2019 Audited Annual Results

1 July 2020

 

Nostra Terra Oil and Gas Company plc

("Nostra Terra" or the "Company")

 

2019 Audited Annual Results

 

Nostra Terra Oil and Gas (AIM: NTOG), the oil & gas exploration and production company with a portfolio of assets in the USA and Egypt, is pleased to announce its final results for the year ended 31 December 2019.

 

Nostra Terra is in the process of sending out hard copies of the Annual Report to its shareholders today and this is now available to download on the Company's website: www.ntog.co.uk.

Highlights during the period:

·    276% increase in net 2P (Proved & Probable) reserves to 2,429,660 barrels of oil, up from 646,280 barrels of oil (1P at Pine Mills and Permian Basin from 2017)

·    Net Present Value at 9% discount ("NPV9") estimated at $24.0 million

·    Revenue for the period was $1,795,000 (2018: $2,267,000)

·    Production for the period was 33,179 barrels of oil equivalent (boe) (2018: 37,384 boe)

·    Twin well (Permian Basin) beat expectations, reached 100% payback in year one

·    Placing raised additional £1,150,000, cornerstoned by institutional investor

·    Successful workovers at Pine Mills

Post year end highlights:

·    Strong hedges in place at $55 - $57 per barrel, for over half production, through 31 Dec 2020

·    New Chairman appointed to the Board

·    Placing raised additional £318,000

·    Over 60% reduction in monthly overheads, versus 2019 monthly average

·    Pine Mills farmout - 32.5% WI in well, NTOG carried for 25% in first well

 Stephen Staley, Nostra Terra 's Chairman, said:

 "Since the end of the reporting period the world has changed; as I write this it remains to be seen what the new world will look like. However, following deep cost-cutting and a keen refocusing on extracting maximum value from existing and new assets, Nostra Terra is well placed to take advantage of the opportunities it will present."

 

Matt Lofgran, Nostra Terra 's Chief Executive Officer, said:

"In 2019 the strength of the Company's assets was reflected in the Twin Well in the Permian Basin which achieved payback in less than one year and at Pine Mills where payback on the entire acquisition cost was achieved in 2 years and 3 months. Both assets continue to be strong producers and areas where we are planning further growth in 2020."

 

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014

 

For further information, contact:

 

Nostra Terra Oil and Gas Company plc Matt Lofgran, CEO	Email:	+1 480 993 8933
Strand Hanson Limited (Nominated & Financial Adviser and Joint Broker) Rory Murphy / Ritchie Balmer / Jack Botros	Tel:	+44 (0) 20 7409 3494
Novum Securities Limited (Joint Broker) Jon Belliss   Lionsgate Communications (Public Relations) Jonathan Charles	Tel:     Tel:	+44 (0) 207 399 9425     +44 (0) 7791 892509

 

Chairman's Report

For the international oil industry 2019 was a generally less volatile year than 2018, with oil trading within a relatively narrow range. Nostra Terra's benchmark crude, West Texas Intermediate ("WTI"), 2019 saw prices fluctuate between $47 and $66 per barrel with an average price of around $57. However, the average WTI price in 2019 was about $7 less than the average for 2018 (source: EIA).

Against this background the Company continued to produce oil efficiently and safely from its Texan Permian Basin and Pine Mills properties. The average total daily production rates for 2019 was 92 barrels (net) compared to 102 barrels (net) in 2018, this illustrates the stability of our production base. Net proven and probable reserves increased by 276%, from 646,280 to 2,429,660 barrels, showing the progress Nostra Terra has continued to make in developing its US asset portfolio.

 

An approach by Cypress Minerals LLC during 2019 has, after the end of the reporting period, resulted in a signed farm-in agreement to an 80-acre sub-area of our Pine Mills asset. This should give Nostra Terra a 32.5% interest in a new, low-risk well in H2 2020. 25% of the well costs are to be carried by Cypress and, with success, it should increase our daily production volumes and revenues substantially.

 

In the Permian Basin the Twin Well, drilled in 2018, achieved payback in less than one year. Engineering and economics studies by Trey Resources Inc. of the Mesquite asset carried out during the year indicated 2,429,660 barrels of gross recoverable oil with an indicative NPV9 of USD $24 million.

 

The Company continued to benefit during the year from oil price hedges put in place over approximately half of its production volumes and from its $5 million Senior Lending Facility with Washington Federal bank. Both are highly valuable facilities, the latter of which enhances Nostra Terra's ability to take advantage of opportunities as they arise.

 

In February 2019 Nostra Terra conducted a successful capital raise of £1.15 million (before expenses) to support development of the Company's assets and to further strengthen its balance sheet.

 

In November 2019 the Company's wholly-owned subsidiary, Nostra Terra, Inc., reached an agreement with North Petroleum International Company SA which allowed Nostra Terra Inc., to exit the East Ghazalat Concession, onshore Egypt, whilst avoiding any past or future liabilities.

