REG - Caspian Sunrise plc - Annual Report for the Year Ended 31 December 2023
15/07/2024 07:00
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RNS Number : 3171W Caspian Sunrise plc 15 July 2024
Caspian Sunrise PLC
("Caspian Sunrise" or the "Company")
Annual Report and Financial Statements for the Year Ended 31 December 2023
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 2023. The Company anticipates that the suspension of the
Company's shares will be lifted today.
2023 Financial highlights
· Total revenues $36.7 million (Restated 2022: $40.9 million)
o Oil sales revenues $21.6 million (2022: $39.2 million)
o Oil trading revenues $10.3 million (2022: nil)
o Oil services revenues $4.1 million. (Restated 2022: $1.6 million)
· EBITDA $18.1 million (Restated 2022; $15.7 million)
· Operating profit $15.5 million (Restated 2022: $12.9 million)
· Profit before tax $14.8 million (2022: $12.3 million)
· Profit after tax $11.1 million (Restated 2022: $10.0 million)
· Gross assets $134.9 million (2022: $117.7 million)
2023 Operational highlights
· Production volumes 665,114 barrels (bbls) (2022: 792,284 bbls)
· Commencement of oil trading
· Continuing workover programme at MJF structure
· Horizontal drilling approach at Soviet era South Yelemes wells
· Deep Well 803 spudded - the third deep well on the Yelemes Deep
structure
· Two new deep wells completed at Block 8
· First commercial drilling contract signed for the Caspian
Explorer
· BNG shallow structure reserves at 31 December 2023:
o P1 13.6 million barrels (mmbls); (2022 14.3 mmbls)
o P2 24.8 mmbls (2022: 25.5 mmbls)
2024 Highlights to date
· Independent shareholder approval of the acquisition of the West
Shalva Contract Area
· Shallow Well 155 spudded in February 2024 and drilled to 2,400
meters now testing a 16 meter interval
· Deep Well 803 drilled to a depth of 3,420 meters now testing a 15
meter interval
· Conditional agreement to sell the MJF and South Yelemes
structures for $83 million
· Reserves in the immediate vicinity of the drainage areas around
Deep Wells A5, A6 & A7 independently assessed at approximately
o C1 49.0 million barrels
o C2 28.9 million barrels
· Commencement of the Caspian Explorer ENI charter
Expected future events
Q3 2024
· Licence renewal at Block 8
· Caspian Explorer charter completed
· Confirmation of C1 style reserves for the Yelemes Deep structure
at BNG
· Award of licence extension for BNG's Airshagyl & Yelemes Deep
structures
· Production commences from Block 8 from existing wells
· Testing new well at Block 8
· First well drilled at West Shalva
· Acquisition of a G70 rig
Q4 2024
· First mining acquisition
· Completion of the West Shalva acquisition
· Completion of the Block 8 acquisition
CHAIRMAN'S STATEMENT
Introduction
Over the past few years, Caspian Sunrise has evolved from essentially one
commercial asset with just a single producing structure, to now being a
diversified and profitable natural resources group, with significant income
flowing from a range of activities and with additional near term opportunities
for further successful growth and diversification. The Group also has strong
asset backing.
This transformation has been achieved in the face of some significant hurdles,
including the oil price falling to $6 per barrel during the Covid-19 pandemic,
assessed historic costs of $32 million to be repaid over a 10 year period, and
the financial and operational impact of Russian sanctions, which for much of
the past two years has ruled out international sales and significantly added
to operational complexity. Notably, this transition was achieved against the
backdrop of the financial constraints of a demanding work programme at our
flagship BNG asset. It has also been implemented without undue dilution to
shareholders.
Funding for the transition came principally from the sale of oil produced at
BNG's MJF structure, from loans from our largest shareholding group and by
running creditors and short term debt at higher levels than usual.
The Group now:
· owns (or is in the process of acquiring) three active oilfields with
production expected from all three before the end of the year;
· is building a significant reserve base with further additions
expected in the next 3 months;
· owns sufficient equipment and rigs to drill four wells at the same
time and is also able to drill for third parties to farm into new oilfields;
· owns the only drilling vessel of its type capable of exploring
the shallow reaches of the highly prospective northern Caspian Sea, which the
Directors estimate would have a replacement cost of approximately $300 million
and would take up to 3 years to become operational; and
· holds a coveted oil trading licence under the new rules
introduced in 2023.
The financial rewards of these achievements are expected to become more
apparent during the second half of the current financial year following:
· increasing production from BNG, Block 8 & West Shalva;
· if completed on the terms set out in the exclusivity agreement the
proposed sale of the MJF and South Yelemes structures at the BNG Contract Area
would result in $83 million gross proceeds;
· reduced operational expenditure following the completion of the
current work programme commitments at BNG;
· the start of production revenues from Block 8 and West Shalva;
· continued oil trading profit; and
· receipt of income from the first commercial drilling charter for
the Caspian Explorer under the Group's ownership.
Operational overview
BNG
At BNG our prime focus was to complete the work programme obligations required
to renew the licence for the Airshagyl & Yelemes Deep structures from July
2024, being principally Well 155 on the MJF structure and Deep Well 803 on the
Yelemes Deep structure.
We currently have a combined licence for the Airshagyl and Yelemes Deep
structures which we intend to extend for a two year period before applying for
separate 25 year licences for both structures. We already have separate
production licences at both the MJF and South Yelemes structures running until
2043 and 2046 respectively.
The licence upgrade process requires independent assessments of the reserves
under the former Soviet classification system operated by the Geological
Committee of the Republic of Kazakhstan as required under the Kazakh reserve
reporting rules at both the Airshagyl and Yelemes Deep structures based on the
information gathered from the wells drilled on each.
In June 2024 we announced that SciRes, an independent Kazakh consultancy, had
assessed the C1 reserves in the immediate vicinity of the Deep Wells A5, A6
& A7 on the Airshagyl structure as 6.809 million tonnes or approximately
49.0 million barrels and C2 reserves on the same basis as 4.009 million tonnes
or approximately 28.9 million barrels.
A similar exercise is underway on the Yelemes Deep structure, the second deep
structure on the BNG Contract Area, where to date three wells have been
drilled. The reserve estimate requires the completion of the current work at
Deep Well 803 and is therefore expected to be available in Q3 2024.
To maximise the revenues from the MJF structure to fund the development of the
Group we pushed the original wells hard over prolonged periods with the result
that they are no longer as productive as they could have been if our priority
had been to maximise their useful lives.
The MJF structure is clearly a maturing structure with higher levels of water
content than ideal and it is inevitable that we will find it harder to
maintain production levels from the earlier wells drilled on the structure.
Drilling to date to return the previously best performing Wells 141 and 142 to
meaningful production has yet to work.
On the positive side, we are becoming more comfortable with the use of
horizontal drilling techniques which can significantly increase production
volumes. However, it is clear that horizontal drilling is far more effective
in new wells, such as Well 155, rather than older wells such as 141 & 142.
At South Yelemes we completed horizontal side-tracks at Wells 805 and 806 from
depths between approximately 2,200 and 2,300 meters.
Production levels from the BNG shallow structures fluctuated during the period
under review and subsequently to a greater degree than in previous years as
wells came in and out of production. Total production for 2023 was 665,114
bbls which equates to 1,822 bopd (2022: 792,284 bbls & 2,171bopd).
Well 155 on the MJF structure was spudded in Q1 2024 and drilled to a depth of
2,400 meters. Testing of a 16 meter interval commenced in June 2024 with
initial flow rates between 900 and 1,000 bopd. Production rates at Well 155
have since been reduced to approximately 700 bopd to optimise the life of the
well.
Deep Well 803 was spudded in Q4 2023 with a planned total depth of 4,200
meters with a primary target at a depth of 3,950 meters and a secondary target
at a depth of 4,200 meters. Oil has been detected over a 60 meter interval
between 3,360 meters and 3,420 meters, above the expected targets and also
above the main salt layer. Testing of a 15 meter interval commenced in July
2024.
Total production at the date of this report, before any contribution from Well
803, is approximately 2,300 bopd.
Block 8
In 2023 in anticipation of the completion of the acquisition of the Block 8
Contract Area, details of which are set out under the Corporate Events section
below, we drilled two new deep wells to depths of 3,922 and 3,408 meters.
These wells cannot be tested until the licence at Block 8 is renewed.
Once the licence is renewed our intention is now to use our G20 workover rig
to test these two new wells.
3A Best
There was no operational activity at 3A Best during the period under review or
subsequently.
Further information on the BNG, Block 8, and 3A Best Contract Areas together
with the West Shalva Contract Area is set out below under the section entitled
Our Assets.
Caspian Technical Services (CTS)
All the Group's onshore drilling is conducted via our 100% owned drilling
subsidiary CTS, which also drills for third parties and currently has the
capacity to drill four wells simultaneously using its own rigs and
approximately 150 specialist contractors.
CTS owns 4 rigs, being one G50, two G40s, and a G20 workover rig, with the
number indicating the maximum drill string weight the rig can support.
Negotiations to acquire a G70 rig, which will allow future faster drilling of
deep wells, are at an advanced stage.
Caspian Explorer
During the period under review and subsequently, significant effort has been
expended on preparing the Caspian Explorer for its first commercial drilling
contract under the Group's ownership.
In February 2023 we announced a two well charter for a consortium in which
Eni S.p,A, the Italian multinational energy company (ENI) is the leading
member. Contracts for the first of the two wells are in place and the first
charter commenced in July 2024. As the contract specifies day rates rather
than a fixed amount for the use of the Caspian Explorer it will not be until
drilling is completed that the total revenue will be known. However, we
expect to receive at least a further $10 million in the next few months in
addition to the upfront payments already received.
We are also in discussions to charter the Caspian Explorer in 2025 to a
different consortium, with 2026 identified should the ENI led consortium
exercise their option for a second well.
Oil Trading
Being principally a financial function our introduction into oil trading is
covered under the Financial Review below.
Corporate activities
BNG
In March 2024 we reported early stage discussions with a number of parties,
which could result in a partial or complete sale of our interest in the BNG
Contract Area. Our belief is that this heightened level of corporate interest
in the BNG Contract Area reflects a combination of the relative scarcity of
such assets and also the changes to the Kazakh oil trading regulations, which
now require production to qualify for a trading licence.
In May 2024 we granted Absolute Resources LLP, a Kazakh registered entity, a
90 day exclusivity period to complete their due diligence on a proposed $83
million acquisition of the MJF and South Yelemes shallow structures on the BNG
Contract Area.
We remain proud owners of the BNG Contract Area and have not initiated these
discussions. However, accepting that there is a price for any of our assets at
which shareholders would be better served by selling, we have a duty to listen
and if appropriate act. We believe that realising $83 million to use on other
Group assets would enhance shareholder value over the medium / longer term.
If progressed the sale of the MJF and South Yelemes structures would require
the approval of Caspian Sunrise shareholders and the customary regulatory
approvals in Kazakhstan and the UAE.
To date, in aggregate, approaching $200 million has been spent on the BNG
Contract Area of which the Group has spent approximately $120 million, most of
which was spent on the deep structures. Any corporate activity in respect of
the deep structures at the BNG Contract Area would need to reflect both the
gross investment made to date and the Contract Area's future prospects as
evidenced by expected future production levels and reserves.
Block 8
In September 2023 we exercised the option to acquire the Block 8 Contract
Area, which was first announced in September 2022.
On renewal of the licence, which is a condition of the acquisition, completion
of the acquisition will be dependent on the customary approvals from the
Kazakh authorities and the re-registration of ownership in the UAE.
Under the terms of the Block 8 Acquisition Agreement there is no significant
up-front cash payment or issue of shares. Virtually all the purchase
consideration is to be satisfied in cash via a royalty of $5 per barrel from
oil produced from Block 8 once owned by the Group. The maximum purchase price
is capped at $60 million.
The resumption of production at Block 8 will trigger the commencement of the
repayment of the $3.1 million loan advanced to allow the 2023 drilling work at
Block 8 to be completed. For further details see Note 16.
We believe Block 8 represents, in addition to the deep structures at BNG, a
second potentially transformative asset in that either or both could enjoy the
same geological characteristics of the nearby world class Tengiz and Kashagan
assets.
West Shalva
In April 2024 independent shareholders approved the acquisition of the West
Shalva Contract Area for an initial consideration of $5 million to be
satisfied by the issue of 99,206,349 shares to be issued at 4p per share. On
first oil an additional $5 million becomes payable by the issue of a further
99,206,349 shares, again to be issued at 4p per share. Additionally, the first
$5 million of revenue derived from the sale of West Shalva oil once under the
Group's ownership is payable in cash to the vendor in which case the maximum
total consideration would be $15 million.
West Shalva is expected to be a far easier oilfield from which to produce oil
than either BNG or Block 8. It does not have the salt layer present at both
BNG and Block 8, beneath which the exceptional temperatures and pressures have
made drilling difficult. Conversely, it does not have the same potential to
become a world class asset.
It is better located for access and to deliver oil being much closer to
refineries than either BNG or Block 8. It is also approximately 600 km further
south than BNG and Block 8 thereby enjoying a better climate, which should
result in fewer weather related delays than we encounter at BNG and are likely
to encounter at Block 8.
More strategically, owning West Shalva makes it easier to consider selling all
or part of BNG without the need to have rigs idle.
3A Best
The 3A Best licence expired some years ago and there are overdue social
obligations to pay to be in a position to apply to renew the licence. However,
we believe the complexity of the situation set out below is the reason why the
Kazakh authorities have not sought to put the licence back into a tender
process and that in time it will be renewed.
The 3A Best Contract Area surrounds and goes beneath the established shallow
Dunga Contract Area, which is believed to have produced at rates up to 15,000
bopd. When we acquired our interest in 3A Best Dunga was owned by Maersk, the
Danish conglomerate, who then sold it to Total Energies, the French energy
company. KazMunaiGas, the Kazakh state oil company is now the owner.
Our interest in the 3A Best Contract Area was for accounting purposes fully
written down several years ago. In 2021 we entered into an agreement to sell
the majority of our interest in 3A Best conditional on the licence renewal but
the delays involved resulted in that agreement falling away. Now the ownership
of Dunga has been resolved we cpcan decide how best to proceed at 3A Best.
Caspian Explorer
Given its unique nature and the resurrection of exploration activity in the
shallow northern Caspian Sea, it was not a surprise to receive interest from
potential buyers at sums vastly greater than the $1.7 million that the Caspian
Explorer is carried at in these financial statements.
In June 2023 we announced the proposed sale of a 50% interest in the UAE
registered company that holds a 100% interest in the Kazakh entity that in
turn owns the Caspian Explorer at a sum that valued our 100% interest at $45
million. That proposed transaction did not complete as the prospective
purchasers did not make the agreed payments citing a failure to obtain the
required Kazakh exchange control approvals.
As with BNG, the Group is not looking to sell the Caspian Explorer as we
recognise its true potential. However, as noted above, we are duty bound to
consider meaningful offers. Our preference would be to use our ownership of
the Caspian Explorer as an entry point to join consortia to develop the hugely
prospective offshore blocks in the shallow northern Caspian Sea now being
prepared for exploration.
CTS
Our investment in CTS with its ability to drill several deep wells at the same
time has led to early stage discussions for the Group to farm into an existing
asset in return for CTS drilling wells to help that third party meet existing
work programme obligations that may otherwise be missed.
Mining
For some time, it has been our stated intention to add mining investments to
the Group's portfolio in recognition that a key strength of the Group is the
identification, assessment and negotiation of asset acquisitions in
Kazakhstan, which in addition to being a leading world producer of oil is also
home to vast mineral resources.
An asset has been identified and we are in the evaluation stage with the
intention, if what we believe is confirmed under an internal and external due
diligence process, to seek to conclude its acquisition later this financial
year.
Unlike early stage oil exploration similar mining ventures typically require
far less investment and in the case of the project we are reviewing could
produce income from day one. An investment in a mining project could also
provide an opportunity for an expansion of our commodity trading activities,
which to date have been limited to oil.
Kazakhstan
While in recent times Kazakhstan has been out of favour with some
international investors, others - notably Chinese investors - have increased
their interest in the country and its assets.
Kazakhstan is home to vast oil, gas and mineral reserves which will continue
to attract international investment. The Kazakh economy is the strongest in
Central Asia and is thriving principally based on high levels of demand for
its natural resources.
Further details on the country and its assets are contained in the Kazakhstan
section set out later in these financial statements.
Dilution and related party transactions
This Chairman's Statement provides an opportunity to set out some facts, which
I believe to be relevant but seem not to be universally understood or
appreciated.
Dilution
The Group has only issued shares specifically to raise cash on two occasions.
The first being at the IPO in 2007 when we raised approximately $78 million
and again in 2020 when we raised approximately $1.3 million in response to the
impact of the domestic oil price falling to a Covid induced $6 per barrel.
At times over the past 18 years the Group has run short of cash and turned to
the only realistic lender, being the Oraziman family. From time to time these
amounts have been converted to shares but always with the prior approval of
the independent directors as advised by the Group's Nominated Adviser and
under the rules of the UK Takeover Panel and most importantly also approved in
advance by independent shareholders. These share issues once approved have
also always been at a premium to the prevailing share price.
Without this funding we would not have been able to develop the Group's
activities and in all likelihood would not have survived. Other shares have
been issued to buy assets (principally rigs) and companies (BNG / Caspian
Explorer / 3A Best) or to satisfy specific debts where cash was not available.
Independent shareholders have also recently approved the issue of new shares
at a premium to the then prevailing market price on completion of the West
Shalva acquisition.
Related party transactions
Here again there seems to be a misinformed view that we have favoured the
sellers when the opposite is very clearly the case.
In particular:
· Shareholders with longer memories will recall that in 2015 we
sold Galaz, which was acquired as part of the Eragon acquisition in 2008
including BNG, for $100 million.
· In 2020 the Caspian Explorer drilling vessel was acquired for
$3.2 million where it's resale value today is many times greater and the
replacement cost is believed to be some $300 million.
· At Block 8 we will only pay for an asset with the potential to be
world class from future production at the rate of $5 per barrel and with the
price capped at $60 million.
· With West Shalva it is only the first $5 million that would be
payable should there be no oil
It is therefore only at 3A Best that we have yet to come out on the right side
of the deal and as set out above that remains a work in progress.
The advantage of related party transactions is that we fully understand and
can check what we are buying. Given their existing shareholding in the Group
there is no commercial purpose for the sellers seeking poor terms, even if
under the regulatory framework it were possible.
For us related party transactions have worked very well and we should not be
afraid to do others where the situation merits it.
