NOTES TO THE FINANCIAL STATEMENTS

 

1.      Accounting policies

a)         General information        

Tower Resources plc is a public company incorporated in the United Kingdom under the UK Companies Act. The address of the registered office is 134 Buckingham Palace Road, London, SW1W 9SA. The Company and the Group are engaged in the exploration for oil and gas.

These financial statements are presented in US dollars as this is the currency in which the majority of the Group's expenditures are transacted and the functional currency of the Company and have been prepared in accordance with UK-adopted International Accounting Standards,  and in compliance with the requirements of the Companies Act 2006.

b)        Basis of accounting and adoption of new and revised standards

Changes in accounting policies

A number of new standards are effective from 1 January 2021 but they do not have material effect on the Group's financial statements.

New and amended standards

The following amended standards and interpretation are effective for financial years commencing on or after 1 January 2022. The Group does not intend to adopt the standards below, before their mandatory application date.

 

Standard	Description	IASB Issue Date	IASB Effective Date	Secretary of State Adoption Date
IAS 37 (Amendments)	Onerous Contracts - Cost of Fulfilling a Contract	14 May 2020	1 January 2022	Endorsed
IAS 16 (Amendments)	Property, Plant and Equipment - Proceeds before Intended Use.	14 May 2020	1 January 2022	Endorsed
IFRS 3 (Amendments)	Reference to the Contractual Framework.	14 May 2020	1 January 2022	Endorsed
IAS 1 (amendments)	Classification of Liabilities as Current or Non-current.	23 January 2020	1 January 2023	Endorsed
IFRS 17	Insurance contracts.	25 June 2020	1 January 2023	Endorsed
IAS 12 (Amendments)	Deferred tax related to assets and liabilities arising from a single transaction.	7 May 2021	1 January 2023	Endorsed
IAS 8 (amendments)	Definition of accounting estimates.	12 February 2021	1 January 2023	Endorsed
IAS 1 and IFRS Practice Statement 2 (amendments)	Disclosure of accounting policies.	12 February 2021	1 January 2023	Endorsed

Future accounting pronouncements

The Company intends to adopt the above listed standards and interpretations in its financial statements for the annual period beginning 1 January 2022. The Company does not expect the implementation to have a material impact on the financial statements.

c)         Going concern

The Group will need to complete its agreed farm-out and/or another asset-level transaction within the coming months, or otherwise raise further funds, in order to meet its liabilities as they fall due, particularly with respect to the forthcoming drilling programme in Cameroon. The Directors believe that there are a number of options available to them through either, or a combination of, capital markets, farm-outs or asset disposals with respect to raising these funds. There can, however, be no guarantee that the required funds may be raised or transactions completed within the necessary timeframes, which raises uncertainty as to the application of going concern in these accounts. Having assessed the risks attached to these uncertainties on a probabilistic basis, the Directors are confident that they can raise sufficient finance in a timely manner and therefore believe that the application of going concern is both appropriate and correct.

This point is also discussed in note 2 of the financial statements

d)        Basis of consolidation

The consolidated financial statements incorporate the accounts of the Company and its subsidiaries and have been prepared by using the principles of acquisition accounting ("the purchase method") which includes the results of the subsidiaries from their date of acquisition. Intra-group sales, profits and balances are eliminated fully on consolidation.

The results of subsidiaries acquired or disposed of are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

As a Consolidated Statement of Comprehensive Income is published, a separate Statement of Comprehensive Income for the Parent Company has not been published in accordance with section 408 of the Companies Act 2006.

e)        Jointly controlled operations

Jointly controlled operations are arrangements in which the Group holds an interest on a long-term basis which are jointly controlled by the Group and one or more ventures under a contractual arrangement. The Group's exploration, development and production activities are sometimes conducted jointly with other companies in this way. Since these arrangements do not constitute entities in their own right, the consolidated financial statements reflect the relevant proportion of costs, revenues, assets and liabilities applicable to the Group's interests.

f)         Oil and Gas Exploration and Evaluation Expenditure

Costs incurred before the acquisition of a license or permit to explore an area are expensed to the income statement.

All exploration and evaluation costs incurred following a license or permit to explore being obtained or acquired on the acquisition of a subsidiary are capitalised in respect of each identifiable project area. These costs are classified as intangible assets and are only carried forward to the extent that they are expected to be recouped through the successful development of the area or where activities in the area have not yet reached a stage which permits reasonable assessment of the existence of economically recoverable reserves (successful efforts).

Costs incurred by Directors' and employees of the parent Company on the exploration activities are recharged to the subsidiaries and capitalised as exploration assets accordingly.

Other costs are expensed unless commercial reserves have been established or the determination process has not been completed. Accumulated costs in relation to an abandoned area are written off in full against profit in the year in which the decision to abandon the area is made.

When production commences the accumulated costs for the relevant area of interest are transferred from intangible assets to tangible assets as 'Developed Oil and Gas Assets' and amortised over the life of the area according to the rate of depletion of the economically recoverable costs.

g)         Impairment of Oil and Gas Exploration and Evaluation assets

The carrying value of unevaluated areas is assessed when there has been an indication that impairment in value may have occurred. The impairment of unevaluated prospects is assessed based on the Directors' intention with regard to future exploration and development of individual significant areas and the ability to obtain funds to finance such exploration and development.

h)        Decommissioning costs

Where a material liability for the removal of production facilities and site restoration at the end of the field life exists, a provision for decommissioning is made. The amount recognised is the present value of estimated future expenditure determined in accordance with local conditions and requirements. An asset of an amount equivalent to the provision is also created and depreciated on a unit of production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated asset.

i)          Property, plant and equipment

Property, plant and equipment is stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost less estimated residual value of each asset over its expected useful life as follows:

Computers and equipment, fixtures, fittings and equipment: straight line over 4 years

