REG - Caspian Sunrise plc - Annual Report for the Year Ended 31 December 2022
07/07/2023 07:00
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230707:nRSG2642Fa&default-theme=true
RNS Number : 2642F Caspian Sunrise plc 07 July 2023
Caspian Sunrise PLC
("Caspian Sunrise" or the "Company")
Annual Report and Financial Statements for the Year Ended 31 December 2022
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 2022. The Company confirms that the suspension of the
Company's shares will be lifted at 7:30am on 07 July 2023.
Highlights for the year:
Operational:
· Aggregate production for 2022 was 792,284 barrels (2021: 533,857) an
increase of approximately 48%
· Reserves at 31 December 2022 P1 14.3 mmbls & P2 25.5 mmbls (2020:
P1 15.1 mmbls & P2 26.3 mmbls)
Financial:
· Revenue: up 72% at $42.9 million (2021: $25 million)
· Profit after tax for the year $9.9 million (2021: Loss after tax for
the year $5.5 million)
· Cash at bank: $3.7 million (2021: $0.4 million)
· Total assets: $117.1 million (2021: $114.2 million)
· Exploration assets $43.8 million (2021: $46.1 million)
· Plant, property & equipment $60.7 million (2021: $57.1 million)
The Company intends to hold a General Meeting in the near future to approve
the Annual Report. The Report and Accounts will shortly be posted to
shareholders and is 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
James Bavister
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
Despite the on-going impact of the war in Ukraine, which has made export sales
uneconomic and operating far more difficult, the Group continues to prosper.
In the year under review we
· reported record sales at $42.9 million, record gross profit of
$32.3 million and record profit before tax of $12.3 million
· produced 792,284 barrels of oil, an increase of 48% on 2021
· took an option to acquire Block 8, a Contract Area with similar
promise to the BNG Contract Area
· converted $6.2 million debt to equity
· cancelled the share premium and deferred shares enabling the
payment of dividends
· made the first of a series of dividend declarations
To date in 2023
· we announced Deep Well 802 flowed at the rate of 700- 900 bopd
whilst we were still working to complete the well
· we signed the first drilling contract for the Caspian Explorer
· we announced the conditional sale of 50% of the Caspian Explorer
for $22.5 million, an estimated profit of $20 million
· production is currently approximately 2,000 bopd
Ukraine war
The two principal consequences of the Ukraine war have been to make
international sales uneconomic and make operating far more difficult.
Urals oil discount
Despite the UK and the EU specifically exempting oil produced in Kazakhstan
and transported through the Russian pipeline network from sanctions the large
discounts for oil using the Russian pipeline network and emerging as Urals Oil
at the start of the war continue with no signs of lessening.
We have explored various alternatives to transport our oil but have yet to
find a solution that would allow us to sell at or close to international
prices. We are therefore selling all our oil on the domestic market and at
domestic prices.
Selling to the domestic market and to domestic mini refineries does have
advantages, such as speed of payment and the absence of significant deductions
for tax, oil treatment and transportation. Nevertheless, we estimate the loss
of revenue to be running at an annualised rate of approximately $18 million
based on recent production volumes.
For much of the period under review and subsequently our inability to sell on
the international markets also led to missed profits. However, the recent fall
in international oil prices means we are currently achieving broadly the same
net outcome by selling to local mini refineries where the deductions to the
headline price are much lower.
Operations
Before the Ukraine war the majority of international supplies and consumables
were sourced via Russia. Now they typically come from China, a vast country
whose border with Kazakhstan is some 3,000 kilometers from the BNG Contract
Area and where originating destination is usually far further. The extra
distance involved and the complexities of this new supply route with long
delays at the border has typically resulted in much greater lead times for key
supplies and consumables resulting in some significant operational delays. It
has also required a much greater investment in working capital as the supplies
and consumables have to be paid for many months earlier than previously.
Drilling at certain key wells was paused waiting for key parts and supplies
with crews shifting from project to project. The overall impact is that, while
progress has been made across a number of wells, it has not been possible to
complete the work at any to increase production to the levels expected.
Further, had we not decided several years ago to purchase our own rigs these
operational delays would have been much greater still.
BNG
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.
We continue to believe that the geological conditions at the super giant
fields of Kashagan and Tengiz extend to the BNG Contract Area and then through
to Block 8.
If this is the case the potential volume of oil in these deep structures could
be vast and the implications on the Company's fortunes of one or more
commercially successful deep wells could be transformational. We remain
committed to bringing as many as possible of these deep wells into production.
Progress in the period under review and subsequently
Our focus at BNG for much of the year under review was on the deep structures.
This was in part because of the dramatic upside when a deep well flows at
commercial levels but also to comply with our original deep well work
programme obligations.
Since the period end we have focused more on developing the production
capacity at the MJF structure by working to bring back into production
previously successful wells, although more recently have returned to our deep
well priorities, most notably Deep Well 802.
Deep structures
Deep Well A8
Having extended the well from approximately 4,500 meters to approximately
5,400 meters in 2021 we attempted to produce from three of the potential
oil-bearing intervals identified. However, after some initial success, we
concluded that Deep Well A8 would not produce at commercial quantities and
accordingly the well has been abandoned.
Deep Well 802
In June 2022 we spudded Deep Well 802 on the Yelemes Deep structure. This
was the sixth and final deep well required under the original BNG work
programme.
The well had a planned Total Depth of 5,200 meters targeting oil in the easier
to drill Sandstone rather than Carboniferous rock, with an initial target at
4,300 meters. The well was drilled close to the site of a Soviet era blowout
and our advisers provided us with the highest estimate of success for any of
our BNG deep wells drilled to date.
Oil was encountered sooner than expected at a depth of approximately 3,900
meters and before the well had been completed, leading to a decision to drill
a new side-track from a depth of 2,416 meters to approximately 4,100 meters,
targeting the oil at the higher level previously encountered.
With approximately 100 meters still to be drilled the well flowed over a
period of 3 days at rates fluctuating between 700 and 900 bopd.
Work at Deep Well 802 was suspended waiting on additional equipment.
Accordingly, the crew at Deep Well 802 was moved to work on Shallow Well
142. The crew has now returned to Deep Well 802 and we expect to complete
our work at Deep Well 802 in Q3 2023.
Other deep wells
Little was attempted in the period under review or subsequently at the other
deep wells already drilled, A5, A6, A7 and 801. However, as rigs and crews
become available, we intend to continue work to bring each of them into
production starting with Deep Well A5.
Shallow structures
MJF
Almost all the oil produced in the period under review and subsequently came
from the MJF structure. However, for most of the year and to date in the
current financial year key wells were out of production either being worked
over with the use of horizontal drilling techniques or looking to eliminate
water.
South Yelemes
The structure has four operational wells drilled in the Soviet era, Wells 54,
805, 806 & 807 from which approximately 22,500 barrels were produced
representing approximately just 3% of total production. The focus at South
Yelemes has been preparation for a horizontal well targeting the shallow
dolomite intervals.
Further details of the BNG wells are set out in the section entitled Our Oil
& Gas Assets.
Horizontal drilling
Horizontal drilling continues to be used in all recent shallow well workovers
and we are preparing to introduce it to the deep wells at BNG. As crews and
rigs become available we plan to continue to increase production from these
shallow structures with workovers and new drilling.
Shallow structure production
Average production in 2022 was 2,171 bopd compared to 1,462 bopd in 2021.
Recently production from the shallow structures has been approximately 2,000
bopd. However, once Wells 141 and 142 are brought back into production this is
expected to rise significantly.
Own equipment
Our decision to own the drilling rigs and much of the other equipment
previously rented has proved to be correct. It has significantly improved
operational efficiency and reduced operating costs. More importantly, it has
allowed us to continue to operate, which would not have been possible to the
same extent had we relied on rigs and other equipment being supplied from
China. We are in negotiations to acquire a more powerful G70 rig, which is
expected to make drilling deeper wells faster and easier.
Block 8
In September 2022 we announced the intention to acquire Block 8, a producing
Contract Area located approximately 160 km from BNG, for a maximum
consideration of $60 million, payable in cash from the future production from
Block 8 at the rate of $5 per barrel of oil produced.
Background
The Block 8 Contract Area is 2,823 sq km with three identified structures and
production from two existing wells. The Block 8 Contract Area is owned by a
member of the Oraziman family, which holds approximately 48.4% of the shares
in Caspian Sunrise, and as such it would constitute a related party
transaction.
Caspian Sunrise has an option to acquire the UAE registered holding company
of EPC Munai LLP, which is the Kazakh registered holder of the licence for the
Block 8 Contract Area, conditional upon inter alia satisfactory due
diligence, including a review by an independent expert; the renewal of the
existing licence; Independent Director and Nominated Adviser approval; and the
consents of the regulatory authorities in Kazakhstan the UAE and the UK.
The Company and the Oraziman family have entered into a loan agreement under
which the Company has agreed to advance cash and equipment of up to $5 million
to Altynbek Boltazhan the owner of EPC Munai LLP, and a member of the Oraziman
family, to complete the work programme commitments under the existing
licence. In the period under review approximately $1.5 million of the loan
was drawn. The loan is interest bearing at the rate of 7% and, in the event
the acquisition of Block 8 does not complete, would be repayable by the
Oraziman family initially from future dividend payments.
The Block 8 licence was previously owned by LG International the Korean
conglomerate, who in 2006 started to acquire 3D seismic data over
approximately 456 sq km. In recent years two deep wells have been drilled to
depths of 4,203 meters and 3,449 maters respectively, from which oil has
flowed at rates of up to 800 bopd.
Current production from Block 8 is approximately 110 bopd, with oil
transported to the same treatment and pumping station used by BNG. The
acquisition of Block 8 would bring a second flagship asset into the Caspian
Sunrise Group together with BNG with both having the ability to transform the
value of the Group in the event of successful deep drilling. CTS LLP, the
Group's drilling company is currently working under contract on two wells at
Block 8.
Acquisition process
In the event the Independent Directors exercise the option, it is expected
that the acquisition would take up to a further six months to complete, with
much of that time spent on securing the required regulatory approvals.
As the acquisition terms do not involve the issue of additional shares and the
consideration is expected to be payable solely from production from Block 8,
exercise of the option is not expected to result in material dilution for
existing shareholders.
Related Party transaction
The Loan Agreement was considered a Related Party Transaction pursuant to the
AIM Rules for Companies.
The Independent Directors considered, having consulted with WH Ireland, that
the terms of the proposed Loan Agreement were fair and reasonable in so far as
shareholders of Caspian Sunrise and the Company are concerned.
Should the option to acquire Block 8 be exercised by the Independent Directors
a further formal assessment by WH Ireland, the Company's Nominated Adviser,
would be required at that time.
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.
Loan conversion
In March 2022 independent Caspian Sunrise shareholders voted to convert
approximately $6.2 million of debt due to the Oraziman family into
139,729,446 new Ordinary shares at a price of 3.2p per share, increasing the
Oraziman family's aggregate shareholding from 45.0% to 48.4%.
Cancelation of share premium
In April 2022 shareholders voted to cancel the share premium account and the
deferred shares in Caspian Sunrise Plc paving the way for the future
declaration of dividends. In June 2022 the UK High Court confirmed the
cancellations, which took effect in the period under review.
Dividends
We commenced monthly dividends in November 2022 making four separate payments
of $1.25 million (£1 million). In March 2023 we announced we would look to
move to quarterly dividend declarations with the next quarter to be announced
with these Financial Statements.
With no signs of an end to the adverse impact of the Ukraine war we need to
base our dividend policy on what the Group can reasonably afford to pay
without materially detracting from our principal purpose of increasing
shareholder value by the continued development of our oil & gas assets.
Therefore, until either we increase production with MJF shallow wells 141
& 142 resuming production or Deep Well 802 commencing production, or until
the proceeds from the conditional sale of 50% of the Caspian Explorer are
received, the board has reluctantly decided to suspend dividends payments for
the remainder of the year.
Kazakhstan
In recent times Kazakhstan has been out of favour with international
investors. It is nevertheless home to vast oil & gas and mineral reserves.
The lack of international competition for assets has provided opportunities
outside our narrow focus of exploring and producing onshore oil & gas. A
prime example being the Caspian Explorer, which 100% was acquired for less
than $3.7 million and for which we have agreed to sell 50% for $22.5 million,
representing a $20 million gross profit while we still own the remaining 50%.
Board changes
After 13 years as the senior independent non-executive director Edmund
Limerick will on 07 July 2023 step down from the board.
Edmund's knowledge and advice has been invaluable in the development of the
Group and he will be missed. The Company will in due course appoint
additional non-executive directors, following which the composition of the
various committees of the board will be reviewed.
Outlook
Despite the impact of sanctions, the Group continues to prosper. Our focus
remains maximising short-term production and getting as many of the BNG deep
wells drilled to date into commercial production.
Clive Carver
Chairman
6 July 2023
FINANCIAL REVIEW OF THE 12 MONTHS ENDED 31 DECEMBER 2022
Revenue
Revenue in 2022 increased by approximately 72 per cent to $42.9 million (2021:
$25.0 million).
Oil prices
International prices rose from approximately $79 per barrel at the start of
2022 to a maximum of approximately $123 per barrel in March 2022 and then fell
steadily from June 2022 over the rest of the year to approximately $75 per
barrel by the year end. Over the same period domestic prices rose from
approximately $25 per barrel to approximately $32 per barrel.
In a new development, sales to domestic mini refineries became possible with
prices of approximately $38 per barrel for most of the period under review and
subsequently.
