REG - Block Energy PLC - Audited Results
01/07/2022 07:00
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RNS Number : 9232Q Block Energy PLC 01 July 2022
Block Energy Plc
("Block" or the "Company")
Audited Results for the Year Ended 31 December 2021
Block Energy plc, the development and production company focused on Georgia,
is pleased to announce its audited results for the year ended 31 December
2021.
Block's Annual Report is available on the Company's website at
www.blockenergy.co.uk (http://www.blockenergy.co.uk) and will be sent to
shareholders later today.
Highlights:
· Successfully integrated the SRCL assets acquired from
Schlumberger and defined an asset wide field development and production
enhancement plan
· Commenced gas sales in February 2021, following completion of the
Early Production Facility and associated gas gathering line
· Delivered on multipleobjectives set for 2021:
o Fully integrated the substantial technical data base, following
completion of the acquisition of SRCL,
o Completed a risking and ranking process, focussed on short term drilling
and production enhancement opportunities across the enlarged portfolio,
o Defined a two-well drilling programme consisting of a new horizontal
well, designed to appraise areas of low fracture density in the XIF license
and a side track of an existing well, in the newly acquired XIB license,
whilst simultaneously executing a workover programme structured to reverse the
natural decline of our baseline production
· Well JKT-01Z drilled and brought into production at 344 boepd,
with rapid pay-back of drilling capex
· Production enhancement programme, continues to deliver restoring
and enhancing baseline production
· Information gathered via the drilling of well WR-B01a and well
JKT-01Z have directly supported the Project I development plan of 5 oil wells,
due to commence in 2022
· Asset wide study has defined two further projects:
o Project II - the infill development of the Middle Eocene oil reservoir
in the Patardzeuli oil field in Block XIB, and
o Project III - the appraisal and development of the natural gas resources
in the Lower Eocene throughout the XIF and XIB license areas.
· Over 399,000 operational man man-hours worked during the year,
without any lost time incidents
· Development of a 3 Project strategy, tailored to provide
additional short & medium term cashflows and unlock significant gas
potential.
Block Energy plc's Chief Executive Officer, Paul Haywood, said:
"The Company swiftly integrated and advanced the appraisal and development
opportunities throughout its enlarged portfolio in 2021. It also delivered on
a key milestones, including commencing gas sales and execution of a multi well
drilling campaign."
"This relentless drive to advance the Company and maintain consistent momentum
has placed it in a stronger position to continue to create value for all
shareholders in the current year. The planned three project strategy is
designed to efficiently deploy existing cash reserves into further development
drilling, throughout the XIF and XIB licenses."
"This, combined with our enhanced understanding of the subsurface and the
Company being profitable, sets the stage for what we forecast to be a
rewarding year and we look forward to updating shareholders on short and
medium term milestones as we advance".
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE UK
VERSION OF THE MARKET ABUSE REGULATION NO 596/2014 WHICH IS PART OF ENGLISH
LAW BY VIRTUE OF THE EUROPEAN (WITHDRAWAL) ACT 2018, AS AMENDED. ON
PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS
INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN.
For further information please visit http://www.blockenergy.co.uk/ or contact:
Paul Haywood Block Energy plc Tel: +44 (0)20 3468 9891
(Chief Executive Officer)
Neil Baldwin Spark Advisory Partners Limited Tel: +44 (0)20 3368 3554
(Nominated Adviser)
Peter Krens Tennyson Securities Tel: +44 (0)20 7186 9030
(Corporate Broker)
Mark Antelme Celicourt Communications Tel: +44 (0)20 8434 2643
Philip Dennis
(Financial PR Adviser)
Chairman's Statement
Despite the challenges posed by the ongoing pandemic, we delivered on our key
milestones during the year 2021, placing us in a good position to make solid
progress this year and beyond.
Our main objectives for 2021 were:
· to build on our understanding of the subsurface, to support
future drilling and production success; and
· to deliver a two-well drilling programme and a workover
programme, to augment the existing production from existing wells.
The first objective was of strategic importance. By using attribute analysis
of the 3D-seismic survey that we acquired on West Rustavi Block XI(F) and the
data acquired by a previous operator on Block XI(B), our geoscience team has
made a significant improvement in understanding the nature of our complex
Eocene oil and gas reservoirs.
This understanding has enabled us to make the investment case for Block Energy
in 2022 by defining three appraisal and development projects:
· Project I, the development of the Middle Eocene oil reservoir in
the West Rustavi/Krtsanisi field which straddles Blocks XI(F) and XI(B);
· Project II, the infill development of the Middle Eocene oil
reservoir in the Patardzeuli oil field in Block XI(B); and
· Project III, the appraisal and development of the natural gas
resources throughout the Eocene in Blocks XI(F) and XI(B).
Projects I and II will provide additional cash flow in the short to medium
term from the sale of crude oil and natural gas while Project III promises to
add significant value by better defining and ultimately monetising the
extensive natural gas resources that lie under our portfolio of leases. This
makes an attractive investment case, particularly at current oil prices, which
should work well in Georgia, where the complexity of the subsurface geology is
offset by the positive and supportive regulatory framework. The result, we
believe, is an excellent balance of risk and reward.
We appreciate that the risk relating to individual development wells is
significant when compared to many other regions of the world where reservoirs
are simpler. We think the best way to look at Block Energy is to consider
the totality of the opportunities in the planned portfolio of wells, rather
than on a well-by-well basis. The nature of the geological risk means that
some wells will always be more successful than others, but our operations team
is driving costs down by a combination of careful planning, hard-nosed
contracting and the introduction of innovative techniques. This will make
payback on the successful wells rapid, particularly at the current oil price,
as well as reducing the cost of any less successful wells. So, providing each
portfolio of new wells is successful as a whole in adding to production, we,
the shareholders, will see material returns on the investments made and our
strategy going forward is to increase the number and frequency of wells that
we drill.
We plan to commence Project I later this year which entails drilling five oil
wells in the Krtsanisi anticline, newly recognised in the West
Rustavi/Krtsanisi field.
The achievement of the second objective for 2021, reflected in the success of
well JKT-01Z, in terms of cost, placement of the horizontal and production
rate, and, ironically, the disappointing production rate from WR-B1 also was
an important contributor to the first strategic objective.
None of this, of course, would be possible without the dedication and
commitment shown by our team of 120 people in Georgia and six in London; a
commitment that is reflected in their readiness to learn and adapt to deliver
for us as the shareholders of our Company. I congratulate our people on
quickly coming together after the acquisition of the Schlumberger subsidiary
to form a unified and effective team. On behalf of the Board and shareholders,
I take the opportunity to thank them for their dedication and the tremendous
effort they make.
Despite the challenges of last year, your Company now has a stronger platform
on which to realise its potential. On behalf of the Board, I would like to
thank you all for your support. We look forward to engaging with you with
further updates as the rest of the year unfolds.
Philip Dimmock
Non- Executive Chairman
Chief Executive Officer's Statement
In 2021, we saw a material improvement in the global demand for oil and gas.
This really took hold in the latter part of the year as the world emerged from
Covid-19 and economies began to recover. The Company benefits from much
improved oil pricing, which strengthens our business case and enhances the
platform to deliver Projects .
Despite the challenging environment last year, the Board considered it vital
to continue with prudent investments to progress the business. Now, a year
later, we are seeing the benefits of those decisions, with the Company's
revenue more than covering cash costs and enabling us to reinvest more revenue
in future development.
Operations
Following the acquisition and integration of Blocks IX and XI(B), our Company
embarked on two key initiatives during 2021, both aimed at maximising
production from our enlarged portfolio. These initiatives included a two-well
drilling programme to enhance production levels and a workover programme
tailored to maximise production from our existing well stock.
These two initiatives came on the back of actions put in place in 2020 to
monetise gas production; the success of which was realised in 2021, with gas
sales commencing in February through the the Early Production Facility ("EPF")
and associated gas gathering line installed in 2020. The Company's investment
in these facilities paid further dividends in 2021 and 2022, with the
immediate tie-in and monetising of oil and gas produced from the WR-B01a and
JKT-01Z wells.
Two Well Programme
Planning for the first of the two wells commenced early in 2021, with the aim
of drilling WR-B01 around mid-year.
The objective of well WR-B01, Georgia's first horizontal well, was to
establish consistent production by targeting an area of the reservoir that was
less prone to fractures, . We learnt that the limited extent of the fracture
networks adversely affected the overall well productivity.
The information received from drilling the WR-B01a well enabled the Company to
calibrate its subsurface model, ahead of drilling the second well in the
programme, JKT-01Z.
JKT-01Z was spudded in December 2021. The well was delivered early in 2022,
significantly ahead of time and under budget.
The rapid tie-in and monetisation of production from well JKT-01Z was made
possible by the recently installed infrastructure at an adjacent well, KRT-39,
which has been in production for over 20 years. JKT-01Z produced at a rate of
344 boepd, validating the Company's improved understanding of the reservoir.
It remains a solid contributor to the Company's overall production and cash
flow profile, having already paid back the well-drilling capex in line with
forecast, whilst directly informing the Project I development plan.
Workover and Other Programmes
Through 2021, the operations team continued to execute well maintenance and
production enhancement intervention . This followed a well-by-well opportunity
review that took place early in the year.
As part of that programme, well WR-38Z and WR-16aZ were both brought back into
production in Q1, and both wells required further work during the year to
support ongoing production. WR-16aZ produced intermittently during the first
half and was supported by the installation of artificial lift in Q3. WR-38Z
was on production more consistently, but experienced natural decline, which
was more than offset by the production gains from installing the rod pump on
WR-16aZ.
Later in the year, we undertook a production enhancement programme, comprising
technical well interventions, such as wellbore cleaning and replacing
artificial lift components. This programme was focussed on supporting
near-term production, whilst informing our technical evaluation of the mature
development areas throughout Block XI(B), specifically the Patardzeuli field
(which produced 100 MMbbls of oil). The team have since designed a staged
infill development programme, which seeks to recover over 97 million barrels
of remaining oil from undrained areas of this once-prolific field (Project
II).
In a separate initiative, upgrading surface facilities at well KRT-39 in Block
XI(B) enabled the monetisation from January 2022 of the associated gas
production from KRT-39 and JKT-01Z, boosting the Company's revenue whilst
supporting strategic plans to advance the appraisal and development of the
significant contingent gas resources across our portfolio (Project III).
