Final results for year ended 31 December 2022

Consolidated Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2022

 

		Consolidated
		31 Dec 2022		31 Dec 2021
	Note	$'000		$'000
Continuing operations
Revenue
Interest income	4(a)	201		33
Other income	4(a)	-		13
		201		46
Expenditure
Consultancy fees		(129)		(98)
Depreciation and amortisation		(149)		(181)
Employee benefits expense	4(b)	(1,687)		(1,010)
Exploration and evaluation expenditure	4(c)	(137)		(114)
Other expenses	4(d)	(1,048)		(759)
(Loss)/Profit from continuing operations before income tax		(2,949)		(2,116)
Income tax expense	5	-		-
(Loss)/Profit from continuing operations after income tax		(2,949)		(2,116)
Net (loss)/profit for the year		(2,949)		(2,116)
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations, net of income tax of $Nil (2021: $Nil)		(149)		-
Other comprehensive (loss)/income for the year, net of income tax		(149)		-
Total comprehensive (loss)/income for the year		(3,098)		(2,116)
(Loss)/Profit attributable to owners of the parent		(2,949)		(2,116)
Total comprehensive (loss)/income attributable to owners of the parent		(3,098)		(2,116)
(Loss)/Earnings per share (cents per share)
Basic (loss)/earnings per share	6	(0.3)		(0.3)
Diluted (loss)/earnings per share	6	(0.3)	(0.3)

 

 

The above Consolidated Statement of Profit or Loss and Other Comprehensive Income should be read in conjunction with the accompanying notes.

 

Consolidated Statement of Financial Position

As at 31 December 2022

 

		Consolidated
		31 Dec 2022	31 Dec 2021
	Note	$'000	$'000
ASSETS
Current Assets
Cash and cash equivalents	7	1,476	1,162
Trade and other receivables	8	2,607	21
Prepayments	9	138	176
Financial assets	10	1,017	7,045
Inventory	11	215	221
Total Current Assets		5,453	8,625
Non-Current Assets
Exploration and evaluation assets	12	15,275	15,275
Property, plant and equipment	13	261	99
Right-of-Use asset	13	92	93
Total Non-Current Assets		15,628	15,467
TOTAL ASSETS		21,081	24,092
LIABILITIES
Current Liabilities
Trade and other payables	14	456	371
Lease liability	14	-	6
Total Current Liabilities		456	377
TOTAL LIABILITIES		456	377
NET ASSETS		20,625	23,715
EQUITY
Equity attributable to owners of the parent
Issued capital	15	154,057	154,057
Reserves	16	8	182
Accumulated losses		(133,440)	(130,524)
TOTAL EQUITY		20,625	23,715

 

 

 

 

The above Consolidated Statement of Financial Position should be read in conjunction with the accompanying notes.

 

Consolidated Statement of Cash Flows

For the year ended 31 December 2022

 

		Consolidated
		31 Dec 2022	31 Dec 2021
	Note	$'000	$'000
Cash flows from operating activities
Payments to suppliers and employees		(2,860)	(2,424)
Interest received		130	33
Other income		-	13
Net cash flows (used in)/provided by operating activities	7	(2,730)	(2,378)
Cash flows from investing activities
Purchase of property, plant and equipment		(212)	(16)
Proceeds from sale of financial assets		3,527	(7,034)
Proceeds from the sale of property, plant and equipment		-	-
Net cash flows used in investing activities		3,315	(7,050)
Cash flows from financing activities
Proceeds from issue of shares		-	10,491
Capital raising cost		-	(664)
Payments of lease liability principal		(122)	(176)
Net cash flows from financing activities		(122)	9,651
Net increase in cash and cash equivalents		463	223
Cash and cash equivalents at beginning of the year		1,162	939
Net foreign exchange differences		(149)	-
Cash and cash equivalents at the end of the year	7	1,476	1,162

 

 

The above Consolidated Statement of Cash Flows should be read in conjunction with the accompanying notes.

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2022

 

		Consolidated
		Attributable to equity holders of the parent
		Issued Capital	Accumulated Losses	Other Reserves	Total
				Note 16
	Note	$'000	$'000	$'000	$'000
As at 1 January 2021		144,011	(128,930)	1,392	16,473
Net loss for the year		-	(2,116)	-	(2,116)
Other comprehensive income		-	-	-	-
Total comprehensive gain/(loss) for the year		-	(2,116)	-	(2,116)
Issue of share capital	15	10,491	-	-	10,491
Cost of capital raising	15	(664)	-	-	(664)
Share-based payments	15 & 16	-	-	(469)	(469)
Exercise of Conditional Share Awards	15, 16 & 17	219	-	(219)	-
Expiry of Options	16 & 17	-	522	(522)	-
As at 31 December 2021		154,057	(130,524)	182	23,715
Net loss for the year		-	(2,949)	-	(2,949)
Other comprehensive income		-	-	(149)	(149)
Total comprehensive gain/(loss) for the year		-	(2,949)	(149)	(3,098)
Issue of share capital	15	-	-	-	-
Cost of capital raising	15	-	-	-	-
Share-based payments	15 & 16	-	-	8	8
Exercise of Conditional Share Awards	15, 16 & 17	-	-	-	-
Expiry of Options	16 & 17	-	33	(33)	-
As at 31 December 2022		154,057	(133,440)	8	20,625

 

 

The above Consolidated Statement of Changes in Equity should be read in conjunction with the accompanying notes.

 

Notes to the Consolidated Financial Statements

For the year ended 31 December 2022

 

1    Corporate information

 

The financial report of Petro Matad Limited (Company) for the year ended 31 December 2022 was authorised for issue in accordance with a resolution of the Directors dated 15 June 2023 which was approved on 19 June 2023.

 

This financial report presents the consolidated results and financial position of Petro Matad Limited and its subsidiaries. 

 

Petro Matad Limited (Company) incorporated in the Isle of Man on 30 August 2007 has five wholly owned subsidiaries, including Capcorp Mongolia LLC and Petro Matad LLC (both incorporated in Mongolia), Central Asian Petroleum Corporation Limited (Capcorp) and Petromatad Invest Limited (both incorporated in the Cayman Islands) and Petro Matad Singapore Pte Ltd. The Company and its subsidiaries are collectively referred to as the "Group". The Group's principal activity in the course of the financial year consisted of oil exploration and development in Mongolia.

 

Petrovis Matad Inc. (Petrovis) is a major shareholder of the Company, holding approximately 21.08% of the shareholding at the year end of 2022.

 

2    Summary of significant accounting policies

 

(a)  Basis of preparation

 

This financial report complies with International Financial Reporting Standards (IFRS) as adopted by the European Union.

 

This financial report has been prepared on a historical cost basis, except where otherwise stated. Historical cost is generally based on the fair values of the consideration given in exchange for goods and services. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique.

 

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

·      Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;

·      Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

·      Level 3 inputs are unobservable inputs for the asset or liability.

 

For the purpose of preparing the consolidated financial statements, the Company is a for-profit entity.