Production volumes
Production volume in 2022 at 792,284 barrels was some 48 % higher than in 2021
(533,857 barrels).
International vs Domestic sales
The continuing large discount for Kazakh oil sold from the Russian pipeline
network despite there being no EU sanctions together with the Kazakh
authorities assessing export taxes at the full Brent related price rather than
the actual price achieved made international sales uneconomic for the majority
of the period under review and subsequently.
In the period before sanctions 237,144 barrels were sold on the international
market at an average price of approximately $85 per barrel. After the start of
international sanctions, most sales were either at domestic prices or to
domestic mini refineries.
CTS
CTS LLP is the Group's wholly owned drilling company, which in 2020, 2021 and
2022 undertook work at Block 8, the Contract Area, which is owned by the
Oraziman family and therefore a related party and over which the Group has an
option to acquire.
The work undertaken at Block 8 in these periods was approximately $5 million
and at 31 December 2022 has either been paid or is covered by advances. In
2022 approximately $3.7 million is included in 2022 income as more fully
described in notes 4 & 25.
Gross profit
Gross profit increased by approximately 66 per cent to approximately $32.3
million (2021: $19.4 million), from a combination of the increase in
production volumes and the impact of the sales possible at international
prices before the impact of sanctions.
Selling expenses
Selling expenses increased by approximately 29% to $9.8 million (2021: $7.6
million) and are mainly export and customs duties, which are typically based
on achieved oil prices.
Other administrative expenses
General and Administrative expenses were $9.8 million (2021: $3.3 million).
The main reason for the increase was additional staff costs in Kazakhstan of
around $4.9 million.
Operating profit
The operating profit was $12.8 million (2021: loss of $4.0 million).
Profit / (Loss) for the year before tax
Profit before tax was $12.3 million (2021: loss of $4.8 million).
Tax charge
The tax charge was $2.4 million (2021: $0.7 million). The tax is payable in
Kazakhstan where historic losses have been fully utilised.
Profit / (Loss) for the year after tax and before dividends
The profit for the year after tax but before dividends was $9.9 million (2021:
loss of $5.5 million).
Dividends
Dividends of approximately $2.4 million were declared in the year (2021: nil).
Oil and gas assets
Unproven oil & gas assets
The carrying value of unproven oil and gas assets fell by approximately $2.3
million to approximately $43.8 million (2021: $46.1 million) largely as the
result of the transfer of the shallow Yelemes South structure to proven oil
& gas assets, which was shown previously within property, plant and
equipment.
Plant, property and equipment
The value of plant property and equipment increased by approximately $3.7
million to approximately $60.7 million (2021: $57.1 million), again
principally as the result of the reclassification of the South Yelemes
structure.
Other receivables
Other receivables due within 12 months increased from approximately $5.0
million to approximately $5.2 million, in part as the result of the
approximately $1.5 million drawn down from the $5 million loan in respect of
the proposed acquisition of Block 8.
Cash position
At the year-end we had cash balances of approximately $3.7 million (2021: $0.4
million).
Liabilities
Trade and other payables under 12 months
Trade and other payables increased to approximately $15.9 million (2021: $13.2
million). Short term borrowings provided by the Oraziman family fell to $0.4
million following the debt conversion approved by independent shareholders in
March 2022 (2021: $6.4 million).
The provisions for payments in less than 12 months were approximately $6.0
million (2021: $5.5 million).
BNG historic costs
We have continued to pay down the historic costs assessed against BNG. At 31
December 2022, of the original $32 million levied in 2019 approximately $19
million remains to be paid over the next seven years, of which approximately
$3.2 million is to be paid within 12 months.
Cashflows
During the period under review approximately $45.9 million was received from
customers and approximately $27.5 million paid out to suppliers, creditors and
staff with a further $11.5 million spent on unproven oil and gas assets and
$0.5 million spent on property plant and equipment. A further $2.3 million was
paid to related parties including $1.5 million relating to the Block 8 loan,
and approximately $1.1 million was paid in dividends, resulting in cash
balances at the year-end increasing from $0.4 million to $3.7 million.
Going Concern
With net current liabilities of approximately $16.0 million as at 31 December
2022, the assessment of going concern needs careful consideration. The Board
has assessed cash flow forecasts prepared for a period of at least 12 months
from the approval of the financial statements and assessed the risks and
uncertainties associated with the operations and funding position, including
the potential acquisition of Block 8. These cash flows are dependent on a
number of key factors including:
· The Group's cashflow is sensitive to oil price and volume sold.
Given the large discounts encountered since the start of the war in Ukraine we
have assumed all sales will be either domestic sales or sales to the domestic
mini refineries. If sales to the new local mini refineries did not continue as
expected and in the continuing absence of any international sales additional
funding would be required.
· The Group continues to forward sell its domestic production and
receives advances from oil traders with $2.2 million advanced at the reporting
date the continued availability of such arrangements is important to working
capital. Whilst the Board anticipate such facilities remaining available given
its trader relationships, should they be withdrawn or reduced more quickly
than forecast cash flows allow then additional funding would be required.
· The Group has $5.9 million of liabilities due on demand under
social development programmes and $3.2 million 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 programmes 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 it 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.
While none of the following can be relied upon until cash is received there
are a number of expected events, which could provide significant additional
working capital in the short term:
· The Group is due to receive $22.5 million relating to the
conditional sale of a 50% interest in the holding company for the Caspian
Explorer;
· A Kazakh bank's credit committee has approved a $5 million loan,
which has yet to be drawn;
· A Kazakh oil trader has offered an additional $3 million advance,
which is yet to be accepted.
Should it be necessary, the Board has the following actions to mitigate any
short-term funding issues
· To seek additional funding from advance oil sales
· To slow down the pace at which BNG is further developed
· To defer the exercise of the option to acquire Block 8, as this
would defer development expenditure
· To sell all or part of one or more of the Group's assets
· To defer further dividend payments
· To seek additional equity capital
· Cease or reduce the amount of discretionary dividend payments
(payment of which is subject to the cash inflows outlined above).
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
6 July 2023
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 a 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 2.8 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.
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 13 km2. 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 $20 million
remained payable at 31 December 2022.
Recently we have been working to bring wells 141 and 142 back into production.
In 2022 we produced 792,284 barrels of oil at an average of 2,171 bopd (2021:
533,857 barrels at an average of 1,462 bopd). At the date of this report
production is approximately 2,000 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 375,000 barrels, including approximately 25,000 barrels in 2022.
Following an upgrade in the South Yelemes licence we are now allowed to sell
most of the oil produced from the South Yelemes structure by reference to
international rather than domestic prices. However, as set out elsewhere in
these financial statements, we currently choose not to do so.
We believe the structure may have untapped quantities of oil at higher levels
than previously explored, which we intend to explore with horizontal drilling
targeting a Dolomite reservoir when crews become available.
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
Four deep wells have been drilled on the Airshagyl structure.
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 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.
A7
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 4,000 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. Drilling is planned to continue when a rig becomes available.
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 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, the well has been abandoned.
Yelemes Deep structure
Deep Well 801 was drilled in 2014 / 2015 to a depth of 5,050 meters. During
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. This is the final deep well required under the BNG work programme.
Work at Deep Well 802 was put on hold pending the arrival of specialist
equipment. In the meantime, the rig and crew were switched to bring Well 142
back into production. Once finished at Well 142 the rig and crew will return
to work on Well 802.
One further deep well, Deep Well 803, is required to be drilled this year
under our new work programme obligations. Our intention is to spud this well
in Q3 2023 and complete the drilling by the end of the year.
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 extreme high temperature and 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 whereas at the Yelemes Deep structure the salt layer is
typically found at depths between 3,000 and 3,500 meters.
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, 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 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.
Well 802 was the final deep well required under the original BNG work
programme commitments.
The current work programme requires a further deep well, Well 803 to be
drilled before the end of the year. The well is expected to be spudded in Q3
2023.
Additionally, a further 10 shallow wells are to be drilled on the MJF
structure, including a number of horizontal wells, by the end of 2026, with
one being Well 155 to be drilled this year.
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 licence area and subsequently Petroleum Geology Services ("PGS")
undertook 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 2022,
approximately 3.8 mmbls of oil were produced, which under financial reporting
rules are deducted from the assessment of reserves as at 31 December 2022.
BNG As at 31 December 2022 As at 31 December 2021
mmbls mmbls
Shallow P1 14.3 15.1
Shallow P2 25.5 26.3
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
The Caspian Explorer is a drilling vessel designed specifically for use in the
shallow northern Caspian Sea where traditional deep water rigs cannot be used.
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.
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
Safety contract
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.
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.
Drilling contract
In March 2023 we announced that the first drilling contract for the Caspian
Explorer under the Group's ownership had been signed.
An offshore well is scheduled to be drilled in the summer of 2024 to a planned
depth of 2,500 meters. It will be drilled for the Isatay Operating Company LLP
("IOC"), a Kazakh registered explorer, in which Italy's ENI is a leading
participant. The work is expected to take approximately two months.
Daily rates have been agreed for both drilling days and days when no drilling
occurs. On the basis of these rates and the Group's assessment of the likely
total number of days required to complete the assignment the Group expects net
income after costs of approximately $15 million.
The contract also provides for a second well in the event the first is deemed
successful. That second well would most likely be drilled in 2025 on terms
similar to the first assignment and is again expected to produce net income
after costs of $15 million.
Other charters
Discussions continue with a number of parties interested in chartering the
Caspian Explorer, either on normal commercial terms or where the involvement
of the Caspian Explorer allows Caspian Sunrise to take an interest in the
project.
Conditional sale
In June 2023 we announced the conditional sale of 50% of Prosperity Petroleum,
the UAE registered holding company for the Caspian Explorer for $22.5 million.
Summary
The Caspian Explorer has been written down in previous financial statements so
that its carrying value at 31 December 2022 is $1.7 million. We believe the
drilling contract announced in March 2023 will be the first of a number as
exploration of the shallow northern Caspian Sea increases.
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 licences
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
typically does the percentage taken by the Kazakh state.
Despite in practice oil sold on the international market being subject to a
hefty Ural Oil discount of approximately $30 - $35 per barrel or more taxes on
any international sales are still levied according to the international Brent
price.
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. We are now also considering
mineral opportunities in Kazakhstan.
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 consider other opportunities, including now
mineral opportunities, where the board believes it can add significant value
and contribute towards the success of the Group as a whole.
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, which is
subject to licence renewal. 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. In June 2023 it was announced that the Group had
conditionally agreed to sell 50% of the Caspian Explorer's holding company for
a cash consideration of $22.5 million.
In September 2022 the Group took an option to acquire the Block 8 Contract
Area for a maximum consideration of $60 million.
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 15 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. It was also the
case when we recently announced the conditional sale of 50% of the Caspian
Explorer for $22.5 million.
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.
The Directors believe the Group is exceptionally well placed through its
strong local Kazakh presence to identify and buy undervalued oil & gas
assets and other assets on an opportunistic basis.
Climate Change
The Group's purpose is to supply energy in an environmentally conscious manner
to the benefit of all stakeholders. As an exploration and production company,
we recognise our environmental responsibilities to all our stakeholders and in
particular to the local communities in which we operate.
However, 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.
Key performance indicators
The Non-Financial Key Performance Indicators are:
· Operational (wells drilled and not abandoned at end of year)
2022: 20 (2021: 18)
· Aggregate production for 2022 was barrels 792,284 (2021: 533,857)
an increase of approximately 48%
· Reserves at 31 December 2022 P1 14.3 mmbls & P2 25.5 mmbls
(2021: P1 15.1 mmbls & P2 26.3 mmbls)
The Financial Key Performance Indicators are:
· Revenue: up 72% at $42.9 million (2021: $25.0 million)
· Operating profit 12.8 million (2021: loss of $4.0 million)
· Profit after tax for the year $9.9 million (2021: loss $5.5
million)
· Dividends $2.4 million (2021: nil)
· Cash at bank: $3.7 million (2021: $0.4 million)
· Total assets: $117 million (2021: $114 million)
· Exploration assets $43.8 million (2021: $46.1 million)
· Plant, property & equipment $60.7 million (2021: $57.1
million)
Current production
· Approximately 2,000 bopd (2021: 1,462 bopd)
Assets & Reserves
Details of the Group's assets and reserves are set out in the Chairman's
statement.
Financial
At current domestic and domestic mini refinery prices and with current levels
of production the income from current production is sufficient to cover
day-to-day Group operations and G&A costs.
In addition, the Group expects to receive the $22.5 million proceeds due from
the sale of 50% of the Caspian Explorer and its 50% share of net income of
approximately $15 million in respect of the drilling contract scheduled for
2024 which was signed in March 2023.
In the event the option to acquire Block 8 is exercised, the income from the
oil being produced there now and in the future is expected to cover the
repayment of the $5 million loan and Block 8 drilling costs.
In the event any of the deep wells drilled start to produce oil in commercial
quantities the associated revenues should transform the Group's cash flows.
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 required 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 to improving and simplifying the Group structure thus easing the future
payment of dividends. The final step was the approval of shareholders and the
UK Court of a Capital Reduction. Shareholders approved the Capital Reduction
in April 2022, which was approved by the UK High Court in June 2022.
The Company's first dividend was declared in November 2022 and was followed by
3 further monthly dividends. In March 2023 the Company announced that future
dividends would be declared on a quarterly rather than monthly basis.
However, as set out above in the Chairman's Statement, with no signs of an end
to the adverse impact of the Ukraine war we need to base our dividend policy
on what the Group can reasonably afford to pay without materially detracting
from our principal purpose of increasing shareholder value by the continued
development of our oil & gas assets.