Dividends
In November 2022 we initiated monthly dividend payments at the rate of
approximately $1.25 million per month but after only four instalments we were
forced to suspend payments for lack of available cash.
The immediate cause for the suspension in dividend payments was the
operational impact of Russian sanctions, which meant instead of buying the
bulk of our international drilling supplies and consumables from Russia on
decent credit terms and two week delivery times, we had to order mainly from
China with six month lead times and the need to pre-fund all payments.
This not only took all our available free cash but also delayed planned
workovers, which in turn meant production related income was much lower than
we expected at the time we set the dividend policy.
The decision to suspend dividend payments was not taken lightly and inevitably
had a dramatic impact on the share price. When we suspended the dividend
payments we undertook to review the position later in the year and again with
these financial statements.
Opinion among shareholders who have expressed a view is divided. While some
want the dividends to resume others would rather see available cash invested
in new projects.
Separately, and as a consequence of both the 2022 UK High Court approved
capital reduction and the UK Takeover Panel Rule 9 waiver granted in
connection with the recent West Shalva acquisition, we now have both
distributable reserves and, with the re-constituted concert party now cleared
to hold more than 50% of the Group's shares, share buy-backs are possible
without the need each time for a formal and expensive UK Takeover Panel
approved whitewash.
In the circumstances therefore, the Board has decided not to resume regular
dividend payments but to consider special dividends or share buy backs when
funding permits.
Board composition
We are aware the current board composition is not ideal both in terms of the
total number of directors and also where relevant the number of independent
directors, which gives problems in:
· fully populating the various board committees;
· when it comes to the consideration of related party transactions;
and
· more generally as the extent of the Group's operations expands.
The main reason we have yet to appoint new non-executive directors is the
ongoing up to 75% pay cut taken by all board members, which has been in place
since early 2020 and was instigated to help the Group fund its survival and
development. These restrictions are expected to be partially eased in the
second half of the current financial year as the Group's cash position
improves. At that time, we expect to be in a position to strengthen the board
and have already identified individuals we believe would add value.
Further information relating to the board is set out in the Directors Report
and the Remuneration Committee Report in these financial statements.
Outlook
We have always been optimistic about the prospects for the Group's assets. The
issue though for the past decade at least has been funding and the need to
both safeguard existing assets via compliance with the demanding work
programme commitments including the need to pay down the assessed historic
costs, while at the same time seeking to take advantage of as many of the
opportunities available to us as could then be funded.
The current BNG work programme commitments are now largely satisfied. Block
8 is expected to start contributing in the near future and significant income
is expected from the Caspian Explorer in the coming months. Accordingly, we
expect soon to enter a prolonged period where cash receipts far exceed
mandated cash payments. In the event we complete the proposed sale of the BNG
shallow structures for the proposed $83 million we would have large cash
balances to invest or to return to shareholders via special dividends or share
buy backs.
This, together with an expectation of the true commercial value of our assets
emerging for all to see through increased production, further corporate
transactions and / or reserve upgrades, plus the other opportunities we have
in front of us, leads the Board to be now more confident of the Group's future
success than at any time in the past decade.
Clive Carver
Chairman
15 July 2024
OPERATIONAL REVIEW
Oil production
Volumes
In 2023 a total of 665,114 barrels of oil were produced from the two shallow
structures at the BNG Contract Area (2022: 792,284 barrels).
Of this production 576,368 barrels, representing approximately 87% of the
total, were produced from the MJF structure (2022: approximately 767,284
barrels representing approximately 97% of the total) with 88,746 barrels
representing approximately 13% of the total being produced from the South
Yelemes structure (2022: approximately 25,000 barrels representing
approximately 3% of the total).
Production in 2023 was adversely affected as for most of the year wells 141,
142 and 145 were shut in for workovers necessitated by increasing water
content.
Current production from the shallow structures at the BNG Contract Area before
any contribution from Well 803 is approximately 2,300 bopd.
Pricing
Oil produced in Kazakhstan and transported via the Russian pipeline network is
not subject to sanctions. Nevertheless, in reality such oil continued to
suffer significant discounts to the international price, which throughout 2023
meant it was uneconomic to sell any of the oil produced on the international
markets.
In 2023 therefore 53% of oil produced was sold to the Kazakh domestic market
(2022: 72%) with 47% sold to the Kazakh domestic mini refinery market (2022:
29%).
The average price achieved for oil sold in 2023 was approximately $32 per
barrel (2022: $49.5 per barrel - which included several months of
international sales before the imposition of the full impact of Russian
sanction related "Urals discount").
On a positive note, the discount for oil produced in Kazakhstan and
transported via the Russian pipeline network narrowed towards the end of 2023,
to the point where international sales in 2024 seem far more likely.
Oil exploration
BNG Shallow structures
During the year workovers were undertaken at Wells 142 and 145 on the MJF
structure.
At Well 142, which was the best performing of the original wells on the MJF
structure before the water content rose to a level requiring a workover, a
2,300 meter side-track was drilled from a depth of approximately 1,860 meters
with three intervals identified for testing. The first two intervals did not
prove commercial. We are waiting on the outcome of the discussions to sell the
MJF structure before testing the third interval.
The workover at Well 145 was not successful. The intention at Well 141 is to
resume work to remove approximately 27 meters of stuck pipes, before drilling
a horizontal side-track.
In February 2024 we spudded new Well 155 with a planned total depth of 2,400
meters. As noted above a 16 meter interval is currently under test with
initial flow rates of between 900 and 1,000 bopd. Production levels at Well
155 have been reduced to approximately 700 bopd to optimise the life of the
well. Accordingly, production from the MJF structure is currently
approximately 2,050 bopd.
At the shallow South Yelemes structure we commenced the long planned use of
horizontal drilling techniques at four Soviet era shallow wells. Work there
has been completed on Wells 805 and 806. Production from the South Yelemes
wells is currently approximately 250 bopd.
We are now drilling a new well on the South Yelemes structure being Well 815
with a planned depth of 1,900 meters targeting oil in the dolomites.
BNG Deep Structures
During 2023 we concluded that Deep Well A8 was not commercial and decided to
abandon the well and since the period end we have made the same assessment at
Deep Well 801.
At Deep Well A5, which flowed at rates in excess of 3,000 bopd when first
drilled, work was undertaken in 2023 continuing in 2024 to attempt to remove a
stuck pipe as a cheaper alternative to drilling a further side track. While a
portion of the stuck pipe was removed the majority remains and a decision has
been taken that, in due course, we will drill the new side track. In the
meantime, the rig previously in use at Deep Well A5 has moved to drill Well
815 as noted above.
At Deep Well A6 no work was undertaken in the period under review or
subsequently. We plan to use a chemical treatment to seek to get the well to
flow at commercial rates and have identified the rig currently in use at Deep
Well 803 to be used in the attempt.
At Deep Well A7 we plan to use the G70 rig we expect soon to acquire to resume
drilling from a depth of approximately 2,150 meters where drilling was paused
to allow other wells to be drilled. The Planned Total Depth of the well is
5,300 meters with an interval of interest identified at approximately 4,000
meters.
At Deep Well 802, which was spudded in 2022 and drilled to a depth of 3,800
meters, our work in 2023 to bring the well into commercial production was not
successful and we are now looking for a partner with technical expertise to
develop the well together.
In Q4 2023 we spudded Deep Well 803. As noted above the well had a planned
total depth of 4,200 meters with a primary target at a depth of 3,950 meters
and a secondary target at a depth of 4,200 meters. Oil has been detected over
a 60 meter interval between 3,360 meters and 3,420 meters, above the expected
targets and also above the main salt layer. A 15 meter interval is now being
tested.
In June 2024 SciRes, an independent Kazakh consultancy, assessed C1 reserves
in the immediate vicinity of wells A5, A6 & A7 at 49 mmbls. For further
details please see the Licences & Work programmes and Reserves section of
these financial statements.
Block 8
In 2023 two deep wells were drilled at Block 8. The first was drilled to a
depth of 3,922 meters and the second was drilled to a depth of 3,408 meters.
Both wells are now ready for testing once the Block 8 licence is renewed.
On renewal of the licence the two previously producing wells at Block 8, which
before they were shut in produced at the rate of 110 bopd, would resume
production.
West Shalva
In anticipation of the completion of the acquisition of the West Shalva
Contract Area we plan to drill a 3,200 meter well, which is expected to spud
in Q3 2024.
Clive Carver
Chairman
15 July 2024
FINANCIAL REVIEW
Revenue
Total revenue in 2023 fell by approximately 10 per cent to $36.7 million
(Restated 2022: $40.9 million).
Oil prices
The impact of Russian sanctions made any international sales during 2023
uneconomic. By comparison, in the first four months of 2022 we sold 237,144
barrels on the international markets at an average price of $85 per barrel.
In 2023 the average price per barrel was approximately $32.5 compared to $49.5
in 2022.
Production volumes
Production in 2023 at 665,114 barrels was some 16% lower than in 2022 (792,284
barrels) principally as a consequence of wells 141 and 142 being out of
production for much of the period and to date in 2024.
Income from oil sales
The net impact of lower prices and lower volumes was to reduce revenues from
oil sales by approximately 45% to $21.6 million (2022: $39.2 million)
CTS
CTS LLP is the Group's wholly owned drilling company, which in 2023 undertook
further work at the Block 8 Contract Area, which is in the process of being
acquired with completion now expected later this year. Such work before the
formal completion of the acquisition is recognised as third party revenue, as
would income for drilling on other assets not then owned by the Group.
In 2023 the revenue from work at Block 8 was $4.1 million (Restated 2022: $1.6
million).
Prior Year Restatements
In preparing the financial statements for 2022, including the comparative
numbers for 2021, the Directors were unable to obtain reliable information
relating to drilling contracts held by its subsidiary CTS LLP in respect of
the timing of the drilling costs incurred and their allocation between
different contracts with EPC Munai LLP, an external party, and as well as
contracts with another subsidiary of the Group, BNG LLP.
This information was necessary to determine revenues, cost of sales, advances
received / receivable, provisions for losses on contracts, property plant
& equipment, oil & gas assets, related tax balances and related party
disclosures. As a result, the 2022 audit report included an audit
qualification in this regard for the years ended 31 December 2021 and 2022,
with revenue recognition not recorded in accordance with IFRS 15 under the
input method.
Extensive work undertaken over the past 12 months has allowed the amounts
spend by CTS to be properly allocated for 2023. As a result, the 2022
financial statements are subject to a prior year adjustment with the
comparative numbers for the year ended 31 December 2022 being restated. The
audit qualification in respect of the position at 2022 remains, and there is
also a resultant impact on the 2023 revenue recognition and cost of sales.
The audit report for the year ended 31 December 2023, includes a qualification
relating to these matters as was the case in the 2022 financial statements.
Further information relating to the prior year adjustment is set out in note
3.
The contracts with EPC Munai were all either completed or terminated during
2023 and therefore management do not believe there will be further ongoing
issues in allocating the costs of CTS LLP.
Oil trading
Revenue from oil trading in 2023 was $10.3 million (2022: nil).
Under this heading we purchase crude oil and fund its refining, selling the
resultant oil products to third parties.
Changes in Kazakh regulations, which came into effect at the start of 2023 and
which require an element of oil production to qualify for an oil trading
licence, allowed our entry into the market. Oil trading is only allowed on oil
sold to the domestic market (53% in 2023) rather than for domestic
mini-refinery sales (47% in 2023) or international sales (0% in 2023). To date
we have adopted a relatively low risk approach to oil trading having formed a
70:30 partnership with an established trader with ourselves being the larger
party and with our 30% partner providing the required funding.
Our entry into oil trading has proved extremely successful and we plan to
continue to trade oil whether or not we sell the shallow MJF and South Yelemes
structures. As our oil output from the BNG Contract Area increases and with
Block 8 and West Shalva expected to come on stream we look forward to growing
our oil trading income in the coming years.
Caspian Explorer
There was no revenue from the Caspian Explorer in 2023.
Gross profit
Gross profit fell by approximately 36 per cent to approximately $20.7 million
principally as a result of the lower revenue from oil sales (Restated 2022:
$32.2 million having in 2022 increased by 69%).
Selling expenses
Selling expenses fell by approximately 69% to $3.0 million (2022: $9.8 million
having increased in 2022 by 29%) mainly as the result of lower export and
customs duties, which are typically based on achieved oil prices with export
sales attracting a much higher charge.
Administrative expenses
General and Administrative expenses were approximately $4.0 million lower at
$5.8 million compared with $9.8 million in 2022, which included significant
non-recurring local staff payments.
Other income
Following the write back of long standing but no longer required provisions we
recorded a gain of $3.8 million.
EBITDA
EBITDA was $18.1 million (Restated 2022: $15.7 million.)
Operating profit
Despite the large decrease in gross profit the operating profit was $15.5
million (Restated 2022: $12.9 million) principally as the result of a $2.2
million contribution from oil trading, which commenced in 2023 together with
the reversal of £3.8 million long standing provisions that are no longer
required.
Profit for the year before tax
Profit before tax was $14.8 million (Restated 2022: $12.3 million).
Tax charge
The tax charge was $3.7 million (2022: $2.4 million). This tax is payable in
Kazakhstan where historic losses have now been fully utilised.
Profit for the year after tax
The profit for the year after tax was $11.1 million (Restated 2022: $9.9
million).
Oil and gas assets
Unproven oil & gas assets
The carrying value of unproven oil and gas assets increased by approximately
$7.4 million to approximately $52.0 million (Restated 2022: $44.6 million) as
the result of additional work at the BNG deep structures.
Proven oil & gas assets
The value of proven oil & gas assets increased by approximately $6.5
million to approximately $60.6 million (2022: $54.1 million).
Other receivables
Other receivables due within 12 months increased from approximately $6.1
million to approximately $12.1 million. Of this, trade receivables increased
by $3.1 million to $3.7 million (Restated 2022: $0.6 million); prepayments
increased by $3.0 million to $4.3 million (Restated 2022: $1.3 million);
recoverable VAT increased by $0.9 million to $2.9 million (Restated 2022: $2.0
million); with other receivables falling by $0.9 million to $1.3 million
(restated 2022 $ 2.2 million).
Cash position
At the year-end we had cash balances of approximately $0.4 million (2022: $3.7
million).
Liabilities
Trade and other payables under 12 months (excluding historic costs and
provisions)
Trade and other payables increased to $16.1 million (Restated 2022: $14.8
million).
The provisions for payments in less than 12 months were approximately $4.5
million (2022: $6.0 million), which are mainly social obligations.
BNG historic costs
We have continued to pay down the historic costs assessed against the BNG
Contract Area. At 31 December 2023, of the original $32 million levied in 2019
approximately $16.9 million remains to be paid over the next six years, of
which approximately $3.2 million is to be paid within 12 months.
Cashflows
During the period under review approximately $39.6 million was received from
customers and approximately $33.9 million paid out to suppliers, creditors and
staff with a further $4.9 million spent on unproven oil and gas assets and
$7.3 million spent on property plant and equipment. A further $1.5 million was
paid to related parties in connection with the Block 8 loan, and approximately
$3.0 million was paid in dividends.
The above plus new loans of $8.0 million resulted in cash balances at the
year-end decreasing from $3.7 million to $0.4 million.
Going Concern
As set out in the Chairman's statement and throughout these financial
statements the financial strategy of the Group in recent years has been to
fund compliance with work programme commitments and to expand the Group's
activities without unduly diluting shareholders longer term interests.
This has inevitably stretched the short and longer term creditor position to
levels at the period end and today which in a more established Group might
appear excessive. However, the Board believes the expected significant cash
inflows from oil production, offshore chartering and if appropriate asset
sales means that the current position is set to reverse during the remainder
of the current financial year to the point that the Group will significantly
improve its cash position.
Nevertheless, with net current liabilities of approximately $14.3 million as
at 31 December 2023, the assessment of going concern needs careful
consideration. The Board has therefore assessed cash flow forecasts prepared
for the period to 31 December 2025 and assessed the risks and uncertainties
associated with the operations and funding position, including Block 8 and
West Shalva.
These cash flows are dependent on a number of key factors including:
· The Group's cashflow is sensitive to oil price and volume sold.
We have assumed all sales will be either domestic sales or sales to the
domestic mini refineries. Should sales to domestic mini refineries cease and
the surplus oil not be picked up on the domestic market additional funding
would be required.
· The Group continues to forward sell its domestic production and
receives advances from oil traders. With approximately $3.9 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 $4.0 million of tax liabilities and $4.3 million
due on demand under social development programmes and $3.2 million BNG licence
payments due within the next 12 months to the Kazakh government. The Board has
forecasted the payment of the outstanding tax liabilities and the BNG licence
payments but only a portion of the social obligations and development
programmes due within the forecast period as the Board expects some social
obligation and development programme payment deferrals to be approved. Should
these deferrals not occur additional funding would be required.
· Should the charter for the Caspian Explorer be materially delayed
from its July 2024 start date and / or payment not be made in accordance with
the contract terms 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:
· operational expenditure savings at BNG where the mandated work
programme obligations will end with Wells 155 and 803, both of which have been
drilled and are now testing, together with new Well 815
· revenues of at least $10 million expected in H2 2024 from the
Caspian Explorer contract
· commencement of repayment of the $3.1 million loan advanced to
enable the 2023 work programme at Block 8 to be completed
· production commencing from Block 8 less the $5 per barrel royalty
once the licence is renewed and the re registration formalities in the UAE are
finalised
· if progressed, completion of the proposed $83 million sale of the
MJF and South Yelemes structures would on its own eliminate any funding issues
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 sell all or part of one or more of the Group's assets -
including either the BNG Contract Area where we have already received
expressions of interest or the Caspian Explorer
· To seek additional short term funding from the Group's largest
shareholder group
· To seek additional equity capital
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
15 July 2024
OUR OIL & GAS ASSETS
BNG Contract Area
The Group holds a 99% interest in the BNG Contract Area, having first taken a
stake 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 km southeast of
Tengiz on the edge of the Mangistau Oblast, covering an area of 1,561 square
km of which 1,376 square km 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
The shallow structures at the BNG Contract Area (MJF & South Yelemes)
produced 665,114 barrels of oil in 2023 (2022: 792,284).
MJF structure
The first wells were drilled on the MJF structure in 2016, since when it has
produced in aggregate in excess of 4 million barrels. We have embarked on a
programme of redrilling the older wells using horizontal drilling techniques
to increase production.
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 and runs to 2043, 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 $17 million
remained payable at 31 December 2023.
In 2023 we produced 576,368 barrels of oil from the MJF structure at an
average of 1,579 bopd (2022: 767,284 barrels at an average of 2,102 bopd).
At the date of this report production from the MJF structure is approximately
2,050 bopd.
