directors consider that it is appropriate to adopt the going concern basis preparation.

 

As noted above, in the event that the Group is not successful in meeting its timeline for first gas, there would exist a material uncertainty that may cast doubt regarding the Group's ability to continue as a going concern.

 

These financial statements do not include any adjustment that may result from any significant changes in the assumption used.

 

3.4          Basis of consolidation

 

The consolidated financial statements comprise the financial information of the Company and its subsidiaries (the "Group") made up to the end of the reporting period. Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

 

The consolidated financial statements present the results of the Company and its subsidiaries and joint arrangements as if they formed a single entity. Inter-company transactions and balances between group companies are therefore eliminated in full. The financial information of subsidiaries is included in the Group's financial statements from the date that control commences until the date that control ceases.

 

Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group. When necessary, adjustments are made to the financial information of subsidiaries to bring their accounting policies into line with the Group's accounting policies. All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

 

The acquisition of Angus Energy Holding Limited by the Company, by way of share exchange, for the year ended 30 September 2016 was that of a re-organisation of entities which were under common control. As such, that combination also falls outside the scope of IFRS 3 'Business Combinations' (Revised 2008). The Directors have, therefore, decided that it is appropriate to reflect the combination using the merger basis of accounting in order to give a true and fair view. No fair value adjustments were made as a result of that combination.

 

3.5          Property, plant and equipment

 

All fixed assets are initially recorded at cost. Depreciation is calculated so as to write off the cost of an asset, less its estimated residual value, over the useful economic life of that asset as follows:

 

Fixtures and fittings              -      25% straight line

Plant and machinery            -      20% straight line

Motor vehicles                      -      20% straight line

 

3.6          Oil and natural gas exploration and evaluation (E&E) expenditure

 

Oil and natural gas exploration and evaluation expenditure is accounted for using the successful efforts method of accounting.

(a)           Licence and property acquisition costs

 

Licence and property leasehold acquisition costs are capitalised within intangible fixed assets and amortised on a straight-line basis over the estimated period of exploration. Upon determination of economically recoverable reserves amortisation ceases and the remaining costs are aggregated with exploration expenditure and held on a field-by-field basis as proved properties awaiting determination within intangible fixed assets. When development is sanctioned, the relevant expenditure is transferred to tangible production assets.

 

(b)           Exploration expenditure

 

Geological and geophysical exploration costs are charged against income as incurred. Costs directly associated with an exploration well are capitalised as an intangible asset until drilling of the well is complete and the results have been evaluated. If hydrocarbons are not found, the exploration expenditure is written off as a dry hole. If hydrocarbons are found, and, subject to further appraisal activity, are likely to be capable of commercial development, the costs continue to be carried as an asset. All such carried costs are subject to regular technical, commercial management review to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off. When proven and probable reserves of oil and gas are determined and development is sanctioned, the relevant expenditure is transferred to tangible production assets.

 

(c)            Development expenditure

 

Expenditure on the construction, installation and completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells, including unsuccessful development or delineation wells, is capitalised within tangible production assets.

 

(d)           Maintenance expenditure

 

Expenditure on major maintenance, refits or repairs is capitalised where it enhances the performance of an asset above its originally assessed standard of performance; replaces an asset or part of an asset which was separately depreciated and which is then written off; or restores the economic benefits of an asset which has been fully depreciated. All other maintenance expenditure is charged to income as incurred.

 

                Treatment of E&E assets at conclusion of appraisal activities

 

Intangible E&E assets related to each exploration licence/prospect are carried forward, until the existence (or otherwise) of commercial reserves has been determined. If commercial reserves have been discovered, the related E&E assets are assessed for impairment on a cost pool basis as set out below, and any impairment loss of the relevant E&E assets is then reclassified as development and production assets.

 

                (e)          Financial instruments

 

Financial assets and financial liabilities are recognised in the Group's statement of financial position when the Group becomes a party to the contractual provisions of the instrument.

 

Loan and receivables

Loans and receivables are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

 

Trade receivables are recognised initially at the transaction price and subsequently measured at amortised cost, less any impairment losses.

 

 

Trade and other payables

 

Trade and other payables are initially measured at fair value, net of transaction costs, and are subsequently measured at amortised cost, where applicable, using the effective interest method, with interest expense recognised on an effective yield basis.

 

Contract Debtor

 

Gains and losses due by Saltfleetby Energy Limited in relation to their 49% share of the Derivative Instrument is recorded in Trade & Receivables as a contract debtor with the debt repayable from gas sales as per the terms in the Joint Venture Agreement.    

 

Borrowing cost

 

Borrowing cost that are directly attributable to the acquisition, development, or production of a qualifying asset, that necessarily takes substantial time to prepare, are capitalized as part of the cost the respective asset. It consists of interest and other cost in connection with the borrowing of the funds. Capitalization commences when activities to prepare the asset are in progress or in future re-development activities and ceases when all activities necessary to prepare the asset are completed. Other borrowing costs are recognized in the statement of profit and loss and other comprehensive income in the period in which they are incurred.

 

Derivative financial instrument

 

The group uses derivative financial instrument, to hedge its commodity price risk, such as commodity swap contracts. The Group has elected not to apply the hedge accounting on this derivative. Derivative financial instruments are recognized at fair value on the date on which the contract is entered into and subsequently measured at fair value. Derivatives are carried as financial asset when the fair value is greater than its initial measurement and financial liabilities when fair value is negative. Any gains or losses arising from the changes in fair value of the derivatives are recognise in the statement of profit and loss and other comprehensive income.

 

As at 30 September 2021, the Group's derivative liabilities amounted to £25.770 million as a result of the hedging agreement entered into with Mercuria Energy Trading SA under a Swap Contract (see Note 24)

 

In the determining the fair values of the financial asset and liabilities, instruments are analysed into Level 1 to 3 as follows:

 

Level 1:     Fair value measurements derive from quoted prices (unadjusted) in active market for identical asset or liabilities.

Level 2:     Fair value measurement derive from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3:     Fair value measurements derive from valuation technique that include inputs for the asset or liability that are not based on observable market data.

 

3.8          Impairment of assets

 

(a)           Financial assets

 

Impairment provisions for current and non-current trade receivables are recognised based on the simplified approach within IFRS 9. During this process the probability of the non-payment of the trade receivables is assessed. This probability is then multiplied by the amount of the expected loss arising from default to determine the lifetime expected credit loss for the trade receivables. For trade receivables, which are reported net, such provisions are recorded in a separate provision account with the loss being recognised within administration costs in the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable, the gross carrying value of the asset is written off against the associated provision.

 

Impairment provisions for receivables from related parties and loans to related parties are recognised based on a forward looking expected credit loss model. The methodology used to determine the amount of the provision is based on whether there has been a significant increase in credit risk since initial recognition of the financial asset. For those for which credit risk has increased significantly, lifetime expected credit losses are recognised, unless further information becomes available contrary to the increased credit risk. For those that are determined to be permanently credit impaired, lifetime expected credit losses are recognised.