Therefore, until either we increase production with MJF shallow wells 141
& 142 resuming production or Deep Well 802 commencing production, or until
the proceeds from the conditional sale of 50% of the Caspian Explorer are
received, the board has reluctantly decided to suspend dividend payments for
the remainder of the year.
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.
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. Our Annual General Meeting provides 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.
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 20 (where the
Group's strategy, objectives and business model are addressed), page 23 (in
relation to employees) the ESG report on page 29 (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 to 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
6 July 2023
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 2022.
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.
The Group also owns and operates the Caspian Explorer, a drilling vessel
specifically designed for operation in the shallow northern Caspian Sea. The
Group also has its own drilling company, which on occasion works on projects
not owned by the Group.
Results and dividends
The consolidated statement of profit or loss is set out on page 49 and shows a
$9.9 million profit for the year after tax (2021: loss US$5.5 million).
The Company declared its first monthly dividend of £1 million in November
2022 and has subsequently declared a further 3 monthly dividends. In March
2023 the Company announced it was moving to quarterly dividends but in these
financial statements has announced a suspension of dividend payments for the
remainder of the financial year, or until production from wells 141, 142 or
802 allow payments or upon the receipt of the $22.5 million consideration
expected from the sale of the Caspian Explorer.
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 2022, and
the date of this report, which are required to be brought to the attention of
shareholders. Please refer to note 27 of these financial statements for
further details.
Board changes
After 13 years as the senior independent non-executive director Edmund
Limerick will on 7 July 2023 step down from the board.
Edmund's knowledge and advice has been invaluable in the development of the
Group and he will be missed. The Company will in due course appoint
additional non-executive directors, following which the composition of the
various committees of the board will be reviewed.
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 the 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 2022 As at 31 December 2021
Clive Carver 2,245,000 2,245,000
Kuat Oraziman* nil nil
Edmund Limerick 7,911,583 7,911,583
Aibek Oraziman* 946,887,599 592,857,583
Seokwoo Shin nil nil
* taken together on 31 December 2022 the Oraziman Family, comprising Kuat
Oraziman, Aibek Oraziman, Aidana Urazimanova, Altynbek Boltazhan and
Boltazhan Kerimbayev held 1,089,544,792 shares representing approximately 48%
of the issued share capital.
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 %
Dae Han New Pharm Co Limited 224,830,964 9.99
Al Marri Family 221,625,001 9.85
Abai Kalmyrzayev 79,058,642 3.51
Financial instruments
Details of the use of financial instruments by the Group and its subsidiary
undertakings are contained in note 24 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 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.
www.caspiansunrise.com/investors/reports
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
6 July 2023
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.
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 seeks to adopt best in class industry operating standards and
exposed to risks such as well blowouts, fire, pollution, bad weather 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 in Kazakhstan had been absent since the Group's formation
impact on the Group's operations. until the beginning of 2022, when the Group together with other operators was
Risk
forced to 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 in 2022.
Russian sanctions The sanctions imposed on Russia may affect both the Group's ability to Like most oil produced in Kazakhstan for the international market the
transport its oil and the price at which the oil may be sold. Company's oil is transported to international buyers via the Russian oil
pipeline network.
It may also affect the Group's ability to source equipment and other
consumables required to produce oil. The decision by the Kazakh authorities to re designate oil produced in
Kazakhstan as Kazakhstan Export Blend Crude Oil ("KEBCO") seems to have had
little impact and we still suffer large discounts for what many still refer to
as "Urals Oil."
This is despite confirmation from the UK and the European Union that oil
produced in Kazakhstan and transported via the Russian pipeline network is not
subject to sanctions.
With the Urals Oil discounts and export taxes still levied based on the full
international price selling on the international market is not commercially
viable.
We therefore currently sell all our oil either on the traditional domestic
market or the relatively new domestic mini refinery market where taxes and
other deductions are much lower.
Equipment and consumables previously sourced from Russia are now found
elsewhere, typically China, adding time and expense.
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.
Pricing risk We operate in an industry where the international price is set by world We have no influence on the price at which we 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 $50 per barrel for a
prolonged period that we would need to consider cost cutting to match income
and expenditures.
Environmental risk There would be serious consequences in the event of a polluting event. The Group seeks to maintain compliance with all applicable regulatory
standards and practices.
Further information is set out in the Environmental, Social and Governance
Report.
Climate change That climate change might impact the prospects for the Group The board does not believe in the short to medium term climate change will
have a material impact on the Group's revenues or operations. In particular
the board believes the demand for oil will continue for at least the next
decade and that climate change is unlikely to materially impact the Group's
ability to produce that oil.
Exchange rate risk Movements in exchange rates may result in actual losses or in the results The Group's income is denominated in US$ and Kazakh Tenge its expenditure is
reported in the Group financial statements. denominated principally in US$, Kazakh Tenge and UK £.
In the year under review the Tenge broadly maintained its exchange rate
against the US$. Since the year end the Kazakh Tenge has fallen by
approximately 7.2% 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.
Loss of major shareholder support In previous periods the Group has relied on the financial support of the The Group is now producing significant volumes of oil and is financially a
Oraziman family, which holds 48% of the Company's shares. self-supporting enterprise.
However, in the event further support was required it would clearly be in the
interests of the Oraziman family as the major shareholding group to provide
it.
Supplier risk Continued operations depend on regular deliveries to site of consumables, such We have been operating the BNG Contract Area for more than a decade during
as water, food, heating oil and replacement parts for our drilling equipment. which we have encountered numerous supply issues, all of which have been
Delays in such deliveries to site could impact production volumes. overcome.
Recently the war in Ukraine has resulted in supplies no longer being sourced Managing supplies has become one of the most important aspects of the
from Russia. Replacement supplies from China are taking much longer to business.
arrive.
With the majority of supplies now coming from China, whose border is
approximately 3,000 kilometers from the BNG Contract Area lead times are now
much greater. In addition, the working capital investment is also much greater
as supplies need to be paid for much earlier than before.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) REPORT
This report covers our ESG approach and performance for the year ended 31
December 2022.
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 16 years and have only been able to do so by complying with
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 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 & 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.
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
typically meets 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.
Following the AGM, we intend to re-constitute the various Board committees.
Share dealing policy
The Group has adopted and operates a share dealing code for Directors and
employees in accordance with the AIM Rules.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) REPORT
GOVERNANCE
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 UK 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 UK Bribery Act have been translated into Russian and circulated
to our Kazakh based staff. Consideration of the UK 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
Caspian Sunrise's objective is to create shareholder value from the
development of oil and gas projects and associated activities.
Establish a strategy and business model which promotes long term value for
shareholders
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 & gas and
other projects.
Growth in long term value will be measured by a sustainable appreciation in
the Company's share price.
Principal assets
The Group's principal asset is its 99% 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 a 100% interest in the 3A Best Contract Area and a 100%
interest in the Caspian Explorer drilling vessel, although recently the Group
has conditionally agreed to sell 50% of its interest in the Caspian Explorer
for $22.5 million.
The Group has an option to acquire the Block 8 Contract Area for a maximum
consideration of $60 million to be paid from production from Block 8 at the
rate of $5 per barrel.
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, suppliers and customers 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 the Mangistau 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
assisted 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 26 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 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 28 years oil and gas experience in Kazakhstan.
Seokwoo Shin 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.
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 46.7% of the
Company's shares. He has more than 13 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 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 eight
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 reports 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
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 28
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 has
more than 13 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 telephone, are set out
below:
Director Board meetings attended Remuneration Committees attended Audit Committee attended
Clive Carver 7 of 7 2 of 2 2 of 2
Kuat Oraziman 7 of 7 N/A N/A
Edmund Limerick 7 of 7 2 of 2 2 of 2
Seokwoo Shin 7 of 7 N/A N/A
Aibek Oraziman 7 of 7 2 of 2 2 of 2
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 2022
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
6 July 2023
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, 2022 and to date in 2023.
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 30 June 2022
Kuat Oraziman 6 December 2019 22 July 2021
Edmund Limerick 25 January 2019 26 June 2020
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 2022 2022 2022 2021
Salary / fees Share options Total Total
US$ US$ US$ US$
Clive Carver Chairman 152,698 - 152,698 120,000
Kuat Oraziman CEO 156,753 - 156,753 142,055
Seokwoo Shin COO 54,000 - 54,000 54,025
Edmund Limerick Non-executive 16,319 - 16,319 15,600
Aibek Oraziman Non-executive - - - -
Total 379,770 - 379,770 331,680
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 2022 (2021: 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
Edmund Limerick 1,000,000 5.5p 9 January 2032
Seokwoo Shin 2,500,000 5.5p 9 January 2032
There were no options exercised in 2022.
Cash based incentives
In May 2019, we introduced 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
6 July 2023
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 two 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
6 July 2023
Independent auditor's report to the members of Caspian Sunrise plc
Qualified opinion on the Group financial statements and unmodified opinion on
the Parent Company financial statements
In our opinion, except for the possible effects on the Group financial
statements of the matter described in the Basis for qualified opinion on the
Group financial statements and unmodified opinion on the Parent Company
financial statements section of our report:
• 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 2022 and of
the Group's profit 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
2022 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 the 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 qualified opinion on the Group financial statements and unmodified
opinion on the Parent Company financial statements
In 2022 and 2021 the Group's subsidiary, CTS LLP, provided drilling services
to both an external related party, EPC Munai LLP, and within the Group to BNG
Ltd.
For drilling services provided to external entities, costs should be
recognised in cost of sales, which impacts the amount of revenue recognised
under the input method as detailed in note 1.19. Drilling costs provided to
other entities in the Group may be capitalised, subject to compliance with
relevant accounting standards as detailed in note 1.8.
In 2021, no amounts were recognised in the income statement in respect of
drilling costs provided by the Group's subsidiary CTS LLP to its customer, the
external related party, EPC Munai LLP. As a result of this an amount of $2.2m
was reversed from property, plant and equipment to cost of sales and an amount
of $4.8m was reversed from property, plant and equipment to unproven oil and
gas assets in the current year.
In 2022, CTS LLP has applied the input method of revenue recognition in
accounting for revenue on its drilling contracts to EPC Munai LLP.
As a result, in 2022, included in the Group revenue and cost of sales is $3.7m
(2021: nil) of drilling revenue to EPC Munai LLP and $4.1m (2021: nil) of
related cost of sales. As at 31 December 2022 the Group has reported advances
received from EPC Munai LLP of $0.7m (2021: $2.1m) and drilling costs
capitalised of $11m (2021: $7.1m) as part of the Group's proven and unproven
oil and gas assets. These amounts are reported within balances included in
notes 4, 12, 13, 16 and 19.
As disclosed in note 2.2.3 to the financial statements, the Directors have
been unable to obtain reliable information for CTS LLP in respect of the
timing of the costs being incurred, their allocation between different
contracts with EPC Munai LLP, or whether the costs should have been allocated
to cost of sales (which impacts external revenue recognised), or capitalised
in the Group's Property Plant and Equipment or Unproven oil and gas assets. In
addition, the Directors have been unable to provide updated budgets for
estimated costs to complete. This information is necessary to determine
revenue, costs of sales, advances received/ receivables, provisions for losses
on contracts, property, plant and equipment, unproven oil and gas assets,
related tax balances and related party disclosures and as a result these
balances may be materially higher or lower than the current recorded values.
Consequently, we were unable to obtain sufficient appropriate audit evidence
over the valuation of the Group's external drilling revenues or the
completeness and validity of its cost of sales allocation, nor were we able to
determine whether any adjustments to the advances received/receivables,
provisions for losses on contracts, unproven oil and gas assets, property,
plant and equipment, related tax balances or related party disclosures at the
current and prior year ends were necessary as a result.
Were any adjustment to the related accounts and disclosures as set out in the
financial statements to be required as a result of the above, the Directors'
report and the Strategic report would also need to be amended.
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 qualified opinion on the Group financial statements and our
unmodified opinion on the Parent Company financial statements.
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 the Group and Parent Company's ability to meet its liabilities
and commitments as they fall due, without additional funding being obtained,
is sensitive to the oil volumes sold and prices realised, deferral of
financial obligations and the continued availability of oil trader advances.
As stated in note 1.1, these events or conditions, along with other matters as
set out in Note 1.1, 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 the Directors' 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 impact of sanctions against Russia on the Group's
operations with the Directors 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 ability to sell oil to the
domestic mini refineries, and the continuing absence of any international
sales.
· 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 the Directors 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 management's judgment that
the exploration licence would be capable of being extended beyond 2024
including assessment of the legislative process, the forecast economic value
of the assets beyond the expiry date and risks and uncertainties within the
operating environments.
· 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 and the history of transactions with the oil traders.
· We assessed the validity of any mitigating actions identified by
the Directors.
· 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
Coverage 89% (FY21: 83%) of Group profit/(loss) before tax, 100% (FY21:100%) of Group
revenue and 97% (FY20: 96%) of Group total assets.
2022 2021
Carrying value of unproven oil and gas assets ☑ ☑
Carrying value of proven oil and gas assets - ☑
BNG production licence payment obligations - ☑
Going concern ☑ ☑
CTS drilling services * ☑ -
Key audit matters
*Refer to the Basis for qualified opinion on the Group financial statements
and unmodified opinion on the Parent Company financial statements section of
our report
Carrying value of proven oil and gas assets is no longer considered to be a
key audit matter given the Cash generating unit has significant headroom.
The BNG production licence payment obligations is no longer considered to be a
key audit matter because the Group stopped contesting the amount levied by the
authorities and the amount of the obligation became enforceable by law and has
been classified as payables.