South Yelemes structure
The first wells were drilled on the South Yelemes structure during the Soviet
era, with test production commencing in 1994. In 2023 the four Soviet era
wells (54, 805, 806 & 807) produced approximately 88,746 barrels, (2022:
approximately 25,000 barrels) at an average of 243 bopd. The structure has a
full production licence to 2046 under which international sales are permitted.
Work has commenced to drill horizontally from each of the existing Soviet era
wells at depths between approximately 2,200 and 2,300 meters targeting
potential horizons in the Dolomites, with drilling on the first two wells
completed. At the date of this report production from the South Yelemes
structure is approximately 250 bopd.
Well 815 is a new well which is being drilled to a depth of 1,900 meters on
the South Yelemes structure targeting oil in the Dolomites, using the rig
previously used at Deep Well A5.
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.
· Deep Well A5 was spudded in July 2013 and drilled to a total
depth of 4,442 meters. Attempts to remove a stuck pipe have to date not proved
successful and a new side track is planned
· Deep Well A6 was spudded in 2015 and drilled to a depth of 4,528
meters. A chemical treatment is planned.
· 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.
· 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. The well is now to be
abandoned.
Yelemes Deep structure
· Deep Well 801 was drilled in 2014 / 2015 to a depth of 5,050
meters. The well has been assessed as non-commercial and has been marked for
abandonment.
· Deep Well 802 was spudded in June 2022, with a planned Total
Depth of 5,300 meters. To date the well has not flowed at commercial rates and
we are seeking to conclude a joint venture agreement with an identified
technical partner to continue work on this well.
· Deep Well 803 was spudded in December 2023 with a planned total
depth of 4,500 meters. Oil was encountered over a 60 meter interval between
depths of 3,360 and 3,420 meters and a 15 meter interval is being tested.
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.
Block 8
The Block 8 Contract Area is 2,823 sq km with three identified structures and
is approximately 160 km from the BNG Contract Area.
The Block 8 licence was previously held 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 meters respectively, from which oil has
flowed at rates of up to 800 bopd but at the time they were shut in, as
required as part of the licence renewal process, produced at the rate of 110
bopd.
Two other wells were drilled in 2022 and 2023 to depths of 3,922 and 3,408
meters respectively and on receipt of the new Block 8 licence will be tested.
West Shalva
The West Shalva contract area is rectangular in shape and extends over
approximately 25 km². It is located in the oil producing Zhetybay Steppe
Area in the Mangyshlak region of Western Kazakhstan approximately 90 km east
of Actau and approximately 20 km north from the Zhetybay field, where an oil
processing plant is located and oil enters the Actau / Atyrau main pipeline.
The West Shalva prospect is partially located in Block XXXVII-12 but straddles
the boundary with adjacent blocks. The source rock for the West Shalva
prospect is considered to be Triassic marine shale as is understood to be the
case in the nearby Shalva and Zhalganoy fields.
The West Shalva prospect has potential reservoirs of Jurassic and Triassic
age. The Jurassic - IX and Jurassic - XI and Triassic reservoirs are oil
bearing in the nearby Shalva field and oil has been reported (but not tested)
from core in the Triassic reservoir in the WSH-4 well. Based on interpretation
of the available information the main reservoir targets are Jurassic IX and
Jurassic -XI reservoirs, with secondary targets in the Triassic.
West Shalva was first identified as a potential oil producing location in the
mid 1970's. In 1977 and based on 2D seismic data, Well no. 4 (Wsh-4) was
drilled to the north and outside the structural closure of the West Shalva
prospect to a depth of 3,500 meters with a prime potential oil bearing
interval detected at a depth of 1,033 meters in the lower Triassic. After open
hole testing lasting only a few minutes the well was deemed not to have found
any commercial volumes of oil or gas despite oil being detected at three other
intervals. The well was then abandoned without running a production string.
In 2008 a 3D seismic survey was undertaken on the contract area, which
identified the West Shalva structure. In June 2022 oil was detected spilling
to the surface.
West Shalva is an early stage oilfield but with strong indicators from both
the adjacent Shalva field and from the available seismic information that it
is likely to produce oil in decent quantities. Additionally, it is expected
to be easier to drill than either BNG and Block 8 as the high pressure and
high temperature encountered in those fields are not present at West Shalva.
There is also no salt layer to penetrate and the field is closer to local
refineries with a history of higher prices than the refineries nearer BNG and
Block 8. In summary, West Shalva is expected to be a much easier field to
work than either BNG or Block 8 and a good addition to the portfolio. As at
Block 8 the acquisition has been structured to avoid any up-front cash
payments.
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.
No development work has been undertaken since 2019.
LICENCES & WORK PROGRAMMES AND RESERVES
LICENCES
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 August 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.
The process to extend the existing Airshagyl and Yelemes Deep appraisal
licence for a further two years before then upgrading to separate 25 year
production licences is underway under a new streamlined process which is
expected to be completed during Q3 2024.
Block 8
The Block 8 licence renewal is expected imminently.
West Shalva
The licence at the West Shalva Contract Area is a six-year appraisal licence
running until 2029.
3A Best
The licence renewal at 3A Best was delayed as the result of outstanding social
payments due from the assets previous owners. As noted more fully in the
Chairman's statement we continue to work with the Kazakh authorities to renew
the 3A Best licence at the appropriate time.
WORK PROGRAMMES
BNG
The current work programme commitments end with Well 155, Deep Well 803 and
new Well 815, for which we estimate the outstanding costs to be approximately
$3 million.
Block 8
The extent of the work programme commitments under the new licence have yet to
be determined.
West Shalva
On completion of the acquisition of West Shalva there will be an obligation to
drill one well to a depth of approximately 2,600 meters.
RESERVES
BNG
Shallow structures
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 2023,
approximately 4.0 mmbls of oil were produced, which under financial reporting
rules are deducted from the assessment of reserves as at 31 December 2023.
BNG As at 31 December 2023 As at 31 December 2022
mmbls mmbls
Shallow P1 13.6 14.3
Shallow P2 24.8 25.5
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. In
the event the proposed sale of the MJF and South Yelemes structures does not
complete the Board's intention is to revisit the external assessment of the
BNG Contract Area's shallow reserves.
Deep structures
In conjunction with the licence extension in respect of the Airshagyl and
Yelemes Deep structures and referred to above under licences, we are also
making submissions for formal recognition under the former Soviet
classification system used in Kazakhstan of reserves at both deep structures
based on information gained from the four deep wells drilled to date at the
Airshagyl structure and the three deep wells drilled to date on the Yelemes
Deep structure.
In June 2024 reserves under the former Soviet classification system were
independently assessed by SciRes, a Kazakh consultancy, based solely on the
vicinity of the immediate drainage area around Deep Wells A5, A6 & A7 as
being C1 49.0 million barrels & C2 as 28.9 million barrels.
At Yelemes Deep we first need to complete the testing at Deep Well 803 before
a similar assessment can be finalised.
In due course, following the completion of the reserves estimate underway at
the Yelemes Deep structures under the former Soviet classification system, we
plan to seek a reserves update under the international Society of Petroleum
Engineers (SPE) classification system, for all of the BNG Contract Area, which
would also include the shallow MJF and South Yelemes shallow structures,
provided they are then still part of the Group.
Block 8
An estimate of the reserves at Block 8 is planned following completion.
West Shalva
To date there are no certified reserves in respect of the West Shalva Contract
Area. Again, we intend to commission an independent assessment of the West
Shalva reserves after completing the planned 3,200 meter well.
3A Best
There are no certified reserves in respect of the 3A Best Contract Area.
QUALIFIED PERSON & GLOSSARY
Qualified Person
Mr. Assylbek Umbetov, a member of the Association of Petroleum Engineers, has
reviewed and approved the technical disclosures in these financial statements.
Glossary
SPE - the Society of Petroleum Engineers
Bbl - barrels of oil
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.
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 type 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 typically 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 Caspian
Explorer became operational in 2012 at a time of relatively low oil prices and
reduced exploration activity in the northern Caspian Sea.
The total costs after fit-out are believed to have been approximately $200
million. We believe a replacement would today cost in the region of $300
million and take several years from a decision to commission it for such a new
vessel to become operational.
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 $60,000 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 Energies
and CNPC, the consortium operating the Kashagan field.
Daily rates for safety related work are much lower than for conventional
commercial drilling contracts but the income from the charter covered the
Caspian Explorer's costs for that year.
Drilling contract
In March 2023 we announced that the first commercial 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 Caspian Explorer left the port of Aktau in July 2024 to
commence drilling as planned with the drill programme 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
further revenue in 2024 of approximately $10 million.
The contract also provides for a second well in the event the first is deemed
successful. In the event the option for the second well was exercised it
would most likely be drilled in 2026 on terms similar to the first assignment
and is again expected to produce revenue of in excess of $10 million.
We are finalising the preparatory work for the ENI led consortium charter,
which we expect to start on time in July 2024.
Other charters
We believe the drilling contract due to commence in Q3 2024 will be the first
of a number as exploration of the shallow northern Caspian Sea increases.
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.
Accounting valuation
The Caspian Explorer has been written down in previous financial statements so
that its carrying value at 31 December 2023 is only $1.7 million (2022: $1.7
million).
Lapsed 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.
The sale did not complete as a result of the prospective buyer failing to make
the agreed payments.
Other corporate interest
Given its unique nature other expressions of interest in acquiring the Caspian
Explorer have been received at indicated sums vastly greater than its
accounting valuation. While it is not the Group's intention to sell the
drilling vessel we are, as set out more fully in the Chairman's statement,
obliged to consider all meaningful offers.
KAZAKHSTAN
Introduction
The Republic of Kazakhstan is mostly in Central Asia, with a part in Eastern
Europe. It borders Russia to the north and west, China to the east, Kyrgyzstan
to the southeast, Uzbekistan to the south and Turkmenistan to the southwest,
with a coastline along the Caspian Sea.
Kazakhstan is the ninth largest country by land area and the largest
landlocked country. Its population is 20 million with one of the world's
lowest population densities.
Kazakhstan dominates Central Asia economically accounting for 60 per cent of
the regions GDP, primarily through its oil & gas industry and its vast
mineral resources.
Natural resources
Kazakhstan has an enormous supply of accessible mineral and fossil fuel
resources.
Petroleum
The United States International Trade Administration lists Kazakhstan as
having the 12(th) largest proven reserves which they estimate at 30 billion
barrels.
The major oil and gas fields and recoverable oil reserves are Tengiz (which
is approximately 40 km from BNG), Karachaganak and Kashagan.
The Tengiz field was jointly developed in 1993 as a 40-year Tengizchevroil
venture between Chevron Texaco Exxonmobil, KazMunayGas, and LukArco.
The Karachaganak natural gas and gas condensate field was developed by BG,
Agip, ChevronTexaco, and Lukoil.
Chinese oil companies are now also heavily involved in Kazakhstan's oil
industry.
Minerals
The United States International Trade Administration also lists Kazakhstan as
having the world's largest reserves of uranium and extensive coal, gold and
manganese reserves.
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
typically 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 have 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 that 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 can be 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.
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 together with the operational and
financial reviews also form the main part of the strategic review, contain 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 & gas and mining projects and associated activities.
The Group has a number of secondary objectives, including promoting the
highest level of health and safety standards, developing our staff to their
highest potential and being a good corporate citizen in our chosen countries
of operations.
Strategy
The Group's long-term strategy is to increase shareholder value by building an
attractive portfolio of oil & gas and mineral assets, initially in Central
Asia, and in particular Kazakhstan where the board has the greatest
experience.
The Group's principal asset is its 99% interest in BNG, a 100% interest in the
Caspian Explorer, a shallow water drilling vessel designed for the northern
parts of the Caspian Sea. The Group also owns a 100 per cent interest in the
3A Best Contract Area, which would require a licence renewal before having any
commercial value.
The Group has also conditionally agreed to acquire:
· a 100% interest in the Block 8 Contract Area for a maximum
consideration of $60 million, payable via royalties on future Block 8 oil
production at the rate of $5 per barrel; and
· a 100% interest in the West Shalva Contract Area for a maximum
consideration of $15 million, of which a maximum of $10 million is payable by
the issue of Caspian Sunrise shares to be issued at 4p per share and up to a
further $5 million in cash from future West Shalva production
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 BNG asset has been developed over the past 18 years with approaching $200
million spent on it of which approximately $120 million has been spent by the
Group since 2008. We believe it is set to be a very substantial asset for many
years to come. We have received a conditional offer of $83 million for the
shallow structures and believe the deep structures have a far greater value.
We also believe Block 8 has the potential to at least match BNG. West Shalva
adds a third oil & gas asset, but without the high temperature and
pressures present at BNG and Block 8.
While we seek to grow our asset portfolio with appropriately timed
acquisitions we are also prepared and able to sell assets when their value to
others exceeds the value we can see. This was the case in 2015, when in poor
market conditions, we sold our then second asset Galaz for a headline price of
$100 million, which represented a profit of $15 million on our interest in the
asset, and which provided $33 million to re-invest into BNG.
Further growth by acquisition
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 mining 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 a natural resources 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 longer term general move away from fossil fuels once
renewable alternatives are available in sufficient quantities and at
comparable prices, 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 many decades to come.
The Group's size means it is not required to report further on climate change.
Key performance indicators
The Non-Financial Key Performance Indicators are:
· Operational (wells drilled and not identified for abandonment at
end of year) 2023: 20 (2022: 20)
· Aggregate production for 2023 was 665,114 barrels (2022: 792,284)
a fall of approximately 16%
· Reserves at 31 December 2023 13.6 P1 mmbls & 24.8 P2 mmbls
(2022: P1 14.3 mmbls & P2 25.5 mmbls)
The Financial Key Performance Indicators are:
· Revenue: down 10% at $36.7 million (Restated 2022: $40.9 million)
· EBITDA $18.1 million (Restated 2022: $15.7 million)
· Profit before tax $14.8 million (Restated 2022: $12.3 million)
· Profit after tax for the year $11.1 million (Restated 2022: $10.0
million)
· Cash at bank: $0.4 million (2022: $3.7 million)
· Total assets: $134.9 million (Restated 2022: $117.7 million)
· Exploration assets $52.0 million (Restated 2022: $44.6 million)
· Proved oil & gas assets $60.6 million (Restated 2022: $54.1
million)
Production at the date of this report
· Approximately 2.300 bopd excluding any production from Well
803. (30 June 2023: approximately 2,000 bopd)
Assets & Reserves
Further details of the Group's assets and reserves are set out in the
Chairman's statement and throughout this Annual Report.
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.
The bulk of the payments for the Caspian Sunrise drilling contract for the
consortium headed by ENI are expected to be received during the remainder of
2024.
Should the proposed conditional $83 million sale of the shallow structures at
the BNG Contract Area complete we would expect the net proceeds to be received
in Q4 2024. 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
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. In July
2023 we announced the suspension of future dividend payments following
sanctions related working capital pressure.
As set out more fully in the Chairman's statement the Board has decided
against the resumption of regular dividend payments in favour of special
dividends and / or share buy backs when funding permits.
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 in 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 also 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 29 (where the Group's strategy, objectives and business
model are addressed), page 32 (in relation to employees) the ESG report on
page 37 (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
15 July 2024
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 2023.
The Strategic Report forms part of the business review for this year.
Principal activities
The principal activities of the Group are
· the exploration and production of oil & gas
· onshore and offshore oil field services
· oil trading
Results and dividends
The consolidated statement of profit or loss is set out on page 56 and shows a
$11.1 million profit for the year after tax (Restated 2022: US$10.0 million).
The Company declared its first monthly dividend of £1 million (approximately
$1.13 million) in November 2022 and has subsequently declared a further 3
monthly dividends before suspending dividend payments in July 2023. As set out
more fully in the Chairman's statement the Board has decided not to resume
regular dividend payments but rather to look to declare special dividends and
/ or share buy backs when funding permits.
Review of the year
The review of the year and the Directors' strategy are set out in the
Chairman's Statement, the Strategic Report and throughout these financial
statements.
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 2023, and
the date of this report, which are required to be brought to the attention of
shareholders. Please refer to note 31 of these financial statements for
further details.
Board changes
In July 2023 Edmund Limerick left the board after 13 year's service as a
non-executive director. Otherwise, there have been no board changes during the
year under review or subsequently.
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
& gas and mining 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.
Environmental reporting
The Group is exempt from the Streamlined Energy and Carbon Reporting (SECR)
requirements since its energy consumption is less than 40,000 kWh per annum in
the UK.
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 these financial statements are as follows:
Directors' interests
Director Number of Ordinary Shares
As at 31 December 2023 As at 31 December 2022
Clive Carver 2,245,000 2,245,000
Kuat Oraziman* nil nil
Aibek Oraziman* 1,046,909,031 946,887,599
Seokwoo Shin nil nil
* taken together on 31 December 2023 the Oraziman Family, comprising Kuat
Oraziman, Aibek Oraziman, Altynbek Bolatzhan and Bolatzhan Kerimbayev held
1,089,544,791 shares representing approximately 48.41% of the issued share
capital. Together with Daulet Beisenov they formed a Concert Party then
holding 1,091,189,529 shares representing 48.49%
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 9.97
Midiel Engineering AG 110,812,501 4.91
Al Marri Family 110,812,500 4.91
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 27 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.
Auditors PKF Littlejohn LLP, who were appointed in the year, have indicated
their willingness to continue in office and a resolution concerning their
reappointment was passed at the Annual General Meeting held on 27 June 2024.
Directors' responsibilities statement
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
15 July 2024
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 and mining are dangerous activities
and as such are 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 or mines 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 and mining are dangerous activities. The Group seeks to adopt best in class industry operating standards and
The Group is exposed to risks such as well blowouts, fire, pollution, bad complies with rigorous health & safety regulations.
weather and 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 and mining industries 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 For international sales and like most oil produced in Kazakhstan for the
transport its oil and the price at which the oil may be sold. international market the 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. While there are and were no UK or EU sanction on Kazakh oil transported
through the Russian pipeline system in practice for much of the past two years
such oil was subject to a hefty unofficial "Urals Oil" discount. This made
selling the Group's oil on the international market uneconomic.
In recent months the discount on "Urals Oil" to international oil prices has
narrowed to the point it is no longer an issue for volumes greater than those
currently produced by the Group. However, for our levels of production and
given our sales trading income we are not to date at the point where
international sales are yet commercial.
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 or any minerals
markets and the domestic price is set by the Kazakh regulatory authorities. produced from mining.
Greater storage and or financial hedging would provide some protection against
adverse oil price movements but would be expensive and short lived.
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$, Kazakh Tenge and UK £. In the year under
review and subsequently the Tenge broadly maintained its exchange rate against
the US$.