 

Since the end of the reporting period the world has changed; as I write this it remains to be seen what the new world will look like. However, following deep cost-cutting and a keen refocusing on extracting maximum value from existing and new assets, Nostra Terra is well placed to take advantage of the opportunities it will present.

 

I should like to thank our shareholders for their support; I expect the coming months to be exciting ones for Nostra Terra's investors.

 

Dr Stephen Staley

Non-Executive Chairman

30 June 2020

 

Chief Executive Officer's Report

 

In 2019 The strength of the Company's assets was reflected in the Twin Well in the Permian Basin which achieved payback in less than one year and at Pine Mills where payback on the entire acquisition cost was achieved in 2 years and 3 months. Both assets continue to be strong producers and areas where we are planning further growth in 2020.

During 2019 we progressed development of the Mesquite Asset in the Permian Basin. We completed a Field Development Plan that saw a significant increase in our reserves, primarily at Mesquite. We decided not to continue with the East Ghazalat permit in Egypt. Finally, we maintained operations at Pine Mills, successfully undertaking a workover on a well in early 2020.

Revenues for the year were $1,795,000 down from $2,267,000 in 2018, reflecting the lower commodity price environment and a small decline in production. Operating losses increased largely due to one-off legal fees of approximately US$320,000 associated with the arbitration and disposal of the East Ghazalat license, which are accounted for in Administration Expenses). During the year we raised an additional £1,150,000, without a discount to the prevailing bid of Nostra Terra's share price, allowing us to bring a new institutional investor to the Company in order to strengthen the balance sheet and progress our position at the Mesquite Asset.

 

United States

All of Nostra Terra's operations in the US target conventional reservoirs (i.e. not shale), with lower lifting costs and long-life reserves.

Pine Mills - Texas (100% Working Interest)

Pine Mills remains the core asset for Nostra Terra providing stable production. Following prior successful workovers we performed an additional workover that had good initial results. In 2020 a new powerline was run, equipment upgraded and the well was put into continuous production.

Permian Basin - Texas (50 - 75% Working Interest)

In prior years, we made three different acquisitions in the Permian Basin. These were leases that had existing, albeit nominal rates of, production. The reason for the acquisitions was to gain upside through additional drilling locations on the leases, in a proven oil field, and during a lower oil price environment. In 2018, we brought two new wells into production. In February 2019 we announced that the first well paid out in under one year, meaning production rates were strong enough to generate a return of all our well costs in a rapid manner. The second well is performing to expectations. We have numerous other potential drilling locations that we keep in inventory to potentially drill in the future.

Mesquite - Permian Basin Texas (100% Working Interest)

The Mesquite Asset, in the Permian Basin, is located in a field that is proven to produce from multiple stacked-pay reservoirs with long-established producing vertical wells that were drilled on 40-acre spacing. In recent years operators have successfully drilled wells with tighter spacing. Nostra Terra believes the Mesquite Asset has much greater development potential if drilled horizontally. The target formations at the Mesquite Asset are "tight", meaning the oil-bearing rock formations are of low permeability. As such, they have characteristics that make them ideal targets for horizontal drilling and have delivered substantial oil production in other nearby areas of the Permian Basin. This combination of multiple stacked pay targets and the potential uplift provided by drilling horizontally supports our view that the Company can achieve significantly better production and revenues compared to historical operations.

Egypt

East Ghazalat - Western Desert (50% Working Interest)

There was a dispute inherited from a prior partner regarding the Joint Operating Agreement. Since the acquisition of interest from that partner, Nostra Terra did not make any further investment in the asset. During the year we went through an arbitration process to address cash calls from the operator. In May the hearing was held at the London Court of International Arbitration ("LCIA"). In August 2019 the LCIA ruled that the cash calls needed to be paid in accordance with the Joint Operating Agreement. Nostra Terra then made a strategic decision to exit the asset, to avoid further operational and financial risk not in its control.  In November the Company reached an agreement to transfer its interest in the Concession to the operator with no cash paid nor liabilities for any past losses.

Senior Lending Facility

Nostra Terra has a $5 million Senior Lending Facility. The borrowing base at the end of the year was $1.78 million at a 5.0% interest rate, (with a variable rate of the greater of 4.25% and WSJ Rate plus 25 basis points). Post-year end the Facility was extended a further two years to 29 January 2022. This flexible facility provides an attractive opportunity to use non-dilutive funds to grow the Company.

 

Outlook
2020 has so far been a difficult time for the industry with WTI oil prices reaching negative (for a couple of days) for the first time in history. Throughout all of the downturn we have been supported by very strong hedges that we put in place, from $55.15 - $57.15 per barrel for just over half of our production through 31 December 2020. As a result, the Board has had the time to assess and implement further changes, both corporate and operational, to ensure we make it through the difficult times that the industry and the economy in general is experiencing due to Covid-19. The Board feels that we are very well positioned to grow during this time. We have started to demonstrate this, with a farmout for an undrilled area of Pine Mills, and will look to continue delivering in the weeks and months to follow.