Group financial statements as a whole
Materiality US$1.7m (2021: US$1.9m) based on 1.5% (2021: 1.7%) of total assets
*Refer to the Basis for qualified opinion on the Group financial statements
and unmodified opinion on the Parent Company financial statements section of
our report
Carrying value of proven oil and gas assets is no longer considered to be a
key audit matter given the Cash generating unit has significant headroom.
The BNG production licence payment obligations is no longer considered to be a
key audit matter because the Group stopped contesting the amount levied by the
authorities and the amount of the obligation became enforceable by law and has
been classified as payables.
Materiality
Group financial statements as a whole
US$1.7m (2021: US$1.9m) based on 1.5% (2021: 1.7%) 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. Specific audit procedures were performed on the
non-significant component, CTS LLP, by the Group audit team, including testing
revenue from drilling services. The Group audit team performed additional
procedures in respect of certain significant risk areas that represented Key
Audit Matters.
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 and the matter
disclosed in the Basis for qualified opinion on the Group financial statements
and unmodified opinion on the Parent Company financial statements section
above, we determined the matter described below to be the key audit matter to
be communicated in our report.
Key audit matter How the scope of our audit addressed the key audit matter
Carrying value of unproven oil and gas assets At each reporting period end, management are required to assess the We inspected the licences to confirm the validity of title and assessed the
exploration and evaluation assets for indicators of impairment and, where such compliance with the licence conditions through review of correspondence with
indicators exist, perform an impairment test. the authorities and inquiries of management.
As at 31 December 2022, the Group's unproven oil and gas assets related to the
BNG exploration licence were carried at US$43.9m as shown in notes 12.
In performing the impairment indicator review for the unproven oil and gas We considered the appropriateness of management's judgment that the
assets in the exploration phase, management are required to make a number of exploration licence would be capable of being extended beyond 2024 including
judgements as detailed in notes 1.8 and 2.1, including the likelihood of the assessment of the legislative process, the forecast economic value of the
exploration licence being renewed or converted to a production licence assets beyond the expiry date and risks and uncertainties within the operating
following its expiry in 2024. environments.
Given the judgment required by management, we considered this area to be a key We inspected budgets and work programs submitted to the Kazakh authorities to
focus for our audit and hence a key audit matter. confirm that further drilling and exploration is planned for the licence. We
considered the results of exploration activity in the period for indications
that the licences would be abandoned or that the recoverable value would be
below cost.
Key observations:
We found management's judgements that support the carrying value of the
unproven oil and gas assets 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
2022 2021 2022 2021
US$ US$ US$ US$
Materiality 1,700,000 1,900,000 1,200,000 1,300,000
Basis for determining materiality 1.5% of total assets 1.7% of total assets 70% of Group materiality 70% of Group materiality
Rationale for the benchmark applied We have determined an asset-based measure is appropriate as the Group The Company is a holding company therefore materiality was set at 70% of Group
continues to focus on developing its oil and gas projects that requires materiality given the assessment of aggregation risk.
significant capital expenditure.
Performance materiality 1,100,000 1,200,000 800,000 800,000
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 24% and 65% (2021: 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$400,000
to US$1,100,000 (2021: from US$500,000 to US$1,300,000). In the audit of each
component, we further applied performance materiality levels of 65% (2021:
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$34,000 (2021: US$38,000). 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.
As described in the basis for qualified opinion section of our report, we were
unable to satisfy ourselves concerning the valuation of the Group's external
drilling revenues or the completeness and validity of its cost of sales
allocation in 2022 and 2021 and we were unable to determine whether any
adjustments to the advances received/receivables, provisions for losses on
contracts, unproven oil and gas assets, property, plant and equipment,
related tax balances and related party disclosures at the current and prior
year ends were necessary as a result of this. We have concluded that where the
other information refers to these balances it may be materially misstated for
the same reason.
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 Except for the possible effects on the Group financial statements of the
matter described in the Basis for qualified opinion on the Group financial
statements and unmodified opinion on the Parent Company financial statements
section of our 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.
Except for the possible effects on the Group financial statements of the
matter described in the Basis for qualified opinion on the Group financial
statements and unmodified opinion on the Parent Company financial statements
section of our report, 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 Arising solely from the limitation on our work on the Group financial
statements relating to external drilling services in CTS LLP described
above:
· We have not obtained all the information and explanations that we
considered necessary for the purpose of our audit; and
· We were unable to determine whether adequate accounting records
have been kept by the Parent Company.
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:
· 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.
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:
Non-compliance with laws and regulations
Based on:
· Our understanding of the Group and the industry in which it
operates;
· Discussion with management, the Audit Committee and those
responsible for legal and compliance procedures of how the Group is complying
with those legal and regulatory frameworks;
· Obtaining and understanding of the Group's policies and
procedures regarding compliance with laws and regulations; and
· Our understanding of the legal and regulatory frameworks that are
applicable to the Group and the Parent company,
we considered the significant laws and regulations to be the financial
reporting framework (UK adopted international accounting standards, the
Companies Act 2006, the AIM rules and the QCA Corporate Governance Code), the
oil and gas laws and regulations of Kazakhstan, local taxation legislation and
environmental regulations, and the terms and requirements included in the
Group's production and exploration licences.
The Group is also subject to laws and regulations where the consequence of
non-compliance could have a material effect on the amount or disclosures in
the financial statements, for example through the imposition of fines or
litigations. We identified such laws and regulations to be the health and
safety legislation, licensing and environmental regulations.
Our procedures in respect of the above included:
· Review of minutes of meeting of those charged with governance for
any instances of non-compliance with laws and regulations;
· Directing the auditors of the significant components to ensure an
assessment was performed on the extent of the component's compliance with the
relevant local and regulatory framework and a review of correspondence with
regulatory and tax authorities was performed for any instances of
non-compliance with laws and regulations;
· 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;
· Review of financial statement disclosures and agreeing to
supporting documentation to assess compliance with relevant laws and
regulations noted above; and
· Review of legal expenditure accounts to understand the nature of
expenditure incurred.
Fraud
We assessed the susceptibility of the financial statements to material
misstatement, including fraud. Our risk assessment procedures included:
· Enquiry with management and the Audit Committee regarding any
known or suspected instances of fraud;
· Obtaining an understanding of the Group's policies and procedures
relating to:
o Detecting and responding to the risks of fraud; and
o Internal controls established to mitigate risks related to fraud.
· Review of minutes of meeting of those charged with governance for
any known or suspected instances of fraud;
· Discussion amongst the engagement team as to how and where fraud
might occur in the financial statements;
· Performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material misstatement due
to fraud; and
· Considering remuneration incentive schemes and performance
targets and the related financial statement areas impacted by these.
Based on our risk assessment, we considered the areas most susceptible to
fraud to be completeness of related party disclosures, management override of
controls and revenue recognition.
Our procedures in respect of the above included:
· Testing a sample of journal entries made throughout the year,
which met a defined risk criteria to detect possible irregularities and fraud,
by agreeing to supporting documentation;
· 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;
· Involvement of forensic specialists to test the completeness of
the related party disclosures by testing the Group and director's relationship
with a sample of targeted suppliers and customers;
· Testing a sample of revenue transactions to supporting
documentation, including testing a sample of revenue transactions in the
period proceeding and preceding year end to check that revenue was recognised
in the correct period. In addition, we obtained a sample of significant sales
agreements, evaluated key terms and assessed the appropriateness of revenue
recognition policies against the relevant accounting standards; and
· Assessing significant judgements and estimates made by management
for bias and challenging management on the appropriateness of these judgements
and estimates (refer to key audit matters above).
We also communicated relevant identified laws and regulations and potential
fraud risks to all engagement team members including component engagement
teams who were all deemed to have appropriate competence and capabilities and
remained alert to any indications of fraud or non-compliance with laws and
regulations throughout the audit. For component engagement teams, we also
reviewed the results of their work performed in this regard.
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. In addition, the extent to which the audit was capable
of detecting irregularities, including fraud was limited by the matter
described in the Basis for qualified opinion on the Group financial statements
and unmodified opinion on the Parent Company financial statements section of
our report.
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
6 July 2023
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
2022 2021
US$'000 US$'000
Revenue 4 42,949 24,996
Cost of sales (10,637) (5,624)
Gross profit 32,312 19,372
Selling expense (9,751) (7,578)
Impairment of unproven oil and gas assets 12 - (12,464)
Other administrative costs (9,767) (3,332)
Operating income / (loss) 5 12,794 (4,002)
Finance cost 8 (585) (859)
Finance income 9 59 24
Profit / (loss) before taxation 12,268 (4,837)
Tax charge 10 (2,371) (709)
Profit / (loss) after taxation from continuing operations 9,897 (5,546)
Income / (loss) for the year 9,897 (5,546)
Income / (loss) attributable to owners of the parent 9,763 (5,554)
Income attributable to non-controlling interest 134 8
Income / (loss) for the year 9,897 (5,546)
Basic and diluted profit/(loss) per ordinary share (US cents) 11 0.44 (0.26)
Consolidated Statement of Comprehensive Income
Year ended Year ended
31 December 31 December
2022 2021
US$000 US$000
Profit / (loss) after taxation 9,897 (5,546)
Other comprehensive income/(loss):
Exchange differences on translating foreign operations (4,418) (6,863)
Total comprehensive profit /(loss) for the year 5,479 (12,409)
Total comprehensive profit/(loss) attributable to:
Owners of parent 5,345 (12,417)
Non-controlling interest 134 8
Consolidated Statement of Changes in Equity
Share capital Share premium Deferred shares Cumulative translation Other reserves Merger reserve Retained profit / (deficit) US$'000 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 equity
US$'000 US$'000 US$'000
Total equity as at 1 January 2022 31,118 164,817 64,702 (62,103) (2,362) 11,511 (156,239) 51,444 (5,801) 45,643
Income after taxation - - - - - 9,763 9,763 134 9,897
Exchange differences on translating foreign operations and recycling of - - - (4,418) - - - (4,418) - (4,418)
exchange differences on disposal of subsidiaries
Total comprehensive income/(loss) for the year - - - (4,418) - - 9,763 5,345 134 5,479
Shares issue (note 18) 1,942 4,273 - - - - - 6,215 - 6,215
Cancellation of share premium and deferred shares * - (169,090) (64,702) - - - 233,792 - - -
Dividends declared ** - - - - - - (2,444) (2,444) - (2,444)
Total equity as at 31 December 2022 33,060 - - (66,521) (2,362) 11,511 84,872 60,560 (5,667) 54,893
Share capital Share premium Deferred shares Cumulative translation Other reserves Merger reserve Retained profit / (deficit) US$'000 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 equity
US$'000 US$'000 US$'000
Total equity as at 1 January 2021 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
*in 2022 the Company preformed a capital reduction (note 3).
**During 2022 the Company declared its first dividends in November and
December 2022 in aggregate US$2,444,000 (note 18).
Equity
Description and purpose
Share
capital
The nominal value of shares issued
Share
premium
Amount subscribed for share capital in excess of the nominal value
Deferred
shares
The nominal value of the deferred shares issued
Cumulative translation reserve Gains/losses arising on
retranslating the net assets of overseas operations into US Dollars, less
amounts recycled on disposal of subsidiaries and joint ventures
Other
reserves
Fair value of warrants issued and capital contribution arising on discounted
loans
Merger
reserves
The excess of the fair value of the issues share capital over the nominal
value of these shares issued for acquisition of at least 90 percent equity
holding in subsidiaries
Retained
profit/(deficit)
Cumulative losses recognised in the consolidated statement of profit or loss,
adjustments on the acquisition of non-controlling interests and transfers in
respect of share based payments
Non-controlling interest The
interest of non-controlling parties in the net assets of the subsidiaries
Parent Company Statement of Changes in Equity
Share Share premium Deferred shares Merger reserve Retained profit / (deficit) US$'000 Total attributable to the owner of the Parent
capital US$'000 US$'000 US$'000 US$'000
US$'000
Total equity as at 1 January 2022 31,118 164,817 64,702 11,511 (171,203) 100,945
Total comprehensive loss for the year - - - - (1,133) (1,133)
Shares issued in connection with the completed debt conversion (note 18) 1,942 4,273 - - - 6,215
Cancellation share of premium and deferred shares * - (169,090) (64,702) - 233,792 -
Dividends declared ** - - - - (2,444) (2,444)
Total equity as at 31 December 2022 33,060 - - 11,511 59,012 103,583
Share Share premium Deferred shares Merger reserve Retained profit / (deficit) US$'000 Total attributable to the owner of the Parent
capital US$'000 US$'000 US$'000 US$'000
US$'000
Total equity as at 1 January 2021 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
*in 2022 the Company performed a capital reduction (note 3)
**During 2022 the Company declared its first dividends in November and
December 2022 in aggregate US$2,444,000 (note 18).
