REG - Roxi Petroleum Plc - Final Results <Origin Href="QuoteRef">RXP.L</Origin> - Part 2
03/06/2016 07:05
- Part 2: For the preceding part double click ID:nRSC1034Aa
we are required to report by exception
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the parent company,
or returns adequate for our audit have not been received from branches not
visited by us; or
· the parent company financial statements are not in agreement with the
accounting records and returns; or
· certain disclosures of Directors' remuneration specified by law are not
made; or
· we have not received all the information and explanations we require
for our audit.
Christopher Smith
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
2 June 2016
Consolidated Statement of Profit or Loss
Notes Year to31 December2015 Year to31 December2014
$'000 $'000
Revenue 1,051 1,623
Cost of sales (1,049) (1,043)
Gross profit 2 580
Impairment reversal of unproven oil and gas assets 11 - 25,000
Share-based payments (555) (139)
Revaluation of royalty liability 2,183 (1,542)
Other administrative costs (2,787) (3,372)
Total administrative profit/(loss) (1,159) 19,947
Operating profit/(loss) 4 (1,157) 20,527
Finance cost 7 (946) (958)
Finance income 8 234 525
Profit/(loss) before taxation (1,869) 20,094
Tax charge 9 (5,280) (8,811)
Profit/(loss) after taxation from continuing operations (7,149) 11,283
Profit/(loss) for the year from discontinued operations 14,18 17,744 (5,626)
Profit for the year 10,595 5,657
Profit attributable to owners of the parent 7,829 1,750
Profit attributable to non-controlling interest 2,766 3,907
Profit for the year 10,595 5,657
Earnings per share 10
Basic earnings/(loss) per ordinary share (US cents)
From continuing operations (0.29) 0.61
From discontinued operations 1.14 (0.4)
Total 0.85 0.21
Diluted earnings/(loss) per ordinary share (US cents)
From continuing operations (0.29) 0.6
From discontinued operations 1.13 (0.39)
Total 0.84 0.21
ConsolidatedStatement of Comprehensive income
Year ended31 December2015 Year ended31 December2014
$000 $000
Income after taxation 10,595 5,657
Other comprehensive income:
Exchange differences on translating foreign operations from continuing operations* (70,861) (18,119)
Exchange differences on translating foreign operations from discontinued operations* 289 (2,699)
Total comprehensive loss for the year (59,977) (15,161)
Total comprehensive loss attributable to:
Owners of parent (32,064) (10,790)
Non-controlling interest (27,913) (4,371)
*Items which may be reclassified to the statement of profit or loss
Consolidated Statement of Changes in Equity
Share capital$'000 Share premium$'000 Deferred shares $'000 Cumulative translation reserve$'000 Other reserves$'000 Retained earnings$'000 Total attributable to the owner of Parent$'000 Non-controlling interests$'000 Totalequity$'000
Total equity as at 1 January 2015 14,761 136,674 64,702 (19,001) (583) (132,700) 63,853 31,537 95,390
Income after taxation - - - - - 7,829 7,829 2,766 10,595
Exchange differences on translating foreign operations - - - (39,893) - - (39,893) (30,679) (70,572)
Total comprehensive income for the year - - - (39,893) - 7,829 (32,064) (27,913) (59,977)
Arising on share issues 405 2,595 - - - - 3,000 - 3,000
Transactions with owners 405 2,595 - - - - 3,000 - 3,000
Arising on employee share options - - - - - 555 555 - 555
Conversion of debts to equity 726 7,083 - - - - 7,809 - 7,809
Disposal of subsidiary - - - 2,361 - - 2,361 - 2,361
Stock options exercised 87 312 - - - - 399 - 399
Total equity as at 31 December 2015 15,979 146,664 64,702 (56,533) (583) (124,316) 45,913 3,624 49,537
Share capital$'000 Share premium$'000 Deferred shares $'000 Shares to be issued $'000 Cumulative translation reserve$'000 Other reserves$'000 Retained earnings$'000 Total attributable to the owner of the Parent$'000 Non-controlling interests$'000 Totalequity$'000
Total equity as at 1 January 2014 13,475 128,578 64,702 5,000 (6,461) (583) (134,589) 70,122 35,908 106,030
Income after taxation - - - - - - 1,750 1,750 3,907 5,657
Exchange differences on translating foreign operations - - - - (12,540) - - (12,540) (8,278) (20,818)
Total comprehensive income for the year - - - - (12,540) - 1,750 (10,790) (4,371) (15,161)
Arising on share issues 500 3,200 - - - - 3,700 - 3,700
Cancellation of shares to be issued 674 4,326 - (5,000) - - - - - -
Transactions with owners 1,174 7,526 - (5,000) - - - 3,700 - 3,700
Arising on employee share options - - - - - - 139 139 - 139