Leasehold and office refurbishment costs: over duration of lease

The assets' residual values and useful lives are reviewed and adjusted if necessary, at each year-end. Profits or losses on disposals of plant and equipment are determined by comparing the sale proceeds with the carrying amount and are included in the statement of comprehensive income. Items are reviewed for impairment if and when events indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount which is the higher of an asset's net selling price and value in use.

j)          Investments

The Parent Company's investments in subsidiary companies are stated at cost less any expected credit loss for impairment and are shown in the Company's Statement of Financial Position.

k)         Share-based payments

The Company makes share-based payments to certain Directors, employees and consultants by the issue of share options or warrants. The fair value of these payments is calculated either using the Black Scholes option pricing model or by reference to the fair value of the remuneration settled by way of the grant of such options or warrants. The expense is recognised on a straight-line basis over the period from the date of award to the date of vesting, based on the Company's best estimate of shares that will eventually vest.

l)          Foreign currency translation

i            Functional and presentational currency

Items included in the financial statements are shown in the currency of the primary economic environment in which the Company operates ("the functional currency") which is considered by the Directors to be the U.S Dollar. The exchange rate at 31 December 2021 was £1 / $1.3479 (2020: £1 / $1.3649).

ii           Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income.

Transactions in the accounts of individual Group companies are recorded at the rate of exchange ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the rates ruling at the year-end. All differences are taken to the statement of comprehensive income.

m)       Taxation

i            Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible on other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.

ii              Deferred taxation

Deferred income taxes are provided in full, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred income taxes are determined using tax rates that have been enacted or substantially enacted and are expected to apply when the related deferred income tax asset is realised or the related deferred income tax liability is settled.

The principal temporary differences arise from depreciation or amortisation charged on assets and tax losses carried forward. Deferred tax assets relating to the carry forward of unused tax losses are recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

n)        Financial instruments

The Group's Financial Instruments comprise of cash and cash equivalents, loans and receivables. There are no other categories of financial instrument.

i               Cash and cash equivalents

Cash and cash equivalents are carried at cost and comprise cash in hand, cash at bank, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.

ii              Receivables

Receivables are measured at amortised cost unless the time value of money is immaterial. A provision for impairment of receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference between the assets' carrying amount and the recoverable amount. Expected credit losses for impairment of receivables are included in the statement of comprehensive income.

iii             Payables

Payables are recognised initially at fair values and subsequently measured at amortised cost using the effective interest method.

Financial liabilities and equity

Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the asset of the Group after deducting all of its liabilities. Equity instruments issued by the Company are recorded at the proceeds received net of direct issue costs.

o)        Share capital

Ordinary shares are classified as equity. Proceeds received from the issue of ordinary shares above the nominal value are classified as Share Premium. Costs directly attributable to the issue of new shares are shown in equity as a deduction from the Share Premium account.

p)        Provisions

Provisions are recognised when the Group has a present obligation as a result of a past event and it is probable that the Group would be required to settle that obligation. Provisions are measured at the managements' best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material.

q)        Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision makers. The chief operating decision makers have been identified as the executive Board members.

r)         Leases

The Group do not have any leases with a term of 12-months or more that contain an option to purchase or where the underlying asset has anything other than a low value and has elected for exemption to the reporting requirements of IFRS 16 (Leases).

 

2.         Critical accounting judgements and key sources of estimation uncertainty

The preparation of financial statements in conformity with International Financial Reporting Standards requires the use of accounting estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Although these estimates are based on managements' best knowledge of current events and actions, actual results ultimately may differ from those estimates. IFRS also require management to exercise its judgement in the process of applying the Group's accounting policies.

The prime areas involving a higher degree of judgement or complexity, where assumptions and estimates are significant to the financial statements, are as follows:

Recoverability of inter-company balances

Determining whether inter-company balances are impaired requires an estimation of whether there are any indications that their carrying values are not recoverable details of which are included in note 13.

Impairment of capitalised exploration and evaluation expenditure

The future recoverability of capitalised exploration and evaluation expenditure is dependent on a number of factors, including whether it successfully recovers the related exploration and evaluation asset through sale. Factors which could impact the future recoverability include the level of proved, probable and inferred resources, future technological changes which could impact the cost of drilling and extraction, future legal changes (including changes to environmental restoration obligations), changes to commodity prices and licence renewal dates and commitments.

To the extent that capitalised exploration and evaluation expenditure is determined to be irrecoverable in the future, this will reduce profits and net assets in the period in which this determination is made. In addition, exploration and evaluation expenditure is capitalised if activities in the area of interest have not yet reached a stage which permits reasonable assessment of the existence or otherwise of economically recoverable reserves. To the extent that it is determined in the future that this capitalised expenditure should be written off, this will reduce profits and net assets in the period in which this determination is made. Details of impairments of capitalised exploration and evaluation expenditure are included in note 12.

VAT receivable

On 21 May 2021 the Company announced that it had received a favourable ruling from the Upper Tribunal upholding the First-Tier Tax Tribunal's decision in the Company's favour and dismissing HMRC's appeal against the First-Tier Tax Tribunal's decision.

The First-Tier Tax Tribunal's decision, which was announced by the Company in July 2019, allowed the Company's appeal against HMRC's 2016 decisions to deny it credit for input VAT. The Upper Tribunal's decision affirmed the First-Tier Tax Tribunal's decision, and no subsequent appeal was made by HMRC to the Court of Appeal. There remains a further appeal to the First-Tier Tax Tribunal by HMRC on procedural grounds which is yet to be heard, however, the Company does not assess that this appeal has any basis in fact and has released provisions previously made totalling $1.5 million (2020: provisioned $175k). Included within trade and other payables (note 15) are amounts totalling $72k / £53k (2020: $1.2 million / £903k) with respect to UK VAT payable.