Equity
Description and purpose
Share
capital
The nominal value of shares issued
Share
premium
Amount subscribed for share capital in excess of nominal value
Deferred
shares
The nominal value of deferred shares issued
Other
reserves
Capital contribution arising on discounted loans
Merger reserves
The
excess of the fair value of the issues share capital over the nominal value of
these shares issued for acquisition of at least 90 percent equity holding in
subsidiaries
Retained profit/(deficit)
Cumulative losses recognised in the profit or loss
Consolidated Statement of Financial Position
Company number 5966431 Notes Group Group
2022 2021
US$'000 US$'000
Assets
Non-current assets
Unproven oil and gas assets 12 43,813 46,137
Property, plant and equipment 13 60,746 57,134
Other receivables 16 2,533 4,263
Restricted use cash 694 634
Total non-current assets 107,786 108,168
Current assets
Inventories 15 492 664
Other receivables 16 5,191 4,950
Cash and cash equivalents 17 3,682 429
Total current assets 9,365 6,043
Total assets 117,151 114,211
Equity and liabilities
Capital and reserves attributable to equity holders of the parent
Share capital 18 33,060 31,118
Share premium - 164,817
Deferred shares 18 - 64,702
Other reserves (2,362) (2,362)
Merger reserve 11,511 11,511
Retained profit / (deficit) 84,872 (156,239)
Cumulative translation reserve (66,521) (62,103)
Equity attributable to the owners of the Parent 60,560 51,444
Non-controlling interests 26 (5,667) (5,801)
Total equity 54,893 45,643
Current liabilities
Trade and other payables 19 15,871 13,240
Short - term borrowings 20 352 6,425
BNG historic costs payable 19 3,178 3,178
Current provisions 21 5,977 5,482
Total current liabilities 25,378 28,325
Non-current liabilities
Deferred tax liabilities 22 6,335 6,463
BNG historic costs payable 19 16,297 19,290
Non-current provisions 21 469 487
Other payables 19 13,779 14,003
Total non-current liabilities 36,880 40,243
Total liabilities 62,258 68,568
Total equity and liabilities 117,151 114,211
Approved by the Board and authorized for issue:
Clive Nathan Carver,
Chairman,
6 July 2023
Company number: 5966431
Parent Company Statement of Financial Position
Company number 05966431 Notes Company Company
2022 2021
US$'000 US$'000
Assets
Non-current assets
Investments in subsidiaries 14 15,487 15,487
Other receivables 16 88,883 88,559
Total non-current assets 104,370 104,046
Current assets
Other receivables 16 14 10
Cash and cash equivalents 17 2,405 4
Total current assets 2,419 14
Total assets 106,789 104,060
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital 18 33,060 31,118
Share premium - 164,817
Deferred shares 18 - 64,702
Merger reserve 11,511 11,511
Retained profit / (deficit) 59,012 (171,203)
Equity attributable to the owners of the Parent 103,583 100,945
Total equity 103,583 100,945
Current liabilities
Short-term borrowings 20 - 2,382
Trade and other payables 19 3,206 733
Total current liabilities 3,206 3,115
Non-current liabilities - -
Total non-current liabilities - -
Total liabilities 3,206 3,115
Total equity and liabilities 106,789 104,060
The Company incurred loss for the year ended 31 December 2022 in the amount of
US$ 1,133,000 (2021: loss of US$ 1,805,000).
Approved by the Board and authorized for issue:
Clive Nathan Carver,
Chairman,
6 July 2023
Company number: 05966431
Consolidated and Parent Company Statements of Cash Flows
Notes Group Group Company Company
2022 2021 2022 2021
US$'000
US$'000 US$'000 US$'000
Cash flows from/used in operating activities
Cash received from customers 45,862 24,308 - -
Payments made to suppliers for goods and services (26,546) (15,509) (1,280) (834)
Payments made to employees (964) (1,051) (186) (163)
Net cash flow from/used in operating activities 18,352 7,748 (1,466) (997)
Cash flows from/used in investing activities
Purchase of property, plant and equipment 13 (502) (7,136) - -
Additions to unproven oil and gas assets 12 (11,470) (719) - -
Loan provided to the related party as part of the potential acquisition 16, 25 (1,523) - - -
Other payment to the related party 20, 25 (800) - - -
Transfers to restricted use cash (59) (393) - -
Advances repaid by subsidiaries - - 4,944 840
Net cash flow from/used in investing activities (14,354) (8,248) 4,944 840
Cash flows from/used in financing activities
Dividends paid (1,097) - (1,097) -
Loans received from the related parties 20, 25 352 600 20 158
Net cash flow from/used in financing activities (745) 600 (1,077) 158
Net increase in cash and cash equivalents 3,253 100 2,401 1
Cash and cash equivalents at the beginning of the year 429 329 4 3
Cash and cash equivalents at the end of the year 17 3,682 429 2,405 4
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 6 July 2023.
The principal activities of the Group are the exploration for and the
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 in conformity with the
requirements of the Companies Act 2006 and as applied in accordance with the
provisions of the Companies Act 2006.
Going concern
With net current liabilities of approximately $16.0 million as at 31 December
2022, the assessment of going concern needs careful consideration. The Board
has assessed cash flow forecasts prepared for a period of at least 12 months
from the approval of the financial statements and assessed the risks and
uncertainties associated with the operations and funding position, including
the potential acquisition of Block 8. These cash flows are dependent on a
number of key factors including:
· The Group's cashflow is sensitive to oil price and volume sold.
Given the large discounts encountered since the start of the war in Ukraine we
have assumed all sales will be either domestic sales or sales to the domestic
mini refineries. If sales to the new local mini refineries did not continue as
expected and in the continuing absence of any international sales additional
funding would be required.
· The Group continues to forward sell its domestic production and
receives advances from oil traders with $2.2 million advanced at the reporting
date the continued availability of such arrangements is important to working
capital. Whilst the Board anticipate such facilities remaining available given
its trader relationships, should they be withdrawn or reduced more quickly
than forecast cash flows allow then additional funding would be required.
· The Group has $5.9 million of liabilities due on demand under
social development program and $3.2 million 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 programmes 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 it 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.
While none of the following can be relied upon until cash is received there
are a number of expected events, which could provide significant additional
working capital in the short term
· The Group is due to receive $22.5 million relating to the
conditional sale of a 50% interest in the holding company for the Caspian
Explorer;
· A Kazakh bank's credit committee has approved a $5 million loan,
which has yet to be drawn;
· A Kazakh oil trader has offered an additional $3 million advance,
which is yet to be received.
Should it be necessary, the Board has the following actions to mitigate any
short-term funding issues
· To seek additional funding from advance oil sales
· To slow down the pace at which BNG is further developed
· To defer the exercise of the option to acquire Block 8, as this
would defer development expenditure
· To sell all or part of one or more of the Group's assets
· To defer further dividend payments
· To seek additional equity capital
· Cease or reduce the amount of discretionary dividend payments
(payment of which is subject to the cash inflows outlined above).
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 2022. 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 2022,
but do not have an impact on the consolidated financial statements of the
Group.
New standards, interpretations and amendments adopted from 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).
These amendments to various IFRS standards are mandatorily effective for
reporting periods beginning on or after 1 January 2022. See the applicable
notes for further details on how the amendments affected the Group.
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to IAS 37) IAS
37 defines an onerous contract as a contract in which the unavoidable costs
(costs that the Group has committed to pursuant to the contract) of meeting
the obligations under the contract exceed the economic benefits expected to be
received under it.
The amendments to IAS 37.68A clarify, that the costs relating directly to the
contract consist of both:
• The incremental costs of fulfilling that contract- e.g. direct labour and
material; and
• An allocation of other costs that relate directly to fulfilling contracts:
e.g. allocation of depreciation charge on property, plant and equipment used
in fulfilling the contract.
The Group, prior to the application of the amendments, did not have any
onerous contracts. Therefore these amendments had no impact on the year-end
consolidated financial statements of the Group.
Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9,
IFRS 16 & IAS 41)
• IFRS 1: Subsidiary as a First-time Adopter (FTA)
• IFRS 9: Fees in the '10 per cent' Test for Derecognition of Financial
liabilities
• IAS 41: Taxation in Fair Value Measurements
References to Conceptual Framework (Amendments to IFRS 3)
In May 2020, the IASB issued amendments to IFRS 3, which update a reference to
the Conceptual Framework for Financial Reporting without changing the
accounting requirements for business combinations.
These amendments to various IFRS standards are mandatorily effective for
reporting periods beginning on or after 1 January 2022. The amendments provide
relief in respect of loans whose contractual terms are affected by interest
benchmark reform. There is no impact on the current reporting period.
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.
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
2023:
• 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).
The following amendments are effective for the period beginning 1 January
2024:
• IFRS 16 Leases (Amendment - Liability in a Sale and Leaseback)
• IAS 1 Presentation of Financial Statements (Amendment - Classification of
Liabilities as Current or Non-current)
• IAS 1 Presentation of Financial Statements (Amendment - Non-current
Liabilities with Covenants)
The Group is currently assessing the impact of these new accounting standards
and amendments. The Group does not believe that the amendments to IAS 1 will
have a significant impact on the classification of its liabilities, as the
conversion feature in its convertible debt instruments is classified as an
equity instrument and therefore, does not affect the classification of its
convertible debt as a non-current liability.
The Group does not expect any other standards issued by the IASB, but not yet
effective, to have a material impact on the group.
[The following is a list of other new and amended standards which, at the time
of writing, had been issued by the IASB but which are effective in future
periods. The amount of quantitative and qualitative detail to be given about
each of the standards will depend on each entity's own circumstances.
• IFRS 17 Insurance Contracts (effective 1 January 2023) - In June 2020, the
IASB issued amendments to IFRS 17, including a deferral of its effective date
to 1 January 2023.]
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 Income/(loss)
Operating income /(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.
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 in 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.
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 reporting 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.
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 Unit
of production method based on commercial proved and probable reserves at
producing BNG assets and straight-line basis at other entities, 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 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 an
estimated market rate of interest with the difference between a fair value and
a face value of the advance being recorded within investments.
Loan 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.
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.
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
Oil sold
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
following loading of 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.
Drilling services
The Group has applied the input method of revenue recognition in accounting
for revenue on unit rate/lump sum contracts, under which revenue is recognised
over time according to the stage of completion reached in the contract by
measuring the proportion of costs incurred for work performed relative to the
total estimated costs.
External drilling services contain distinct goods and services, but these are
not considered distinct in the context of the contract and are therefore
combined into a single performance obligation. At contract inception
management generally considers all applicable factors to determine whether the
contract contains a single performance obligation or multiple performance
obligations.
A change to an existing contract for a project of the Group is a modification,
which could change the scope of the contract, the price of the contract, or
both. The Group uses two methods to account for a contract modification: (1)
as a separate contract when the modification promises distinct goods or
services and the price reflects the stand alone selling price; or (2) as a
cumulative catch-up adjustment when the modification does not add distinct
goods or services and is part of the same performance obligation.
Contract costs are recognised in the income statement when incurred. When it
is probable that the total contract costs will exceed total contract revenue,
the expected loss is recognised immediately. As per IAS 37 an onerous contract
is a contract in which the unavoidable costs of meeting the obligations under
the contract exceed the economic benefits expected to be received under it. In
line with the principles of IAS 37 the loss will be recognised if there is a
present obligation, payment is probable and the amount can be estimated
reliably.
The amount recognised will be the best estimate of the expenditure required to
settle the present obligation at the reporting date.
In previous accounting periods revenue for such contracts was recognised in
full on acceptance being received.
See note 2.2.3 for additional information.
1.20 Cost of sales
For structures or contract areas with full production licences oil sales are
recognised as revenue and the associated costs as costs of sales. At other
structures or contract areas with exploration licences any test production is
considered incidental to the main purpose of the licence with the cost of
sales equal to the revenue is recognised and credited to 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 four operating segments
being oil exploration and production; onshore drilling services in Kazakhstan
provided by CTS LLP, offshore drilling services provided using the Caspian
Explorer, and the expenses corporate allocated, and therefore there are four
reporting segments. The Group has several cost pools divided based on the
different contractual territory of its assets.
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 1.21 and the
average rate during the year was 1.24. The year-end exchange rate from KZT to
US$ was 462.65 and the average rate during the year was 460.48.
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.
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 key estimates and
judgements that have the most significant effect on the amounts recognised in
the financial statements.
2.1 Estimates
2.1.1 Recoverability of proven oil and gas assets (note 13)
The proven oil and gas assets, representing the MJF and South Yelemes shallow
structures, have been assessed for indicators of impairment at 31 December
2022 including assessment of the discounted cash flows indicated by the
Group's field plan.
This analysis required an estimation in determining forecast prices as at 31
December 2022 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 $32 per barrel 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.
2.1.2 Revenue recognition and long-term contract accrued income
The determination of anticipated costs for completing a contract is based on
estimates that can be affected by a variety of factors such as potential
variances in scheduling and cost of materials along with the availability and
cost of qualified labour and subcontractors, productivity, and possible claims
from subcontractors.
The determination of anticipated revenues includes the contractually agreed
revenue and may also involve estimates of future revenues from claims and
unapproved variations, if such additional revenues can be reliably estimated
and it is considered probable that they will be recovered.
A variation results from a change to the scope of the work to be performed
compared to the original contract signed. An example of such contract
variation could be a change in the specifications or design of the project,
whereby costs related to such variation might be incurred prior to the
client's formal contract amendment signature. A claim represents an amount
expected to be collected from the client or a third party as reimbursement for
costs incurred that are not part of the original contract.
A modification is only then accounted for as a separate contract if the goods
and services are distinct in that the customer can benefit from the good or
service on its own. In both cases, management's judgments are required in
determining the probability that additional revenue will be recovered from
these variations and in determining the measurement of the amount to be
recovered.
As risks and uncertainties are different for each project, the sources of
variations between anticipated costs and actual costs incurred will also vary
for each project. The long-term nature of certain arrangements usually results
in significant estimates related to scheduling and prices.
The determination of estimates is based on internal policies as well as
historical experience.
2.1.3 Recoverability of VAT (note 16)
The Group holds VAT receivables of $1.7 million (2021: $3.8 million) 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 1 year
(2021: 2 years). This required estimates regarding future production, oil
prices and expenditure.