 

(b)  Statement of compliance

 

This general-purpose financial report has been prepared in accordance with the requirements of all applicable IFRS as adopted by the European Union and related Interpretations and other authoritative pronouncements. 

 

(c)  Going concern

 

The financial statements have been prepared on a going concern basis, which contemplates the continuity of normal business activity and the realisation of assets and the settlement of liabilities in the ordinary course of business.

 

The Group generated a loss of $2.95 million for year 2022 (2021 Loss: $2.12 million) and experienced net cash outflows from operating activities of $2.73 million (2021 Outflow: $2.38 million). In addition, as outlined in Note 18(b) the Group is required to meet minimum exploration commitments on its Block XX Production Sharing Contract (PSC) of approximately $6.0 million. The Company has reached an agreement with the Mineral Resources and Petroleum Authority of Mongolia (MRPAM) that this underspent minimum exploration commitment can be transferred to and spent on exploration and appraisal activities during the exploitation period. The Company's application for a 25-year Exploitation Licence (EL) for Block XX was approved in July 2021. The Company raised an additional $6.6 million funds in February 2023, which provides sufficient working capital to operate beyond mid 2024 as a going concern, as well as commencing appraisal and production operations at Heron oilfield in Block XX, and drilling a high-graded exploration prospect in Block V.

 

The Company believes that the current cash balance is sufficient to continue operations until at least July 2024.

 

Cumulative expenditures to end 2022 in Block V exceed financial commitments by $3.0 million. The Company applied for moratoria on Block V for both 2020 and 2021 which were approved by MRPAM. The Block V PSC exploration term is now due to expire in July 2024.

 

The Directors have prepared a cash flow forecast which indicates that the Group will have sufficient cash to meet their working capital requirements for the twelve-month period from the date of signing the financial report.

 

(d)  Application of new and revised Accounting Standards

 

Accounting Standards that are mandatorily effective for the current reporting year

 

The Group has adopted all of the new and revised Standards and Interpretations issued by the Australian Accounting Standards Board (AASB) that are relevant to its operations and effective for an accounting period that begins on or after 1 January 2020.

 

The Directors have determined that there is no material impact of the new and revised Standards and Interpretations on the Group and, therefore, no material change is necessary to Group accounting policies.

 

Standards and Interpretations in issue not yet adopted

 

At the date of authorisation of the financial statements, the Group has not applied the new and revised Australian Accounting Standards, Interpretations and amendments that have been issued but are not yet effective.  Based on a preliminary review of the standards, interpretations and amendments, the Directors do not anticipate a material change to the Group's accounting policies, however further analysis will be performed when the relevant standards are effective.

 

(e)  Basis of consolidation

       

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

·      has power over the investee;

·      is exposed, or has rights, to variable returns from its involvement with the investee; and

·      has the ability to use its power to affect its returns.

 

The Company reassesses whether it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

 

The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.

 

The financial statements of subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. Adjustments are made to bring into line any dissimilar accounting policies that may exist.

 

A change in the ownership interest of a subsidiary that does not result in a loss of control is accounted for as an equity transaction.

All intercompany balances and transactions, including unrealised profits arising from intra-group transactions, have been eliminated in full. Unrealised losses are eliminated unless costs cannot be recovered.

 

(f)   Foreign currency translation

 

Functional and presentation currency

 

Both the functional and presentation currency of Petro Matad Limited is United States Dollars (USD). The Cayman Islands and Singaporean subsidiaries' functional currency is USD. The Mongolian subsidiaries' functional currency is Mongolian Tugrugs (MNT) which is then translated to the presentation currency, USD.

                                                                                                                                                                    

Transactions and balances

 

Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

 

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

 

Exchange differences are recognised in profit or loss in the period in which they arise except for:

·        Exchange differences on transactions entered into to hedge certain foreign currency risks; and

·        Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss on disposal or partial disposal on the net investment.

 

Translation of subsidiaries' functional currency to presentation currency

 

The results of the Mongolian subsidiaries are translated into USD (presentation currency) as at the date of each transaction. Assets and liabilities are translated at exchange rates prevailing at the reporting date.

 

Exchange differences resulting from the translation are recognised in other comprehensive income and accumulated in the foreign currency translation reserve in equity.

 

On consolidation, exchange differences arising from the translation of the net investment in Mongolian subsidiaries are recognised in other comprehensive income and accumulated in the foreign currency translation reserve. If a Mongolian subsidiary was sold, the proportionate share of exchange difference would be transferred out of equity and recognised in profit and loss.

 

(g)  Cash and cash equivalents

 

Cash and short-term deposits in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

 

For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.

 

(h)  Trade and other receivables

 

Trade receivables, which generally have 30-60 day terms, are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less an allowance for impairment.

 

Collectability of trade receivables is reviewed on an ongoing basis. An impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable. Objective evidence of impairment includes financial difficulties of the debtor, default payments or debts more than 60 days overdue. The amount of the impairment loss is the amount by which the receivable carrying value exceeds the present value of the estimated future cash flows, discounted at the original effective interest rate.

 

(i)   Plant and equipment

 

Plant and equipment is stated at historical cost less accumulated depreciation and any impairment in value.

 

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset and is currently estimated to be an average of 6 years.

 

The assets' residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

 

Derecognition

 

An item of property, plant and equipment is derecognised upon disposal or when no further future economic benefits are expected from its use or disposal.

 

(j)   Financial instruments

 

Initial recognition and measurement

 

Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instruments. For financial assets, this is equivalent to the date that the Company commits itself to either purchase or sell of the asset (i.e. trade date accounting is adopted).

 

Financial instruments are initially measured at fair value plus transaction costs, except where the instruments is classified at 'Fair value through profit or loss' in which case transaction costs are expensed to profit or loss immediately. Financial instruments are classified and measured as set out below.

 

Classification and subsequent measurement

 

Financial instruments are subsequently measured at either fair value, amortised cost using the effective interest rate method or cost. Fair value represents the price that would be received to sell an asset or paid to transfer a liability in orderly transaction between market participants at the measurement date. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted.

 

Amortised cost is calculated as (i) the amount at which the financial asset or financial liability is measured at initial recognition; (ii) less principal repayments; (iii) plus or minus the cumulative amortization of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and (iv) less any reduction for impairment.

 

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carry amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. The Group does not designate any interest in subsidiaries, associates or joint venture entities as being subject to the requirements of accounting standards specifically applicable to financial statements.

 

(i)            Financial assets at fair value through profit and loss or through other comprehensive Income

Financial assets are classified at 'Fair value through profit or loss' or 'Fair value through other comprehensive Income' when they are either held for trading for purposes of short term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss if electing to choose 'fair value through profit or loss' or other comprehensive income if electing 'Fair value through other comprehensive income'.

 

(ii)   Financial Liabilities

The Group's financial liabilities include trade and other payables, loan and borrowings, provisions for cash bonus and other liabilities which include deferred cash consideration and deferred equity consideration for acquisition of subsidiaries & associates.

 

All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings, and payables, net of directly attributable transaction costs.