Capital markets / going concern

The Group relies on the UK equities market and the market for equity participations in oil and gas exploration assets in order to raise the funds required to operate as a listed entity and complete the respective work programmes for its oil and gas exploration assets. From time to time, and especially in light of the present Covid-19 pandemic, general economic and market conditions may deteriorate to a point where it is not possible to raise equity finance to fund exploration projects, nor debt to develop projects.

Additional financing may therefore not be available to the Group restricting the scope of operations, risking both its long-term expansion programme, its obligations under contracts which may be withdrawn or terminated for non-compliance and ultimately the financial stability of the Group to continue as a going concern.

Please see note 1 (c) for a more detailed discussion of going concern matters.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using the Black Scholes model and by reference to the value of the fees or remuneration settled by way of granting of warrants. The determination of fair value using the Black Scholes methodology is based on the input parameters chosen and will therefore contain an element of judgement and uncertainty. Details of share-based payment transactions are included in note 20.

 

3.         Operating segments

The Group has two reportable operating segments: Africa and Head Office. Non-current assets and operating liabilities are located in Africa, whilst the majority of current assets are carried at Head Office. The Group has not yet commenced production and therefore has no revenue. Each reportable segment adopts the same accounting policies. In compliance with IFRS 8 'Operating Segments' the following table reconciles the operational loss and the assets and liabilities of each reportable segment with the consolidated figures presented in these Financial Statements, together with comparative figures for the year-ended 31 December 2021.

	Africa		Head Office		Total
	2021	2020	2021	2020	2021	2020
	$	$	$	$	$	$
Administrative expenses 1	73,931	111,635	598,396	(805,452)	672,327	(693,817)
Pre-licence expenditures	-	-	-	(243)	-	(243)
Share-based payment charges	-	-	(475,780)	(236,297)	(475,780)	(236,297)
Interest income	-	(416)	(1,226)	161	(1,226)	(255)
Financing costs	(643)	(117)	(147,379)	(430,007)	(148,022)	(430,124)
Gain / (loss) on disposal of subsidiary undertaking	-	1,314,617	-	(1,314,617)	-	-
Loss by reportable segment	73,288	1,425,719	(25,989)	(2,786,455)	47,299	(1,360,736)
Total assets by reportable segment 2 / 3	28,784,388	27,083,022	14,469	16,039	28,798,857	27,099,061
Total liabilities by reportable segment 4	(2,110,144)	(2,351,684)	(286,541)	(2,776,127)	(2,396,685)	(5,127,811)

 

¹ Administrative expenses include credits of $1.4 million (2020: expense $175k) of VAT provision write-backs following the successful defence of VAT claims made against the Company by HMRC at the chambers of the second-tier tax tribunal.

² Included within total assets of $28.8 million (2020: $27.0 million) are $14.3 million Cameroon (2020: $13.0 million), $368k Namibia (2020: $320k) and $14.0 million South Africa (2020: $13.7 million).

³ Carrying amounts of segment assets exclude investments in subsidiaries.

⁴ Carrying amounts of segment liabilities exclude intra-group financing.

 

4.         Group operating profit / (loss)

Profit from operations is stated after charging/(crediting):				Total
				2021	2020
				$	$
Share-based payment charges included within staff costs				475,780	236,297
Share-based payment charges included within professional costs				67,364	20,632
Share-based payment charges included within finance costs				-	263,613
Staff costs				-	2,203
(Loss) / gain on foreign currencies				(21,367)	164,951
An analysis of auditor's remuneration is as follows:
Fees payable to the Group's auditors for the audit of the Group and subsidiary annual accounts				49,095	39,329
Fees payable to the Group's auditors for non-audit assurance services				4,442	9,884
Total audit fees				53,537	49,213

 

5.         Employee information

The average monthly number of employees of the Group (including Directors) was:

 

			2021	2020
Head office			3	3
Africa			3	3
			6	6

 

Group employee costs during the year (including executive Directors) amounted to:

			2021	2020
			$	$
Wages and salaries			-	2,060
Social security costs			-	143
Share-based payment charges			475,780	236,297
			475,780	238,500

During 2021, no awards were made under the Group share incentive scheme.

Key management personnel include the executive and non-executive Directors whose remuneration, including non-cash share-based payment charges of $481k (2020: $399k), was $481k (2020: $399k); see Directors' Report for additional detail. During the year $581k (2020: $244k) of the full-year share-based payment charge of $969k (2020: $528k) related to employees and their remuneration as employees.

The highest paid Director was Jeremy Asher $401k (2020: $305k).

 

6.         Finance costs

During the year covered by these financial statements the Group incurred finance costs of $149k (2020: $430k). Included within these charges is share-based payment costs of $nil (2020: $264k) relating to warrants issued on drawdown and extension of the bridging loan facility and the settlement of interest due. The Company incurred finance costs of $147k (2020: $430k).

 

7.         Taxation

 

			2021	2020
			$	$
Current tax
UK Corporation tax			-	-
Total current tax charge			-	-
The tax charge for the period can be reconciled to the loss for the year as follows:
Group loss before tax			(47,299)	1,360,733
Tax at the UK Corporation tax rate of 19% (2020: 19.3%)			8,986	(258,540)
Tax effects of:
Expenses not deductible for tax purposes			90,398	44,896
Tax losses carried forward not recognised as a deferred tax asset			(99,384)	213,644
Current tax charge			-	-

 

 

8.         Deferred tax

At the reporting date the Group had an unrecognised deferred tax asset of $4.1 million (2020: $4.3 million) relating to unused tax losses. No deferred tax asset has been recognised due to the uncertainty of future profit streams against which these losses could be utilised.