Health & safety and ESG
Over 399,000 operational man man-hours were worked by staff and contractors
over during the year, without any lost time incidents. This is a significant
achievement and reflects the Company's importance on health and safety. It
also demonstrates the quality and diligence of the management team on-site and
their ongoing dedication to working to the highest standards within the
industry.
As part of the drive to improve the Company's ESG credentials, we were pleased
to be accepted into the UN Global Compact Network ("UNGCN"). The UNGCN is a
global platform promoting engagement on human rights, labour, environmental
and anti-corruption standards.
Through its increased focus on gas, the transition fuel, over the course of
2021, Block also reduced its emissions on a sales-weighted basis. By selling
associated gas produced, Block no longer has to flare it. Furthermore, by
selling gas into the automobile fuel market, the Company reduces regional
transport emissions by displacing higher carbon and more emissions-intensive
alternative fuels.
Outlook
The Company is now benefitting from the various initiatives undertaken during
2021 to support production growth and a broader oil development and gas
appraisal programme. The Company has built an excellent portfolio of assets
and the exercise of strict capital discipline, combined with the benefits from
higher oil and gas prices, places us in a great position to develop them
further in the year ahead. Supported by our cash flow positive business and
non-dilutive development financing options being explored, we plan to step up
the rate of drilling in 2022 and 2023, to increase oil production and appraise
the deeper gas play within our licences, which we believe contains substantial
gas resources. The robust domestic and regional demand for gas, and the
unrestricted direct access to European markets support the development of as
much gas as possible.
Paul Haywood
Chief Executive Officer
Chief Financial Officer's Statement
Balance sheet - acquisitions, capital expenditure, equity placing and asset
growth
In November 2020, Block Energy Plc acquired 100% of the shares of Block
Rustaveli Limited (formerly Schlumberger Rustaveli Company Limited), which
holds the PSCs to Blocks IX and XI(B) in Georgia, for $6.8 million
consideration, which comprised $7.1 million in nil-cost options to acquire
shares in Block Energy Plc less $0.3 million cash from the seller to adjust
the consideration for liabilities that were for the seller's account. The
assets and liabilities acquired, which are detailed in note 12 to the
consolidated financial statements include the following fair values: $6.3
million of development and production assets, $1.0 million of crude oil
inventory, $1.5 million of materials inventory, $1.6 million of
decommissioning liabilities and $0.9 million of other liabilities.
The Group's net assets have decreased from $29,694,000 as at 31 December 2020
to $27,065,000 as at 31 December 2021. At the end of the year, the Group's
cash balance was $1,244,000 (2020: $6,331,000).
Income statement
The Group's revenue increased to $6,114,000 (2020: $1,255,000) and other
income included $5,000 (2020: $100,000) for sales of materials. The current
year revenue from sales of crude oil of $5,518,000 (2020: $1,255,000)
comprised the sale of 86,700 barrels (2020: 34,421barrels) of oil, which
equated to average revenue of $63.65 (2020: $36.45) per barrel.
During the year, the Group produced 108,000 barrels of crude oil (2020: 25,000
barrels), with the increase in production being due primarily to oil and gas
produced from the wells in Block XIB (acquired in late 2020) and from new
wells/sidetracks. This gross production includes the state of Georgia's share
of production.
In addition, the Group had over 20,000 barrels of crude oil inventory as at 31
December 2021 (31 December 2020: over 28,000 barrels). Following the year end,
during the quarter ended 31 March 2022, the Group sold 24,413 barrels of crude
oil inventory for net revenue of $2.168 million, which equates to average
revenue of $88.80 per barrel (Q1 2021: sold 26,349 barrels for $1.374 million
or $52.18 per barrel).
The Group commenced gas sales on 15 February 2021 and, during the period from
15 February 2021 to 31 December 2021, it sold 191.5 Mcf of gas for net revenue
of $596,000, which equates to an average gas price of $3.11 per Mcf (2020:
sold nil Mcf).
The loss for the year was $4,783,000 as compared with a $5,512,000 loss in the
prior year. During the year, the Group had not yet achieved sufficient scale
for the revenue to cover the Group's costs.
Future prospects
During Q1 2022, the Company produced 32.1 Mbbls of oil and 14.0 Mboe of gas,
resulting in a combined total of 46.1 Mboe of oil and gas (Q1 2021: produced
29.8 Mbbls of oil and 14.6 Mboe of gas, resulting in a combined total of 44.4
Mboe of oil and gas). The average production rate for Q1 2022 was 512 boepd
(Q1 2021: 493 boepd).
The Company has always been focused on controlling administration costs and
continues to keep these to a minimum. We maintain a low-cost operation, and
our Georgian portfolio offers a low-cost short-cycle production base.
Liquidity, counterparty risk and going concern
The Group monitors its cash position, cash forecasts and liquidity regularly
and has a conservative approach to cash management, with surplus cash held on
term deposits with major financial institutions.
The directors have prepared cash flow forecasts for a period of 18 months from
the date of signing these financial statements. The Group's forecasts are
reviewed regularly to assess whether any actions to curtail expenditure or cut
costs are required. The Group is in the final stages of preparing to drill a
horizontal sidetrack in the WR-B01 well followed by sidetracks of other wells.
The forecasts assume the wells will produce oil and gas, which would be sold,
and indicate the Group has sufficient funds to complete the drilling of the
wells and to meet its liabilities as they fall due until December 2023.
However, if any of the new wells do not produce commercial quantities of oil
or gas, the Group would immediately revisit its plans to drill subsequent
wells. The financial benefit of any additional capital projects would be
assessed against capital requirements and balanced with ensuring that the
Group and the Company can continue to meet their liabilities and commitments
through to December 2023. The Company's forecasts are considered together with
the Group's forecasts.
The Group's operations presently generate sufficient revenues to cover
operating costs and capital expenditures, supporting the continued preparation
of the Group's accounts on a going concern basis. The directors are
nevertheless conscious that oil prices have risen rapidly during the past
twelve months due in part to recent global political uncertainty, and could
rise further but could also fall back in the year ahead, and that future
production levels depend in part on the success of future drilling. As part of
their going concern assessment, the directors have performed a reverse stress
test on a low oil price scenario in which future drilling is inhibited or
unsuccessful, and have concluded that it remains possible that future
revenues in such a scenario might not cover all operating costs and planned
capital expenditures, creating a material uncertainty that may cast doubt over
the Group's ability to continue as a going concern. Whilst acknowledging this
material uncertainty, the directors remain confident of making further cost
savings and/or raising finance when required, and therefore the directors
consider it appropriate to prepare the financial statements on a going concern
basis. The financial statements do not include the adjustments that would
result if the Group were unable to continue as a going concern.
Results and dividends
The results for the year and the financial position of the Group are shown in
the following financial statements. The Group has incurred a pre-tax loss of
$4,783,000 (2020: loss of $5,512,000).
The Group has net assets of $27,065,000 (2020: net assets of $29,694,000).
The directors do not recommend the payment of a dividend (2020: $nil).
William McAvock
Chief Financial Officer
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2021
Note Year ended 31 December 2021 Year ended 31 December 2020
( )
Continuing operations $'000 $'000
Revenue 4 6,114 1,255
Other cost of sales (2,982) (2,203)
Depreciation and depletion of oil and gas assets 5 (2,901) (781)
Total cost of sales (5,883) (2,984)
Gross profit / (loss) 231 (1,729)
Other administrative costs (3,432) (3,295)
Share based payments charge (1,494) (641)
Total administrative expenses 6,7 (4,926) (3,936)
Foreign exchange movement (6) 49
Operating loss (4,701) (5,616)
Finance income 8 - 14
Other income 9 5 100
Finance expense (87) (10)
Loss for the year before taxation (4,783) (5,512)
Taxation 10 - -
Loss for the year from continuing operations (attributable to the equity (4,783) (5,512)
holders of the parent)
Items that may be reclassified subsequently to profit and loss:
Exchange differences on translation of foreign operations 202 (389)
Total comprehensive loss for the year (attributable to the equity holders of (4,581) (5,901)
the parent)
Loss per share basic and diluted 11 (0.76)c (1.31)c
All activities relate to continuing operations.
The notes on the following pages form part of these consolidated financial
statements.
31 December 2021 31 December 2020
Note $'000 $'000
Non-current assets
Property, plant and equipment 13 24,345 21,311
Current assets
Inventory 14 4,585 4,114
Trade and other receivables 16 752 2,256
Cash and cash equivalents 17 1,244 6,331
Total current assets 6,581 12,701
Total assets 30,926 34,012
Equity and liabilities
Capital and reserves attributable to equity holders of the Parent Company:
Share capital 19 3,482 3,353
Share premium 20 34,625 34,234
Other reserves 21 10,260 9,120
Foreign exchange reserve 246 44
Accumulated deficit (21,548) (17,057)
Total equity 27,065 29,694
Liabilities
Trade and other payables 18 1,556 1,656
Provisions 15 2,305 2,662
Total current liabilities 3,861 4,318
Total equity and liabilities 30,926 34,012
The financial statements were approved by the Board of Directors and
authorised for issue on 30 June 2022 and were signed on its behalf by:
William
McAvock
Paul Haywood
Director
Director
The notes on the following pages form part of these consolidated financial
statements.
Consolidated Statement of Changes in Equity
at 31 December 2021
Share Capital Share Premium Accumulated deficit Other Reserves Foreign Exchange Reserve Total Equity
$'000 $'000 $'000 $'000 $'000 $'000
Balance at 31 December 2019 2,623 27,985 (11,545) 1,114 433 20,610
Loss for the year - - (5,512) - - (5,512)
Exchange differences on translation of foreign operations - - - - (389) (389)
Total comprehensive loss for the year - - (5,512) - (389) (5,901)
Issue of share options on acquisition of BRL - - - 7,304 - 7,304
Issue of shares 730 6,654 - - - 7,384
Cost of issue - (405) - - - (405)
Share based payments - - - 702 - 702
Total transactions with owners 730 6,249 - 8,006 - 14,985
Balance at 31 December 2020 3,353 34,234 (17,057) 9,120 44 29,694
Loss for the year - - (4,783) - - (4,783)
Exchange differences on translation of foreign operations - - - - 202 202
Total comprehensive loss for the year - - (4,783) - 202 (4,581)
Issue of shares 52 255 - - - 307
Share based payments - - - 1,494 - 1,494
Options exercised 77 136 210 (272) - 151
Options expired - - 82 (82) - -
Total transactions with owners 129 391 292 1,140 - 1,952
Balance at 31 December 2021 3,482 34,625 (21,548) 10,260 246 27,065
The notes on the following pages form part of these consolidated financial
statements.