 

Matt Lofgran

Chief Executive Officer

30 June 2020

 

Consolidated Income Statement

For the year ended 31 December 2019

 

		2019	2018
	Notes	$'000	$'000
Continuing operations
REVENUE		1,795	2,267
COST OF SALES
Production costs		(1,166)	(1,325)
Exploration		-	(298)
Well impairment		(67)	(32)
Depletion, depreciation, amortisation		(272)	(238)
Total cost of sales		(1,505)	(1,893)
GROSS PROFIT		290	374
Share based payment		(8)	(42)
Administrative expenses		(1,614)	(1,324)
Gain on sale		-	38
Foreign exchange gain/(loss)		(114)	17
OPERATING LOSS	7	(1,446)	(937)
Finance costs	5	(194)	(207)
Other (charges)/ income	6	(99)	214
LOSS BEFORE TAX		(1,739)	(930)
Income tax	8	-	-
LOSS FOR THE YEAR		(1,739)	(930)
ATTRIBUTABLE TO:
Owners of the company		(1,739)	(930)
EARNINGS PER SHARE
Continued operations
Basic & diluted (cents per share)	10	(0.92)	(0.65)

 

LOSS FOR THE PERIOD	(1,739)	(930)
OTHER COMPREHENSIVE INCOME:
Currency translation differences	-	-
Total comprehensive income for the year	(1,739)	(930)
TOTAL COMPREHENSIVE LOSS FOR THE YEAR ATTRIBUTABLE TO:
Owners of the company	(1,739)	(930)

 

 

Consolidated Statement of Financial Position

As at 31 December 2019

 

		2019	2018
	Notes	$'000	$'000
ASSETS
NON-CURRENT ASSETS
Other intangibles	11	1,787	1,873
Property, plant and equipment, Oil and gas assets	12	690	536
Total non-current assets		2,477	2,409
CURRENT ASSETS
Trade and other receivables	15	352	402
Deposits and prepayments		18	96
Other assets		108	263
Cash and cash equivalents	16	240	72
Total current assets		718	833
LIABILITIES
CURRENT LIABILITIES
Trade and other payables	17	763	642
Borrowings	18	941	723
Lease liabilities	13	16	-
Total current liabilities		1,720	1,365
NET CURRENT LIABILITIES		(1,002)	(532)
NON-CURRENT LIABILITIES
Decommissioning liabilities		239	217
Borrowings	18	1,753	1,955
Lease liabilities	13	16	-
Total non-current liabilities		2,008	2,172
NET LIABILITIES		(533)	(295)
EQUITY
Share capital	19	7,435	6,770
Share premium		20,842	19,978
Share based payment reserve		92	120
Translation reserve		(676)	(676)
Retained losses		(28,226)	(26,487)
Total equity		(533)	(295)

 

The financial statements were approved and authorised for issue by the Board of Directors on 30 June 2020 and were signed on its behalf by:

 

 

M B Lofgran

Director

Company registration number: 05338258

The accompanying accounting policies and notes are an integral part of these financial statements

 

Company Statement of Financial Position

As at 31 December 2019

 

		2019	2018
	Notes	$'000	$'000
ASSETS
NON-CURRENT ASSETS
Fixed asset investments	14	-	-
Total non-current assets		-	-
CURRENT ASSETS
Trade and other receivables	15	6	26
Cash and cash equivalents	16	152	30
Total current assets		158	56
LIABILITIES
CURRENT LIABILITIES
Trade and other payables	17	546	367
Borrowings	18	940	722
Total current liabilities		1,486	1,089
NET CURRENT LIABILITIES		(1,328)	(1,033)
NET LIABILITIES		(1,328)	(1,033)
EQUITY
Share capital		7,435	6,770
Share premium		20,842	19,978
Share based payment reserve		92	120
Translation reserve		(676)	(676)
Retained losses		(29,021)	(27,225)
Total equity		(1,328)	(1,033)

 

The financial statements were approved and authorised for issue by the Board of Directors on 30 June 2020 and were signed on its behalf by:

 

 

M B Lofgran

Director

Company registration number: 05338258

The accompanying accounting policies and notes are an integral part of these financial statements

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2019

 

	Share capital	Deferred shares	Share premium	Share option reserve	Translation reserve	Retained losses	Total
	$'000	$'000	$'000	$'000	$'000	$'000	$'000
As at 1 January 2018	192	6,549	19,105	78	(676)	(25,557)	(309)
Loss for the year	-	-	-	-	-	(930)	(930)
Total comprehensive loss for the year	-	-	-	-	-	(930)	(930)
Shares issued	29	-	873	-	-	-	902
Share based payments	-	-	-	42	-	-	42
As at 31 December 2018	221	6,549	19,978	120	(676)	(26,487)	(295)
Loss for the year	-	-	-	-	-	(1,739)	(1,739)
Total comprehensive loss for the year	-	-	-	-	-	(1,739)	(1,739)
Shares issued	665	-	941	-	-	-	1,606
Cost of shares issued	-	-	(77)	-	-	-	(77)
Share based payments	-	-	-	(28)	-	-	(28)
As at 31 December 2019	886	6,549	20,842	92	(676)	(28,226)	(533)

 

The accompanying accounting policies and notes are an integral part of these financial statements

 

Share capital is the amount subscribed for shares at nominal value.

