JERSEY OIL AND GAS PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2021

1.          GENERAL INFORMATION

Jersey Oil and Gas plc (the "Company") and its subsidiaries (together, "the Group") are involved in the upstream oil and gas business in the UK.

            The Company is a public limited company incorporated and domiciled in the United Kingdom and quoted on AIM, a market operated by London Stock Exchange plc. The address of its registered office is 10 The Triangle, ng2 Business Park, Nottingham, NG2 1AE.

2.           SIGNIFICANT ACCOUNTING POLICIES

The accounting policies adopted are consistent with those applied in the previous financial year, unless otherwise stated.

These consolidated interim financial statements have been prepared under the historic cost convention, using the accounting policies applied in the Group's statutory financial information for the year ended 31 December 2020 and in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34 'Interim financial reporting'. The condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December 2020, which have been prepared in accordance with IFRS as adopted by the European Union.

             Going Concern

The Company is required to have sufficient resources to cover the expected running costs of the business for a period of at least 12 months after the issue of these financial statements. Further to completion of the detailed studies in connection with the GBA Concept Select contracted work programmes, there are currently no material firm work commitments on any of our licences, other than ongoing Operator overheads and licence fees. Other work that the Company is undertaking in respect of the GBA licences and surrounding areas is modest relative to its current cash reserves. The Group's current cash reserves, as the principal source of funding for the Company, are therefore expected to more than exceed its estimated liabilities. Based on these circumstances, the Directors have considered it appropriate to adopt the going concern basis of accounting in preparing its consolidated financial statements.

The reports for the six months ended 30 June 2021 and 30 June 2020 are unaudited and do not constitute statutory accounts as defined by the Companies Act 2006. The financial statements for 31 December 2020 have been prepared and delivered to the Registrar of Companies. The auditors' report on those financial statements was unqualified.  Their report did not contain a statement under section 498 of the Companies Act 2006.

Changes in Accounting Policies and Disclosures

a)   New and amended standards adopted by the Company:

At the start of the year the following standards were adopted:

• Covid-19-Related Rent Concessions (Amendment to IFRS 16);

• Interest Rate Benchmark Reform - Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16);

• IFRS3 conceptual framework amendment;

• Covid-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16);

b)   Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2021

reporting periods and have not been early adopted by the Group. These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

The Group's results are not impacted by seasonality.

Significant Accounting Judgements and Estimates

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported

amounts of revenues, expenses, assets and liabilities at the date of the financial statements. If in future such estimates and

assumptions, which are based on management's best judgement at the date of the financial statements, deviate from the actual

circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances

change. The Group's accounting policies make use of accounting estimates and judgements in the following areas:

• The assessment of the existence of impairment triggers

• The estimation of share-based payment costs

Impairments

The Group tests its capitalised exploration licence costs for impairment when facts and circumstances suggest that the carrying

amount exceeds the recoverable amount. The recoverable amounts of Cash Generating Units are determined based on fair value

less costs of disposal calculations. There were no impairment triggers in the first half of 2021 and no impairment charge has been recorded.

Revenue recognition

Revenue is recognised to the extent that it is probable that economic benefits will flow to the Group and the revenue can be reliably measured. It is measured at the fair value of consideration received or receivable for the sale of goods.

Acquisitions, Asset Purchases and Disposals

Acquisitions of oil and gas properties are accounted for under the purchase method where the acquisitions meet the definition of

a business combination.

Transactions involving the purchase of an individual field interest, farm-ins, farm-outs, or acquisitions of exploration and evaluation licences for which a development decision has not yet been made that do not qualify as a business combination, are treated as asset purchases. Accordingly, no goodwill or deferred tax arises. The purchase consideration is allocated to the assets and liabilities purchased on an appropriate basis. Proceeds on disposal (including farm-ins/farm-outs) are applied to the carrying amount of the specific intangible asset or development and production assets disposed of and any surplus is recorded as a gain on disposal in the Consolidated Statement of Comprehensive Income.

Intangible assets are recognised at acquisition at the cost paid using the cost accumulation model. Variable payments are not included in the carrying amount of the asset at acquisition, and no liability is recognised for the contingent consideration. The Group does not recognise a liability because, following the IFRIC agenda decision (March 2016), it is not clear that there is an obligation before the uncertainty is resolved.