Consolidated Statement of Cashflows
for the year ended 31 December 2021
Note Year ended Year ended
31 December 2021 31 December 2020
$'000 $'000
Cash flow from operating activities
Loss for the year before tax (4,783) (5,512)
Adjustments for:
Depreciation and depletion 5 2,901 781
Decommissioning finance charge 15 66 -
Impairment of PP&E 2,13 - 172
Disposal of PP&E at nil value 49 -
Other income 8 (5) (15)
Finance expense 3 9
Share based payments expense 7 1,494 641
Foreign exchange movement 6 (49)
Operating cash flows before movements in working capital
(269) (3,973)
Increase in trade and other receivables (4) (513)
Increase in trade and other payables 179 342
(Increase)/ decrease in inventory (471) 955
Net cash used in operating activities (565) (3,189)
Cash flow from investing activities
Cash received from acquisition of BRL 278 -
Income received 5 15
Expenditure in respect of intangible assets - -
Expenditure in respect of PP&E (6,407) (2,617)
Net cash used in investing activities (6,124) (2,602)
Cash flow from financing activities
Proceeds from issue of equity 1,465 5,754
Costs related to issue of equity - (405)
Interest paid (3) (9)
Net cash inflow from financing activities 1,462 5,340
Net decrease in cash and cash equivalents in the year
(5,227) (451)
Cash and cash equivalents at start of year 6,331 6,494
Effects of foreign exchange rate changes on cash and cash equivalents
140 288
Cash and cash equivalents at end of year 1,244 6,331
The notes on the following pages form part of these consolidated financial
statements.
Significant non-cash transactions
The only significant non-cash transactions were the issue of shares and share
options detailed in notes 19 and 23.
Notes forming part of the Consolidated Financial Statements
Corporate information
Block Energy Plc ("Block Energy") gained admission to AIM on the 11 June 2018,
trading under the symbol of BLOE.
The Consolidated financial statements of the Group, which comprises Block
Energy Plc and its subsidiaries, for the year ended 31 December 2021 were
authorised for issue in accordance with a resolution of the directors on 30
June 2022. Block Energy is a Company incorporated in the UK whose shares are
publicly traded. The address of the registered office is given in the officers
and advisers section of this report. The Company's administrative office is in
London, UK.
The nature of the Company's operations and its principal activities are set
out in the Strategic Report on pages 3 to 21 and the Report of the Directors
on pages 22 to 24.
1. Significant Accounting policies
IAS 8 requires that management shall use its judgement in developing and
applying accounting policies that result in information which is relevant to
the economic decision-making needs of users, that are reliable, free from
bias, prudent, complete and represent faithfully the financial position,
financial performance and cash flows of the entity.
Basis of preparation
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below. The policies have been
consistently applied to all the years presented, unless otherwise stated. In
the prior year, the Group changed its presentational currency from the pound
sterling to the US dollar, which represented a change in accounting policy.
All amounts presented are in thousands of US dollars unless otherwise stated.
Foreign operations are included in accordance with the policies set out below.
The consolidated financial statements have been prepared in accordance with UK
international accounting standards and in conformity with the requirements of
the Companies Act 2006. The Financial Statements have also been prepared under
the historical cost convention, as modified by the revaluation of financial
assets at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgements about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Changes in accounting estimates may be necessary if there are changes in the
circumstances on which the estimate was based, or as a result of new
information or more experience. Such changes are recognised in the period in
which the estimate is revised.
New and amended standards adopted by the Group
There were no new or amended accounting standards adopted by the Group for the
year ended 31 December 2021.
New accounting standards issued but not yet effective
The standards and interpretations that are relevant to the Group, issued, but
not yet effective, up to the date of the Financial Statements are listed
below. The Group intends to adopt these standards, if applicable, when they
become effective.
Standard Impact on initial application Effective date
IFRS 17 Insurance Contracts 1 January 2023
IFRS 10 and IAS 28 (Amendments) Long term interests in associates and joint ventures Unknown
Amendments to IAS 1 Classification of Liabilities as current or non-current 1 January 2023
Amendments to IAS 1 and IFRS Practice Statement 2 Disclosure of Accounting Policies 1 January 2023
Amendments to IAS 8 Definition of Accounting Estimates 1 January 2023
Amendments to IAS 12 Deferred Tax Related to Assets and Liabilities arising from a Single 1 January 2023
Transaction
Amendments to IFRS 3 Reference to the Conceptual Framework 1 January 2022
Amendments to IAS 16 Property, Plant and Equipment - Proceeds before intended use 1 January 2022
Amendments to IAS 37 Onerous contracts - Cost of fulfilling a contract 1 January 2022
Annual Improvements to IFRS Standard 2018-2020 Cycle Amendments to IFRS 1 First time adoption of IFRS, IFRS 9 Financial 1 January 2022
Instruments, IFRS Leases
The Directors have evaluated the impact of transition to the above standards
and do not consider that there will be a material impact of transition on the
financial statements.
Basis of consolidation
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and circumstances
indicate that there may be a change in any of these elements of control.
De-facto control exists in situations where the Company has the practical
ability to direct the relevant activities of the investee without holding the
majority of the voting rights. In determining whether de-facto control exists
the Company considers all relevant facts and circumstances, including:
· The size of the Company's voting rights relative to both the size and
dispersion of other parties who hold voting rights;
· Substantive potential voting rights held by the Company and by other
parties;
· Other contractual arrangements; and
· Historic patterns in voting attendance.
Business combinations and Goodwill
The consolidated financial statements incorporate the results of business
combinations using the purchase method. In the consolidated 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 difference between the consideration paid and the
acquired net assets is recognised as goodwill. The results of acquired
operations are included in the consolidated income statement from the date on
which control is obtained. Any difference arising between the fair value and
the tax base of the acquiree's assets and liabilities that give rise to a
deductible difference results in recognition of deferred tax liability. No
deferred tax liability is recognised on goodwill. For the purposes of the
current period of reporting the figures related to the transaction accounting
are considered provisional as permitted under the requirements of the
accounting standards. These figures will be finalised within a period of
twelve months from the acquisition date of the transaction.
Acquisitions
The Group and Company measure goodwill at the acquisition dates as:
· The fair value of the consideration transferred; plus
· The recognised amount of any non-controlling interests in the acquiree
· Plus, if the business combination is achieved in stages, the fair
value of the existing equity interest in the acquiree; less the net recognised
amount (generally fair value) of the identifiable assets acquired and
liabilities assumed.
When the excess is negative, a bargain purchase gain is recognised immediately
in profit or loss.
Cost related to the acquisition, other than those associated with the issue of
debt or equity securities, that the Group incurs in connection with a business
combination, are expensed as incurred.
Asset Acquisition
Acquisitions of mineral exploration licences through the acquisition of
non-operational corporate structures that do not represent a business, and
therefore do not meet the definition of a business combination, are accounted
for as the acquisition of an asset. An example of such would be increases in
working interests in licences.
The consideration for the asset is allocated to the assets based on their
relative fair values at the date of acquisition.
Going concern
The directors have prepared cash flow forecasts for a period of 18 months from the date of signing these financial statements. The Group's forecasts are reviewed regularly to assess whether any actions to curtail expenditure or cut costs are required. The Group is in the final stages of preparing to drill a horizontal sidetrack in the WR-B1 well followed by sidetracks of other wells. The forecasts assume the wells will produce oil and gas, which would be sold, and indicate the Group has sufficient funds to complete the drilling of the wells and to meet its liabilities as they fall due until December 2023. However, if any of the new wells do not produce commercial quantities of oil or gas, the Group would immediately revisit its plans to drill subsequent wells. The financial benefit of any additional capital projects would be assessed against capital requirements and balanced with ensuring that the Group and the Company can continue to meet their liabilities and commitments through to December 2023. The Company's forecasts are considered together with the Group's forecasts.
The Group's operations presently generate sufficient revenues to cover
operating costs and capital expenditures, supporting the continued preparation
of the Group's accounts on a going concern basis. The directors are
nevertheless conscious that oil prices have risen rapidly during the past
twelve months due in part to recent global political uncertainty, and could
rise further but could also fall back in the year ahead, and that future
production levels depend in part on the success of future drilling. As part of
their going concern assessment, the directors have performed a reverse stress
test on a low oil price scenario in which future drilling is inhibited or
unsuccessful, and have concluded that it remains possible that future
revenues in such a scenario might not cover all operating costs and planned
capital expenditures, creating a material uncertainty that may cast doubt over
the Group's ability to continue as a going concern. Whilst acknowledging this
material uncertainty, the directors remain confident of making further cost
savings and/or raising finance when required and, therefore, the directors
consider it appropriate to prepare the financial statements on a going concern
basis. The financial statements do not include the adjustments that would
result if the Group were unable to continue as a going concern.
Intangible Assets
Exploration and evaluation costs
The Group applies the full cost method of accounting for Exploration and
Evaluation (E&E) costs, having regard to the requirements of IFRS 6
'Exploration for and Evaluation of Mineral Resources'. Under the full cost
method of accounting, costs of exploring and evaluating properties are
accumulated and capitalised by reference to appropriate cash generating units
("CGUs"). Such CGU's are based on geographic areas such as a licence area,
type or a basin and are not larger than an operating segment - as defined by
IFRS 8 'Operating segments.
E&E costs are initially capitalised within 'Intangible assets'. Such
E&E costs may include costs of licence acquisition, technical services and
studies, seismic acquisition, exploration drilling and testing, but do not
include costs incurred prior to having obtained the legal rights to explore an
area, which are expensed directly to the statement of comprehensive income as
they are incurred. Plant and equipment assets acquired for use in exploration
and evaluation activities are classified as property, plant and equipment.