 

(b)           Non-financial assets

 

The carrying amounts of the Group's non-financial assets, other than deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For assets that have indefinite lives, the recoverable amount is estimated at each reporting date.

 

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and risk specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (the "cash generating unit").

 

An impairment loss is recognised if the carrying amount of an asset or its cash generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in the profit or loss.

 

3.9          Oil and gas production assets

 

Expenditures related to the construction, installation or completion of infrastructure facilities, such as platforms and pipelines, and the drilling of development wells, including delineation wells, is capitalised within oil and gas production assets. 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 well asset retirement obligation, for qualifying assets, and borrowing costs.

 

Oil and gas production assets are depreciated using a unit of production method.  The cost of producing wells is amortised over total proved and undeveloped oil and gas reserves of the field concerned, except in the case of assets whose useful life is shorter than the lifetime of the field, in which case the straight-line method is applied. Rights and concessions are depleted on the unit-of-production basis over the total proved developed and undeveloped reserves of the relevant area. The unit-of-production rate calculation for the depreciation of field development costs takes into account expenditures incurred to date, together with sanctioned future development expenditure.

 

In accounting for a farm-out arrangement outside the exploration and evaluation phase, the Group:

 

·      Derecognises the proportion of the asset that it has sold to the farmee

·      Recognises the consideration received or receivable from the farmee, which represents the cash received and/or the farmee's obligation to fund the capital expenditure in relation to the interest retained by the farmor

·      Recognises a gain or loss on the transaction for the difference between the net disposal proceeds and the carrying amount of the asset disposed of. A gain is recognised only when the value of the consideration can be determined reliably. If not, then the Group accounts for the consideration received as a reduction in the carrying amount of the underlying assets

·      Tests the retained interests for impairment if the terms of the arrangement indicate that the retained interest may be impaired

 

The consideration receivable on disposal of an item of property, plant and equipment or an intangible asset is recognised initially at its fair value by the Group. However, if payment for the item is deferred, the consideration received is recognised initially at the cash price equivalent. The difference between the nominal amount of the consideration and the cash price equivalent is recognised as interest revenue. Any part of the consideration that is receivable in the form of cash is treated as a financial asset and is accounted for at amortised cost.

3.10        Contingent liabilities and contingent assets

 

A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the Group.  It can also be a present obligation arising from past events that is not recognised because it is not probable that outflow of economic resources will be required, or the amount of obligation cannot be measured reliably.

 

A contingent liability is not recognised but is disclosed in the notes to the accounts.  When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision. A contingent asset is a possible asset that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain events not wholly within the control of the Group. Contingent assets are not recognised but are disclosed in the notes to the accounts when an inflow of economic benefits is probable.  When inflow is virtually certain, an asset is recognised.

 

3.11        Operating lease agreements

 

Rentals applicable to operating leases where substantially all of the benefits and risks of ownership remain with the lessor are charged against profits on a straight line basis over the period of the lease.

 

3.12        Income tax

 

Income tax expense represents the sum of the tax currently payable and deferred tax.

 

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported comprehensive income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are not taxable or tax deductible. The Group's liability for current tax is calculated using tax rates (and tax laws) that have been enacted or substantively enacted in countries where the Group and its subsidiaries operate by the end of the financial period.

 

Deferred income taxes are calculated using the balance sheet method. Deferred tax is generally provided on the temporary 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 Group 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 Group 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. Current and 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 reporting date.

 

Changes in deferred tax assets or liabilities are recognised as a component of tax expense in the Consolidated Statement of Comprehensive Income, 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.

 

3.13        Foreign currencies

 

Assets and liabilities in foreign currencies are translated into sterling at the rates of exchange ruling at the reporting date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of the transaction. Exchange differences are taken into account in arriving at the operating profit or loss.

 

 

 

3.14                        Decommissioning

 

Provision for decommissioning is recognised in full on the installation of oil and gas production facilities. The amount recognised is the present value of the estimated future expenditure determined in accordance with local conditions and requirements. A corresponding tangible fixed asset of an amount equivalent to the provision is also created. This is subsequently depreciated as part of the capital costs of the production and transportation facilities. Any change in the present value of the estimated expenditure is reflected in an adjustment to the provision and fixed asset.

 

3.15        Revenue

 

As described in note 5, the Group's revenue is driven by sale of crude oil, the goods are sold on their own in separate identified contracts with customers. Delivery point of the sale is the point at which Crude oil passes from the delivery tanker to the customers specified storage terminal, which represents the point at which the Group fulfils its single performance obligation to its customer under contracts for the sale of crude oil.  Revenue from the production of oil in which the Group has an interest with other producers is recognised proportionately based on the Group's working interest and the terms of the relevant production sharing contracts.

 

Interest income is accrued on a time basis, by reference to the principal outstanding and at the applicable effective interest rate.

 

3.16        Share-based payments

 

The Group has applied IFRS 2 Share-based Payment for all grants of equity instruments.

 

The Group issues equity-settled share-based payments to its employees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group's estimate of the shares that will eventually vest.

Fair value is measured using the Black Scholes model. 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 behavioral considerations. The inputs to the model include: the share price at the date of grant, exercise price expected volatility, risk free rate of interest.

 

4.            Critical accounting estimates and sources of estimation uncertainty

 

In applying the accounting policies, the directors may at times require to make critical accounting judgements and estimates about the carrying amount of assets and liabilities. These estimates and assumptions, when made, are based on historical experience and other factors that the directors consider are relevant.

 

The key estimates and assumptions concerning the future and other key sources of estimation uncertainty at the end of the financial year, that have significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are reviewed are as stated below.

 

Key accounting judgements

 

(a)           Impairment of non-current asset

 

The Group's non-current assets represent its most significant assets, comprising oil production assets, exploration and evaluation (E&E) assets on its onshore site.

 

Management is required to assess exploration and evaluation (E&E) assets for indicators of impairment and has considered the economic value of individual E&E assets. The carrying amount of the E&E asset are subject to a separate review for indicators of impairment, by reference to the impairment indicators set out in IFRS 6, which is inherently judgmental.

 

 

Processing operations are large, scarce assets requiring significant technical and financial resources to operate. Their value may be sensitive to a range of characteristics unique to each asset and key sources of estimation uncertainty include proved reserve estimates, future cash flow expected to arise from the cash-generating unit and a suitable discount rate.

 

In performing impairment reviews, the Group assesses the recoverable amount of its operating assets principally with reference to the Group's independent competent person's report, estimates of future oil prices, operating costs, capital expenditure necessary to extract those reserves and the discount rate to be applied to such revenues and costs for the purpose of deriving a recoverable value.

