Reabold Resources plc

1.   Corporate information

The interim condensed consolidated financial statements of Reabold Resources plc and its subsidiaries (collectively, the "Group") for the six months ended 30 June 2022 were authorised for issue in accordance with a resolution of the directors on 29 September 2022. Reabold Resources plc (the "Company") is a public limited company, incorporated and domiciled in England & Wales, whose shares are traded on AIM in London. The registered office is located at 20 Primrose Street, London, EC2A 2EW. The Group is principally engaged in the investment in pre-cash flow upstream oil and gas projects.

2.   Basis of preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2022 have been prepared in accordance with IAS 34 Interim Financial Reporting. The Group has prepared the financial statements on the basis that it will continue to operate as a going concern. The Directors consider that there are no material uncertainties that may cast significant doubt over this assumption. They have formed a judgement that there is a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future, and not less than 12 months from the end of the reporting

period.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as at 31 December 2021.

There are no new or amended standards or interpretations adopted from 1 January 2022 onwards that have a significant impact on the financial information.

The financial information presented herein has been prepared in accordance with the accounting policies expected to be used in preparing Reabold's annual consolidated financial statements for the year ended 31 December 2022 which are the same as those used in preparing Reabold's annual consolidated financial statements for the year ended 31 December 2021, except for the following new accounting policy.

Non-current assets held for sale

Non-current assets and disposal groups classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Significant non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset of disposal group is available for immediate sale in its present condition subject to terms that are usual and customary for sales of such assets. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification as held for sale, and actions required to complete the sale should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Property, plant and equipment and intangible assets are not depreciated or amortised, and equity accounting of associates and joint ventures is ceased once classified as held for sale.

Significant accounting judgements and estimates

Reabold's significant accounting judgements and estimates were disclosed in Reabold's Annual Report 2021. These have been subsequently considered at the end of the period to determine if any changes were required to those judgements and estimates.

Investment in Daybreak

Following Reabold's announcement on 26 May 2022 regarding the completion of the equity exchange agreement with Daybreak, Reabold assessed whether it has significant influence over Daybreak. Judgement is required in assessing the level of control or influence over another entity in which the Group holds an interest. For Reabold, the judgement that the Group does not have significant influence over Daybreak even though it holds 42% of the voting rights is significant. As a consequence of this judgement, Reabold accounts for its interest in Daybreak as a financial asset measured at fair value within 'Other investments'.

Significant influence is defined in IFRS as the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. Significant influence is presumed when an entity owns 20% or more of the voting power of the investee. Significant influence is presumed not to be present when an entity owns less than 20% of the voting power of the investee.

Reabold owns 42% of the voting shares in Daybreak. IFRS identifies several indicators that may provide evidence of significant influence, including representation on the board of directors of the investee and participation in policy-making processes. Reabold does not have any directors on the Board of Daybreak and does not actively participate in the financial and operating policy decisions of Daybreak. Reabold does not exchange technical information with Daybreak nor is there any interchange of managerial personnel. Reabold is a passive investor and does not have the ability to exercise significant influence over the operating and financial policies of Daybreak. Reabold's management considers, therefore, that the group does not have significant influence over Daybreak, as defined by IFRS. See Note 3 for further information.

3.         Investment in Daybreak

On 26 May 2022, Reabold announced the completion of the equity exchange agreement with Daybreak. At completion of the equity exchange agreement, Reabold no longer had "control" over Reabold California as set out under IFRS. As a result, net assets of £7.7 million were derecognised from the balance sheet of the Group and the fair value of the investment in Daybreak was recognised at completion at £5.3 million. In addition, accumulated exchange gains of £80,000 which were previously charged to equity were reclassified to the income statement resulting in a loss on sale of business of £2.3 million.  This charge was offset by a gain of £1.3 million in the period representing a £1.2 million increase in fair value of Reabold's investment in Daybreak since completion and favourable foreign exchange movements of £0.1 million. At the end of 1H 2022, the value of Reabold's investment in Daybreak was £6.6 million, and there was a loan outstanding from Reabold plc to Reabold California of £217,000/$264,000. The loan is due to be repaid at the end of Q3 2022.  The results of the USA segment for the period are shown in Note 4.

4.         Segmental information

The Directors consider the Group to have two segments, being Business Stream 1 (which encompasses the UK/European based investments in Corallian, Danube, Rathlin and PEDL183) and Business Stream 2 (which encompasses the USA).  Corporate costs relate to the administration and financing costs of the Company and are not directly attributable to the individual investments and projects. The following tables present revenue and profit/(loss) information for the Group's operating segments for the six months ended 30 June 2022 and 2021 and year ended 31 December 2021, respectively.