 

Fair value

 

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm's length transactions, reference to similar instruments and option pricing models.

 

Derecognition

 

Financial assets are derecognised where the contractual rights to receipts of cash flows expire or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risk and benefits associated with the asset. Financial liabilities are recognised where the related obligations are either discharged, cancelled or expire. The difference between the carrying value of the financial liability extinguished or transferred to another party and the fair value of consideration paid, including the transfer of non-cash assets or liabilities assumed, is recognised in profit or loss.

 

(k)  Inventory

 

Inventories are stated at the lower of cost and net realisable value. Costs of inventories are determined on a first-in-first-out basis. Net realisable value represents the estimated selling price for inventories less all estimated costs of completion and costs necessary to make the sale.

 

(l)   Exploration and evaluation expenditure

 

Exploration and evaluation expenditure incurred by the Group is expensed separately for each area of interest. The Group's policy is to expense all exploration and evaluation costs funded out of its own resources.

 

(m) Exploration and evaluation assets

 

Exploration and evaluation assets arising out of business combinations are capitalised as part of deferred exploration and evaluation assets. Subsequent to acquisition, exploration expenditure is expensed in accordance with the Group's accounting policy.

 

(n)  Impairment of tangible and intangible assets other than goodwill

 

At each reporting date, the Group assesses whether there is any indication that tangible and intangible asset may be impaired.  Where an indicator of impairment exists, the Group makes a formal estimate of recoverable amount for each asset or cash generating unit to determine the extent of the impairment loss (if any). Where the carrying amount of an asset (or cash-generating unit) exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount.

 

Recoverable amount is the greater of fair value less costs to sell and value in use. It is determined for an individual asset, unless the asset's value in use cannot be estimated to be close to its fair value less costs to sell and it does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

 

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 the risks specific to the asset.

 

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the assets (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of impairment loss is treated as a revaluation increase.

 

Impairment review for deferred exploration and evaluation assets are carried out on a project-by-project basis, where each project representing a single cash generating unit. An impairment review is undertaken when indicators of impairment arise, typically when one of the following circumstances apply:

 

·              Unexpected geological occurrences that render the resource uneconomic;

·              Title to asset is compromised;

·              Variations in prices that render the project uneconomic; or

·              Variations in the currency of operation.

 

(o)  Trade and other payables

 

Trade and other payables are initially recognised at fair value. After initial recognition, trade and other payables are carried at amortised cost and due to their short-term nature are not discounted. They represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. The amounts are unsecured and are usually paid within 30 days of recognition.

 

(p)  Provisions

 

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

 

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. If the effect of the time-value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

 

Where discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.

 

(q)  Leases

 

The Group as lessee

 

At inception of a contract, the Group assesses if the contract contains or is a lease. If there is a lease present, a right-of-use asset and a corresponding lease liability are recognised by the Group where the Group is a lessee. However, all contracts that are classified as short-term leases (ie a lease with a remaining lease term of 12 months or less) and leases of low-value assets are recognised as an operating expense on a straight-line basis over the term of the lease.

 

Initially the lease liability is measured at the present value of the lease payments still to be paid at the commencement date. The lease payments are discounted at the interest rate implicit in the lease. If this rate cannot be readily determined, the Group uses the incremental borrowing rate.

 

Lease payments included in the measurement of the lease liability are as follows:

·      fixed lease payments less any lease incentives;

·      variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

·      the amount expected to be payable by the lessee under residual value guarantees;

·      the exercise price of purchase options, if the lessee is reasonably certain to exercise the options;

·      lease payments under extension options, if the lessee is reasonably certain to exercise the options; and

·      payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

 

The right-of-use assets comprise the initial measurement of the corresponding lease liability, any lease payments made at or before the commencement date and any initial direct costs. The subsequent measurement of the right-of-use assets is at cost less accumulated depreciation and impairment losses.

 

Right-of-use assets are depreciated over the lease term or useful life of the underlying asset, whichever is the shortest.

 

Where a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group anticipates to exercise a purchase option, the specific asset is depreciated over the useful life of the underlying asset.

 

The Group as lessor

 

Upon entering into each contract as a lessor, the Group assesses if the lease is a finance or operating lease.

 

A contract is classified as a finance lease when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases not within this definition are classified as operating leases.

 

Rental income received from operating leases is recognised on a straight-line basis over the term of the specific lease.

 

Initial direct costs incurred in entering into an operating lease (for example, legal cost, costs to set up equipment) are included in the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

 

Rental income due under finance leases are recognised as receivables at the amount of the Group's net investment in the leases. When a contract is determined to include lease and non-lease components, the Group applies IFRS 15 to allocate the consideration under the contract to each component. 

 

(r)   Contributed equity

 

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

 

(s)  Revenue

 

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific criteria must also be met before revenue is recognised:

 

Interest revenue

 

Revenue is recognised on an accrual basis using the effective interest method.

 

(t)   Share-based payment transactions

 

The Group provides to certain key management personnel share-based payments, whereby they render services in exchange for rights over shares (equity-settled transactions).

 

The cost of these equity-settled transactions is measured by reference to the fair value at the date at which they are granted. The fair value is determined by use of the Black Scholes model.

 

In determining the fair value of the equity-settled transactions, vesting conditions that are not market conditions are not taken into account.

 

The cost of equity-settled transactions is recognised as an expense on a straight-line basis, together with a corresponding increase in equity, over the period in which they vest.

 

The cumulative expense recognised for equity-settled transactions at each reporting date until the vesting date reflects:

 

·       the extent to which the vesting period has expired; and

·       the number of awards that, in the opinion of the Directors of the Group, will ultimately vest.

 

This opinion is formed based on the best available information at the reporting date. The impact of the revision of original estimates, if any, is recognised in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to equity reserves.

 

Where the terms of an equity-settled award are modified, as a minimum, an expense is recognised as if the terms had not been modified. In addition, an expense is recognised for any increase in the value of the transaction as a result of the modification, as measured at the date of modification.

 

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

 

(u)  Income tax

 

Current tax

 

Current tax is calculated by reference to the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the year. It is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Current tax for current and prior years is recognised as a liability (or asset) to the extent that it is unpaid (or refundable).

 

 

Deferred tax

 

Deferred tax is accounted for using the comprehensive balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities and the corresponding tax base of those items.

 

In principle, deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised to the extent that it is probable that sufficient taxable amounts will be available against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the initial recognition of assets and liabilities (other than as a result of a business combination) that affects neither taxable income nor accounting profit. Furthermore, a deferred tax liability is not recognised in relation to taxable temporary differences arising from goodwill.

 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year(s) when the asset and liability giving rise to them are realised or settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the consolidated Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

 

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis.

 

Current and deferred tax for the year

 

Current and deferred tax is recognised as an expense or income in the profit or loss, except when it relates to items credited or debited directly to equity/other comprehensive income, in which case the deferred tax is also recognised directly in equity/other comprehensive income, or where it arises from the initial accounting for a business combination, in which case it is taken into account in the determination of goodwill.