 

As detailed in note 11 and 12, the carrying amount of the Group's E&E assets and oil production assets at 30 September 2021 were approximately £13.073million (2020: £8.183 million) and £6.534million (2020: £6.406 million) respectively. Management have not impaired the oil production assets based on oil reserves and future production forecasts.

 

The methods, key assumptions, sensitivity and possible outcomes in relation to the calculation of the estimates are detailed in note 11.

 

(b)           Going concern

 

While there can be no certainty the local authority will grant the planning permission to the fields as described in the Strategic Report and note 11. After making the enquiries, the Directors have a reasonable expectation that the positive outcomes of these decision will be achieved. For this reason, the Group and the Company continue to adopt the going concern basis in preparing the financial statements.

 

As disclosed in note 3.3, the directors consider the Group and the Company to be a going concern while the Group will continue to operate under the management's plan and the Group expects to be able to continue to meet all finance obligations as they fall due for at least next twelve months from the date of approval these financial statements.

 

Key accounting estimates

 

(c)           Decommissioning costs

 

Decommissioning costs will be incurred by the Group at the end of the operating life of some of the Group's facilities and properties. The Group assesses its decommissioning provision at each reporting date. The ultimate decommissioning costs are uncertain and cost estimates can vary in response to many factors, including changes to relevant legal requirements, the emergence of new restoration techniques or experience at other production sites. The expected timing, extent and amount of expenditure may also change - for example, in response to changes in reserves or changes in laws and regulations or their interpretation. Therefore, significant estimates and assumptions are made in determining the provision for decommissioning. As a result, there could be significant adjustments to the provisions established which would affect future financial results.

 

External valuers may be used to assist with the assessment of future decommissioning costs. The involvement of external valuers is determined on a case by case basis, taking into account factors such as the expected gross cost or timing of abandonment, and is approved by the directors. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained.

 

As detailed in note 21, the provision at reporting date represents management's best estimate of the present value of the future decommissioning costs required.

 

 

 

(d) Valuation of derivative liability

 

On 01 June 2021, Angus Energy Weald Basin no. 3 Limited (AWB3) entered into a derivative agreement with Mercuria Energy Trading SA (METS) under a Swap contract as part of the condition of the Loan Facility (see Note 23). The derivative instrument was used to mitigate price risk on the expected future cash flow from the production of Saltfleetby Gas Field. Under the Swap contract, AWB3 will pay METS the floating price while METS will pay AWB3 the fixed price on the sale of gas from the field.

 

The carrying value of the financial instrument approximates their fair value and was valued using Level 2 fair value hierarchy valuation. The fair value has been determined with reference to commodity yield curves, as adjusted for liquidity and trading volumes as at the reporting date supplied by the Group's hedging derivative partner, Mercuria Energy Trading.  Management also assessed the valuation of these swaps using publicly available forward pricing curves.

 

As detailed in note 24, the provision at reporting date represents management's best estimate of the present value of the future decommissioning costs required.

 

5.            Revenue and segment information

         

Currently, the Group's principal revenue is derived from the sale of oil. All revenue arose from continuing operations within the United Kingdom. Therefore, management considers no detail of operating and geographical segments information is to be reported. Nonetheless, the Group's revenue can be classified into the following streams:

 

			2021	2020
			£'000	£'000
Sale of oil			-	68
			=======================================	=======================================

 

All the non-current assets of the Group are located in the United Kingdom. All revenue arising from sale of oil is derived from a single customer.

 

6.            Operating loss

 

Operating loss is stated after charging/(crediting):

	2021	2020
	£'000	£'000
Depreciation of owned assets	7	147
Net loss  on foreign currency translation	-	2
Employee benefit expense	1,078	1,091
Auditor's remuneration
Fees payable to company's auditor in respect to the audit of the Parent Company and consolidated financial statements	45	40
	-----------------------------------------------------------	-----------------------------------------------------------
	45	40
	==================================================	==================================================

 

                Adjusted operating loss

 

                The adjusted operating loss has been arrived at after charging/(crediting):

	2021	2020
	£'000	£'000
Operating loss after tax	15,598	2,516
Derivative financial instrument loss	(13,143)	-
	-----------------------------------------------------------	-----------------------------------------------------------
Adjusted loss after tax	2,455	2,516
	==================================================	==================================================

7.            Finance cost

 

			2021	2020
			£'000	£'000
Interest payable on convertible loan notes			56	25
Loss on revaluation of AFS investment			4	-
Lease costs			1	7
			-----------------------------------------------------------	-----------------------------------------------------------
			61	32
			==================================================	==================================================

 

 

 

 

8.            Employee benefit expense

 

			2021	2020
			£'000	£'000
Wages and salaries			971	981
Social security costs			107	110
			-----------------------------------------------------------	-----------------------------------------------------------
			1,078	1,091
			==================================================	==================================================

 

The directors received salary from the group totaling £494,000 (2020: £450,000)

 

Key managements are considered to be the directors. Details of each director's emoluments are in the directors' remuneration report.

 

	2021	2020
	Number	Number
The average number of employees during the year was:
Director	5	5
Management	8	6
	-----------------------------------------------------------	-----------------------------------------------------------
	13	11
	==================================================	==================================================

 

9.            Taxation on ordinary activities

 

No liability to corporation tax arose for the years ended 30 September 2021 and 2020, as a result of underlying losses brought forward.

 

                Reconciliation of effective tax rate

 

		2021	2020
		£'000	£'000
Loss before tax		(15,598)	(2,516)
Tax at the UK Corporation tax rate of 19% (2020: 19%)		(2,964)	(478)
Expenses not deductible for tax purposes		56	75
Unrecognised deferred tax		2,908	403
		-----------------------------------------------------------	-----------------------------------------------------------
		-	-
		==================================================	==================================================

 

The Group has incurred indefinitely available tax losses of £21,014,268 (2020: £19,678,919) to carry forward against future taxable income of the subsidiaries in which the losses arose and they cannot be used to offset taxable profits elsewhere in the Group. In addition, there is approximately £35,000 (2020: £6,000) of deductible temporary difference in respect of the share-based payment.

 

No deferred tax asset was recognised in respect to these accumulated tax losses as there is insufficient evidence that the amount will be recovered in future years.

 

10.        Property, plant and equipment

 

	Plant and machinery	Motor vehicles	Fixtures and fittings	Total
	£'000	£'000	£'000	£'000
Cost or valuation
At 1 October 2019	21	35	8	64
Additions	2	-	-	2
	---------------------------------------	---------------------------------------	---------------------------------------	---------------------------------------
At 30 September 2020	23	35	8	66
Additions	2	-	-	2
	---------------------------------------	---------------------------------------	---------------------------------------	---------------------------------------
At 30 September 2021	25	35	8	68
	---------------------------------------	---------------------------------------	---------------------------------------	---------------------------------------
Depreciation and impairment
At 1 October 2019	11	31	8	50
Charge for the year	3	2	-	5
	---------------------------------------	---------------------------------------	---------------------------------------	---------------------------------------
At 30 September 2020	14	33	8	55
Charge for the year	3	2	-	5
	---------------------------------------	---------------------------------------	---------------------------------------	---------------------------------------
At 30 September 2021	17	35	8	60
	---------------------------------------	---------------------------------------	---------------------------------------	---------------------------------------
Net book value
At 30 September 2020	9	2	-	11
	=======================================	=======================================	=======================================	=======================================
At 30 September 2021	8	-	-	8
	=======================================	=======================================	=======================================	=======================================

 

Depreciation of property, plant and equipment is included in administrative expenses in the consolidated statement of comprehensive income.