Share premium represents the excess of the amount subscribed for share capital over the nominal value of those shares net of share issue expenses. Share issue expenses in the year comprise costs incurred in respect of the issue of new shares.

Share based payment reserve is a reserve used to recognize the cost and equity associated with the fair value of issues of share options and warrants.

Translation reserves arose due to the adoption of US dollars as the presentational currency at the start of the prior accounting period. Further information on the adjustment can be found in note 1.

Retained loss represents the cumulative losses of the company attributable to
owners of the company.

 

Company Statement of Changes in Equity

For the year ended 31 December 2019

 

	Share capital	Deferred shares	Share premium	Share option reserve	Translation reserve	Retained losses	Total
	$'000	$'000	$'000	$'000	$'000	$'000	$'000
As at 1 January 2018	192	6,549	19,105	78	(676)	(26,100)	(852)
Loss for the year	-	-	-	-	-	(1,125)	(1,125)
Total comprehensive loss for the year	-	-	-	-	-	(1,125)	(1,125)
Shares issued	29	-	873	-	-	-	902
Share based payments	-	-	-	42	-	-	-
As at 31 December 2018	221	6,549	19,978	120	(676)	(27,225)	(1,033)
Loss for the year	-	-	-	-	-	(1,796)	(1,796)
Total comprehensive loss for the year	-	-	-	-	-	(1,796)	(1,796)
Shares issued	665	-	941	-	-	-	1,606
Cost of shares issued	-	-	(77)	-	-	-	(77)
Share based payments	-	-	-	(28)	-	-	(28)
As at 31 December 2019	886	6,549	20,842	92	(676)	(29,021)	(1,328)

 

The accompanying accounting policies and notes are an integral part of these financial statements

 

Share capital is the amount subscribed for shares at nominal value.

Share premium represents the excess of the amount subscribed for share capital over the nominal value of those shares net of share issue expenses. Share issue expenses in the year comprise costs incurred in respect of the issue of new shares.

Share based payment reserve is a reserve used to recognize the cost and equity associated with the fair value of issues of share options and warrants.

Translation reserves arose due to the adoption of US dollars as the presentational currency at the start of the prior accounting period. Further information on the adjustment can be found in note 1.

Retained loss represents the cumulative losses of the company attributable to
owners of the company.

 

Consolidated and Company Statement of Cash Flows

For the year ended 31 December 2019

 

	GROUP			COMPANY
	2019	2018		2019	2018
	$'000	$'000		$'000	$'000
LOSS FOR THE YEAR	(1,739)	(930)		(1,796)	(1,125)
ADJUSTMENTS FOR:
Depreciation	138	93		-	-
Amortisation	134	145		-	-
Well impairment	67	32		-	-
Share based payments	(28)	42		(28)	42
Operating cash flows	(1,428)	(618)		(1,824)	(1,083)
Decrease/(increase) in receivables	50	(212)		20	(3)
(Increase)/decrease in other assets	153	(263)		-	-
(Decrease)/increase in payables	129	(137)		179	35
(increase)/decrease in deposits & prepayments	78	234		-	-
Interest paid	194	(41)		83	-
Net cash used in operating activities	(824)	(1,037)		(1,542)	(1,051)
Cash flows from investing activities:
Purchase of plant and equipment	(244)	-		-	-
Purchase of intangibles	(115)	(639)		-	-
Purchase of investment	-	(271)		-	-
Net cash from investing activities	(359)	(910)		-	-
Cash flows from financing activities
Shares issued	1,606	902		1,606	902
Costs of shares issued	(77)	-		(77)	-
Net borrowing	16	979		218	101
Finance costs	(178)	-		(83)	-
Lease payments	(16)	-		-	-
Net cash from financing activities	1,351	1,881		1,664	1,003
Net (decrease)/increase in cash and cash equivalents	168	(66)		122	(48)
Cash and cash equivalents at the beginning of the year	72	138		30	78
Cash and cash equivalents at the end of the year	240	72		152	30

 

The accompanying accounting policies and notes are an integral part of these financial statements.

 

Notes to the Financial Statements

For the year ended 31 December 2019

 

General Information

Nostra Terra Oil and Gas Company plc (Nostra Terra) is a company incorporated in England and Wales and quoted on the AIM market of the London Stock Exchange. The address of the registered office is disclosed on the company information page of this annual report. The principal activity of the group is described in the directors' report.