Exploration and Evaluation Costs

The Group accounts for oil and gas exploration and evaluation costs using IFRS 6 "Exploration for and Evaluation of Mineral

Resources". Such costs are initially capitalised as Intangible Assets and include payments to acquire the legal right to explore,

together with the directly related costs of technical services and studies, seismic acquisition, exploratory drilling and testing. The

Group only capitalises costs as intangible assets once the legal right to explore an area has been obtained. The Group assesses the intangible assets for indicators of impairment at each reporting date. The Group considers this to be appropriate due to the future interdependency of these fields.

Potential indicators of impairment include but are not limited to:

a.     the period for which the Group has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed.

b.     substantive expenditure on further exploration for and evaluation of oil and gas reserves in the specific area is neither

budgeted nor planned.

c.     exploration for and evaluation of oil and gas reserves in the specific area have not led to the discovery of commercially viable quantities of oil and gas reserves and the entity has decided to discontinue such activities in the specific area.

d.   sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

In the event an impairment trigger is identified the Group performs a full impairment test for the asset under the requirements of

IAS 36 Impairment of assets. An impairment loss is recognised for the amount by which the exploration and evaluation assets'

carrying amount exceeds their recoverable amount. The recoverable amount is the higher of the exploration and evaluation assets' fair value less costs to sell and their value in use.

Cost of Sales

Within the statement of comprehensive income, costs directly associated with generating revenue are included in cost of sales. The Group only capitalises costs as intangible assets once the legal right to explore an area has been obtained, any costs incurred prior to the date of acquisition are recognised as cost of sales within the Statement of Comprehensive Income.

Property, Plant and Equipment

Property, plant and equipment is stated at historic purchase cost less accumulated depreciation. Asset lives and residual amounts are reassessed each year. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use.

Depreciation on these assets is calculated on a straight-line basis as follows:

Computer & office equipment 3 years

Leases

From 1 January 2019, leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement

date;

• amounts expected to be payable by the Group under residual value guarantees;

• the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and

• payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.

The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, the Group where possible, uses recent third-party financing received by the

individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease

period to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;

• any lease payments made at or before the commencement date less any lease incentives received;

• any initial direct costs; and

• restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

Payments associated with short-term leases of equipment and vehicles and all leases of low-value assets are recognised on a

straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less. Low-value assets comprise any lease with a value of £5,000 or less.

Provisions

Provisions for legal claims, service warranties and make good obligations are recognised when the group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Provisions are not recognised for future operating losses.  Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period.

Joint Ventures

The Group participates in joint venture agreements with strategic partners. The Group accounts for its share of assets, liabilities, income and expenditure of these joint venture agreements and discloses the details in the appropriate Statement of Financial Position and Statement of Comprehensive Income headings in the proportion that relates to the Group per the joint venture agreement.

Financial instruments

Financial assets and financial liabilities are recognised in the Group's Statement of Financial Position when the Group becomes party to the contractual provisions of the instrument. The Group does not have any derivative financial instruments.

Cash and cash equivalents include cash in hand and deposits held on call with banks with a maturity of three months or less.

The simplified approach requires expected lifetime losses to be recognised from initial recognition of the receivables. This involves determining the expected loss rates using a provision matrix that is based on the Company's historical default rates observed over the expected life of the receivable and adjusted forward-looking estimates. This is then applied to the gross carrying amount of the receivable to arrive at the loss allowance for the period.

The three-stage approach assesses impairment based on changes in credit risk since initial recognition using the past due criterion and other qualitative indicators such as increase in political concerns or other macroeconomic factors and the risk of legal action, sanction or other regulatory penalties that may impair future financial performance. Financial assets classified as stage 1 have the expected credit losses (ECL) measured as a proportion of their lifetime ECL that results from possible default events that can occur within one year, while assets in stage 2 or 3 have their ECL measured on a lifetime basis. If the borrower has sufficient accessible highly liquid assets in order to repay the loan if demanded at the reporting date, the expected credit loss is considered immaterial.

If the borrower does not have sufficient accessible highly liquid assets, the ECL is determined by projecting the probability of default (PD), loss given default (LGD) and exposure at default (EAD).

The PD is based on default rates determined by external rating agencies for the counterparties. The LGD is determined based on management's estimate of expected cash recoveries after considering the historical pattern of the receivable, and it assesses the portion of the outstanding receivable that is deemed to be irrecoverable at the reporting period. For intercompany balances, the discounted cashflows of the lender are also considered in calculating the LGD. The EAD is the total amount of outstanding receivable at the reporting period.

