REG - Caspian Sunrise plc - Annual Report and Financial Statements
27/06/2022 07:00
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RNS Number : 2055Q Caspian Sunrise plc 27 June 2022
Caspian Sunrise PLC
("Caspian Sunrise" or the "Company")
Annual Report and Financial Statements for the Year Ended 31 December 2021
Caspian Sunrise, the Central Asian oil and gas company with a focus on
Kazakhstan, is pleased to announce its audited final results for the year
ended 31 December 2021.
Highlights for the year:
Operational:
· Aggregate production for 2021 was 533,857 barrels (2020: 545,667) a
decrease of approximately 2.2%
· Reserves at 31 December 2021 P1 15.1 mmbls & P2 26.3 mmbls (2020:
P1 15.6 mmbls & P2 26.8 mmbls)
Financial:
· Revenue: up 75% at $25 million (2020: $14.3 million)
· Loss after tax for the year $5.5 million (2020: $3.5 million)
· Cash at bank: $0.4 million (2020: $0.3 million)
· Total assets: $114.2 million (2020: $125.7 million)
· Exploration assets $46.1 million (2020: $61.6 million)
· Plant, property & equipment $57.1 million (2020: $52.8 million)
The Report and Accounts and Notice of a General Meeting to approve the
Accounts will shortly be posted to shareholders and available from the
Company's website at https://www.caspiansunrise.com/investors/reports
(https://www.caspiansunrise.com/investors/reports)
Caspian Sunrise PLC
Clive Carver +7 727 375 0202
Executive Chairman
WH Ireland, Nominated Advisor & Broker
James Joyce +44 (0) 207 220 1666
Andrew de Andrade
The information contained within this announcement is deemed to constitute
inside information as stipulated under the retained EU law version of the
Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK
law by virtue of the European Union (Withdrawal) Act 2018. The information is
disclosed in accordance with the Company's obligations under Article 17 of the
UK MAR. Upon the publication of this announcement, this inside information is
now considered to be in the public domain.
CHAIRMAN'S STATEMENT
Introduction
Our company has come through a difficult period in good shape and is set to
prosper in the coming years.
We are producing record amounts of oil and selling it at prices greater than
at any time since we commenced production. Debt has been paid down or
converted to equity and we expect to declare our first dividend later this
year. Further, by the end of 2022 we expect to have completed all the
mandatory BNG work programme commitments.
With international oil prices well above $100 per barrel the position is a
world away from 2020, when we faced $16 per barrel and limited interest in our
oil. Over the same period the domestic price of oil has increased from
approximately $6 per barrel to approximately $25 per barrel.
Russian sanctions
As with much of Kazakh oil production our oil is transported to international
markets via the Russian pipeline network, emerging as "Urals Oil" as our oil
was until very recently termed once mixed with Russian oil. While we have
not experienced any significant issues in delivering our oil, recent prices
for Urals Oil have been some $25 - $35 per barrel below Brent prices.
We firmly believe the Russian pipeline network will remain available to
transport our Kazakh oil, however if that were not to be the case, or if the
discount to Brent of our oil significantly widens, we would seek alternative
distribution options avoiding Russia.
Other delivery destinations include China, Azerbaijan and Uzbekistan with each
option involving additional transportation costs. An alternative would be to
sell all oil produced on the domestic market. A better alternative would be to
sell direct to one of the new mini refineries setting up in the region, which
would eliminate a large part of the transportation and delivery costs.
Our expectation however, is that through natural market arbitrage led by those
countries not signed up to Russian sanctions such as China, India and other
Asian countries, the current discount will significantly reduce.
Also, with a new KEBCO designation for Kazakh oil and the EU confirming that
Kazakh oil transported through the Russian pipeline systems is not subject to
any sanctions we expect to be able to sell oil to our international oil trader
partners in Kazakhstan at prices much closer to Brent.
We estimate the impact of the sanctions related Urals Oil discount to
currently be of the order of $30 million per annum based on current production
volumes and prevailing international prices. Any reversal of the impact of the
Urals Oil discount would flow directly to revenues and a large portion to
profits.
As Kazakh economy is closely linked to the Russian economy the value of the
Kazakh Tenge could decline against the dollar. While this would affect the
price at which we account in US$ for oil sold domestically it would also
reduce the US$ reported operating costs incurred in Tenge, which account for
approximately 50% of the Group's total costs.
Strategy
To date
Since our IPO in 2007, the Group's strategy has been to exploit oil & gas
opportunities in Central Asia, focusing on Kazakhstan where the management
team has the most experience.
During that period we have successfully brought into production shallow
structures at our flagship asset BNG. During the same period we have completed
four of the six deep wells required under the BNG Contract Area work programme
commitment, with a fifth well part drilled and the sixth underway and expected
to complete in Q4 2022.
Going forward
Our focus will remain on exploiting oil and gas assets in Kazakhstan, in
particular at our flagship BNG asset, prioritising production from the shallow
structures.
CHAIRMAN'S STATEMENT (CONTINUED)
While we will continue to look at early-stage projects, such as in 2008 when
we acquired our interest in BNG, our concentration will be on cashflow
positive producing assets and for the right projects we would look beyond
Kazakhstan.
A decade ago we looked at alternative energy projects but concluded the
returns then available did not match those at BNG. The economics of
alternative energy are now markedly better. We are therefore looking over
time to become a diversified energy group rather than one focused solely on
oil. In particular we are looking at wind energy projects.
Operational Review
BNG
Horizontal drilling
A big positive in the period under review and subsequently has been the
successful introduction of horizontal drilling techniques.
Horizontal drilling has been used to improve the production of existing wells
and will in the coming months be used in new wells at both the MJF structure
and at South Yelemes, where we believe significant volumes of oil may lie at
depths as shallow as 2,500 meters.
Shallow structures
All of the oil produced in 2021 was from the MJF structure. The production
capacity at the MJF structure has increased to 3,750 bopd, with seven wells
producing and a further two wells planned before the year end, including Well
141 which is due to re-enter production shortly following a horizontal
drilling workover.
Following the award of the export status at the South Yelemes structure we
have been able to re-open wells there, which were shut in for the whole of
2021. The production capacity of these existing wells is approximately 300
bopd. As noted above we plan to drill a new well at a depth of 2,500 meters
exploiting horizontal drilling targeting oil in the dolomite.
Our target with these new wells is as soon as possible to increase production
capacity to 5,000 bopd solely from our shallow structures.
Deep structures
The three deep wells drilled in previous years on the Airshagyl structure are
Wells A5, A6 & A8. The existing deep well on the Yelemes Deep Structure is
Well 801.
Funding constraints in the period under review limited the work that we could
undertake to bring these wells into production. Little was achieved at Wells
A5, A6 and 801. At Well A8, however we drilled from a depth of 4,500 meters to
5,400 meters identifying three oil bearing intervals covering in aggregate 140
meters.
Since the period end we perforated two of the three intervals identified as
potentially oil bearing but neither flowed oil at commercial quantities. The
rig used at A8 has been reallocated to drill a shallow well on the MJF
structure.
A7 is the fourth deep well to be drilled on the Airshagyl structure and the
fifth in total. It was spudded in late December 2021 with a planned Total
Depth of 5,300 meters targeting oil in the Carboniferous and the Devonian.
Drilling reached a depth of 2,150 meters before pausing to allow the rig to be
used elsewhere.
The final deep well required under the BNG Work Programme commitment is Deep
Well 802, which spudded in June 2022, with a Total Depth of 5,300 meters and
will target oil in the Carboniferous and the Devonian and an initial target at
a depth of 4,300 meters. At the date of this report drilling had reached 650
meters without incident.
Our approach to BNG
At BNG we have two proven and commercially viable shallow structures, MJF and
South Yelemes, and two deep structures Airshagyl and Yelemes Deep with huge
potential but to date with no production.
As noted above our plan is to prioritise production from the shallow
structures with a series of new wells and workovers of existing wells.
CHAIRMAN'S STATEMENT (CONTINUED)
This does not mean we are moving away from the hugely prospective deep
structures at BNG. We already have four deep wells drilled to their total
depths, a fifth part drilled and a sixth underway. This is the final deep well
required under the BNG work programme commitments, which are expected to be
complete before the end of the year.
We continue to believe that the geological conditions at the super giant
fields of Kashagan and Tengiz extend to the BNG Contract Area. If this is the
case the potential volume of oil in these deep structures is vast and the
implications on the Company's fortunes of one or more commercial deep wells
would be transformational. We remain committed to bring as many as possible of
these six deep wells into production. However, until we are successful in
bringing at least one of these six deep wells into production, it is unlikely
we will drill any further deep wells at BNG.
Given the current high oil price and the relatively low risk opportunities on
our shallow structures our focus is now to maximise cashflow from production.
Own equipment
The move to own the drilling rigs and much of the other equipment previously
rented has significantly improved operational efficiency and reduced operating
costs. The Covid-19 related prolonged closure of the Chinese / Kazakh border
and the sanctions on Russia have also underlined the importance of being
self-reliant for rigs and drilling consumables.
Since the period end we have acquired a further workover rig with the $750,000
consideration satisfied by the issue of approximately 19 million new shares.
The impact of Covid-19
Although there were several periods when the Almaty office was closed
following staff testing positive for Covid-19, the impact on operations in the
oilfields were far less pronounced than in 2020. More impactful was the
Covid-19 related closure of the Chinese / Kazakh border and the resultant
sharp rise in the price of equipment and consumables sourced from Russia.
Happily, the Chinese / Kazakh border has reopened.
The impact of the drilling slow-down in 2020 became apparent in 2021 with no
new wells coming on stream in the first half of 2021, resulting in a 2% fall
in the volume of oil produced for the year as a whole.
3A Best
There was little progress at 3A Best in the period under review or
subsequently. The farm-out announced in June 2021 was conditional on the
renewal of the 3A Best Licence. We continue to work with the Kazakh
authorities to renew the licence, following which we will assess its place
within the Group. In the meantime, our investment in 3A Best has been fully
provided for.
Caspian Explorer
During the period under review the Caspian Explorer was chartered for a safety
related contract by the North Caspian Operating Company, the leading operator
in the region. Daily rates for safety related work are much lower than for
drilling contracts but the income from the charter covered the Caspian
Explorer's costs for the year.
While we have serious interest in both safety related and drilling charters
for 2023 no contracts have yet been signed, although a tender has been
submitted for a 2023 drilling programme. We have also received several
early-stage approaches to buy the Caspian Explorer.
Dividends
It has been our objective for some time to commence regular dividend payments.
Not only will this reward shareholders for their continued support it should
also signal to the wider investment community that the Group has moved to the
next stage in its development.
We have worked to create sufficient distributable reserves to allow dividends
to be paid. This required a formal Capital Reduction to cancel the share
premium account and the deferred shares to boost distributable reserves. The
Capital Reduction was approved by shareholders in April 2022 and approved by
the UK High Court in June 2022.
In assessing the size and timing of any dividends the board will have regard
to the matters disclosed in note 1.1, which include the Group's free cashflows
and its existing and future financial commitments. The Board will also need to
be satisfied there are no additional adverse impacts from Russian sanctions.
CHAIRMAN'S STATEMENT (CONTINUED)
Based on their current assessment and subject to the points noted above the
Board anticipates declaring the first dividend later this year.
Board changes
On 4 March 2021 we were pleased to welcome Seokwoo Shin, Chief Operating
Officer, to the Board as an executive director. He worked for the Korean
National Oil Corporation from 1987 until 2018 with spells in Korea, the United
Kingdom, Russia and most recently Kazakhstan, where he was responsible for
KNOC's Kazakh oil fields. He joined Caspian Sunrise in 2018.
Employees
The Group currently employees 215 staff, including Directors, of whom 213 are
based in Kazakhstan and split principally between the corporate offices in
Almaty and in the field.
Outlook
We look forward to further increasing production from the shallow structures
at BNG.
Even at current prices and despite the Urals Oil discount the company is doing
well, however, as noted above, we do not expect the current discount for Urals
Oil to apply to our oil for much longer. A drilling charter for the Caspian
Explorer in 2023 would also make a material difference to the Group's trading.
However, the greatest impact on the value of our Company would be success at
our BNG deep structures.
Clive Carver
Chairman
24 June 2022
FINANCIAL REVIEW OF THE 12 MONTHS ENDED 31 DECEMBER 2021
Revenue
Revenue in 2021 increased by approximately 75 per cent to approximately $25
million (2020: $14.3 million).
Oil prices
International export prices rose steadily from approximately $50 per barrel at
the start of 2021 to approximately $77 per barrel by the year end. Over the
same period domestic prices rose from approximately $6 per barrel to
approximately $25 per barrel.
Production volumes
Production volume in 2021 was at 533,857 barrels some 2.2% lower than in 2020,
reflecting the limited investment in workovers and new wells during the height
of the Covid-19 restrictions in 2020.
International vs Domestic sales
The proportion of oil sold on the international market in 2021 was similar to
that in 2020 as the export status at South Yelemes was not received until
late December 2021.
Gross profit
Gross profit increased by approximately 106 per cent to approximately $19.4
million (2020: $9.4 million), principally as the result of the increase in the
oil price.
Selling expenses
Selling expenses increased by approximately 94% at $7.6 million (2020: $3.9
million) and are mainly export and customs duties, which are typically based
on achieved oil prices.
Operating loss
The operating loss was $4.0 million (2020: $0.7 million) This includes a
provision in respect of the carrying value of 3A Best of $12.5 million.
Other administrative expenses
The Board's pay reductions introduced in 2020 continued through 2021 and
throughout H1 2022, with the result that in the period under review General
and Administrative expenses fell a further 11% to $3.3 million (2020: $3.7
million).
Tax charge
The tax charge reduced to $0.7 million (2020: $1.8 million). and the reduction
in the tax charge reflected lower provisions for Kazakh withholding tax on
intercompany loans with taxes on trading being covered by past losses.
Loss for the year
The loss for the year after tax was $5.5 million, after the $12.5 million
provision in respect of 3A Best. (2020: loss of $3.5 million).
Oil and gas assets
Unproven oil & gas assets
The carrying value of unproven oil and gas assets fell by approximately $15.3
million to approximately $46.2 million (2020: $61.4 million) largely as the
result of the $12.5 million provision in respect of 3A Best and exchange rate
differences of approximately $3.5 million.
The approval for export sales from the South Yelemes which was granted in
December 2021 required further information to be supplied in the following 6
months for the formal export licence to be confirmed. Accordingly, at 31
December 2021 the South Yelemes asset has remained as part of unproven oil
& gas assets and will be moved to proven oil and gas assets in the 2022
financial statements.
Plant, property and equipment
The value of plant property and equipment increased by approximately $4.3
million to approximately $57.1 million (2020: $52.8 million), reflecting the
acquisition in the year of drilling rigs and equipment.
FINANCIAL REVIEW OF THE 12 MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
Other receivables
Other receivables fell from approximately $6.2 million to approximately $4.9
million principally as the result of lower pre-payments. Receivables due in
more than one year were approximately $4.3 million (2020: $4.2 million) and
are principally Kazakh VAT related.
Cash position
At the year-end we had cash balances of approximately $0.4 million (2020: $0.3
million). This reflects the continuing extremely tight working capital
position following the impact of Covid-19.
Liabilities
Trade and other payables under 12 months
Trade and other payables increased to approximately $13.2 million (2020: 11.0
million), largely as the result of higher tax due on oil sales. Short term
borrowings provided by the Oraziman family increased to $6.4 million (2020:
$5.6 million) and the provisions for payments in less than 12 months stayed
broadly similar at approximately $8.7 million (2020: $9.3 million) of which
the provision for BNG licence payments was $3.2 million in both years.
On 9 March 2022, following the period end Independent Shareholders approved
the conversion of approximately $6.2 million due to the Oraziman family into
139,729,446 new ordinary shares.
BNG historic costs
We have continued to pay down the historic costs assessed against BNG. At 31
December 2021, of the original $32 million levied in 2019 approximately $22.5
million remains to be paid over the next seven years.
Cashflows
During the period under review approximately $24.3 million was received from
customers and approximately $16.6 million paid out to suppliers, creditors and
staff with a further $0.7 million spent on unproven oil and gas assets and
$7.1 million spent on property, plant and equipment, resulting in cash
balances at the year increasing slightly from $0.3 million to $0.4 million.
Going Concern
The financial position of the Group and the Company has improved in the past
year and as at 1 June 2022 the Group had cash of $1 million.
· At current oil prices, even with the Urals Oil price discount, the
Company enjoys positive operational cash flows
· Deep Well 802 is the final well required under the BNG work
programme. Any further deep wells drilled at BNG will be on a discretionary
basis
· As is the case for the MJF structure, the South Yelemes structure
with current production of approximately 300 bopd is now able to sell most of
its oil at international prices
· $6.2 million of debt has been converted to equity
Nevertheless, with net current liabilities of approximately $22 million as at
31 December 2021, the assessment of going concern needs to be properly
considered. The Board have assessed cash flow forecasts prepared for a period
of at least 12 months from the of approval of the financial statements and
assessed the risks and uncertainties associated with the operations and
funding position, including the potential further effects of the COVID-19
pandemic. These cash flows, which include the payment of discretionary
dividend, are dependent on a number of key factors including:
· The Group's cashflow is sensitive to oil price and volume sold.
This is impacted by its current reliance on exporting a portion of its oil
sales through the Russian pipeline network. If due to sanctions on Russia,
this pipeline network is no longer available, or the discount on oil exported
through this network increased over a prolonged period, to continue to
generate positive cash the Group would either seek alternative distribution
routes via Uzbekistan, Azerbaijan or China or alternatively sell all oil
produced on the domestic market or to one of the new mini refineries opening
in the region, where prices are typically better than the domestic price and
buyers collect the oil from the wellhead. As none of these alternatives have
yet been tested, if the oil price achieved or volume sold declined, these
factors could result in the Group requiring additional funding.
FINANCIAL REVIEW OF THE 12 MONTHS ENDED 31 DECEMBER 2021 (CONTINUED)
· The Group continues to forward sell its domestic production and
receive advances from oil traders with $1.8m currently advanced and the
continued availability of such arrangements is important to working capital.
Whilst the Board anticipate such facilities remaining available given its
trader relationships and recent oil price increases, should they be withdrawn
or reduced more quickly than forecast cash flows allow then additional funding
would be required.
· The Group has $6.0m of liabilities due on demand under social
development program and $0.4m of BNG licence payments due within the forecast
period to the Kazakh government. Whilst the Board has forecasted the payment
of BNG licence payments, there are no payments planned for social development
program within the forecast period as the Board expects additional payment
deferrals to be approved. Should the deferrals not occur additional funding
would be required.
These circumstances continue to indicate the existence of a material
uncertainty which may cast significant doubt about the Group and the Company's
ability to continue as a going concern and therefore may be unable to realise
its assets and discharge its liabilities in the normal course of business. The
financial statements do not include the adjustments that would result if the
Group and the Company was unable to continue as a going concern.
Notwithstanding the material uncertainty described above, after making
enquiries and assessing the progress against the forecast, projections and the
status of the mitigating actions referred to above, the Directors have a
reasonable expectation that the Group and the Company will continue in
operation and meet its commitments as they fall due over the going concern
period. Accordingly, the Directors continue to adopt the going concern basis
in preparing the financial statements.
Clive Carver
Chairman
24 June 2022
OUR OIL & GAS ASSETS
BNG CONTRACT AREA
Introduction
The Group's principal asset is its 99% interest in the BNG Contract Area. We
first took a stake in the BNG Contract Area in 2008, as part of the
acquisition of 58.41% of portfolio of assets owned by Eragon Petroleum
Limited.
In 2017, we increased our stake to 99% upon the completion of the merger with
Baverstock GmbH. Since 2008, more than $100 million has been spent at BNG.
The BNG Contract Area is located in the west of Kazakhstan 40 kilometers
southeast of Tengiz on the edge of the Mangistau Oblast, covering an area of
1,561 square kilometers of which 1,376 square kilometers has 3D seismic
coverage acquired in 2009 and 2010. We became operators at BNG in 2011, since
when we have identified and developed both shallow and deep structures.
Shallow structures
There are two confirmed and producing shallow structures at BNG.
MJF structure
The first wells were drilled on the MJF structure in 2016, since when it has
produced in aggregate approximately 2.7 million barrels. We have embarked on a
programme of redrilling the older wells using horizontal drilling techniques
to increase production. At the date of this report work at three of the older
wells has been completed.
In 2013, we announced the discovery of the MJF structure and have subsequently
drilled eight wells of which seven are currently producing with an aggregate
capacity of approximately 3,750 bopd.
The productive Jurassic aged reservoir consists of stacked pay intervals with
most ranging in thickness from two meters to 17 meters. The current mapped
lateral extent of the MJF field is now approximately 13km2. The producing
wells range in depth from 2,192 meters to 2,450 meters.
In December 2018, we applied to move the MJF structure, which was part of the
overall BNG licence, from an appraisal licence to a full production licence,
under which the majority of the oil produced from the MJF wells may be sold by
reference to world rather than domestic Kazakh prices. The full production
licence became effective in July 2019, with the first revenues based on
international prices received in August 2019.
Following the award of the MJF export licence the Kazakh regulatory
authorities assessed historic costs of $32 million against the MJF structure,
repayable quarterly over a 10-year period, of which approximately $22 million
remained payable at 31 December 2021.
Wells 154 and 153 were the first new wells drilled using horizontal techniques
both targeting a Middle Jurassic reservoir. Recently Well 142 recommenced
production following use of horizontal drilling and is producing at
approximately 1,400 bopd.
All of the oil produced in 2021 was from the MJF structure. In 2021 we
produced 533,857 barrels of oil at an average of 1,462 bopd (2020: 545,667
barrels at an average of 1,495 bopd).
South Yelemes structure
The first wells were drilled on the South Yelemes structure during the Soviet
era, with test production commencing in 1994.
Well 54 was intermittently active between periods of being shut in to allow
pressure to be restored. There are three other wells at South Yelemes (805,
806 & 807). Since 2010 the South Yelemes shallow structure has produced
approximately 350,000 barrels.
No production was allowed at this structure between May 2020 when we submitted
our application to upgrade the structure to export status in late December
2021. We are now able to sell most of the oil produced from the South Yelemes
structure by reference to international rather than domestic prices.
OUR OIL & GAS ASSETS (CONTINUED)
South Yelemes structure (Continued)
Until recently these older wells were the only wells on the BNG Contract Area
to use artificial lift to assist the oil to flow to the surface. We believe
the structure may have untapped quantities of oil at higher levels than
previously explored, which we intended to explore with horizontal drilling
targeting a Dolomite reservoir.
Deep structures
We have identified two deep structures at the BNG Contract Area. The first is
the Airshagyl structure, which extends to 58 km2. The second is the Yelemes
Deep structure which extends over an area of 36 km2.