 

9.         Parent company income statement

For the year-ended 31 December 2021 the Parent Company made a profit of $250k (2020: loss of $247k) including financing costs of $147k (2020: $430k). Included within finance costs are $nil of share-based payments with respect to warrants issued to lenders (2020: $264k). The Company charged finance interest on intercompany loan accounts of $185k (2020: $233k) and fees with respect to the provision of strategic advice and support of $91k (2020: $39k). In accordance with the provisions of Section 408 of the Companies Act 2006, the Parent Company has not presented a statement of comprehensive income.

 

10.       Profit / (loss) per share

The fully diluted weighted average number of shares in issue and to be issued as at 31 December 2021 is 1,900,696,681 (2020: 1,244,247,074). At 31 December 2021 the dilutive effect of share options outstanding was 35,416,521. At 31 December 2020, the fully diluted profit per share has been kept the same as the basic profit per share because the conversion of share options and share warrants would decrease the basic loss per share and is thus anti-dilutive. The number of anti-dilutive shares that were excluded from this computation of profit per share was 32,615,562.

		Basic & Diluted
		2021	2020
		$	$
Profit / (loss) for the year		47,299	(1,360,736)
Weighted average number of ordinary shares in issue during the year		1,865,280,160	1,244,247,074
Dilutive effect of share options outstanding		35,416,521	-
Fully diluted average number of ordinary shares during the year		1,900,696,681	1,244,247,074
Profit / (loss) per share (USc)		0.00c	(0.11c)

 

 

11.       Property, plant and equipment

		Group	Company
Year-ended 31 December 2021		$	$
Cost
At 1 January 2021		1,046	1,046
At 31 December 2021		1,046	1,046
Depreciation
At 1 January 2021		1,046	1,046
At 31 December 2021		1,046	1,046
Net book value
At 31 December 2021		-	-
At 31 December 2020		-	-

 

Year-ended 31 December 2020		$	$
Cost
At 1 January 2020		1,046	1,046
At 31 December 2020		1,046	1,046
Depreciation
At 1 January 2020		1,046	1,046
At 31 December 2020		1,046	1,046
Net book value
At 31 December 2020		-	-
At 31 December 2019		-	-

 

12.       Intangible Exploration and Evaluation (E&E) assets

 

	Exploration and evaluation assets	Goodwill	Total
Year-ended 31 December 2021	$	$	$
Cost
At 1 January 2021	99,088,664	8,023,292	107,111,956
Additions during the year	1,700,189	-	1,700,189
At 31 December 2021	100,788,853	8,023,292	108,812,145
Amortisation and impairment
At 1 January 2021	(72,008,462)	(8,023,292)	(80,031,754)
Impairment during the year	-	-	-
At 31 December 2021	(72,008,462)	(8,023,292)	(80,031,754)
Net book value
At 31 December 2021	28,780,391	-	28,780,391
At 31 December 2020	27,080,202	-	27,080,202

 

	Exploration and evaluation assets	Goodwill	Total
Year-ended 31 December 2020	$	$	$
Cost
At 1 January 2020	96,324,278	8,023,292	104,347,570
Additions during the year	2,764,386	-	2,764,386
At 31 December 2020	99,088,664	8,023,292	107,111,956
Amortisation and impairment
At 1 January 2020	(72,008,462)	(8,023,292)	(80,031,754)
Impairment during the year	-	-	-
At 31 December 2020	(72,008,462)	(8,023,292)	(80,031,754)
Net book value
At 31 December 2020	27,080,202	-	27,080,202
At 31 December 2019	24,315,816	-	24,315,816

 

During the year the Group capitalised amounts totalling $1.7 million (2020: $2.7 million) with respect to the following assets:

	2021	2020
	$	$
Cameroon	1,314,854	2,233,492
Namibia	47,880	91,338
South Africa	337,455	439,556
Total	1,700,189	2,764,386

 

In Cameroon the $1.3 million of capitalised expenditure comprised ongoing NJOM-3 appraisal drilling preparation costs plus the capitalised cost of operating the local office in Douala.

In South Africa, Rift Petroleum Limited, Tower's wholly owned subsidiary, and its JV partner and operator  New African Global Energy SA (Pty) Ltd, completed the reprocessing of existing sub-surface data, further corroborating management's view of the prospectivity of the Algoa-Gamtoos block.

In Namibia, the Group made various licence commitment payments to the Government of the Republic of Namibia in addition to commencing basin modelling work and other work in line with the work programme commitments.

In accordance with the Group's accounting policies and IFRS 6 'Exploration for and Evaluation of Mineral Resources' the Directors have reviewed each of the exploration license areas for indications of impairment. Having done so, it was concluded that a full impairment review was not required on the Cameroon, South Africa or Namibian licences,.

The Directors have not provided for any impairment of the Group's investment in the Thali license, because potential transactions and funding discussions with third parties support the Directors' view that the current carrying value is recoverable. Furthermore, the operating company, Tower Resources Cameroon SA, was awarded a 12-month extension of the First Exploration Period of the license to May 2022 by the Government of the Republic of Cameroon, which has now been further extended to 11 May 2023.

In South Africa, PASA formally approved the application to enter the second renewal period, submitted by the Operator NewAge Energy Algoa (Pty) Ltd, on 17 November 2020, having confirmed that the first renewal period work programme had been completed to its satisfaction. The second renewal period commits the JV to the acquisition of 700km of 2D seismic acquisition or the acquisition of 300km of 3D seismic. The minimum spend is $5.0 million in total to the JV and is to be completed by 16 November 2022, representing a commitment to acquire a minimum of 700km 2D or 300km of 3D seismic over the block. Acquiring the additional seismic data in 2022 is now no longer possible, not least because of environmental concerns raised in the fourth quarter of 2021 over Shell's acquisition of seismic data in the adjoining license areas to the East. As a result, the JV partners do not expect to acquire the new 3D seismic data over the block until 2023 at the earliest, the operator has told the Company that the Petroleum Authority of South Africa ("PASA") accepts this position and merely requires that the seismic acquisition obligation is completed before the JV enters the next renewal period.