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 with additional income
Oraziman family, which currently holds 48.3% of the Company's shares. from oil services and oil trading and is on a day to day operating basis
financially a 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.
The war in Ukraine has resulted in supplies no longer being sourced from
Russia. Replacement supplies from China are taking much longer to arrive.
Managing supplies has become one of the most important aspects of the
business.
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 2023.
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 18 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 decades 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 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.
Recently, as noted elsewhere in these financial statements, the Group has
struggled to operate the board committee system set out below because of the
small size of the board. Accordingly, in recent times the board as a whole has
considered many of the issues typically previously dealt with by board
committees.
Committee composition
The Governance & Risk Committee now comprises Clive Carver 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.
Share dealing policy
The Group has adopted and operates a share dealing code for Directors and
employees in accordance with the AIM Rules.
Internal controls
The Board acknowledges responsibility for maintaining appropriate internal
control systems and procedures to safeguard the shareholders' investments and
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 Group's 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 shareholder value by assembling an
attractive portfolio of oil & gas and mineral exploration and production
assets in Central Asia, and more particularly in Kazakhstan where the board
has the greatest experience. The Group is also exploiting associated
opportunities, such as oilfield services and commodity trading, 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,
mineral and other projects. Success in the long term will be measured by a
sustainable appreciation in the Group's profitability and 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 is in the process of acquiring Block 8, an oilfield with many of the
characteristics of BNG and is 160 km away. The Group has also agreed to
acquire the West Shalva Contract Area, an oilfield expected to be easier to
develop than either BNG or Block 8 and nearer road and refinery infrastructure
but without the deep prospects of BNG and Block 8.
The Group owns the Caspian Explorer, a purpose built drilling vessel designed
to explore the shallow reaches of the Caspian Sea. The Caspian Explorer has a
construction cost of approximately $200 million in 2012 and a replacement cost
believed to be approximately $300 million today.
The Group also has a 100% interest in the 3A Best Contract Area, although the
licence there has expired.
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. However,
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 time
to time to assess the availability of large-scale institutional funding to
advance the Group's plans.
Our shareholders
A large proportion of the Company's shares are held by a relatively small
group, namely: The Oraziman family (48.3%); Korean shareholders (9.97%);
shareholders in Switzerland (4.91%); shareholders in the UAE (4.91)%; with the
remaining (31.91)% being principally other Kazakh or 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 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 and mining exploration and production are dangerous activities
throughout the organisation and as such are 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 35 of these Financial Statements.
As stated elsewhere in these financial statements, the relatively small size
of the board and the lack of independent non-executive directors makes the
operation of the board committee systems envisaged under the QCA code very
difficult to follow. The board intends to address this with the appointment
of additional and independent non-executive directors
Principle 5 Board composition
Maintain the board as a well-functioning, balanced team led by the chair The board currently comprises three executive directors and one non-executive
director. All are male with two Kazakh nationals, one South Korean national
and a national from the United Kingdom.
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, Chairman and Chief Financial Officer, taking the lead on
financial and non-operational matters including 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 nearly 30 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 director
Aibek Oraziman, is the Company's largest shareholder with 46.4% of the
Company's shares. He has more than 14 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.
Board committees
While the Audit, Remuneration and Governance committees remain in place, but
with only four directors and only one non-executive director much of the work
typically undertaken in the board committees has been handled by the board as
a whole.
We expect to make additional appointments to board as funding improves later
in the year that would help move back to a more traditional board committee
set up.
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 shareholding group, with some 48.3%.
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.
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, although it is not
currently the case. 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.
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 with both oil &
gas and mining projects, 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 sought.
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 due course 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 stated governance structures and processes are
support good decision-making by the board consistent with its current size and complexity, while acknowledging the size
of the board as currently constituted makes adherence to such a governance
regime difficult in practice.
The Board is aware that it must continue to review its practices as the
Company evolves and grows and intends to make further appointments to the
board as circumstances permit.
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 2023 to 7 July 2023 the Board comprised three executive
directors and two non-executive directors. From 8 July 2023 following the
resignation of Edmund Limerick until 31 December 2023, the Board comprised
three executive directors and one non-executive director, which remains the
position at the date of this report.
Clive Carver, Executive Chairman and Chief Financial Officer
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 nearly 30
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 to the board as Chief Operating Officer.
Aibek Oraziman, Non-executive director
Aibek Oraziman was educated in Kazakhstan and in the United Kingdom. He has
more than 14 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 but recognises the need for
the appointment of additional non-executive directors.
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 5 of 5 1 of 1 2 of 2
Kuat Oraziman 5 of 5 N/A N/A
Edmund Limerick 3 of 3 1 of 1 2 of 2
Seokwoo Shin 5 of 5 N/A N/A
Aibek Oraziman 5 of 5 1 of 1 2 of 2
The Board has established the following committees:
Audit Committee
The Audit Committee which comprises Aibek Oraziman and Clive Carver, with
Clive Carver as acting 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 Aibek Oraziman and Clive Carver,
with Aibek Oraziman 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 2023
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 7 July 1 January 7 July 1 January 7 July
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
Chairman
15 July 2024
REMUNERATION COMMITTEE REPORT
Remuneration Committee
Between 1 January 2023 and 7 July 2023, the Remuneration Committee comprises
Edmund Limerick, Aibek Oraziman and Clive Carver and was chaired by Edmund
Limerick. From 8 July 2023 the Remuneration Committee comprised Aibek Oraziman
and Clive Carver, with Aibek Oraziman as Chairman.
Remuneration policy
The Remuneration Committee determines the contract term, basic salary, and
other remuneration for the members of the Board and the senior management
team.
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, starting in 2020 the Covid-19 impact on the Group's finances
required the Directors to accept reductions of up to 75% of contracted salary
which continues to be the case.
Agreement has been reached to begin to relax the salary reductions as the
Group's funding position improves with the first relaxation expected in Q3
2024.
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 27 June 2024
Kuat Oraziman 6 December 2019 30 June 2023
Aibek Oraziman 21 August 2020 30 June 2023
Seokwoo Shin 4 March 2021 30 June 2023
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 up to 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 2023 Terminated 2023 2023 2022
Salary / fees benefits Benefits Total Total
US$ US$ US$ US$ US$
Clive Carver Chairman 152,698 - 9,805 162,503 152,698
Kuat Oraziman CEO 145,484 - - 145,484 156,753
Seokwoo Shin COO 55,000 - - 55,000 54,000
Edmund Limerick # Non-executive 5,882 66,500 - 72,382 16,319
Aibek Oraziman Non-executive 10,000 - - 10,000 -
Total 369,064 66,500 9,805 445,369 379,770
# Edmund Limerick resigned as a director effective from 7 July 2023.
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 2023 (2022: 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 (p) Expiry Date
Clive Carver 2,400,000 4 30 April 2025
Clive Carver 3,000,000 20 21 August 2024
Kuat Oraziman 3,000,000 20 21 August 2024
Seokwoo Shin 2,500,000 4 24 April 2034
The position as set out in the 2022 financial statements was as follows:
Directors Granted Exercise price (p) Grant date Expiry Date
Clive Carver 2,400,000 4.0 15 December 2013 14 December 2023
Clive Carver 3,000,000 20.0 22 August 2014 21 August 2024
Kuat Oraziman 3,000,000 20.0 22 August 2014 21 August 2024
Edmund Limerick 750,000 20.0 22 August 2014 21 August 2024
Edmund Limerick 1,000,000 20.0 6 June 2019 5 June 2029
Edmund Limerick 1,000,000 5.5 10 January 2022 9 January 2032
Seokwoo Shin 2,500,000 5.5 10 January 2022 9 January 2032
The exercise date of 2,400,000 options held by Clive Carver, which were not
capable of exercise before the expiry date of 14 December 2023 as the Company
was in an extended close period, have been extended until 30 April 2025.
There were no options exercised in 2023. To date in 2024, 4,500,000 options
have been granted including on 24 April 2024, 2,500,000 options granted to
Seokwoo Shin at an exercise price of 4.0p. At that time 2,500,000 options then
held by Seokwoo Shin, exercisable before 9 January 2032 were cancelled.
The total number of options at the date of this report is 16,850,000
representing approximately 0.75% of the total number of issued shares.
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
Aibek Oraziman
Chairman of Remuneration Committee
15 July 2024
AUDIT COMMITTEE REPORT
The Audit Committee
The Audit Committee, which between 1 January and 7 July 2023 comprised Edmund
Limerick, Clive Carver and Aibek Oraziman, with Edmund Limerick acting as
Chairman, and from 8 July 2023 comprised Clive Carver and Aibek Oraziman
with Clive Carver as Acting 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.
Group auditors
In October 2023 PKF Littlejohn LLP were appointed Group auditors, replacing
BDO LLP.
On behalf of the Directors of Caspian Sunrise plc
Clive Carver
Acting Chairman of Audit Committee
15 July 2024
INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF CASPIAN SUNRISE PLC
Qualified opinion on the Group financial statements and unmodified opinion on
the Parent Company financial statements
We have audited the financial statements of Caspian Sunrise plc (the 'Parent
Company') and its subsidiaries (the 'Group') for the year ended 31 December
2023 which comprise the Consolidated Statement of Profit or Loss, the
Consolidated Statement of Comprehensive Income, the Consolidated and Parent
Company Statements of Changes in Equity, the Consolidated and Parent Company
Statements 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.
In our opinion, except for the effects of the matter described in the Basis
for qualified opinion section 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 2023 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.
Basis for qualified opinion on the Group financial statements and unmodified
opinion on the Parent Company financial statements
In 2023, 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 fellow subsidiary BNG Ltd LLP.
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 notes 1.5 and 1.6. Drilling costs
provided to other entities in the Group may be capitalised, subject to
compliance with relevant accounting standards as detailed in notes 1.9 and
1.10.
The prior year audit report, which was issued by the predecessor auditor,
contained a qualified opinion in respect of the Directors being unable to
obtain reliable information for CTS LLP in respect of the timing of the
related direct costs being incurred, their allocation between different
contracts with EPC Munai LLP, and 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 were unable to provide updated budgets for estimated
costs to complete. This information is necessary to determine revenue, costs
of sales, advances received/ receivable, 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 the predecessor auditor
concluded that these balances may be materially higher or lower than those
reported in the signed 2022 financial statements.
Following the issue of the 2022 financial statements, and as explained in note
3, management performed a detailed review of CTS LLP's books and records
relating to its drilling contracts. As a result, a number of adjustments to
previously reported balances were required, and restatements made to relevant
line items in relation to the 2022 and 2021 financial years, as shown and
explained further in note 3.
Following this review by management, included in the Group's revenue in 2023
is USD 4,126,000 (2022 restated: USD 1,590,000) of drilling revenue related to
contracts with EPC Munai LLP and USD 4,735,000 (2022 restated: USD 1,834, 000)
of related cost of sales.
We have reviewed the exercise performed by management relating to the
adjustments to the 2022 and 2021 financial statements and, based on the
information provided, have been unable to gain sufficient assurance
surrounding the basis for cost allocation between the various contracts with
EPC Munai LLP, or the timing of these costs being incurred, both of which
drive the revenue recognition for each year. As a result, we are unable to
conclude whether or not the impacted line items in the 2022 financial
statements, as restated (see note 3) are materially misstated. We have
therefore also been unable to obtain sufficient appropriate audit evidence
over the accuracy of the Group's external drilling revenues or the
completeness and validity of its cost of sales allocation for the 2023
financial year. Our opinion is therefore qualified in respect of these
matters. The contracts with EPC Munai LLP were concluded before the 2023 year
end and therefore we are satisfied based on work performed that the closing
Group statement of financial position is materially correct.
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 are independent of
the 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. We believe
that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our qualified opinion.
Material uncertainty in relation to going concern
We draw attention to note 1.1 in the financial statements concerning the
Group's and the Parent Company's ability to continue as a going concern. Note
1.1 highlights that the Group has significant net current liabilities of
approximately USD 14,300,000 as at the year end, and that the forecast
cashflows are dependent on key factors including ,oil price and volume sold,
continued availability of oil trader advances, deferral of financial
obligations and the receipt of funds from the charter of the Caspian Explorer.
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's 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. Our evaluation of the Directors'
assessment of the Group's and the Parent Company's ability to continue to
adopt the going concern basis of accounting included:
· Obtaining the directors' going concern assessment and
evaluating the appropriateness of this assessment;
· Obtaining cashflow forecasts for the period to 31 December 2025
used to support this assessment, ascertaining the key assumptions and inputs
used in the preparation of the forecasts, and assessing the reasonableness of
such assumptions and inputs. This included, where possible, agreeing the
inputs to underlying supporting documentation, and sensitising key
assumptions;
· Comparing oil prices to available market data and production
levels to historic operating information;
· Comparing forecast income and expenses with recent historical
financial information to consider the accuracy of management's forecasting;
· Agreeing cash balances to the opening working capital position
and testing the mathematical accuracy of the forecasts;
· Considering external market factors affecting the Group and its
future economic viability, such as oil prices and the ongoing lack of
viability of international sales as a result of the sanctions imposed against
Russia;
· Evaluating the completeness of forecast licence related
expenditure included in the forecasts. We held discussions with the Directors
and those charged with governance regarding the intention to seek a 2 year
extension to the appraisal licence covering the Airshagyl an Yelemes Deep
structures before then applying for separate 25 year production licences;
· Comparing the forecast cash payments in respect of the BNG
production licence award against the USD 32,000,000 assessment received from
the Government payable in instalments over 10 years. We ensured that the
relevant instalments are included in the forecast;
· Assessing the reasonableness of cash inflows included in the
forecasts including those relating to oil production and the Group's maiden
offshore drilling chartering contract for the Caspian Explorer, including
agreement to the underlying contract for the latter;
· Evaluating the possibility of obtaining cash through sale of
key assets, and examined available documentation as well as publicly available
announcements in respect of these matters;
· Assessing the validity of any mitigating actions identified by
the Directors; and
· Reviewing the adequacy and completeness of the disclosures
included within the financial statements in respect of going concern based on
our understanding of the business and the Group's current financial position,
and the uncertainties surrounding the going concern position.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Our application of materiality
We apply the concept of materiality in both planning and performing the audit
and evaluating the effect of misstatements. Based on our professional
judgement, we determined materiality for the financial statements as follows:
Group financial statements Parent Company financial statements
Materiality USD 1,960,000 USD 1,170,000
Basis for determining materiality 1.5% of gross assets 3% of net assets, capped below group Performance materiality
Rationale for the benchmark applied We have determined an asset based measure is appropriate as the Group The Parent Company is a holding company; therefore, materiality was set on the
continues to focus on the development of its key oil and gas exploration and net assets basis.
production activities, which require significant capital expenditure.
Performance materiality
We set performance materiality at a level lower than materiality to reduce the
probability that, in aggregate, uncorrected and undetected misstatements
exceed the materiality for the financial statements as a whole.
Group financial statements Parent Company financial statements
Performance materiality USD 1,176,000 USD 702,000
Basis for determining materiality 60% of materiality 60% of materiality
Rationale for the benchmark applied Performance materiality for the current year was set based our assessment of
the control environment including identified control deficiencies.
Our audit procedures were performed to materiality levels applicable to each
component, which were lower than the Group materiality level and ranged from
USD 290,000 to USD 1,170,000.
In the audit of each component, we further applied performance materiality
levels of 60% of the component materiality to our testing to ensure that the
risk of errors exceeding component materiality was appropriately mitigated.
We agreed with those charged with governance that we would report to them all
audit differences identified during the course of our audit in excess of USD
98,000. We also agreed to report any other audit misstatements below that
threshold that we believe warranted reporting on qualitative grounds.
Our approach to the audit
Our audit approach was developed by obtaining an understanding of the Group's
and Parent Company's activities, the key subjective judgments made by the
directors, for example in respect of the significant accounting estimates
regarding the valuation of unproven oil and gas assets and the accounting
treatment of CTS LLP drilling contracts, considering future events that are
inherently uncertain, and the overall control environment. Based on this
understanding we assessed those aspects of the Group's and Parent Company's
transactions and balances which were most likely to give rise to a material
misstatement and were most susceptible to irregularities including fraud or
error. Specifically, we identified what we considered to be key audit matters
and planned our audit approach accordingly.
The Group's operations principally comprise oil and gas exploration and
production in Kazakhstan. We assessed there to be five significant components
comprising BNG Ltd LLP, CTS LLP, KC Caspian Explorer LLP, Roxi Petroleum
Kazakhstan LLP, and the Parent Company. These components, which were subject
to full scope audit procedures, represent the principal business units.
A non-PKF member firm performed a full scope audit of BNG Ltd LLP, CTS LLP, KC
Caspian Explorer LLP and Roxi Petroleum Kazakhstan LLP 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
us.
The remaining components of the Group were considered non-significant and
these components were subject to either specified audit procedures by the
component auditor, to address risks assessed at the Group level or to gain
comfort over material items, or analytical review procedures by the Group
audit team. The Group audit team performed additional procedures in respect
of certain significant risk areas that represented Key Audit Matters.
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 working papers, both in
Kazakhstan and remotely from the UK. In addition, we reviewed the Group
reporting submissions received from the component audit teams and held regular
calls with the component audit teams during the planning, fieldwork and
completion phases of their audit to discuss significant findings from their
audit.
• We performed additional procedures in respect of the significant
risk areas where deemed necessary.
Key audit matters
Key audit matters are those matters that, in our professional judgment, 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) 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, and we do not
provide a separate opinion on these matters. In addition to the matter
described in the Material uncertainty related to going concern section, and
the matter disclosed in the Basis for qualified opinion section, we have
determined the matters described below to be the key audit matters to be
communicated in our report.
Key Audit Matter - Valuation of unproven oil and gas assets [Note 12]
The carrying value of Group's unproven oil and gas assets as at 31 December
2023 was USD 51,963,000.
In accordance with IFRS 6 Exploration for and Evaluation of Mineral Resources,
assets should be held at cost and an annual assessment of impairment
indicators performed and, where such indicators exist, perform an impairment
assessment in accordance with IAS 36 Impairment.
Given the level of management estimates and judgement required in determining
the recoverability of these assets, there is a risk that management may not
adequately identify all impairment indicators. As such, there is a risk that
the carrying value of these assets is impaired and that exploration and
development costs capitalised during the year have not been capitalised in
accordance with IFRS 6.
As a result of the significant estimates and judgement required to be
exercised by management, as well as the quantum of this balance, we consider
this to be a key audit matter.