 

1. Summary of significant accounting policies

The financial statements are presented in United States Dollars, rounded to the nearest $'000, as that is the currency of the primary environment in which the Group operates.

The principal accounting policies applied in the preparation of these financial statements are set out below.  These policies have been consistently applied to all the years presented, unless otherwise stated.

 

Basis of preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations issued by the International Accounting Standards Board (IASB) as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared under the historical cost convention.

The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 2.

 

Going concern

The financial statements have been prepared on the assumption that the group is a going concern. When assessing the foreseeable future, the directors have looked at a period of 12 months from the date of approval of this report.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive Officer's report and Directors report. In addition, note 20 to the financial statements includes the group's objectives, policies and processes for managing its capital; its financial risk management objectives; and its exposures to credit risk and liquidity risk.

The Group's forecasts and projections, taking account of reasonable possible changes in trading performance, show that the group should be able to operate within the level of its current cash resources. This takes into account the post year end share issue for £318k and draw downs on the facility with Washington Federal Bank, which was extended to 2022 in January 2020., and/or potential equity issue. The directors have no reason to believe that drawdown on the facility cannot be achieved. One of the loan covenants is that an intercompany loan between the company and New Horizon Energy LLC is capitalised. This has yet to occur.

The directors are aware of this and are taking steps to resolve this issue.

After making enquiries, the directors have a reasonable expectation that the company and group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the annual report and financial statements.

 

New standards, amendments and interpretations adopted by the Group and Company

The Group and Company have applied the following new and amended standards for the first time for its annual reporting period commencing 1 January 2019:

·      IFRS 16 Leases

·      Annual improvements to IFRS Standards 2015-2017 Cycle

·      Interpretation 23 'Uncertainty over Income Tax Treatments'

These new and amended standards have not had a material effect on the Group and Company financial statements.

The Group has adopted the following new accounting pronouncement which became effective this year:

 

IFRS 16 Leases

IFRS 16 'Leases' replaces IAS 17 'Leases' along with three Interpretations (IFRIC 4 'Determining whether an arrangement contains a Lease', SIC 15 'Operating Leases-Incentives' and SIC 27 'Evaluating the Substance of Transactions Involving the Legal Form of a Lease').

The adoption of this new Standard has resulted in the Group recognising a right-of-use asset and related lease liability in connection with a former operating lease.

The new Standard has been applied using the modified retrospective approach, with the cumulative effect of adopting IFRS 16 being recognised in equity as an adjustment to the opening balance of retained earnings for the current period. Prior periods have not been restated.

For contracts in place at the date of initial application, the Group has elected to apply the definition of a lease from IAS 17 and IFRIC 4 and has not applied IFRS 16 to arrangements that were previously not identified as lease under IAS 17 and IFRIC 4.

The Group has elected not to include initial direct costs in the measurement of the right-of-use asset for operating leases in existence at the date of initial application of IFRS 16, being 1 January 2019. At this date, the Group has also elected to measure the right-of-use assets at an amount equal to the lease liability adjusted for any prepaid or accrued lease payments that existed at the date of transition.

Instead of performing an impairment review on the right-of-use assets at the date of initial application, the Group has relied on its historic assessment as to whether leases were onerous immediately before the date of initial application of IFRS 16.

On transition to IFRS 16 the weighted average incremental borrowing rate applied to lease liabilities recognised under IFRS 16 was 6.5%.

The Group has benefited from the use of hindsight for determining the lease term when considering options to extend and terminate leases.

The following is a reconciliation of the financial statement line items from IAS 17 to IFRS 16 at 1 January 2019:

	Carrying amount at 31 December 2018 $'000	Reclassification $'000	Remeasurement $'000	IFRS 16 carrying amount at 1 January 2019 $'000
Property, plant and equipment	536	-	48	584
Lease liabilities	-	-	(48)	(48)
Total	536	-	-	536

 

 

New standards, amendments and interpretations adopted by the Group and Company (continued)

 

The following is a reconciliation of total operating lease commitments at 31 December 2018 (as disclosed in the financial statements to 31 December 2018) to the lease liabilities recognised at 1 January 2019:

		$'000
Total operating lease commitments disclosed at 31 December 2018		-
Recognition exemptions:
Operating lease liabilities before discounting		49
Discounted using incremental borrowing rate		(1)
Operating lease liabilities		48
Finance lease obligations (Note 13)		-
Total lease liabilities recognised under IFRS 16 at 1 January 2019		48

 

New standards, amendments and interpretations not yet adopted

There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group and Company.

 

Basis of consolidation

Where the company has the power, either directly or indirectly, to govern the financial and operating policies of another entity or business so as to obtain benefits from its activities, it is classified as a subsidiary. The consolidated financial statements present the results of the company and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full.