 

(v)  Earnings per share

 

Basic earnings per share is calculated as net profit attributable to owners of the parent, adjusted to exclude any costs of servicing equity (other than dividends), divided by the weighted average number of ordinary shares, adjusted for any bonus element.

 

Diluted earnings per share is calculated as net profit attributable to owners of the parent, adjusted for:

 

·      Costs of servicing equity (other than dividends);

·      The after-tax effect of dividends and interest associated with dilutive potential ordinary shares that have been recognised as expenses; and

·      Other non-discretionary changes in revenues or expenses during the year that would result from the conversion of dilutive potential ordinary shares, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares, adjusted for any bonus element.

 

(w)  Significant accounting judgments, estimates and assumptions

 

In applying the Group's accounting policies, management continually evaluates judgments, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. All judgments, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. Actual results may differ from the judgments, estimates and assumptions.

 

Any revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both the current and future periods.

 

The following are the most critical estimates and judgments made by management in applying the accounting policies and have the most significant effect on the amounts recognised in the financial statements.

 

Share-based payments

 

The Group measures the cost of equity-settled transactions with Directors and employees at the fair value of the equity instruments at the date at which they are granted. The fair value is determined using a Black Scholes model. One of the inputs into the valuation model is volatility of the underlying share price which is estimated on the historical share price.

 

Recovery of the exploration and evaluation assets

 

The ultimate recoupment of the exploration and evaluation assets is dependent upon successful development and commercial exploitation or alternatively the sale of the respective areas of interest at an amount at least equal to book value.  At the point that it is determined that any capitalised exploration and evaluation expenditure is not recoverable, it is written off.

 

Going Concern

 

The Group assesses the going concern of the Group on a regular basis, reviewing its cash flow requirements, commitments and status of PSC requirements and funding arrangements.  Refer to Note 2(c) for further details.

 

3    Operating segments

 

Operating segments have been identified on the basis of internal reports of the Group that are regularly reviewed by the chief operating decision maker in order to allocate resources to the segments and to assess their performance.

 

The chief operating decision maker has been identified as the Board of Directors. On a regular basis, the Board receives financial information on a consolidated basis similar to the financial statements presented in the financial report, to manage and allocate their resources. Based on the information provided to the Board of Directors, the Group has one operating segment and geographical segment, being Mongolia; as such no separate disclosure has been provided.

 

 

		31 Dec 2022		31 Dec 2021
		$'000		$'000

4    Revenues and expenses

 

(a)    Revenue

 

Interest income		201	33
Other income:
Other income		-	13
		201	46

 

 

(b)   Employee benefits expense

 

Included in employee benefits expense are the following:

 

Wages and salaries		1,488	1,253
Bonuses		-	75
Non-Executive Directors' fees (including Directors of affiliates)		161	96
Consultancy fees		30	30
Share-based payments		8	(469)
		1,687	1,010

 

 

(c)    Exploration and evaluation expenditure

       

Exploration and evaluation expenditure relates to the following PSCs:

 

Block XX		128	114
Block V		9	-
		137	114

 

(d)   Other expenses

       

Included in other expenses are the following:

 

Administration costs		511	371
PSC administration costs		285	316
Audit fees		71	64
Travel expenses		181	8
		1,048	759

 

 

		31 Dec 2022	31 Dec 2021
	Note	$'000	$'000

 

5    Income tax                                                                                    

 

Income tax recognised in the statement of profit or loss:

 

Tax expense/(benefit) comprises:
Current tax expense/(benefit)		-		-
Deferred tax expense/(benefit) relating to the origination and reversal of temporary differences		-		-
Total tax expense/(benefit) reported in the statement of profit or loss		-		-

 

The prima facie income tax benefit on pre-tax accounting loss from continuing operations reconciles to the income tax expense/(benefit) in the financial statements as follows:

 

Net (loss)/profit for the year		(2,949)	(2,116)
Income tax benefit calculated at 10%	(i)	295	212
Effect of different tax rates on entities in different jurisdictions	(ii)	(92)	(16)
Change in unrecognised deferred tax assets		(203)	(196)
		-	-

 

(i)            The tax rate used in the above reconciliation is the corporate tax rate of 10% payable by Mongolian corporate entities on taxable profits up to 6 billion MNT under Mongolian tax law.

 

(ii)           Petromatad Invest Limited and Capcorp are exempt of Mongolian corporate tax on profits derived from the sale of oil under their PSCs once production commences and are subject to Cayman Islands income tax at a rate of 0%. As a consequence, no provision for Mongolian corporate tax or Cayman Islands current tax or deferred tax has been made in the Company's accounts in relation to them.

 

Petro Matad Limited is subject to Isle of Man income tax at a rate of 0%. As a consequence, no provision for Isle of Man current tax or deferred tax has been made in the Company's accounts.

 

6    (Loss)/Earnings per share

 

The following reflects the loss and share data used in the total operations basic and diluted (loss)/earnings per share computations:

	31 Dec 2022			31 Dec 2021
	cents per share			cents per share
Basic (loss)/earnings per share	(0.3)			(0.3)
Diluted (loss)/earnings per share	(0.3)			(0.3)
	$'000's			$'000's
The loss and weighted average number of ordinary shares used in the calculation of basic and diluted (loss)/earnings per share are as follows:
Net (loss)/profit attributable to owners of the parent	(2,949)			(2,116)
Weighted average number of ordinary shares for the purposes of diluted (loss)/earnings per share (in thousands)	898,812			776,419
Weighted average number of ordinary shares for the purposes of basic (loss)/earnings per share (in thousands)	898,762			776,419

 

 

		31 Dec 2022		31 Dec 2021
		$'000		$'000

 

7    Cash and cash equivalents

Cash at bank and in hand		1,476	1,162
		1,476	1,162

 

Cash at bank and in hand earns interest at fixed and floating rates based on prevailing bank rates, and the fair value of the above cash and cash equivalents is $1,476,000 (2021: $1,162,000) due to the short-term nature of the instruments.

 

Reconciliation from the net gain/(loss) after tax to the net cash flows from operations:

 

Net (loss)/gain after tax		(2,949)	(2,116)
Adjustments for:
Depreciation and amortisation		149	181
Expired bond recorded as an account receivable		2,501	-
Share based payments		8	(469)
Unrealised foreign exchange (gains)/ losses		24	-
Changes in assets and liabilities
Decrease/(increase) in trade and other receivables		(2,586)	(11)
Decrease/(increase) in prepayments		38	46
Decrease/(increase) in inventory		6	3
Increase/(decrease) in trade and other payables		79	(12)
Net cash flows used in operating activities		(2,730)	(2,378)

 

Non-cash investing and financing activities

 

There were no non-cash investing or financing activities undertaken in the 2022 financial year or prior year, other than the exercise of Conditional Share Awards (2021: $0.003).

 

8    Trade and other receivables

 

Current
Other debtors		2,607	21
		2,607	21

 

All amounts are recoverable and are not considered past due or impaired.