However, to the extent that such an asset is consumed in developing an
unproven oil and gas asset, the amount reflecting that consumption is recorded
as part of the cost of the unproven oil and gas asset.
Exploration and unproven oil and gas assets related to each exploration
license/prospect are not amortised but are carried forward until the technical
feasibility and commercial feasibility of extracting a mineral resource are
demonstrated.
Impairment of Exploration and Evaluation assets
All capitalised exploration and evaluation assets and property, plant and
equipment are monitored for indications of impairment. Where a potential
impairment is indicated, assessment is made for the Group of assets
representing a cash generating unit.
In accordance with IFRS 6 the Group firstly considers the following facts and
circumstances in their assessment of whether the Group's exploration and
evaluation assets may be impaired, whether:
· the period for which the Group has the right to explore in a specific
area has expired during the period or will expire in the near future, and is
not expected to be renewed;
· unexpected geological occurrences render the resource uneconomic;
· a significant fall in realised prices or oil and gas price benchmarks
render the project uneconomic; or
· an increase in operating costs occurs.
If any such facts or circumstances are noted, the Group perform an impairment
test in accordance with the provisions of IAS 36.
The aggregate carrying value is compared against the expected recoverable
amount of the cash generating unit. The recoverable amount is the higher of
value in use and the fair value less costs to sell. An impairment loss is
reversed if the asset's or cash-generating unit's recoverable amount exceeds
its carrying amount. A reversal of impairment loss is recognised in the profit
or loss immediately.
Property, plant and equipment - development and production (D&P) assets
Capitalisation
The costs associated with determining the existence of commercial reserves are
capitalised in accordance with the preceding policy and transferred to
property, plant and equipment as development assets following impairment
testing. All costs incurred after the technical feasibility and commercial
viability of producing hydrocarbons have been demonstrated are capitalised
within development assets on a field-by-field basis. Subsequent expenditure is
only capitalised where it either enhances the economic benefits of the
development asset or replaces part of the existing development asset (where
the remaining cost of the original part is expensed through the income
statement). Costs of borrowing related to the ongoing construction of
development and production assets and facilities are capitalised during the
construction phase. Capitalisation of interest ceases once an asset is ready
for production.
Depreciation
Capitalised oil assets are not subject to depreciation until commercial
production starts. Depreciation is calculated on a unit-of-production basis
in order to write off the cost of an asset as the reserves that it represents
are produced and sold. Any periodic reassessment of reserves will affect the
depreciation rate on a prospective basis. The unit-of-production depreciation
rate is calculated on a field-by-field basis using proved, developed reserves
as the denominator and capitalised costs as the numerator. The numerator
includes an estimate of the costs expected to be incurred to bring proved,
developed, not-producing reserves into production. Infrastructure that is
common to a number of fields, such as gathering systems, treatment plants and
pipelines are depreciated on a unit-of-production basis using an aggregate
measure of reserves or on a straight line basis depending on the expected
pattern of use of the underlying asset.
Proven oil and gas properties
Oil and gas properties are stated at cost less accumulated depreciation and
impairment losses. The initial cost comprises the purchase price or
construction cost including any directly attributable cost of bringing the
asset into operation and any estimated decommissioning provision.
Once a project reaches the stage of commercial production and production
permits are received, the carrying values of the relevant exploration and
evaluation asset are assessed for impairment and transferred to proven oil and
gas properties and included within property plant and equipment.
Proven oil and gas properties are accounted for in accordance with provisions
of the cost model under IAS 16 "Property Plant and Equipment" and are depleted
on unit of production basis based on the estimated proven and probable
reserves of the pool to which they relate.
Impairment of development and production assets
A review is performed for any indication that the value of the Group's D&P
assets may be impaired such as:
· significant changes with an adverse effect in the market or economic
conditions which will impact the assets; or
· obsolescence or physical damage of an asset; or
· an asset becoming idle or plans to dispose of the asset before the
previously expected date; or
· evidence is available from internal reporting that indicates that the
economic performance of an asset is or will be worse than expected.
For D&P assets when there are such indications, an impairment test is
carried out on the CGU. CGUs are identified in accordance with IAS 36
'Impairment of Assets', where cash flows are largely independent of other
significant asset Groups and are normally, but not always, single development
or production areas. When an impairment is identified, the depletion is
charged through the Consolidated Statement of Comprehensive Income if the net
book value of capitalised costs relating to the CGU exceeds the associated
estimated future discounted cash flows of the related commercial oil reserves.
The CGU's identified by the company are Corporate along with West Rustavi,
Rustaveli, Satskhenisi and Norio given they are independent projects under
individual Production Sharing Contracts ("PSCs"). An assessment is made at
each reporting as to whether there is any indication that previously
recognised impairment charges may no longer exist or may have decreased. If
such an indication exists, the Group estimates the recoverable amount. A
previously recognised impairment charge is reversed only if there has been a
change in the estimates used to determine the assets recoverable amount since
the last impairment charge was recognised. If this is the case the carrying
amount (javascript%3A;) of the asset is increased to its recoverable amount,
not to exceed the carrying amount that would have been determined, net of
depreciation (javascript%3A;) , had no impairment charges been recognised for
the asset in prior years.
Property, plant and equipment and depreciation
Property, plant and equipment which are awaiting use in the drilling
campaigns, and storage, are recorded at historical cost less accumulated
depreciation. Property, plant and equipment are depreciated using the straight
line method over their estimated useful lives, as follows:
· PP&E - 6 years
The carrying value of Property, plant and equipment is assessed annually and
any impairment charge is charged to the Consolidated Statement of
Comprehensive income.
Leases
In the current year, the Group adopted 'IFRS 16: Leases', which requires
operating and finance leases to be accounted for in a consistent manner. There
was no material impact on the Group from the adoption of this standard
year-on-year.
The Group assesses whether a contract is or contains a lease, at inception of
the contract. The Group recognises a right-of-use asset and a corresponding
lease liability with respect to all lease arrangements in which it is the
lessee, except for short-term leases (defined as leases with a lease term of
12 months or less) and leases of low value assets (such as tablets and
personal computers, small items of office furniture and telephones). For these
leases, the Group recognises the lease payments as an operating expense on a
straight-line basis over the term of the lease unless another systematic basis
is more representative of the time pattern in which economic benefits from the
leased assets are consumed.
Inventories
Crude oil inventories are stated at the lower of cost and net realisable
value. The cost of crude oil is the cost of production, including direct
labour and materials, depreciation and an appropriate portion of fixed
overheads allocated based on normal operating capacity of the production
facilities, determined on a weighted average cost basis. Net realisable value
of crude oil is based on the market price of similar crude oil at the balance
sheet date and costs to sell, adjusted if the sale of inventories after that
date gives additional evidence about its net realisable value at the balance
sheet date.
The cost of crude oil is expensed in the period in which the related revenue
is recognised.
Inventories of drilling tubulars and drilling chemicals are valued at the
lower of cost or net realisable value, where cost represents the weighted
average unit cost for inventory lines on a line by line basis. Cost comprises
all costs of purchase, costs of conversion and other costs incurred in
bringing the inventories to their present location and condition.
Decommissioning provision
Provisions for decommissioning are recognised in full when wells have been
suspended or facilities have been installed.
A corresponding amount equivalent to the provision is also recognised as part
of the cost of either the related oil and gas exploration and evaluation asset
or property, plant and equipment as appropriate. The amount recognised is the
estimated cost of decommissioning, discounted to its net present value, and
is reassessed each year in accordance with local conditions and requirements.
Changes in the estimated timing of decommissioning or decommissioning cost
estimates are dealt with prospectively by recording an adjustment to the
provision, and a corresponding adjustment to the related asset.
The unwinding of the discount on the decommissioning provision is included as
a finance cost.
Taxation and deferred tax
Income tax expense represents the sum of the current tax and deferred tax
charge for the period.
The Group's liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the reporting date.
Deferred tax is recognised on differences between the carrying amounts of
assets and liabilities in the financial information and the corresponding tax
bases and is accounted for using the balance sheet liability method.
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.
Judgement is applied in making assumptions about future taxable income,
including oil and gas prices, production, rehabilitation costs and expenditure
to determine the extent to which the Group recognises deferred tax assets, as
well as the anticipated timing of the utilisation of the losses.
Deferred tax is calculated at the tax rates that have been enacted or
substantively enacted and are expected to apply in the period when the
liability is settled, or the asset realised. Deferred tax is charged or
credited to the statement of comprehensive income, except when it relates to
items charged or credited directly to equity, in which case the deferred tax
is also dealt with in equity.
Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are
translated into US dollars at the rates of exchange prevailing at the
reporting date: $1.3523/£1 (2020: $1.3678/£1). Transactions in foreign
currencies are translated at the exchange rate ruling at the date of the
transaction. Exchange differences are taken to the Statement of Comprehensive
Income.
The Company's functional currency is the pound sterling and its presentational
currency is the US dollar and accordingly the financial statements have also
been prepared in US dollars. The functional currencies of Block Norioskhevi
Ltd, Satskhenisi Limited, Georgia New Ventures Inc and Block Rustaveli Limited
are the US dollar and the functional currencies of their branches in Georgia
are the Georgian Lari.
Foreign operations
The assets are translated into US dollars at the exchange rate at the
reporting date and income and expenses of the foreign operations are
translated at the average exchange rates. Exchange differences arising on
translation are recognised in other comprehensive income and presented in the
other reserves category in equity.
Determination of functional currency and presentational currency
The determination of an entity's functional currency is assessed on an entity
by entity basis. A company's functional currency is defined as the currency of
the primary economic environment in which the entity operates. The functional
currency of the Parent Company is the pound sterling, because it operates in
the UK, where the majority of its transactions are in pounds sterling. The
functional currencies of Block Norioskhevi Ltd, Satskhenisi Limited, Georgia
New Ventures Inc and Block Rustaveli Limited are the US dollar, because the
majority of their transactions by value is in US dollars, and the functional
currencies of their branches in Georgia are the Georgian Lari, because the
majority of their transactions by value is in Georgian Lari.
The presentational currency of the Group for year ended 31 December 2021 is US
dollars. The presentational currency is an accounting policy choice.