 

 

 

 

 

11.          Oil and gas production assets

 

	Total
	£'000
Cost or valuation
At 1 October 2019	7,373
	---------------------------------------
At 30 September 2020	7,373
Additions	128
	---------------------------------------
At 30 September 2021	7,501
	---------------------------------------
Depreciation and impairment
At 1 October 2019	957
Charge for the year	10
	---------------------------------------
At 30 September 2020	967
	---------------------------------------
At 30 September 2021	967
	---------------------------------------
Net book value
At 30 September 2020	6,406
	=======================================
At 30 September 2021	6,534
	=======================================

 

Depreciation of oil production assets is included in cost of sales in the consolidated statement of comprehensive income. During the year, the Group incurred further development costs of approx. £128 (2020: £nil) at both operating fields.

 

In  June 2021, the Group acquired additional 5% interest in Brockham field for consideration of settlement of all the outstanding amount and contribution towards eventual abandonment cost of £38,400

 

As at 30 September 2021, the Group retained an 80% interest in Lidsey field and 80% in Brockham field and is still the operator of both fields.

 

In assessing whether an impairment is required, the carrying value of the asset or cash generating unit ("CGU") is compared with its recoverable amount. The recoverable amount is determined from value in use calculations based on cash flow projections from revenue and expenditure forecasts covering a 5 year period. Assumptions involved in impairment measurement include estimates of commercial reserves and production volumes, future crude oil prices, discount rates and the level and timing of expenditures, all of which are inherently uncertain. The key assumptions used are as follow:

 

		2021	2020
Discount rate		10%	10%
Crude oil price (per barrels)		$63	$50

 

The growth rate is assumed to be zero and the level of production is constant on the basis the production plant is assumed to be at the most efficient capacity over the period of extraction.

 

Commercial reserves are proven and probable ("2P") oil and gas reserves, calculated on an entitlement basis. Estimates of commercial reserves underpin the calculation of depletion and amortisation on a Unit of Production ("UOP") basis. Estimates of commercial reserves include estimates of the amount of oil and gas in place, assumptions about reservoir performance over the life of the field and assumptions about commercial factors which, in turn, will be affected by the future oil and gas price.

 

Annual estimates of oil and gas reserves are generated internally by the Group with external input from operator profiles and/or a Competent Person. These are reported annually to the Board. The self-certified estimated future production profiles are used in the life of the fields which in turn are used as a basis in the value-in-use calculation.

 

The discount rate is based on the specific circumstances of the Group and its operating segments and is derived from its Weighted Average Cost of Capital ("WACC"), with appropriate adjustments made to reflect the risks specific to the CGU and to determine the pre-tax rate. In considering the discount rates applying to the CGUs, the directors have considered the relative sizes, risks and the inter-dependencies of its CGUs. No reasonably possible change in a key assumption would produce a significant movement in the carrying value of the CGUs and therefore no sensitivity analysis is presented.

 

Furthermore, a sensitivity analysis has been carried out for Brockham and Lidsey oil fields and the results of the analysis can be summarised as follow:

 

·      If the estimated crude oil price had been 10 percentage points lower than the basis assumption, total recoverable amount would be 1% lower.

·      If the estimated discount rate used for the Group's discount cash flow had been one percentage point higher than the starting assumption of 10%, total recoverable amount would be 3% lower.

 

 

 

12.          Exploration and evaluation assets

	Total
	£'000
Cost or valuation
At 1 October 2019	5,878
Additions	2,605
Impairment charge	(300)
	-----------------------------------------------------------
At 1 October 2020	8,183
Additions	4,890
	-----------------------------------------------------------
At 30 September 2021	13,073

 

On 16 October 2020, UKOG Plc, the operator of PEDL 143 Licence (Holmwood/A24 Prospect) in which Angus had an interest of 12.5%, announced that a detailed study examining the viability of drilling the A24 (formerly Holmwood) Portland prospect's center from selected sites outside the Surrey Hills Area of Outstanding Natural Beauty, each over 3 km from the target, concludes that the required long-reach/shallow target-depth wells are neither technically viable or economically feasible. Consequently, UKOG and its partners have now relinquished their interests in the licence. This was a decision supported by the Company and as such the asset was fully impaired in the prior year.

 

In performing impairment review, the Group assessed the economic value of individual exploration and evaluation (E&E) assets and had considered no indication for impairment to these E&E assets. In respect of Balcombe the Directors have considered the likelihood of a successful appeal. Should the appeal be unsuccessful the management will consider further legal options and asses wether an impairment is necessary. See Strategic Review on page 9.

 

                Additional cost related to Exploration assets, which are directly attributable to the qualifying asset that necessarily takes substantial time to prepare, are capitalized as part of the cost of the respective asset and it consist of interest and other cost in connection with the borrowing of the funds. In 2021, total capitalized Interest on Loan amounts to £475,000 (2020: £nil) and total capitalised commitment fee amounts to £360,000 (2020: £nil)

 

 

 

 

 

 

 

 

 

13.          Subsidiaries

         

The details of the subsidiary are as follows:

Name of subsidiary/ place of incorporation	Principal activity	Effective equity interest held by the Group
		2021	2020
Angus Energy Holdings UK Limited	Investment holding company	100%	100%
Angus Energy Weald Basin No.1 Limited	Investment holding company	100%	100%
Angus Energy Weald Basin No.2 Limited	Investment holding company	100%	100%
Angus Energy Weald Basin No.3 Limited*	Oil extraction for distribution to third parties	100%	100%
Angus Energy North America Limited	Dormant company	80%	80%

 

*indirect wholly owned by Angus Energy Weald Basin No.2 Limited (AEWB2).

 

The registered office address of the respective entity as follow:

Registered address	Name of subsidiary
Building 3 Chiswick Park, 566 Chiswick High Road, London, W4 5YA.	Angus Energy Weald Basin No.2 Limited Angus Energy North America Limited
Westpoint 4 Redheughs Rigg, South Gyle Edinburgh, Scotland, EH12 9DQ	Angus Energy Holdings UK Limited Angus Energy Weald Basin No.1 Limited Angus Energy Weald Basin No.3 Limited

 

 

14.          Available for sale financial investments

       

	2021	2020
	£'000	£'000
At 1 October	-	-
Additions	32	-
Loss on revaluation for year	(4)	-
	-----------------------------------------------------------	-----------------------------------------------------------
At 30 September	28	-
	==================================================	==================================================

 

        Financial investment are shares held in Alba Mineral Resources Plc (Alba) consisting of 12,407,910 shares. The shares represents consideration received by Angus for the disposal of Alba's 5% interest in Brockham oilfield.