Account receivables include the receivable from TDB Capital for expired bond for which the money was received on 4 January 2023.

 

9    Prepayments

 

Prepayments		138	176
		138	176

 

 

10   Financial assets

 

Long Term Deposits		1,017	7,045
		1,017	7,045

 

The Group holds term deposits with an average weighted interest rate of 2.92%. The deposits have maturity dates greater than 3 months. None of these assets had been past due or impaired at the end of the reporting period.

 

		31 Dec 2022	31 Dec 2021
		$'000	$'000

 

11   Inventory

 

Raw materials		215	221
		215	221

 

Inventory are mainly consumables, including casing, mud and drilling materials purchased for Block XX.

 

12   Exploration and evaluation assets

 

Exploration and evaluation assets		15,275	15,275
		15,275	15,275

 

The exploration and evaluation asset arose following the initial acquisition in February 2007 of 50% of Petromatad Invest Limited, together with acquisition on 12 November 2007 of the remaining 50% not already held by the Group, for a consideration of 23,340,000 ordinary shares credited as fully paid up and with an estimated fair value of $0.50 per share, taking into account assets and liabilities acquired on acquisition. This relates to the exploration and evaluation of PSC Block XX.

 

The ultimate recoupment of exploration and evaluation expenditure is dependent upon successful development and commercial exploitation or alternatively the sale of the respective areas of interest at an amount at least equal to book value. 

 

Management have reviewed for impairment indicators on Block XX and no impairment has been noted.

 

During 2020, the Company was focused on providing all necessary documentation to the Mongolian regulator in an effort to obtain approval for its Exploitation Licence application, which would then enable development of its 2019 Heron discovery in the northern area of Block XX. The Exploitation Licence was approved on 5 July 2021, which allows the Company to be able to appraise, develop and produce oil from the area for a 25-year term, extendable by up to 10-years (two times 5-years)

 

13   Property, plant and equipment and Right-of-Use asset

 

Plant and equipment at cost		925	816
Accumulated depreciation and impairment		(664)	(717)
		261	99
Right-of-Use asset		122	176
Accumulated depreciation - Right-of-Use asset		(30)	(83)
		92	93

 

Reconciliation of carrying amounts at the beginning and end of the year:

			Plant and equipment Total		Right-of-Use asset Total		Total Total
			$'000		$'000		$'000
As at 1 January 2021 (net of accumulated depreciation)			145		36		181
Additions			16		176		192
Depreciation charge for the year			(62)		(119)		(181)
As at 31 December 2021 (net of accumulated depreciation)			99		93		192
Additions			212		122		334
Foreign exchange			(16)		(8)		(24)
Depreciation charge for the year			(34)		(115)		(149)
As at 31 December 2022 (net of accumulated depreciation)			261		92		353

 

The following useful lives are used in the calculation of depreciation:  Plant and equipment - 2 to 10 years

 

 

		31 Dec 2022		31 Dec 2021
		$'000		$'000

14   Trade and other payables (current)

 

Trade payables		456	371
Lease liability		-	6
		456	377

 

Trade payables are non-interest bearing and are normally settled within 60 day terms.

 

15   Issued capital

 

Ordinary Shares
898,761,649 shares issued and fully paid (2021: 898,761,649)		154,057		154,057
		154,057		154,057

 

Movements in ordinary shares on issue:

	Number of Shares	Issue Price $	$'000
As at 1 January 2021	681,422,306		144,011
Placement shares through Shore Capital on 22 July 2021 (note (a))	89,988,470	$0.048	4,332
Placement shares through Arden on 22 July 2021 (note (b))	65,252,142	$0.048	3,163
Placement shares through Primary Bid on 22 July 2021 (note (c))	14,285,714	$0.048	689
Direct subscription shares on 6 August 2021 (note (d))	45,384,218	$0.048	2,200
Open Offer shares on 6 August 2021 (note (e))	2,169,649	$0.048	104
Exercise of Conditional Share Awards on 20 December 2021 (note (f))	259,150	$0.010	3
Capital raising cost			(664)
Exercise of Awards			219
As at 31 December 2021	898,761,649		154,057
No transactions during 2022			-
As at 31 December 2022	898,761,649		154,057

(a)   On 22 July 2021, the Company concluded a placing by issuing 89,988,470 shares at a price of GBP0.035 per share arranged through its nominated adviser, broker and joint book runner for the purposes of the Placing, Shore Capital Stockbrokers.

 

(b)   On 22 July 2021, the Company concluded a placing by issuing 65,252,142 shares at a price of GBP0.035 per share arranged through its joint book runner for the purposes of the Placing, Arden.

 

(c)   On 22 July 2021, the Company concluded a placing by issuing 14,285,714 shares at a price of GBP0.035 per share through a retail offering via Primary Bid.

 

(d)   On 6 August 2021, the Company issued 45,384,218 shares through direct subscriptions at a price of GBP0.035 per share.

 

(e)   On 6 August 2021, the Company issued 2,169,649 shares through Open Offer to shareholders at a price of GBP0.035 per share.

 

(f)    On 20 December 2021, 259,150 shares were allotted to a Director and employees upon exercise of Conditional Share Awards under the Group's Plan, with an exercise price per share of USD0.01.

 

 

16   Reserves

 

A detailed breakdown of the reserves of the Group is as follows:

 

	Merger reserve	Equity benefits reserve	Foreign currency translation	Total
	$'000	$'000	$'000	$'000
As at 1 January 2021	831	1,780	(1,219)	1,392
Currency translation differences	-	-	-	-
Expiry of Options	-	(522)	-	(522)
Exercise of Awards	-	(219)	-	(219)
Share based payments	-	(469)	-	(469)
As at 31 December 2021	831	570	(1,219)	182
Currency translation differences	-	-	(149)	(149)
Expiry of Options	-	(33)	-	(33)
Share based payments	-	8	-	8
As at 31 December 2022	831	545	(1,368)	8

 

 

Nature and purpose of reserves

 

Merger reserve

 

The merger reserve arose from the Company's acquisition of Capcorp on 12 November 2007. This transaction is outside the scope of IFRS 3 'Business Combinations' and as such Directors have elected to use UK Accounting Standards FRS 6 'Acquisitions and Mergers'. The difference, if any, between the nominal value of the shares issued plus the fair value of any other consideration, and the nominal value of the shares received in exchange are recorded as a movement on other reserves in the consolidated financial statements.

 

Equity benefits reserve

 

The equity benefits reserve is used to record the value of Options and Conditional Share Awards provided to employees and Directors as part of their remuneration, pursuant to the Group's Long-Term Equity Incentive Plan (Plan or Group's Plan). Refer to Note 17 for further details of these plans.

 

Foreign currency translation reserve

 

The foreign currency translation reserve is used to record exchange differences arising from the translation of the financial statements of foreign subsidiaries.