Revenue
Revenue from contracts with customers is recognised when the Group satisfies
its performance obligation of transferring control of oil or gas to a
customer. Transfer of control is usually concurrent with both transfer of
title and the customer taking physical possession of the oil or gas, which is
determined by reference to the oil or gas sales agreement. This performance
obligation is satisfied at that point in time.
The transaction price is agreed between the Group and the customer, with the
amount of revenue recognised being determined by considering the terms of the
Production Sharing Contract ("PSC") and the oil sales agreement for each oil
sale or the gas sales agreement for each gas sale.
Finance income and expenses
Finance costs are accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable. Finance expenses
comprise interest or finance costs on borrowings.
Financial instruments
The amendments to IFRS 9 clarify that for the purpose of assessing whether a
prepayment feature meets the 'solely payments of principal and interest'
(SPPI) condition, the party exercising the option may pay or receive
reasonable compensation for the prepayment irrespective of the reason for
prepayment. In other words, financial assets with prepayment features with
negative compensation do not automatically fail SPPI.
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group becomes party to the contractual provisions of
the instrument.
Fair value
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. All assets and liabilities, for which fair value is
measured or disclosed in the Financial Statements, are categorised within
the fair value hierarchy, described as follows, based on the lowest-level
input that is significant to the fair value measurement as a whole:
Level 1 - quoted (unadjusted) market prices in active markets for identical
assets or liabilities;
Level 2 - valuation techniques for which the lowest-level input that is
significant to the fair value measurement is directly or indirectly
observable; and
Level 3 - valuation techniques for which the lowest-level input that is
significant to the fair value measurement is unobservable.
Financial assets
Financial assets are initially recognised at fair value, and subsequently
measured at amortised cost, less any allowances for losses using the expected
credit loss model, being the difference between all contractual cash flows
that are due to the Group in accordance with the contract and all the cash
flows that the Group expects to receive.
Impairment provisions for receivables from related parties and loans to
related parties are recognised based on a forward looking expected credit loss
model. The methodology used to determine the amount of the provision is based
on whether there has been a significant increase in credit risk since initial
recognition of the financial asset.
For those where the credit risk has not increased significantly since initial
recognition of the financial asset, twelve month expected credit losses along
with gross interest income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with the gross
interest income are recognised. For those that are determined to be credit
impaired, lifetime expected credit losses along with interest income on a net
basis are recognised.
Financial liabilities
Financial liabilities are classified as either financial liabilities at fair
value through profit and loss (FVTPL) or as other financial liabilities.
The Group derecognises financial liabilities when, and only when, the Group's
obligations are discharged or cancelled, or they expire.
Financial liabilities are classified at FVTPL when the financial liability is
either held for trading or it is designated at FVTPL. A financial liability is
classified as held for trading if it has been incurred principally for the
purpose of repurchasing it in the near term or is a derivative that is not a
designated or effective hedging instrument.
Financial liabilities at FVTPL are measured at fair value, with any gains or
losses arising on changes in fair value recognised in profit or loss. The net
gain or loss recognised in profit or loss incorporates any interest paid on
the financial liability.
Other financial liabilities, including borrowings, are initially measured at
fair value, net of transaction costs and are subsequently measured
at amortised cost using the effective interest method, with interest expense
recognised on an effective yield basis.
The effective interest method is a method of calculating the amortised cost of
a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial
liability, or, where appropriate, a shorter period, to the net carrying amount
on initial recognition.
Share based payments
The fair value of options granted to directors and others in respect of
services provided is recognised as an expense in the Statement of
Comprehensive Income with a corresponding increase in equity reserves - 'other
reserves'.
On exercise or cancellation of share options, the proportion of the share
based payment reserve relevant to those options is transferred from other
reserves to the accumulated deficit. On exercise, equity is also increased by
the amount of the proceeds received.
The fair value is measured at grant date and charged over the accounting
periods which the option becomes unconditional.
The fair value of options are calculated using the Black-Scholes model, taking
into account the terms and conditions upon which the options were granted.
Vesting conditions are non-market and there are no market vesting conditions.
These vesting conditions are included in the assumptions about the number of
options that are expected to vest. At the end of each reporting period, the
Company revises its estimate of the number of options that are expected to
vest. The exercise price is fixed at the date of grant and no compensation is
due at the date of grant. Where equity instruments are granted to persons
other than employees, the statement of comprehensive income is charged with
the fair value of the goods and services received.
Warrants issued for services rendered are accounted for in accordance with
IFRS 2 recognising either the costs of the service if it can be reliably
measured or the fair value of the warrant (using the Black-Scholes model).
The fair value is recognised as an expense in the accounting period that the
warrant is granted and there is no revision to this estimate in future
accounting periods.
Warrants issued as part of share issues have been determined as equity
instruments under IAS 32. Since the fair value of the shares issued at the
same time is equal to the price paid, these warrants, by deduction, are
considered to have been issued at nil value.
2. Critical accounting judgments, estimates and assumptions
The Group makes estimates and assumptions regarding the future. Estimates and
judgements are continuously evaluated based on historical experiences and
other factors, including expectations of future events that are believed to be
reasonable under the circumstances. In the future, actual experience may
deviate from these estimates and assumptions. The key assumptions concerning
the future and other key sources of estimation uncertainty at the reporting
date that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year, are
described below.
Recoverable value of Development & Production assets -judgement, estimates
and assumptions
Costs capitalised in respect of the Group's development and production assets
are required to be assessed for impairment under the provisions of IAS 36.
Such an estimate requires the Group to exercise judgement in respect of the
indicators of impairment and also in respect of inputs used in the models
which are used to support the carrying value of the assets. Such inputs
include estimates of oil and gas reserves, production profiles, oil price, oil
quality discount, capital expenditure (including an allocation of salary
costs), inflation rates, and pre-tax discount rates that reflect current
market assessments of (a) the time value of money; and (b) the risks specific
to the asset for which the future cash flow estimates have not been adjusted.
The directors concluded that there was no indication of impairment in the
current year (an impairment of $172,000 on the carrying value of the
development and production assets at Satskhenisi oilfield was recognised in
the prior year).
Asset Decommissioning Provisions -estimates and assumptions
The Group's activities are subject to various laws and regulations governing
the protection of the environment. The Group recognises management's best
estimate of the asset decommissioning costs in the period in which they are
incurred. Such estimates of costs include pre-tax discount rates that reflect
current market assessments of (a) the time value of money; and (b) the risks
specific to the asset for which the future cash flow estimates have not been
adjusted. Actual costs incurred in future periods could differ materially from
the estimates.
Additionally, future changes to environmental laws and regulations, life of
development and production assets, estimates and discount rates could affect
the carrying amount of this provision. The Board assessed the extent of
decommissioning required as at 31 December 2021 and concluded that a provision
of $2,040,000 (2020: $1,917,000) should be recognised in respect of future
decommissioning obligations at Rustaveli, West Rustavi, Satskhenisi and Norio
(refer note 15).
Share Options - estimates and assumptions
Share options issued by the Group relates to the Block Energy Plc Share Option
Plan. The grant date fair value of such options is calculated using a
Black-Scholes model whose input assumptions are derived from market and other
internal estimates.
The key estimates include volatility rates and the expected life of the
options, together with the likelihood of non-market performance conditions
being achieved. Refer note 23.
Accounting for business combinations and fair value - estimates and
assumptions
Business combinations are accounted for at fair value. The assessment of fair
value is subjective and depends on a number of assumptions. These assumptions
include assessment of discount rates, and the amount and timing of expected
future cash flows from assets and liabilities. In addition, the selection of
specific valuation methods for individual assets and liabilities requires
judgment. The specific valuation methods applied will be driven by the nature
of the asset or liability being assessed. The consideration given to a seller
for the purchase of a business or a company is accounted for at its fair
value. When the consideration given includes elements that are not cash, such
as shares or options to acquire shares, the fair value of the consideration
given is calculated by reference to the specific nature of the consideration
given to the seller. See note 12.
3. Segmental disclosures
IFRS 8 requires segmental information for the Group on the basis of
information reported to the chief operating decision maker for decision making
purposes. The Company considers this role as being performed by the Board of
Directors. The Group's operations are focused on oil and gas development and
production activities (Oil Extraction segment) in Georgia and has a corporate
head office in the UK (Corporate segment). Based on risks and returns the
directors consider that there are two operating segments that they use to
assess the Group's performance and allocate resources being the Oil Extraction
in Georgia, and the Corporate segment including unallocated costs.
The segmental results are as follows:
Oil Corporate Group Total
Extraction and other
Year ended 31 December 2021 $'000 $'000 $'000
Revenue 6,114 - 6,114
Cost of sales (2,982) - (2,982)
Depreciation and depletion (2,896) (5) (2,901)
Administrative costs (1,201) (3,725) (4,926)
Other income 5 - 5
Net Finance costs and Forex (90) (3) (93)
Loss from operating activities (1,050) (3,733) (4,783)
Total non-current assets 24,341 4 24,345
Oil Corporate Group Total
Extraction and other
Year ended 31 December 2020 $'000 $'000 $'000
Revenue 1,255 - 1,255
Cost of sales (2,203) - (2,203)
Depreciation and depletion (768) (13) (781)
Administrative costs (807) (3,129) (3,936)
Other income 100 - 100
Net Finance costs and income 29 24 53
Loss from operating activities (2,394) (3,118) (5,512)
Total non-current assets 21,304 7 21,311
31 December 2021 31 December 2020
Segmental Assets $'000 $'000
Oil exploration - Georgia 23,745 26,483
Corporate and other 7,181 7,529
30,926 34,012
Segmental Liabilities 31 December 2021 31 December 2020
$'000 $'000
Oil exploration - Georgia 3,087 3,239
Corporate and other 774 1,079
3,861 4,318
4. Revenue
Year ended Year ended
31 December
31 December
2021 2020
$'000 $'000
Crude oil revenue 5,519 1,255
Gas revenue 595 -
6,114 1,255
5. Depreciation and Depletion on Oil and Gas assets
Year ended Year ended
31 December
31 December
2021 2020
$'000 $'000
Depreciation of PP&E 238 109
Depletion of oil and gas assets 2,663 672
2,901 781
6. Expenses by nature
Year ended Year ended
31 December
31 December
2021 2020
$'000 $'000
Employee benefit expense 1,720 1,559
Share option charge 1,224 460
Warrants charge 270 181
Security expense 162 -
Fees to Auditor in respect of the Group audit 93 94
Fees to Auditor in respect of the Company audit 93 94
Fees to Auditor for other non-audit services 7 39
Regulatory fees 51 38
Operating lease expense 49 57
7. Directors and employees
Year ended Year ended
31 December
31 December
2021 2020
$'000 $'000
Employment costs (inc. directors' remuneration):
Wages and salaries 1,453 2,149
Pensions 55 147
Share based payments 1,449 641
Social security costs 212 48
3,169 2,985
The share based payments comprised the fair value of options granted to
directors and employees in respect of services provided.