How our scope addressed this matter
Our work in this area included:
· Reviewing the work of the component auditor's testing of
additions in the year, as well as performing additional work in this area,
such as vouching costs to supporting documentation to ensure that costs have
been appropriately capitalised in accordance with IFRS 6 and the Group's
accounting policies;
· Obtaining confirmation that the Group has good title to the
applicable exploration licences, and assessing compliance with terms of the
licences through making enquiries of management and the legal consultant;
· Obtaining management's review of indicators of impairment and
considering the reasonableness of this assessment in accordance with the
requirements of IFRS 6.
· Performing an independent assessment as to whether any of the
impairment indicators as per IFRS 6 have been met and if so, whether any
impairment is necessary.
· Inspecting cash flow forecasts to confirm that further drilling
and exploration is planned for the licenced areas, as well as reviewing
internal and external information available during the year and post-year end
such as Board minutes and Regulatory News Service announcements for evidence
of potential impairment;
· Evaluation of the results of exploration activity in the year for
indications that the licences would be abandoned or that the recoverable value
would be below carrying value; and
· Reviewing disclosures in the financial statements to ensure
compliance with the requirements of IFRS.
Key observations
We draw attention to the disclosure within Notes 12 Unproven oil and gas
assets and 2.2.2 within the Critical Accounting Estimates and Judgements,
which state that the Group's existing appraisal licence will expire in August
2024 and that the Group has in July 2024 submitted an application to extend
the licence for a further 2 years. Should the application to extend the
licence not be successful, this could result in impairment to valuation of the
unproven oil and gas assets.
Key audit matter - Accounting treatment of CTS LLP drilling services [Notes 3
and 4; Accounting policies 1.5 and 2.1.2]
The accounting treatment of contracts to provide drilling services held within
entity CTS LLP with external related party EPC Munai LLP is dependent on the
existence of reliable information in respect of the timing of the costs being
incurred, their allocation between different contracts and whether costs
should have been allocated to cost of sales or capitalised as property plant
and equipment.
As such, there is a risk that the accounting treatment is not in accordance
with IFRS.
How the scope of our audit responded to the key audit matter
Our work in this area included:
• Obtaining management's schedules relating to the analysis of the
accounting treatment of the contracts on a contract-by-contract basis and
providing challenge to, and corroborating, key inputs and assumptions being
used, including:
o vouching revenue amounts to underlying contracts;
o testing a sample of costs to supporting documentation including
confirmation of well number, on which the allocation to contract is based, to
confirm accuracy of costs;
o assessing the appropriateness of allocation between contracts, and
o evaluating the reasonableness of allocation between cost of sales
(external contracts) and capitalised assets (BNG contracts);
• Considering the appropriateness of revenue recognition in
accordance with the requirements of IFRS 15 Revenue from Contracts with
Customers for each contract, including reference to the relevant sales
agreements and the key terms and conditions within the contracts;
• Performing testing in accordance with IAS 37 Provisions,
Contingent Liabilities and Contingent Assets to determine whether any
provisions for losses for onerous contracts should be recognised as at 31
December 2023; and
• Reviewing the disclosures in the financial statements to ensure
compliance with the requirements of IFRS.
Key observations
As explained in the Basis for qualified opinion, we have been unable to
conclude as to whether material misstatements are present in the opening
balances, nor whether revenue and cost of sales related to external drilling
contracts during 2023 are accurate. However, on the basis of the audit
procedures performed, we are satisfied that given that all contracts with EPC
Munai LLP were concluded before 31 December 2023, the closing statement of
financial position is not materially misstated in respect of the CTS LLP
drilling contracts.
Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
Directors are responsible for the other information contained within the
annual report. Our opinion on the Group and Parent Company 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 have
concluded that other information may be materially misstated.
Opinion on other matters prescribed by the Companies Act 2006
Except for the matter described in the Basis for qualified opinion on other
matters prescribed by the Companies Act 2006 section of our report, in our
opinion, based on the work undertaken in the course of the audit:
· the information given in the Directors' report for the financial
year for which the financial statements are prepared is consistent with the
financial statements; and
· the Directors' report have been prepared in accordance with
applicable legal requirements.
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.
Matters on which we are required to report by exception
Notwithstanding our Basis for qualified opinion, in the light of the knowledge
and understanding of the company and its environment obtained in the course of
the audit, we have not identified material misstatements in the Directors'
report.
Arising from the limitation of our work performed in the Basis of qualified
opinion section:
· we were unable to determine whether adequate accounting records
have been kept; and
· we have not received all the information and explanations we
require for our audit.
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
· 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 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 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.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· We obtained an understanding of the company and the sector in
which it operates to identify laws and regulations that could reasonably be
expected to have a direct effect on the financial statements. We obtained our
understanding in this regard through:
o Discussing with management, those charged with governance and those
responsible for legal and compliance procedures, to understand how the Group
is complying with those legal and regulatory frameworks; and
o Conducting and applying industry research and application of cumulative
audit knowledge.
· We determined the principal laws and regulations relevant to the
company in this regard to be those arising from:
o UK-adopted international accounting standards;
o Companies Act 2006;
o AIM Rules and the Quoted Companies Alliance Corporate Governance Code;
o Relevant industry laws and regulations in Kazakhstan, including relevant
environmental regulations associated with oil and gas exploration and
production activities;
o UK and Kazakh taxation and employment laws; and
o Terms of compliance included in the Group's production and exploration
licences.
· We designed our audit procedures to ensure the audit team
considered whether there were any indications of non-compliance by the company
with those laws and regulations. These procedures included, but were not
limited to:
o Reviewing minutes of meetings of those charged with governance for any
instances of non-compliance with laws and regulations;
o Reviewing of Regulatory News Service announcements;
o Directing the auditors of the significant components to ensure an
assessment was performed on the extent of the components' compliance with the
relevant local and regulatory environment and a review of correspondence with
regulatory and tax authorities was performed for any instances of
non-compliance with laws and regulations;
o Reviewing the terms of 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; and
o Review of legal expenditure accounts to understand the nature of
expenditure incurred.
· We also identified the risks of material misstatement of the
financial statements due to fraud. We considered, in addition to the
non-rebuttable presumption of a risk of fraud arising from management override
of controls, that the areas most susceptible to fraud were revenue
recognition, valuation of unproven oil and gas assets and the accounting
treatment of CTS LLP drilling services, on the basis that there is potential
for management bias as a result of judgement being exercised, and we addressed
this by challenging the assumptions and judgements made by management when
auditing these areas. See Key audit matters section above.
· As in all of our audits, we addressed the risk of fraud arising
from management override of controls by performing audit procedures which
included, but were not limited to: the testing of journals; reviewing
accounting estimates for evidence of bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the
normal course of business.
Because of the inherent limitations of an audit, there is a risk that we will
not detect all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with regulation.
This risk increases the more that compliance with a law or regulation is
removed from the events and transactions reflected in the financial
statements, as we will be less likely to become aware of instances of
non-compliance. The risk is also greater regarding irregularities occurring
due to fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities)
http://www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities)
http://www.frc.org.uk/auditors/audit-assurance/auditor-s-responsibilities-for-the-audit-of-the-fi/description-of-the-auditor's-responsibilities-for
(http://www.frc.org.uk/auditors/audit-assurance/auditor-s-responsibilities-for-the-audit-of-the-fi/description-of-the-auditor%E2%80%99s-responsibilities-for)
https://www.frc.org.uk/auditors/audit-assurance/standards-and-guidance/2010-ethical-standards-for-auditors-(1)
(https://www.frc.org.uk/auditors/audit-assurance/standards-and-guidance/2010-ethical-standards-for-auditors-(1))
. This description forms part of our auditor's report.
Use of our report
This report is made solely to the 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 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 company and the company's members as
a body, for our audit work, for this report, or for the opinions we have
formed.
Imogen Massey (Senior Statutory Auditor)
15 Westferry Circus
For and on behalf of PKF Littlejohn LLP
Canary Wharf
Statutory Auditor
London E14 4HD
15 July 2024
Consolidated Statement of Profit or Loss
Notes Year ended *Restated
31 December Year ended
2023 31 December
2022
US$'000 US$'000
Revenue 4 36,651 40,893
Cost of sales (15,926) (8,718)
Gross profit 20,725 32,175
Selling expense (2,993) (9,751)
Administrative costs (6,031) (9,767)
Other operating income 5 3,774 211
Operating profit 5 15,475 12,868
Finance cost 8 (920) (585)
Finance income 9 231 59
Profit before taxation 14,786 12,342
Tax charge 10 (3,681) (2,371)
Profit after taxation from continuing operations 11,105 9,971
Profit attributable to owners of the parent 10,590 9,837
Profit attributable to non-controlling interest 515 134
Profit for the year 11,105 9,971
Earnings per ordinary share
Basic (US cents) 11 0.47 0.44
Diluted (US cents) 11 0.47 0.44
*See note 3 for details of prior year restatement.
Consolidated Statement of Comprehensive Income
Year ended *Restated
31 December Year ended
2023 31 December
2022
US$'000 US$'000
Profit after taxation 11,105 9,971
Other comprehensive income, net of tax:
Items that may be subsequently reclassified to profit or loss:
Exchange differences on translating foreign operations 676 (4,407)
Total comprehensive income for the year 11,781 5,564
Total comprehensive profit attributable to:
Owners of parent 11,266 5,430
Non-controlling interest 515 134
Total comprehensive income for the year 11,781 5,564
* See note 3 for details of prior year restatement.
Consolidated Statement of Changes in Equity
Share capital Share premium Deferred shares Cumulative translation Other reserves Merger reserve Retained profit US$'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$'000
Total equity as at 1 January 2023 - as stated 33,060 - - (66,521) (2,362) 11,511 84,872 60,560 (5,667) 54,893
Correction prior year error (note 3) - - - 7 - - (97) (90) - (90)
Total equity as at 1 January 2023 - restated 33,060 - - (66,514) (2,362) 11,511 84,775 60,470 (5,667) 54,803
Profit for the year - - - - - - 10,590 10,590 515 11,105
Other comprehensive income for the year:
Exchange differences on translating foreign operations - - - 676 - - - 676 - 676
Total comprehensive income/(loss) for the year - - - 676 - - 10,590 11,266 515 11,781
Transactions with owners in their capacity as owners:
Dividends declared (note 19) - - - - - - (2,377) (2,377) - (2,377)
Shareholder advance at below market rate (note 23) - - - - 2,102 - - 2,102 - 2,102
Liquidation of subsidiary** - - - - 2,362 - (2,362) - - -
Total transactions with owners - - - - 4,464 - (4,739) (275) - (275)
Total equity as at 31 December 2023 33,060 - - (65,838) 2,102 11,511 90,626 71,461 (5,152) 66,309
Share capital Share premium Deferred shares Cumulative translation Other reserves Merger reserve Retained profit / (deficit) Total attributable to the owner of the Parent Non-controlling interests Total
US$'000 US$'000 reserve US$'000 US$'000 US$'000 US$'000 US$'000 equity
US$'000 US$'000 US$'000
Total equity as at 1 January 2022 - as stated 31,118 164,817 64,702 (62,103) (2,362) 11,511 (156,239) 51,444 (5,801) 45,643
Correction prior year error (note 3) - - - (4) - - (171) (175) - (175)
Total equity as at 1 January 2022 - restated 31,118 164,817 64,702 (62,107) (2,362) 11,511 (156,410) 51,269 (5,801) 45,468
Profit for the year (restated) - - - - - - 9,837 9,837 134 9,971
Other comprehensive income for the year:
Exchange differences on translating foreign operations (restated) - - - (4,407) - - - (4,407) - (4,407)
Total comprehensive income/(loss) for the year (restated) - - - (4,407) - - 9,837 5,430 134 5,564
Transactions with owners in their capacity as owners:
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 - - -
(note 30)
Dividends declared (note 19) - - - - - - (2,444) (2,444) - (2,444)
Total transactions with owners 1,942 (164,817) (64,702) - - - 231,348 3,771 - 3,771
Total equity as at 31 December 2022 - restated 33,060 - - (66,514) (2,362) 11,511 84,775 60,470 (5,667) 54,803
*See note 3 for details of prior year restatement.
**Galaz Energy BV was liquidated in 2022 and during 2023 the Directors decided
to transfer a separate equity reserve associated with the entity to Retained
profit for capital maintenance purposes. The balance arose on
acquisition of non-controlling interest in 2010.
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
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
The notes on pages 64 to 91 are an essential part of these financial
statements
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$'000
Total equity as at 1 January 2023 33,060 - - 11,511 59,012 103,583
Total comprehensive loss for the year - - - - (1,336) (1,336)
Transactions with owners in their capacity as owners:
Dividends declared (note 19) - - - - (2,377) (2,377)
Total transactions with owners - - - - (2,377) (2,377)
Total equity as at 31 December 2023 33,060 - - 11,511 55,299 99,870
Share Share premium Deferred shares Merger reserve US$'000 Retained profit / (deficit) Total attributable to the owner of the Parent
capital US$'000 US$'000 US$'000 US$'000
US$'000
Total equity as at 1 January 2022 31,118 164,817 64,702 11,511 (171,203) 100,945
Total comprehensive loss for the year - - - - (1,133) (1,133)
Transactions with owners in their capacity as owners:
Shares issued in connection with the completed debt conversion (note 18) 1,942 4,273 - - - 6,215
Cancellation share of premium and deferred shares (note 30) - (169,090) (64,702) - 233,792 -
Dividends declared (note 19) - - - - (2,444) (2,444)
Total transactions with owners 1,942 (164,817) (64,702) - 231,348 3,771
Total equity as at 31 December 2022 33,060 - - 11,511 59,012 103,583
Equity
Description and purpose
Share
capital
The nominal value of shares issued
Share
premium
Amount subscribed for share capital in excess of nominal value
Deferred
shares
The nominal value of deferred shares issued
Merger reserves The excess of the fair
value of the issues share capital over the nominal value of these shares
issued for acquisition of at least 90 percent equity holding in subsidiaries
Retained profit/(deficit)
Cumulative losses recognised in the profit or loss
The notes on pages 64 to 91 are an essential part of these financial
statements
Consolidated Statement of Financial Position
Company number 05966431 Notes *Restated
Group Group
2023 2022
US$'000 US$'000
Assets
Non-current assets
Unproven oil and gas assets 12 51,963 44,631
Property, plant and equipment 13 64,930 60,146
Other receivables 16 3,230 2,533
Restricted use cash 706 694
Total non-current assets 120,829 108,004
Current assets
Inventories 15 1,497 492
Other receivables 16 12,149 5,491
Cash and cash equivalents 17 447 3,682
Total current assets 14,093 9,665
Total assets 134,922 117,669
Equity and liabilities
Capital and reserves attributable to equity holders of the parent
Share capital 18 33,060 33,060
Other reserves 2,102 (2,362)
Merger reserve 11,511 11,511
Retained profit / (deficit) 90,626 84,775
Cumulative translation reserve (65,838) (66,514)
Equity attributable to the owners of the Parent 71,461 60,470
Non-controlling interests 29 (5,152) (5,667)
Total equity 66,309 54,803
Current liabilities
Trade and other payables 20 16,095 14,828
Borrowing 23 3,624 352
Current tax liabilities 20 989 1,651
BNG historic costs payable 22 3,178 3,178
Current provisions 24 4,481 5,977
Total current liabilities 28,367 25,986
Non-current liabilities
Borrowing 23 3,070 -
Deferred tax liabilities 25 7,378 6,335
BNG historic costs payable 22 13,746 16,297
Non-current provisions 24 1,160 469
Other payables 21 14,892 13,779
Total non-current liabilities 40,246 36,880
Total liabilities 68,613 62,866
Total equity and liabilities 134,922 117,669
*See note 3 for details of prior year restatement.
Approved by the Board and authorized for issue:
Clive Nathan Carver,
Chairman,
15 July 2024
Company number: 5966431
Parent Company Statement of Financial Position
Company number 05966431 Notes Company Company
2023 2022
US$'000 US$'000
Assets
Non-current assets
Investments in subsidiaries 14 15,487 15,487
Other receivables 16 89,083 88,883
Total non-current assets 104,570 104,370
Current assets
Other receivables 16 73 14
Cash and cash equivalents 17 48 2,405
Total current assets 121 2,419
Total assets 104,691 106,789
Equity and liabilities
Share capital 18 33,060 33,060
Merger reserve 11,511 11,511
Retained profit / (deficit) 55,299 59,012
Total equity 99,870 103,583
Current liabilities
Borrowing 23 104 -
Trade and other payables 20 4,717 3,206
Total current liabilities 4,821 3,206
Total equity and liabilities 104,691 106,789
Under s408 of the Companies Act 2006 the Company is exempt from the
requirement to present its own statement of comprehensive income. The Company
incurred loss after tax for the year ended 31 December 2023 in the amount of
US$1,336,000 (2022: loss of US$ 1,133,000).
Approved by the Board and authorized for issue:
Clive Nathan Carver,
Chairman,
15 July 2024
Company number: 05966431
Consolidated and Parent Company Statements of Cash Flows
Notes Group Group Company Company
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
Cash flows from operating activities
Cash received from customers 39,539 45,862 - -
Payments made to suppliers for goods and services (28,525) (26,137) (637) (1,280)
Payments made to employees (5,353) (1,373) (413) (186)
Net cash flow generated from/ (used in) operating activities 5,661 18,352 (1,050) (1,466)
Cash flows from investing activities
Purchase of property, plant and equipment 13 (7,283) (502) - -
Additions to unproven oil and gas assets 12 (4,939) (11,470) - -
Loan provided to the related party as part of the potential acquisition 16, 28 (1,545) (1,523) - -
Other payment to the related party 16, 28 - (800) - -
Transfers to restricted use cash (12) (59) - -
Advances repaid by subsidiaries 16 - - 1,099 4,944
Net cash flow (used in)/ generated from investing activities (13,779) (14,354) 1,099 4,944
Cash flows from financing activities
Dividends paid 19 (3,026) (1,097) (2,605) (1,097)
Bank loan received 23 3,199 - - -
Loans received from the related parties, net of payments 16, 28 4,779 352 200 20
Bank interest paid (69)
Net cash flow generated from/ (used in) financing activities 4,883 (745) (2,405) (1,077)
Net increase/ (decrease) in cash and cash equivalents (3,235) 3,253 (2,357) 2,401
Cash and cash equivalents at the beginning of the year 3,682 429 2,405 4
Cash and cash equivalents at the end of the year 17 447 3,682 48 2,405
Changes in liabilities arising from financing activities are disclosed in note
23 and no non-cash additions to unproven oil and gas assets and property,
plant equipment are included in notes 12 and 13
respectively.
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.
The principal activities of the Company and its subsidiaries (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 ("Group financial statements") and the
Company's standalone financial statements ("Company financial statements") are
set out below.