The consolidated financial statements incorporate the results of business combinations using the purchase method. In the statement of financial position, the acquiree's identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date control ceases.

 

Subsidiaries

The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

 

Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the group's share of the net identifiable assets of the acquired subsidiary or associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in 'intangible assets'. Separately recognised goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The group allocates goodwill to each business segment in each country in which it operates.

 

Impairment of non-financial assets

Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimated 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 asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried art a revalued amount in which case the reversal of impairment loss is treated a revaluation increase.

 

Property, plant and equipment

Tangible non-current assets are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial year in which they are incurred. Depreciation is provided at the following annual rates in order to write off each asset over its estimated useful life:

Plant and machinery - over 7 years

The assets' residual values and useful economic lives are reviewed, and adjusted if appropriate, at each statement of financial position date. An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable value. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other (losses) or gains in the income statement. When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.

 

Investments

Investments are stated at cost less provision for any impairment value.

 

Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held on call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.

 

Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment 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. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired.

 

Functional currency translation

(i) Functional and presentation currency

Items included in the financial statements of the group are measured using the currency of the primary economic environment in which the entity operates (the functional currency), which is mainly United States Dollars (US$). The financial statements are presented in United States Dollars (US$), which is the group's presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the presentational currency using 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 income statement.

(iii) Group Companies

All consolidated entities are presented in US$ and so no translation is required on consolidation.

 

Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

 

Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the year of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

 

Share capital

Ordinary shares are classified as equity.

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

 

Taxation

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

 

Deferred tax

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary arises from goodwill or from the initial recognition) other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax is reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited directly to equity; in which case the deferred tax is also dealt with in equity.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and 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.

 

Financial instruments

Financial assets and financial liabilities are initially classified as measured at amortised cost, fair value through other comprehensive income, or fair value through profit and loss when the group becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the contractual rights to the cash flows expire, or the group no longer retains the significant risks or rewards of ownership of the financial asset. Financial liabilities are derecognised when the obligation is discharged, cancelled or expires.

Financial assets are classified dependent on the group's business model for managing the financial and the cash flow characteristics of the asset. Financial liabilities are classified and measured at amortised cost except for trading liabilities, or where designated at original recognition to achieve more relevant presentation. The group classifies its financial assets and liabilities into the following categories:

 

Financial assets at amortised cost

The group's financial assets at amortised cost comprise trade and other receivables. These represent debt instruments with fixed or determinable payments that represent principal or interest and where the intention is to hold to collect these contractual cash flows.  They are initially recognised at fair value, included in current and non-current assets, depending on the nature of the transaction, and are subsequently measured at amortised cost using the effective interest method less any provision for impairment.

 

Impairment of trade and other receivables

In accordance with IFRS 9 an expected loss provisioning model is used to calculate an impairment provision. We have implemented the IFRS 9 simplified approach to measuring expected credit losses arising from trade and other receivables, being a lifetime expected credit loss. This is calculated based on an evaluation of our historic experience plus an adjustment based on our judgement of whether this historic experience is likely reflective of our view of the future at the balance sheet date. In the previous year the incurred loss model is used to calculate the impairment provision.

 

Financial liabilities at amortised cost

Financial liabilities at amortised cost comprise finance lease obligations and trade and other payables. They are classified as current and non-current liabilities depending on the nature of the transaction, are subsequently measured at amortised cost using the effective interest method.

 

Financial assets at fair value through profit and loss

The group holds a derivative against the price of oil held for operation purposes. These are recognised and measured at fair value using the most recent available market price with gains and losses recognised immediately in the profit and loss.

The fair value measurement of the group's financial and non- financial assets and liabilities utilises market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorised into different levels based on how observable the inputs used in the valuation technique utilised are (the 'fair value hierarchy').

Level 1   Quoted prices in active markets

Level 2   Observable direct or indirect inputs other than Level 1 inputs

Level 3   Inputs that are not based on observable market data

The group measures financial instruments relating to platform holdings at fair value using Level 1.

The company provides financial guarantees to licensed banks for credit facilities extended to a subsidiary company. The fair value of such financial guarantees is not expected to be significantly different as the probability of the subsidiary company defaulting on the credit lines is remote.

 

Oil and gas assets

The group applies the successful efforts method of accounting for oil and gas assets and has adopted IFRS 6 Exploration for and evaluation of mineral resources.

 

Exploration and evaluation ("E&E") assets

Under the successful efforts method of accounting, all licence acquisition, exploration and appraisal costs are initially capitalised in well, field or specific exploration cost centres as appropriate, pending determination. Expenditure incurred during the various exploration and appraisal phases is then written off unless commercial reserves have been established or the determination process has not been completed.

 

Pre-licence costs

Costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement as they are incurred.