Wages and salaries include amounts that are recharged between subsidiaries.
Some of these costs are then capitalised as development and production assets
and others are administration expenses.
The average monthly number of employees during 2021 was 176 (2020:102) split
as follows:
Year ended Year ended
31 December
31 December
2021 2020
Management 18 5
Technical 135 77
Administration 23 20
176 102
Year ended Year ended
31 December
31 December
2021 2020
$'000 $'000
Amounts attributable to the highest paid director:
Director's salary and bonus 358 350
Pension 27 25
Share based payments 183 67
568 442
Key management and personnel are considered to be the directors.
8. Finance Income
Year ended Year ended
31 December
31 December 2021
2020
$'000
$'000
Other finance income - 14
- 14
9. Other income
Year ended Year ended
31 December
31 December
2021 2020
$'000 $'000
Sale of materials 5 100
5 100
During the year, materials to be used in the construction of the gas pipeline
from the Early Production Facility at West Rustavi were sold for $5,000 (2020:
$100,000).
10. Taxation
Based on the results for the year, there is no charge to UK or foreign tax.
This is reconciled to the accounting loss as follows:
Year ended Year ended
UK taxation 31 December 31 December
2021 2020
$'000 $'000
UK Loss on ordinary activities (4,783) (5,512)
Loss before taxation at the average UK standard rate of 19% (2020:19%) (909) (1,047)
Effect of:
Zero tax rate income (1,162) (257)
Tax losses for which no deferred income tax asset was recognised 2,071 1,304
Current tax - -
The Group offsets deferred tax assets and liabilities if, and only if, it has
a legally enforceable right to offset current tax assets and current tax
liabilities and the deferred tax assets and deferred tax liabilities related
to corporation taxes levied by the same tax authority. Due to the tax rates
applicable in the jurisdictions of the Group's subsidiary entities (being 0%)
no deferred tax liabilities or assets are considered to arise.
Year ended Year ended
Unrecognised gross deferred tax position 31 December 31 December
2021 2020
$'000 $'000
Tax losses bought forward 13,808 8,296
Total unrecognised gross deferred tax position at start of year 13,808 8,296
Tax losses not recognised in the year 4,783 5,512
Tax losses carried forward 18,591 13,808
Total unrecognised gross deferred tax position at end of year 18,591 13,808
Year ended Year ended
Unrecognised deferred tax asset 31 December 31 December
2021 2020
$'000 $'000
Total unrecognised deferred asset brought forward 1,304 1,206
Increase in asset 767 98
Total unrecognised deferred asset carried forward 2,071 1,304
For any other jurisdictions which the Group has not recognised deferred income
tax assets for tax losses carried forward for entities in which it is not
considered probable that there will be sufficient future taxable profits
available for offset. Unrecognised deferred income tax assets related to
unused tax losses. The Company has UK corporation tax losses available to
carry forward against future profits of approximately
$18,591,000 (2020: $13,808,000).
11. Loss per share
The calculation for loss per Ordinary Share (basic and diluted) is based on
the consolidated loss attributable to the equity shareholders of the Company
is as follows:
Year ended Year ended
31 December 2021 31 December 2020
Loss attributable to equity Shareholders ($'000) (4,783) (5,512)
Weighted average number of Ordinary Shares 630,629,894 419,300,390
Loss per Ordinary share ($/cents) (0.76)c (1.31)c
Loss and diluted loss per Ordinary Share are calculated using the weighted
average number of Ordinary Shares in issue during the year. Diluted share loss
per share has not been calculated as the options and warrants have no dilutive
effect given the loss arising in the year.
12. Acquisition of Subsidiaries and associated PSC interests
Acquisition of Block Rustaveli Limited ("BRL") in prior year
On 23 November 2020, the Company acquired 100% of the share capital of
Schlumberger Rustaveli Company Limited ("SRCL"). The completion of the
acquisition means the Company now holds licences for Georgian onshore blocks
IX and XI(B). The Company changed the name of the acquired company to Block
Rustaveli Limited on 9 December 2020. The principal activity is oil and gas
extraction and it was acquired for the purposes of expanding the Company's
production and development business in Georgia.
On acquisition, the Company issued Schlumberger one US dollar and an option to
acquire 120 million 0.25p Ordinary Shares in Block Energy Plc, at a nil
exercise price, representing 16% of Block's enlarged ordinary share capital
(at 31 December 2020). The Options are exercisable between 12 and 24 months
from 23 November 2020.
The fair value of the 120 million share options issued was based on the
published closing price of the Ordinary Shares in Block Energy Plc on 23
November 2020 of 4.45p per share. Following the acquisition, the finalisation
of the completion statement led to a payment by Schlumberger of $278,190 to
Block Energy Plc, which has been recognised as a reduction in the fair value
of the consideration paid by Block Energy Plc for this acquisition, because
the payment was a contractual working capital adjustment to compensate Block
Energy Plc for liabilities that were deemed to be for the seller's account.
Under IFRS 3, a business must have three elements: inputs, processes and
outputs. BRL has these three elements and, therefore, this transaction has
been accounted for as a business combination.
The amounts recognised in respect of the identifiable assets acquired and
liabilities assumed of the business combination are as set out in the table
below:
Net book value of assets acquired Fair value adjustments Fair value of assets acquired
$'000 $'000 $'000
Development and production assets - 6,258 6,258
Exploration and evaluation assets 6,593 (6,593) -
PP&E 506 506
Oil inventory 867 147 1,014
Inventory and spare parts 1,535 - 1,535
Financial liabilities (275) - (275)
Provision for baseline oil liability - (655) (655)
Provision for decommissioning costs (1,562) - (1,562)
Total identifiable assets acquired and liabilities assumed 7,664 (843) 6,821
Provisional Fair Value of Consideration Paid: $'000
Share options issued at nil cost 7,099
Less cash received from seller to adjust consideration (278)
Total consideration 6,821
Provisional goodwill on acquisition -
Analysis of cash flows on acquisition $'000
Payment on acquisition of subsidiary -
Net cash acquired on acquisition -
Net cash inflow of acquisition -
Since the acquisition of BRL on 23 November 2020, BRL contributed $308,000 and
$183,000 in the year ended 31 December 2020 to the Group revenue and loss
respectively. If the acquisition had occurred on 1 January 2020, consolidated
pro-forma revenue and loss for the year ended 31 December 2020 would have been
$483,000 and $7,534,000 respectively.
All of the identifiable assets acquired and liabilities assumed were fair
valued. PP&E and spare parts inventory were fair valued based on the
items' condition and application of an industry accepted discount to the
original cost. The oil inventory was fair valued by management based on the
net realisable value at the acquisition date. Given the subjectivity in
valuing undeveloped reserves and unevaluated acreage, a market approach was
used to fair value the development and production assets, whereby the seller
marketed the business for sale and the acquisition price paid was deemed to be
the fair value of the sum of the identifiable assets acquired and liabilities
assumed. Therefore, the fair value of the development and production assets
was calculated as the difference between the acquisition price paid and the
fair value of the other identifiable assets acquired and liabilities assumed.
13. Property, Plant and Equipment
PPE/Computer / Office Equipment / Motor Vehicles Total
Development & Production Assets
$'000 $'000 $'000
Cost
At 1 January 2020 13,204 129 13,333
Additions 2,772 210 2,982
Additions through acquisition 6,258 506 6,764
Disposals (138) (54) (192)
Foreign exchange movements - (14) (14)
At 31 December 2020 22,096 777 22,873
Reallocation of assets (780) 780 -
Additions 6,182 290 6,472
Disposals (38) (12) (50)
Reduction in BLO (see note 15) (498) - (498)
Foreign exchange movements - (33) (33)
At 31 December 2021 26,962 1,802 28,764
Accumulated Depreciation
At 1 January 2020 613 7 620
Disposals - (11) (11)
Charge for the year 672 109 781
Impairment charge 172 - 172
At 31 December 2020 1,457 105 1,562
Reallocation of assets (91) 91 -
Disposals - (1) (1)
Charge for the year 2,663 238 2,901
Foreign exchange movements - (43) (43)
At 31 December 2021 4,029 390 4,419
Carrying Amount
At 1 January 2020 12,591 122 12,713
At 31 December 2020 20,639 672 21,311
At 31 December 2021 22,933 1,412 24,345
Carrying amount of property plant and equipment by cash generative unit:
Norio Satsk West Rustavi Corporate
henisi Rustaveli Total
$'000 $'000 $'000 $'000 $'000 $'000
Carrying amount
At 31 December 2021 2,222 176 14,045 181
7,721 24,345
At 31 December 2020 2,298 230 11,767 150
6,866 21,311
At the end of the current year, the directors concluded there were no
impairment indicators in the current year that warranted impairment testing to
be prepared with respect to the carrying value of the assets of the Group.
14. Inventory
31 December 2021 31 December 2020
$'000 $'000
Spare parts and consumables 3,174 2,918
Crude oil 1,411 1,196
4,585 4,114
Inventories recognised in cost of sales during the year amounted to
$(279,000), (2020: $886,000).
15. Provisions
31 December 2021 31 December 2020
$'000 $'000
Decommissioning provision 2,040 1,917
Baseline oil liability 265 745
2,305 2,662
Decommissioning provision 31 December 2021 31 December 2020
$'000 $'000
Brought forward 1,917 276
Decommissioning provision arising from the acquisition - 1,562
Additional decommissioning provision in the year 123 79
Carried forward 2,040 1,917
Baseline oil liability 31 December 2021 31 December 2020
$'000 $'000
Brought forward 745 -
Baseline oil liability (reducing)/arising from the acquisition (498) 654
Additional baseline oil liability provided in the year 18 91
Carried forward 265 745
Decommissioning provisions are based on management estimates of work and the
judgement of the directors. By its nature, the detailed scope of work
required, and timing of such work is uncertain.