The following table presents assets and liabilities information for the Group's operating segments as at 30 June 2022, 30 June 2021 and 31 December 2021, respectively:

5.         Non-current assets held for sale

As announced in May 2022, Corallian, an associate of Reabold, received a non-binding, conditional offer from a credible party for the acquisition of its entire issued share capital. Subject to regulatory and other approvals, the transaction is expected to complete during the fourth quarter of 2022. Reabold currently holds a 49.99% interest in Corallian. Assets of £3.9 million are classified as held for sale in the Group balance sheet at 30 June 2022. See Note 14 for further information.

6.         Cost of Sales

7.         Loss per share

Basic loss per ordinary share is calculated by dividing the loss for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. As the Group is reporting a loss in each period, in accordance with IAS 33, outstanding share options are not considered to be dilutive because the exercise of the share options would have the effect of reducing the loss per share.

8.         Exploration and Evaluation Assets

The disposal of £3.5 million in 1H 2022 represents the derecognition of E&E assets in California as a result of the equity exchange agreement with Daybreak.

9.         Property, Plant and Equipment

The entire disposal amount in 1H 2022 represents the derecognition of oil and gas properties in California as a result of the equity exchange agreement with Daybreak.

10.       Called-up Share Capital

As at 30 June 2022, the share capital of the Company comprised 8,929,612,550 ordinary shares of 0.1p each and 6,915,896 "A" Deferred shares of 1.65p. The "A" deferred shares do not carry voting rights.

11.  Investments in associates

The table below represents the Company's associates, in which it has significant influence:

All of the Company's associates are unlisted.  A breakdown of investments in associates as at 30 June 2022 and comparative periods along with the respective changes during the period then ended are summarised as follows:

Reabold's share of loss of associates for the six months ended 30 June 2022 was £1.2 million (2021: £0.4 million). The increase in losses was mainly attributable to non-cash charges in the Corallian business as a result of writing down the 'non-Victory' assets to their recoverable amount in light of the disposal proceeds received from Reabold for the acquisition of the licences as detailed on pages 4 and 5 - UK offshore.

At 30 June 2022, Reabold's investment in Corallian was reclassified as an asset held for sale. See note 5.

12.  Share-Based payments

On 17 February 2022, the Company announced amendments to the terms of certain existing options currently held by the Executive Directors. In common with many businesses, the COVID-19 pandemic significantly constrained the Company's activities, delaying management's ability to continue the successful implementation of its medium-term strategy. Therefore, to further incentivise the executive management of the Company and further align their interests with shareholders, Reabold's Remuneration Committee amended the following existing options such that their expiry dates are extended by 12 months, to 19 March 2023, and additional extended vesting terms are applicable, as outlined below. The exercise prices of the existing options remain unchanged. The incremental fair value granted as a result of the modifications was £10,833.

*Anthony Samaha assumed the role of Non-Executive Director on 1 July 2022

No options were granted in 1H 2022.

At 30 June 2022 there were 325,000,000 share options outstanding, as summarised in the table below.

⁽¹⁾ The Company amended the expiry date and vesting conditions of 125,000,000 existing options on 17 February 2022, such that their expiry dates are extended by 12 months to 19 March 2023.

The following table illustrates the number and weighted average exercise prices of share options:

The options outstanding at 30 June 2022 have a weighted average contractual life of 0.5 years.

The Company calculates the value of share-based compensation using a Black-Scholes option pricing model to estimate the fair value of share options at the date of grant. There are no cash settlement alternatives. The estimated fair value of options is amortised to expense over the options' vesting period.

For the six months ended 30 June 2022, the Group has recognised £17,000 of share-based payment expense in the income statement (30 June 2021: £70,000).

13.  Other investments

The convertible loan notes issued by Corallian are financial assets measured at fair value through profit or loss and are considered a level 3 valuation under the fair value hierarchy. The loan notes have been reclassified to current assets in 1H2022 as the notes are expected to convert within one year from the date of these financial statements. The movement in the period represents accrued interest of £38,000 and a fair value gain of £10,000.

The investment in Daybreak completed on 26 May 2022. On the date of completion Reabold recognised the fair value of its investment in Daybreak, treating it prospectively as a financial asset at fair value. The increase in fair value of the investment in Daybreak between completion and 30 June 2022 was £1.2 million.  

14.  Events after the reporting period

As announced on 4 May 2022 Reabold entered into a conditional sale and purchase agreement to acquire six North Sea licences from Corallian for a cash consideration of £250,000. On 15 September 2022, Reabold announced the completion of the acquisition of the licences being P2396, P2464, P2493, P2504 and P2605 (all at 100% working interest) and P2478 (36% working interest)

During the period, Rathlin commissioned a CPR effective 30 June 2022 to evaluate the oil and gas resources contained within PEDL 183. The report was finalised and announced on 29 September and estimated the geological chance of success at West Newton to be 86% and a gross 2C unrisked technically recoverable resource of 197.6 bcf of sales gas. The full CPR can be found on our website: www.Reabold.com.