Airshagyl structure
Three deep wells have been drilled on the Airshagyl structure, A5, A6 & A8
a fourth A7 was spudded in December 2021.
A5
Well A5 was spudded in July 2013 and drilled to a total depth of 4,442 meters
with casing set to a depth of 4,077 meters to allow open-hole testing. Core
sampling revealed the existence of a gross oil-bearing interval of at least
105 meters from 4,332 meters to at least 4,437 meters. For 15 days the well
produced at the rate of approximately 3,000 bopd before production fell to
approximately 1,000 bopd, leading to the well being shut in for remedial
treatment.
Limited rig availability resulted in little work on this well in 2021 or
subsequently. We remain believers in the well and intend to drill a new
side-track from a depth of 4,500 meters when a rig becomes available.
A6
Deep Well A6 was spudded in 2015 and drilled to a depth of 4,528 meters.
Initially problems in perforating the well prevented it being put on test.
Latterly the issue has been blockages from unrecovered drilling fluid. During
the year the year under review there was no significant progress with the
well. Further development work will depend on rig availability and a decision
on which acid formulation to use.
A8
Deep Well A8 was spudded in 2018 with a planned Total Depth of 5,300 meters,
initially targeting the same pre-salt carbonates that were successfully
identified in the Deep Well A5 at depths of 4,342 meters but with a prime
target being the deeper carbonate of the Devonian to Mississippian ages
towards the planned Total Depth of 5,300 meters.
During 2021 we decided to resume drilling towards the original objective in
the Devonian. Drilling reached a final depth of 5,400 meters in early
December. Neither of the two intervals of interest perforated resulted in
commercial quantities of oil with pressures below the levels expected.
Accordingly, work has stopped at A8 and the rig has been reassigned.
New wells
New Deep Well A7 was spudded in December 2021, with a planned Total Depth of
5,300 meters but primarily targeting an interval at a depth of 5,300 meters.
In March 2022 drilling at A7 was paused at a depth of 2,150 meters to allow
the rig to be used to drill a horizontal well on the shallow South Yelemes
structure.
Yelemes Deep structure
Deep Well 801 was drilled in 2014 / 2015 to a depth of 5,050 meters. During
the year the year under review there was no progress with the well. As with
Deep Well A6 on the Airshagyl structure further development work will depend
on rig availability.
Deep Well 802 was spudded in June 2022, with a planned Total Depth of 5,300
meters. At the date of this report drilling had reached 650 meters without
incident. This will be the final deep well required under the BNG work
programme.
Deep well drilling issues
Sub-surface conditions at the two discovered deep structures at BNG present
significant technical challenges in drilling and completing the wells. These
are the extremely high temperature and extreme pressure that exist below the
salt layer. At the Airshagyl structure the salt layer is typically found at
depths between 3,700 and 4,000 meters where at the Yelemes Deep structure the
salt layer is typically found at depths between 3,000 and 3,500 meters.
OUR OIL & GAS ASSETS (CONTINUED)
Deep well drilling issues (Continued)
The extreme pressure below the salt layer requires the use of high-density
drilling fluid to maintain control of the well during drilling. The
high-density drilling fluid's principal role is to help prevent dangerous
blow-outs. The attributes of the high-density barite weighted drilling fluid,
which allow the wells to be controlled during the drilling phase, act against
us when we attempt to clear the well for production.
To the extent that drilling fluids, which include solid particles added to
increase density, are not fully recovered they can form a barrier between the
wellbore and the reservoir impeding the flow of hydrocarbons into the well.
3A BEST
In January 2019, we acquired 100% of the 3A Best Group JSC, a Kazakh
corporation owning an existing Contract Area of some 1,347 sq. km located near
the Caspian port city of Aktau.
The Contract Area, which has been designated by the Kazakh authorities as a
strategic national asset, surrounds and goes below the established shallow
field at Dunga, currently owned by Total Energies, which we believe to be
producing at the rate of approximately 15,000 bopd.
In June 2021, we announced a farm out of 15% of the 3A Best Contract Area in
return for our new partners assuming responsibility for the current 3A Best
work programme commitments. However, the farm out was conditional on the
deferral of obligations under the licence and the extension of the license
which are yet to be granted. We also granted our new partners an option to
acquire the remaining 85%, exercisable after completion of the current work
programme commitments, at a price to be determined by an independent expert.
We continue to work with the Kazakh authorities to renew the 3A Best licence.
Until we are successful on this the farm-out will not proceed. Our investment
in 3A Best has been fully provided for.
LICENCES & WORK PROGRAMMES AND RESERVES
LICENCES & WORK PROGRAMMES
BNG
BNG LLP Ltd holds three contracts for a subsoil use. The first is the
appraisal contract, covering the full extent of the BNG Contract Area (except
the MJF and South Yelemes structures), originally issued in 2007 and
successively extended until 2024.
The second is the export contract covering just the MJF structure which runs
to 2043 and the third is the export contract covering the South Yelemes
structure, which runs to 2046. Under the MJF and South Yelemes licences the
majority of oil produced may be sold by reference to international rather than
domestic prices.
Wells A7 and 802 are the final two deep wells required under the BNG work
programme commitments. Well A7 was spudded in December 2021 and Well 802 was
spudded in June 2022.
3A Best
The licence renewal at 3A Best was delayed as the result of outstanding social
payments due from the assets previous owners. We continue to work with the
Kazakh authorities to renew the 3A Best licence.
RESERVES
BNG
In 2011 Gaffney Cline & Associates ("GCA") undertook a technical audit of
the BNG license area and subsequently Petroleum Geology Services ("PGS") to
undertake depth migration work, based on the 3D seismic work carried out in
2009 and 2010.
The work of GCA resulted in confirming total unrisked resources of 900 million
barrels from 37 prospects and leads mapped from the 3D seismic work undertaken
in 2009 and 2010. The report of GCA also confirmed risked resources of 202
million barrels as well as Most-Likely Contingent Resources of 13 million
barrels on South Yelemes.
In September 2016 GCA assessed the reserves attributable to the BNG shallow
structures (MJF & South Yelemes). Between then and the end of 2021,
approximately 3.0 mmbls of oil were produced, which under financial reporting
rules are deducted from the assessment of reserves as at 31 December 2021.
BNG As at 31 December 2021 As at 31 December 2020
mmbls mmbls
Shallow P1 15.1 15.6
Shallow P2 26.3 26.8
Despite the last external review of the Group's reserves being in 2016, the
Board considers their assessment as set out in the above table to be valid.
CASPIAN EXPLORER
Introduction
In 2020 we acquired the Caspian Explorer, a drilling vessel designed
specifically for use in the shallow northern Caspian Sea where traditional
deep water rigs cannot be used. We believe it to be the only vessel of its
type operating in the Caspian Sea.
The principal ways of exploring in such shallow waters are either from a land
base or using a specialist shallow drilling vessel such as the Caspian
Explorer, which we believe to be the only one of its class operational in the
Caspian Sea.
Land based options typically involve either the creation of man-made islands
from which to drill as if onshore or less commonly drilling out from an
onshore location. Both are expensive compared to the use of a specialist
drilling platform such as the Caspian Explorer.
The Caspian Explorer was conceived of by a consortium of leading Korean
companies including KNOC, Samsung and Daewoo Shipbuilding. The vessel was
assembled in the Ersay shipyard in Kazakhstan between 2010 and 2011 for a
construction cost believed to be approximately $170 million. The total costs
after fit-out are believed to have been approximately $200 million. We
understand a replacement would today cost in excess of $300 million and take
several years to become operational.
The Caspian Explorer became operational in 2012 at a time of relatively low
oil prices and reduced exploration activity in the Northern Caspian Sea.
In June 2021 we announced the first charter for the Caspian Explorer since it
has been a part of the Group. The charter was with the North Caspian Operating
Company ("NCOC"), which is the principal operator in the region, comprising
the Republic of Kazakhstan working through KazMunaiGas (KMG), and
international oil companies including Shell, ExxonMobil, Eni, Total and CNPC,
the consortium operating the Kashagan field. The charter has been completed
and payment received.
We have submitted a tender for a drilling charter in 2023.
Operational characteristics
The Caspian Explorer:
· operates principally between May and November as the Northern
Caspian Sea is subject to winter ice
· operates in depths between 2.5 meters and 7.5 meters
· can drill to depths of 6,000 meters
· typically has a crew to operate the drilling vessel of 20
· has accommodation for approximately 100
· costs approximately $100,000 per month while moored in port
· is generally able to pass on other costs incurred while operational
to the clients hiring the vessel
Commercial activity
· In 2017, the Caspian Explorer was hired out to a KazMunaiGas /
Indian state oil company joint venture for $28 million after costs and
drilled one exploration well to a depth of 3.5 km.
· In 2018, the Caspian Explorer was hired out KazMunaiGas for up
to $24 million drilling one exploration well to a depth of 1.8 km.
· The Caspian Explorer did not operate in 2019 or in 2020. In 2021
$1.2 million was received for a safety related charter
· A tender is outstanding for a 2023 drilling contract at prices
broadly consistent with the rates achieved in 2017 and 2018
QUALIFIED PERSON & GLOSSARY
Qualified Person
Mr. Assylbek Umbetov, a member Association of Petroleum Engineers, has
reviewed and approved the technical disclosures in these financial statements.
Glossary
SPE - the Society of Petroleum Engineers
Bopd - barrels of oil per day mmbls - million barrels.
Proven reserves
Proven reserves (P1) are those quantities of petroleum which, by analysis of
geosciences and engineering data, can be estimated with reasonable certainty
to be commercially recoverable, from a given date forward, from known
reservoirs and under defined economic conditions, operating methods, and
government regulations.
If deterministic methods are used, the term reasonable certainty is intended
to express a high degree of confidence that the quantities will be recovered.
If probabilistic methods are used, there should be at least a 90% probability
that the quantities actually recovered will equal or exceed the estimate.
Probable reserves
Probable reserves are those additional reserves which analysis of geosciences
and engineering data indicate are less likely to be recovered than proved
reserves but more certain to be recovered than possible reserves. It is
equally likely that actual remaining quantities recovered will be greater than
or less than the sum of the estimated proved plus probable reserves (2P).
In this context, when probabilistic methods are used, there should be at least
a 50% probability that the actual quantities recovered will equal or exceed
the 2P estimate.
Possible reserves
Possible reserves are those additional reserves which analysis of geosciences
and engineering data indicate are less likely to be recovered than probable
reserves.
The total quantities ultimately recovered from the project have a low
probability to exceed the sum of proved plus probable plus possible (3P),
which is equivalent to the high estimate scenario. In this context, when
probabilistic methods are used, there should be at least a 10% probability
that the actual quantities recovered will equal or exceed the 3P estimate.
Contingent resources
Contingent resources are those quantities of petroleum estimated, as of a
given date, to be potentially recoverable from known accumulations, but the
applied project(s) are not yet considered mature enough for commercial
development due to one or more contingencies.
Contingent resources may include, for example, projects for which there are
currently no viable markets, or where commercial recovery is dependent on
technology under development, or where evaluation of the accumulation is
insufficient to clearly assess commerciality.
Contingent resources are further categorised in accordance with the level of
certainty associated with the estimates and may be sub-classified based on
project maturity and/or characterized by their economic status.
Prospective resources
Prospective resources are those quantities of petroleum estimated, as of a
given date, to be potentially recoverable from undiscovered accumulations.
Potential accumulations are evaluated according to their chance of discovery
and, assuming a discovery, the estimated quantities that would be recoverable
under defined development projects.
THE KAZAKH OIL AND GAS LICENCING AND TAXATION ENVIRONMENT
Introduction
Oil & gas is a heavily regulated industry throughout the world, with
strict rules on licencing and taxation. Set out below is a summary of the
position in Kazakhstan.
Licensing
Exploration licences
The initial licence to develop a field is typically an exploration licence
where the focus is on completing agreed work programmes. Exploration licence
are typically two years in duration and it is usual for there to be several
consecutive two-year exploration licence extensions agreed during the
exploration phase.
Appraisal licences
In the event the project appears commercial, the exploration licence is
usually upgraded to an appraisal licence.
Under an appraisal licence, oil produced incidentally while exploring and
assessing may be sold but only at domestic prices. Taxation under an appraisal
licence is limited with only modest deductions. Changes to the legislation in
the last few years has reduced the length of appraisal licences from six to
five years, with a concession of reduced social obligation payments.
Full production licences
To sell oil by reference to world prices requires either the Contract Area as
a whole or a particular structure has to be upgraded to a full production
licence. Under a full production licence there is only limited scope to
develop areas not already drilled. Additionally, a significant minority
portion of production typically remains at domestic prices although the
majority is sold by reference to world prices.
Taxes
There are five different taxes that apply to Kazakh oil & gas producers.
Each has its own basis of calculation with some being related to profits,
others by reference to world oil prices and yet others by reference to the
volume of oil sold.
The overall impact is that as world prices increase so does the percentage
taken by the Kazakh state.
STRATEGIC REPORT
Introduction
This strategic report comprises: the Group's objectives; the strategy; the
business model; and a review of the Group's business using key performance
indicators. The Chairman's statement, which also forms the main part of the
strategic review, contains a review of the development and performance of the
Group's business during the financial year, and the position of the Group's
business at the end of that year. Additionally, a summary of the principal
risks and uncertainties facing the business is set out immediately after the
Directors' report.
Objectives
The Group's objective is to create shareholder value from the development of
oil and gas projects and associated activities.
The Group has a number of secondary objectives, including promoting the
highest level of health and safety standards, developing our staff to their
highest potential and being a good corporate citizen in our chosen countries
of operations.
Strategy
The Group's long-term strategy is to build an attractive portfolio of oil and
gas exploration and production assets initially in Central Asia, and in
particular Kazakhstan where the board has the greatest experience.
Additionally, the Group will seek to exploit associated opportunities where
the board believes it can add significant value and contribute towards the
success of the Group as a whole.
This strategy has been refined during the year under review and subsequently
to favour cash producing assets and to seek to exploit alternative energy
project, specifically wind energy project.
The Group's principal asset is its 99 per cent interest in BNG. Additionally,
the Group owns a 100 per cent interest in the 3A Best Contract Area, of which
subject to licence renewal it has agreed to sell 15% to fund existing 3A Best
work programme commitments and granted an option for the sale of the remaining
85% at a valuation to be assessed by an independent expert. The Group also
owns a 100% interest in the Caspian Explorer, a shallow water drilling vessel
designed for the Northern parts of the Caspian Sea.
Business model
The business model is straightforward. To take assets at any stage of the
development cycle and to improve them to the point they contribute to the
Group's profitability or that they may be sold on at a profit to provide
funding for additional development.
Our main asset BNG has been developed over the past 14 years with more than
$100 million spent and is set to be a very substantial asset for many years to
come.
While we seek to grow our asset portfolio with appropriately timed
acquisitions we are also prepared and able to sell assets when their value to
others exceeds the value we can see. This was the case in 2015, when, in poor
market conditions, we sold our then second asset Galaz for a headline price of
$100 million, which represented a profit of $15 million on our interest in the
asset, and which provided $33 million to re-invest into BNG.
Further growth by acquisition
When appropriate the Group will consider acquiring additional assets or
related businesses where the Board believes they would increase shareholder
value, including by providing funding or infrastructure to develop the Group's
other assets.
In Kazakhstan the Directors believe the Group is exceptionally well placed
through its local presence to identify and buy undervalued oil and gas assets
on an opportunistic basis.
Climate Change
Other than a general move away from fossil fuels, the Board is not aware of
any indications that the impact of climate change is likely to have a material
impact on the Group's business over the short and medium terms. We believe
the current need for oil will continue for at least the next decade.
STRATEGIC REPORT (CONTINUED)
Key performance indicators
The Non-Financial Key Performance Indicators are:
· Operational (wells drilled at end of year) 2021: 18 (2020: 17)
· Aggregate production for 2021 was 533,857 barrels (2020: 545,667) a
decrease of approximately 2.2%
· Reserves at 31 December 2021 P1 15.1 mmbls & P2 26.3 mmbls
(2020: P1 15.6 mmbls & P2 26.8 mmbls)
The Financial Key Performance Indicators are:
· Revenue: up 75% at $25.0 million (2020: $14.3 million)
· Operating loss $4.0 million (2020: loss of $0.7 million) after a
$12.5 million provision in respect of 3A Best
· Loss after tax for the year $5.5 million (2020: $3.5 million)
· Cash at bank: $0.4 million (2020: $0.3 million)
· Total assets: $114 million (2020: $125.6 million)
· Exploration assets $46.3 million (2020: $61.4 million)
· Plant, property & equipment $57.1 million (2020: $52.8 million)
Current production capacity
· 4,000 bopd
Assets & Reserves
Details of the Group's assets and reserves are set out in the Chairman's
statement.
Financial
At current international prices and with current levels of production the
income from export sales is sufficient to cover all day-to-day Group
operations; and G&A costs; the costs of the two new deep wells A7 &
802; and to fund planned dividend payments.
In the event any of the six deep wells drilled or being drilled start to
produce oil in commercial quantities the associated revenues should transform
the Group's cash flows. The same would be the case in the event the Caspian
Explorer is chartered for drilling projects at market rates.
Drilling wells at a rate faster than could be funded from oil sales, would
require additional funding, as would any acquisitions to be funded by cash.
Potential sources of such funding would include: further advances from local
oil traders for the sale of oil yet to be produced; industry funding in the
form of partnerships with larger industry players; further support from
existing shareholders; and equity funding from financial institutions.
Additionally, funding may be available from selected asset sales.
Dividends
For some years it has been the policy of the Board to work towards a position
where meaningful dividends can be paid. This requires not only consistently
profitable trading but also a corporate reorganisation to create distributable
reserves. New corporate subsidiaries have been incorporated in the UAE, with a
view improving and simplifying the Group structure and easing the future
payment of dividends. The final step was the approval of shareholders and the
UK Court of a Capital Reduction. Shareholder approved the Capital Reduction in
April 2022, which was approved by the UK High Court in June 2022.
The Group's then expects to declare and pay dividends on a regular basis,
subject to the comments set out in the Chairman's Statement.
S 172 Statement
The Board is mindful of the duties of directors under S.172 of the Companies
Act 2006.
Directors act in a way they consider, in good faith, to be most likely to
promote the success of the Company for the benefit of its members. In doing
so, they each have regard to a range of matters when making decisions for the
long term success of the Company.
Our culture is that of treating everyone fairly and with respect and this
extends to all our principal stakeholders. Through engaging formally and
informally with our key stakeholders, we have been able to develop an
understanding of their needs, assess their perspectives and monitor their
impact on our strategic ambition.
STRATEGIC REPORT (CONTINUED)
As part of the Board's decision-making process, the Board and its Committees
consider the potential impact of decisions on relevant stakeholders whilst
also having regard to a number of broader factors, including the impact of the
Company's operations on the community and environment, responsible business
practices and the likely consequences of decisions on the long term.
Our objective is to act in a way that meets the long term needs of all our
main stakeholder groups. However, in so doing we pay particular regard to the
longer term needs of shareholders.
We engage with investors on our financial performance, strategy and business
model and until the Covid-19 virus struck our Annual General Meeting provided
an opportunity for investors to meet and engage with members of the Board.
The Board continues to encourage senior management to engage with staff,
suppliers, customers and the community in order to assist the Board in
discharging its obligations.
During 2021 the Board was particularly mindful of the impact of the ongoing
Covid-19 pandemic when making decisions. This has impacted all areas of
decision making and is not limited to ensuring that its impact on employees,
contractors, suppliers and the communities in which we operate is factored
into any decision, but also to ensure that its reputational, financial and
other impact is also considered.
Further details of how the Directors have had regard to the issues, factors
and stakeholders considered relevant in complying with S 172 (1) (a)-(f), the
methods used to engage with stakeholders and the effect on the Group's
decisions during the year can be found throughout this report and in
particular at page 4 (in relation to decision-making), page 18 (where the
Group's strategy, objectives and business model are addressed), page 21 (in
relation to employees) the ESG report on page 26 (in relation to social and
environmental matters).
We seek to attract and retain staff by acting as a responsible employer. The
health and safety of our employees is important to the Company and an area we
have to regularly report on the Kazakh regulatory authorities.
We continue to provide support to communities and governments through the
provision of employment, the payment of taxes and supporting social and
economic development in the surrounding areas, both through social investment
and local procurement. We have contributed to a range of social programmes for
well over a decade.
We have established long-term partnerships that complement our in-house
expertise and have built a network of specialised partners within the industry
and beyond.
Clive Carver
Chairman
24 June 2022
DIRECTORS REPORT
The Directors present their annual report on the operations of the Company and
the Group, together with the audited financial statements for the year ended
31 December 2021.
The Strategic report forms part of the business review for this year.
Principal activity
The principal activity of the Group is oil and gas exploration and production.
Results and dividends
The consolidated statement of profit or loss is set out on page 45 and shows a
$5.5 million loss for the year after tax (2020: loss US$3.5 million).
Subject to the comments set out in the Chairman's Statement, the Directors
expect to declare the Company's first dividend later this year.
Review of the year
The review of the year and the Directors' strategy are set out in the
Chairman's Statement and the Strategic Report.
Events after the reporting period
Other than the operational and financial matters set out in these financial
statements there have been no material events between 31 December 2021, and
the date of this report, which are required to be brought to the attention of
shareholders. Please refer to note 28 of these financial statements for
further details.
Board changes
On 4 March 2021, Seokwoo Shin, Chief Operating Officer joined the Board as an
executive director.
Employees
Staff employed by the Group are based primarily in Kazakhstan.
The recruitment and retention of staff, especially at management level, is
increasingly important as the Group continues to build its portfolio of oil
and gas assets. As well as providing employees with appropriate remuneration
and other benefits together with a safe and enjoyable working environment, the
Board recognises the importance of communicating with employees to motivate
them and involve them fully in the business.
For the most part, this communication takes place at a local level and staff
are kept informed of major developments through email updates. They also have
access to the Group's website.
The Group has taken out full indemnity insurance on behalf of the Directors
and officers.
Health, safety and environment
It is the Group's policy and practice to comply with health, safety and
environmental regulations and the requirements of the countries in which it
operates, to protect its employees, assets and environment.
Charitable and Political donations
During the year the Group made no charitable or political donations.
Directors and Directors' interests
The Directors of the Group and the Company who held office during the period
under review and up to the date of the Annual Report are as follows:
Directors' interests
Director Number of Ordinary Shares
As at 31 December 2021 As at 31 December 2020
Clive Carver 2,245,000 2,245,000
Kuat Oraziman* nil 41,485,330
Edmund Limerick 7,911,583 7,911,583
Aibek Oraziman** 592,857,583 528,476,278
Seokwoo Shin nil nil
* taken together on 31 December 2021 the Oraziman Family, comprising Kuat
Oraziman, Aibek Oraziman, Aidana Urazimanova, the Estate of the late Rafik
Oraziman, Altynbek Boltazhan and Boltazhan Kerimbayev held 949,815,346 shares
representing 45% of the issued share capital shares.