The Directors' view is that the recent TotalEnergies discoveries at Brulpadda and Luiperd, and the analysis conducted by the JV indicating that the deepwater lead in the JV license area conducted in 2021, support the current valuation of the license.

In Namibia, the Company's investment in the current license is currently just $368k (2020: $320k), which appears well supported by the valuations implied by recent transactions in the region, allowing for the early stage of the evaluation and appraisal process. Furthermore, the Directors continue to believe firmly that the relatively modest amounts of expenditure incurred on acquiring and securing tenure to the licence is fully supported by their initial view of its prospectivity based on the information that is currently available.

 

13.       Investment in subsidiaries

	Loans to subsidiary undertakings	Shares in subsidiary undertakings	Total
Company	$	$	$
Cost
At 1 January 2021	80,192,564	32,216,739	112,409,303
Net advances during the year	2,145,464	-	2,145,464
At 31 December 2021	82,338,028	32,216,739	114,554,767
Provision for impairment			-
At 1 January 2021	(64,862,126)	(19,908,973)	(84,771,099)
At 31 December 2021	(64,862,126)	(19,908,973)	(84,771,099)
Net book value			-
At 31 December 2021	17,475,902	12,307,766	29,783,668
At 31 December 2020	15,330,438	12,307,766	27,638,204

 

Included within loans made to subsidiary undertakings during the year of $2.1 million (2020: 1.3 million) are amounts of $1.3 million Cameroon (2020: $1.0 million), $394k South Africa (2020: $25k), $415k Rift Petroleum Holdings (2020: $256k) and $51k (2020: $15k) Namibia.

Loans made by the parent company to subsidiary undertakings are interest-bearing in accordance with loan agreements made in 2015, and are repayable to the parent company on demand.

The subsidiary undertakings at the year-end are as follows (these undertakings are included in the Group accounts):

	Country of	Class of	Proportion of voting rights held		Nature of business
	incorporation	shares held
	2020	2020	2020	2019	2020
Tower Resources Cameroon Limited 1	England & Wales	Ordinary	100%	100%	Holding company
Tower Resources Cameroon SA 2	Cameroon	Ordinary	100%	100%	Oil and gas exploration
Rift Petroleum Holdings Limited 1	Isle of Man	Ordinary	100%	100%	Holding company
Rift Petroleum Limited 3	Zambia	Ordinary	100%	100%	Oil and gas exploration
Rift Petroleum Limited 3	Isle of Man	Ordinary	100%	100%	Oil and gas exploration
Tower Resources (Namibia) Holdings Limited 1	England & Wales	Ordinary	100%	100%	Holding company
Tower Resources (Namibia) Limited 4	England & Wales	Ordinary	100%	100%	Oil and gas exploration
1 Held directly by the Company, Tower Resources plc
2 Held directly or indirectly through Tower Resources Cameroon Limited
3 Held directly or indirectly through Rift Petroleum Holdings Limited
4 Held directly or indirectly through Tower Resources (Namibia) Holdings Limited

14.       Trade and other receivables

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
Trade and other receivables	8,239	8,805	8,237	8,803

 

15.       Trade and other payables

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
Trade and other payables	344,601	1,763,182	173,172	1,386,925
Accruals	1,991,735	2,032,929	53,022	57,504
Loans from subsidiary undertakings	-	-	-	-
	2,336,336	3,796,111	226,194	1,444,429

 

On 21 May 2021 the Company announced that it had received a favourable ruling from the Upper Tribunal upholding the First-Tier Tax Tribunal's decision in the Company's favour and dismissing HMRC's appeal against the First-Tier Tax Tribunal's decision.

The First-Tier Tax Tribunal's decision, which was announced by the Company in July 2019, allowed the Company's appeal against HMRC's 2016 decisions to deny it credit for input VAT. The Upper Tribunal's decision affirmed the First-Tier Tax Tribunal's decision, and no subsequent appeal was made by HMRC to the Court of Appeal. There remains a further appeal to the First-Tier Tax Tribunal by HMRC on procedural grounds which is yet to be heard, however, the Company does not assess that this appeal has any basis in fact and has released provisions previously made totalling $1.5 million (2020: provisioned $175k). Included within trade and other payables are amounts totalling $72k / £53k (2020: $1.2 million / £903k) with respect to UK VAT payable.

Group creditor payment days are approximately 32 days (2020: 29 days).

Accruals include a number of cash calls in respect of current or proposed work in South Africa which have not yet been agreed or approved by the JV partners, and which the Company expects will ultimately change.

 

16.       Borrowings

Total borrowings for the Group and Company are noted below:

		Group			Company
			2021	2020		2021		2020
			$	$		$		$
	Principal balance at beginning of year		1,338,726	770,480		1,338,726		770,480
	Amounts drawn down during the year		-	561,742		-		561,742
	Principal repaid during the year		(1,278,451)	-		(1,278,451)		-
	Currency revaluations at year end		(743)	6,504		(743)		6,504
	Principal balance at end of year		59,532	1,338,726		59,532		1,338,726
	Financing costs at beginning of year		(7,026)	70,010		(7,026)		70,010
	Changes to financing costs during the year		47,383	(3,013)		47,383		(3,013)
	Interest expense		99,997	152,372		99,997		152,372
	Interest paid during the year		(139,516)	(226,382)		(139,516)		(226,382)
	Currency revaluations at year end		(20)	(13)		(20)		(13)
	Financing costs at the end of the year		818	(7,026)		818		(7,026)
	Carrying amount at end of period		60,349	1,331,700		60,349		1,331,700
	Current		13,801	1,262,937		-		1,262,937
	Non-current		46,548	68,763		60,349		68,763
	PRINCIPAL REPAYMENT DATES		Group			Company
			2021	2020		2021		2020
			$	$		$		$
	Due within 1 year		13,801	1,270,960		13,802		1,270,960
	Due within years 2-5		46,548	55,010		46,548		55,010
	Due in more than 5 years		-	5,730		-		5,730
			60,349	1,331,700		60,349		1,331,700

 

During the year, the Group and Company entered into no new facilities (2020: $562k) and repaid its Shard Merchant Capital Ltd loan in January 2021 and its Pegasus Petroleum Limited loan in August 2021.