1.1 Basis of preparation
The Group and Company financial statements have been prepared in accordance
with UK-adopted international accounting standards ("IFRS") in conformity with
the requirements of the Companies Act 2006.
The Group and Company financial statements are presented in US dollars ("US$")
, which is the Group's and Company's presentational currency, rounded to the
nearest thousand unless otherwise stated.
The preparation of financial statements in conformity with IFRS requires
Directors 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.
Going concern
As set out in the Chairman's statement and throughout these financial
statements the financial strategy of the Group in recent years has been to
fund compliance with work programme commitments and to expand the Group's
activities without unduly diluting shareholders' longer term interests.
This has inevitably stretched the short and longer term creditor position to
levels at the period end and today which in a more established Group might
appear excessive. However, the Board believes the expected significant cash
inflows from oil production, offshore chartering and, if appropriate, asset
sales, means that the current arguably extreme position is set to rapidly
reverse during the remainder of the current, FY24, financial year to the point
that the Group will have a significant cash surplus.
Nevertheless, with net current liabilities of approximately $14.3 million as
at 31 December 2023 the assessment of going concern needs careful
consideration. The Board has therefore assessed cash flow forecasts prepared
for the period to 31 December 2025 and assessed the risks and uncertainties
associated with the operations and funding position, including Block 8 and
West Shalva.
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. Should sales to mini refineries cease and the surplus oil not
be picked up on the domestic market additional funding would be required.
· The Group continues to forward sell its domestic production and
receives advances from oil traders with approximately $2.1 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 $4.0 million of tax liabilities and $4.3 million
due on demand under social development programmes and $3.2 million BNG licence
payments due within the next 12 months 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.
· Should the charter for the Caspian Explorer be materially delayed
from its July 2024 start date and / or payment not be made in accordance with
the contract terms 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 as a result 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:
· operational expenditure savings at BNG where the mandated work
programme obligations will end with Wells 155 and 803, both of which are
nearing completion.
· expected revenues of at least $10 million expected in Q3 2024
from the Caspian Explorer contract
· repayment of the $3.3 million loan advanced to enable the 2023
work programme at Block 8 to be completed
· production commencing from Block 8 less the $5 per barrel royalty
once the licence is renewed and the re registration formalities in the UAE are
finalised
· completion of the proposed $83 million sale of the MJF and
South Yelemes structures would on its own eliminate any funding issues, should
this be pursued by the Company.
Should it be necessary, the Board has the following options available to
mitigate any short-term funding issues:
· To seek additional funding from advance oil sales
· To sell all or part of one or more of the Group's assets -
including either the BNG Contract Area where we have already received
expressions of interest or the Caspian Explorer
· Seek additional short term funding from the Group's largest
shareholder group
· To seek additional equity capital.
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.
1.2 New and amended standards and interpretations
There were no new standards, amendments or interpretations effective for the
first time for periods beginning on or after 1 January 2023 that had a
material effect on the Group and Company financial statements.
At the date of approval of these financial statements, there were no new
standards or amendments to IFRS which have not been applied in these financial
statements which were in issue but not yet effective and are expected to have
a material impact on the consolidated and company financial statements.
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 results 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 Directors
considers all relevant facts and circumstances in assessing whether the Group
has power over an investee, including:
· The contractual arrangement with the other vote holders of the
investee;
· Rights arising from other contractual arrangements; and
· The Group's voting rights and potential voting rights.
The Directors reassess whether or not the Group controls an investee if facts
and circumstances indicate that there are changes to one or more of the three
elements of control. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are deconsolidated from the
date that control ceases. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the period are included in the
consolidated financial statements from the date the Group gains control until
the date the Group ceases to control the subsidiary.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used in line with those used by
other members of the Group.
All intragroup assets and liabilities, equity, income, expenses, and cash
flows relating to transactions between members of the Group are eliminated in
full on consolidation.
Non-controlling interests in subsidiaries are identified separately from
equity attributable to the owner of the Company. On acquisition of
subsidiaries, non-controlling interests are measured at their proportionate
share of the fair value of the acquiree's identifiable net assets. Profit or
loss and each component of other comprehensive income are attributed to the
owners of the Company and to the non-controlling interests.
1.4 Foreign currency translation
Functional and presentational currencies
The functional currency for each entity in the Group is the currency of the
primary economic environment in which the entity operates. The functional
currency of the Company is the US Dollar. Other entities in the Group have the
US Dollar or Kazakh Tenge ("KZT") as their functional currencies.
The Group and Company financial statements are presented in US Dollars, which
is the Group's and Company's presentational currency.
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.
Consolidation
For the purpose of consolidation all assets and liabilities of Group entities
with a functional currency that is not US Dollars 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.
Exchange rates
For reference, the year end exchange rate from sterling to US$ was 1.27 (2022:
1.21) and the average rate during the year was 1.27 (1.24). The year-end
exchange rate from KZT to US$ was 454.56 (2022: 462.65) and the average rate
during the year was 456.24 (2022: 460.48).
1.5 Revenue
Revenue from contracts with customers is recognised when or as the Group
satisfies a performance obligation by transferring a promised good or service
to a customer. A good or service is transferred when the customer obtains
control of that good or service.
Revenue is measured at the fair value of the consideration received, excluding
value added tax ("VAT") and other sales taxes or duty.
Sale of crude oil and oil products
The transfer of control of oil and oil products 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 or oil products of the 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.
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. For contracts that are at an early stage of the
drilling process, total costs to complete may not be estimated reliably, in
which case the cost recovery method is used whereby revenue is only recognised
for the costs that are recoverable.
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
consider 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.
Failure to comply with this accounting policy in the years ended 31 December
2022 and 31 December 2021 resulted in a misstatement in the previously
reported Group financial statements which have corrected in these financial
statements as detailed in note 3.
1.6 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. For sale of
oil products, cost of sales includes the cost of refining crude oil.
Direct costs to fulfil drilling contracts, including employee costs of field
staff, are recognised in cost of sales as incurred. When it is probable that
the total contract costs will exceed total contract revenue, the contract
becomes onerous, and an onerous contract provision is created in accordance
with the Group's accounting policy 1.10. Changes in the onerous contract
provision are recognised within other operating costs.
1.7 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 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.
1.8 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.
1.9 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' ("IFRS 6"). 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 recognised directly in 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 or prospect are not amortised but are carried forward until the
technical feasibility and commercial feasibility of extracting a mineral
resource are demonstrated, at which point an impairment review is carried out
and assets are transferred to proven oil and gas properties.
Exploration and unproven oil and gas assets are reviewed for impairment if
events or changes in circumstances indicate that the carrying amount may not
be recoverable as at the reporting date. In accordance with IFRS 6, the
Directors firstly consider 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 Directors perform an
impairment test in accordance with the provisions of IAS 36 'Impairment of
assets'. 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.
1.10 Property, plant and equipment
Property, plant and equipment ("PPE") consists of proven oil and gas
properties and other assets.
Proven oil and gas assets
Once an exploration 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 subsequently accounted for in accordance
with provisions of the cost model 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, which is 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.
Other PPE assets
All other PPE assets, including the Caspian Explorer, are stated at cost less
accumulated depreciation and impairment. The assets are depreciated a
straight-line basis, at rates calculated to write off the cost less the
estimated residual value of each asset over its expected useful economic life.
The residual value is the estimated amount that would currently be obtained
from disposal of the asset if the asset were already of the age and in the
condition expected at the end of its useful life. Expected useful economic
life and residual values are reviewed annually. The annual rates of
depreciation are as follows:
- motor vehicles 4-5
years
-
other
over 2-4 years
Impairment of PPE
At each reporting date, the Directors review the carrying values of the
Group's PPE 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 Directors estimate the recoverable
amount of the smallest cash-generating unit ("CGU") 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 CGU, 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 CGU) is estimated to be less than
its carrying amount, the carrying amount of the asset (or CGU) is reduced to
its recoverable amount. An impairment loss is recognised in profit or loss
immediately.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (or CGU) 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 (or CGU) in prior years. A reversal of an impairment loss is recognised
in profit or loss 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.
1.11 Abandonment provision
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.
1.12 Investment in subsidiaries
In Company financial statements, investments in subsidiaries undertakings are
shown at cost less allowance for impairment. Investments in subsidiaries are
reviewed annually for impairment indicators and, if required, are subject to
impairment reviews as detailed in note 1.9.
1.13 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.
1.14 Deferred and accrued revenue
Deferred revenue is a liability that arises when a customer pays consideration
before the respective goods (crude oil or oil products) or services (drilling)
are transferred to the customer.
Accrued revenue is an asset that arises when the Group performs its contract
obligations by transferring goods or services to a customer before the
consideration is paid or before payment is due. A right to payment that is
unconditional is a financial asset and is recognised as a trade receivable.
Accrued revenue is assessed annually for impairment in the accordance with the
same accounting policy as applied to trade receivables (note 1.15).
1.15 Financial instruments
Financial instruments, or their component parts, are classified 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 Company or
Group becomes a party to the contractual provisions of the financial
instrument.
Financial assets are derecognised 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. Financial liabilities are derecognised when the Group's obligations are
discharged, cancelled or have expired.
Financial assets
Financial assets are classified at initial recognition into one of the
categories listed below, depending upon the business model for managing the
financial assets and the nature of the contractual cash flow characteristics
of the financial asset.
Amortised cost
Financial assets held at amortised cost comprise cash and cash equivalents,
trade and other receivables and amounts advanced to subsidiaries and loans to
related parties.
These assets are non-derivative financial assets with fixed or determinable
payments that are not quoted in an active market. They arise principally
through the provision of goods and services to customers (e.g., trade
receivables), but also incorporate other types of financial assets where the
objective is to hold their assets in order to collect contractual cash flows
and the contractual cash flows are solely payments of the principal and
interest. They are initially recognised at fair value plus transaction costs
that are directly attributable to their acquisition or issue and are
subsequently carried at amortised cost using the effective interest rate
method, less provision for impairment.
Impairment provisions for trade and other receivables are recognised based on
the simplified approach within IFRS 9 'Financial Instruments' ("IFRS 9") using
the lifetime expected credit losses ("ECL") method. During this process the
probability of the non-payment of the receivables is assessed. This
probability is then multiplied by the amount of the expected loss arising from
default to determine the lifetime ECL for the receivables. For trade and other
receivables, which are reported net, such provisions are recorded in a
separate provision account with the loss being recognised within
administrative expenses in the statement of comprehensive income. On
confirmation that the trade or other receivable will not be collectable, the
gross carrying value of the asset is written off against the associated
provision.
Financial liabilities
Financial liabilities include trade and other payables, borrowings and other
payables. All financial liabilities are recognised initially at fair value,
net of transaction costs incurred, and are subsequently stated at amortised
cost, using the effective interest method.
If 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 recognised in profit or loss. When
the Company extinguishes a financial liability in return for equity, the
shares issued are recognised at their fair value with any difference to the
carrying value of the financial liability recognised in profit or loss.
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.
1.16 Restricted use cash
Restricted use cash represents cash 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. The cash is held in a segregated bank account and under the Subsoil
Use Contracts the Group must place 1% of the capital expenditure incurred in
the year into 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.
1.17 Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand and demand deposits with
maturity of 3 months or less. Restricted use cash is presented separately.
1.18 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.
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. The amount recognised will be the best estimate of the
expenditure required to settle the present obligation at the reporting date.
1.19 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.
1.20 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.
1.21 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% 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.
1.22 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.
2 Critical accounting estimates and judgements
In the process of applying the Group's accounting policies, which are
described in note 2, the Directors are required to make judgements, estimates
and assumptions which affect reported income, expenses, assets, liabilities
and disclosure of contingent assets and liabilities. The estimates and
associated assumptions are based on historical experience, expectations of
future events and other factors that are believed to be reasonable under the
circumstances. Actual results in the future could differ from such estimates.
The estimates and underlying assumptions are reviewed on an on-going basis.
Revisions to accounting estimates are recognised in the period in which the
revision is made.
2.1 Key sources of estimation uncertainty
2.1.2 Revenue recognition on onshore drilling contracts with
third parties
The determination of anticipated costs for completing a drilling 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.
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 determination of estimates is based on internal policies
as well as historical experience.
For the year ended 31 December 2023, the Group recognised revenue of
US$4,126,000 (2022 (restated): US$1,648,000) relating to onshore drilling
contracts provided to third parties. As at 31 December 2023, the Group does
not have any ongoing onshore external drilling service contracts, however this
was a key uncertainty when correcting for the prior period error (note 3),
where the Directors used their best judgement to determine what the expected
costs to complete would have been as at 31 December 2022 and 31 December 2021,
further details are included in note 3.
2.1.3 Decommissioning obligation
Provision has been made in the accounts for future decommissioning costs to
plug and abandon wells as set out in note 24. The costs of provisions have
been added to the cost of the oil and gas asset or the exploration asset
depending on the well's stage of development.
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
which are estimated to be in 2043, the discount rate to be applied to such
costs (2023: 11%) and the expected inflation rate in Kazakhstan (2023: 9.8%).
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.
2.1.4 Estimation of credit losses of receivables from
subsidiaries
The Directors have used judgement to determine to the expected credit loss
provision against amounts due from subsidiaries in the Company financial
statements, which involves estimates of the ability of the subsidiaries to
repay these loans, which itself is based on the estimates of the minimum
realisable value of the Group's assets, which are primarily the production and
exploration assets and the Caspian Explorer. The Directors have estimated an
expected credit loss provision of US$20.7m is required as at the year-end
(2022: US$20.7m). The estimate of the recoverable amounts of receivables due
from subsidiaries is primarily linked to the Group's exploration and proven
oil and gas assets having net realisable values of at least their carrying
values. Sections 2.2.1 and 2.2.2 below detail the significant judgements with
respect to impairment indicators of these assets.
2.1.5 Indemnity receivables in relation to the 3A Best
acquisition
Under the terms of the Sale and Purchase Agreement ("SPA") for 3A Best, the
three vendors provided indemnities that obligations related to the period
prior to acquisition would be reimbursed. Judgement has been applied in
assessing the recoverability of the indemnity receivables, which included
assessment of the terms of the SPA, confirmations received from the vendors
and assessments of the ability to meet such payments. The Directors, while
still seeking full recovery, have made a provision for 67% of the amounts due
on the expected credit losses as at 31 December 2023 (2022: 67%) leaving a
balance of US$ 1,275,000 (2022: US$ 1,275,000) in other receivables (note 16).
2.1.6 Uncertain tax position
The Directors are required to exercise judgment in interpreting
continually-changing regulations with regards to the Group's tax position and
the extent to which tax treatments historically adopted by the Group will be
accepted or rejected by the relevant tax authority. The Directors believe that
adequate provisions have been made for all income tax obligations in the
current year.
2.1.7 Recoverability of VAT (note 16)
The Group holds VAT receivables of $2.9 million (2022: $2.0 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
(2022: 1 years). This required estimates regarding future production, oil
prices and expenditure.
2.1.8 Hydrocarbon reserve and resource estimate
The Group estimates and reports hydrocarbon reserves in line with the
principles contained in the SPE Petroleum Resources Management Reporting
System (PRMS) framework. As the economic assumptions used may change and as
additional geological information is obtained during the operation of a field,
estimates of recoverable reserves may change. The volume of proved and
probable oil reserves is an estimate that affects the unit of production
depreciation of producing oil and gas property, and a downward revision of the
estimate is an impairment indicator. Proved and probable reserves and
contingent resources are estimated using standard recognised evaluation
techniques, disclosed in note 12.
2.2 Judgements
The following are the critical judgements, apart from those involving
estimations (which are disclosed in 2.1 above), that the Directors have made
in the process of applying the Group's accounting policies and that have the
most significant effect on the amounts recognised in financial statements.
2.2.1 Impairment of proven oil and gas assets
The proven oil and gas assets, representing the MJF and South Yelemes shallow
structures, have been assessed for indicators of impairment as at 31 December
2023. These indicators included a range of:
- economic factors, such changes in oil prices and cost inflation;
- operational results, such as production difficulties; and
- conservative financial forecasts, based on sales only to the
domestic and domestic mini refinery markets at net prices of $25 and $32 per
barrel respectively with aggregate production volumes based at 1,900 bopd.
Having assessed these indicators, the Directors have concluded that no
impairment indicators exist (2022: none) and thus no impairment review is
required.
2.2.2 Carrying value of exploration and evaluation costs
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 1.9.
As at 31 December 2023, the Directors assessed the exploration and evaluation
assets and determined that no indicators of impairment exist with respect to
the BNG cost pool (2022: none). The Directors note that the Group's current
appraisal licences expire in August 2024. The application for a two year
extension of the existing licence has been made and the relevant Kazakh
regulatory committee is expected to respond before the end of July 2024. .
Based on the fact that the Group has met its spending commitments under the
licences and has a successful track record of successfully renewing licences
in the BNG contract area, the Directors expect the licences to be renewed for
two years and then converted into production licences.
The Directors also considered whether the factors that gave rise to the
original impairment of the 3A Best licence no longer exist and thus a reversal
of the impairment is appropriate. The Directors are working with the Kazakh
authorities to renew the licence at 3A Best, however as no substantive
progress has been made, the asset remains fully impaired.
2.2.3 Recoverability of investments in subsidiaries
The recoverability of investments in subsidiaries is driven primarily by the
same judgements and uncertainties as the recoverability of the carrying value
of the proven and unproven oil and gas assets which are discussed above. The
Directors have concluded that no additional impairment provision is required
in the current financial year (2022: US$ nil).
3 Correction of prior year errors
As disclosed in the consolidated financial statements for the year-ended 31
December 2022, the Directors have identified an error in how the Group's
accounting policy for revenue recognition for drilling services was applied in
one of the Company's subsidiaries - CTS LLP ("CTS").
CTS provided services to two customers during the years ended 31 December
2023, 31 December 2022 and 31 December 2021: EPC Munai LLP - a related party,
and BNG LLP, being the subsidiary of the Group.
At the date of approval of the prior year's financial statements, the
Directors made a number of estimates to correct for the error. As part of the
preparation of Group financial statements for the year ended 31 December 2023,
a thorough review of CTS's books and records was carried out and as a result,
a number of adjustments to the previously reported balances is required.
Specifically, the allocation of costs between individual contracts was
reviewed and corrected to ensure that contract costs were complete and
accurate and thus the revenue for each contract could be recognised under the
input method in accordance with IFRS 15. For contracts that completed by 31
December 2023, the Directors used actual contract costs incurred to estimate
the stage of completion at each year-end, but were careful to exclude the
impact of any subsequent contract modifications. Where contract costs exceeded
revenue from the contract, an onerous contract provision was created, which
totalled US$ 225,000 as at 31 December 2021 and was fully utilised by 31
December 2022.