2.1.4 Decommissioning (note 21)
Provision has been made in the accounts for future decommissioning costs to
plug and abandon wells as set out 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.
2.1.5 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 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 (2021: US$20.7m).
2.2 Judgements
2.2.1 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 2022, the Group assessed the exploration and evaluation
assets disclosed in note 12 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. We applied
our judgement when considered the exploration contract at BNG that is expiring
in 2024. We believe that BNG be granted the extension of the contract after
confirming it committed all the requirements.
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
shallow area in the previous year and South Yelemes in the current financial
year and the net present value of these 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 2022.
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.
The Group cannot currently make any progress with the asset, which in 2021 was
fully impaired.
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.
2.2.2 Transfer of costs to proven oil and gas assets (notes 12
& 13)
Judgement has been applied in assessing South Yelemes shallow 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 December 2021 BNG has received the required production
license for its South Yelemes structure and got the export permission starting
June 2022. Before that date, BNG could sell the oil from South Yelemes only on
the internal market. Accordingly, BNG moved the related oil & gas assets
to the production stage in June 2022 and 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.
2.2.3 Recognition of revenue and costs of the drilling and repair
services
CTS LLP, is a wholly owned subsidiary of the Group and undertakes drilling and
other operational work both for the Group and third parties.
In 2021 and earlier periods work for third parties was not recognised as it
should have been as revenue with the associated expenditure as costs of sales
but was treated in the same way as work for the Group, with the costs debited
to work in progress within property, plant and equipment.
While the accounting policies described in note 1.19 have been applied in the
2022 financial statements, including applying the input method of revenue
recognition in accounting for revenue on drilling contracts, these accounting
errors have not been corrected in the 2021 financial statements as there is
insufficient data to accurately assess the timing of when the costs were
incurred and the allocation between Group assets and services provided to
external entities. In addition, due to the absence of detailed budgets being
updated regularly since contract inception date, the directors have not been
able to reliably assess the stage of completion and further costs required to
complete each contract. The absence of this information represents a
significant limitation on both the estimation of revenue recognised and if
expected loss provisions should be recognised.
Additionally, in 2021, some work on the Group's deep wells was also
capitalised to property, plant and equipment, where it should have been
capilised to unproven oil and gas assets. No retrospective adjustment has been
made in the 2021 financial statements, and the amount has been adjusted in
2022 in notes 12 and 13.
The absence of reliable information over all of these areas represents a
significant limitation on the valuation of the Group's external drilling
revenues, the completeness and validity of its cost of sales allocation, and
if any adjustments to the advances received/receivables, provisions for losses
on contracts, unproven oil and gas assets, property, plant and equipment and
any related taxation impacts at the current and prior year ends were
necessary. As a result, the related accounts' values for these items could be
materially higher or lower than currently recorded values.
2.2.4 Payable for BNG licence historic costs (notes, 19, 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, to be 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.
In previous reporting periods, the related obligations were disclosed as part
of the provisions as the Group was contesting the amount levied by the
authorities. However, as a final court judgment was made in June 2021 and the
amount of the obligation became enforceable by law as at 31 December 2021 the
amounts due should have been reclassified from provisions to payables as a
financial liability.
In 2022 the Group corrected this error and reclassified the related
obligations and has restated the comparative figures with the inclusion of the
amount due as financial liability.
Judgement was also required in selecting an appropriate discount rate for the
financial liability, with the applied rate of 2.7% being based on US dollar
Eurobonds yields in Kazakhstan with a comparable term.
2.2.5 Uncertain tax positions (note 22)
As detailed in note 22, 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.
2.2.6 Indemnity receivables in relation to the 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. Judgement 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 seeking full recovery has made a
provision for two thirds of the amounts due on the expected credit losses as
at 31 December 2022 (note 16).
2.2.7 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 2022 (no additional provision was recognised in
2021).
3 Capital reduction made in 2022
In order to start paying dividends, the Company had to achieve positive
balance of the retained earnings account. Accordingly, on 22 April 2022, the
Company's shareholders granted their approval for the a capital reduction. On
22 June 2022, the UK High Court confirmed the capital reduction. Consequently,
the Company cancelled its share premium and deferred shares accounts,
resulting in positive retained earnings from that date as follows.
Share premium account reduced by US$169,089,000.
Deferred shares account reduced by US$64,702,000.
Retained earnings account increased in total by US$233,791,000.
4 Segment reporting & revenue
Operating segments
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker. The chief operating
decision maker, who is responsible for allocating resources and assessing the
performance of the operating segments and making strategic decisions, has been
identified as the Board of Directors.
The Group operated in three operating segments during 2022 and 2021:
Exploration for and production of crude oil; onshore drilling services (CTS
LLP) and offshore drilling services (Caspian Explorer). All three segments
operate and generate revenues in Kazakhstan.
In 2021 onshore drilling services (CTS LLP) was included within Exploration
for and production of crude oil.
BNG Ltd. LLP (BNG) currently accounts for 100% of the exploration and
production revenues. Total revenue from crude oil sales generated by BNG in
2022 was US$ 39,245,000 (2021: US$ 23,725,000), net operating income for the
year from the exploration and production of crude oil was US$15,526,000 (2021:
loss of US$1,983,000).
100% of the Group's oil revenue was derived from three major customers (being
two local market traders (46%) and an export trader (54%). The revenue split
of oil sales in 2022 between the domestic traders and the export trader
(Euro-Asian Oil SA) was US $17,974,000 and US $21,271,000, respectively.
KC Caspian Explorer LLP (KCCE), representing the offshore drilling services
operating segment, historically providing drilling and related services in the
shallow northern Caspian Sea. In 2021 the KCCE provided NCOC, Kashagan oil
field operator, with safety related services. In 2022 KCCE had no revenue.
In 2022 Caspian Technical Services LLP (CTS LLP), provided onshore drilling
and repair services to BNG and to assets not owned by the Group.
Revenue
The Group's revenues are principally derived from the sale of oil in
Kazakhstan. In September 2019 following the award of a full production
licence, oil produced from the MJF structure at BNG started being sold on the
export market.
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 sales on the local market, to local mini refineries the
performance obligation is the supply of oil and the performance obligation is
satisfied at a point in time, being the collection of oil at the wellhead.
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 onto 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 provided training and safety related services for North
Caspian Operating Company (NCOC), the operator of Kashagan offshore oil field.
The total related revenue was approximately US$1.27 million with direct costs
of US $656,000. In 2022 KCCE earned no revenue.
In 2022 CTS LLP provided onshore drilling and repair services for Group and
for EPC Munai LLP, a related party, for in total US$ 3,704,000. As set out
more fully in note 25, CTS LLP also worked for EPC Munai in 2020 and in 2021
but did not separately record the income and expenditure on those contracts as
revenue and cost of sales as should have been the case.
Below is the summary of the results of the segments during 2022 and 2021:
Oil & Gas assets Drilling services by CTS $000 Drilling services by Caspian Corporate allocated $000 Total
$000 Explorer $000
$000
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
External revenues 39,245 23,725 3,704 - - 1,271 - - 42,949 24 ,996
Cost of sales (6,554) (4,968) (4,083) - - (656) - - (10,637) (5,624)
Gross profit 32,691 18,757 (379) - - 615 - - 32,312 19,372
Other administrative costs (7,416) (698) (230) (532) (633) (867) (1,488) (1,235) (9,767) (3 ,332)
Selling expense (9,751) (7,578) - - - - - - (9,751) (7,578)
Impairment of unproven oil and gas assets - (12,464) - - - - - - - (12,464)
Segment operating profit/(loss) 15,526 (1,983) (609) (532) (633) (252) (1,488) (1,235) 12,794 (4 002)
Finance income 51 11 - - 8 13 - - 59 24
Finance costs (549) (575) - - - - (36) (284) (585) (859)
Income / Loss before income tax 15,028 (2,547) (609) (532) (633) (239) (1,524) (1,519) 12,268 (4 ,837)
Total assets 103,794 95,807 7,775 15,682 2,254 2,621 3,328 101 117,151 114,211
Total liabilities 51,755 56,358 2,314 4,198 69 100 8,120 7,912 62,258 68,568
5 Operating income / (loss)
Group operating income / (loss) for the year has been arrived after charging:
Group Group
2022 2021
US$'000 US$'000
Impairment of unproven oil and gas assets (note 12) - (12,464)
Staff costs (note 7) (6,477) (1,051)
Depreciation of property, plant and equipment (note 13) (2,498) (3,557)
Auditor remuneration (note 6) (239) (212)
6 Group Auditor's remuneration
Fees payable by the Group to the Company's auditor BDO and its member firms in
respect of the year:
Group Group
2022 2021
US$'000 US$'000
Fees for the audit of the annual financial statements 180 153
Other services - tax related 11 11
191 164
Fees payable by the Group to Grant Thornton and its associates in respect of
the year:
Group Group
2022 2021
US$'000 US$'000
Auditing of accounts of subsidiaries of the Company 48 48
48 48
7 Employees and Directors
Staff costs during the year Group Company Group Company
2022 2022 2021 2021
US$'000 US$'000 US$'000 US$'000
Wages and salaries 5,842* 262 1,051 315
Social security costs 524 - 72 -
Pension costs 111 - 102 -
6,477 262 1,225 315
Payroll expenses of US$ 1,230,000 were capitalized into unproven oil and gas
assets in 2022 (2021: nil) and expensed as cost of sales in the amount
of US$409,000 (2021: US$ $254,000).
* During 2022 the Group declared payment of US $ 4,878,000 of bonus to the
employees of the Group who were the key personnel in achieving
high production and selling results at the major asset, BNG, during
2020-2022.
Average monthly number of people employed Group Company Group Company
(including executive Directors) 2022 2022 2021 2021
Technical 18 - 14 -
Field operations 233 - 170 -
Finance 8 1 7 1
Administrative and support 25 3 24 3
284 4 215 4
Directors' remuneration Group Group
2022 2021
US$'000 US$'000
Director's emoluments 380 332
Share-based payments - -
380 332
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$157,000 (2021: US$142,000).
8 Finance cost
Group Group
2022 2021
US$'000 US$'000
Loan interest payable 11 237
Unwinding of discount on BNG licence payment payable 550 616
Unwinding of discount on provisions (note 21) 24 6
585 859
9 Finance income
Group Group
2022 2021
US$'000 US$'000
Interest income at BNG LLP and KC Caspian 59 24
10 Taxation
Analysis of charge for the year Group Group
2022 2021
US$'000 US$'000
Current tax charge 2,371 709
Deferred tax charge - -
2,371 709
Group Group
2022 2021
US$'000 US$'000
Profit / (Loss) before tax 12,268 (4,837)
2,331 (919)
Tax on the above at the standard rate of corporate income tax in the UK 19%
(2021: 19%)
Effects of:
Differences in tax rates (948) -
Non-deductible expenses 103 (1,310)
Withholding tax on interest expense 711 709
Utilization of tax losses not previously recognized - (1,730)
Unrecognised tax losses carried forward 174 3,959
2,371 709
11 Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the income/(loss)
attributable to ordinary shareholders by the weighted average number of
ordinary shares outstanding during the year including shares to be issued.
There is no difference between the basic and diluted income / (loss) per share
in the current and prior year. Dilutive potential ordinary shares include
share options granted to employees and directors where the exercise price
(adjusted according to IAS33) is less than the average market price of the
Company's ordinary shares during the period.
The calculation of earnings/(loss) per share is based on:
2022 2021
Basic weighted average number of ordinary shares in issue during the year 2,221,391,258 2,097,978,787
Earnings / (loss) for the year attributable to owners of the parent from 9,763 (5,554)
continuing operations (US$'000)
The loss for the year attributable to owners of the parent from discontinued - -
operations (US$'000)
There were 6,000,000 potentially dilutive instruments in the year (2021:
2,500,000).
12 Unproven oil and gas assets
COST Group
US$'000
Cost at 1 January 2021 70,892
Additions 719
Foreign exchange difference (3,579)
Cost at 31 December 2021 68,032
Additions 11,470
Transfer from Property, plant and equipment (note 13) 4,810
Transfer to Property, plant and equipment (note 13) * (14,025)
Foreign exchange difference (6,077)
Cost at 31 December 2022 64,210
ACCUMULATED IMPAIRMENT Group
US$'000
Accumulated impairment at 1 January 2021 9,479
Impairment related to 3A-Best (100%) 12,464
Foreign exchange difference (48)
Accumulated impairment at 31 December 2021 21,895
Foreign exchange difference (1,498)
Accumulated impairment at 31 December 2022 20,397
Net book value at 1 January 2021 61,413
Net book value at 31 December 2021 46,137
Net book value at 31 December 2022 43,813
Unproven oil and gas assets represent license acquisition costs and subsequent
exploration expenditure in respect of the licenses held by Kazakh group
entities. The carrying values of those assets at 31 December 2022 were 100%
represented by BNG Ltd LLP (2021: by BNG Ltd. LLP). 100% cost of the unproven
oil and gas assets related to 3A Best-Group JSC of US$ 12,464,000 was impaired
at the Group level in 2021 after the notification by the Ministry of Energy of
Kazakhstan about the expiration of the subsoil use contract (see note 21 for
details).
The Directors have carried out an impairment review of these assets on a cost
pool level as detailed in note 2.1. As at 31 December 2022, the balance of
accumulated impairment was US$ 20,397,000.