 

        The changes in the value of these investment have been determined directly by reference to the published price quoted on AIM at reporting date.

 

 

 

 

 

 

15.          Trade and other receivables

 

			2021	2020
			£'000	£'000
Non-Current
Contract debtor - derivative			11,117	-
			-----------------------------------------------------------	-----------------------------------------------------------
			11,117	-
Current
Contract debtor - derivative			1,510	-
Amounts due from farmees			3,073	272
Rent deposit			-	29
VAT recoverable			218	201
Other receivables			331	107
			-----------------------------------------------------------	-----------------------------------------------------------
			5,132	609
			-----------------------------------------------------------	-----------------------------------------------------------
TOTAL			16,249	609
			==================================================	==================================================

 

The carrying amount of trade and other receivables approximates to their fair value.

 

			2021	2020
			£'000	£'000
Trade and other receivables			16,353	872
Less: Impairment allowance			(104)	(263)
			-----------------------------------------------------------	-----------------------------------------------------------
			16,249	609
			==================================================	==================================================

 

The receivables from farmees amounting to £3,073m is recognised in the statement of financial position. It includes £3.240m which represents the 49% share of Saltfleetby Energy Limited's share of due under the £12m Debt Facility (see note 23) and £0.103m impairment for potential uncertainty over recovering additional amounts from farmees. The Group is in discussions to recover the full amount due from farmees.

 

The receivables from Contract Debtors amounting to £12.627m is recognised in the statement of financial position. It represents the 49% share of Saltfleetby Energy Limited on the Derivative Liability as a result of a fair value valuation on the instruments. Details are provided in Note 24.

 

16.          Share capital

 

                Allotted, called up and fully paid:

 

	Issue price In pence	Number of shares	Ordinary share capital	Share premium
Ordinary share of £0.002 each			£'000	£'000
As at 30 September 2019		540,828,007	1,082	21,117
Issue of shares 12 December 2019	0.7264	13,766,520	27	72
Issue of shares 18 February 2020	0.5774	17,319,016	35	65
Issue of shares 5 March 2020	0.6224	32,133,676	64	136
Issue of shares 29 September 2020	0.9	111,111,105	222	778
Less: Issuance costs		-	-	(186)
		=========================================================	==================================================	==================================================
At 30 September 2020		715,158,324	1,430	21,982
Issue of shares 3 November 2020	0.6	9,678,945	20	39
Issue of shares 23 December 2020	0.6	41,664,999	83	167
Issue of shares 27 January 2021	1.0	150,000,000	300	1,200
Issue of shares 8 April 2021	1.0	15,000,000	30	120
Issue of shares 3 June 2021	0.9429	35,000,000	70	245
Less: Issuance of costs		-	-	(148)
		========================================================	==================================================	==================================================
At 30 September 2021		966,502,268	1,933	23,605

 

 

On 3 November 2020, the company issued 9,678,945 shares at 0.6p each. These were loan reduction shares relating to the Riverfort Global Opportunities PCC Limited convertible note described in note 22. As per this conversion there are no outstanding liabilities between the Company and the Noteholders.

 

On 23 December 2020, the company issued 41,664,999 shares at 0.6p each. These were general working capital for the Company's ongoing activities.

 

On 27 January 2021, the company issued 150,000,000 shares at a price 1p. These were used to advance the Company's current assets and for general working capital purpose.

 

On 8 April 2021, the company issued 15,000,000 shares at 1p. These were used to advance the Company's current assets and for general working capital purpose.

 

On 3 June 2021, the company issued 35,000,000 shares at average 0.9429p. There were used in relation to the Loan Facility, as well as commission payable in respect of Funding agreement.

 

As at 30 September 2021 the total issued ordinary shares of the Company were 966,502,268 (2020: 715,158,324)

 

 

 

 

17.          Share-based payments

               

In 2016, the Group implemented an Enterprise Management Incentive Scheme followed by a NED and Consultant Share Option Scheme (The Scheme).

 

At 30 September 2021, the following share options and warrants were outstanding in respect of the Ordinary shares:

 

Exercise price	Outstanding as at 01 Oct 2020	Granted during the year	No. of options surrendered or cancelled during the year	Exercised during the year	Outstanding and exercisable as at 30 September 2021	Final expiry dates
£0.06	17,818,304	-	(967,412)	-	16,850,892	13 Nov 2026
£0.09	1,050,000	-	-	-	1,050,000	13 Nov 2026
£0.068	2,469,914	-	-	-	2,469,914	15 Feb 2022
£0.08	10,650,000	-	(500,000)	-	10,150,000	24 Aug 2028
£0.02	23,900,000	-	-	-	23,900,000	15 Jul 2029
£0.01663	18,025,597	-	-	-	18,025,597	24 Oct 2022
£0.01	15,000,000	-	-	-	15,000,000	17 Apr 2023
£0.009	5,555,555	-	-	-	5,555,555	29 Sep 2023
£0.015	-	26,000,000		-	26,000,000	31 Mar 2031
£0.012		75,000,000			75,000,000	27 January 2023
£0.0135		37,500,000			37,500,000	27 January 2023
£0.015		37,500,000			37,500,000	27 January 2023
£0.01		5,250,000			5,250,000	9 April 2023
£0.012		7,500,000			7,500,000	9 April 2023
£0.0135		3,750,000			3,750,000	9 April 2023
£0.015		3,750,000			3,750,000	9 April 2023
Warrant	41,051,066	170,250,000	-	-	211,301,066
Share options	53,418,304	26,000,000	(1,467,412)	-	77,950,892

 

The weighted average exercise price of share options and warrants was £0.01275 at 30 September 2021 (2020: £0.0334). The weighted average remaining contractual life of options outstanding at the end of the year was 4 years (2020:5 years). The weighted average fair value of share option was £0.0148(2020: £0.0118) each on the grant date. The vesting criteria of the share options are subject to share price growth reaching to the target level. The share options granted during the year had an exercise price of 1.5 pence per share and vest as to 100 per cent., upon the share price being 2 pence or greater. All the vesting conditions were met during the year and the options were fully vested.

 

These fair values were calculated using the Black Scholes warrant pricing model. The inputs into the model were as follows:

 

	Warrant	Warrants	Warrants	Warrants
Stock price	0.90p	0.90p	0.90p	0.90p
Exercise price	0.009p	0.0118p	0.0133p	0.0148p
Interest rate	0.5%	0.5%	0.5%	0.5%
Volatility	30%	30%	30%	30%
Time to maturity	3 years	3 years	3 years	3 years

 

The Group recognised a share-based payment charge of approximately £182,000 (2020: £30,000).