Since the year end and following the $6.2 million Debt Conversion completed in
March 2021 the Oraziman family hold 1,089,544,792 shares representing 48.41%
of the issued share capital.
** comprises 492,836,151 shares held direct plus 100,021,432 shares held by
Akku Investments in which Aibek Oraziman has a 50% interest. The entry as at
31 December 2020 was made on the basis that all shares held by Aibek Oraziman
and Aidana Urazimanova were pooled in Akku Investments, in which Aibek
Oraziman had a 50% interest.
Biographical details of the Directors are set out on the Company's website
www.caspiansunrise.com (http://www.caspiansunrise.com) .
Details of the Directors' individual remuneration, service contracts and
interests in share options are shown in the Remuneration Committee Report.
Other shareholders over 3% at the date of this report
Shareholder Shares held %
Aidana Urazimanova*** 496,703,756 22.07
Dae Han New Pharm Co Limited 224,830,964 9.99
Al Marri Family 221,625,001 9.85
*** comprises 396,682,324 shares held direct plus 100,021,432 shares held by
Akku Investments in which Aidana Urazimanova has a 50% interest.
Financial instruments
Details of the use of financial instruments by the Group and its subsidiary
undertakings are contained in note 25 of the financial statements.
Statement of disclosure of information to auditor
The Directors have taken all the steps that they ought to have taken to make
themselves aware of any information needed by the Group's auditor for the
purposes of their audit and to establish that the auditors are aware of that
information.
The Directors are not aware of any relevant audit information of which the
auditor is unaware.
Auditor BDO LLP have indicated their willingness to continue in office and a
resolution concerning their reappointment will be proposed at the next Annual
General Meeting.
Directors' responsibilities
The Directors are responsible for preparing the annual report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have elected to prepare the Group
and Company financial statements in accordance with UK adopted international
accounting standards.
Under Company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Group and Company and of the profit or loss of the Group for
that period.
The Directors are also required to prepare financial statements in accordance
with the rules of the London Stock Exchange for companies trading securities
on the London Stock Exchange AIM Market.
In preparing these financial statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgements and accounting estimates that are reasonable and
prudent;
· state whether they have been prepared in accordance with UK adopted
international accounting standards subject to any material departures
disclosed and explained in the financial statements; and
· prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the Company and the Group will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group's and the Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and the Company and enable them to ensure that the financial statements
comply with the requirements of the Companies Act 2006.
They are also responsible for safeguarding the assets of the Group and the
Company and hence for taking reasonable steps for the prevention and detection
of fraud and other irregularities.
Website publication
The Group's website. www.caspiansunrise.com (http://www.caspiansunrise.com)
has recently been updated and readers of these financial statements are
encouraged to visit the website. The maintenance and integrity of the Group's
website is the responsibility of the Directors.
The Directors are responsible for ensuring the annual report and the financial
statements are made available on a website.
Financial statements are published on the Group's website in accordance with
legislation in the United Kingdom governing the preparation and dissemination
of financial statements, which may vary from legislation in other
jurisdictions.
The Directors' responsibility also extends to the ongoing integrity of the
financial statements contained therein.
Responsibility statement
The Directors confirm that to the best of their knowledge
· the financial statements, prepared in accordance with the relevant
financial reporting framework, give a true and fair view of the assets,
financial position and profit or loss of the Company and the undertakings
included in the consolidation taken as a whole
· the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties
· the Annual Report and the financial statements taken as a whole,
are fair balanced and understandable and provide the information necessary for
shareholders to assess the Company's position, performance, business model and
strategy.
Clive Carver
Chairman
24 June 2022
PRINCIPAL AND OTHER RISKS AND UNCERTAINTIES FACING THE BUSINESS
Introduction
Risk assessment and evaluation is an essential part of the Group's planning
and an important aspect of the Group's internal control system.
Oil & gas exploration and production is a dangerous activity and as such
is necessarily subject to an extremely rigorous health and safety regime. The
Board aims to identify and evaluate the risks the Group faces or is likely to
face in future both from its immediate activities and from the wider
environment. This helps to inform and shape the Group's strategy and to
quantify its tolerance to risk.
Operational success generally helps to mitigate financial risks. Increases in
production as new wells come on stream generates cash and improves the Group's
financial position, which can then lead to further operational success.
As the Group develops, its approach to risk management and mitigation will be
refined. In due course we plan to include a formal risk register including all
the principal operational and non-operational risks to the business. Such a
risk register would be reviewed and assessed at least once a year by our new
Corporate Governance Committee.
The Group is subject to various risks relating to political, economic, legal,
social, industry, business and financial conditions. The following risk
factors, which are not exhaustive, are particularly relevant to the Group's
business activities and are listed in the Board assessment in the order of
greatest potential impact.
Risk Description Mitigation
Operating risk Oil & gas exploration and production is a dangerous activity. The Group is The Group ensures that it adopts best in class industry operating standards
exposed to risks such as well blowouts, fire, pollution, bad weather and and complies with rigorous health & safety regulations.
equipment failure.
The Group also seeks to work with contractors who can demonstrate similar high
standards of safety.
Exploration risk Despite the success of the BNG shallow structures, there can be no assurance The Group seeks to reduce this risk by acquiring and evaluating 3D seismic
the Group's exploration activities in the BNG deep structures or anywhere else information before committing to drill exploration and appraisal wells.
will be successful.
The Group also seeks to engage suitably skilled personnel either as employees
or contractors to undertake detailed assessments of the areas under
exploration.
Political Political division which leads to civil disorder is likely to have an adverse Widespread disorder had been absent since the Group's formation until the
impact on the Group's operations. beginning of 2022, when the Group together with other operators was forced to
Risk
suspend operations due to civil unrest.
The importance of the oil & gas industry to the Kazakh economy makes a
prolonged suspension of operations unlikely, as was the case earlier this
year.
Russian sanctions The sanctions imposed on Russia may affect both the Group's ability to Like most oil produced in Kazakhstan the Company's oil is transported to
transport its oil and the price at which the oil may be sold. international buyers via the Russian oil pipeline network, and has until
recently emerged as "Urals Oil", which has traded at about a $30-35 discount
to Brent.
It may also affect the Group's ability to source equipment and other
consumables required to produce oil.
The recent decision by the Kazakh authorities to re designate oil produced in
Kazakhstan as Kazakhstan Export Blend Crude Oil ("KEBCO") and the confirmation
from the European Union that oil produced in Kazakhstan and transported via
the Russian pipeline network is not subject to sanctions is expected to
mitigate the impact of Russian sanctions.
In the event the Russian pipelines are unavailable or the discount to Brent
widens further the Company would seek to distribute its oil using alternative
routes, although this would likely be at a higher cost.
Equipment and consumables typically sourced from Russia will need to be found
elsewhere, typically China.
Permitting risks Every stage of the Group's operations requires the approval of the industry Regulatory delays are inevitable and common place.
regulators.
Our experienced Kazakh workforce has both a thorough knowledge of the complex
While the Group enjoys good working relationships with the Kazakh regulatory rules and a detailed practical understanding of the workings of each of the
authorities there can be no assurances that the laws and regulations and their regulatory bodies with whom we need to deal. Accordingly, we believe we are
reinterpretation will not change in future periods and that, as a result, the well placed to minimise the financial impact of regulatory delays.
Group's activities would be affected.
Covid-19 has resulted in work programmes being deferred from one year to
another, as was the case at the BNG Contract Area, and management have
detected a more lenient approach from the Kazakh regulatory authorities.
Covid-19 risk Measures introduced to tackle the Covid-19 pandemic may adversely affect the As set out more fully in the Chairman's Statement and the Strategic Report the
Group's performance. impact to date was extensive both financially in the sharp decline in revenues
and operationally as getting crews, equipment and consumables to site has
proved difficult under extensive lockdown restrictions.
While we have learnt how best to deal with the day-to-day impact of measures
to limit to spread of Covid-19 it is not possible to know how long the impact
of Covid-19 will last and its long term impact on the Group.
Pricing risk We operate in an industry where the international price is set by world We have no influence on the price at which can sell our oil.
markets and the domestic price is set by the Kazakh regulatory authorities.
Greater storage and or financial hedging would provide some protection against
adverse price movements but would be expensive and short lived.
It would only be with international oil prices below $50 per barrel for a
prolonged period that we would need to consider costs cutting to match income
and expenditures.
Environmental risk There would be serious consequences in the event of a polluting event. The Group maintains compliance with all applicable regulatory standards and
practices.
Further information is set out in the Environmental, Social and Governance
Report
Exchange rate risk Movements in exchange rates may result in actual losses or in the results The Group's income is denominated in US$ and its expenditure is denominated in
reported in the Group financial statements. US$ and Kazakh Tenge.
In the year under review the Tenge maintained its exchange rate against the
US$. Since the year end the Kazakh Tenge has fallen by approximately 2.2%
against the US $.
Any decline in the Kazakh Tenge against the US$ affects the US$ reported
income for domestic sales which transacted in Tenge. However, in such
circumstances the Group generally benefits as international income is
unaffected but approximately 50% of the Group's costs are incurred in Tenge
reducing the US$ reported operating costs.
Given the relative strengths of the US$ and the Kazakh Tenge, the Group has
decided not to seek to hedge this foreign currency exposure.
Supplier risk Continued operations depend on regular deliveries to site of consumables, such We have been operating the BNG Contract Area for almost a decade during which
as water, food, heating oil and replacement parts for our drilling equipment. we have encountered numerous supply issues, all of which have been overcome.
Delays in such deliveries to site could impact production volumes.
With the impact of Covid-19 apparently receding, we are confident in dealing
with whatever delivery issues occur.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) REPORT
This report covers our ESG approach and performance for the year ended 31
December 2021.
ENVIRONMENTAL
Introduction
Oil and gas exploration and production is a long-term activity requiring
effective environmental stewardship. We have operated in Kazakhstan now for
more than 15 years and have only been able to do so by complying with all
applicable environmental standards.
We recognise that society is transitioning towards a low-carbon future, and we
support this goal. However, we believe that oil will continue to play an
important role in the global economy for many years to come, and new sources
of oil supply will be required for a sustainable energy transition.
Climate change
Assessing the risks
We have no particular insights into assessing climate control risks beyond
those underpinning the regulations in Kazakhstan. We therefore look to the
Kazakh regulatory authorities to set the standards to which we work.
Compliance with the standards
We seek to comply with all relevant Kazakh environmental requirements,
including environmental laws and regulations and industry guidelines.
Specific initiatives
· We seek to recycle gas produced as a by-product at BNG to power the
Contract Area's day-to-day operations.
· We seek wherever possible to avoid flaring, which in any event is a
regulated activity.
· Our workers at the BNG Contract Area are drawn from the local
community, lessening the transportation carbon footprint.
· We make extensive use of existing oil pipelines to move our oil.
· Largely as the result of Covid-19 restriction the use of
international travel for management and board meetings has been severely
restricted with no full face to face board meetings for more than 24 months.
Health and safety
Our daily operations prioritise health and safety and protecting the
environment and we seek to comply with all applicable health and safety
related regulations.
SOCIAL
Since the Group's formation in 2006, the social obligations payments made
principally to the authorities in the regions in which the group operates have
funded a range of projects for the benefit of the local communities concerned.
GOVERNANCE
Introduction
Overall responsibility over the Group's corporate governance, risk management,
market disclosure and related obligations rests with the Board.
The Governance & Risk Committee comprises Clive Carver, Edmund Limerick
and Aibek Oraziman with Clive Carver acting as chairman. The committee intends
to meet at least once a year to review the Group's governance procedures
compared to accepted industry best practice.
At the appropriate time the Board plans to include a formal risk register
including all the principal operational and non-operational risks to the
business to be considered by the Governance & Risk Committee.
Share dealing policy
The Group has adopted and operates a share dealing code for Directors and
employees in accordance with the AIM Rules.
Internal controls
The Board acknowledges responsibility for maintaining appropriate internal
control systems and procedures to safeguard the shareholders' investments and
the assets, employees and the business of the Group. The Board also intends to
periodically review the Group's financial controls and operating procedures.
Internal audit
The Board does not consider it appropriate for the current size of the Group
to establish an internal audit function. However, this will be kept under
review.
Bribery and corruption
The Bribery Act 2010 came into force on 1 July 2011.
The Company is committed to acting ethically, fairly and with integrity in all
its endeavours and compliance with legislation is monitored. The principal
terms of the Bribery Act have been translated into Russian and circulated to
our Kazakh based staff. Consideration of the Bribery Act is a standing item at
board meetings.
The Company's culture
Our culture might best be described as one where we strive for commercial
success while treating others fairly and with respect. The Board firmly
believes that sustained success will best be achieved by following this simple
philosophy. Accordingly, in dealing with each of the Groups principal
stakeholders, we encourage our staff to operate in an honest and respectful
manner. We also believe in getting proper value for money spent and believe
this goes hand in hand with being a low-cost operator.
Kazakhstan plays an important part in the Group's culture. It is where we
operate; where almost all staff are based; it is the nationality of most staff
and of the majority of shareholders.
The Group is committed to promoting a culture based on ethical values and
behaviours across the business. Policies are in place covering key matters
such as equality, protection of sensitive information, conflicts of interest,
whistleblowing and health and safety as well as environmental concerns.
QCA Code
Caspian Sunrise, in line with most AIM companies, elected to apply the rules
of the Quoted Companies Alliance (QCA) Corporate Governance Code ("QCA Code"),
which is based around 10 broad principles.
Principle 1 Objective
Establish a strategy and business model which promotes long term value for Caspian Sunrise's objective is to create shareholder value from the
shareholders development of oil and gas projects and associated activities.
The Group has a number of secondary objectives, including promoting the
highest level of health and safety standards, developing our staff to their
highest potential and being a good corporate citizen in our chosen countries
of operations.
Strategy
The Group's long-term strategy is to build an attractive portfolio of oil and
gas exploration and production assets in Central Asia, in particular
Kazakhstan where the board has the greatest experience. Additionally, the
Group will seek to exploit associated opportunities where the board believes
it can add significant value and contribute towards the success of the Group
as a whole.
Our business model
Our business model is to invest in and develop promising oil and gas projects.
Growth in long term value will be measured by a sustainable appreciation in
the share price.
Principal assets
The Group's principal asset is its interest in the BNG Contract Area, which is
in the west of Kazakhstan, 40 kilometres southeast of Tengiz on the edge of
the Mangistau Oblast.
The Group also has 100% interests in the 3A Best Contract and the Caspian
Explorer drilling vessel.
Further acquisitions are expected.
Principle 2 Shareholder communications
Seek to understand and meet shareholder needs and expectations The Company communicates with its shareholders via RNS announcements, its
website, formal company meetings and periodic investor presentations.
The need to avoid selectively releasing price sensitive information often
limits our ability to provide the answers many investors seek.
The Company's management meets prospective institutional investors from to
time to time to assess the availability of large-scale institutional funding
to advance the company's plans.
Our shareholders
A large proportion of the Company's shares are held by a relatively small
group, namely: The Oraziman family (48%); other Kazakh shareholders (5%);
Korean shareholders (10%); shareholders in the UAE (10)%; with the remaining
(27)% being principally UK based investors.
There is a contact form available for investors to use on the website:
https://www.caspiansunrise.com/contact/contact-form/
(https://www.caspiansunrise.com/contact/contact-form/)
Principle 3 Our stakeholders
Take into account wider stakeholder and social responsibilities and their In addition to our shareholders the Company regards its employees and their
implications for long term success families, local and national government and its shareholders to be the core of
the wider stakeholder group.
Employees
Almost all staff employed by the Group are based in Kazakhstan. The Group
draws most of its field workers from the Mangistau region where alternative
employment opportunities are limited. At our head office in Almaty we employ
further staff, some of whom hold highly skilled positions.
As well as providing employees with appropriate remuneration and other
benefits together with a safe and enjoyable working environment, the Board
recognises the importance of communication with employees to motivate them and
involve them fully in the business. For the most part, this communication
takes place at a local level, but staff are kept informed of major
developments through email updates and staff meetings.
Local communities
The Group has provided significant financial support to this region for over a
decade by way of social payments sometimes delivered in the form of medical or
educational facilities for the local population.
Part of our work programme obligations are paid in the form of contributions
to local social programmes. We are pleased to have assisted in the development
of these projects and look forward to contributing to others in the coming
years.
Kazakh Government agencies and regulators
The Kazakh authorities are responsible for granting licences to explore for
and produce oil. Licences are awarded subject to agreed work programmes being
adhered to over the period of each licence renewal. This includes compliance
with rules designed to preserve the environment.
Caspian Sunrise has an extremely high proportion of Kazakh nationals in our
workforce and among our core shareholder group. The Board believes that this
helps create a positive relationship with the Kazakh authorities and has
assists in the Group's day-to-day dealings with the regulators.
External stakeholders
Many additional jobs have been funded in the Company's suppliers, partners and
professional advisers.
Feedback
The Company considers feedback from its stakeholders in its decisions and
actions.
Principle 4 Risk assessment
Embed effective risk management, considering both opportunities and threats, Oil & gas exploration and production is a dangerous activity and as such
throughout the organisation is necessarily subject to an extreme health and safety regime. Risk
assessment and evaluation is an essential part of the Company's planning and
an important aspect of the Company's internal control system.
It is planned to introduce a formal risk register, including all the principal
operational and non-operational risks to the business. Such a risk register
would be reviewed and assessed at least once a year by the Audit Committee.
A summary of the principal risks facing the Group are set out in the Principal
Risks section on page 24 of these Financial Statements.
Principle 5 Board composition
Maintain the board as a well-functioning, balanced team led by the chair The board comprises three executive directors and two non-executive directors.
Executive directors
At the executive level Kuat Oraziman, Chief Executive Officer, and Seokwoo
Shin Chief Operating Officer run the Company's operations in Kazakhstan with
Clive Carver, Executive Chairman, taking the lead on all non-operational
matters including financial matters and all aspects related to the listing of
the Company's shares on AIM, Corporate Governance compliance and Investor
Relations.
Kuat Oraziman is a trained geologist and member of the academy of sciences. He
has more than 27 years oil and gas experience in Kazakhstan.
Seokwoo Shin for the Korean National Oil Corporation from 1987 until 2018 with
spells in Korea, the United Kingdom, Russia and most recently Kazakhstan,
where he was responsible for KNOC's Kazakh oil fields. He joined Caspian
Sunrise in 2018.
Clive Carver is a fellow of the Institute of Chartered Accountants in England
and Wales (FCA) and a fellow of the Association of Corporate Treasurers (FCT).
While working in the UK broking industry Clive gained more than 15 years'
experience as a Qualified Executive under the AIM Rules having led the
Corporate Finance departments of several of the larger and more active
Nominated Adviser firms.
Non-executive directors
Edmund Limerick, Senior Independent Non-executive director is a Russian
speaking former lawyer and investment banker who ran an institutional
investment fund focused on Central Asia.
Aibek Oraziman, is the Company's largest shareholder with 26.3%. He has more
than 12 years oil and gas experience in Kazakhstan, including 3 years in the
field at Aktobe working for a local oil company.
The board believes it possesses the skills required to build a successful and
durable oil and gas business focused on Kazakhstan.
The board meets a minimum of four times each year supported by periodic
telephone meetings. At such meetings the board receives a report from Kuat
Oraziman on all matters operational and from Clive Carver on all
non-operational matters.
The board also has a list of standing items, including compliance with the UK
Bribery Act, litigation and existence of open and closed periods for director
dealings, which are considered at each meeting.
The number of board meetings attended each year by the directors is set out in
the Directors' report which forms part of the Annual Report and Financial
Statements.
Departures from the Code
Executive Chairman
The principal reason advanced by proponents of the Code that the Chairman be
non-executive is to split the roles of Chairman and Chief Executive Officer as
combining them puts too much control in one pair of hands. This is not the
case with our Company where the Chief Executive Officer's family is the
largest shareholder, with some 48%.
Clive Carver was appointed Non-Executive Chairman of the Company in 2006 in
the lead-up to the IPO the following year. In 2012 he was appointed Executive
Chairman at the same time as Kuat Oraziman moved from Non-Executive Director
to Chief Executive Officer.
In the past decade, Clive Carver has served as non-executive chairman of seven
AIM listed companies. In addition, his 15 years as a Qualified Executive and
head of active corporate finance departments make him a very suitable
candidate to be Chairman, notwithstanding his executive status.
Non-Executive Directors' participation in Option Schemes
In common with many AIM listed companies we actively encourage non-executive
directors to participate in the Company's option schemes. Proponents of the
Code believe this affects the independence of the non-executive directors
concerned.
We believe that independence is a matter of independence of mind, judgement
and integrity. We consider our non-executives' ability to act independently to
be unaffected by the level of participation in the Company's option scheme.
Size of the board - requiring the involvement of Executive Directors in the
various board committees
With only two non-executive directors it is inevitable that the board
committees will comprise executive and non-executive directors. The Company
accepts this is not a long-term solution and at the appropriate time will look
to appoint an additional non-executive director.
Principle 6 Experience
Ensure that between them the directors have the necessary up-to-date The experience of the directors and the operational board is set out in the
experience, skills and capabilities response to principle 5 above and in the Annual Report and Financial
Statements.
Operational skills are maintained through an active day to day interaction
with leading international consultancies and contractors engaged to assist in
the development of the Company's assets.
Non-operational skills are maintained principally via the Company's
interaction with its professional advisers plus the experience gained from
sitting on the boards of other commercial enterprises.
As the Company develops and moves from predominantly an oil exploration
company to a balanced production and exploration company, the board will
periodically re-assess the adequacy of the skills on both the main board and
the operational board. Where gaps are found, new appointments will be made.
Principle 7 Performance
Evaluate board performance based on clear and relevant objectives, seeking The Company currently does not evaluate board performance on a formal basis.
continuous improvement However, it will in the near term seek to formalise the assessment of both
executive and non-executive board members.
The Company is aware of its need to facilitate succession planning and the
board evaluation process will form part of this going forward.
Principle 8 Culture
Promote a corporate culture that is based on ethical values and behaviours Our culture can best be described as one where we strive for commercial
success while treating others fairly and with respect. The board firmly
believes that sustained success will best be achieved by following this simple
philosophy.
Accordingly, in dealing with each of the Company's principal stakeholders, we
encourage our staff to operate in an honest and respectful manner.
Operating with integrity is clearly good business and forms an important part
of the annual assessment of staff and in setting their pay for future periods.
Principle 9 Governance
Maintain governance structures and processes that are fit for purpose and The Company believes that its governance structures and processes are
support good decision-making by the board consistent with its current size and complexity. The Board is aware that it
must continue to review its practices as the Company evolves and grows.