* In 2021 BNG applied for the production license on its South Yelemes shallow
structure. The Ministry of Energy of Kazakhstan extended the term in
accordance with the additional agreement No. 1 dated June 24, 2023, until 23
June 2044. The related capitalised assets which were in total US$14,025,000
were moved to Proved Oil and Gas assets.
13 Property, plant and equipment
Following the commencement of commercial production in July 2019 the Group
reclassified part of BNG assets from unproven oil and gas assets to proven oil
and gas assets.
Proven Motor Other Total
Group
oil and gas assets Vehicles
US$'000 US$'000 US$'000 US$'000
Cost at 1 January 2021 43,722 56 11,177 54,955
Additions 1,757 2,198 4,938 8,893
Disposals - - (11) (11)
Acquisitions - - 53 53
Foreign exchange difference (550) (128) (212) (890)
Cost at 31 December 2021 44,929 2,126 15,945 63,000
Additions 323 176 3 502
Disposals (110) - - (110)
Transfer to Unproven oil and gas assets* - - (4,810) (4,810)
Additions (note 12) 14,025 - - 14,025
Foreign exchange difference (425) (111) (2,668) (3,204)
Cost at 31 December 2022 58,742 2,191 8,470 69,403
Depreciation at 1 January 2021 1,390 47 673 2,110
Charge for the year 1,339 482 1,736 3,557
Disposals - - (7) (7)
Foreign exchange difference 42 40 124 206
Depreciation at 31 December 2021 2,771 569 2,526 5,866
Charge for the year 2,079 61 358 2,498
Disposals (19) - - (19)
Foreign exchange difference 189 11 112 312
Depreciation at 31 December 2022 5,020 641 2,996 8,657
Net book value at:
01 January 2021 42,332 9 10,504 52,845
31 December 2021 42,158 1,557 13,419 57,134
31 December 2022 53,722 1,550 5,474 60,746
* Amount of Other PP&E that was transferred to Unproven Oil and gas assets
being by nature part of work in progress accumulated by CTS LLP but not yet
accepted by BNG as part of drilling and repair services for the blocks under
exploration program.
14 Investments (Company)
Investments Company
US$'000
Cost
At 1 January 2021 225,441
Change in investments -
At 31 December 2021 225,441
Change in investments -
At 31 December 2022 225,441
Impairment
At 1 January 2021 209,954
Impairment -
At 31 December 2021 209,954
Impairment -
At 31 December 2022 209,954
Net book value at:
31 December 2021 15,487
31 December 2022 15,487
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 if 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, then
these amounts may be impaired. The Company recorded no impairment in relation
to the investments in 2022 (impairment charge for 2021: nil).
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 2021
at 31 December 2022
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
Ravninnoe BV Netherlands -* 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 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 2021
at 31 December 2022
Galaz Energy BV Netherlands -* 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
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% 100% Drilling & Service Company
Sur Nedr LLP** 152/140 Karasay Batyr Str., Almaty, Kazakhstan
Kazakhstan 100% 100% Drilling & Service Company
SK-NS Aktau LLP** 152/140 Karasay Batyr Str., Almaty, Kazakhstan
14 Investments (Company, continued)
* During 2022 Ravninnoe BV and Galaz Energy BV both previously dormant were
liquidated.
**During 2021 CTS LLP has acquired 100% interest in Sur Nedr and SK-NS Aktau
LLP, the two companies have drilling licenses and other minor assets on their
balances. The consideration paid for 100% interest in these companies was
insignificant and the Group's management consider the acquisition to be an
asset acquisitions.
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
at 31 December 2022 2021
KC Caspian LLP*** Kazakhstan 100% 100% 152/140 Karasay Batyr Str., Almaty, Kazakhstan Drilling Vessel owner
***During 2020 the Company acquired a 100% interest in Prosperity Petroleum
Ltd and KC Caspian LLP, the companies owing an offshore drilling vessel. The
management of the Group considered the acquisition 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 2022 2021
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.
15 Inventories
Group Group
2022 2021
US$'000 US$'000
Materials and supplies 492 664
492 664
16 Other receivables
Group Group Company Company
2022 2021 2022 2021
US$ '000 US$ '000 US$ '000 US$'000
Amounts falling due after one year:
Prepayments made 9 448 - -
VAT receivable - 3,815 62 51
Long-term loan to the related party 1,523 - 1,523 -
Other receivable from related parties 1,001 - - -
Intercompany receivables - - 87,298 88,508
2,533 4,263 88,883 88,559
Amounts falling due within one year:
Prepayments made 1,256 1,285 14 10
VAT receivable 1,723 - - -
Other receivables 2,212 3,665 - -
5,191 4,950 14 10
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.
On 25 September 2022, the Independent Directors approved an interest-bearing
loan with rate of 7% to a maximum value of $5 million to Altynbek Bolatzhan, a
member of the Oraziman family, in connection with the proposed related party
acquisition of Block 8. At 31 December 2022, $1,356,000 of that loan had been
drawn down. The loan is to be repaid whether or not Block 8 is acquired.
Further details of the loan is set out in Note 25. Another US$ 167,000 of the
receivable by the Company as at 31 December 2022 is the amount due from Mr.
Kuat Oraziman after restructuring the loans with the related parties made in
2022 (note 20, 25).
US$1,275,000 out of US$2,212,000 (2021: US$3,656,000) shown as of Other
receivables represent the amounts reimbursable by the vendors of 3A Best under
the indemnities provided on acquisition of the exploration asset. At 31
December 2022, the amount is shown net of provision for expected credit
losses: During 2020 the amount has been impaired on US$2,551,000 or 2/3 of the
originally recognised amount due to the uncertainty of recovering 100%of the
amounts due in future periods.
The current intercompany receivables are interest free. In 2021, the Company
recognised US$ 797,000 of expected loss on provisions in relation to its
receivables from subsidiaries.
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 (2021: US$20.7 million).The movement in the
expected credit loss provision related to the inter-company receivables was as
follows:
Group Group Company Company
2022 2021 2022 2021
Denomination US$'000 US$'000 US$'000 US$'000
As at 1 January - - 20,709 19,912
Charge 1,659* - - 797
As at 31 December 1,659 - 20,709 20,709
*During 2022 BNG Ltd. LLP accrued the allowance on the advance payment made to
Sinopec in 2019. Sinopec, the Chinese drilling contractor, was engaged to
drill Deep Well A8. However, BNG did not accept the drilling works and did not
pay any amount beyond the prepaid amount. At the date of this report, the
parties have yet to come to a final agreement. Accordingly, the Group's
management has decided to reserve 100% of the receivable from Sinopec.
17 Cash and cash equivalents
Group Group Company Company
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
Cash at bank and in hand 3,682 429 2,405 4
Funds are held in US Dollars, Sterling and Kazakh Tenge currency accounts to
enable the Group to trade and settle its debts in the currency in which they
occur and in order to mitigate the Group's exposure to short-term foreign
exchange fluctuations. All cash is held in floating rate accounts.
Group Group Company Company
2022 2021 2022 2021
Denomination US$'000 US$'000 US$'000 US$'000
US Dollar 3,245 45 2,404 4
GB Sterling 1 - 1 -
Kazakh Tenge 436 384 - -
3,682 429 2,405 4
18 Called up share capital
Group and Company
Number Number
of ordinary of deferred
shares US$'000 shares US$'000
Balance at 1 January 2021 2,088,219,494 30,804 373,317,105 64,702
Shares issued to repay intermediary services 3,017,956 42 - -
Shares issued to repay new rig acquisition 18,972,164 264 - -
Bonus paid to employees 562,500 8 - -
Balance at 31 December 2,110,772,114 31,118 373,317,105 64,702
2021
Debt to equity conversion (note 20) 139,729,445 1,942 (373,317,105) (64,702)
Balance at 31 December 2,250,501,559 33,060 - -
2022
Caspian Sunrise Plc had authorised share capital of £100,000,000 divided into
6,640,146,055 ordinary shares of 1p each and 373,317,105 deferred shares of 9p
each at 31 December 2021. During 2022 the Company cancelled the deferred
shares account (note 3).
During 2021 the Company made the following issue of its ordinary shares:
(1) 3,017,956 ordinary shares being payment of the intermediary services
relating to the purchase of 100% of Prosperity Petroleum Ltd
(2) 18,972,164 new ordinary shares as the consideration for the purchase of a
US$ 750,000 workover rig.
(3) 562,500 new ordinary shares issued to staff members (below board level) as
the reward for successful drilling works.
On 9 March 2022 the Company completed the debt conversion first announced in
2021. Accordingly, 139,729,446 Debt Conversion shares were issued to convert
US$ 6,215,000 loans payable to Oraziman family and related entities (note 20).
On 4 November 2022 the Company announced its first interim dividend to
shareholders of in total £1,000,000 (equivalent of US$ 1,222,000), which was
paid in December 2022. Additionally, in December 2022 the Company declared a
second dividends which was paid in January 2023. Total declared in 2022
dividends were US$ 2,444,000. Further dividends were declared in January and
February 2023 and paid in February and March 2023 respectively. In the
Company's accounts at 31 December 2022 the dividends payable were US
$1,347,000 (note 19), of which around 10% were unpaid November dividends held
due to dispute over share ownership. In 2023 the outstanding at 31 December
2022 dividends were paid.
19 Trade and other payables
Group Group Company Company
Current payables 2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
Trade payables 1,817 2,684 21 64
Taxation and social security 3,376 2,977 20 20
Accruals 4,031 152 106 106
Other payables 2,385 3,502 18 485
Intercompany payables - - 1,693 58
Dividends payable 1,347 - 1,348 -
Advances received (deferred revenue) 2,915 3,925 - -
15,871 13,240 3,206 733
At 31 December 2022 and 31 December 2021, the Group had received significant
prepayments from the customers both oil sales and on CTS LLP contracts. The
amount of the advances received from oil traders at 31 December 2022 was US$
2,192,000 (2021: US$ 1,822,000). The amount received by CTS LLP at 31
December 2022 was US$ 704,000 (2021: US$ 2,103,000).
Group Group Company Company
Long-term withholding CIT payable 2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
Taxation 13,779 14,003 - -
13,779 14,003 - -
Group Group Company Company
BNG historic costs payable* 2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
Current 3,178 3,178 - -
Non-current 16,297 19,290 - -
19,475 22,468 - -
*The subsoil use contract held by BNG Ltd for the MJF 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$32.5m. The sum is payable on a quarterly
basis from 1 July 2019 in equal instalments with the final payment due to be
paid on 1 April 2029. The future payments have been discounted to their net
present value. This discounted value has been capitalised as Property, plant
and equipment and will be amortised over the productive period. Any changes in
estimated payments and discount rate are dealt with prospectively and result
in a corresponding adjustment to property plant and equipment.
In previous reporting periods, the related obligations were disclosed as part
of the provisions as the Group was contesting the amount levied by the
authorities. However, an error was identified in the classification of these
obligations as at 31 December 2021 as a final court judgment was made against
the Group in June 2021 and the amount of the obligation became enforceable by
law and should have been reclassified from provisions to payables as a
financial liability. In 2022 the Group corrected this error and reclassified
the related obligations and the comparative figure to payables and added a
relevant financial liability line and maturity dates within liquidity risk in
note 24.
Taxation payable relate to withholding tax accrued on the interest expense at
the BNG subsidiary level.
20 Short-term borrowings
Group Group Company Company
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
Akku Investments LLP - 4,433 - 2,224
Mr. Oraziman - 1,424 - -
Other borrowings 352 568 - 158
352 6,425 - 2,382
At the start of 2021 the entities of the Group had the following loans payable
to Kuat Oraziman / companies owned by the Oraziman family: (1) US$
1,125,000 interest bearing loan to Eragon Petroleum FZE from Kuat Oraziman,
interest rate: 7%;
(2) US$ 777,000 interest bearing loan to Caspian Sunrise plc from Kuat
Oraziman, interest rate: 7%;
(3) US$ 1,733,000 loan to other Group subsidiaries from Kuat Oraziman,
interest free;
(4) US$ 672,000 interest bearing loan provided by Fosco BV, a company
owned by the Oraziman family to BNG LLP, interest rate: 7%;
(5) US$ 1,293,000 interest bearing loan to Caspian Sunrise PLC from Vertom
International NV and Kernhem International BV, companies owned by the Oraziman
family, interest rate: 7%.
During 2021 the major part of these loans were assigned to Akku Investment
LLP, another company the company controlled by the Oraziman family.
Kuat.Oraziman then provided additional US$ 229,000 loan to BNG and CTS LLPs
during 2021 (nominated in KZT, interest free). The Oraziman family also
provided a US$ 596,000 to other Group entities in 2021.
On 9 March 2022 following the approval by independent Caspian Sunrise
shareholders US$6,215,166 of the above debt was converted to equity with the
issue of 139,729,445 shares at a price of 3.2p per share, comprising:
(1) 100,021,431 shares issued to offset the loans payable by the Group to
Akku Investments LLP
(2) 39,708,014 shares issued to repay loans and salary debts to Kuat
Oraziman (US$1,766,212).
During 2022 the Group entity, Prosperity Petroleum Limited paid Kuat Oraziman
US$800,000. Total US$633,080 of the payable to Kuat Oraziman and controlled by
him entities were offset versus this amount during 2022. As the result of the
operation, at 31 December 2022 Kuat Oraziman owed to Caspian Sunrise plc US$
167,000. In addition, after the restructurings done, repayments and additional
loans provision (net addition of US$142,000) at 31 December 2022 the Group
owed Vertom International, a company controlled by Kuat Oraziman, US$352,000
of loans received in 2022. The loans were nominated in tenge with no interest.