On 21 January 2021, the Company repaid in full the $500k loan facility with Shard Merchant Capital Ltd. The terms of the Shard Facility included the issue of 31,446,541 attached three-year warrants at a strike price of 0.6 pence and 5,761,198 shares to pre-pay interest charged at 12% per annum. The loan was secured by a fixed and floating charge over the Company's assets in favour of Shard Merchant Capital Ltd. The repayment of the loan included facility transaction costs of $35k. During the period the Company recognised interest charges totalling $21k (2020: $43k) and made repayments totalling $535k (2020: $30k).

On 4 March 2021, the Pegasus Petroleum Limited loan facility, to which Jeremy Asher is a controlling party, was extended to the end of November 2021. Consideration for the extension comprised an increase in the production-based payments, the amount depending on whether the loan would be repaid by 15 July or only in November 2021. Additionally, simple interest would accrue at 12% per annum pro rata, commencing on 4 March 2021, and would only be paid at the end of the facility period. The 15 July date was subsequently extended to 20 August 2021, with the production-based payments effectively limited to 3.75% of the Contractor share of revenues from the production sharing contract, net of the Government share and net of all Petroleum Taxes, and the facility was fully repaid on 20 August 2021.

 

17.       Share capital

			2021	2020
			$	$
Authorised, called up, allotted and fully paid
2,109,172,592 (2020: 1,325,296,032) ordinary shares of 0.001p			18,264,803	18,254,040

 

The share capital issues during 2021 are summarised as follows:

		Number of shares	Share capital at nominal value	Share premium
			$	$
At 1 January 2021		1,325,296,032	18,254,040	145,343,446
Shares issued for cash		757,556,560	10,403	3,838,243
Shares issued on settlement of third party fees		26,320,000	360	110,068
Shares issued in settlement of loan interest		-	-	-
Share issue costs		-	-	(544,162)
At 31 December 2021		2,109,172,592	18,264,803	148,747,595

 

In January 2021, the Company raised £1.3 million by placing 384,615,384 shares for cash and 20,000,000 shares in settlement of third party fees at 0.325 pence per share.

In June 2021, the Company raised £50k by placing 20,000,000 shares for cash at 0.25 pence per share.

In July 2021, the Company raised £16k by placing 6,320,000 shares in settlement of third fees at 0.25 pence per share.

In August 2021, the Company raised £1.5 million by placing 352,941,176 shares for cash at 0.425 pence per share.

 

18.       Reserves

Reserves within equity are as follows:

Share capital

Amounts subscribed for share capital at nominal value.

Share premium account

The share premium account represents the amounts received by the Company on the issue of its shares which were in excess of the nominal value of the shares.

Retained losses

Cumulative net gains and losses recognised in the Statement of Comprehensive Income less any amounts reflected directly in other reserves.

 

19.       Financial instruments

Capital risk management and liquidity risk

Capital structure of the Group and Company consists of cash and cash equivalents held for working capital purposes and equity attributable to the equity holders of the Parent, comprising issued capital, reserves and retained losses as disclosed in the Statement of Changes in Equity. The Group and Company uses cash flow models and budgets, which are regularly updated, to monitor liquidity risk.

Significant accounting policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each material class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements.

Due to the short-term nature of these assets and liabilities such values approximate their fair values at 31 December 2021 and 31 December 2020.

		Carrying amount / fair value
		2021	2020
Group		$	$
Financial assets (classified as loans and receivables)
Cash and cash equivalents		10,227	10,054
Trade and other receivables		8,239	8,805
Total financial assets		18,466	18,859
Financial liabilities at amortised cost
Trade and other payables		2,336,336	3,796,111
Bridging loan facility		60,349	1,331,700
Total financial liabilities		2,396,685	5,127,811

 

		Carrying amount / fair value
		2021	2020
Company		$	$
Financial assets (classified as loans and receivables)
Cash and cash equivalents		6,232	7,236
Trade and other receivables		8,237	8,803
Loans to subsidiary undertakings		17,475,903	15,330,438
Total financial assets		17,490,372	15,346,477
Financial liabilities at amortised cost
Loans from subsidiary undertaking		17,475,903	15,330,438
Borrowings		60,349	1,331,700
Total financial liabilities		17,536,252	16,662,138

 

Financial risk management objectives

The Group's and Company's objective and policy is to use financial instruments to manage the risk profile of its underlying operations. The Group continually monitors financial risk including oil and gas price risk, interest rate risk, equity price risk, currency translation risk and liquidity risk and takes appropriate measures to ensure such risks are managed in a controlled manner including, where appropriate, through the use of financial derivatives. The Group and Company does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

Interest rate risk management

The Group and Company borrowings carry a fixed interest rate of 1% per month and are therefore not exposed to any sensitivity risk.

Interest rate sensitivity analysis

The sensitivity analysis below has been determined based on the exposure to interest rates at the reporting date and assuming the amount of the balances at the reporting date were outstanding for the whole year.