The executive members of the Board have overall responsibility for managing
the day-to-day operations of the Company and the Board as a whole is
responsible for implementing the Company's strategy.
The Audit Committee typically meets before each set of results (interim and
final) are published and the Remuneration Committee typically meets at least
once a year, when the Financial Statements for the Full year results are
approved. All Committee members attend these meetings.
Our Report and Accounts contain report from the Chairman of the Remuneration.
and the Audit Committee.
The appropriateness of the Company's governance structures will be reviewed
annually in light of further developments of accepted best practice and the
development of the Company.
Principle 10 Communications
Communicate how the company is governed and is performing by maintaining a The Company reports formally to its shareholders and the market twice each
dialogue with shareholders and other relevant stakeholders year with the release of its interim and full year results.
The Annual Report and Financial Statements set out how the corporate
governance of the Company has been applied in the period under review
including the work undertaken by the Audit Committee and the Remuneration
Committee.
The Annual Report and Financial Statements contain full details of the
principal events of the relevant period together with an assessment of current
trading and prospects. They are sent to shareholders and made available on the
Company's website to anyone who wishes to review them.
The Board already discloses the result of general meetings by way of RNS
announcements, disclosing the voting numbers.
The Company's website also contains all the information prescribed for an AIM
Company under Rule 26.
Further details of the Company's dialogue with its shareholders are set out
under Principle 2 above
Employee stakeholders are regularly updated with the development of the
Company and its performance.
We are in almost constant communication with our Governmental and regulatory
stakeholders via their involvement in our day-to-day operational activities.
Board composition, skills and capabilities
· Between 1 January 2021 and 4 March 2021 the Board comprised one
executive director and three non-executive directors.
· Between 4 March 2021 and 31 December 2021, the Board comprised two
executive directors and three non-executive directors.
· From 1 January 2022 the Board comprised three executive directors
and two non-executive directors
Clive Carver, Executive Chairman
Clive is a fellow of the Institute of Chartered Accountants in England and
Wales (FCA) and a fellow of the Association of Corporate Treasurers (FCT). He
is an experienced public company director having been chairman of a number of
AIM companies in recent years.
Kuat Oraziman, Chief Executive Officer
Kuat Oraziman runs the Company's operations in Kazakhstan. Kuat Oraziman is a
trained geologist and member of the Academy of Sciences. He has more than 27
years oil and gas experience in Kazakhstan.
Seokwoo Shin, Chief Operating Officer
Seokwoo Shin was educated at Sungkyunkwan University in Korea. He worked for
the Korean National Oil Corporation from 1987 until 2019 with spells in Korea,
the United Kingdom, Russia and most recently Kazakhstan, where he was
responsible for KNOC's Kazakh oil fields. He joined Caspian Sunrise in 2018
and on 4 March 2021 was appointed the board as chief Operating Officer.
Edmund Limerick, Senior Non-Executive Director
Edmund is a Russian speaking former lawyer and investment banker who ran an
institutional investment fund focused on Central Asia. Edmund was called to
the Bar in 1987 and served as an officer in the Foreign & Commonwealth
Office until 1992 with postings in Paris, Dakar and Amman. He was an
international corporate lawyer at Clifford Chance, Freshfields and Milbank
Tweed (where he headed the Moscow Office) before joining Deutsche Bank as a
director in Moscow, London and Dubai. In 2006, he joined Altima Partners where
he managed the Altima Central Asia Fund, focusing on Kazakhstan. Edmund has
served as a director of Caspian Sunrise plc since 2010, and chairs the Audit
and Remuneration Committees.
Aibek Oraziman, Non-executive director
Aibek Oraziman was educated in Kazakhstan and in the United Kingdom. He more
than 12 years oil and gas experience in Kazakhstan, including 3 years in the
field at Aktobe working for a local oil company. He was appointed to the
Caspian Sunrise board on 21 August 2020.
The Board believes it possesses the skills required to build a successful and
durable oil and gas business focused on Kazakhstan.
Board and committee meetings
Attendances of Directors at board and committee meetings convened in the year,
and which they were eligible to attend in person or by phone, are set out
below:
Director Board meetings attended Remuneration Committees attended Audit Committee attended
Clive Carver 6 of 6 1 of 1 3 of 3
Kuat Oraziman 6 of 6 N/A N/A
Edmund Limerick 6 of 6 1 of 1 3 of 3
Seokwoo Shin 5 of 5 N/A N/A
Aibek Oraziman 6 of 6 1 of 1 2 of 3
Note: Seokwoo Shin joined the board on 4 March 2021
The Board has established the following committees:
Audit Committee
The Audit Committee which comprises Edmund Limerick, Aibek Oraziman and Clive
Carver, with Edmund Limerick acting as Chairman, determines and examines any
matters relating to the financial affairs of the Group including the terms of
engagement of the Group's auditors and, in consultation with the auditor, the
scope of the audit.
The Audit Committee receives and reviews reports from the management and the
external auditor of the Group relating to the annual and interim amounts and
the accounting and internal control systems of the Group. In addition, it
considers the financial performance, position and prospects of the Group and
the Company and ensures they are properly monitored and reported on.
Remuneration Committee
The Remuneration Committee, which comprises Edmund Limerick Aibek Oraziman and
Clive Carver, with Edmund Limerick acting as Chairman, reviews the performance
of the senior management, sets and reviews their remuneration and the terms of
their service contracts and considers the Group's bonus and option schemes.
Board committee membership in 2021
Director Audit Remuneration Corporate Governance Committee
Committee Committee
Served from Served to Served from Served to Served from Served to
Clive Carver 1 January 31 December 1 January 31 December 1 January 31 December
Kuat Oraziman N/A N/A N/A N/A N/A N/A
Edmund Limerick 1 January 31 December 1 January 31 December 1 January 31 December
Seokwoo Shin N/A N/A N/A N/A N/A N/A
Aibek Oraziman 1 January 31 December 1 January 31 December 1 January 31 December
Clive Carver
24 June 2022
REMUNERATION COMMITTEE REPORT
Remuneration Committee
The Remuneration Committee comprises Edmund Limerick, Aibek Oraziman and Clive
Carver and is chaired by Edmund Limerick.
Remuneration policy
The Group's and the Company's policy is to provide remuneration packages that
will attract, retain and motivate its executive Directors and senior
management. This consists of a basic salary, ancillary benefits and other
performance-related remuneration appropriate to their individual
responsibilities and having regard to the remuneration levels of comparable
posts. However, the Covid-19 impact on the Group's finance required the
Directors to accept very significant reductions in the amounts received which
continued throughout 2021 and the first six months of 2022.
The Remuneration Committee determines the contract term, basic salary, and
other remuneration for the members of the Board and the senior management
team.
Service contracts
Details of the current Directors' service contracts are as follows:
Executive Date of service agreement / appointment letter Date of last renewal of appointment
Clive Carver 20 March 2019 21 June 2019
Kuat Oraziman 6 December 2019 19 June 2018
Edmund Limerick 25 January 2019 13 June 2017
Aibek Oraziman 21 August 2020 N/A
Seokwoo Shin 4 March 2021 N/A
Notwithstanding their service agreements or letters of appointment the
directors who served throughout the period under review have agreed until
further notice to restrict their remuneration to approximately 25% of previous
amounts without any accrual for the 75% sacrificed.
Basic salary and benefits
The basic salaries of the Directors who served during the financial year are
established by reference to their responsibilities and individual performance.
Directors Role 2021 2021 2021 2020
Salary / fees Share options Total Total
US$ US$ US$ US$
Clive Carver Chairman 120,000 - 120,000 311,800
Kuat Oraziman CEO 142,055 - 142,055 251,393
Seokwoo Shin COO 54,025 - 54,025 -
Edmund Limerick Non-executive 15,600 - 15,600 51,159
Tim Field Non-executive - - - 49,859
Aibek Oraziman Non-executive - - - -
Total 331,680 - 331,680 664,211
Share option amounts refer to the IFRS 2 accounting charge.
There were no company pension contributions in respect of any director
Bonus schemes
All Executive Directors are eligible for consideration of participation in the
Company bonus scheme. However, as in previous years no bonuses are payable
in respect of the year ended 31 December 2021 (2020: nil).
Long term incentives
Share options
The current interests as at approval of accounts of the current Directors in
share options agreements are as follows:
Directors Granted Exercise price Expiry Date
Clive Carver 2,400,000 4p 14 December 2023
Clive Carver 3,000,000 20p 21 August 2024
Kuat Oraziman 3,000,000 20p 21 August 2024
Edmund Limerick 750,000 20p 21 August 2024
Edmund Limerick 1,000,000 20p 5 June 2029
Seokwoo Shin nil Nil N/A
There were no options exercised in 2021. On 26 November 2021, the exercise
date for the options held by Clive Carver were extended from 14 December 2021
to 14 December 2023.
Cash based incentives
In May 2019, we introduced a cash based long term incentive arrangements for
the senior management team since 2012, Kuat Oraziman and Clive Carver.
Under these arrangements, provided the share price growth exceeds pre-set
targets starting at 17.23p, then for every $500 million increase in the
Group's market capitalisation above $300 million, as adjusted to take account
of dividends paid, both Kuat Oraziman and Clive Carver, would receive payments
of $3 million each.
The principal hurdles under these arrangements are set out in the table below.
Market cap threshold Share price target Pay-out rate (each) Pay-out amount (each)
$' billion Pence per share % $' million
0.8 17.23 0.6 3.0
1.3 20.67 0.6 3.0
1.8 24.81 0.6 3.0
2.3 29.77 0.6 3.0
2.8 35.72 0.6 3.0
The scheme continues beyond the numbers in the table such that with the
threshold for market capitalisation increasing at the rate of $0.5 billion and
the corresponding share price threshold increasing from the earlier threshold
by a constant factor of 1.2.
Each threshold must be sustained for at least 30 consecutive days for the
awards to be triggered. There may be only one pay-out for each market
capitalisation threshold crossed no matter how many times it is crossed.
Whilst the Incentive Scheme is in place neither of the recipients will be
granted any further options.
On behalf of the Directors of Caspian Sunrise plc
Edmund Limerick
Chairman of Remuneration Committee
24 June 2021
AUDIT COMMITTEE REPORT
The Audit Committee
The Audit Committee, which comprises Edmund Limerick, Clive Carver and Aibek
Oraziman, with Edmund Limerick acting as Chairman, determines and examines any
matters relating to the financial affairs of the Group including the terms of
engagement of the Group's auditors and, in consultation with the auditor, the
scope of the audit.
Role and responsibilities
The Audit Committee is responsible for monitoring the integrity of the
Company's financial statements, reviewing significant financial reporting
issues, reviewing the effectiveness of the Group's internal control and risk
management systems.
In addition, it considers the financial performance, position and prospects of
the Group and the Company and ensures they are properly monitored and reported
on. It oversees the relationship with the Auditor (including advising on their
appointment, agreeing the scope of the audit and reviewing the audit
findings).
Meetings
The committee met on three occasions during the year under review.
Internal audit
The Board and the Audit Committee do not consider it appropriate for the
current size of the Group to establish an internal audit function. However,
this will be kept under review. Attendance at Audit Committee meetings Please
see the table in the preceding Corporate Governance Report for attendance by
the members of the Audit Committee.
On behalf of the Directors of Caspian Sunrise plc
Edmund Limerick
Chairman of Audit Committee
24 June 2022
Independent auditor's report to the members of Caspian Sunrise plc
Opinion on the financial statements
In our opinion:
• the financial statements give a true and fair view of the state of
the Group's and of the Parent Company's affairs as at 31 December 2021 and of
the Group's loss for the year then ended;
• the Group financial statements have been properly prepared in
accordance with UK adopted international accounting standards;
• the Parent Company financial statements have been properly prepared
in accordance with UK adopted international accounting standards and as
applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
We have audited the financial statements of Caspian Sunrise plc (the 'Parent
Company') and its subsidiaries (the 'Group') for the year ended 31 December
2021 which comprise the Consolidated Statement of Profit or Loss, the
Consolidated Statement of Comprehensive Income, the Consolidated Statement of
Changes in Equity, the Parent Company Statement of Changes in Equity, the
Consolidated Statement of Financial Position, the Parent Company Statement of
Financial Position, the Consolidated and Parent Company Statements of Cash
Flows and notes to the financial statements, including a summary of
significant accounting policies. The financial reporting framework that has
been applied in their preparation is applicable law and UK adopted
international accounting standards and, as regards the Parent Company
financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We remain independent of the Group and the Parent Company in accordance with
the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC's Ethical Standard as applied to
listed entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
Material uncertainty in relation to going concern
We draw attention to note 1.1 in the financial statements concerning the Group
and the Parent Company's ability to continue as a going concern. Note 1.1
highlights that Group and Parent Company's ability to meet its liabilities and
commitments as they fall due without additional funding is sensitive to the
oil prices realised and volumes sold which is impacted by its ability to
export a portion of its oil sales through the Russian pipeline network. Note
1.1 also highlights that the Group and Parent Company is dependent upon the
deferral of financial obligations, the continued availability of oil trader
advances and the continued support of certain creditors together with other
matters set out therein. These factors are outside the control of the Group
and the Parent Company and there is no certainty that any funding that may
therefore be required can be secured within the necessary timescales. These
events or conditions indicate that a material uncertainty exists that may cast
significant doubt on the Group and the Parent Company's ability to continue
as a going concern. Our opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. We consider going concern to be a Key
Audit Matter based on our assessment of the risk and the effect on our audit.
Our evaluation of the Directors' assessment of the Group and the Parent
Company's ability to continue to adopt the going concern basis of accounting,
and our response to this key audit matter included:
· We obtained management's base case cash flow forecast and a
reasonable plausible downside cash flow forecast and critically assessed the
key inputs. In doing so, we compared oil prices to market data, production
levels to recent performance trends and operating costs to historical data.
· We discussed the potential impact of sanctions against Russia on
the Group's operations with management and the Audit Committee including their
assessment of risks and uncertainties associated with areas such as production
disruption, commodity price volatility and the impact on the availability of
funding. This included considering the Group's reliance on selling oil through
the Russian pipeline network, and should this no longer be a viable export
route, the alternatives available to the Group.
· We formed our own assessment of risks and uncertainties based on
our understanding of the business and oil sector.
· We evaluated the completeness of forecast licence related
expenditure against the licence work programs and payments due under the 3A
Best licence. We held discussions with management and the Audit Committee
regarding the status of such applications.
· We compared the forecast cash payments in respect of the BNG
production licence award against the $32m assessment received from the
Government payable in instalments over 10 years. We ensured that the
relevant instalments are included in the forecast.
· We considered the appropriateness of the Board's judgement
regarding the availability of sufficient oil trader funding through the
forecast period. In doing so, we considered factors such as the production
profile, oil price trends, the terms of the arrangements and the history of
transactions with the oil traders.
· We reviewed the agreement that converted the loans provided from
the Group's largest shareholder and his connected companies to equity after
the period end.
· We assessed the validity of any mitigating actions identified by
the Directors including drilling new wells.
· We reviewed the adequacy and completeness of the disclosure
included within the financial statements in respect of going concern against
the requirement of the accounting standards and the results of our audit
testing.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
83% (FY20: 83%) of Group loss before tax, 100% (FY20:100%) of Group revenue
and 96% (FY20: 92%) of Group total assets.
Coverage
2021 2020
Carrying value of oil and gas assets ☑ ☑
BNG production licence payment obligations ☑ ☑
Going concern ☑ ☑
Key audit matters
Group financial statements as a whole
Materiality
US$1.9m (2020: US$1.9m) based on 1.7% (2020: 1.5%) of total assets
Materiality
Group financial statements as a whole
US$1.9m (2020: US$1.9m) based on 1.7% (2020: 1.5%) of total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including the Group's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
The Group's operations principally comprise oil and gas exploration and
production in Kazakhstan. We assessed there to be four significant components
comprising BNG, 3A Best, Caspian Explorer and the Parent Company. These
components, which were subject to full scope audit procedures, represent the
principal business units.
Non-BDO member firms performed a full scope audit of BNG, 3A Best and Caspian
Explorer in Kazakhstan, under our direction and supervision as Group auditors.
The audit of the Parent Company and the Group consolidation were performed in
the United Kingdom by the Group audit team.
The remaining components of the Group were considered non-significant and
these components were principally subject to analytical review procedures by
the Group audit team.
Our involvement with component auditors
For the work performed by component auditors, we determined the level of
involvement needed in order to be able to conclude whether sufficient
appropriate audit evidence has been obtained as a basis for our opinion on the
Group financial statements as a whole. Our involvement with component auditors
included the following:
· Detailed Group reporting instructions were sent to the component
auditors, which included the significant areas to be covered by the audit.
· We reviewed the component auditor's work papers in Kazakhstan,
reviewed Group reporting submissions received and held regular calls with the
component audit teams during the planning and completion phases of their audit
to discuss significant findings from their audit.
· We held calls and meetings with members of Group and component
management to discuss accounting and audit matters arising.
· The Group audit team was actively involved in the direction of the
audits performed by the component auditors, along with the consideration of
findings and determination of conclusions drawn. We performed additional
procedures in respect of the significant risk areas where considered
necessary.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, we do not provide a
separate opinion on these matters. In addition to going concern, described in
the Material uncertainty related to going concern section above, we determined
the matters described below to be the key audit matters to be communicated in
our report.
Key audit matter How the scope of our audit addressed the key audit matter
Carrying value of oil and gas assets At each reporting period end, management are required to assess the 3A Best
non-current assets for indicators of impairment and, where such indicators
exist, perform an impairment test. We assessed if the $12.5m impairment in respect of the 3A Best unproven oil
and gas assets was in accordance with applicable accounting standards. Audit
As at 31 December 2021, the Group's oil and gas assets related to the BNG procedures performed included reviewing correspondence from the Government
exploration and production licence. These were carried at US$103.3m as shown
regarding licence payment obligations and the licence withdrawal for related
in notes 12 and 13. In performing the impairment indicator review for the unproven oil and gas subsoil use contract.
assets in the exploration phase, management are required to make a number of
judgements as detailed in notes 1.8 and 2.1. In respect of the 3A Best oil and
gas assets, as detailed in note 2.1 the company is working with the Kazakh
authorities to renew its licence at 3A best and as a result has impaired this BNG production and exploration assets
asset in full.
We inspected the licences to confirm valid title and assessed the compliance
with the licence conditions through review of correspondence with the
authorities and inquiries of management.
In respect of the BNG production and exploration licences as detailed in notes
2.1 and 2.3 management assessed there was no impairment trigger and the
carrying amounts were recoverable.
For the exploration licence, we inspected budgets and work programs submitted
to the Kazakh authorities to confirm that further drilling and exploration is
planned for the licence. We considered the results of exploration activity
Given the judgment, estimation and the disclosures required by management, we in the period for indications that the licences would be abandoned or that the
considered this area to be a key focus for our audit and hence a key audit recoverable value would be below cost.
matter.
For the production licence we reviewed management's impairment indicator
analysis and formed our own assessment of potential impairment indicators as
at 31 December 2021. As part of the impairment indicator analysis, we
evaluated management's ceiling test by assessing the inputs into the net
present value forecasts. In doing so, we compared the oil price forecasts as
at 31 December 2021 to market consensus forecasts and compared operational
production and cost assumptions to the 2015 Competent Person's Report,
historical data and other third party sources. We recalculated the discount
rate and performed sensitivity analysis in respect of significant inputs.
We relied on our previous years' work on evaluation of the independence and
competence of the Competent Person as a management expert and assessed if any
changes were required.
Key observations:
We found management's conclusion that the carrying value of the 3A Best, BNG
oil and gas assets to be appropriate. We found the judgments made by
management to be reasonable.
BNG production licence payment obligations Whilst management has contested the quantum to be paid, a final judgement has We reviewed the terms of the licence to confirm that a payment obligation was
been made by the Government authorities for a total payment of $32m payable in triggered upon award of the contract.
Under the terms of the BNG licence, on award of the production contract the quarterly fixed instalments over 10 years. Management recorded a provision
Group incurred an obligation for payments under the licence as detailed in of $22.5m as at 31 December 2021 which is net of amounts already paid and a
note 2.7 and 21. discount for the time value of money.
We reviewed correspondence with the relevant authorities regarding the
assessment of the quantum of the remaining payment due and the terms of
payment which formed the basis for the amounts recorded as a provision.
Given the estimation required in determining the applicable discount rate,
this was considered to be a focus for our audit and a key audit matter.
We recalculated the amount recorded as a provision by agreeing payments
already made to bank statements, recalculating the discount for the time value
of money and comparing the discount rate used to market bond yield data for
instruments with a similar term and risk.
Key observations:
We found the judgments and estimates made by management in respect of the BNG
production licence payment obligations to be appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole and performance materiality as follows:
Group financial statements Parent company financial statements
2021 2020 2021 2020
US$ US$ US$ US$
Materiality 1,900,000 1,900,000 1,300,000 1,500,000
Basis for determining materiality 1.7% of total assets 1.5% of total assets 70% of Group materiality 80% of Group materiality
Rationale for the benchmark applied We have determined an asset-based measure is appropriate as the Group
continues to focus on developing its oil and gas projects that requires
significant capital expenditure.
Performance materiality 1,200,000 1,200,000 800,000 1,000,000
Basis for determining performance materiality 65% of Group Materiality considering the nature of activities and historic 65% of Parent Company Materiality considering the nature of activities and
audit adjustments. historic audit adjustments.
Component materiality
We set materiality for each significant component of the Group based on a
percentage of between 26% and 68% of Group materiality dependent on the size
and our assessment of the risk of material misstatement of that component.
Component materiality ranged from US$500,000 to US$1,300,000. In the audit
of each component, we further applied performance materiality levels of 65% of
the component materiality to our testing to ensure that the risk of errors
exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of US$38,000 (2020: US$95,000). We also agreed to
report differences below this threshold that, in our view, warranted reporting
on qualitative grounds.
Other information
The directors are responsible for the other information. The other information
comprises the information included in the Annual Report and Financial
Statements other than the financial statements and our auditor's report
thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are
required to report that fact.
We have nothing to report in this regard.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during
the course of the audit, we are required by the Companies Act 2006 and ISAs
(UK) to report on certain opinions and matters as described below.
Strategic report and Directors' report In our opinion, based on the work undertaken in the course of the audit:
· the information given in the Strategic report and the Directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the Strategic report and the Directors' report have been prepared
in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the Group and Parent
Company and its environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the Directors'
report.
Matters on which we are required to report by exception We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the Parent Company financial statements are not in agreement with
the accounting records and returns; or
· certain disclosures of Directors' remuneration specified by law are
not made; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of Directors
As explained more fully in the Directors' responsibilities statement, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view, and for such internal
control as the Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Group's and the Parent Company's ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to
liquidate the Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
We obtained an understanding of the legal and regulatory frameworks that are
applicable to the Group and the Parent company. We determined that the most
significant which are directly relevant to specific assertions in the
financial statements are those related to the reporting framework (UK adopted
international accounting standards, the Companies Act 2006, the AIM rules and
the QCA Corporate Governance Code), the significant laws and regulations of
Kazakhstan relating to the oil and gas industry, local taxation legislation
and environmental regulations, and the terms and requirements included in the
Group's production and exploration licences.