These three components are multiplied together, and adjusted for forward looking information, such as crude oil prices, to arrive at a summed ECL in relation to base, optimistic and downturn scenarios, that carry different probability weightings.

Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the related financial assets and the amount of the loss is recognised in the statement of comprehensive income.

Trade payables are stated initially at fair value and subsequently measured at amortised cost.

Foreign Currencies

The functional currency of the Group is Sterling. Monetary 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. Gains and losses arising on retranslation are recognised in the Consolidated Statement of Comprehensive Income.

Share Capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Share Based Payments

The Group currently has a number of share schemes that give rise to share-based charges. The charge to operating profit for these schemes for the period amounted to £198,493, (2020: £103,895). For the purposes of calculating the fair value of the share options, a Black-Scholes option pricing model has been used. Based on past experience, it has been assumed that options will be exercised, on average, at the mid-point between vesting and expiring. The share price volatility used in the calculation is based on the actual volatility of the Company's shares, since 1 January 2017. The risk-free rate of return is based on the implied yield available on zero coupon gilts with a term remaining equal to the expected lifetime of the options at the date of grant.

3.           SEGMENTAL REPORTING

The Directors consider that the Group operates in a single segment, that of oil and gas exploration, appraisal, development and production, in a single geographical location, the North Sea of the United Kingdom and do not consider it appropriate to disaggregate data further from that disclosed.

JERSEY OIL AND GAS PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2021

4.          FAIR VALUE OF NON-DERIVATIVE FINANCIAL ASSETS AND FINANCIAL LIABILITIES

Maturity analysis of financial assets and liabilities

Financial Assets

Financial Liabilities

5.          NET FINANCE COSTS

                  6.          TAX

Jersey Oil and Gas plc is a trading company but no liability to UK corporation tax arose on the ordinary activities for the period ended 30 June 2021 due to trading losses. As at 31 December 2020, the Group held tax losses of approximately £46 million (2019: £39 million).

In April 2023 the rate of corporation tax will increase to 25% as announced in the March 2021 Budget.

7.          EARNINGS/(LOSS) PER SHARE

Basic loss per share is calculated by dividing the losses attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Diluted loss per share is calculated using the weighted average number of shares adjusted to assume the conversion of all dilutive potential ordinary shares.

JERSEY OIL AND GAS PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2021

8.          INTANGIBLE ASSETS

9.          PROPERTY, PLANT AND EQUIPMENT

JERSEY OIL AND GAS PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2021

10.           LEASES 

Amounts Recognised in the Statement of financial position

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17, 'Leases'. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 January 2019. The weighted average lessee's incremental borrowing rate applied to the lease liabilities is 3%.  The borrowing rate applied for 2020 and 2021 remains at 3% and the leases pertain solely to Jersey Oil and Gas's offices in London and Jersey.

          Amounts Recognised in the Statement of comprehensive income

11.        TRADE AND OTHER RECEIVABLES

As at 30 June 2021 there were no trade receivables past due nor impaired.  There are immaterial expected credit losses recognised on these balances.

JERSEY OIL AND GAS PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2021

12.        CASH AND CASH EQUIVALENTS

The amounts disclosed in the consolidated statement of cash flows in respect of cash and cash equivalents are in respect of these consolidated statement of financial position amounts:

13.        CALLED UP SHARE CAPITAL

14.        TRADE AND OTHER PAYABLES

JERSEY OIL AND GAS PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2021

16.        CONTINGENT LIABILITIES & PROVISIONS

   In December 2020 the Company reached a settlement with TGS-Nopec Geophysical Company ASA ("TGS") pursuant to an agreement entered into with TGS on 9 February 2018. Under the agreement, TGS claimed uplift payments from JOG totalling US$1,050,838 in respect of: a) licence awards to Jersey Petroleum Ltd ("JPL") in the Oil & Gas Authority's 31st Supplementary Offshore Licencing Round; and b) the acquisition by JPL of Equinor UK Limited's 70% interest in Licence P2170 (Verbier). The Company disputed the validity of both claims and, as a precautionary measure, provisioned £200,000 in 2020, however following which two hearings took place in the Norwegian courts. Subsequent to these hearings and, on the basis of legal advice received, the Company agreed a final settlement payment to TGS of US$850,000 (£637,028).