As announced on 4 May 2022, Reabold's investee company, Corallian received a non-binding, conditional offer from a credible party for the acquisition of its entire issued share capital. The terms of the conditional sale with the oil and gas major were announced on 14 September 2022. The Board of Directors of Corallian have agreed to sell the entire issued share capital of Corallian for a gross consideration of £32 million, with Reabold's share of net proceeds being c. £12.7 million.

The payment of the consideration from the oil and gas major will be staged, related to progress of the Victory gas field development. On completion of the transaction, the oil and gas major will pay an initial consideration of £10 million. This will be followed by a further single payment of £22 million, assuming the development and production consent for the Victory gas field is secured from the North Sea Transition Authority, on or before 1 December 2023. If consent has not been granted by this date, then the oil and gas major will have the option to either: i) pay £12 million, with the remaining £10 million being paid at a later consent date; or ii) offer to transfer-back the Victory licence to the current Corallian shareholders for £1 consideration.

The transfer-back offer protection has been added for Corallian shareholders' benefit, to mitigate against the unlikely event of the Victory project not being progressed sufficiently. For the licence to be returned to shareholders, a new entity will be created to receive the licence prior to the completion of the sale of Corallian to the oil and gas major, which will mirror the shareholdings in Corallian. At the point of the return of the licence, the Victory licence will still have a year to run, and the Corallian Board is confident that this will provide sufficient time for an alternative development or transaction to be secured.

On 28 September, Reabold announced it has agreed to acquire Simwell Resources Limited, which includes interests in four Southern North Sea licences - P2332 (Reabold 30%, Shell U.K Ltd 70%, operator) and P2329, P2427 and P2486 (Reabold 10%, Horizon Energy Partners Ltd 77.5%, operator and Ardent Oil Ltd 12.5%). The transaction substantially increases Reabold's footprint in the emerging Zechstein trend, complementing its onshore position in PEDL183, including the West Newton project. The licences have a number of prospects covered with high quality 3D seismic data and licence P2332 has prospects to be derisked by success at the Pensacola well.

The SPA between the shareholders of Simwell ("Sellers") and Reabold provides for the conditional sale of the entire issued share capital of Simwell to Reabold. Concurrently, Reabold will settle the outstanding creditors/liabilities of Simwell. Reabold has agreed to pay the following amounts for the acquisition:

·    An initial consideration of £361,840.93 to the Sellers to be satisfied by the issue of 134,105,159 new ordinary shares in the capital of the Company at a price of 0.27 pence per share, being the closing price on the last practicable trading day prior to signing of the SPA (the "Issue Price").

·    The sum of £305,157.71 payable to certain Simwell creditors which shall be satisfied by the issue of 113,021,374 new ordinary shares at the Issue Price.

·    The sum of £333,001.36 payable to certain Simwell creditors to be satisfied in cash from the Company's existing cash resources.

·    A contingent deferred consideration of £150,000 ("Deferred Consideration Amount") payable to the Sellers to be satisfied by the issue of new Ordinary Shares ("Deferred Consideration Shares"):

o  The contingent deferred consideration will be payable to the Sellers if, inter alia, the operator of licence P2332 undertakes to the NSTA that the licensees will commit to drill a well pursuant to a defined work programme and within the applicable timescales.

o  The number of Deferred Consideration Shares to be issued to the Sellers will be calculated by dividing the Deferred Consideration Amount by the prevailing share price based on the ten-day volume weighted average price of an ordinary share, as reported by Bloomberg, immediately preceding the date on which all of the applicable conditions are satisfied.

The transaction is conditional on, inter alia, customary conditions for a transaction of this nature, including approval by the NSTA.  If the conditions are not satisfied or waived (as applicable) within 12 months of the date of the SPA, the SPA shall terminate.

15.  Non-Statutory accounts

The financial information shown in this publication, which was approved by the Board of Directors on 29 September 2022, is unaudited and does not constitute statutory financial statements. Audited financial information will be published in Reabold's 2022 Annual Report. Reabold's 2021 Annual Report has been filed with the Registrar of Companies in England and Wales.

GLOSSARY

2C resources, 2C

Best estimate contingent resource, being quantities of hydrocarbons which are estimated, on a given date, to be potentially recoverable from known accumulations but which are not currently considered to be commercially recoverable.

2U resources, 2U

Unrisked best estimate prospective resource, being quantities of hydrocarbons which are estimated on a given date, to be potentially recovered from undiscovered accumulations.

bcf

Billion standard cubic feet.

boe

Barrels of oil equivalent.

Capital expenditure

Total cash capital expenditure as stated in the group cash flow statement.

CPR

Competent Persons Report.

IFRS

International Financial Reporting Standards.

Joint arrangement

An arrangement in which two or more parties have joint control.

Joint control

Contractually agreed sharing of control over an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

Joint operation

A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.

NPV10

Net Present Value using a 10% discount factor.

NSTA

North Sea Transition Authority

OTC

Over-the-counter