Our procedures included the following:
· We gained an understanding of how the Group is complying with those
legal and regulatory frameworks by making inquiries of Management and the
Audit Committee, and those responsible for legal and compliance procedures. We
corroborated our inquires through our review of board minutes and other
supporting documentation;
· We directed the auditors of the significant components to ensure an
assessment is performed on the extent of the component's compliance with the
relevant local and regulatory framework; and
· We reviewed the financial statement disclosures and tested to
supporting documentation to assess compliance with relevant laws and
regulations noted above.
We assessed the susceptibility of the financial statements to material
misstatement, including fraud and considered the fraud risk areas to be
management override of controls and revenue recognition.
Our procedures included:
· Testing the appropriateness of journal entries made through the
year by applying specific criteria to detect possible irregularities and
fraud;
· Reviewing the licences to assess the extent to which the Group was
in compliance with the conditions of the licence and considering management's
assessment of the impact of instances of non-compliance where applicable;
· Performing a detailed review of the Group's year end adjusting
entries and investigating any that appear unusual as to nature or amount and
agreeing to supporting documentation;
· For significant and unusual transactions, particularly those
occurring at or near year-end, obtaining evidence for the rationale of these
transactions and the sources of financial resources supporting the
transactions;
· Assessing the judgements made by management when making key
accounting estimates and judgements, and challenging management on the
appropriateness of these judgements (refer to key audit matters above); and
· Communicating relevant potential fraud risks to all engagement team
members and remaining alert to any indications of fraud throughout the audit.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are
to become aware of it.
A further description of our responsibilities is available on the Financial
Reporting Council's website at: www.frc.org.uk/auditorsresponsibilities
(http://insite.bdo.co.uk/sites/audit/Documents/www.frc.org.uk/auditorsresponsibilities)
. This description forms part of our auditor's report.
Use of our report
This report is made solely to the Parent Company's members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the Parent Company's
members those matters we are required to state to them in an auditor's report
and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Parent Company and
the Parent Company's members as a body, for our audit work, for this report,
or for the opinions we have formed.
Peter Acloque (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London,
United Kingdom
24 June 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Consolidated Statement of Profit or Loss
Notes Year to Year to
31 December 31 December
2021 2020
US$'000 US$'000
Revenue 4 24,996 14,298
Cost of sales (5,624) (4,864)
Gross profit 19,372 9,434
Selling expense (7,578) (3,897)
Impairment of unproven oil and gas assets 12 (12,464) -
Provision for expected credit losses of long-term assets 16 - (2,551)
Share-based payments - (22)
Other administrative costs (3,332) (3,662)
Total administrative expenses (3,332) (6,235)
Operating loss 5 (4,002) (698)
Finance cost 8 (859) (1,067)
Finance income 9 24 20
Loss before taxation (4,837) (1,745)
Tax charge 10 (709) (1,748)
Loss after taxation from continuing operations (5,546) (3,493)
Loss for the year from discontinued operations - -
Loss for the year (5,546) (3,493)
Loss attributable to owners of the parent (5,554) (3,413)
Loss attributable to non-controlling interest 8 (80)
Loss for the year (5,546) (3,493)
Basic and diluted loss per ordinary share (US cents) (0.26) (0.18)
The notes on pages 52 to 82 are essential part of these financial statements
Consolidated Statement of Comprehensive Income
Year ended Year ended
31 December 31 December
2021 2020
US$000 US$000
Loss after taxation (5,546) (3,493)
Other comprehensive income:
Exchange differences on translating foreign operations (6,863) 403
Total comprehensive loss for the year (12,409) (3,090)
Total comprehensive loss attributable to:
Owners of parent (12,417) (3,010)
Non-controlling interest 8 (80)
The notes on pages 52 to 82 are essential part of these financial statements
Consolidated Statement of Changes in Equity
Share capital Share premium Deferred shares Cumulative translation Other reserves Merger reserve Retained deficit Total attributable to the owner of the Parent Non-controlling interests Total
US$'000 US$'000 reserve US$'000 US$'000 US$'000 US$'000 US$'000 equity
US$'000 US$'000 US$'000
Total equity as at 1 January 2021 (restated) 30,804 164,313 64,702 (55,240) (2,362) 11,454 (150,685) 62,986 (5,809) 57,177
Loss after taxation - - - - - - (5,554) (5,554) 8 (5,546)
Exchange differences on translating foreign operations and recycling of - - - (6,863) - - - (6,863) - (6,863)
exchange differences on disposal of subsidiaries
Total comprehensive income/(loss) for the year - - - (6,863) - - (5,554) (12,417) 8 (12,409)
Shares issue (note 18) 264 486 - - - - - 750 - 750
Shares issued to employees and consultants (note 18) 50 18 - - - 57 - 125 - 125
Total equity as at 31 December 2021 31,118 164,817 64,702 (62,103) (2,362) 11,511 (156,239) 51,444 (5,801) 45,643
Share capital Share premium Deferred shares Cumulative translation Other reserves Merger reserve Retained deficit Total attributable to the owner of the Parent Non-controlling interests Total
US$'000 US$'000 reserve US$'000 US$'000 US$'000 US$'000 US$'000 equity
US$'000 US$'000 US$'000
Total equity as at 1 January 2020 (as previously reported) 28,120 246,299 64,702 (55,643) (2,362) - (220,477) 60,639 (5,729) 54,910
Adjusted (note 3) - (83,066) - - - 83,066 - - - -
Total equity as at 1 January 2020 (restated) 28,120 163,233 64,702 (55,643) (2,362) 83,066 (220,477) 60,639 (5,729) 54,910
Loss after taxation - - - - - - (3,413) (3,413) (80) (3,493)
Exchange differences on translating foreign operations and recycling of - - - 403 - - - 403 - 403
exchange differences on disposal of subsidiaries
Total comprehensive income/(loss) for the year - - - 403 - - (3,413) (3,010) (80) (3,090)
Shares issue (restated) 2,095 - - - - 1,571 - 3,666 - 3,666
Merger reserve transfer (restated) (note 3) - - - - - (73,183) 73,183 - - -
Debts to equity conversion (note 18) 112 246 - - - - - 358 - 358
Shares placing in cash (note 18) 477 834 - - - - - 1,311 - 1,311
Arising on employee share options - - - - - - 22 22 - 22
Total equity as at 31 December 2020 (restated) 30,804 164,313 64,702 (55,240) (2,362) 11,454 (150,685) 62,986 (5,809) 57,177
Equity
Description and purpose
Share capital The
nominal value of shares issued
Share premium Amount
subscribed for share capital in excess of nominal value
Deferred
shares
The nominal value of deferred shares issued
Cumulative translation reserve Gains/losses arising on retranslating
the net assets of overseas operations into US Dollars, less amounts recycled
on disposal of subsidiaries and joint ventures
Other
reserves
Fair value of warrants issued and capital contribution arising on discounted
loans
Merger reserve The excess of the fair
value of the issues share capital over the nominal value of these shares
issued for acquisition of at least 90 percent equity holding in subsidiaries.
Retained deficit
Cumulative losses recognised in the consolidated statement of profit or loss,
adjustments on the acquisition of non-controlling interests and transfers in
respect of share based payments
Non-controlling interest The
interest of non-controlling parties in the net assets of the subsidiaries
The notes on pages 52 to 82 are essential part of these financial statements
Parent Company Statement of Changes in Equity
Share Share premium Deferred shares Merger reserve Retained deficit Total attributable to the owner of the Parent
capital US$'000 US$'000 US$'000 US$'000 US$'000
US$'000
Total equity as at 1 January 2021 (restated) 30,804 164,313 64,702 11,454 (169,398) 101,875
Total comprehensive loss for the year - - - - (1,805) (1,805)
Shares issue (note 18) 264 486 - - - 750
Shares issued to employees and consultants (note 18) 50 18 - 57 - 125
Arising on employee share options - - - - - -
Total equity as at 31 December 2021 31,118 164,817 64,702 11,511 (171,203) 100,945
Share Share Deferred shares Merger reserve Retained deficit Total attributable to the owner of the Parent
capital premium US$'000 US$'000 US$'000 US$'000
US$'000 US$'000
Total equity as at 1 January 2020 (as previously reported) 28,120 246,299 64,702 - (138,167) 200,954
Adjusted (note 3) (83,066) - 83,066 - -
Total equity as at 1 January 2020 (restated) 28,120 163,233 64,702 83,066 (138,167) 200,954
Total comprehensive loss for the year - - - - (104,436) (104,436)
Shares issue (restated) 2,095 - - 1,571 - 3,666
Merger reserve transfer (restated) (note 3) - - - (73,183) 73,183 -
Debts to equity conversion (note 18) 112 246 - - 358
Shares placing in cash (note 18) 477 834 - - 1,311
Arising on employee share options - - - 22 22
Total equity as at 31 December 2020 (restated) 30,804 164,313 64,702 11,454 (169,398) 101,875
Equity
Description and purpose
Share
capital
The nominal value of shares issued
Share
premium
Amount subscribed for share capital in excess of nominal value
Deferred
shares
The nominal value of deferred shares issued
Other
reserves
Capital contribution arising on discounted loans
Merger reserve The excess of the fair
value of the issues share capital over the nominal value of these shares
issued for acquisition of at least 90 percent equity holding in subsidiaries.
Retained
deficit
Cumulative losses recognised in the profit or loss
The notes on pages 52 to 82 are essential part of these financial statements
Consolidated Statement of Financial Position
Company number 5966431 Notes Group Group Group
2021 2020 (restated) 2019 (restated)
US$'000 US$'000 US$'000
Assets
Non-current assets
Unproven oil and gas assets 12 46,137 61,413 60,040
Property, plant and equipment 13 57,134 52,845 51,326
Other receivables 16 4,263 4,246 5,745
Restricted use cash 634 241 241
Total non-current assets 108,168 118,745 117,352
Current assets
Inventories 15 664 392 384
Other receivables 16 4,950 6,195 5,663
Cash and cash equivalents 17 429 329 4,060
Total current assets 6,043 6,916 10,107
Total assets 114,211 125,661 127,459
Equity and liabilities
Capital and reserves attributable to equity holders of the parent
Share capital 18 31,118 30,804 28,120
Share premium 164,817 164,313 163,233
Deferred shares 18 64,702 64,702 64,702
Other reserves (2,362) (2,362) (2,362)
Merger reserve 11,511 11,454 83,066
Retained deficit (156,239) (150,685) (220,477)
Cumulative translation reserve (62,103) (55,240) (55,643)
Equity attributable to the owners of the Parent 51,444 62,986 60,639
Non-controlling interests 27 (5,801) (5,809) (5,729)
Total equity 45,643 57,177 54,910
Current liabilities
Trade and other payables 19 13,240 11,012 14,836
Short - term borrowings 20 6,425 5,600 4,050
Provision for BNG licence payment 21 3,178 3,178 3,178
Other current provisions 21 5,482 6,117 6,304
Total current liabilities 28,325 25,907 28,368
Non-current liabilities
Deferred tax liabilities 23 6,463 6,629 7,244
Provision for BNG licence payment 21 19,290 21,887 24,216
Other non-current provisions 21 487 413 428
Other payables 19 14,003 13,648 12,293
Total non-current liabilities 40,243 42,577 44,181
Total liabilities 68,568 68,484 72,549
Total equity and liabilities 114,211 125,661 127,459
Approved by the Board and authorized for issue:
Clive Carver,
Chairman,
24 June 2022
Company number: 5966431
The notes on pages 52 to 82 are essential part of these financial statements
Parent Company Statement of Financial Position
Company number 05966431 Notes Company Company Company
2021 2020 (restated) 2019 (restated)
US$'000 US$'000 US$'000
Assets
Non-current assets
Investments in subsidiaries 14 15,487 15,487 223,781
Other receivables 16 88,559 89,265 10,704
Total non-current assets 104,046 104,752 234,485
Current assets
Other receivables 16 10 9 7
Cash and cash equivalents 17 4 3 87
Total current assets 14 12 94
Total assets 104,060 104,764 234,579
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital 18 31,118 30,804 28,120
Share premium 164,817 164,313 163,233
Deferred shares 18 64,702 64,702 64,702
Merger reserve 11,511 11,454 83,066
Retained deficit (171,203) (169,398) (138,167)
Equity attributable to the owners of the Parent 100,945 101,875 200,954
Total equity 100,945 101,875 200,954
Current liabilities
Short-term borrowings 20 2,382 2,069 1,814
Trade and other payables 19 733 820 31,811
Total current liabilities 3,115 2,889 33,625
Non-current liabilities - - -
Total non-current liabilities - - -
Total liabilities 3,115 2,889 33,625
Total equity and liabilities 104,060 104,764 234,579
The Company incurred a loss for the year ended 31 December 2021 in the amount
of US$ 1,805,000 (2020: loss of US$ 104,436,000).
Approved by the Board and authorized for issue:
Clive Carver,
Chairman,
24 June 2022
Company number: 05966431
The notes on pages 52 to 82 are essential part of these financial statements
Consolidated and Parent Company Statements of Cash Flows
Notes Group Group Company Company
2021 2020 2021 2020
US$'000 US$'000 US$'000 US$'000
Cash flows from operating activities
Cash received from customers 24,308 10,807 - -
Payments made to suppliers for goods and services (15,509) (11,124) (834) (1,263)
Payments made to employees (1,051) (1,423) (163) (399)
Net cash flow from operating activities 7,748 (1,740) (997) (1,662)
Cash flows from investing activities
Purchase of property, plant and equipment (7,136) (3,019) - -
Additions to unproven oil and gas assets (719) (1,520) - -
Transfers from/(to) restricted use cash (393) - - -
Advances repaid by subsidiaries - - 840 302
Advances issued to subsidiaries - - - (35)
Net cash flow from investing activities (8,248) (4,539) 840 267
Cash flows from financing activities
Net proceeds from issue of ordinary share capital - 1,311 - 1,311
Loans received from third parties 26 600 1,237 158 -
Net cash flow from financing activities 600 2,548 158 1,311
Net increase/(decrease) in cash and cash equivalents 100 (3,731) 1 (84)
Cash and cash equivalents at the beginning of the year 329 4,060 3 87
Cash and cash equivalents at the end of the year 17 429 329 4 3
The notes on pages 52 to 82 form part of these financial statements
Notes to the Financial Statements
General information
Caspian Sunrise plc ("the Company") is a public limited company incorporated
and domiciled in England and Wales. The address of its registered office is 5
New Street Square, London, EC4A 3TW. These consolidated financial statements
were authorised for issue by the Board of Directors on 24 June 2022.
The principal activities of the Group are exploration and production of crude
oil.
1 Principal accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below.
1.1 Basis of preparation
The Group's and Parent's financial statements have been prepared in accordance
with UK-adopted international accounting standards and as applied in
accordance with the provisions of the Companies Act 2006
Going concern
The financial position of the Group and the Company has improved in the past
year and as at 1 June 2022 the Group had cash of $1 million.
· At current oil prices, even with the Urals Oil price discount,
the Company enjoys positive operational cash flows
· Deep Well 802 is the final well required under the BNG work
programme. Any further deep wells drilled at BNG will be on a discretionary
basis
· As is the case for the MJF structure, the South Yelemes structure
with current production of approximately 300 bopd is now able to sell most of
its oil at international prices
· $6.2 million of debt has been converted to equity
Nevertheless with net current liabilities of approximately $22 million as at
31 December 2021, the assessment of going concern needs to be properly
considered. The Board have assessed cash flow forecasts prepared for a period
of at least 12 months from the of approval of the financial statements and
assessed the risks and uncertainties associated with the operations and
funding position, including the potential further effects of the COVID-19
pandemic. These cash flows, which include the payment of discretionary
dividend, are dependent on a number of key factors including:
· The Group's cashflow is sensitive to oil price and volume sold.
This is impacted by its current reliance on exporting a portion of its oil
sales through the Russian pipeline network. If due to sanctions on Russia,
this pipeline network is no longer available, or the discount on oil exported
through this network increased over a prolonged period, to continue to
generate positive cash the Group would either seek alternative distribution
routes via Uzbekistan, Azerbaijan or China or alternatively sell all oil
produced on the domestic market or to one of the new mini refineries opening
in the region, where prices are typically better than the domestic price and
buyers collect the oil from the wellhead. As none of these alternatives have
yet been tested, if the oil price achieved or volume sold declined, these
factors could result in the Group requiring additional funding.
· The Group continues to forward sell its domestic production and
receive advances from oil traders with $1.8m currently advanced and the
continued availability of such arrangements is important to working capital.
Whilst the Board anticipate such facilities remaining available given its
trader relationships and recent oil price increases, should they be withdrawn
or reduced more quickly than forecast cash flows allow then additional funding
would be required.
· The Group has $6.0m of liabilities due on demand under social
development program and $0.4m of BNG licence payments due within the forecast
period to the Kazakh government. Whilst the Board has forecasted the payment
of BNG licence payments, there are no payments planned for social development
program within the forecast period as the Board expects additional payment
deferrals to be approved. Should the deferrals not occur additional funding
would be required.
These circumstances continue to indicate the existence of a material
uncertainty which may cast significant doubt about the Group and the Company's
ability to continue as a going concern and therefore may be unable to realise
its assets and discharge its liabilities in the normal course of business. The
financial statements do not include the adjustments that would result if the
Group and the Company was unable to continue as a going concern.
Notwithstanding the material uncertainty described above, after making
enquiries and assessing the progress against the forecast, projections and the
status of the mitigating actions referred to above, the Directors have a
reasonable expectation that the Group and the Company will continue in
operation and meet its commitments as they fall due over the going concern
period. Accordingly, the Directors continue to adopt the going concern basis
in preparing the financial statements.
The Company has taken advantage of section 408 of the Companies Act 2006 and
has not included its own profit or loss in these financial statements.
The preparation of financial statements in conformity with IFRSs requires the
Management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts in the financial statements.
The areas involving a higher degree of judgement or complexity, or areas where
assumptions or estimates are significant to the financial statements are
disclosed in note 2.
1.2 New and revised standards and interpretations to be updated
The Group applied for the first time, certain standards and amendments, which
are effective for annual periods beginning on or after 1 January 2021. The
Group has not early adopted any other standard, interpretation or amendment
that has been issued but is not yet effective. The nature and effect of the
changes that result from the adoption of these new standards are described
below. Other than the changes described below, the accounting policies adopted
are consistent with those of the previous financial year.
Several other amendments and interpretations apply for the first time in 2021,
but do not have an impact on the consolidated financial statements of the
Group. The Group has not early adopted any standards, interpretations or
amendments that have been issued but are not yet effective.
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
a) New standards, interpretations and amendments adopted from 1 January
2021
Interest Rate Benchmark Reform - IBOR 'phase 2' (Amendments to IFRS 9, IAS 39,
IFRS 7, IFRS 4 and IFRS 16)
These amendments to various IFRS standards are mandatorily effective for
reporting periods beginning on or after 1 January 2021. The amendments provide
relief respect of loans whose contractual terms are affected by interest
benchmark reform. There is no impact on the current reporting period.
b) New standards, interpretations and amendments not yet effective
There are a number of standards, amendments to standards, and interpretations
which have been issued by the IASB that are effective in future accounting
periods that the Group has decided not to adopt early.
The following amendments are effective for the period beginning 1 January
2022:
· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to
IAS 37);
· Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16);
· Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS
1, IFRS 9, IFRS 16 and IAS 41); and
· References to Conceptual Framework (Amendments to IFRS 3).
The following amendments are effective for the period beginning 1 January
2023:
· Amendments IFRS 17 Insurance contracts (Initial Application of IFRS
17 and IFRS 9 - Comparative Information)
· Amendments to IAS 1 Presentation of Financial Statements
(Classification of Liabilities as Current or Non-Current)
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2);
· Definition of Accounting Estimates (Amendments to IAS 8); and
· Deferred Tax Related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
These standards are not expected to have a material impact on the entity in
the current or future reporting periods and on foreseeable future
transactions.
1.3 Basis of consolidation
Subsidiary undertakings are entities that are directly or indirectly
controlled by the Group. Control is achieved when the Group is exposed, or
has rights, to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the investee.
Generally, there is a presumption that a majority of voting rights result in
control. To support this presumption and when the Group has less than a
majority of the voting or similar rights of an investee, the Group considers
all relevant facts and circumstances in assessing whether it has power over an
investee. The consolidated financial statements present the results of the
Company and its subsidiaries ("the Group") as if they formed a single entity.
Intercompany transactions and balances between group companies are therefore
eliminated in full.
The purchase method of accounting is used to account for the acquisition of
subsidiary undertakings by the Group. The cost of an acquisition is measured
at the fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition
date, irrespective of the extent of any non-controlling interest. The excess
of the cost of acquisition over the fair value of the Group's share of the
identifiable net assets acquired is recorded as goodwill.
1.4 Operating Loss
Operating loss is stated after crediting all operating income and charging all
operating expenses, but before crediting or charging the financial income or
expenses.
1.5 Foreign currency translation
1.5.1 Functional and presentational currencies
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). The consolidated financial
statements are presented in US Dollars ("US$"), which is the Group's
presentational currency. Beibars Munai LLP, Munaily Kazakhstan LLP, BNG Ltd
LLP and Roxi Petroleum Kazakhstan LLP, 3A_Best Group JSC, and Caspian
Technical Services LLP subsidiary undertakings of the Group during the period,
undertake their activities in Kazakhstan and the Kazakh Tenge is the
functional currency of these entities. The functional currency for the
Company, Beibars BV, Ravninnoe BV, Galaz Energy BV, BNG Energy BV and Eragon
Petroleum FZE is USD as USD reflects the underlying transactions, conducts and
events relevant to these companies.
1.5.2 Transactions and balances in foreign currencies
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity's functional currency ("foreign
currencies") are recorded at the rates of exchange prevailing at the dates of
the transactions. At each reporting date, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at the reporting
date. Non-monetary items carried at fair value that are denominated in foreign
currencies are retranslated at the rates prevailing at the date when the fair
value was determined. Non-monetary items, including the parent's share
capital, that are measured in terms of historical cost in a foreign currency
are not retranslated. Exchange differences are recognised in profit or loss in
the period in which they arise.
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.5 Foreign currency translation (continued)
1.5.3 Consolidation
For the purpose of consolidation all assets and liabilities of Group entities
with a functional currency that is not US$ are translated at the rate
prevailing at the reporting date. The profit or loss is translated at the
exchange rate approximating to those ruling when the transaction took place.