 

Exploration and evaluation ("E&E") costs

Costs of E&E are initially capitalised as E&E assets. Payments to acquire the legal right to explore, together with the directly related costs of technical services and studies, seismic acquisition, exploratory drilling and testing are capitalised as intangible E&E assets.

Tangible assets used in E&E activities (such as the group's drilling rigs, seismic equipment and other property, plant and equipment used by the company's exploration function) are classified as property, plant and equipment. However, to the extent that such a tangible asset is consumed in developing an intangible E&E asset, the amount reflecting that consumption is recorded as part of the cost of the intangible asset. Such intangible costs include directly attributable overheads, including the depreciation of property, plant and equipment utilised in E&E activities, together with the cost of other materials consumed during the exploration and evaluation phases.

E&E costs are not amortised prior to the conclusion of appraisal activities.

 

Treatment of E&E assets at conclusion of appraisal activities

Intangible E&E assets relating to each exploration licence/prospect are carried forward until the existence (or otherwise) of commercial reserves has been determined, subject to certain limitations including review for indications of impairment. If commercial reserves are discovered the carrying value, after any impairment loss of the relevant E&E assets, is then reclassified as development and production assets. If, however, commercial reserves are not found, the capitalised costs are charged to expense after conclusion of appraisal activities.

 

Development and production assets

Development and production assets are accumulated generally on a field-by-field basis and represent the cost of developing the commercial reserves discovered and bringing them into production, together with the E&E expenditures incurred in finding commercial reserves transferred from intangible E&E assets as outlined above.

The cost of development and production assets also includes the cost of acquisitions and purchases of such assets, directly attributable overheads and the cost of recognising provisions for future restoration and decommissioning.

 

Decommission liability

Where a material liability for the removal of production facilities and site restoration at the end of the productive life of the assets exist, a provision for decommissioning liability is recognised. The amount recognised is the present value of estimated future expenditure determined in accordance with local conditions and requirements. An intangible asset of an amount equivalent to the provision is recognised and depreciated on a unit production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated intangible asset. Period changes in the present value arising from discounting are included in depletion, depreciation and amortisation cost in cost of sales.

 

Commercial reserves

Commercial reserves are proven and probable oil and gas reserves, which are defined as the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible.

 

Depletion, amortisation and impairment of oil and gas assets

All expenditure carried within each field is amortised from the commencement of production on a unit of production basis, which is the ratio of oil and gas production in the period to the estimated quantities of commercial reserves at the end of the period plus the production in the period, on a field-by-field basis. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs to access the related commercial reserves. Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively.

Where there has been a change in economic conditions that indicates a possible impairment in an oil and gas asset, the recoverability of the net book value relating to that field is assessed by comparison with the estimated discounted future cash flows based on management's expectations of future oil and gas prices and future costs. Any impairment identified is charged to the income statement as additional depletion and amortisation. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the income statement, net of any depreciation that would have been charged since the impairment.

 

Share-based compensation

The fair value of the employee and suppliers' services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting year is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets).

Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each statement of financial position date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

The fair value of share-based payments recognised in the statement of comprehensive income is measured by use of the Black Scholes model, which takes into account conditions attached to the vesting and exercise of the equity instruments. The expected life used in the model is adjusted; based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The share price volatility percentage factor used in the calculation is based on management's best estimate of future share price behaviour and is selected based on past experience, future expectations and benchmarks against peer companies in the industry.

The Group does not operate any cash-settled share-based payments and as such are not affected by the amendments to IFRS 2 - Share-based payments.

 

Revenue recognition

Revenue comprises the fair value of the consideration received or receivable in relation to the proceeds by the prospects which the company has a working interest in. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the group. Revenue is recognised when the oil and gas produced is despatched and received by the customers. The directors consider this the point when the Company's performance obligation is satisfied.

The directors consider that revenue generation is exclusively for oil production in the US and so no further segmentation is required.

 

Leased assets

As described in the New standards, amendments and interpretations adopted by the Group and Company above, the Group has applied IFRS 16 using the modified retrospective approach and therefore comparative information has not been restated. This means comparative information is still reported under IAS 17 and IFRIC 4.

 

Accounting policy applicable from 1 January 2019

The Group as a lessee

For any new contracts entered into on or after 1 January 2019, the Group considers whether a contract is, or contains a lease. A lease is defined as 'a contract, or part of a contract, that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration'.

To apply this definition the Group assesses whether the contract meets three key evaluations which are whether:

·      the contract contains an identified asset, which is either explicitly identified in the contract or implicitly specified by being identified at the time the asset is made available to the Group

·      the Group has the right to obtain substantially all of the economic benefits from use of the identified asset throughout the period of use, considering its rights within the defined scope of the contract

·      the Group has the right to direct the use of the identified asset throughout the period of use. The Group assess whether it has the right to direct 'how and for what purpose' the asset is used throughout the period of use.

 

Measurement and recognition of leases as a lessee

At lease commencement date, the Group recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Group, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received). 