 

No options on warrants were exercised in both reporting year 2020 and 2021. There remain 77,950,892 options and 211,301,066 warrants outstanding and exercisable as at 30 September 2021.

18.          Reserves

 

		2021	2020
		£'000	£'000
Merger reserve		(200)	(200)
		==================================================	==================================================

 

Merger reserve

 

The merger reserve arose on the acquisition of Angus Energy Holdings Limited by the Company.

 

19.          Earnings per share (EPS)

 

Basic EPS amounts are calculated by dividing the profit or loss for the year attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the period

 

Diluted EPS amounts are calculated by dividing the profit or loss for the year attributable to equity holders of the Group by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

 

The earnings per share information based upon the 966,502,268 ordinary shares are as follows:

 

		2021	2020
		£'000	£'000
Net loss attributable to equity holders of the parent company		(15,598)	(2,516)
		======================================================	=======================================================
Weighted average number of basic ordinary shares		875,710,640	580,889,428
		======================================================	=======================================================
Basic EPS (in pence)		(1.78)	(0.43)
		======================================================	=======================================================

 

The diluted loss per share was not applicable as there were no dilutive potential ordinary shares outstanding at the end of the reporting period.

 

 

 

 

20.          Trade and other payables

 

			2021	2020
			£'000	£'000
Trade payables			1,068	1,168
Convertible loan note			-	58
Other taxation			-	170
VAT payable			22	-
Lease liability			-	24
Accruals			231	60
Interest payable - loan			364	-
Other payables			289	8
			-----------------------------------------------------------	-----------------------------------------------------------
			1,974	1,488
			==================================================	==================================================

 

Due after more than one year			2021	2020
			£'000	£'000
Convertible loan note			1,319	1,319
Lease liabilities			12	11
			-----------------------------------------------------------	-----------------------------------------------------------
			1,331	1,330
			==================================================	==================================================

 

The carrying amount of trade and other payables approximates to their fair value.

 

On 20 April 2020, the Company issued a 4% per annum £1,400,000 Convertible Loan Note (the "New Loan Note") to Knowe Properties Limited, a significant shareholder in the Company. The New Loan Note is unsecured and is convertible at maturity after two years at the lower of (a) £0.01; or (b) if there is an issue of Shares or options in respect of Shares (excluding options granted to directors, managers or employees) by way of a single or directly related offer to the public with an aggregate subscription amount of £250,000 or more made without the prior written approval of the Noteholder then the price attaching to the lowest of those issues.

 

The equity element of the convertible loan note recognised is £106,000

 

Alternatively, and at the Company's option, the Loan Note is repayable in part or whole at any time up to two  months before maturity with an accompanying grant of warrants equal to the face value of the amount repaid. The warrants are exercisable at the lower of 1.3 pence or a 30% premium to the Conversion Price. Additionally, the Company has undertaken not to issue options to directors or staff at an exercise price below £0.01 during the term of the New Loan Note.

 

21.          Provisions for other liabilities and charges

 

	2021	2020
	£'000	£'000
Abandonment costs
Balance b/fwd	3,007	3,052
Abandonment cost incurred	-	(45)
	-----------------------------------------------------------	-----------------------------------------------------------
Balance c/fwd	3,007	3,007
	==================================================	==================================================

 

The Group makes full provision for the future costs of decommissioning oil production facilities and pipelines on the installation of those facilities. The amount provision is expected to be incurred up to 2029 when the producing oil and gas properties are expected to cease operations.

These provisions have been created based on the Group's internal estimates and expectation of the decommissioning costs likely to incur in the future. For the period under review, the directors have assessed that the discount rate and inflation rate to be applied to the current cost of decommissioning to be similar. On this basis, the current cost is considered to be similar to the discounted net present value.

 

22.          Convertible loan

 

On 25 October 2019, the Company entered into a £1.5 million Convertible Loan Note facility led by Riverfort

Global Opportunities PCC Limited. At the beginning of the period the total amount outstanding was £58,000 which was subsequently converted in ordinary shares as detailed in note 16.

 

On 20 April 2020, the Company issued a 4% per annum £1,400,000 Convertible Loan Note to Knowe Properties Limited, a significant shareholder in the Company. The Loan Note is unsecured and is convertible at maturity after two years at the lower of (a) £0.01; or (b) if there is an issue of Shares or options in respect of Shares (excluding options granted to directors, managers or employees) by way of a single or directly related offer to the public with an aggregate subscription amount of £250,000 or more made without the prior written approval of the Noteholder then the price attaching to the lowest of those issues.

 

The equity element of the convertible loan note recognised is £106,000.

 

Alternatively, and at the Company's option, the Loan Note is repayable in part or whole at any time up to two months before maturity with an accompanying grant of warrants equal to the face value of the amount repaid. The warrants are exercisable at the lower of 1.3 pence or a 30% premium to the Conversion Price. Additionally, the Company has undertaken not to issue options to directors or staff at an exercise price below £0.01 during the term of the New Loan Note.

 

23.    Loan Payable

 

On 17 May 2021, the Group signed a Loan Facility, conditional on the setting of the hedge (see Note 24) and regulatory approval of the royalty from the Oil and Gas Authority, between Angus Energy and Saltfleetby Energy Limited and Mercuria Energy Trading Limited and Aleph Saltfleetby Limited as the co-Lender. The term of the Loan Facility provides for a four year amortisation loan facility of up to £12 million with a 12% margin over LIBOR, a 3% commitment fee payable out of the facility, a share granted of 30 million shares in Angus, issued over the life of the facility and an override of 8% of gross revenue following the repayment of the facility.

 

The £12 million facility is required for the re-development of the Saltfleetby Gas Field and the drilling of the side-track well in line with the Field Development Plan and the Plans for the acceleration of production through the fast-tracking of the side-track well.

         

				2022	2021
Repayment date schedule were as follows:				£'000	£'000
Current
30 September 2022				1,500	-
Non-Current
30 September 2023				4,200	-
30 September 2024				4,200	-
31 March 2025				2,100	-
Total Facility Loan				£12,000	-

 

 

 

 

24.    Derivative Liability

 

On 01 June 2021, Angus Energy Weald Basin no. 3 Limited (AWB3) entered into a derivative agreement with Mercuria Energy Trading SA (METS) under a Swap contract as part of the condition of the Loan Facility (see Note 23). The derivative instrument was used to mitigate price risk on the expected future cash flow from the production of Saltfleetby Gas Field. Under the Swap contract, AWB3 will pay METS the floating price while METS will pay AWB3 the fixed price on the sale of gas from the field.