Exchange difference arising on retranslating the opening net assets from the
opening rate and results of operations from the average rate are recognised
directly in other comprehensive income (the "cumulative translation reserve").
On disposal of a foreign operator, related cumulative foreign exchange gains
and losses are reclassified to profit and loss and are recognized as part of
the gain or loss on disposal.
1.6 Current tax
Current tax is based on taxable profit for the year. Taxable profit differs
from profit as reported in the profit or loss because it excludes items of
income or expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
In case of the uncertainty of the tax treatment, the Group assess, whether it
is probable or not, that the tax treatment will be accepted, and to determine
the value, the Group use the most likely amount or the expected value in
determining taxable profit (tax loss), tax bases, unused tax losses, unused
tax credits and tax rates.
Withholding tax payable at Kazakhstan
According to requirements of the Tax Code of Kazakhstan, withholding taxes
payable for non-residents should be withheld from the total amount of interest
income of non-residents and paid to the government when interest is paid (in
cash) to non-residents. The companies should pay taxes from non-residents'
interest income derived from sources in the Republic of Kazakhstan on behalf
of these non-residents.
1.7 Deferred tax
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit other than in a business combination,
and differences relating to investments in subsidiaries to the extent that
they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the reporting date.
Deferred tax liabilities are generally recognised for all taxable temporary
differences. A deferred tax asset is recorded only to the extent that it is
probable that taxable profit will be available, against which the deductible
temporary differences can be utilised.
1.8 Unproven oil and gas assets
The Group applies the full cost method of accounting for exploration and
unproven oil and gas asset 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 for and evaluating oil and gas
properties are accumulated and capitalised by reference to appropriate cost
pools. Such cost pools are based on license areas. The Group currently has two
cost pools.
Exploration and evaluation costs include costs of license 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 profit or loss
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 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.
The amounts included within unproven oil and gas assets include the fair value
that was paid for the acquisition of partnerships holding subsoil use in
Kazakhstan. These licenses have been capitalised to the Group's full cost pool
in respect of each license area.
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.
Commercial reserves are defined as proved oil and gas reserves.
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
Proven oil and gas properties
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. The costs
transferred comprise direct costs associated with the relevant wells and
infrastructure, together with an allocation of the wider unallocated
exploration costs in the cost pool such as original acquisition costs for the
field.
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 commercial reserves of the pool to which
they relate.
As part of the Kazakh licencing regime, upon award of a production contract in
respect of the BNG licence area, an obligation to make a payment to the
licencing authority is triggered, settled over a 10 year period in equal
quarterly instalments. Such payments are considered to form a cost of the
licence and are capitalised to proven oil and gas assets and subsequently
depreciated on a units of production basis in accordance with the Group's
depreciation policy. In circumstances where the amount assessed by the
authorities is contested, the Group records a provision discounted using a
Kazakh government bond yield with a term approximating the payment profile and
the discount is unwound over the payment term and charged to finance costs.
Payments made are charged against the provision.
Impairment
Exploration and unproven intangible assets are reviewed for impairments if
events or changes in circumstances indicate that the carrying amount may not
be recoverable as at the reporting date. Intangible exploration and
evaluation assets that relate to exploration and evaluation activities that
are not yet determined to have resulted in the discovery of the commercial
reserve remain capitalised as intangible exploration and evaluation assets
subject to meeting a pool-wide impairment test as set out below.
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;
§ substantive expenditure on further exploration for and evaluation of
mineral resources in a specific area is neither budgeted nor planned;
§ exploration for and evaluation of hydrocarbons in a specific area have
not led to the discovery of commercially viable quantities of hydrocarbons and
the Group has decided to discontinue such activities in the specific area; and
§ sufficient data exists to indicate that although a development in a
specific area is likely to proceed, the carrying amount of the exploration and
evaluation assets is unlikely to be recovered in full from successful
development or by sale.
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, being the relevant cost pool. 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.
Impairment of development and production assets and other property, plant and
equipment
At each balance sheet date, the Group reviews the carrying amounts of its
PP&E to determine whether there is any indication that those assets have
suffered an impairment loss. If any such indication exists, the recoverable
amount of the asset is estimated in order to determine the extent of the
impairment loss (if any). Where the asset does not generate cash flows that
are independent from other assets, the Group estimates the recoverable amount
of the cash-generating unit to which the asset belongs. The recoverable amount
is the higher of fair value less costs to sell and value in use. Fair value
less costs to sell is determined by discounting the post-tax cash flows
expected to be generated by the cash-generating unit, net of associated
selling costs, and takes into account assumptions market participants would
use in estimating fair value including future capital expenditure and
development cost for extraction of the field reserves. In assessing value in
use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated
to be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment
loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss
been recognised for the asset (cash-generating unit) in prior years. A
reversal of an impairment loss is recognised as income immediately.
Workovers/Overhauls and maintenance
From time to time a workover or overhaul or maintenance of existing proven oil
and gas properties is required, which normally falls into one of two distinct
categories. The type of workover dictates the accounting policy and
recognition of the related costs:
Capitalisable costs - cost will be capitalised where the performance of an
asset is improved, where an asset being overhauled is being changed from its
initial use, the assets' useful life is being extended, or the asset is being
modified to assist the production of new reserves.
Non-capitalisable costs - expense type workover costs are costs incurred as
maintenance type expenditure, which would be considered day-to-day servicing
of the asset. These types of expenditures are recognised within cost of sales
in the statement of comprehensive income as incurred. Expense workovers
generally include work that is maintenance in nature and generally will not
increase production capability through accessing new reserves, production from
a new zone or significantly extend the life or change the nature of the well
from its original production profile.
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.9 Abandonment
Provision is made for the present value of the future cost of the
decommissioning of oil wells and related facilities. This provision is
recognised when the asset is installed. The estimated costs, based on
engineering cost levels prevailing at the reporting date, are computed on the
basis of the latest assumptions as to the scope and method of decommissioning.
The corresponding amount is capitalised as a part of the oil and gas asset
and, when in production is amortised on a unit-of-production basis as part of
the depreciation, depletion and amortisation charge. Any adjustment arising
from the reassessment of estimated cost of decommissioning is capitalised,
while the charge arising from the unwinding of the discount applied to the
decommissioning provision is treated as a component of the interest charge.
1.10 Restricted use cash
Restricted use cash is the amount set aside by the Group for the purpose of
creating an abandonment fund to cover the future cost of the decommissioning
of oil and gas wells and related facilities and in accordance with local legal
rulings.
Under the Subsoil Use Contracts the Group must place 1% of the value of
exploration costs in an escrow deposit account, unless agreed otherwise with
the Ministry of Energy. At the end of the contract this cash will be used to
return the field to the condition that it was in before exploration started.
1.11 Property, plant and equipment
All property, plant and equipment assets are stated at cost or fair value on
acquisition less accumulated depreciation. Depreciation is provided on a
straight-line basis, at rates calculated to write off the cost less the
estimated residual value of each asset over its expected useful economic life.
The residual value is the estimated amount that would currently be obtained
from disposal of the asset if the asset were already of the age and in the
condition expected at the end of its useful life. Expected useful economic
life and residual values are reviewed annually.
The annual rates of depreciation for class of property, plant and equipment
are as follows:
- motor vehicles
over 4-5 years
-
other
over 2-4 years
The Group assesses at each reporting date whether there is any indication that
any of its property, plant and equipment has been impaired. If such an
indication exists, the asset's recoverable amount is estimated and compared to
its carrying value.
1.12 Investments (Company)
Investments in subsidiary undertakings are shown at cost less allowance for
impairment. Long-term advances to subsidiaries are discounted at estimated
market rate of interest with the difference between a fair value and a face
value of the advance being recorded within investments.
Loan are amortised cost is assessed for expected credit loss under IFRS 9.
1.13 Financial instruments
The Group classifies financial instruments, or their component parts on
initial recognition, as a financial asset, a financial liability or an equity
instrument in accordance with the substance of the contractual agreement.
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the financial instrument.
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
Financial assets
Financial assets are classified as either financial assets at amortised cost,
at fair value through other comprehensive income ("FVTOCI") or at fair value
through profit or loss ("FVPL") depending upon the business model for managing
the financial assets and the nature of the contractual cash flow
characteristics of the financial asset.
A loss allowance for expected credit losses is determined for all financial
assets, other than those at FVPL, at the end of each reporting period. The
Group applies a simplified approach to measure the credit loss allowance for
any trade receivables using the lifetime expected credit loss provision. The
lifetime expected credit loss is evaluated for each trade receivable taking
into account payment history, payments made subsequent to year end and prior
to reporting, past default experience and the impact of any other relevant and
current observable data. The Group applies a general approach on all other
receivables classified as financial assets. The general approach recognises
lifetime expected credit losses when there has been a significant increase in
credit risk since initial recognition.
The Group derecognises a financial asset when the contractual rights to the
cash flows from the asset expire, or when it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another
party. The Group derecognises financial liabilities when the Group's
obligations are discharged, cancelled or have expired.
The Group's financial assets consist of cash and other receivables. Cash and
cash equivalents are defined as short term cash deposits which comprise cash
on deposit with an original maturity of less than 3 months. Other receivables
are initially measured at fair value and subsequently at amortised cost.
The Group's financial liabilities are non-interest bearing trade and other
payables, other interest bearing borrowings. Non-interest bearing trade and
other payables and other interest bearing borrowings are stated initially at
fair value and subsequently at amortised cost.
Where a loan is renegotiated on substantially different terms, this is treated
as an extinguishment of the original financial liability and the recognition
of a new financial liability with a gain or loss recorded in the income
statement. In accordance with IFRS 9, following a modification or
renegotiation of a financial asset or financial liability that does not result
in de-recognition, an entity is required to recognise any modification gain or
loss immediately in profit or loss. Any gain or loss is determined by
recalculating the gross carrying amount of the financial liability by
discounting the new contractual cash flows using the original effective
interest rate. The difference between the original contractual cash flows of
the liability and the modified cash flows discounted at the original effective
interest rate is recorded in the income statement.
Share capital issued to extinguish financial liabilities is fair valued with
any difference to the carrying value of the financial liability taken to the
profit or loss.
1.14 Inventories
Inventories are initially recognised at cost, and subsequently at the lower of
cost and net realisable value. Cost comprises all costs of purchase and other
costs incurred in bringing the inventories to their present location and
condition.
1.15 Other provisions
A provision is recognised when the Group has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. If the effect is
material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability.
1.16 Share capital
Ordinary and deferred shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are shown in
equity as a deduction from the proceeds.
1.17 Share-based payments
The Group has used shares and share options as consideration for services
received from employees.
Equity-settled share-based payments to employees and others providing similar
services are measured at fair value at the date of grant. The fair value
determined at the grant date of such an equity-settled share-based instrument
is expensed on a straight-line basis over the vesting period, based on the
Group's estimate of the shares that will eventually vest.
Equity-settled share-based payment transactions with other parties are
measured at the fair value of the goods or services received, except where the
fair value cannot be estimated reliably, in which case they are measured at
the fair value of the equity instruments granted, measured at the date the
entity obtains the goods or the counterparty renders the service. The fair
value determined at the grant date of such an equity-settled share-based
instrument is expensed since the shares vest immediately. Where the services
are related to the issue of shares, the fair values of these services are
offset against share premium where permitted.
Fair value is measured using the Black-Scholes model. The expected life used
in the model has been adjusted based on the Management's best estimate, for
the effects of non-transferability, exercise restrictions and behavioural
considerations.
Notes to the Financial Statements (continued)
1 Principal accounting policies (continued)
1.18 Warrants
Warrants are separated from the host contract as their risks and
characteristics are not closely related to those of the host contracts. Where
the exercise price of the warrants is in a different currency to the
functional currency of the Company, at each reporting date the warrants are
valued at fair value with changes in fair values recognised through profit or
loss as they arise. The fair values of the warrants are calculated using the
Black-Scholes model. Where the warrant exercise price is in the same currency
as the functional currency of the issuer and involve the issuance of a fixed
number of shares the warrants are recorded in equity.
1.19 Revenue
Revenue from contracts with customers is recognised when or as the Group
satisfies a performance obligation by transferring a promised good or service
to a customer. A good or service is transferred when the customer obtains
control of that good or service. The transfer of control of oil sold by the
Group usually coincides with title passing to the customer. The Group
satisfies its performance obligations at a point in time.
Under the terms of domestic oil sales arrangements, the performance obligation
is satisfied when the local refinery provides the seller and the customer with
the act of acceptance of crude oil of quantity and quality according to the
agreement between the parties.
Under the terms of export sales arrangements, the performance obligation is
satisfied when the Ocean Bill of Lading is issued by the transport company
that reflects the fact of boarding the crude oil of specified quantity and
quality on the tanker.
Revenue is measured at the fair value of the consideration received, excluding
value added tax ("VAT") and other sales taxes or duty. Royalties are not
included in revenue, they are paid on production and recorded within cost of
sales.
Payments in advance by oil traders are recorded initially as deferred revenue,
reflecting the nature of the transaction. Subsequently, the deferred revenue
is reduced and revenue is recorded, as sales are made under the Group's
revenue recognition policy with the performance obligation satisfied.
Revenue from the use by third parties of the Caspian Explorer will be
recognised when the contracted services are performed.
1.20 Cost of sales
The Group started to calculate the cost of sales on crude oil sold during 2019
because its asset BNG has received the production license on part of its
contract territory in July 2019. On the rest of its territory (%) BNG
continues to work under Exploration license. During test production on
Exploration cost of sales cannot be reliably estimated and therefore a cost of
sales equal to revenue is recognised and credited to the unproven oil and gas
assets.
1.21 Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision maker, who is responsible for allocating resources and assessing
performance of the operating segments and making strategic decisions, has been
identified as the Board of Directors. The Group has one operating segment
being oil exploration and production in Kazakhstan and therefore one reporting
segment. The Group has several cost pools divided based on the different
contractual territory of its assets. As the activity of all cost pools is the
same (oil exploration and production) and all of them operate geographically
in Kazakhstan, the Group reports one segment in its financials.
1.22 Interest receivable and payable
Interest income and expense are reported on an accrual basis using the
effective interest rate method.
1.23 Forward Sales
Advance payments are taken for oil to be sold on the domestic market with the
liability reduced over time as oil is delivered based on the then prevailing
domestic oil price.
1.24 Exchange rates
For reference the year end exchange rate from sterling to US$ was 1.35 and the
average rate during the year was 1.38. The year-end exchange rate from KZT to
US$ was 431.67 and the average rate during the year was 426.03.
1.25 Merger reserve
Merger reserve represents the excess of the fair value of the issued share
capital over the nominal value of these shares issued for acquisition of
investments in subsidiaries where the Company has secured at least 90 percent
equity holding in accordance with section 612 of the Companies Act 2006. The
Company allocates merger reserve to the retained earnings/deficit account on
disposal of the investment the reserve relates to or if this investment is
written down for impairment.
Notes to the Financial Statements (continued)
2 Critical accounting estimates and judgements
In the process of applying the Group's accounting policies, which are
described in note 1, Management has made the following judgements and key
assumptions that have the most significant effect on the amounts recognised in
the financial statements.
2.1 Carrying value of exploration and evaluation costs (note 12)
Under the full cost method of accounting for exploration and evaluation costs,
such costs are capitalised as intangible assets by reference to appropriate
cost pools, and are assessed for impairment on a concession basis based on the
impairment indicators detailed in accounting policy note 1.8. As at 31
December 2021, the Group assessed the exploration and evaluation assets
disclosed in note 11 and determined that no indicators of impairment existed
at a cost pool level in respect of the BNG cost pool. The Group also
considered whether the factors that gave rise to the original impairment loss
no longer existed and reversal of the impairment is appropriate. In forming
this assessment, the Board considered the oil reserves and resources
associated with the licence area, the results of exploration activity to date,
the successful transition to production of the MJF licence area in the
previous year and the net present value of the shallow structures, the status
of licences and future plans for the licence areas. In forming its
assessment, the Board considered the Group's commitments under the licence
detailed in note 21 and the impact of outstanding obligations. Having
undertaken this assessment the Group concluded that no indicators of
impairment existed and that no reversal in respect of previous impairment
provisions attributable to the unproven oil and gas assets of US$9,479,000 was
yet appropriate given the absence of a significant breakthrough on the deep
structures at 31 December 2021.
The Board is working with the Kazakh authorities to renew the licence at 3A
Best, following which the Board will assess 3A Best's position in the Group.
While the Board remains confident that the licence will be renewed on
favourable terms, the Group cannot currently make any progress with the asset.
Accordingly, the Board has decided to impair the asset in full, resulting in a
$12.5 million impairment charge in 2021.
The Beibars cost pool remains impaired based on the continuance of the force
majeure. The Group has decided to formally relinquish any interest in Beibars.
2.2 Transfer of costs to proven oil and gas assets (prior year) (note 12
& 13)
Judgment has been applied in assessing that the MJF area assets meets the
criteria for reclassification to proven oil and gas assets under the Group's
accounting policy in note 1.8. In concluding that it was appropriate to
transfer the asset to proven oil and gas assets management took account of the
award of a production licence enabling exports and sales at international
prices together with the production volumes. In August 2019 BNG has received
the required production license for its MJF structure and got the export
permission starting September 2019. According to the approach above BNG moved
the related O&G assets to the production stage in August 2019 and
accordingly started charging DD&A expense. The Board considers the
remaining BNG contract area to remain in an exploration phase given the level
of wells and production relative to plans for the field, the exploration
status of the licence and the requirement to sell its test oil in the domestic
market which represents a substantial discount to the international market
such that production is primarily a by product of continued exploration and
appraisal.
2.3 Recoverability of proven oil and gas assets (note 13)
The proven oil and gas assets, representing the MJF structure, have been
assessed for indicators of impairment at 31 December 2021 including assessment
of the discounted cash flows indicated by the Group's field plan. This
analysis required judgment and estimation in determining forecast prices as at
31 December 2021 based on conditions existing at that time, future production
and reserves, operating costs and development costs for the field and the
discount rate. The forecasts demonstrated significant headroom with prices
based on forward prices of $51 bbl adjusted for net back adjustments, reserves
calculated using the most recent Competent Person's report and discount rates
run at 10% and 15%. Having undertaken this assessment the Group concluded
that no indicators of impairment existed.
2.4 Recoverability of VAT (note 16)
The Group holds VAT receivables of $3.8 million (2020: $3.8million) as
detailed in note 16 which are anticipated to be primarily recovered through
offset of future VAT payable in accordance with Kazakh legislation. Management
have assessed the recoverability of the asset based on forecast levels of VAT
payables which demonstrate that the balance will be recovered within 2 years
(2020: 3 years). This required estimates regarding future production, oil
prices and expenditure.
2.5 Decommissioning (note 21)
Provision has been made in the accounts for future decommissioning costs to
plug and abandon wells in note 21. The costs of provisions have been added to
the value of the unproven oil and gas asset and will be depreciated on a unit
of production basis.
The decommissioning liability is stated in the accounts at discounted present
value and accreted up to the final expected liability by way of an annual
finance charge. The Group has potential decommissioning obligations in respect
of its interests in Kazakhstan. The extent to which a provision is required in
respect of these potential obligations depends, inter alia, on the legal
requirements at the time of decommissioning, the cost and timing of any
necessary decommissioning works, and the discount rate to be applied to such
costs. Actual costs incurred in future periods may substantially differ from
the amounts of provisions. In addition, future changes in environmental laws
and regulations, estimates of deposit useful lives and discount rates may
affect the carrying value of this provision.
Notes to the Financial Statements (continued)
2 Critical accounting estimates and judgements (continued)
2.6 Acquisition of Caspian Explorer (prior year, note 22)
Judgment was required in assessing the accounting treatment for the purchase
of Caspian Explorer as an asset purchase rather than a business combination.
In forming this assessment, management elected to make the optional
concentration test according to IFRS. 80% of the total assets of the acquired
entities were represented by the carrying value of the submersible drilling
rig and related assets (the barge). Therefore, the management concluded that
the fair value of the gross assets acquired were concentrated in a single
identifiable asset (group of assets). As such, the fair value of the purchase
consideration was allocated to the assets and liabilities acquired, costs
associated with the transaction capitalised and no deferred tax arose on the
transaction.
Judgment has been applied in assessing whether impairment of the asset is
required at 31 December 2021 noting that the scrap value of the barge plus the
cost of the separate drilling rig supported by a clear comparable sale
approach as well as the future expected cash flows and supports the
recoverability of the vessel's carrying value.
2.7 Provision for BNG licence payments (note 12, 13, 21)
As part of the Kazakh licencing regime, upon award of a production contract in
respect of the BNG licence area, an obligation to make a payment to the
licencing authority was triggered, settled over a 10 year period in equal
quarterly instalments. Judgment was required in assessing the appropriate
accounting policy for the transaction including assessment of the terms of the
arrangement. Such payments are considered to form a cost of the licence and
are capitalised to proven oil and gas assets. As at 31 December 2021, the
Group was contesting the amount levied by the authorities although at the date
of these financial statements final judgment has been made against the
company. As such, a provision for the amounts due has been made based on the
received judgment. Estimation was also required in selecting an appropriate
discount rate for the provision and a rate of 2.7% has been applied, based on
US dollar Eurobonds yields in Kazakhstan with a comparable term.
2.8 Uncertain tax positions (note 23)
As detailed in note 23, judgment has been applied in assessing the extent to
which tax treatments adopted by the Group historically will be accepted or
rejected by the relevant tax authority and the resulting measurement of
uncertain tax positions in circumstances where it is probable that the
treatment will be challenged.
2.9 Indemnity receivables in relation to 3A Best acquisition
Under the terms of the SPA for 3A Best, the three vendors provided indemnities
that obligations related to the period prior to acquisition would be
reimbursed. Judgment has been applied in assessing the recoverability of the
indemnity receivables, which included assessment of the terms of the SPA,
confirmations received from the vendors and assessments of the ability to meet
such payments. The Board while still intending to obtain full recovery has
made a provision for two thirds of the amounts due on the expected credit
losses as at 31 December 2021 (note 16).
2.10 Recoverability of investments (note 14)
The recoverability of investments is dependent upon the future production of
the subsidiaries from existing producing assets and unproven exploration
assets, and future prices achieved, which will determine if any provision is
required against investments. The directors have assessed the impairment
indicators, and made judgements in reflection to recoverability and make
impairments as appropriate. The management has estimated that no additional
provision was required in 2021 (provision of US$145.7m was recognised in
2020).
2.11 Estimation of credit losses of receivables from subsidiaries (note 16)
In the parent company there are substantial receivables from the subsidiaries.
Management has used judgement to determine to the expected credit losses
against these receivable's which involves estimates of over the ability of the
subsidiaries to repay these loans. Management has estimated an expected credit
loss was required of US$20.7m at the year end (2020: US$19.9m).