 

 

17   Share based payments

 

(a)    Long Term Equity Incentive Plan (Plan or Group's Plan)

 

The Group provides long term incentives to employees (including Executive Directors), Non-Executive Directors and consultants through the Group's Plan based on the achievement of certain performance criteria. The Plan provides for share awards in the form of Options and Conditional Share Awards. The incentives are awarded at the discretion of the Board, or in the case of Executive Directors, the Remuneration Committee of the Board, who determine the level of award and appropriate vesting, service and performance conditions taking into account market practice and the need to recruit and retain the best people.

 

Options may be exercised, subject only to continuing service, during such period as the Board may determine. Options have a term of 10 years.

 

Conditional Share Awards shall vest subject to continuing service and appropriate and challenging service and performance conditions determined by the Remuneration Committee relating to the overall performance of the Group.

 

 

Conditional Share Awards based on performance conditions will vest on achievement of the following performance conditions:

·                25% vest on the first discovery of oil on a commercial scale, determined by management as being 5 July 2021 upon the award of the Exploitation License;

·                25% vest on the first production of oil on a commercial scale, estimated by management as to be achieved prior to 31 December 2024; and

·                50% vest on the Company achieving the sale of 1 million barrels of oil, estimated by management as being by 31 December 2025.

 

Other Conditional Share Awards have service conditions tied to employment continuity and are available for vesting in three equal annual instalments on various dates.

 

(b)     Option pricing model

 

The fair value of Options granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the Options were granted.

 

No Options have been issued during 2021 and 2022.

 

(c)     Movement in Share Options

 

The weighted average fair value for all Options in existence as at 31 December 2022 is 0.05 (2021: 0.19).

 

	Opening balance at 1 January 2021	Granted during the year	Forfeited during the year	Exercised during the year	Closing balance as at 31 December 2021	Exercisable as at 31 December 2021
Grant of Options on 6 April 2011	75,000	-	(75,000)	-	-	-
Grant of Options on 5 July 2011	150,000	-	(150,000)	-	-	-
Grant of Options on 22 Nov 2011	120,000	-	(120,000)	-	-	-
Grant of Options on 5 Dec 2011	23,600	-	(23,600)	-	-	-
Grant of Options on 25 Apr 2012	100,000	-	-	-	100,000	100,000
Grant of Options on 16 Jul 2012	24,000	-	-	-	24,000	24,000
Grant of Options on 4 Dec 2012	6,000	-	-	-	6,000	6,000
Grant of options on 9 July 2013	50,000	-	-	-	50,000	50,000
	548,600	-	(368,600)	-	180,000	180,000
Weighted Average Exercise Price (cents per option)	108.67	-	149.92	-	24.2	24.2

 

	Opening balance at 1 January 2022	Granted during the year	Lapsed during the year	Exercised during the year	Closing balance as at 31 December 2022	Exercisable as at 31 December 2022
Grant of Options on 25 Apr 2012	100,000	-	(100,000)	-	-	-
Grant of Options on 16 Jul 2012	24,000	-	(24,000)	-	-	-
Grant of Options on 4 Dec 2012	6,000	-	(6,000)	-	-	-
Grant of options on 9 July 2013	50,000	-	-	-	50,000	50,000
	180,000	-	(130,000)	-	50,000	50,000
Weighted Average Exercise Price (cents per option)	24.2	-	31.07	-	6.33	6.33

 

 

(d)     Share Options Contractual Life

 

The weighted average remaining contractual life of outstanding share Options is 0.5 year (2021: 0.7 years).

 

(e)    Conditional Share Awards pricing model

 

The fair value of Conditional Share Awards granted is estimated as at the date of grant using the Black Scholes model, taking into account the terms and conditions upon which the Awards were granted.

 

No awards were granted in 2021 and 2022.

(f)     Movement in Conditional Share Awards

        

          The weighted average fair value for all Awards in existence as at 31 December 2022 is 0.84 (2021: 0.84)

 

 

Consolidated	Opening balance at 1 January 2021	Granted during the year		Exercised during the year		Forfeited during the year		Closing balance as at 31 December 2021		Exercisable as at 31 December 2021
Grant of Conditional Share Awards on 3 Jun 2008	265,000		-		(41,250)		(100,000)		123,750	-
Grant of Conditional Share Awards on 8 Apr 2009	80,000		-		(20,000)		-		60,000	-
Grant of Conditional Share Awards on 9 Jul 2010	422,000		-		(71,500)		(136,000)		214,500	-
Grant of Conditional Share Awards on 6 Apr 2011	144,000		-		(6,000)		(120,000)		18,000	-
Grant of Conditional Share Awards on 5 Jul 2011	180,000		-		(45,000)		-		135,000	-
Grant of Conditional Share Awards on 22 Nov 2011	50,000		-		(12,500)		-		37,500	-
Grant of Conditional Share Awards on 5 Dec 2011	39,600		-		(7,150)		(11,000)		21,450	-
Grant of Conditional Share Awards on 25 Apr 2012	400,000		-		(25,000)		(300,000)		75,000	-
Grant of Conditional Share Awards on 5 Oct 2012	150,000		-		-		(150,000)		-	-
Grant of Conditional Share Awards on 4 Dec 2012	3,000		-		(750)		-		2,250	-
Grant of Conditional Share Awards on 9 Jul 2013	120,000		-		(30,000)		-		90,000	-
	1,853,600		-		(259,150)		(817,000)		777,450	-
Weighted Average Exercise Price (cents per award)	1.00		-		1.00		1.00		1.00	-

 

 

Consolidated	Opening balance at 1 January 2022	Granted during the year	Exercised during the year	Lapsed during the year		Closing balance as at 31 December 2022	Exercisable as at 31 December 2022
Grant of Conditional Share Awards on 3 Jun 2008	123,750	-	-		-	123,750	-
Grant of Conditional Share Awards on 8 Apr 2009	60,000	-	-		-	60,000	-
Grant of Conditional Share Awards on 9 Jul 2010	214,500	-	-		-	214,500	-
Grant of Conditional Share Awards on 6 Apr 2011	18,000	-	-		-	18,000	-
Grant of Conditional Share Awards on 5 Jul 2011	135,000	-	-		-	135,000	-
Grant of Conditional Share Awards on 22 Nov 2011	37,500	-	-		-	37,500	-
Grant of Conditional Share Awards on 5 Dec 2011	21,450	-	-		-	21,450	-
Grant of Conditional Share Awards on 25 Apr 2012	75,000	-	-		-	75,000	-
Grant of Conditional Share Awards on 4 Dec 2012	2,250	-	-		-	2,250	-
Grant of Conditional Share Awards on 9 Jul 2013	90,000	-	-		-	90,000	-
	777,450	-	-		-	777,450	-
Weighted Average Exercise Price (cents per award)	1.00	-	-		-	1.00	-

 

(g)    Conditional Share Awards Contractual Life

 

        The weighted average remaining contractual life of outstanding Conditional Share Awards is 5.5 years (2021: 6.5 years).