The Group depreciates the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Group also assesses the right-of-use asset for impairment when such indicators exist.

At the commencement date, the Group measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Group's incremental borrowing rate.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

The Group has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognising a right-of-use asset and lease liability, the payments in relation to these are recognised as an expense in profit or loss on a straight-line basis over the lease term.

On the statement of financial position, right-of-use assets have been included in property, plant and equipment and lease liabilities have been included in trade and other payables.

 

Leased assets (continued)

 

Accounting policy applicable before 1 January 2019

The Group as a lessee

Operating leases

All leases other than finance leases are treated as operating leases. Where the Group is a lessee, payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

 

2. Critical accounting estimates and judgements

The preparation of consolidated financial statements requires the group to make estimates and assumptions that affect the application of policies and reported amounts. Estimates and judgments are continually evaluated and are based on historical experience and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. The estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are discussed below:

 

Impairment of property, plant and equipment

Property, plant and equipment are reviewed for impairment if events or changes in circumstances indicate that the carrying amount may not be recoverable. When a review for impairment is conducted, the recoverable amount is determined based on value in use calculations prepared on the basis of management's assumptions and estimates.

 

Recoverability of exploration and evaluation costs

E&E assets are assessed for impairment when circumstances suggest that the carrying amount may exceed its recoverable value including decommissioning costs. This assessment involves judgment as to (i) the likely future commerciality of the asset and when such commerciality should be determined, and (ii) future revenues and costs pertaining to the asset in question, and the discount rate to be applied to such revenues and costs for the purpose of deriving a recoverable value.

 

Share-based payments

Note 1 sets out the group's accounting policy on share-based payments, specifically in relation to the share options and warrants that the company has granted. The key assumptions underlying the fair value of such share-based payments are discussed in note 23. The fair value amounts used by the group have been derived by external consultants using standard recognised valuation techniques.

 

3. Segmental analysis

In the opinion of the directors, the group has one class of business, being the exploitation of hydrocarbon resources.

The group's primary reporting format is determined by geographical segment according to the location of the hydrocarbon assets. The group's reportable segments under IFRS 8 in the year are as follows:

United Kingdom being the head office.

US Mid-Continent properties at year end included the following:

·      Texas: 100% working interest in the Pine Mills Project Unit

·      Texas: 50-75% working interest in the Permian Basin

·      Texas: 100% working interest in the Mesquite assets in the Permian Basin

 

The chief operating decision maker's internal report for the year ended 31 December 2019 is based on the location of the oil properties as disclosed in the below table:

 

SEGMENTAL RESULTS	US mid-continent 2019 $'000	Head office 2019 $'000	Total 2019 $'000
Revenue	1,795	-	1,795
Operating profit (loss) before depreciation, well impairment, share-based payment charges, restructuring costs and gain (loss) on sale of assets and foreign exchange:	708	(1,694)	(895)
Depreciation of tangibles	(138)	-	(138)
Amortisation of intangibles	(134)	-	(134)
Exploration	-	-	-
Well impairment	(67)	-	(67)
Share based payments	-	(8)	(8)
Realised exchange loss	(109)	(5)	(114)
Operating profit/ (loss)	261	(1,707)	(1,446)
Finance expense	(110)	(84)	(194)
Other income (expense)	(99)	-	(99)
Profit/ (loss) before taxation	52	(1,791)	(1,739)
SEGMENTAL ASSETS
Property, plant and equipment	690	-	690
Intangible assets	1,787	-	1,787
Cash and cash equivalents	240	152	392
Trade and other receivables	352	6	358
Other assets	126	-	126
	3,195	158	3,353

 

The chief operating decision maker's internal report for the year ended 31 December 2018 is based on the location of the oil properties as disclosed in the below table:

 

SEGMENTAL RESULTS	US mid-continent 2018 $'000	Head office 2018 $'000	Total 2018 $'000
Revenue	2,267	-	2,267
Operating profit (loss) before depreciation, well impairment, share-based payment charges, restructuring costs and gain (loss) on sale of assets and foreign exchange:	812	(1,287)	(475)
Depreciation of tangibles	(93)	-	(93)
Amortisation of intangibles	(145)	-	(145)
Exploration	(289)	-	(289)
Well impairment	(32)	-	(32)
Share based payments	-	42	42
Realised exchange (loss)/gain	-	17	17
Gain from sale of assets	38	-	38
Operating profit/ (loss)	291	(1,228)	(937)
Finance expense	(47)	(160)	(207)
Other income (expense)	226	(12)	214
Profit/ (loss) before taxation	195	(1,125)	(930)
SEGMENTAL ASSETS
Property, plant and equipment	536	-	536
Intangible assets	1,873	-	1,873
Cash and cash equivalents	42	30	72
Trade and other receivables	376	26	402
Other assets	359	-	359
	3,186	56	3,242

 

4. Employees and Directors