Notes to the Financial Statements (continued)
3 Prior period adjustment
An error was identified in the accounting for several acquisitions of
subsidiaries in 2017-2020 for the issue of shares in which no share premium
should have been recorded. The premium over the nominal value of shares issued
should have instead been credited to a merger reserve, which is an unrealised
profit. A portion of this unrealised profit became realised on the impairment
of the acquired assets during 2020 and in accordance with the accounting
policy it should have been transferred from merger reserve to retained
earnings.
Given the error occurred prior to the beginning of the comparative period, it
has been corrected by restating each of the affected financial statement line
items as at 1 January 2020 and 31 December 2020 as per tables below. There
is no impact on profit or loss or other comprehensive income:
Parent Company Balance Sheet lines
1 January 2020 Correction of merger reserve 1 January 2020 restated
Share premium 246,299 (83,066) 163,233
Merger reserve - 83,066 83,066
31 December 2020 Correction of merger reserve 31 December 2020 restated
Share premium 248,950 (84,637) 164,313
Merger reserve - 11,454 11,454
Retained deficit (242,581) 73,183 (169,398)
Group Balance Sheet lines
1 January 2020 Correction of merger reserve 1 January 2020 restated
Share premium 246,299 (83,066) 163,233
Merger reserve - 83,066 83,066
31 December 2020 Correction of merger reserve 31 December 2020 restated
Share premium 248,950 (84,637) 164,313
Merger reserve - 11,454 11,454
Retained deficit (223,868) 73,183 (150,685)
Notes to the Financial Statements (continued)
4 Segment reporting & revenue
Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision maker, who is responsible for allocating resources and assessing the
performance of the operating segments and making strategic decisions, has been
identified as the Board of Directors.
The Group operated in two operating segments during 2021: Exploration for and
production of crude oil and drilling services at the Caspian shelf using the
submersible drilling rig. Both operating segments perform their activities and
generate revenues in Kazakhstan.
BNG Ltd. LLP mainly presents the Exploration and production. Total revenue
from crude oil sales generated by BNG in 2021 was US$ 23,725,000, net
operating income for the year was US$4,968,000. 100% of the Group's oil
revenue was derived from three major customers (two local market operators -
15% and the export trader - 85%). The revenue split of oil sales in 2021
between the domestic traders (Petroleum Operating LLP, Petro Synthesis) and
the export trader (Euro-Asian Oil SA) was US $3,691,000 and US $20,034,000
respectively.
KC Caspian Explorer (KCCE) LLP, presenting the drilling services operating
segment, historically provided drilling services at Kazakh section of Caspian
See shelf for the third party oil and gas operators. Before acquisition in
2020 the vessel, equipped with the drilling rig, provided exploration services
on total US $38,000,000 (US $21m in 2017 and US $17m in 2018). In 2021 the
KCCE vessel has provided NCOC, Kashagan oil field operator, with the services
not related to drilling services. At the standalone financial accounts of KCEE
the property plant and equipment valued at US $34,000,000 and minor payables
to third parties. Information about the revenues of the segment for the period
is provided below.
Revenue
The Group's revenues are derived from the sale of oil in Kazakhstan. After
moving part of O&G assets into Production phase The Group started to
receive export revenues in September 2019.
Under the terms of sales on the local market, the performance obligation is
the supply of oil and the performance obligation is satisfied at a point in
time, being the delivery of oil to the refinery. Control passes to the
customer at this point with title and risk transferred.
Under the terms of export sales control over the oil delivered is with the
Group until the customer confirms it has been shipped on the board of the
tanker. When advances are received from oil traders for delivery of future
production at specified prices, deferred revenue is recorded and the liability
reduced as oil is delivered.
Where advances are made for future production and the financing component of
such transactions is material, a finance charge is recorded based on the
market rate of interest.
During 2021 KCCE LLP provided services for North Caspian Operating Company
(NCOC), the operator of Kashagan offshore oil field. KCCE provided the vessel
for training purposes on Caspian Shelf. The total related revenue comprised
US$1.27 million with direct cost of US $656 thousand.
No trade receivables or accrued income was applicable at year end (2020:
$Nil).
Below is the summary of the results of the segments during 2021:
Caspian Explorer Oil & Gas assets $000 Corporate allocated Total $000
$000 $000
External revenues 1,271 23,725 - 24,996
Cost of sales (656) (4,968) - (5,624)
Gross profit 615 18,757 - 19,372
Administrative expenses (867) (1,230) (1,235) (3,332)
Selling expense - (7 578) - (7,578)
Impairment of unproven oil and gas assets - (12 464) - (12,464)
Segment operating loss (252) (2,515) (1,235) (4,002)
Finance income 13 11 - 24
Finance costs - (575) (284) (859)
Loss before income tax (239) (3,079) (1,519) (4,837)
Total assets 2,621 111,489 101 114,211
Total liabilities 100 60,556 7,912 68,568
Notes to the Financial Statements (continued)
5 Operating loss
Group operating loss for the year has been arrived after charging:
Group Group
2021 2020
US$'000 US$'000
Impairment of unproven oil and gas assets (note 12) (12,464) -
Staff costs (note 7) (1,051) (1,256)
Depreciation of property, plant and equipment (note 13) (3,557) (1,688)
Auditor remuneration (note 6) (212) (188)
Share based payment remuneration (note 7) - (22)
Expected credit loss provision against amount due in respect of 3A Best - (2,551)
(note16)
6 Group Auditor's remuneration
Fees payable by the Group to the Company's auditor BDO and its member firms in
respect of the year:
Group Group
2021 2020
US$'000 US$'000
Fees for the audit of the annual financial statements 153 146
Audit related services - 5
Other services - tax related 11 9
164 160
Fees payable by the Group to Grant Thornton and its associates in respect of
the year:
Group Group
2021 2020
US$'000 US$'000
Auditing of accounts of subsidiaries of the Company 48 28
48 28
7 Employees and Directors
Staff costs during the year Group Company Group Company
2021 2021 2020 2020
US$'000 US$'000 US$'000 US$'000
Wages and salaries 1,051 315 1,256 432
Social security costs 72 - 56 -
Pension costs 102 - 83 -
Share-based payments - - 22 22
1,225 315 1,417 454
Payroll expenses were not capitalized in 2021 (2020: US$8,275) and expensed as
cost of sales in the amount of US$254,000 (2020: US$ $258,510).
Average monthly number of people employed Group Company Group Company
(including executive Directors) 2021 2021 2020 2020
Technical 14 - 9 -
Field operations 170 - 145 -
Finance 7 1 8 2
Administrative and support 24 3 19 2
215 4 181 4
Directors' remuneration Group Group
2021 2020
US$'000 US$'000
Director's emoluments 332 643
Share-based payments - 22
332 665
The Directors are the key management personnel of the Company and the Group.
Details of Directors' emoluments and interests in shares are shown in the
Remuneration Committee Report. The highest paid director had emoluments
totalling US$142,000 (2020: US$312,000).
Notes to the Financial Statements (continued)
8 Finance cost
Group Group
2021 2020
US$'000 US$'000
Loan interest payable 237 368
Unwinding of discount on BNG licence payment provision (note 21) 616 685
Unwinding of discount on provisions (note 21) 6 14
859 1,067
9 Finance income
Group Group
2021 2020
US$'000 US$'000
Interest income at BNG LLP and KC Caspian 24 20
10 Taxation
Analysis of charge for the year Group Group
2021 2020
US$'000 US$'000
Current tax charge 709 1,748
Deferred tax charge - -
709 1,748
Group Group
2021 2020
US$'000 US$'000
Lossbefore tax (4,837) (1,745)
(919) (332)
Tax on the above at the standard rate of corporate income tax in the UK 19%
(2020 19%)
Effects of:
Non-deductible expenses (1,310) -
Withholding tax on interest expense 709 1,748
Utilization of tax losses not previously recognized (1,730) (1,070)
Unrecognised tax losses carried forward 3,959 1,402
709 1,748
11 Loss per share
Basic loss per share is calculated by dividing the income/(loss) attributable
to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year including shares to be issued.
There is no difference between the basic and diluted loss per share as the
Group made a loss for the current and prior year. Dilutive potential ordinary
shares include share options granted to employees and directors where the
exercise price (adjusted according to IAS33) is less than the average market
price of the Company's ordinary shares during the period.
The calculation of loss per share is based on:
2021 2020
The basic weighted average number of ordinary shares in 2,097,978,787 1,871,288,151
issue during the year
The loss for the year attributable to owners of the parent from continuing (5,554) (3,413)
operations (US$'000)
The loss for the year attributable to owners of the parent from discontinued - -
operations (US$'000)
There were 2,500,000 potentially dilutive instruments in the year (2020:
2,500,000).
Notes to the Financial Statements (continued)
12 Unproven oil and gas assets
COST Group
US$'000
Cost at 1 January 2020 69,694
Additions 1,520
Sales from test production net of cost of sales (149)
Foreign exchange difference (173)
Cost at 31 December 2020 70,892
Additions 719
Foreign exchange difference (3,579)
Cost at 31 December 2021 68,032
ACCUMULATED IMPAIRMENT Group
US$'000
Accumulated impairment at 1 January 2020 9,654
Foreign exchange difference (175)
Accumulated impairment at 31 December 2020 9,479
Impairment related to 3A-Best (100%) 12,464
Foreign exchange difference (48)
Accumulated impairment at 31 December 2021 21,895
Net book value at 1 January 2020 60,040
Net book value at 31 December 2020 61,413
Net book value at 31 December 2021 46,137
Unproven oil and gas assets represent license acquisition costs and subsequent
exploration expenditure in respect of the licenses held by Kazakh group
entities. The carrying values of those assets at 31 December 2021 were 100%
represented by BNG Ltd LLP (2020: US$49,892,000). 100% cost of the unproven
oil and gas assets related to 3A Best-Group JSC of US$ 12,464,000 was impaired
at the Group level after received a notification from the Ministry of Energy
of Kazakhstan that due to the fact the Subsoil Use contract has not been
prolonged in July 2020 the named contract deemed expired starting that date
(note 21).
The Directors have carried out an impairment review of these assets on a cost
pool level as detailed in note 2.1.
A previous impairment provision amount of US$12,068.000 (US$ 9,654,000 net of
deferred tax) was partly reversed in 2019. The reversal of US$ 2,414.000 has
been made by the means of reclassification to proved oil and gas assets in
2019. At 31.12.2021 the balance of accumulated impairment was US$ 21,895,000.
Notes to the Financial Statements (continued)
13 Property, plant and equipment
Following the commencement of commercial production in July 2019 the Group
reclassified part of BNG assets from unproven oil and gas assets to proven oil
and gas assets.
Proved Motor Other Total
Group
oil and gas assets Vehicles
US$'000 US$'000 US$'000 US$'000
Cost at 1 January 2020 43,318 56 8,334 51,708
Additions 1,366 - 19 1,385
Acquisitions (Caspian Explorer) (note 22) - - 2,837 2,837
Foreign exchange difference (962) - (13) (975)
Cost at 31 December 2020 43,722 56 11,177 54,955
Additions 1,757 2,198 4,938 8,893
Disposals - - (11) (11)
Acquisitions - - 53 53
Foreign exchange difference (550) (128) (212) (890)
Cost at 31 December 2021 44,929 2,126 15,945 63,000
Depreciation at 1 January 2020 130 39 213 382
Charge for the year 1,230 8 450 1,688
Foreign exchange difference 30 - 10 40
Depreciation at 31 December 2020 1,390 47 673 2,110
Charge for the year 1,339 482 1,736 3,557
Disposals - - (7) (7)
Foreign exchange difference 42 40 124 206
Depreciation at 31 December 2021 2,771 569 2,526 5,866
Net book value at:
01 January 2020 43,188 17 8,121 51,326
31 December 2020 42,332 9 10,504 52,845
31 December 2021 42,158 1,557 13,419 57,134
Notes to the Financial Statements (continued)
14 Investments (Company)
Investments Company
US$'000
Cost
At 1 January 2020 288,034
Increase in investments 3,666
Reclassification related to intercompany restructuring (66,259)
At 31 December 2020 225,441
Increase in investments -
At 31 December 2021 225,441
Impairment
At 1 January 2020 64,253
Impairment 145,701
At 31 December 2020 209,954
Impairment -
At 31 December 2021 209,954
Net book value at:
31 December 2020 15,487
31 December 2021 15,487
During 2020 the Company acquired 100% interest at Caspian Explorer for
US$3,666,000 by means of issuing the Company's shares. The carrying value of
the investments has been assessed by the Directors including the fair value
associated with the asset (please see note 22 for the transaction details).
During 2020 the Group simplified its intragroup loans as follows: (i) the
Company acquired Eragon Petroleum Limited's long term receivable of $18.9m
due from BNG Ltd LLP in exchange for a loan payable to Eragon Petroleum
Limited; (ii) the Company's long term receivables from BNG Ltd LLP were
transferred to Eragon FZE in exchange for a receivable from Eragon FZE; (iii)
Eragon UK declared a dividend of $49.3m to Caspian Sunrise plc which it
settled by offset against receivables due from Caspian Sunrise (see note 19).
The receivable from Eragon FZE is repayable on demand but is classified as
long term because this reflects the expected timing of actual funds flow. As
part of the restructuring US$ 66m at the Company's standalone accounts were
reclassified from the investments to the receivables from subsidiaries (note
16).
The directors review the investments for the recoverability on a regular
basis, together with the associated cash flows of each company, and assess
their impairment. Based on this assessment the Company considers that the
carrying value of the investments may not be fully recoverable as the
subsidiaries may not generate sufficient future profits and accordingly, these
amounts have been impaired. The Company recorded no impairment in relation to
the investments in 2021 (impairment charge for 2020: $145.7m).
Notes to the Financial Statements (continued)
14 Investments (Company, continued)
Direct investments
Name of undertaking Country of incorporation Effective Effective holding and Registered address Nature
holding and proportion of business
proportion of voting
of voting rights held
rights held at 31 December 2020
at 31 December 2021
Eragon Petroleum Limited United Kingdom 100% 100% 5 New Street Square Holding Company
London
EC4A 3TW
Eragon Petroleum FZE Dubai 100% 100% Management Company
CN-135789, Jebel Ali, Dubai, UAE
Prosperity Petroleum LTD Dubai 100% 100% Management Company
CN-135789, Jebel Ali, Dubai, UAE
Beibars BV Netherlands 100% 100% Utrechtseweg 79 Holding Company
1213 TM Hilversum
The Netherlands
Ravninnoe BV Netherlands 100% 100% Utrechtseweg 79 Holding Company
1213 TM Hilversum
The Netherlands
Roxi Petroleum Kazakhstan LLP Kazakhstan 100% 100% Management Company
152/140 Karasay Batyr Str., Almaty, Kazakhstan
Indirect investments held by Eragon Petroleum Limited
Name of undertaking Country of incorporation Effective Effective holding and Registered address Nature
holding and proportion of business
proportion of voting
of voting rights held
rights held at 31 December 2020
at 31 December 2021
Galaz Energy BV Netherlands 100% 100% Utrechtseweg 79 Holding Company
1213 TM Hilversum
The Netherlands
BNG Energy BV Netherlands 100% 100% Holding Company
Utrechtseweg 79
1213 TM Hilversum
The Netherlands
14 Investments (Company, continued)
Indirect investments held by Eragon Petroleum FZE
Name of undertaking Country of incorporation Effective Effective holding and Registered address Nature
holding and proportion of business
proportion of voting
of voting rights held
rights held at 31 December 2020
at 31 December 2021
Kazakhstan 99% 99% Oil Production Company
152/140 Karasay Batyr Str., Almaty, Kazakhstan
BNG Ltd LLP
Kazakhstan 100% 100% Exploration
3A-Best Group JSC 152/140 Karasay Batyr Str., Almaty, Kazakhstan Company
Kazakhstan 100% 100% Drilling & Service Company
CTS LLP 152/140 Karasay Batyr Str., Almaty, Kazakhstan
Kazakhstan 100% - Drilling & Service Company
Sur Nedr LLP* 152/140 Karasay Batyr Str., Almaty, Kazakhstan
Kazakhstan 100% - Drilling & Service Company
SK-NS Aktau LLP* 152/140 Karasay Batyr Str., Almaty, Kazakhstan
*During 2021 CTS LLP has acquired 100% interest in Sur Nedr and SK-NS Aktau
LLP, the 2 companies with drilling licenses and minor assets on their
balances. The consideration paid for 100% interest at the companies was
insignificant cash payment (nominal value of the share capital).
Indirect investments held by Prosperity Petroleum LTD
Name of undertaking Country of incorporation Effective Effective holding and Registered address Nature
holding and proportion of business
proportion of voting
of voting rights held
rights held at 31 December 2020
at 31 December 2021
KC Caspian LLP** Kazakhstan 100% 100% Drilling Vessel owner
152/140 Karasay Batyr Str., Almaty, Kazakhstan
**During 2020 the Company has acquired 100% interest in Prosperity Petroleum
Ltd and KC Caspian LLP, the companies owing submersible drilling vessel (pls
see note 21 for details).
In both cases above the management of the Group considered the acquisitions as
the asset acquisitions.
Indirect investments held by Beibars BV
Name of undertaking Country of incorporation Effective Effective holding and Registered address Nature
holding and proportion of business
proportion of voting
of voting rights held
rights held at 31 December
at 31 December 2018 2017
Beibars Munai LLP Kazakhstan 50% 50% 152/140 Karasay Batyr Str., Almaty, Kazakhstan Exploration Company
Beibars Munai LLP is a subsidiary as the Group is considered to have control
over the financial and operating policies of this entity. Its results have
been consolidated within the Group.
Notes to the Financial Statements (continued)
15 Inventories
Group Group
2021 2020
US$'000 US$'000
Materials and supplies 664 392
664 392
16 Other receivables
Group Group Company Company
2021 2020 2021 2020
US$ '000 US$ '000 US$ '000 US$'000
Amounts falling due after one year:
Prepayments made 448 435 - -
VAT receivable 3,815 3,811 51 53
Intercompany receivables (note 14) - - 88,508 89,212
4,263 4,246 88,559 89,265
Amounts falling due within one year:
Prepayments made 1,294 2,187 10 9
Other receivables* 3,665 4,008 - -
4,950 6,195 10 9
The VAT receivables relate to purchases made by operating companies in
Kazakhstan and will be recovered through VAT payable resulting from sales to
the local market.
*US$1,275,000 out of US$3,665,000 (2020: US$4,008,000) at Other receivables of
the Group accounts represent the amounts reimbursable by the vendors of 3A
Best under the indemnities provided on acquisition of the exploration asset.
At 31 December 2021 the amount is shown net of provision for expected credit
losses: during 2020 the amount has been impaired on US$2,551,000 or 2/3 of the
originally recognised due to the uncertainty of the 100% recoverability the
receivable in future periods.
The current intercompany receivables are interest free.
Inter-company receivables has been assessed for expected credit losses
considering factors such as the status of underlying licenses, reserves,
financial models and future risks and uncertainties. The provision
substantially refers to balances considered credit impaired. Inter-company
receivables from the subsidiaries in the table above are shown net of
provisions of US$20.7 million (2020: US$19.9 million). The movement in the
expected credit loss provision related to the inter-company receivables was as
follows:
Group Group Company Company
2021 2020 2021 2020
Denomination US$'000 US$'000 US$'000 US$'000
As at 1 January - - 19,912 12,913
Charge - - 797 6,999
As at 31 December - - 20,709 19,912
The Company recognised US$ 797,000 of expected loss on provisions in relation
to its receivables from subsidiaries in 2021 (2020: loss of US$ 6,999,000).
Notes to the Financial Statements (continued)
17 Cash and cash equivalents
Group Group Company Company
2021 2020 2021 2020
US$'000 US$'000 US$'000 US$'000
Cash at bank and in hand 429 329 4 3
Funds are held in US Dollars, Sterling and Kazakh Tenge currency accounts to
enable the Group to trade and settle its debts in the currency in which they
occur and in order to mitigate the Group's exposure to short-term foreign
exchange fluctuations. All cash is held in floating rate accounts.
Group Group Company Company
2021 2020 2021 2020
Denomination US$'000 US$'000 US$'000 US$'000
US Dollar 45 292 4 1
Sterling - 2 - 2
Kazakh Tenge 384 35 - -
429 329 4 3
18 Called up share capital
Group and Company
Number Number
of ordinary of deferred
shares US$'000 shares US$'000
Balance at 1 January 2020 1,882,660,885 28,120 373,317,105 64,702
Shares issued to the directors to repay salary debts 8,938,570 112 - -
Shares issued in exchange of £1m cash 36,363,629 477 - -
Acquisition of 100% interest at KC Caspian Explorer (note 21) 160,256,410 2,095 - -
Balance at 31 December 2020 2,088,219,494 30,804 373,317,105 64,702
Shares issued to repay intermediary services 3,017,956 42 - -
Shares issued to repay new rig acquisition 18,972,164 264 - -
Bonus paid to employees 562,500 8 - -
Balance at 31 December 2,110,772,114 31,118 373,317,105 64,702
2021
Caspian Sunrise Plc has authorised share capital of £100,000,000 divided into
6,640,146,055 ordinary shares of 1p each and 373,317,105 deferred shares of 9p
each.
On 6 July 2020 the Company has issued total 8,938,570 ordinary shares at 3.2
pence per share in settlement of outstanding salary and expenses. On 4 August
2020 the Company raised £1 million through placing of 36,363,629 new
ordinary shares to new and existing investors at an issue price of 2.75
pence per share. The cash has entirely been spent on repayments to the
Company creditors.
During 2021 the Company made the following issues of its ordinary shares to
cover the incurred during 2021 debts. 1) 3,017,956 ordinary shares as the
payment of the intermediary services for the deal to buy 100% interest at
Prosperity Petroleum Ltd and KC Caspian LLP. 2) 18,972,164 new ordinary shares
as the consideration paid to the third party owner of the workover rig. The
total consideration was US$750,000. 3) 562,500 new ordinary shares issued to
the staff member (below board level) as the reward for successful drilling
works.
19 Trade and other payables - current
Group Group Company Company
2021 2020 2021 2020
US$'000 US$'000 US$'000 US$'000
Trade payables 2,684 2,892 64 191
Taxation and social security 2,977 1,629 20 22
Accruals 152 136 106 109
Other payables 3,502 3,369 485 382
Intercompany payables - - 58 116
Advances received (deferred revenue) 3,925 2,986 - -
13,240 11,012 733 820
As at 31 December 2021 and 31 December 2020, the Group received a significant
amount of prepayments from the oil traders in relation to increasing
production on the BNG oil field.