Further details of the contract as at 30 September 2021 are as below:
	Period of Gas Production		Quantity in Therms	Fixed price in pence per Therms
	1-Jul-22	30-Sep-22	3,375,000	0.4140
	1-Oct-22	31-Mar-23	10,500,000	0.5205
	1-Apr-23	30-Jun-23	5,250,000	0.3755
	1-Jul-23	30-Sep-23	4,500,000	0.3755
	1-Oct-23	31-Mar-24	9,000,000	0.4655
	1-Apr-24	30-Jun-24	4,500,000	0.3560
	1-Jul-24	30-Sep-24	3,750,000	0.3560
	1-Oct-24	31-Mar-25	7,500,000	0.4500
	1-Apr-25	30-Jun-25	3,750,000	0.3525
			52,125,000

 

As of reporting date, the expected cash flow on the sale of natural gas amounted to £48.117m resulting in a loss of £25.770m of which the Groups effective share is at £13.142m on its 51% participating interest. The resulting loss on the Swap contract was a result of the steep rise in the prices of natural gas affecting the Group as the floating price payer as of reporting date.

 

The Group has recognized the gross liability and the corresponding reciavable due from the Contract Debtor as per note 15.

The cash flow forecast for the coming years on the on the derivatives on the accompanying consolidated financial position as of 30 September 2021 are:
Cash Flow of Derivative Instruments	30 Sep 2022	30 Sep 2023	30 Sep 2024	30 Sep 2025	Total
	£'000	£'000	£'000	£'000	£'000
Cash Inflow	1,397	9,126	7,127	4,697	22,347
Cash Outlflow	4,480	22,448	13,353	7,836	48,117
Net Liability on Swap Contract	3,083	13,322	6,226	3,139	25,770

 

Specific valuation technique used to value the financial instruments includes fair value measurement derived from inputs other than quoted prices included within Level 1 of fair value hierarchy valuation, that are observable for the instrument either directly or indirectly (see accounting policy for Derivatives Instrument).

 

The carrying value of the financial instrument approximates their fair value and was valued using Level 2 fair value hierarchy valuation. The fair value has been determined with reference to commodity yield curves, as adjusted for liquidity and trading volumes as at the reporting date supplied by the Group's derivative partner, Mercuria Energy Trading.  Management also assessed the valuation of these swaps using publicly available forward pricing curves, which indicated a loss of £22.72 million.  Management considered that the value provided by Mercuria Energy Trading best represented the fair value of these arrangements as the forward pricing curves did not take into account other market conditions.  This is a key estimate and has been disclosed in note 4.

 

The nature of these arrangements in the present environment is such that material fluctuations in the value of the derivatives are occurring on a daily basis.  Wholesale gas prices have increased substantially, but remain highly volatile, in February and March 2022 and as a result, the loss on these contracts has also increased significantly.

 

The loss on these contracts at 30 September 2021 represents the forecast spot-price value of the gas to be extracted against the value fixed to be provided to the Group.  Under projected gas production volumes, these arrangements will fix the amount payable to the group for the contracted volumes, with any excess of volume being able to be sold at the available spot price.

 

In the event that the Group does not meet its production timetable, the swaps will crystallise as a liability at the dates at the proposed periods of gas production in the swap agreements.

There were no commodity swaps in 2020.

 

 

 

 

 

25.    Financial instruments

 

The Group's principal financial instruments comprise cash and cash equivalents, trade and other receivables, derivative instruments and trade and other payable.  The Group's accounting policies and method adopted, including the criteria for recognition, the basis on which income and expenses are recognised in respect of each class of financial assets, financial liability and equity instrument are set out in Note 3. The Group do not use financial instruments for speculative purposes.

 

The principal financial instruments used by the Group, from which financial instrument risk arises, are as follows:

 

	Financial Asset at amortised cost	Financial Liabilities at amortised cost	Financial Liabilities at fair value through profit and loss	TOTAL
30 September 2021
Asset
Trade and other receivables	16,429	-	-	16,429
Cash and cash equivalents	6,160	-	-	6,160
Total financial assets	22,589	-	-	22,589
Liabilities
Trade and other payable	-	1,068		1,068
Convertible loan notes	-	1,319		1,319
Lease liabilities	-	12		12
Debt Financing	-	12,000		12,000
Derivative Liability	-	-	25,770	25,770
Total financial liabilities	-	14,399	25,770	40,169

 

	Financial Asset at amortised cost	Financial Liabilities at amortised cost	Financial Liabilities at fair value through profit and loss	TOTAL
30 September 2020
Asset
Trade and other receivables	609	-	-	609
Cash and cash equivalents	1,852	-	-	1,852
Total financial assets	2,461	-	-	2,461
Liabilities
Trade and other payable	-	1,406	-	1,406
Convertible loan notes	-	1,377	-	1,377
Lease liabilities	-	35	-	35
Total financial liabilities	-	2,818	-	2,818

 

 

Capital management

 

The Group manages its capital to ensure that it will be able to continue as a going concern while attempting to maximise the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the group consists of issued capital and external loans.

 

Credit risk

 

Credit risk is the risk that a counter-party will cause a financial loss to the Group by failing to discharge its obligations to the Group. The Group manages its exposure to this risk by applying limits to the amount of credit exposure to any one counterparty and employs strict minimum credit worthiness criteria as to the choice of counterparty. The maximum exposure to credit risk for receivables and other financial assets is represented by their carrying amount. As described in note 15, the Group recognised an impairment provision of £104,000 against the amount due from farmees that are past due in the year.

 

Fair values

 

Management assessed that the fair values of cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts largely due to the short-term maturities of these instruments.

 

      Interest rate risk

 

The Group and company's policy is to fund its operations through the use of retained earnings and equity.

The Group exposure to changes in interest rates relates primarily to cash at bank, loan facility and amount owed by a related party. Cash is held either on current or short term deposits at a floating rate of interest determined by the relevant bank's prevailing base rate.

 

Interest rate sensitivity

 

The following table demonstrates the sensitivity to reasonably possible changes in the interest add-on rate for the £12 million loan with the principal interest rate held constant at 12%. (Also see Note 23). The add-on-interest rate is linked to SONIA (Sterling Over Night Indexed Average) and had an immaterial impact of £200. 

 

		Increase / (decrease)
Increase/decrease in add-on Interest rate		30 September
		2021	2020
		£	£
+ 10%		-	-
		-----------------------------------------------------------	-----------------------------------------------------------
-  10%		-	-
		-----------------------------------------------------------	-----------------------------------------------------------

 

 

      Foreign currency exchange risks

 

Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of the changes in foreign exchange rates. The Group's exposure to the risk of changes in foreign exchange rates relates primarily to the Group's operating activities (when revenue or expense is denominated in a foreign currency and the Group's net investments in foreign subsidiaries.

 

The Group does not hedge its foreign currencies. Transactions with customers are mainly denominated in US Dollars. The Group has bank accounts in US Dollars to mitigate against the exchange risks. At 30 September 2021, the GBP cash balance held denominated in USD was £34,733 (2020; £36,000).