 

 

(h)      Summary of Share Based Payments

 

A reconciliation of all share-based payments made during the year is as follows:

 

		31 Dec 2022	31 Dec 2021
	Note	$'000	$'000
Vesting of Options and Awards	17	8	(469)
		8	(469)

 

 

		31 Dec 2022	31 Dec 2021
	Note	$'000	$'000
Lapsed Options	17	(33)	(522)
		(33)	(522)

 

18   Commitments and contingencies

 

(a)     Operating lease commitments

 

Operating leases relate to premises used by the Group in its operations, generally with terms between 2 and 5 years. Some of the operating leases contain options to extend for further periods and an adjustment to bring the lease payments into line with market rates prevailing at that time. The leases do not contain an option to purchase the leased property.

 

 

		31 Dec 2022		31 Dec 2021
		$'000		$'000
Operating Leases:
Within one year		-		6
After one year but not more than five years		-		-
Greater than five years		-		-
		-		6

 

(b)     Exploration expenditure commitments

 

Petromatad Invest Limited and Capcorp have minimum spending obligations, under the terms of their PSCs on Blocks V and XX with MRPAM.

 

The amounts set out below do not include general and administrative expenses.

 

		31 Dec 2022		31 Dec 2021
		$'000		$'000
Production Sharing Contract Fees:
Within one year		286		286
After one year but not more than five years		548		548
Greater than five years		1,518		1,606
		2,352		2,439

 

Minimum Exploration Work Obligations:
Within one year
Greater than one year but no more than five years		-	-
Greater than five years		6,480	6,499
		6,480	6,499

 

(c)  Contingencies

 

On 5 August 2016, Shell through its Affiliate company announced it would be withdrawing from Blocks IV and V in West/Central Mongolia. As part of the negotiations leading to formal Mongolian Government approval of the reassignment of interest from Shell's Affiliate to the Company's Affiliate, Shell agreed to a payment of $5 million to be remitted to the Company's Affiliate upon such government approval being received. A condition to the payment by Shell is that the proceeds are required to be repaid to Shell by the Company in the event a farmout is concluded in future prior to the development of either Block IV or V. Block IV has since been relinquished by the Company in its entirety. There is no certainty that such farmout will be concluded in future in which case funds would not be repaid. The $5 million payment was received on 1 February 2017.

 

19   Related party disclosures

 

The immediate parent and ultimate controlling party of the Group is Petro Matad Limited.

 

The consolidated financial statements include the financial statements of Petro Matad Limited and the subsidiaries listed in the following table:

		Equity Interest
	Country of	2022	2021
	Incorporation	%	%
Central Asian Petroleum Corporation Limited	Cayman Islands	100	100
Capcorp Mongolia LLC	Mongolia	100	100
Petromatad Invest Limited	Cayman Islands	100	100
Petro Matad LLC	Mongolia	100	100
Petro Matad Singapore Pte Ltd	Singapore	100	100

 

Subsidiary Details

 

Central Asian Petroleum Corporation Limited (Capcorp) was acquired on 12 November 2007. Petro Matad Limited holds 43,340,000 ordinary shares of $0.01 each.

 

Capcorp Mongolia LLC is 100% owned by Capcorp. Capcorp holds 1,000,000 ordinary shares of MNT150 each.

 

Petromatad Invest Limited was acquired on 12 November 2007. 25,000 shares of $1 each held by Capcorp was transferred to Petro Matad Limited on 25 November 2019 resulting in Petro Matad Limited holding 50,000 shares of $1 each.

 

Petro Matad LLC is 100% owned by Petromatad Invest Limited. Petromatad Invest Limited holds 15,000 ordinary shares of     MNT10,000 each.

 

Petro Matad Singapore Pte. Ltd is 100% owned by Petro Matad Limited. Petro Matad Limited holds 50,000 ordinary shares of SG$1.

 

Balances and transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note.

 

Petrovis Matad Inc. (Petrovis) is a major shareholder of the Company, holding approximately 21.08% of the shareholding at year end of 2022.

 

20   Key management personnel

 

(a)   Details of Directors

 

The names of the Company's Directors, having authority and responsibility for planning, directing and controlling the activities of the Group, in office during 2021 and 2022, are as below:

 

The Directors were in office until the date of this report and for this entire period unless otherwise stated.

 

Directors

 

Enkhmaa Davaanyam                         Non-Executive Chairperson            

  Timothy Paul Bushell                          Non-Executive Director                                 

 Michael James Buck                            Chief Executive Officer                    

 Shinezaya Batbold                                Non-Executive Director    

 

 

(b)     Compensation of Directors

		Consolidated
		31 Dec 2022		31 Dec 2021
		$'000		$'000
Short-term employee benefits		685		478
Post-employment benefits		-		-
Share based payment expense		3		23
		688		501

 

(c)   Other key management personnel transactions

 

There were no other key management personnel transactions during the year (2021: Nil).

 

21   Financial risk management objectives and policies

 

The Group's principal financial instruments comprise cash and short-term deposits classified as loans and receivables financial assets.

 

The main purpose of these financial instruments is to raise capital for the Group's operations.

 

The Group also has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. It is, and has been throughout the year under review, the Group's policy that no trading in financial instruments shall be undertaken.

 

The main risks arising from the Group's financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk.

 

The Board is responsible for identification and control of financial risks. The Board reviews and agrees policies for managing each of these risks as summarised below.

 

Risk Exposures and Responses

 

Interest rate risk

 

Interest rate risk is the risk that the value of a financial instrument or cash flow associated with the instrument will fluctuate due to changes in market interest rate. Interest rate risk arises from fluctuations in interest bearing financial assets and liabilities that the Group uses. Interest bearing assets comprise cash and cash equivalents which are considered to be short-term liquid assets. It is the Group's policy to settle trade payables within the credit terms allowed and the Group does therefore not incur interest on overdue balances.

 

The following table sets out the carrying amount of the financial instruments that are exposed to interest rate risk:

 

		31 Dec 2022	31 Dec 2021
	Weighted Average Int. rate	$'000	$'000
Financial Assets
Cash and cash equivalents	0.00%	1,476	1,162
*Other financial assets	2.92%	1,017	7,045
		2,493	8,207
Trade and other receivables	0%	2,607	21
		5,100	8,228
Financial Liabilities
Trade and other payables	0%	456	371
		456	371
Net exposure		4,644	7,857

 

*Other financial assets are comprised of cash deposits placed in the banks for terms exceeding 90 days.

 

Sensitivity Analysis

If the interest rate on cash balances at 31 December 2021 and 2022 weakened/strengthened by 1%, there would be no material impact on profit or loss. There would be no effect on the equity reserves other than those directly related to other comprehensive income movements.

 

Foreign currency risk

 

As a result of operations overseas, the Group's statement of financial position can be affected by movements in various exchange rates.

 

The functional currency of Petro Matad Limited and presentational currency of the Group is deemed to be USD because the future revenue from the sale of oil will be denominated in USD and the costs of the Group are likewise predominately in USD. Some transactions are however dominated in currencies other than USD. These transactions comprise operating costs and capital expenditure in the local currencies of the countries where the Group operates. These currencies have a close relationship to the USD and management believes that changes in the exchange rates will not have a significant effect on the Group's financial statements.