The baseline oil liability arose from the acquisition of BRL during the prior
year. Under the production sharing contract for Block XI(B), BRL is obliged to
deliver a certain quantity of oil to the State of Georgia in quarterly
instalments by May 2022. As at 31 December 2021, BRL owed 586 tonnes of
baseline oil with a present value of $262,000 to the State of Georgia.
16. Trade and other receivables
31 December 2021 31 December 2020
$'000 $'000
Other receivables 657 2,196
Prepayments 95 60
752 2,256
In prior year, other receivables included proceeds receivable from the share
issue on 30 December 2020 amounting to $1,314,000 and $278,000 receivable from
Schlumberger following the Completion Statement and acquisition of BRL.
17. Cash and cash equivalents
31 December 31 December 2020
2021 $'000
$'000
Cash and cash equivalents 1,244 6,331
Cash and cash equivalents consist of balances in bank accounts used for normal
operational activities. The vast majority of the cash was held at year end in
an institution with a Fitch's credit rating of BB-.
18. Trade and Other Payables
31 December 31 December
2021 2020
$'000 $'000
Trade and other payables 845 989
Accruals 711 667
1,556 1,656
Trade and other payables principally comprise amounts outstanding for
corporate services and operational expenditure.
19. Share capital
Called up, allotted, issued and fully paid No. Ordinary No. Deferred Nominal Value
$
Shares Shares
As at 1 January 2020 394,438,662 2,095,165,355 2,622,866
Issue of equity on 1 June 2020 1,654,824 - 5,204
Issue of equity on 10 June 2020 39,609,348 - 126,134
Issue of equity on 1 July 2020 188,435 - 588
Issue of equity on 1 August 2020 407,374 - 1,333
Issue of equity on 1 September 2020 544,400 - 1,814
Issue of equity on 1 October 2020 724,433 - 2,343
Issue of equity on 2 November 2020 450,541 - 1,456
Issue of equity on 1 December 2020 524,076 - 1,754
Issue of equity on 31 December 2020 176,000,000 - 589,017
As at 31 December 2020 614,542,093 2,095,165,355 3,352,509
Issue of equity on 4 January 2021 617,571 - 2,098
Issue of equity on 12 January 2021 397,904 - 1,362
Issue of equity on 1 February 2021 839,996 - 2,937
Issue of equity on 15 February 2021 180,715 - 632
Issue of equity on 1 March 2021 232,248 - 800
Issue of equity on 12 March 2021 865,896 - 2,983
Issue of equity on 16 March 2021 6,590,707 - 22,752
Issue of equity on 7 April 2021 58,972 - 204
Issue of equity on 5 May 2021 171,715 - 611
Issue of equity on 7 June 2021 125,696 - 434
Issue of equity on 2 July 2021 1,355,805 - 4,713
Issue of equity on 2 September 2021 62,005 - 209
Issue of equity on 15 September 2021 24,877,230 - 83,684
Issue of equity on 4 October 2021 746,668 - 2,556
Issue of equity on 8 October 2021 299,412 - 1,025
Issue of equity on 2 November 2021 262,403 - 873
Issue of equity on 5 December 2021 522,489 - 1,766
As at 31 December 2021 652,749,525 2,095,165,355 3,482,148
On 4 January 2021, the Company issued 617,571 Ordinary Shares to a service
provider in lieu of cash settlement for services provided to the Company with
a total value of £20,984 ($28,509).
On 12 January 2021, the Company issued 397,904 Ordinary Shares to a Chris
Brown, Non-executive Director, on exercise of his nil cost options.
On 1 February 2021, the Company issued 839,996 Ordinary Shares to six service
providers in lieu of cash settlement for services provided to the Company with
a total value of £29,251 ($40,914).
On 15 February 2021, the Company issued 180,715 Ordinary Shares to a former
employee/director on exercise of their nil cost options.
On 1 March 2021, the Company issued 232,248 Ordinary Shares to four service
providers in lieu of cash settlement for services provided to the Company with
a total value of £7,542 ($10,395).
On 12 March 2021, the Company issued 865,896 Ordinary Shares to Philip
Dimmock, Chairman and a Contractor, on exercise of their nil cost options.
On 16 March 2021, the Company issued 4,400,000 Ordinary Shares to Paul
Haywood, Executive Director, on exercise of his options, at an exercise price
of 2.5 pence per share. Additionally on this date, the Company issued
2,190,707 Ordinary Shares to a service provider in lieu of cash settlement for
services provided to the Company with a total value of £72,134 ($100,000).
On 7 April 2021, the Company issued 58,972 Ordinary Shares to one service
provider in lieu of cash settlement for services provided to the Company with
a total value of £1,717 ($2,372).
On 5 May 2021, the Company issued 171,715 Ordinary Shares to two service
providers in lieu of cash settlement for services provided to the Company with
a total value of £4,751 ($6,765).
On 7 June 2021, the Company issued 125,696 Ordinary Shares to two service
providers in lieu of cash settlement for services provided to the Company with
a total value of £3,234 ($4,468).
On 2 July 2021, the Company issued 1,355,805 Ordinary Shares to a former
employee on exercise of their nil cost options at a value of $44,269 to the
Company as it met the income tax cost of this issue.
On 2 September 2021, the Company issued 62,005 Ordinary Shares to a service
provider in lieu of cash settlement for services provided to the Company with
a total value of £155 ($209).
On 15 September 2021, the Company issued 24,877,230 Ordinary Shares at their
nominal value to the Employee Benefit Trust.
On 4 October 2021, the Company issued 746,668 Ordinary Shares to four service
providers in lieu of cash settlement for services provided to the Company with
a total value of £20,148 ($27,589).
On 8 October 2021, the Company issued 299,412 Ordinary Shares to a former
Director, on exercise of their nil cost options.
On 2 November 2021, the Company issued 262,403 Ordinary Shares to two service
providers in lieu of cash settlement for services provided to the Company with
a total value of £5,533 ($7,367).
On 5 December 2021, the Company issued 522,489 Ordinary Shares to two service
providers in lieu of cash settlement for services provided to the Company with
a total value of £8,033 ($10,863).
On 2 June 2020, the Company issued 1,654,824 Ordinary Shares, details of which
are set out below:
150,731 Ordinary Shares have been allotted to Philip Dimmock, Chairman, at an
average price of 3.98p in settlement of fees amounting to £6,000 due to him
and 100,486 Ordinary Shares have been allotted to Chris Brown, Non-Executive
Director, at an average price of 3.98p in settlement of fees of £4,000 due to
him.
1,124,058 Ordinary Shares have been allotted to two consultants to the Company
as settlement for services provided on the Georgian operations during the
period from February 2019 to March 2020 with a total value of £57,229.
75,000 Ordinary Shares have been allotted to Timothy Parson, former
Non-Executive Director of the Company, as settlement for services provided on
the Georgian operations during 2017 with a total value of £3,000.
204,549 Ordinary Shares have been allotted to an adviser to the Company in
lieu of cash settlement for services provided to the Company during the two
months period from 1 April 2020 to 31 May 2020 with a total value of £3,433.
On 10 June 2020, the Company issued 39,609,348 new Ordinary Shares at their
nominal value to the EBT.
On 1 July 2020, the Company issued 188,435 Ordinary Shares to two service
providers in lieu of cash settlement for series provided to the Company with a
total value £4,417 ($5,513).
On 3 August 2020, the Company issued 407,374 Ordinary Shares of 0.25p each to
three service providers in lieu of cash settlement for services provided to
the Company with a total value of £10,000 ($13,088).
On 2 September 2020, the Company issued 544,400 Ordinary Shares 0.25p each to
three service providers in lieu of cash settlement for services provided to
the Company with a total value of £13,184 ($17,574).
On 2 October 2020, the Company issued 724,433 Ordinary Shares 0.25p each to
four service providers in lieu of cash settlement for services provided to the
Company with a total value of £19,212 ($24,853).
On 2 November 2020, the Company issued 450,451 Ordinary Shares 0.25p each to
four service providers in lieu of cash settlement for services provided to the
Company with a total value of £11,268 ($14,565).
On 2 December 2020, the Company issued 524,076 Ordinary Shares 0.25p each to
seven service providers in lieu of cash settlement for services provided to
the Company with a total value of £15,819 ($21,177).
On 30 December 2020, the Company raised gross proceeds of £5,280,000
($7,068,287) through the placing of 176,000,000 Ordinary Shares at 3p per
share.
The Ordinary Shares consist of full voting, dividend and capital distribution
rights and they do not confer any rights for redemption. The Deferred Shares
have no entitlement to receive dividends or to participate in any way in the
income or profits of the Company, nor is there entitlement to receive notice
of, speak at, or vote at any general meeting or annual general meeting.
20. Share premium account
$'000
Balance at 1 January 2021 34,234
Premium arising on issue of equity shares 391
Share issue costs -
Balance at 31 December 2021 34,625
$'000
Balance at 1 January 2020 27,985
Premium arising on issue of equity shares 6,654
Share issue costs (405)
Balance at 31 December 2020 34,234
21. Reserves
The following describes the nature and purpose of each reserve within owners'
equity.
Reserves Description and purpose
Share Capital Amount subscribed for share capital at nominal value.
Share premium account Amount subscribed for share capital in excess of nominal value, less
attributable costs.
Other reserves The other reserves comprises the fair value of all share options and warrants
which have been charged over the vesting period, net of the amount relating to
share options which have expired, been cancelled and have vested. It also
comprises of the fair value of the share options issued as part of the
consideration paid for the acquisition of the subsidiary BRL and the movement
has been shown in the Consolidated Statement of the Changes in Equity.
Foreign exchange reserve Exchange differences on translating the net assets of foreign operations
Accumulated deficit Cumulative net gains and losses recognised in the income statement and in
respect of foreign exchange.
22. Warrants
Number of Warrants 31 December 2021 weighted average exercise price Number of Warrants 31 December 2020 weighted average exercise price
Outstanding at the beginning of the year 16,820,502 6p 8,070,335 10p
Additions - - 8,750,167 3p
Outstanding at the end of the year 16,820,502 6p 16,820,502 6p
As at 31 December 2021, all warrants were available to exercise and were
exercisable at prices between 3p and 12.5p (31 December 2020: 3p and 12.5p).