 

 

 

 

                Liquidity risks

 

The principal risk to the Group is liquidity, which arises from the Group's management of working capital. It is a risk that the Group will encounter difficulty in meeting its financial obligations as they fall due. This aspect is kept under review by the directors and in this respect, management carries out rolling 12 month cash flow projections on a monthly basis as well as information regarding cash balances. It is the Group's policy as regards liquidity to ensure sufficient cash resources are maintained to meet short-term liabilities.

     

The maturity profile of the Group's financial liabilities at the reporting dates based on contractual undiscounted payments are summarised below:

 

 

			2021	2020
			£'000	£'000
Trade and other payable
Within one month			617	1,404
Within two to three months			1,357	60
			-----------------------------------------------------------	-----------------------------------------------------------
			1,974	1,464
			==================================================	==================================================

 

     

			2021	2020
			£'000	£'000
Lease liabilities
Within one month			-	2
Within two to three months			-	4
Within four to six months			-	6
Within six to twelve months			-	12
More than twelve months			12	11
			-----------------------------------------------------------	-----------------------------------------------------------
			12	35
			==================================================	==================================================
.

   

     Commodity price risk

 

The Group is exposed to the risk of fluctuations in prevailing market commodity prices of oil products it produces. The table below summarises the impact on profit before tax for changes in commodity prices

 

Commodity price sensitivity

 

There is no revenue recorded for 2021. The analysis is based on the assumption that the crude oil price moves 10% resulting in a change of US$7/bbl for 2020, with all other variables held constant. Reasonably possible movements in commodity prices were determined based on a review of the average spot prices at each reporting periods.

 

 

 

 

Increase/decrease in crude oil prices	Increase / (decrease) in profit before tax for the year ended  30 September
		2021	2020
		£'000	£'000
Average spot price increased by 10%		-	7
		-----------------------------------------------------------	-----------------------------------------------------------
Average spot price decreased by 10%		-	(7)
		-----------------------------------------------------------	-----------------------------------------------------------

 

Increase/decrease in gas prices	Increase / (decrease) in derivative loss or gain for the year ended 30 September
		2021	2020
		£'000	£'000
Average spot price increased by 10%		(1,314)	-
		-----------------------------------------------------------	-----------------------------------------------------------
Average spot price decreased by 10%		1,314	-
		-----------------------------------------------------------	-----------------------------------------------------------

 

26.          Net debts reconciliation

 

The below table sets out an analysis of net debt and the movement in net debt for the years presented

               

		2021	2020
		£'000	£'000
Cash and cash equivalent		6,160	1,852
Convertible loan note (note 22)		(1,433)	(1,377)
Loan payable (note 23)		(12,000)	-
		-----------------------------------------------------------	-----------------------------------------------------------
Net debt		(7,273)	475
		==================================================	==================================================

 

	Cash and cash equivalents	Convertible loan note	Facility Loan	Total
	£'000	£'000	£'000	£'000
Net debt as at 1 October 2019	3,419	-	-	3,419
Cash flow	(4,238)	-	-	(4,238)
Issue of new equity (net proceeds)	813	-	-	813
Issue of convertible loan note	2,400	(2,294)	-	106
Conversion of loan note to equity	-	400	-	400
Repayment of convertible loan note	(542)	542	-	-
Interest on convertible loan note	-	(25)	-	(25)
Net debt as at 1 October 2020	1,852	(1,377)	-	475
Cash flow	(9,818)	-	-	(9,818)
Issue of new equity (net proceeds)	2,126	-	-	2,126
Interest on convertible loan note	-	(56)	-	(56)
Facility Loan	12,000	-	(12,000)	-
Net debt as at 30 September 2021	6,160	(1,433)	(12,000)	(7,273)

 

 

 

 

27.          Lease asset and liabilities

 

The Groups lease assets are offices. Leases to explore for or use minerals, oil, natural gas and similar non-regenerative resources are outside the scope of IFRS 16 and therefore the leases that the Group have for the various sites are outside the scope given these leases are wholly for the purposes of exploration and extraction from the leased land only. Key movements relating to the lease balances are presented below

 

		As at 30 September
		2021	2020
		£'000	£'000
Leased assets
Balance		35	166
Depreciation charged		(24)	(131)
		-----------------------------------------------------------	-----------------------------------------------------------
Total		11	35
		==================================================	==================================================

 

The maturity of the lease liability is as follows:

 

		As at 30 September
		2021	2020
		£'000	£'000
Leased liabilities
Balance		35	35
Payments		(23)	-
		-----------------------------------------------------------	-----------------------------------------------------------
Total		12	35
Leases which expire:
Not later than one year		-	24
Later than one year and not later than five years		12	11
More than five years		-	-
		-----------------------------------------------------------	-----------------------------------------------------------
Total		12	35
		==================================================	==================================================

 

28.          Commitments

 

                At 30 September 2021, the Group had contractual capital commitments of the amount of £2.973m (2020    £nil) in respect to the Group's Saltfleetby development activities.

 

 

29.          Subsequent events

 

On 20 October 2021, the Company agreed an extension of the £1.4m Convertible Loan Note repayable on 17 April 2022 by a further 12 months until 17 April 2023. The Note, which was otherwise convertible at 1p per ordinary share from 17 February 2022, will now only be convertible at the earliest of 17 July 2022 representing a six month extension. Additionally, the Company retains the right to repay the Note at any time with the additional grant of warrants at 1.3p per share as detailed in the RNS of 20 April 2020. All other terms of the Note remain the same. In consideration for this extension the Company shall issue and allot to the Noteholder 11,200,000 ordinary shares.

 

On 3 December 2021, the company issued 115,384,611 shares at 0.065 pence per share, raising gross proceeds of £750,000.

 

On 6 January 2022, the company announced that it had received a series of approaches with interest in, and in one instance an indicative non-binding offer for, some or all of the Company's 51% interest in the Saltfleetby Gas Field asset which was under consideration. Additionally, the Board had received indications that certain parties may be interested in making an offer for the Company. As such, the Board has been considering options for the Company with its advisers. Whilst not wishing to be distracted from its immediate aims it must meet its responsibility to shareholders to evaluate any proposals received and was therefore entering into a Strategic Review period. These options include, but are not limited to, a sale of the Company which will be conducted under the framework of a "formal sale process" in accordance with the Takeover Code.

 

On 4 February 2022, the company issued 175,000,000 shares at 0.08 pence per share, raising gross proceeds of £1,400,000.

 

On 10 March 2022, and further to our announcement of 9 June 2021, the Company announced that it had reached a settlement agreement with a financial services provider with whom it was in dispute.  As part of this settlement agreement the Company has issued 39,200,000 ordinary shares of 0.002 pence each representing approximately 3% of the enlarged issued and allotted share capital of the Company.  The Board considers this settlement to be in the best interests of all shareholders as it will avoid further and considerable expenditures on legal costs and the considerable utilisation of management time.