21 Provisions and contingencies
Group only Liabilities under Social Development Program Abandonment fund 2021
Total
(restated*)
US$'000 US$'000 US$'000
Balance at 1 January 2021 5,973 557 6,530
Increase in provision - 103 103
Change in estimate - (34) (34)
Paid in the year (618) - (618)
Unwinding of discount - 6 6
Foreign exchange difference (14) (4) (18)
Balance at 31 December 2021 5,341 628 5,969
Non-current provisions - 487 487
Current provisions 5,341 141 5,482
Balance at 31 December 2021 5,341 628 5,969
Group only Liabilities under Social Development Program Abandonment fund 2022
Total
US$'000 US$'000 US$'000
Balance at 1 January 2022 5,341 628 5,969
Increase in provision 733 79 812
Change in estimate - (89) (89)
Paid in the year (49) - (49)
Unwinding of discount - 24 24
Foreign exchange difference (172) (49) (221)
Balance at 31 December 2022 5,853 593 6,446
Non-current provisions - 469 469
Current provisions 5,853 124 5,977
Balance at 31 December 2022 5,853 593 6,446
* Provisions note was restated for 2021 in the 2022 financial accounts as
Historic costs payable at BNG were mistakenly disclosed as provisions rather
than as a financial liability in 2021 (details in the note 19).
Amounts in relation to Subsoil Use Contracts are included in the table above
and relate to the licence areas disclosed below:
a) BNG Ltd LLP
BNG Ltd LLP a subsidiary, signed a contract #2392 dated 7 June 2007 with the
Ministry of Energy and Mineral Resources of the Republic of Kazakhstan for
exploration at Airshagyl deposit, located in Mangistau region. According to
the latest Amendments BNG is required to pay around US$ 231,650 annually in
respect of social programs in the 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 the training of
Kazakh personnel of an amount of 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 2022 BNG was in compliance with all the requirements listed above.
On 11 July 2019, BNG Ltd LLP signed a production contract with the Ministry of
Energy of the Republic of Kazakhstan at the North-West Yelemes structure. The
Contract is valid for 25 years till 2043. On 23 December 2021, BNG signed the
production contract at South Yelemes structure for an initial period of 6
months. The terms were extended in accordance with the additional agreement
No. 1 dated 24 June 2023, and valid until June 23, 2044. No additional
social obligations were added for the 2019 and 2022 contract extensions and
upgrades.
b) 3A-Best Group JSC
As at 31 December 2020 3A-Best had the following debts related to its sub soil
use (SSU) contract: US$2,500,000 of social development payment and
approximately $US 1,million of debts related to the previous years' work
programme obligations. According to the Addendum #8 to the Contract signed by
the Company on 20 January 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 payments of US$580,000 quarterly for the 6 quarters ending
in 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 company did not meet all the above in full but made some payments while
seeking a solution to the situation. In 2021 the Group received a
notification from the Ministry of Energy of Kazakhstan that as the Subsoil Use
contract was not extended in July 2020 the contract was deemed to have expired
on 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
$12.5 million impairment charge in 2021.
22 Deferred tax
Deferred tax liabilities comprise:
Group Group
2022 2021
US$'000 US$'000
Deferred tax on exploration and evaluation assets acquired 6,335 6,463
6,335 6,463
The Group recognises deferred taxation on fair value uplifts to its oil and
gas projects arising on acquisition. These liabilities reverse as the fair
value uplifts are depleted or impaired.
The movement on deferred tax liabilities was as follows:
Group Group
2022 2021
US$'000 US$'000
At beginning of the year 6,463 6,629
Foreign exchange (128) (166)
6,335 6,463
As at 31 December 2022 the Group has accumulated deductible tax expenditure
related to BNG of approximately US$62 million (31 December 2021 US$65 million)
available to carry forward and offset against future profits. This represents
an unrecognised deferred tax asset of approximately US$12 million (31 December
2021: US$13 million). Given the uncertainties regarding such deductions and
the developing nature of the relevant tax system no deferred tax asset is
recorded.
23 Share option scheme and LTIP scheme
During the year 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.
On 10 January 2022 Shin Seokwoo, Chief Operating Officer was granted 2,500,000
options exercisable at 5.5p and Edmund Limerick, non-executive director was
granted 1,000,000 options exercisable at 5.5p per share. Both option grants
being exercisable until 9 January 2032.
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 2021 91,458,226 (64,808,226) (15,300,000) 11,350,000 11
Directors 3,500,000 - - 3,500,000 -
Employees and others - - - - -
As at 31 December 2022 94,958,226 (64,808,226) (15,300,000) 14,850,000 11
14,850,000 outstanding options as at 31 December 2022 are exercisable.
The range of exercise prices of share options outstanding at the yearend is 4p
- 20p (2021: 4p - 20p). The weighted average remaining contractual life of
share options outstanding at the end of 2022 is around 3.5 years (2021: 2
years).
Long Term Incentive Plan (LTIP) scheme:
On 5 June 2019 the Company made awards under a long term incentive plan. Clive
Carver, 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 $0.5 billion and
the corresponding share price threshold increasing from the earlier threshold
by a constant factor of 1.2. Each threshold must be sustained for at least
30 consecutive days for the awards to be triggered. Payments shall be made
only when the Company has free cash either in the form of distributable
reserves or as a result of a non-interest bearing subordinated shareholder
loan or an equity placing at a price not below the relevant share price
threshold.
There may be only one pay-out for each market capitalisation threshold crossed
no matter how many times it is crossed.
The Group has determined that at inception and 31 December 2021 and 2022, the
fair value of the cash settled share based payment award is immaterial based
on analysis of the thresholds, historical volatility rates and the applicable
share price and market capitalisation in the period.
24 Financial instrument risk exposure and management
In common with all other businesses, the Group and Company are exposed to
risks that arise from its use of financial instruments. This note describes
the Group and Company's objectives, policies and processes for managing those
risks and the methods used to measure them. Further quantitative information
in respect of these risks is presented throughout these financial statements.
The significant accounting policies regarding financial instruments are
disclosed in note 1.
There have been no substantive changes in the Group or Company's exposure to
financial instrument risks, its objectives, policies and processes for
managing those risks or the methods used to measure them from previous years
unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group and Company, from which
financial instrument risk arises, are as follows:
Group Group Company Company
Financial assets 2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
Intercompany receivables - - 87,298 88,508
Other receivables 2,212 2,247 - -
Other receivables from related parties 1,001 1,409 - -
Receivables from the related parties 1,523 - 1,523 -
Restricted use cash (related to decommissioning) 694 634 - -
Cash and cash equivalents 3,682 429 2,405 4
9,112 4,719 91,226 88,512
Financial liabilities Group Group Company Company
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
Trade and other payables 8,253 6,338 146 655
BNG historic costs payable 19,475 22,468 - -
Intercompany payables 1,693 58
Borrowings - current 352 6,425 - 2,382
28,080 35,231 1,839 3,095
Changes in liabilities arising from financial activities
Below is the movement of financial liabilities of the Group for the years
ended 31 December 2022 and 2021:
1 January Loans received Interest accrued Repayment Foreign exchange difference, net 31 December 2022
2022
Disposal of loans
Financial liabilities
Borrowings 6,425 352 11 (6,215) (633) 412 352
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
Below is the movement of financial liabilities of the Company for the years
ended 31 December 2022 and 2021:
1 January Loans received Interest accrued Repayment Foreign exchange difference, net 31 December 2022
2022
Disposal of loans
Financial liabilities
Borrowings 2,382 20 11 (2,413) - - -
1 January Loans received Interest accrued Repayment Foreign exchange difference, net 31 December 2021
2021
Conversion to equity
Financial liabilities
Borrowings 2,069 158 155 - - - 2,382
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. Whilst retaining ultimate
responsibility for these objectives and policies, 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$ 9.0 million (2021: US$ 4.7 million).
Credit risk with respect to Group receivables and advances is mitigated by
active and continuous monitoring of 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.
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. 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 2022 was 1% (2021: 14%).
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 2022 and 2021
see the 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 2022 US$'000 352 9.066 2,439 17,891 - 29,748
Group 2021 US$'000 6,425 3,497 6,093 24,397 - 40,412
Company 2022 US$'000 1,693 - - - - 1,693
Company 2021 US$'000 2,382 655 58 - - 3,095
Interest rate risk
The majority of the Group's borrowings are at fixed rate. As a result the
Group is not exposed to 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$38 million (2021:
US$43 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$38 million (2021: US$43 million).
25 Related party transactions
The Company has no ultimate controlling party.
25.1 Loan agreements
The Company had loans outstanding as at 31 December 2022 and 2021 with members
of the Oraziman family and legal entities controlled by the Oraziman family,
details of which have been summarised in note 20. The terms of the loans are
in accordance with a framework agreement entered into by the Company and the
Oraziman family under which interest is charged at the rate of 7% per annum.
25.2 Block 8 Loan and Option agreements
Loan agreements
In September 2022, the Company agreed to provide a loan to Mr. Altynbek
Bolatzhan, a member of the Oraziman family, of up to $5 million, guaranteed by
other Oraziman family members, and to be used in finalising the Block 8
exploration work programme and to obtain a production license at Block 8. In
the event the acquisition of Block 8 does not complete the loan would be
repayable by the Oraziman family. At 31 December 2022, of the $5 million total
the Company had advanced $1,356,000 to Mr. Bolatzhan, with the interest rate
of 7%.
During 2022 the Group entity, Prosperity Petroleum Limited paid Kuat Oraziman
US$800,000. Total US$633,080 of the payable to Kuat Oraziman and controlled by
him entities were offset versus this amount during 2022. As the result of the
operation, at 31 December 2022 Kuat Oraziman owed to Caspian Sunrise plc US$
167,000. In addition, after the restructurings done, at 31 December 2022 the
Group still owed Vertom International, a company controlled by Kuat Oraziman,
US$352,000 of the loans received in 2021-2022. The loans are nominated in
tenge with no interest.
Option agreement
In September 2022, the Company entered into an option agreement with Mr.
Altynbek Bolatzhan, an Oraziman family member, for the Company to acquire EPC
Munai LLP (Block 8).
The maximum consideration for the asset is $60 million, payable in cash from
future production from Block 8, at the rate of $5 per barrel of oil
produced.
25.3 Key management remuneration
Key management comprises the Directors and details of their remuneration are
set out in note 7.
25.4 Sales of services
As set out more fully in note 4 CTS LLP, the Group's onshore drilling
subsidiary undertook repair and drilling work at Block 8 (EPC LLP), which is
owned by members of the Oraziman family and for which the Group has an option
to acquire.
As at 31 December 2021 CTS LLP received US$ 2,103,000 of the advances for
drilling and repair works at Block 8. In 2022 CTS has accrued US$ 3,704,000 of
revenue from services to Block 8. The related cost of sales was US$ 4,083,000
(note 4). The balance of the advances received at 31 December 2022 was US
$704,000.
In 2020 CTS LLP conducted limited repair work at Wells P1 and P2 for a price
of $757,653. In 2021 CTS LLP conducted limited repair work on Well P1 for a
price of $646,373. During 2021-2022 CTS LLP drilled a side-track at Well P1
for a price of $972,658.
During 2022 CTS LLP has entered into additional contracts with EPC Munai to
drill a further 2 deep wells on Block 8's Skolkara structure (note 2.2.3).
Well P3
The first is Well Р-3, with a contract value is $6,484,000.
At 31 December 2022 only the preparatory works had been completed, which we
estimate to be approximately 10% of the total work. During 2023 work at the
well has been put on hold to allow other projects to proceed. At 31 December
2022 $470,000 had been paid to CTS LLP for the drilling works.
Well AKD
The second is Well AKD where the contract value is $4,323,000.
At 31 December 2022 the well had reached a depth of 2,187 meters, representing
approximately 20% of the total work. At 31 December 2022 $1,652,000 had been
paid to CTS LLP for the drilling works.
For additional information on related party transactions with the Oraziman
family and entities controlled by them see notes 16, 20.
26 Non-controlling interest
Group Group
2022 2021
US$'000 US$'000
Balance at the beginning of the year (5,801) (5,809)
Share of profit / (loss) for the year 134 8
(5,667) (5,801)
As at 31 December 2022 non-controlling interest represents minority share in
BNG Ltd LLP and Beibars Munai LLP (as at 31 December 2021: BNG Ltd LLP and
Beibars Munai LLP).
27 Events after the reporting period
Conditional sale of 50% of the Caspain Explorer
On 12 June 2023 the Company announced the conditional sale of 50% of the
shares in Prosperity Petroleum FZE, the UAE registered holding company of KCCE
Investments, the Kazakh registered company that owns the Caspian Explorer for
a cash consideration of $22.5 million. By the time of this report publishing
the Company did not receive any amount from the potential buyer.
Bank loan to BNG
On 30 June 2023 BNG Ltd. LLP, the subsidiary, received an official letter from
Fortebank (Kazakhstan) with approval of a revolving credit line on 36 months,
7%, of up to US$ 5,000,000. The aim of the loan is to finance the current
operations of the entity.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR EAXXKEDSDEFARecent news on Caspian Sunrise
See all newsREG - Caspian Sunrise plc - General Meeting Results
AnnouncementREG - Caspian Sunrise plc - Issue of Equity and Option Awards
AnnouncementREG - Caspian Sunrise plc - Proposed Acquisition, Rule 9 Waiver and GM Notice
AnnouncementREG - Caspian Sunrise plc - Strategic & Operational Update
AnnouncementREG - Caspian Sunrise plc - BNG Operational update
Announcement