The weighted average life of the warrants is 2.65 years (31 December 2020: 3.6
years). No new warrants were issued and no existing warrants were exercised or
lapsed during the year. The additions during the prior year represent warrants
issued with 5 year terms. The fair value of additions during the year was $nil
(2020: $376,000).
23. Share based payments
During the year, the Group operated a Block Energy Plc Share Option Plan
(Share Option Scheme).
Under IFRS 2, an expense is recognised in the statement of comprehensive
income for share based payments, to recognise their fair value at the date of
grant. The application of IFRS 2 gave rise to a charge of $1,494,000 for the
year ended 31 December 2021. The equivalent charge for the year ended 31
December 2020 was $641,000. The Group recognised total expenses (all of which
related to equity settled share-based payment transactions) under the current
plans of:
2021 2020
$'000 $'000
Share option scheme 1,224 460
Warrants charge 270 181
1,494 641
Share Option Scheme
The vesting period varies between 0 days to 3 years. The options expire if
they remain unexercised after the exercise period has lapsed and have been
valued using the Black Scholes model.
The following table sets out details of all outstanding options granted under
the Share Option Scheme.
2021 2021 2020 2020
Options Weighted average exercise price Options Weighted average exercise price
Outstanding at beginning of year 31,338,713 $0.05 27,437,856 $0.07
Granted during the year 44,136,726 $0.02 9,230,112 $0.00
Exercised during the year (25,211,024) $0.01 (1,997,622) $0.03
Expired during the year (3,198,464) $0.04 (3,331,633) $0.06
Outstanding at the end of the year 47,065,951 $0.05 31,338,713 $0.05
Exercisable at the end of the year 29,161,323 $0.03 30,040,857 $0.01
The weighted average exercise price of the share options exercisable at 31
December 2021 is $0.03 (31 December 2020: $0.01). The weighted average
contractual life of the share based payments outstanding at 31 December 2021
is 9.8 years (31 December 2020: 3.6 years).
The estimated fair values of options which fall under IFRS 2, and the inputs
used in the Black-Scholes model to calculate those fair values are as follows:
Date of grant Number Estimated Share Exercise price Expected volatility Expected life Risk free rate Expected dividends
of options fair value price
30 June 2017 1,200,000 $0.04 $0.01 $0.03 84% 5.5 years 1.16% 0%
6 April 2018 4,400,000 $0.05 $0.04 $0.03 84% 10 years 1.34% 0%
11 June 2018 18,098,332 $0.04 $0.05 $0.05 84% 10 years 1.23% 0%
21 October 2019 6,325,000 $0.05 $0.06 $0.15 109% 9.0 years 0.63% 0%
1 March 2021 10,800,00 $0.04 $0.04 $0.06 192% 9.5 years 0% 0%
Warrants
31 December 2020 8,750,167 $0.04 $0.04 $0.04 190% 5 years 0% 0%
All share based payment charges are calculated using the fair value of
options.
For the options granted prior to 30 June 2018, expected volatility was
determined by reviewing benchmark values from comparator companies. For the
options granted after 30 June 2018, expected volatility was determined by
reference to the volatility of historic trading prices of the Company's
shares.
24. Financial instruments
Capital Risk Management
The Company manages its capital to ensure that entities in the Group will be
able to continue as a going concern while maximising the return to
stakeholders. The overall strategy of the Company and the Group is to minimise
costs and liquidity risk.
The capital structure of the Group consists of equity attributable to equity
holders of the parent, comprising issued share capital, foreign exchange and
other reserves and retained earnings as disclosed in the Consolidated
Statement of Changes of Equity.
The Group is exposed to a number of risks through its normal operations, the
most significant of which are interest, credit, foreign exchange and liquidity
risks. The management of these risks is vested to the Board of Directors.
The sensitivity has been prepared assuming the liability outstanding was
outstanding for the whole period. In all cases presented, a negative number in
profit and loss represents an increase in finance expense / decrease in
interest income.
Fair Value Measurements Recognised in the Statement of Financial Position
The following provides an analysis of the Group's financial instruments that
are measured subsequent to initial recognition at fair value, grouped into
Levels 1 & 2 based on the degree to which the fair value is observable.
- Level 1 fair value measurements are those derived from inputs other
than quoted prices that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 2 fair value measurements are those derived from valuation
techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
- Level 3 assets are assets whose fair value cannot be determined by
using observable inputs or measures, such as market prices or models. Level 3
assets are typically very illiquid, and fair values can only be calculated
using estimates or risk-adjusted value ranges.
Credit risk
Credit risk is the risk that the Group will suffer a financial loss as a
result of another party failing to discharge an obligation and arises from
cash and other liquid investments deposited with banks and financial
institutions and receivables from the sale of crude oil.
For deposits lodged at banks and financial institutions these are all held
through a recognised financial institution. The maximum exposure to credit
risk is $1,244,000 (2020: $6,331,000). The Group does not hold any collateral
as security.
The carrying value of cash and cash equivalents and financial assets
represents the Group's maximum exposure to credit risk at year end. The Group
has no material financial assets that are past due.
The Company has made unsecured interest-free loans to its subsidiary
companies. Although the loans are repayable on demand, they are unlikely to be
repaid until the projects become successful and the subsidiaries start to
generate revenues. An assessment of the expected credit loss arising on
intercompany loans is detailed in note 6 to the parent Company financial
statements.
Market risk
Market risk arises from the Group's use of interest bearing and foreign
currency financial instruments. It is the risk that future cash flows of a
financial instrument will fluctuate because of changes in interest rates
(interest rate risk), and foreign exchange rates (currency risk).
There are no variable interest bearing loans in the Group. No risk therefore
identified.
Currency risk
Foreign currency risk can only arise on financial instruments that are
denominated in a currency other than the functional currency in which they are
measured. Translation-related risks are therefore not included in the
assessment of the entity's exposure to currency risks. Translation exposures
arise from financial and non-financial items held by an entity (for example, a
subsidiary) with a functional currency different from the group's presentation
currency. However, foreign currency-denominated inter-company receivables and
payables which do not form part of a net investment in a foreign operation
would be included in the sensitivity analysis for foreign currency risks; this
is because, even though the balances eliminate in the consolidated balance
sheet, the effect on profit or loss of their revaluation under IAS 21 is not
fully eliminated.
A 10% increase in the strength of the pound sterling against the US dollar
would cause an estimated increase of $480,000 (2020: $629,000 increase) in the
loss after tax of the Group for the year ended 31 December 2021, with a 10%
weakening causing an equal and opposite decrease. The impact on equity is
the same as the impact on loss after tax.
The Group's cash and cash equivalents and liquid investments are mainly held
in US dollars, pounds sterling and Georgian Lari. At 31 December 2021, 3% of
the Group's cash and cash equivalents and liquid investments were held in
pounds sterling, 88% in Georgian Lari and the remainder in US dollars, Euros
and Canadian dollars (31 December 2020: 90% in pounds sterling).
Liquidity risk
Liquidity risk arises from the possibility that the Group and its subsidiaries
might encounter difficulty in settling its debts or otherwise meeting its
obligations related to financial liabilities. In addition to equity funding,
additional borrowings have been secured in the past to finance operations. The
Company manages this risk by monitoring its financial resources and carefully
plans its expenditure programmes. Financial liabilities of the Group comprise
trade payables which mature in less than twelve months.
25. Categories of financial instruments
In terms of financial instruments, these solely comprise of those measured at
amortised cost and are as follows:
31 December 2021 31 December 2020
$'000 $'000
Liabilities at amortised cost 1,556 1,656
1,556 1,656
Cash and cash equivalents at amortised cost 1,244 6,331
Financial assets at amortised cost 657 2,196
1,901 8,527
No collateral has been pledged in relation thereto.
26. Subsidiaries
At 31 December 2021, the Group consists of the following subsidiaries, which
are wholly owned by the Company.
Country of Incorporation Proportion of voting rights and equity interest Proportion of voting rights and equity interest
Company
2021 2020
Block Norioskhevi Ltd British Virgin Islands 100% 100%
Satskhenisi Ltd Marshall Islands 100% 100%
Georgia New Ventures Inc. Bahamas 100% 100%
Block Operating Company LLC Georgia 100% 100%
Block Rustaveli Limited British Virgin Islands 100% 100%
Subsidiaries - Nature of business
The principal activity of Georgia New Ventures Inc, Satskhenisi Ltd, Block
Norioskhevi Ltd and Block Rustaveli Limited is oil and gas development and
production.
The principal activity of Block Operating Company LLC is to be the operator of
the oil and gas licenses held in Georgia.
Registered Office
The registered office of Georgia New Ventures Inc. is Bolam House, King and
George Streets, P.O. Box CB 11.343, Nassau, Bahamas.
The registered office of Satskhenisi Ltd is Trust Company Complex, Ajeltake
road, Ajeltake Island, Majuro, Marshall Islands MH96960.
The registered office of Block Norioskhevi Ltd is Trident Chambers, P.O.Box
146, Road Town, Tortola, British Virgin Islands.
The registered office of Block Operating Company LLC is 13A Tamarashvili
Street, Tbilisi 0162, Georgia.
The registered office of Block Rustaveli Limited is Craigmuir Chambers, Road
Town, Tortola, VG1110, British Virgin Islands.
27. Commitments
Commitments at the reporting date that have not been provided for were as
follows:
Operating lease commitment
UK operating lease commitment
At 31 December 2021 and 31 December 2020, the total of future minimum lease
payments under non-cancellable operating leases for each of the following
periods was:
31 December 31 December 2020
2021 $'000
$'000
Within 1 year - -
Between 1 and 5 years - -
Total - -
28. Related party transactions
Key management personnel comprises of the directors and details of their
remuneration are set out in Note 7 and the Remuneration Report.
In the prior year, on 1 June 2020, 75,000 Ordinary Shares were issued to
Timothy Parson, former Non-Executive Director of the Company, as settlement
for services provided on the Georgian operations during 2017 with a total
value of £3,000 ($4,000).
29. Events occurring after year end
There were no material events occurring after the year end.
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