A 100-basis point change represents management's estimate of a possible change in interest rates at the reporting date. If interest rates had been 100 basis points higher and all other variables were held constant the Group's profits and equity would be impacted as follows:

	Group		Company
	Increase		Increase
	2021	2020	2021	2020
	$	$	$	$
Cash and cash equivalents	484	402	419	243
Borrowings	7,725	(9,599)	7,725	(9,599)
	8,209	(9,197)	8,144	(9,356)

 

The Group's exposure to interest rate risk, which is the risk that a financial instrument's value will fluctuate as a result of changes in market interest rates on classes of financial assets and financial liabilities, was as follows:

	2021	2021	2020	2020
	Floating interest rate	Non-interest bearing	Floating interest rate	Non-interest bearing
	$	$	$	$
Cash and cash equivalents	6,935	3,292	7,795	2,259

Foreign currency risk

The Group's and Company's reporting currency is the US dollar, being the currency in which the majority of the Group's revenue and expenditure is transacted. The US dollar is the functional currency of the Company and the majority of its subsidiaries. Less material elements of its management, services and treasury functions are transacted in pounds sterling. The majority of balances are held in US dollars with transfers to pounds sterling and other local currencies, as required to meet local needs. The Group does not enter into derivative transactions to manage its foreign currency translation or transaction risk as it does not believe such risks are material.

At the year-end the Group and Company maintained the following cash reserves:

	Group		Company
	2021	2020	2021	2020
Cash and cash equivalents	$	$	$	$
Cash and cash equivalents held in US$	921	255	921	255
Cash and cash equivalents held in GBP	8,337	9,095	5,311	6,981
Cash and cash equivalents held in XAF	703	559	-	-
Cash and cash equivalents held in other currencies	266	145	-	-
	10,227	10,054	6,232	7,236

 

Credit risk management

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group or Company. The Group and Company reviews the credit risk of the entities that it sells its products to or that it enters into contractual arrangements with and will obtain guarantees and commercial letters of credit as may be considered necessary where risks are significant to the Group or Company.

The Group has cash and cash equivalents of $22,792 as at 31 December 2020 (2020: $10,054). The cash and cash equivalents are held with financial institutions which are rated below. Wherever possible ratings are provided by Fitch Ratings, however, where no rating was available from either Fitch Ratings or either of the other major international credit rating agencies such as Standard & Poors or Moodys, the bank's local credit rating was used:

		Group		Company
		2021	2020	2021	2020
Cash and cash equivalents	Rating	$	$	$	$
Barclays Bank plc	A+	6,232	7,236	6,232	7,236
Royal Bank of Scotland	A	3,292	2,259	-	-
First Afriland Bank	No rating	324	414	-	-
BGFI Bank	A+	379	145	-	-
		10,227	10,054	6,232	7,236

 

20.       Share-based payments

		2021	2020
		$	$
In the statement of comprehensive income the Group recognised the following charge with respect to its share-based payments		968,711	528,029

 

The share-based payments include the cost of warrants issued in respect of the company's equity financings and bridging loan, and also share-based payments for a number of services to the Group's various contractors and brokers and payments in lieu of Director fees.

 

Options

Details of share options outstanding at 31 December 2021 are as follows:

			Number in issue
At 1 January 2021			157,552,800
Lapsed during the year			(1,552,800)
Awarded during the year			88,000,000
At 31 December 2021			244,000,000

 

Date of grant	Number in issue 1	Option price (pence)	Latest           exercise date
24 Jan 2019	70,000,000	1.250	24 Jan 2024
18 Dec 2020	86,000,000	0.450	18 Dec 2025
01 Apr 2021	88,000,000	0.450	01 Apr 2026
	244,000,000

¹ These options vest in the beneficiaries in equal tranches on the first, second and third anniversaries of grant.

 

The following Directors held interests, directly or indirectly, in share options at the year-end:

		2021	2020
		No.	No.
Jeremy Asher		180,000,000	120,000,000
Total		180,000,000	120,000,000

 

Warrants

Details of warrants outstanding at 31 December 2021 are as follows:

			Number in issue
At 1 January 2021			620,444,335
Awarded during the year			186,191,309
At 31 December 2021			806,635,644

 

Date of grant	Number in issue	Warrant price (pence)	Latest exercise date
09 Nov 2017	31,853,761	1.000	09 Nov 2022
01 Jan 2018	2,542,372	1.000	01 Jan 2023
01 Apr 2018	2,083,333	1.500	01 Apr 2023
01 Jul 2018	2,272,726	1.780	30 Jun 2023
01 Oct 2018	4,687,500	1.575	30 Sep 2023
24 Jan 2019	92,212,000	1.250	23 Jan 2022
24 Jan 2019	19,999,999	1.200	23 Jan 2024
16 Apr 2019	90,000,000	1.000	14 Apr 2024
30 Jun 2019	4,285,714	1.000	28 Jun 2024
30 Jul 2019	3,000,000	1.000	28 Jul 2024
15 Oct 2019	9,600,000	0.500	14 Oct 2022
15 Oct 2019	170,774,151	1.000	14 Oct 2022
15 Oct 2019	10,990,933	0.500	14 Oct 2024
31 Mar 2020	49,816,850	0.200	30 Mar 2025
29 Jun 2020	19,719,338	0.350	28 Jun 2025
28 Aug 2020	78,616,352	0.600	28 Aug 2023
01 Oct 2020	10,960,907	0.390	30 Sep 2025
01 Dec 2020	4,930,083	0.375	30 Nov 2025
31 Dec 2020	12,116,316	0.450	30 Dec 2025
01 Apr 2021	16,998,267	0.450	31 Mar 2026
01 Jul 2021	24,736,149	0.250	30 Jun 2026
14 Jan 2021	128,205,128	0.650	14 Jan 2023
01 Oct 2021	16,233,765	0.425	30 Sep 2026
	806,635,644

 

 The following table shows the interests of the Directors in the share warrants in issue:

		2021	2020
		No.	No.
Jeremy Asher		281,164,127	258,277,029
Paula Brancato		17,212,856	5,769,306
Mark Enfield		15,369,008	3,925,458
Total		313,745,991	267,971,793

 

The weighted average exercise price of the share warrants was 0.82p (2020: 0.89p) with a weighted average contractual life of 2.4 years (2020: 3.4 years). At 31 December 2020 and 2019 all warrants had fully vested.