 

The Group does not use forward currency contracts to eliminate the currency exposures on any individual transactions.

 

The following significant exchange rates applied during the year:

 

		Average rate		Spot rate at the balance date
USD		2022	2021	2022	2021
Mongolian Tugrug (MNT) 1		3,139.80	2,849.26	3,444.60	2,848.80
Australian Dollar (AUD) 1		1.450052	1.332058	1.472423	1.378034
Great British Pound (GBP) 1		0.811255	0.727108	0.829194	0.741266

 

Sensitivity Analysis

A 5% strengthening/weakening of the MNT against USD at 31 December 2021 and 2022 would not have a material effect on profit and loss or on equity.

 

Price risk

 

The Group's exposure to price risk is minimal as the Group is currently not revenue producing other than from interest income.

 

Credit risk

 

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group is exposed to credit risk on its cash and cash equivalents and other receivables as set out in Notes 7 and 8 which also represent the maximum exposure to credit risk. The Group only deposits surplus cash with well-established financial institutions of high quality credit standing.

 

In addition, receivable balances are monitored on an ongoing basis with the result that the Group's exposure to bad debts is not significant.

 

There are no significant concentrations of credit risk within the Group.

 

Maximum exposure to credit risk at reporting date:

 

		31 Dec 2022	31 Dec 2021
	Note	$'000	$'000
Financial Assets
Trade and other receivables	8	2,607	21
Net exposure		2,607	21

 

Impairment Losses:

 

None of the Group's receivables are past due at 31 December 2022 (2021: Nil)

 

 

Liquidity risk

 

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.

 

The Group's approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group's reputation.

 

The Group's objective is to ensure that sufficient funds are available to allow it to continue its exploration and development activities.

 

The following table details the Group's expected maturity for its non-derivative financial assets. The table has been drawn up based on the undiscounted maturities of the financial assets including interest that will be earned on those assets.

 

	Weighted average interest rate	6 months or less	6-12 months	1-5 years	over 5 years	Total
		$'000	$'000	$'000	$'000	$'000
Cash and cash equivalents	0.00%	1,476	-	-	-	1,476
Trade and other receivables	-	2,607	-	-	-	2,607
Financial Assets	2.92%	1,017	-	-	-	1,017
As at 31 December 2022		5,100	-	-	-	5,100
Cash and cash equivalents	0.17%	1,162	-	-	-	1,162
Trade and other receivables	-	21	-	-	-	21
Financial Assets	2.90%	7,045	-	-	-	7,045
As at 31 December 2021		8,225	-	-	-	8,225

 

 

The remaining contractual maturities of the Group's and parent entity's financial liabilities are:

 

		31 Dec 2022	31 Dec 2021
		$'000	$'000
6 months or less		456	371
6-12 months		-	-
1-5 years		-	-
over 5 years		-	-
		456	371

 

All of the Group's amounts payable and receivable are current.

 

Further, the Group has exploration expenditure commitments on its PSCs as disclosed in Note 18(b).

 

 

Fair Value of Financial Assets and Liabilities

 

The fair value of cash and cash equivalents and non-interest bearing financial assets and financial liabilities of the Group approximate their carrying value due to their short term duration.

 

		Fair Value Hierarchy as at 31 December 2022
		Level 1	Level 2	Level 3	Total
Financial Assets
Trade and other receivables		-	2,607	-	2,607
Total		-	2,607	-	2,607
Financial Liabilities
Trade and other payables		-	456	-	456
Total		-	456	-	456

 

 

		Fair Value Hierarchy as at 31 December 2021
		Level 1	Level 2	Level 3	Total
Financial Assets
Trade and other receivables		-	21	-	21
Total		-	21	-	21
Financial Liabilities
Trade and other payables		-	371	-	371
Total		-	371	-	371

 

The fair values of the financial assets and financial liabilities included in the level 2 category above have been determined in accordance with generally accepted pricing models based on a discounted cash flow analysis, with the most significant inputs being the discount rate that reflects the credit risk of counterparties.

 

22   Capital management

 

The Group's objectives when managing capital are to safeguard the Group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The management of the Group and the Group's capital is regularly reviewed by the Board.  The capital structure of the Group consists of cash and bank balances (Note 7) and equity of the Group (comprising issued capital, reserves and retained earnings as detailed in Notes 15 and 16).  This is reviewed by the Board of Directors as part of their regular Board meetings.

 

The Group monitors its capital requirements based on the funding required for its exploration and development activities in Mongolia and operations of the Company.

 

The Group is not subject to externally imposed capital requirements.

 

23   Events after the reporting date

 

On 10 February 2023, the Company concluded a placing by issuing 94,787,994 shares at a price of GBP0.025 per share arranged through its nominated adviser, broker and joint book runner for the purposes of the Placing, Shore Capital.

 

On 10 February 2023, the Company concluded a placing by issuing 67,000,626 shares at a price of GBP0.025 per share arranged through its broker and joint book runner for the purposes of the Placing, Zeus Capital.

 

On 10 February 2023, the Company issued 33,333,332 shares through direct subscriptions at a price of GBP0.025 per share.

 

On 10 February 2023, the Company issued 20,000,000 shares to shareholders at a price of GBP0.025 per share through a retail offering on the Bookbuild platform.

 

On 13 April 2023, the Company entered into a joint venture with SunSteppe Energy (a renewable energy company focused on generation of clean energy in Mongolia), to form Sun Steppe Power LLC, incorporated in Mongolia and which is a 50% owned subsidiary of Petro Matad LLC.

 

On 15 May 2023, Petro Matad Energy Limited a wholly owned subsidiary of the Company was incorporated in Isle of Man.

 

 

On 29 May 2023, pursuant to the Group's Long Term Equity Incentive Plan ("Plan"), 12,147,000 Options over shares were granted to employees and consultants with an exercise price per share of GBP0.048, exercisable in three parts as follows:

•             33% after 29 May 2024;

•             33% after 29 May 2025;

•             34% after 29 May 2026.

 

24   Auditors' remuneration

 

The auditor of Petro Matad Limited is Hall Chadwick (WA) Pty Ltd.

		31 Dec 2022	31 Dec 2021
		$'000	$'000
Amounts received or due and receivable by Hall Chadwick (WA) Pty Ltd:
- an audit or review of the financial report of the entity and any other entity in the Group		33	44
- other services in relation to the entity and any other entity in the Group		-	-
		33	44
Amounts received or due and receivable by Deloitte Onch Audit LLC for:
- an audit or review of the financial report of subsidiary entities		23	20
- other services in relation to the subsidiary entities		-	-
		23	20
Amounts received or due and receivable by Deloitte Infinity Assurance LLP for:
- an audit or review of the financial report of subsidiary entities		15	-
- other services in relation to the subsidiary entities		-	-
		15	-
		71	64

 

 

25   Other Information

 

Registered Office:  

 

Victory House

Douglas

Isle of Man

IM1 1EQ