For contracts that were performed for BNG LLP changes to the cost allocation
and corresponding revenue recognition between contracts also affected the
amounts that were capitalised as exploration assets or production assets. In
addition, it was identified that an additional depreciation of drilling
equipment should have been charged to either profit or loss in relation in
relation to work on production assets in BNG LLP or EPC Munai LLP contracts;
or capitalised as exploration asset in BNG LLP in the prior years.
All the required adjustments constitute a prior period error in accordance
with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
The error has been corrected by restating each of the affected financial
statement line items for the prior periods as follows:
Impact on Group statements of financial position
The Directors do not consider the impact of the prior year errors to be
material to the consolidated statement of financial position as at 31 December
2021. Therefore, no opening statement of consolidated financial position has
presented in the consolidated statement of financial position.
Impact on Group statements of comprehensive income
4 Segment reporting and revenue analysis
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 four (2022: three) operating segments during 2023 and
2022: Exploration for and production of crude oil; onshore drilling services
(CTS LLP); offshore drilling services (Caspian Explorer); and oil trading,
which a new segment for 2023. All four segments operate and generate revenues
in Kazakhstan.
BNG Ltd. LLP (BNG) currently accounts for 100% (2022: 100%) of the exploration
and production revenues. Total revenue from crude oil sales generated by BNG
in 2023 was US$ 21,615,000 (2022: US$ 39,245,000), net operating income for
the year from the exploration and production of crude oil was US$13,400,000
(2022: US$15,526,000). Segmental assets have increased by US$ 15,877,000
during 2023 primarily due to additions to BNG's production and exploration
assets of US$ 7,663,000 and US$ 5,801,000 respectively, which are further
detailed in the Operational Review.
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
2023, as part of the preparation for a major drilling contract in 2024, KCCE
carried technical studies that were recharged to the client of US$ 641,000.
In 2023 Caspian Technical Services LLP (CTS LLP) continued to provided onshore
drilling and repair services primarily to BNG. Revenue for onshore drilling
and repair services provided on assets not owned by the Group was US$
4,126,000 during the year (restated 2022: US$ 1,648,000).
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.
In 2023 and 2022 KCCE earned no drilling revenue though as part of the
preparation for a major drilling contract in 2024, KCCE carried technical
studies that were recharged to the client of US$ 641,000.
In 2023 CTS LLP continued to provide onshore drilling and repair services for
Group and for EPC Munai LLP, a related party.
Oil trading consist of purchasing crude oil, funding its refining and selling
the resultant oil products produced to third parties.
Below is the summary of the results of the segments during 2023 and 2022:
2023 Oil and gas assets Drilling services CTS Drilling services by Caspian Explorer Oil Trading Corporate allocation Total
$000 $000 $000 $000 $000 $000
External revenues 21,615 4,126 644 10,266 - 36,651
Cost of sales (5,088) (5,007) (491) (5,340) - (15,926)
Gross profit/(loss) 16,527 (881) 153 4,926 - 20,725
Administrative costs (2,080) (1,275) (1,006) (710) (960) (6,031)
Selling expense (1,046) (1) - (1,946) - (2,993)
Other operating income - - - - 3,775 3,774
Segment operating profit/(loss) 13,401 (2,157) (853) 2,270 2,815 15,476
Finance income 62 - - - 169 231
Finance costs (920) - - - (920)
Profit/(loss) before income tax 12,543 (2,157) (853) 2,270 2,984 14,787
Total assets 117,571 8,187 3,289 2,468 3,406 134,920
Total liabilities 53,714 5,073 673 5,834 3,318 68,612
2022 Oil and gas assets Drilling services CTS Drilling services by Caspian Explorer Oil Trading Corporate allocation Total
$000 $000 $000 $000 $000 $000
(restated) (restated) (restated)
External revenues (restated) 39,245 1,648 - - - 40,893
Cost of sales (restated) (6,554) (2,164) - - - (8,718)
Gross profit (restated) 32,691 (516) - - - 32,175
G&A (7,421) (367) (633) - (1,346) (9,767)
Selling expense (9,751) - - - - (9,751)
Other operating income (restated) - 211 - - - 211
Segment operating profit/(loss) 15,519 (672) (633) - (1,346) 12,868
Finance income 50 - 9 - - 59
Finance costs (549) - - - (36) (585)
Profit / (loss) before income tax (restated) 15,020 (672) (624) - (1,382) 12,342
Total assets (restated) 101,393 7,878 2,997 - 5,401 117,669
Total liabilities(restated) 56,148 2,981 6 - 3,731 62,866
Revenue arising from the sale of crude oil in BNG included the following sales
to customers contributing to more than 10% of the total revenue of the Group:
Group Group
2023 2022
US$'000 US$'000
Customer A - 4,748
Customer B 2,003 8,104
Customer C 8,068 -
Customer D - 21,171
10,071 34,023
5 Operating profit
Group operating profit for the year has been arrived after charging /
(crediting):
Group Group
2023 2022
US$'000 US$'000
(restated)
Staff costs (note 7) 3,000 6,477
Depreciation of property, plant and equipment (note 13) 2,594 2,816
Cost of inventories recognised within cost of sales 6,925 2,528
Auditor remuneration (note 6) 327 239
Loss allowance on trade receivables 629 -
Other operating (income) (3,774) (211)
Net foreign exchange losses 65 178
Other operating income for the year ended 31 December 2023 represents a
release of the social development programme provision in relation to the
Group's obligations under the 3A Best licence of US$ 1,505,000 disclosed in
note 12 and write-off of other payables of US$ 2,269,000 in relation to a past
transaction.
Other operating income for the year ended 31 December 2022 represents a
release of an onerous contract provision in relation to the drilling services
performed for EPC Munai LLP, a related party (note 28).
6 Group Auditor's remuneration
Fees payable by the Group to the Company's auditors, PKF Littlejohn LLP (2022:
BDO LLP) and its member firms in respect of the year:
Group Group
2023 2022
US$'000 US$'000
Fees payable to the Company's auditor and its associates for the audit of the
Company and Group financial statements:
PKF Littlejohn LLP 162 -
BDO LLP 104* 180
266 180
Other services provided by BDO LLP - tax compliance services 10 11
276 191
*additional fees in respect of the audit of the 2022 Group financial
statements.
Fees payable by the Group to Grant Thornton and its associates in respect of
the year:
Group Group
2023 2022
US$'000 US$'000
Auditing of accounts of subsidiaries of the Company 70 48
70 48
7 Staff costs
Staff costs during the year Group Group Company Company
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
Wages and salaries 2,675 5,842* 364 262
Social security costs 227 524 - -
Pension costs 98 111 - -
3,000 6,477 364 262
In addition, payroll expenses of US$1,494,000 were capitalised into unproven
oil and gas assets in 2023 (2022: US$1,230,000) and the amounts included
within cost of sales were US$703,000 (2022: US$ $409,000).
* 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 employees Group Group Company Company
(including executive Directors) 2023 2022 2022 2022
Technical 17 18 - -
Field operations 233 233 - -
Finance 13 8 1 1
Administrative and support 33 25 3 3
296 284 4 4
8 Finance cost
Group Group
2023 2022
US$'000 US$'000
Interest on borrowings (note 23) 399 11
Unwinding of discount on BNG licence payment payable 471 550
Unwinding of discount on provisions (note 24) 50 24
920 585
9 Finance income
Group Group
2023 2022
US$'000 US$'000
Interest on loans to related parties 169 -
Bank interest 62 59
231 59
10 Taxation
Analysis of charge for the year Group Group
2023 2022
US$'000 US$'000
Current tax charge 3,681 2,371
Deferred tax charge - -
3,681 2,371
Group Group
2023 2022
US$'000 US$'000
(restated)
Profit before tax 14,786 12,342
3,697 2,345
Tax on the above at the standard rate of corporate income tax in the UK 25%
(2022: 19%)
Effects of:
Differences in tax rates (2,802) (962)
Non-deductible expenses 889 103
Withholding tax on interest expense 909 711
Unrecognised tax losses carried forward (note 25) 988 174
3,682 2,371
11 Earnings per share
Earnings per share ("EPS") is calculated by dividing the profit attributable
to ordinary shareholders by the weighted average number of ordinary shares
outstanding during the year including shares to be issued.
Group Group
2023 2022
US$'000 US$'000
(restated)
Profit for the year from continuing operations, attributable to the parent 10,590 9,837
EPS - Basic Group Group
2023 2022
Weighted average no of shares 2,250,501,559 2,221,391,258
Basic Earnings per share (US cents) 0.47 0.44
EPS - Diluted Group Group
2023 2022
Weighted average no of shares 2,250,501,559 2,221,391,258
Dilutive effect of dilutive potential ordinary shares due to share options 2,197,802 -
(note 26)
Weighted average no of shares for the purpose of Diluted EPS 2,252,699,361 2,221,391,258
Diluted Earnings per share (US cents) 0.47 0.44
Other than share options there are no instruments that are potentially
dilutive.
12 Unproven oil and gas assets
COST Group
US$'000
Cost at 1 January 2022 (restated) 69,106
Additions (restated) 11,214
Transfer from Property, plant and equipment (note 13) 4,810
Transfer to Property, plant and equipment (note 13)* (14,025)
Foreign exchange difference (6,077)
Cost at 31 December 2022 (restated) 65,028
Additions 5,801
Foreign exchange difference 1,894
Cost at 31 December 2023 72,723
ACCUMULATED IMPAIRMENT Group
US$'000
(restated)
Accumulated impairment at 1 January 2022 (restated) 21,895
Foreign exchange difference (restated) (1,498)
Accumulated impairment at 31 December 2022 (restated) 20,397
Foreign exchange difference 363
Accumulated impairment at 31 December 2023 20,760
NET BOOK VALUE
Net book value at 1 January 2022 (restated) 47,211
Net book value at 31 December 2022 (restated) 44,631
Net book value at 31 December 2023 51,963
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 2023 were 100%
represented by BNG Ltd LLP (2022: 100% by BNG Ltd. LLP).
The additions balance for the year ended 31 December 2023 included the
following non-cash transactions:
(i) Capitalised depreciation charge of property, plant
and equipment of US$ 608,000 (2022: US$ 418,000);
(ii) Capitalisation of changes in estimate of the asset
retirement obligation of US$ 254,000 (2022: US$ nil) (note 24);
The Directors have carried out an impairment review of these assets on a cost
pool level as detailed in note 1.9. As at 31 December 2023, the balance of
accumulated impairment was US$ 20,678,000 (2022: US$ 20,678,000).
* 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 of US$ 14,025,000 were moved to
Proven Oil and Gas assets during the year ended 31 December 2022.
The exploration licence for the Group's assets are due to expire in August
2024. The Group has applied to the Ministry for a two year extension in with a
response expected before the end of July 2024. Based on the fact that the
Group has met its spending commitments under the licences and has a successful
track record of successfully renewing licences in the BNG contract area, the
Directors expect the licences to renewed for two years before applying for
production licences.
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 2022 (restated) 44,938 2,126 15,945 63,009
Additions (restated) 669 176 3 848
Disposals (110) - - (110)
Transfer to Unproven oil and gas assets * (note 12) - - (4,810) (4,810)
Transfer from Unproven oil and gas assets 14,025 - - 14,025
Foreign exchange difference (restated) (425) (111) (2,668) (3,204)
Cost at 31 December 2022 (restated) 59,097 2,191 8,470 69,758
Additions 7,646 - 16 7,662
Foreign exchange difference 648 39 70 757
Cost at 31 December 2023 67,391 2,230 8,556 78,177
Depreciation at 1 January 2022 (restated) 2,771 569 3,216 6,556
Charge for the year (restated) 2,079 61 676 2,816
Disposals (19) - - (19)
Foreign exchange difference (restated) 189 11 59 259
Depreciation at 31 December 2022 (restated) 5,020 641 3,951 9,612
Charge for the year 1,722 7 865 2,594
Foreign exchange difference 89 511 441 1,041
Depreciation at 31 December 2023 6,831 1,159 5,257 13,247
Net book value at:
1 January 2022 (restated) 42,167 1,557 12,729 56,453
31 December 2022 (restated) 54,077 1,550 4,519 60,146
31 December 2023 60,560 1,071 3,299 64,930
*During the year ended 31 December 2022, a balance of US$ 4,810,000,
representing work in progress on the Group's exploration wells was transferred
to Unproven oil and gas assets.
For the year ended 31 December 2023, the additions balance included
capitalisation of changes in estimate of the asset retirement obligation of
US$ 380,000 (2022: US$ 103,000) (note 24).
Drilling equipment with net book value of US$4,144,000 has been pledged as
security against bank borrowing (note 23).
The Directors considered whether there are indicators that the carrying value
of the Group's property, plant and equipment are impaired and concluded that
there are none (note 2.2.1).
14 Investments in subsidiaries
Company
US$'000
Cost
At 1 January 2022, 31 December 2022 and 31 December 2023 225,441
Accumulated impairment
At 1 January 2022, 31 December 2022 and 31 December 2023 209,954
Net book value
At 1 January 2022, 31 December 2022 and 31 December 2023 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 2023 (2022: nil).
Direct investments
Name of undertaking Country of incorporation Effective holding of ordinary shares and Registered address Nature
proportion of voting of business
rights held
at 31 December 2023 and 2023
Eragon Petroleum Limited United Kingdom 100% 5 New Street Square Holding Company
London
EC4A 3TW
Eragon Petroleum FZE Dubai 100% Management Company
CN-135789, Jebel Ali, Dubai, UAE
Prosperity Petroleum LTD Dubai 100% Management Company
CN-135789, Jebel Ali, Dubai, UAE
Roxi Petroleum Kazakhstan LLP Kazakhstan 100% Management Company
152/140 Karasay Batyr Str., Almaty, Kazakhstan
Beibars BV Netherlands 100% Koninginneweg 31, 1217 KR Hilversu, Netherlands Holding Company
Indirect investments:
Name of undertaking Country of incorporation Effective holding of ordinary shares and Registered address Nature
proportion of voting of business
rights held
at 31 December 2023 and 2022
BNG Energy BV Netherlands 100% Utrechtseweg 79 Holding Company
1213 TM Hilversum
The Netherlands
Kazakhstan 99% 152/140 Karasay Batyr Str., Almaty, Kazakhstan Oil Production & Exploration Company
BNG Ltd LLP
Kazakhstan 100% Exploration
3A-Best Group JSC 152/140 Karasay Batyr Str., Almaty, Kazakhstan Company
Kazakhstan 100% Drilling & Service Company
CTS LLP 152/140 Karasay Batyr Str., Almaty, Kazakhstan
Kazakhstan 100% Drilling & Service Company
Sur Nedr LLP 152/140 Karasay Batyr Str., Almaty, Kazakhstan
Kazakhstan 100% Drilling & Service Company
SK-NS Aktau LLP 152/140 Karasay Batyr Str., Almaty, Kazakhstan
KC Caspian LLP Kazakhstan 100% 152/140 Karasay Batyr Str., Almaty, Kazakhstan Drilling Vessel owner
Roxi Trading LLP Kazakhstan 70% 38 Dostyk Ave., Medueskiy District, Almaty, 050000, Kazakhstan Oil Production Company
Beibars Munai LLP* Kazakhstan 60% 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
2023 2022
US$'000 US$'000
Materials and supplies 603 492
Crude oil and oil products 894 -
1,497 492
During the year, no inventories were written down or impaired (2022: US$ nil).
16 Trade and other receivables
Group Group Company Company
2023 2022 2023 2022
US$ '000 US$ '000 US$ '000 US$'000
(restated)
Amounts falling due after one year:
Prepayments made 93 9 - -
VAT receivable - - - 62
Loans to the related party 3,137 1,523 3,137 1,523
Other receivable from related parties - 1,001 - -
Intercompany receivables - - 85,946 87,298
3,230 2,533 89,083 88,883
Amounts falling due within one year:
Trade receivables 3,703 629 - -
Prepayments made 4,277 1,256 8 14
VAT receivable 2,893 2,023 65 -
Other receivables 1,275 2,212 - -
12,148 6,120 73 14
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.
Amounts due from related parties
The amounts due from related parties are detailed below:
Loans to related parties
On 25 September 2022, the Independent Directors approved a 7% interest-bearing
loan to a maximum value of $5 million to Altynbek Bolatzhan, a member of the
Oraziman family, in connection with the party acquisition of EPC Munai LLP
("Block 8"). At 31 December 2023, US$ 3,070,000 (2022: US$ 1,356,000) of that
loan had been drawn down, including US$ 1,545,000 advanced during the year
ended 31 December 2023. The loan is to be repaid whether or not the
acquisition of Block 8 completes.
In addition, following the loan restructuring with related parties in 2022, an
amount of US$ 67,000 remains outstanding from Kuat Oraziman (2022: US$
167,000).
The total interest income for the year was US$ 169,000 (2022: US$ nil).
Trade receivables
The trade receivables balance includes US$ 3,703,000 (2022: US$ nil) due from
Block 8 for the provision of drilling services by the Group on the Block 8
licence area. The balance remains outstanding as of the date of this report
due to the ongoing acquisition of Block 8.
Other receivables from related parties
As at 31 December 2022, other receivables from related parties included US$
1,001,000 due from Akku Investments which was repaid during the year ended 31
December 2023.
Other receivables
The other receivables balance includes US$ 1,275,000 (2022: US$ 1,275,000)
which represent the amounts reimbursable by the vendors of 3A Best under the
indemnities provided on acquisition of the exploration asset. The gross amount
due is US$ 3,826,000 which was impaired during 2020 by US$2,551,000 or 2/3 of
the originally recognised amount due to the uncertainty of recovering 100% of
the amounts due in future periods.
Prepayments made
The balance consists primarily of advance payments made to subcontractors.
During 2022 BNG Ltd. LLP impaired the advance payment made to Sinopec in 2019.
Sinopec, the Chinese drilling contractor, was engaged to drill Deep Well A8.
However, BNG did not accept the drilling works and did not pay any amount
beyond the prepaid amount. At the date of this report, the parties have yet to
come to a final agreement. Accordingly, the prepayment has fully impaired.
Intercompany loans
Intercompany receivables are interest free. An expected credit loss provision
of US$ 20,700,000 (2022: US$ 20,700,000) has been recognised with the respect
of the amounts due from subsidiaries based on the recoverable amount
calculated with reference to factors such as the status of underlying
licenses, reserves, financial models and future risks and uncertainties.