Notes to the Financial Statements (continued)
During 2020 the Group simplified its intragroup loans as follows: (i) the
Company acquired Eragon Petroleum Limited's long term receivable of $18.9m
due from BNG Ltd LLP in exchange for a loan payable to Eragon Petroleum
Limited; (ii) the Company's long term receivables from BNG Ltd LLP were
transferred to Eragon FZE in exchange for a receivable from Eragon FZE; (iii)
Eragon UK declared a dividend of $49.3m to Caspian Sunrise plc which it
settled by offset against receivables due from Caspian Sunrise (see note
14).
19 Trade and other payables - non-current
Group Group Company Company
2021 2020 2021 2020
US$'000 US$'000 US$'000 US$'000
Intercompany payables - - - -
Taxation 14,003 13,648 - -
14,003 13,648 - -
Taxation payable relate to withholding tax accrued on the interest expense at
the BNG subsidiary level.
20 Short-term borrowings
Group Group Company Company
2021 2020 2021 2020
US$'000 US$'000 US$'000 US$'000
Akku Investments LLP 4,433 - 2,224 -
Mr. Oraziman 1,424 3,624 - 777
Other borrowings 568 1,976 158 1,292
6,425 5,600 2,382 2,069
At the start of 2021 the entities of the Group had the following loans
payable: US$ 1,125,000 loan payable by Eragon Petroleum FZE to Mr. K.
Oraziman, (7% interest bearing); US$ 777,000 loan payable by Caspian Sunrise
plc to Mr. K. Oraziman, (7% interest bearing); interest free loans provided by
Mr. K. Oraziman to Kazakh subsidiaries on total US$ 1,733,000. Other
borrowings provided by the entities controlled by Oraziman family: US$ 672,000
loan provided by Fosco BV to BNG LLP, US$ 1,293,000 provided by Vertom
International NV and Kernhem International BV to Caspian Sunrise plc.
During 2021 major part of the loans payable by the Group to Mr. Kuat Oraziman
and the related companies were assigned to Akku Investment LLP, the company
controlled by the Oraziman family. Akku Investments provided no new loans
during the period. Mr. K.Oraziman provided additional US$ 229,000 of loans to
BNG and CTS LLPs during 2021 (nominated in KZT, interest free). Another US$
568,000 of new loans provided by the entities controlled by the Oraziman
family other than Akku Investments (loans by Vertom International NV
(US$488,000, 7%) and Herie NV (US$ 80,000, 7%) to the Group entities in 2021.
Notes to the Financial Statements (continued)
21 Provisions and contingencies
Group only BNG licence payments* Liabilities under Social Development Program and historical cost Abandonment fund 2020
Total
US$'000 US$'000 US$'000 US$'000
Balance at 1 January 2020 27,394 6,154 578 34,126
Increase in provision - - 91 91
Change in estimate - - (81) (81)
Paid in the year (3,014) - - (3,014)
Unwinding of discount 685 - 14 699
Foreign exchange difference - (181) (45) (226)
Balance at 31 December 2020 25,065 5,973 557 31,595
Non-current provisions 21,887 - 413 22,300
Current provisions 3,178 5,973 144 9,295
Balance at 31 December 2020 25,065 5,973 557 31,595
Group only BNG licence payments* Liabilities under Social Development Program and historical cost Abandonment fund 2021
Total
US$'000 US$'000 US$'000 US$'000
Balance at 1 January 2021 25,065 5,973 557 31,595
Increase in provision - - 103 103
Change in estimate - - (34) (34)
Paid in the year (3,140) (618) - (3,758)
Unwinding of discount 616 - 6 622
Foreign exchange difference (73) (14) (4) (91)
Balance at 31 December 2021 22,468 5,341 628 28,437
Non-current provisions 19,290 - 487 19,777
Current provisions 3,178 5,341 141 8,660
Balance at 31 December 2021 22,468 5,341 628 28,437
*The subsoil use contract held by BNG Ltd for the Yelemes field stipulates
that it must make a payment to the Kazakhstan Government upon award of a
production contract after commercial feasibility. The Kazakhstan Government
has assessed the amount payable as a total of US$32.5m. The sum is paid on a
quarterly basis from 1 July 2019 in equal instalments and the final payment is
due to be paid on 1 April 2029. The payments have been discounted to their net
present value. This discounted value has been capitalised as Property, plant
and equipment (note 13) and will be amortised over the productive period. Any
changes in estimated payments and discount rate are dealt with prospectively
and result in a corresponding adjustment to property plant and equipment.
Amounts in relation to Subsoil Use Contracts are included in the table above
and relate to the licence areas disclosed below:
a) BNG Ltd LLP
BNG Ltd LLP a subsidiary, signed a contract #2392 dated 7 June 2007 with the
Ministry of Energy and Mineral Resources of RK for exploration at Airshagyl
deposit, located in Mangistau region. According to the latest Amendments BNG
is required to pay around US$ 231,650 annually for social programs of
Mangistau Region for the period from 7 June 2018 to 7 June 2024. Also, it is
required to pay 1% of investments under the Contract on production during the
period based on the results of the previous year. For the exploration period
extended to June 2024, the amount of the commitments under the work program
according to the Contract on exploration is US$ 28 million dollars. BNG is
also required to invest in training of Kazakh personnel not less than 1% of
annual amount of investments. Another requirement of the company is to
accumulate funds for the Site Restoration by transferring annually 1% of
annual exploration costs to a special deposit in accordance with the Contract
on exploration. As at 31 December 2021 BNG was in compliance with all the
requirements listed above.
On 11 July 2019, BNG Ltd LLP has signed the Production contract with the
Ministry of Energy of Republic of Kazakhstan on the part of the territory. The
Contract is valid during 25 years till 2043.
Notes to the Financial Statements (continued)
21 Provisions and contingencies (continued)
b) 3A-Best Group JSC
As at 31 December 2020 3A-Best had the following debts related to its SSU
contract: US$2,500,000 of social development payment and about $US 1,000,000
of the debts related to previous years' work program obligations. According to
the Addendum #8 to the Contract signed by the company on January 20 2020
3A-Best has agreed the following schedule of payments related to the social
development and the work program related to previous SSUC extension(s):
· To make payment of US$580,000 quarterly during 6 quarters till June
2021;
· To drill 2 shallow wells with the total depth of 5,750 meters
during the period January-June 2020;
· To make investments of approximately US$2,350,000 during the period
January-June 2020.
The above mentioned debt was still payable at 31 December 2021. The company
did not meet all the above in full but made some payments and tried to find a
solution of the situation. During 2021 the Group received a notification
from the Ministry of Energy of Kazakhstan that due to the fact the Subsoil Use
contract has not been prolonged in July 2020 the named contract deemed expired
starting that date.
The Board is working with the Kazakh authorities to renew the licence at 3A
Best, following which the Board will assess 3A Best's position in the Group.
While the Board remains confident that the licence will be renewed on
favourable terms, the Group cannot currently make any progress with the asset.
Accordingly, the Board has decided to impair the asset in full, resulting in a
$12.5 million impairment charge in 2021.
Notes to the Financial Statements (continued)
22 Purchase of Caspian Explorer
On 19 October 2020 the Company announced the completion of the transaction to
acquire Caspian Explorer, the entities (Prosperity Petroleum Limited and KC
Caspian Explorer LLP) owing a drilling vessel that designed to operate in the
shallow waters of the northern Caspian Sea. The consideration has been
satisfied by the issue of 160,256,410 new Caspian Sunrise shares at a
price of 1.75p per share (the "Consideration Shares"). The acquisition was
approved by independent shareholders in February 2020. Management has
analysed the structure of the transaction and the underlying activities and
concluded that the transaction represents an asset purchase.
The fair value of the identifiable assets and liabilities of Caspian
Explorer as at the date of acquisition were:
US$'000
Property, Plant and Equipment 2,837
Other non-current assets 96
Other current assets* 833
Total assets 3,766
Trade and other payables 100
Total liabilities 100
Total identifiable net assets at fair value 3,666
Total value of shares issued as consideration 3,666
* US $ 530,000 of this amount was receivable from EPC-Munai LLP at the date of
acquisition, the related party to the Company. At 31 December 2021 the amount
reduced to US$516,000 subject to updated KZT/USD exchange rate (note 26.1).
23 Deferred tax
Deferred tax liabilities comprise:
Group Group
2021 2020
US$'000 US$'000
Deferred tax on exploration and evaluation assets acquired 6,463 6,629
6,463 6,629
The Group recognises deferred taxation on fair value uplifts to its oil and
gas projects arising on acquisition. These liabilities reverse as the fair
value uplifts are depleted or impaired.
The movement on deferred tax liabilities was as follows:
Group Group
2021 2020
US$'000 US$'000
At beginning of the year 6,629 7,244
Foreign exchange (166) (615)
6,463 6,629
As at 31 December 2021 the Group has accumulated deductible tax expenditure
related to BNG expenditure of approximately US$65 million (31 December 2020
US$85 million) available to carry forward and offset against future profits.
This represents an unrecognised deferred tax asset of approximately US$13
million (31 December 2020: US$17 million). Given the uncertainties regarding
such deductions and the developing nature of the relevant tax system no
deferred tax asset is recorded. Beibars have tax losses carried forward of
US$5.1 million (31 December 2020: US$5.1 million). This asset is fully
impaired and there is insufficient certainty of future profitability to
utilise these deductions.
Notes to the Financial Statements (continued)
24 Share option scheme and LTIP scheme
During the year the Group and the Company had in issue equity-settled
share-based instruments to its Directors and certain employees. Equity-settled
share-based instruments have been measured at fair value at the date of grant
and are expensed on a straight-line basis over the vesting period, based on an
estimate of the shares that will eventually vest. Options generally vest in
three equal tranches over the three years following the grant.
Number of options granted Number of options expired Options exercised Total options outstanding Weighted average exercise price in pence (p) per share
As at 31 December 2020 91,458,226 (59,768,226) (15,300,000) 16,390,000 15
Directors - (4,590,000) - (4,590,000) -
Employees and others - (450,000) - (450,000) -
As at 31 December 2021 91,458,226 (64,808,226) (15,300,000) 11,350,000 11
The options were issued to Directors and employees as follows:
11,350,000 outstanding options as at 31 December 2021 are exercisable.
The range of exercise prices of share options outstanding at the yearend is 4p
- 20p (2020: 4p - 20p). The weighted average remaining contractual life of
share options outstanding at the end of the year is 2.0 years (2020: 2.9
years).
Long Term Incentive Plan (LTIP) scheme:
On 5 June 2019 the Company made awards under a long term incentive plan. Clive
Carver, Non-executive Chairman, and Kuat Oraziman, Chief Executive Officer,
are entitled to receive cash payments to be triggered by the Company's
attainment of both pre-set market capitalisation and share price targets as
follows:
Market cap threshold Share price target Pay-out rate (each) Pay-out amount (each)
$ billion Pence per share % $' million
0.8 17.23 0.6 3.0
1.3 20.67 0.6 3.0
1.8 24.81 0.6 3.0
2.3 29.77 0.6 3.0
2.8 35.72 0.6 3.0
The scheme continues beyond the numbers in the table such that with the
threshold for market capitalisation increasing at the rate of $0.5 billion and
the corresponding share price threshold increasing from the earlier threshold
by a constant factor of 1.2. Each threshold must be sustained for at least
30 consecutive days for the awards to be triggered. Payments shall be made
only when the Company has free cash either in the form of distributable
reserves or as a result of a non interest bearing subordinated shareholder
loan or an equity placing at a price not below the relevant share price
threshold.
There may be only one pay-out for each market capitalisation threshold crossed
no matter how many times it is crossed.
The Group has determined that at inception and 31 December 2020 and 2021, the
fair value of the cash settled share based payment award is immaterial based
on analysis of the thresholds, historical volatility rates and the applicable
share price and market capitalisation in the period.
Notes to the Financial Statements (continued)
25 Financial instrument risk exposure and management
In common with all other businesses, the Group and Company are exposed to
risks that arise from its use of financial instruments. This note describes
the Group and Company's objectives, policies and processes for managing those
risks and the methods used to measure them. Further quantitative information
in respect of these risks is presented throughout these financial statements.
The significant accounting policies regarding financial instruments are
disclosed in note 1.
There have been no substantive changes in the Group or Company's exposure to
financial instrument risks, its objectives, policies and processes for
managing those risks or the methods used to measure them from previous years
unless otherwise stated in this note.
Principal financial instruments
The principle financial instruments used by the Group and Company, from which
financial instrument risk arises, are as follows:
Group Group Company Company
Financial assets 2021 2020 2021 2020
US$'000 US$'000 US$'000 US$'000
Intercompany receivables - - 88,508 89,212
Other receivables 3,656 4,008 - -
Restricted use cash (re decommissioning) 634 241 - -
Cash and cash equivalents 429 329 4 3
4,719 4,578 88,512 89,215
Financial liabilities Group Group Company Company
2021 2020 2021 2020
US$'000 US$'000 US$'000 US$'000
Trade and other payables 6,338 6,397 655 682
Other payables - current - - - 117
Other payables - non-current - - - -
Borrowings - current 6,425 5,600 2,382 2,069
12,763 11,997 3,037 2,868
Notes to the Financial Statements (continued)
25 Financial instrument risk exposure and management (continued)
Changes in liabilities arising from financial activities
Below is the movement of financial liabilities of the Group for the years
ended 31 December 2021 and 2020:
1 January Loans received Interest accrued Repayment Foreign exchange difference, net 31 December 2021
2021
Disposal of loans
Financial liabilities
Borrowings 5,600 600 237 - (12) - 6,425
1 January Loans received Interest accrued Repayment Foreign exchange difference, net 31 December 2020
2020
Disposal of loans
Financial liabilities
Borrowings 4,050 1,237 313 - - - 5,600
Below is the movement of financial liabilities of the Company for the years
ended 31 December 2021 and 2020:
1 January Loans received Interest accrued Repayment Foreign exchange difference, net 31 December 2021
2021
Disposal of loans
Financial liabilities
Borrowings 2,069 158 155 - - - 2,382
1 January Loans received Interest accrued Repayment Foreign exchange difference, net 31 December 2020
2020
Conversion to equity
Financial liabilities
Borrowings 1,814 134 121 - - - 2,069
Notes to the Financial Statements (continued)
25 Financial instrument risk exposure and management (continued)
Principal financial instruments
The principal financial instruments used by the Group and Company, from which
financial instrument risk arises, are as follows:
· other receivables
· cash at bank
· trade and other payables
· borrowings
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group and
Company's risk management objectives and policies and, whilst retaining
ultimate responsibility for them, it has delegated the authority for designing
and operating processes that ensure the effective implementation of the
objectives and policies to the Group and Company's finance function. The Board
receives regular reports from the finance function through which it reviews
the effectiveness of the processes put in place and the appropriateness of the
objectives and policies it sets.
The overall objective of the Board is to set policies that seek to reduce risk
as far as possible without unduly affecting the Group and Company's
competitiveness and flexibility. Further details regarding these policies are
set out below:
Credit risk
The maximum exposure to credit risk is represented by the carrying amount of
each financial asset in the balance sheet which at the year end amounted to
US$ 4.7 million (2020: US$ 4.6 million).
Credit risk with respect to Group receivables and advances is mitigated by
active and continuous monitoring the credit quality of its counterparties
through internal reviews and assessment.
The Company is exposed to credit risk on its receivables from its
subsidiaries. The subsidiaries are exploration and development companies with
no current commercial exploitation sales and therefore, whilst the receivables
are due on demand, they are not expected to be paid until there is a
successful outcome on a development project resulting in commercial
exploitation sales being generated by a subsidiary. In application of IFRS 9
the Company has calculated the expected credit loss from these receivables
(Note 16).
The carrying amount of financial assets recorded in the Group and Company
financial statements, which is net of any impairment losses, represents the
Group's and Company's maximum exposure to credit risk.
Credit risk with cash and cash equivalents is reduced by placing funds with
banks with high credit ratings.
Notes to the Financial Statements (continued)
25 Financial instrument risk exposure and management (continued)
Capital
The Company and Group define capital as share capital, share premium, deferred
shares, other reserves, retained deficit and borrowings. In managing its
capital, the Group's primary objective is to provide a return for its equity
shareholders through capital growth. Going forward the Group will seek to
maintain a gearing ratio that balances risks and returns at an acceptable
level and also to maintain a sufficient funding base to enable the Group to
meet its working capital and strategic investment needs. In making decisions
to adjust its capital structure to achieve these aims, either through new
share issues or the issue of debt, the Group considers not only its short-term
position but also its long-term operational and strategic objectives.
The Group's gearing ratio as at 31 December 2021 was 14% (2020 10%).
There has been no other significant changes to the Group's Management
objectives, policies and processes in the year.
Liquidity risk
Liquidity risk arises from the Group and Company's Management of working
capital and the amount of funding committed to its exploration programme. It
is the risk that the Group or Company will encounter difficulty in meeting its
financial obligations as they fall due.
The Group and Company's policy is to ensure that it will always have
sufficient cash to allow it to meet its liabilities when they become due. To
achieve this aim, it seeks to raise funding through equity finance, debt
finance and farm-outs sufficient to meet the next phase of exploration and
where relevant development expenditure.
The Board receives cash flow projections on a periodic basis as well as
information regarding cash balances. The Board will not commit to material
expenditure in respect of its ongoing exploration programmes prior to being
satisfied that sufficient funding is available to the Group to finance the
planned programmes.
For maturity dates of financial liabilities as at 31 December 2021 and 2020
see table below. The amounts are contractual payments and may not tie to the
carrying value:
On Demand Less than 3 months 3-12 months 1- 5 years Over 5 years Total
Group 2021 US$'000 6,425 2,684 3,654 - - 12,763
Group 2020 US$'000 5,600 2,891 3,506 - - 11,997
Company 2021 US$'000 2,382 655 58 - - 3,095
Company 2020 US$'000 2,069 681 117 - - 2,867
Interest rate risk
The majority of the Group's borrowings are at fixed rate. As a result the
Group is not exposed to the significant interest rate risk.
Currency risk
The Group and Company's policy is, where possible, to allow group entities to
settle liabilities denominated in their functional currency (primarily US$ and
Kazakh Tenge) in that currency. Where the Group or Company entities have
liabilities denominated in a currency other than their functional currency
(and have insufficient reserves of that currency to settle them) cash already
denominated in that currency will, where possible, be transferred from
elsewhere within the Group.
In order to monitor the continuing effectiveness of this policy, the Board
receives a periodic forecast, analysed by the major currencies held by the
Group and Company.
The Group and Company are primarily exposed to currency risk on purchases made
from suppliers in Kazakhstan, as it is not possible for the Group or Company
to transact in Kazakh Tenge outside of Kazakhstan. The finance team carefully
monitors movements in the US$/Kazakh Tenge rate and chooses the most
beneficial times for transferring monies to its subsidiaries, whilst ensuring
that they have sufficient funds to continue its operations. The currency risk
relating to Tenge is significant.
In the event that Kazakhstani Tenge devalues against the US$ by 30% the Group
would incur foreign exchange losses in the amount of US$43 million (2020:
US$40 million) that would be reflected in other comprehensive income. The
impact of such a devaluation on the translation of monetary assets and
liabilities (predominantly intercompany loans) held in Kazakhstan and
denominated in non-Tenge currencies would be exchange losses recorded in the
statement of changes in equity of US$43 million (2020: US$40 million).
Notes to the Financial Statements (continued)
26 Related party transactions (please see also note 26)
The Company has no ultimate controlling party.
26.1 Loan agreements
The Company had loans outstanding as at 31 December 2021 and 2020 with members
of the Oraziman family and legal entities controlled by the Oraziman family,
details of which have been summarised in note 19.
At 31 December 2021 KC Caspian Explorer LLP, the group 100% subsidiary, had at
its list of receivables the interest free loan provided to EPC-Munai LLP on
the amount of US $516,000. EPC-Munai is the company controlled by Oraziman
family.
26.2 Key management remuneration
Key management comprises the Directors and details of their remuneration are
set out in note 7.
26.3 3A Best
At 31 December 2020, three Caspian Sunrise shareholders owed US$ 1,275,000
each in respect of indemnities provided on the acquisition of 3A Best. During
2020 the Group recognised a credit loss provision of US $2,551,000 related to
the asset (note 16). The liability of one of the shareholders, the late Rafik
Oraziman, is covered by amounts due by the Company to the Oraziman family.
Accordingly, in the financial statements as at 31 December 2021 and 2020 the
provision was made for two thirds of the amounts due.
The Company continues to work with the other two shareholders to recover the
amounts due but in 2020 and 2021 financial statements has provided in full for
the amounts due.
26.4 Caspian Explorer
The purchase of the Caspian Explorer (note 22) was from vendors including
members of the Oraziman family.
26.5 Sales of services
During 2021 CTS LLP, the subsidiary of the Company, accepted cash advances for
drilling and repair services from EPC Munai LLP, the company controlled by the
Oraziman family. The total amount of the outstanding advances at 31 December
2021 was US$ 908,000. No related services accepted as finalised by EPC Munai
at 31 December 2021.
27 Non-controlling interest
Group Group
2021 2020
US$'000 US$'000
Balance at the beginning of the year (5,809) (5,729)
Share of loss for the year 8 (80)
(5,801) (5,809)
As at 31 December 2021 non-controlling interest represents minority share in
BNG Ltd LLP and Beibars Munai LLP (as at 31 December 2020: BNG Ltd LLP and
Beibars Munai LLP).
Notes to the Financial Statements (continued)
28 Events after the reporting period
Issue of shares
Debt Conversion
On 9 March 2022 Independent Shareholders approved the resolution required to
implement a conversion of approximately $6.2 million debt for new Ordinary
shares in the Company. Accordingly, 139,729,446 Debt Conversion shares were
issued at a price of 3.2p per share.
Capital Reduction
On 22 April 2022 shareholders approved resolutions cancelling the Share
Premium account and the Deferred Shares as part of wider
arrangements to enable the payment of dividends.
Application has been approved by the UK High Court in June 2022.
Civil unrest
In early January 2022, Kazakhstan experienced a period of significant civil
unrest during which the Company's drilling and administrative operations were
suspended. The civil unrest subsided after approximately 10 days and the
Company's drilling and administrative operations resumed. Since that date no
further episodes of civil unrest have occurred.
Russian sanctions
Following Russia's invasion of the Ukraine on 24 February 2022, significant
economic sanctions were imposed by a number of countries on Russia. While
Russian oil was not initially covered by the sanctions the decision by
international oil purchasers to boycott Russian oil led to Urals Oil trading
at a $30-35 per barrel discount to Brent. As oil produced in Kazakhstan and
transported via the Russian pipeline network emerges as Urals Oil this
discount has applied to the oil the Group sells on international markets.
In June 2022, the Kazakh authorities re-designated oil produced in Kazakhstan
as Kazakhstan Export Blend Crude Oil ("KEBCO") in an attempt to differentiate
oil produced in Kazakhstan from oil produced in Russia. Additionally in June
2022, the EU confirmed that oil produced in Kazakhstan and transported vis the
Russian pipeline network is not covered by any sanctions.
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