In its Statement of Comprehensive Income, the Company recognised share-based payment charges of $446k (2020: $521k).

In compliance with the requirements of IFRS 2 on share-based payments, the fair value of options or warrants granted during the year is calculated using the Black Scholes option pricing model. For this purpose, the volatility applied in calculating the above charge varied between 20% and 111% (2020: 20% and 143%), depending upon the date of grant, and the risk-free interest rate was 0.25% (2020: 0.25%) and the Dividend Yield was nil% for 2021 and 2020.

The Company's share price ranged between 0.2p and 0.5p (2020: 0.2p and 0.7p) during the year. The closing price on 31 December 2021 was 0.4p per share (2020; 0.4p). The weighted average exercise price of the share options was 0.7p (2020: 0.8p) with a weighted average contractual life of 3.5 years (2020: 4.0 years). The total number of options vested at the end of the year was 131.8 million (2020: 25.9 million).

 

21.       Related party transactions

The key management of the Group comprises the Directors of the Company. Except as disclosed, there are no transactions with the Directors other than their remuneration and interests in shares, share options and warrants. As noted in the Directors' Report, Pegasus Petroleum Ltd ("Pegasus"), a company owned and controlled by Jeremy Asher, received $231,952 (2020: $257,155) in fees for management services, and provided a loan facility set out in note 16. Further information on Directors' remuneration is detailed in the Directors' Report and their total remuneration in each of the categories specified in IAS 24 'Related Party Disclosures' is shown below:

	Group		Company
	2021	2020	2021	2020
	$	$	$	$
Short-term employee benefits	-	-	-	-
Fees charged by companies associated with Jeremy Asher 1	231,952	257,155	-	-
Interest charged on borrowings by companies associated with Jeremy Asher 1	124,743	108,456	124,743	108,456
Share-based payments 2	481,042	399,400	481,042	263,613
Share incentive scheme awards 3	-	-	-	-
Finance interest on intercompany loan accounts	184,873	234,652	184,873	234,652
Fees charged with respect to the provision of strategic advice and support  by the parent	90,975	170,049	90,975	170,049
	1,113,585	1,169,712	881,633	776,770

¹ Charged by Pegasus Petroleum Limited ("Pegasus"), a company registered in the Channel Islands, to Rift Petroleum Holdings Limited, a wholly owned subsidiary of Tower Resources plc and registered in the Isle of Man. Pegasus Petroleum Limited ("Pegasus") is owned and controlled by a family trust of which Jeremy Asher is the settlor and lifetime beneficiary. Included in the Group's operating loss is an amount of $231,952 (2020: $257,155) paid to Pegasus in respect of charges for management services received during 2021.

² Includes $nil (2020: $163,103) of charges for share warrants arising from the issue and extension of the loan facility made to Tower Resources plc by Pegasus in 2019; also includes $160,711 (2020: $169,597) in respect of Director warrants issued in lieu of fees to Directors.

The warrants issued to Pegasus and Mr Asher were on identical terms to those issued to third parties participating in the loan facility and share subscriptions.

 

22.       Control

The Company is under the control of its shareholders and not any one party.

 

23.       Leases and capital commitments

The Group is committed to funding the following exploration expenditure commitments as at 31 December 2021:

	Country	Interest	2022	2023 onwards
Cameroon Thali 1	Cameroon	100%	$9.03 million	-
South Africa Algoa-Gamtoos 2	South Africa	50%	$3.16 million	-
Namibia Blocks 1910A, 1911 and 1912B 3	Namibia	80%	$4.50 million	-
			$16.69 million	-

¹ 1 year to 11 May 2023 for initial exploration period

² 2 years to 16 November 2022, Operator has informed the Group that further time will be allowed for fulfillment of this commitment prior to entering the next phase of work.

³ First period expiration 5 November 2023, right of extension available

 

24.       Subsequent events

14 January 2022: Placing for cash to raise £1.5 million via a subscription of 576,923,077 new ordinary shares of 0.001p each at a price of 0.26 pence per share, a discount of 29% to the closing share price on 13 January 2022.

7 February 2022: The Company noted the announcements by the National Petroleum Corporation of Namibia ("Namcor"), and also operator Shell Namibia Upstream B.V. ("Shell"), and partner QatarEnergy, confirming that the Graff-1 well on PEL 39 has made a discovery in both its primary and secondary targets, and proved a working petroleum system for light oil in the Orange Basin, offshore Namibia. The Company provided an analysis of the implications of this successful well for the prospectivity of other operators' acreage in Namibia, including its own, and observed that Tower's net acreage position of 18,637 km2 is believed to be the third largest net acreage position in the Namibian offshore, after Exxon and Eco Atlantic Oil & Gas (following Eco's acquisition of Azinam's Namibian acreage).

1 April 2022: Issue of warrants in lieu of £30,000 (in aggregate) of Directors fees and a further £7,500 employment costs, to conserve the Company's working capital. The warrants are exercisable at a strike price of 0.2625 pence ("Warrants"), which is just above the placing announced on 14 January 2022 and equal to the closing share price of 0.2625 pence per share on 31 March 2022. The Warrants are exercisable for a period of 5 years from the date of issue.

9 May 2022: The Company was notified by the Government of Cameroon of a further extension of the First Exploration Period of the Thali PSC to 11 May 2023. The Company also announced that it was negotiating an LOI with Shelf Drilling for Shelf's Trident VIII jack-up drilling rig to drill the NJOM-3 well on the Thali block in the fourth quarter of 2022. The Company also announced that it had not yet received the approval of its 2021 farmout agreement, and intended not to continue to seek approval of that farmout in its current form, due to the Company's belief that better financing alternatives were now available.