Expected credit losses
Financial assets shown gross of ECL are detailed below:
Group Group Company Company
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
Trade receivable 3,703 629 - -
Intercompany receivables - - 106,646 107,998
Loans to related parties 3,137 1,523 3,137 1,523
Other receivables 3,826 4,763 - -
10,666 6,915 109,783 109,521
The movements in ECL provision are detailed below:
Group Group Company Company
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
At 1 January 2,551 2,551 20,700 20,700
Change in estimate recognised in profit or loss 629 - - -
As at 31 December 3,180 2,551 20,700 20,700
As at 31 December 2023, an ECL loss provision of US$ 629,000 was recognised in
relation to a trade debtor that is over a year old. The Directors note that
non-payment is rare and would typically only provide for trade debtors over a
year old. The ECL provision as at 31 December 2022 relates to the 3A Best
receivable discussed above.
17 Cash and cash equivalents
Group Group Company Company
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
Cash at bank and in hand 447 3,682 48 2,405
Restricted use cash 706 694 - -
Cash at bank and in hand 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.
Restricted use cash represents cash 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. The cash is held in a segregated bank account and under the Subsoil
Use Contracts the Group must place 1% of the capital expenditure incurred in
the year into an escrow deposit account, unless agreed otherwise with the
Ministry of Energy. At the end of the contract this cash will be used by the
Group to return the field to the condition that it was in before exploration
started.
18 Called up share capital
Group and Company
Number Number
of ordinary of deferred
shares US$'000 shares US$'000
Balance at 1 January 2022 2,110,772,114 31,118 373,317,105 64,702
Debt to equity conversion 139,729,445 1,942 (373,317,105) (64,702)
Balance at 31 December 2022 and 31 December 2,250,501,559 33,060 - -
2023
The Company has one class of ordinary shares of 1 penny each which entitle the
holders to receive dividends as declared from time to time to vote at meetings
of the Company. All ordinary shares rank equally with regard to the Company's
residual net assets. There are no restrictions on the transfer of shares and
all ordinary shares are fully paid.
During 2022 the Company cancelled the deferred shares account (note 30).
On 9 March 2022 following the approval by independent shareholders of the
Company, US$6,215,000 of related party 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 totalling US$1,766,212.
On 9 March 2022 the Company completed the debt conversion first announced in
2021. Accordingly, 139,729,446 Debt Conversion shares were issued to convert
US$ 6,215,000 loans payable to Oraziman family and related entities (note 23).
19 Dividends
Year ended 31 December 2023
The Company declared dividends in January and February 2023, totalling US$
2,377,000 or 0.11 US cents per share. No final dividend in respect of the year
is proposed. As at 31 December 2023, the dividends due to the Oraziman family
totalling US$ 698,000 have not been paid. Dividends totalling US$ 421,000 were
paid by a Group entity on behalf of the Company (2022: US$ nil).
Year ended 31 December 2022
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 dividend of US $ 1,222,000 which was paid in January 2023. Total
declared in 2022 dividends were US$ 2,444,000 (0.10 US cents per share).
In the Company's accounts at 31 December 2022 the dividends payable were US
$1,347,000, of which around 10% were unpaid. The November 2022 dividends held
due to dispute over share ownership. In 2023 the outstanding at 31 December
2022 dividends were paid.
20 Trade and other payables
Group Group Company Company
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
(restated)
Trade payables 4,689 1,817 150 21
Taxation and social security 3,224 1,725 20 20
Accruals 252 4,031 83 106
Other payables 2,101 2,385 83 18
Intercompany payables - - 3,683 1,693
Dividends payable to related parties 698 1,347 698 1,347
Deferred revenue 5,131 3,523 - -
16,095 14,828 4,717 3,206
At 31 December 2023 and 31 December 2022, the Group had received significant
prepayments from the customers in respect of oil sales, oil trading and on
drilling contracts which are recognised within deferred revenue. The amount of
the advances received from oil trades with respect to oil sales as at 31
December 2023 were US$ 2,836,000 (2022: US$ 2,192,000). The amount received
by CTS LLP at 31 December 2023 was US$ nil (2022: US$ 704,000) and the amount
received by the oil trading business was US$ 2,295,000 (2022: US$ nil).
21 Withholding tax payable
Group Group
2023 2022
US$'000 US$'000
Withholding tax payable in Kazakhstan 14,892 13,779
14,892 13,779
Taxation payable relate to withholding tax accrued on the interest expense at
the BNG subsidiary level.
22 BNG historic cost liability
Group Group
2023 2022
US$'000 US$'000
Current 3,178 3,178
Non-current 13,746 16,297
16,924 19,475
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 expected life of field of 10
years. As at 31 December 2023, the undiscounted outstanding amount payable is
US$17.9m (2022: US$21.1m).
23 Borrowings
Group Group Company Company
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
Bank credit facility 3,211 - - -
Loans from related parties 3,483 352 104 -
6,694 352 104 -
Analysed between current and non-current:
Current 3,624 352 104 -
Non-current 3,070 - - -
6,694 352 104 -
Bank credit facility
In August 2023, the Group took out a bank credit facility, valid until August
2026, which allows the Group to borrow US$ at an annual interest rate of of
8.3% per annum. Any amounts drawn are repayable within 6 months unless
redrawn. The loan is secured against the Group's drilling equipment. As at 31
December 2023, US$3,211,000 remains outstanding (2022: US$ nil).
Loans from related parties
The Group and Company had interest-free short-term loans with the following
related parties:
Group Group Company Company
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
Aibek Oraziman 285 - - -
Vertom International N.V. (a company controlled by Kuat Oraziman) 129 352 104 -
414 352 104 -
During 2023, one of the Groups subsidiaries entered into interest-free
long-term borrowing agreements with Akku Investments LLP, a company controlled
by the Oraziman family and shareholders of the Company totalling US$
4,845,000. The loans are due for repayment in 2026. The fair value of the
loans, denominated in KZT, was estimated using market discount rate of 19.5%
to be US$ 2,743,000. The difference between the fair value of the loans and
their nominal amounts of US$ 2,102,000 was recognised as a capital
contribution in equity.
Analysis of movements
The table below details changes in the Group's liabilities arising from
financing activities, which consist entirely of borrowings.
Financing cash flows Non-cash changes
1 January 2023 Drawdowns Repayments Interest charge Foreign exchange Other 31 December 2023
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Bank loan - 5,820 (2,689) 69 12 - 3,212
Loans from related parties 352 5,343 (465) 330 17 (2,095) 3,482
Total for 2023 352 11,163 (3,154) 399 29 (2,095) 6,694
Financing cash flows Non-cash changes
1 January 2022 Drawdowns Repayments Interest charge Foreign exchange Other 31 December 2022
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Loans from related parties 6,425 352 (633) 11 412 (6,215) 352
Total for 2022 6,425 352 (633) 11 412 (6,215) 352
Other movement in 2022 represents debt for equity swap, detailed in note 18.
The table below details changes in the Company's liabilities arising from
financing activities, which consist entirely of borrowings.
Financing cash flows Non-cash changes
1 January 2023 Drawdowns Repayments Interest charge Foreign exchange 31 December 2023
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Loans from related parties - 100 - 4 - 104
- 100 - 4 - 104
Financing cash flows Non-cash changes
1 January 2022 Drawdowns Repayments Interest charge Foreign exchange Other 31 December 2022
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Loans from related parties 2,382 20 - 11 - (2,413) -
2,382 20 - 11 - (2,413) -
Other movement in 2022 represents part of the debt for equity swap, detailed
in note 18.
24 Provisions
Group Group
2023 2022
US$'000 US$'000
Abandonment provision 1,286 593
Social development programme 4,355 5,853
5,641 6,446
Analysed between current and non-current:
Current 4,481 5,977
Non-current 1,160 469
5,641 6,446
The movement in provisions is detailed below:
Social development programme Abandonment provision Total
US$'000 US$'000 US$'000
At 1 January 2023 5,853 593 6,446
Change in estimate (1,504) 633 (871)
Provision utilised (98) - (98)
Unwinding of discount - 50 50
Foreign exchange differences 104 10 114
At 31 December 2023 4,355 1,286 5,641
Analysed between current and non-current:
Current 4,355 126 4,481
Non-current - 1,160 1,160
4,355 1,286 5,641
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 2023 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 contract (SSUC): US$2,500,000 of social development payment and
approximately US$ 1,000,000 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$2,350,000 during the period
January-June 2020.
The Company did not meet all the above in full but made some payments while
seeking a solution to the situation. In 2021 the Group received a
notification from the Ministry of Energy of Kazakhstan that as the Subsoil Use
contract was not extended in July 2020 the contract was deemed to have expired
on that date. The Board is working with the Kazakh authorities to renew the
licence at 3A Best, following which the Board will assess 3A Best's position
in the Group. As at 31 December 2023, the Board is satisfied that this
provision can be released and with a corresponding gain of US$ 1,505,000
recognised as other operating income in profit or loss.
The Group and Company has no contingent liabilities (2022: none).
25 Deferred tax
Deferred tax liabilities comprise:
Group Group
2023 2022
US$'000 US$'000
Deferred tax on exploration and evaluation assets acquired 7,377 6,335
7,377 6,335
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
2023 2022
US$'000 US$'000
At beginning of the year 6,335 6,463
Foreign exchange 1,042 (128)
7,377 6,335
As at 31 December 2023 the Group has accumulated deductible tax expenditure
related to BNG of approximately US$48 million (31 December 2022: US$62
million) available to carry forward and offset against future profits. This
represents an unrecognised deferred tax asset of approximately US$10 million
(31 December 2022: US$12 million). Given the uncertainties regarding such
deductions and the developing nature of the relevant tax system no deferred
tax asset is recorded.
26 Share option scheme and LTIP scheme
During the year the Company had in issue equity-settled share-based
instruments issued to its Directors and certain employees.
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. The options granted
vested immediately and are exercisable until 9 January 2032. The fair value of
the options was calculated using the Black Scholes option pricing model and
was found to be immaterial.
No options were granted during the year ended 31 December 2023. The movements
in the number of share options and their weighted average exercise price is
detailed below:
2023 2023 2022 2022
Number of options Average exercise price (pence) Number of options Average exercise price (pence)
1 January 14,850,000 13.9 11,350,000 16.5
Granted in the year - - 3,500,000 5.5
31 December 14,850,000 13.9 14,850,000 13.9
Exercisable at 31 December 14,850,000 13.9 14,850,000 13.9
The range of exercise prices of share options outstanding at 31 December 2023
and 31 December 2022 is 4p - 20p (2022: 4p - 20p). The weighted average
remaining contractual life of share options outstanding at the end of 2023 is
3.1 years (2022: 4.1 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 $0.5 billion and
the corresponding share price threshold increasing from the earlier threshold
by a constant factor of 1.2. Each threshold must be sustained for at least
30 consecutive days for the awards to be triggered. Payments shall be made
only when the Company has free cash either in the form of distributable
reserves or as a result of a non-interest bearing subordinated shareholder
loan or an equity placing at a price not below the relevant share price
threshold.
There may be only one pay-out for each market capitalisation threshold crossed
no matter how many times it is crossed.
The Directors have determined that at inception and as at 31 December 2022 and
2023, the fair value of the cash settled share based payment award is
immaterial based on analysis of the thresholds, historical volatility rates
and the applicable share price and market capitalisation in the period.
For the year ended 31 December 2023, no charge has been recognised in profit
or loss in respect of the share options and LTIP (2022: US$ nil) on the basis
that the conditions are unlikely to be met.
27 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.
(a) Categories of 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 2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
Intercompany receivables - - 85,946 87,298
Loan to related parties 3,137 1,523 3,137 1,523
Other receivables from related parties - 1,001 - -
Other receivables 1,275 2,212 - -
Restricted use cash 706 694 - -
Cash and cash equivalents 447 3,682 48 2,405
5,565 9,112 89,131 91,226
Financial liabilities Group Group Company Company
2023 2022 2023 2022
US$'000 US$'000 US$'000 US$'000
Trade and other payables 4,689 1,817 150 21
Accruals 252 4,031 83 106
Intercompany payables - - 3,683 1,693
Borrowings 6,694 352 104 -
BNG historic costs payable 16,924 19,475 - -
28,559 25,675 4,020 1,821
All financial assets and liabilities of the Group and Company are carried at
amortised cost.
(b) Risk management
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; and
· 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$ 5.6 million (2022: US$ 9.1 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, other reserves,
retained profit 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 2023 was 9% (2022: 1%).
There have 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 2023 and 2022
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 Total
Group 2023 US$'000 386 5,754 5,783 19,479 32,402
Group 2022 US$'000 352 6,661 2,439 17,886 27,338
Company 2023 US$'000 3,683 232 - - 3,915
Company 2022 US$'000 1,693 128 - - 1,821
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
Currency risk is the risk that that the fair value or future cash flows of a
financial instrument will fluctuate because of changes in foreign exchange
rates. Currency risk arises on financial instruments that are denominated in a
different currency to the entity's functional currency in which they are
measured.
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.
The Group and Company's currency risk exposure arises primarily from the
following currencies:
Group Company
2023 2023
US$'000 US$'000
Assets
USD 66 -
66 -
Liabilities
USD 3,211 -
GBP 848 848
4,059 848
A 30% strengthening of USD would decrease the Group profit for the year by US$
944,000 (2022: US$ nil) and increase a loss for the year of US$ 112 million
recognised in other comprehensive income due to retranslation of intercompany
loans, with a total decrease in equity of US$ 114 million (2022: US$ 38
million) A 30% weakening of USD would have an equal but opposite effect.
The 30% sensitivity is the sensitivity rate used when reporting foreign
currency risk internally to key management personnel and represents Directors'
assessment of the reasonably possible change in foreign exchange rates. The
sensitivity analysis includes only outstanding foreign currency denominated
monetary items and adjusts their translation at the year-end. The sensitivity
analysis includes long term intercompany loans to foreign operations within
the Group where the denomination of the loan is in a currency other than the
currency of the lender or the borrower where changes in the foreign exchange
rate are recognised in other comprehensive income.
28 Related party transactions
The Company has no ultimate controlling party. Related party transactions are
detailed below and have been carried out at arms-length.
28.1 Key management remuneration
Group Group
2023 2022
US$'000 US$'000
Short-term employee benefits 436 380
436 380
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$153,000 (2022: US$157,000).
Kuat Oraziman and Aibek Oraziman are directors of the Company and members of
the Oraziman family, which collectively is deemed a related party to the
Group. Apart from remuneration, there were no other transactions with other
members of the key management personnel.
28.2 Block 8 Acquisition 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 $5 per
barrel of oil produced. The Company exercised its option to acquire Block 8
during the year ended 31 December 2023. The completion of the acquisition is
subject to, inter alia, Block 8 renewing its licences and gaining regulatory
approvals, which as at the date of approving these financial statements have
not been received and therefore the acquisition has not been completed.
28.3 Loan agreements and other payables and receivables.
The Company and Group has payable to and receivable from members of the
Oraziman family and legal entities controlled by them. The details of loan and
other receivables are included in note 16 and details of loans and other
payables are included in note 20. Dividends due to related parties are
disclosed in note 19.
28.4 Sales of services
CTS LLP, the Group's onshore drilling subsidiary, undertakes repair and
drilling work at Block 8 (EPC LLP), which as detailed above is owned by a
related party and the Group is in the process of acquiring. Summary of
contracts are detailed below.
P1 Drilling
In 2021, CTS LLP entered into a contract to drill a side-track at Well P1. The
value of the contract was fixed at KTZ 450 million (US$ 976,000). The contract
was completed during 2021 and 2022 with total costs to complete of US$
1,535,000.
P3 Drilling and AKD Drilling
In 2022 CTS LLP, entered into additional contracts with EPC Munai to drill a
further 2 deep wells on Block 8's Skolkara structure.
Well P3
The first is Well Р-3, with a contract value of US$ 6,484,000. At 31 December
2022 only the preparatory works had been completed, which Directors estimate
to be approximately 7% of the total work. At 31 December 2022, $470,000 had
been paid to CTS LLP for the drilling work.
During 2023 work at the well has been put on hold to allow other projects to
proceed and was eventually terminated when EPC's licence over the contract
area expired. Over the contract life, CTS LLP billed US$ 500,000 against costs
incurred of US $558,000.
Well AKD
The second is Well AKD where the original contract value was US$ 4.3 million.
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 $1,652,000 had been
paid to CTS LLP for the drilling works.
Similarly to the P3 Drilling contact, during 2023 the contact was put on hold
and eventually terminated when EPC's licence over the contract area expired.
Over the contract life, CTS LLP billed US$ 2,648,000 against costs incurred of
US $2,966,000.
Toresai Drilling
In October 2023, CTS LLP entered into a contract to drill a well at Toresai,
however it was also terminated when EPC's licence over the contract area
expired. CTS LLP billed US$ 2,214,000 against costs incurred of US $2,480,000.
The impact on the Group financial statements, is summarised below.
Group Group
2023 2022
US$'000 US$'000
(restated)
Revenue 4,126 1,590
Cost of sales (4,735) (1,834)
Other income - 211
Net loss (609) (33)
Amounts due from related parties 3,703 -
Contract liabilities, due to related parties - (1,021)
29 Non-controlling interest
Group Group
2023 2022
US$'000 US$'000
Balance at the beginning of the year (5,667) (5,801)
Share of profit / (loss) for the year 515 134
(5,152) (5,667)
Non-controlling interest represents minority share in BNG Ltd LLP and Beibars
Munai LLP held by related party.
30 Capital reduction made in 2022
In order to start paying dividends, the Company required distributable
reserves. Accordingly, on 22 April 2022, the Company's shareholders granted
their approval for 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 (loss) account increased in total by US$233,791,000.
31 Events after the reporting period
In April 2024, the Group entered into a binding agreement to acquire 100% of
issued share capital of CS Energy LLP which holds licences to the West Shalva
contract area for a maximum consideration of US$ 15 million. The acquisition
is conditional on, inter alia, on the approval of Company's shareholders and
regulatory approvals. The shareholder approval was granted 25 April 2024. CS
Energy LLP is controlled by a Altynbek Bolatzhan, a member of the Oraziman
family and thus a related party.
On 24 April 2024, the Company issued 4,476,923 new ordinary shares at 3.25
pence each in settlement of certain outstanding fees owed to an adviser.
On 24 April 2024 the Company also granted replacement awards in total
4,500,000 new options, including 2,500,000 4p options to Seokwoo Shin, a
director of the Company, with the additional 2,000,000 options being issued
non board staff. 2,500,000 5.5p options previously awarded to Seokwoo Shin
have been cancelled, resulting in the net new options totalling 2,000,000.
Additionally, the exercise date for 2,400,000 4p options held by Clive Carver
has been extended until 30 April 2025.
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