(i)         2015 settlement agreement with the Athena Consortium: In accordance with a 2015 settlement agreement reached with the Athena Consortium, although Jersey Petroleum Ltd remains a Licensee in the joint venture, any past or future liabilities in respect of its interest can only be satisfied from the Group's share of the revenue that the Athena Oil Field generates and up to 60 per cent. of net disposal proceeds or net petroleum profits from the Group's interest in the P2170 licence which is the only remaining asset still held that was in the Group at the time of the agreement with the Athena Consortium who hold security over this asset. Any future repayments, capped at the unpaid liability associated with the Athena Oil Field, cannot be calculated with any certainty, and any remaining liability still in existence once the Athena Oil Field has been decommissioned will be written off. A payment was made in 2016 to the Athena Consortium in line with this agreement following the farm-out of P2170 (Verbier) to Equinor and the subsequent receipt of monies relating to that farm-out.

(ii)           Equinor UK Limited: In January 2020, Jersey Oil Limited announced that it had entered into a conditional Sale and Purchase Agreement ("SPA") to acquire operatorship of, and an additional 70% working interest in, Licence P2170 (Blocks 20/5b and 21/1d) from Equinor UK Limited ("Equinor"), this transaction completed in May 2020. The consideration for the Acquisition consisted of two milestone payments, which are considered contingent liabilities:

•       US$3 million upon sanctioning by the UK's Oil & Gas Authority ("OGA") of a Field Development Plan                               ("FDP") in respect of the Verbier Field; and

•       US$5 million upon first oil from the Verbier Field.

The earliest of the milestone payments in respect of the Acquisition is not currently anticipated being payable before the start of 2022.

(iii)             ITOCHU Corporation and Japan Oil, Gas and Metals National Corporation: In November 2020, Jersey Oil Limited announced that it had entered into a conditional Sale and Purchase Agreement ("SPA") to acquire the entire issued share capital of CIECO V&C (UK) Limited, which was owned by ITOCHU Corporation and Japan Oil, Gas and Metals National Corporation, this transaction completed in April 2021. The consideration for the Acquisition included a completion payment of £150k and two future milestone payments, which are considered contingent liabilities:

•       £1.5 million in cash upon consent from the UK's Oil & Gas Authority ("OGA") for a Field Development Plan     ("FDP") in respect of the Verbier discovery in the Upper Jurassic (J62-J64) Burns Sandstone reservoir located on Licence P2170; and

•       £1 million in cash payable not later than one year after first oil from all or any part of the area which is the subject of the Field Development Plan.

The earliest of the milestone payments in respect of the Acquisition is not currently anticipated being payable before the start of 2022.

17.        RELATED PARTIES

During the period, the Company made loans available to its wholly owned subsidiaries and received loans from its wholly owned subidiaries. At the end of the period, Jersey Petroleum Ltd owed £86,409,726 (30 June 2020: £80,712,810) to the Company and Jersey Oil & Gas E&P Ltd owed £3,755,742 (30 June 2020: £2,826,957) to the Company. At the end of the period, the Company owed Jersey North Sea Holdings Ltd £211,676 (30 June 2020: £211,676).

During the period, Jersey Oil and Gas PLC charged management fees to Jersey Petroleum Ltd amounting to £1,323,123 (30 June 2020: £1,107,008), and Jersey Oil and Gas E&P Ltd charged management fees to Jersey Petroleum Ltd amounting to £447,776 (30 June 2020: £487,125).

18.        POST BALANCE SHEET EVENTS

Further to undertaking a comprehensive technical and economic evaluation of licences P2497 and P2499 and meetings recently held with the  OGA, the OGA confirmed that it was satisfied that the Phase A Firm Commitments for both licences had been fulfilled. JOG decided not to progress to the next licence phase, which would have required committing to a firm well in each of these two licence areas. Accordingly, the licences automatically ceased and determined at the end of Phase A of their Initial Term on 29 August 2021. 

19.        AVAILABILITY OF THE INTERIM REPORT 2021

A copy of these results will be made available for inspection at the Company's registered office during normal business hours on any weekday. The Company's registered office is at 10 The Triangle, ng2 Business Park, Nottingham, Nottinghamshire NG2 1AE. A copy can also be downloaded from the Company's website at www.jerseyoilandgas.com. Jersey Oil and Gas plc is registered in England and Wales with registration number 7503957.