Conversion of debts to equity 67 433 - - - - - 500 - 500
Stock options exercised 45 137 - - - - - 182 - 182
Total equity as at 31 December 2014 14,761 136,674 64,702 - (19,001) (583) (132,700) 63,853 31,537 95,390
Reserve Description and purpose
Share capital The nominal value of
shares issued
Share premium Amount subscribed for share
capital in excess of nominal value
Shares to be issued Amount received in respect of
shares which are yet to be issued
Cumulative translation reserve Gains/losses arising on
retranslating the net assets of overseas operations into US Dollars
Other reserves Fair value of warrants
issued and capital contribution arising on discounted loans
Retained earnings Cumulative losses recognised
in the consolidated statement of profit or loss
Non-controlling interest The interest of non-controlling
parties in the net assets of the subsidiaries
Parent Company Statement of Changes in Equity
Share capital$'000 Share premium$'000 Deferred shares$'000 Other reserves$'000 Retained earnings$'000 Total attributable to the owner of the Parent$'000
Total equity as at 1 January 2015 14,761 136,674 64,702 16,715 (119,085) 113,767
Total comprehensive income for the year - - - - 2,562 2,562
Arising on share issues 405 2,595 - - 3,000
Transactions with owners 405 2,595 - - - 3,000
Conversion of debts to equity 726 7,083 - - - 7,809
Arising on employee share options - - - - 555 555
Stock options exercised 87 312 - - - 399
Total equity as at 31 December 2015 15,979 146,664 64,702 16,715 (115,968) 128,092
Share capital$'000 Share premium$'000 Shares to be issued$'000 Deferred shares$'000 Other reserves$'000 Retained earnings$'000 Total attributable to the owner of the Parent$'000
Total equity as at 1 January 2014 13,475 128,578 5,000 64,702 16,715 (118,988) 109,482
Total comprehensive loss for the year - - - - - (236) (236)
Arising on share issues 500 3,200 - - - - 3,700
Cancellation of shares to be issued 674 4,326 (5,000) - - - -
Transactions with owners 1,274 (7,526) (5,000) - - - 3,700
Conversion of debts to equity 67 433 - - - - 500
Arising on employee share options - - - - - 139 139
Employee share options exercised 45 137 - - - - 182
Total equity as at 31 December 2014 14,761 136,674 - 64,702 16,715 (119,085) 113,767
Reserve Description and purpose
Share capital The nominal value of
shares issued
Share premium Amount subscribed for share
capital in excess of nominal value
Deferred shares The nominal value of deferred
shares issued
Other reserves Fair value of warrants
issued and capital contribution arising on discounted loans
Retained earnings Cumulative losses recognised
in the profit or loss
Consolidated and Parent Company Statements of Financial Position
Company number 5966431 Notes Group2015$'000 Group2014$'000 Company2015$'000 Company2014$'000
Assets
Non-current assets
Unproven oil and gas assets 11 57,323 116,094 - -
Property, plant and equipment 12 195 355 - -
Investments in subsidiaries 13 - - 60,522 60,522
Inventories 15 12 1,247 - -
Other receivables 16 14,640 10,294 117,884 121,254
Restricted use cash 271 322 - -
Total non-current assets 72,441 128,312 178,406 181,776
Current assets
Other receivables 16 2,096 11,654 2 122
Cash and cash equivalents 17 10,462 605 25 18
Total current assets 12,558 12,259 27 140
Investments in equity accounted joint venture classified as held for sale 14 - 7,872 - -
Total assets 84,999 148,443 178,433 181,916
Equity and liabilities
Capital and reserves attributableto equity holders of the parent
Share capital 19 15,979 14,761 15,979 14,761
Share premium 146,664 136,674 146,664 136,674
Deferred shares 19 64,702 64,702 64,702 64,702
Other reserves (583) (583) 16,715 16,715
Retained earnings (124,315) (132,700) (115,968) (119,085)
Cumulative translation reserve (56,534) (19,001) - -
Equity attributable to the owners of the Parent 45,913 63,853 128,092 113,767
Non-controlling interests 3,624 31,537 - -
Total equity 49,537 95,390 128,092 113,767
Current liabilities
Trade and other payables 20 5,732 12,433 1,204 6,121
Short - term borrowings 21 308 804 - -
Current provisions 22 2,957 3,554 - -
Total current liabilities 8,997 16,791 1,204 6,121
Non-current liabilities
Borrowings 23 9,903 10,503 9,903 9,075
Deferred tax liabilities 24 7,485 11,164 - -
Non-current provisions 22 780 813 - -
Derivative financial liability 26 - 6,790 - 6,790
Other payables 20 8,297 6,992 39,234 46,163
Total non-current liabilities 26,465 36,262 49,137 62,028
Total liabilities 35,462 53,053 50,341 68,149
Total equity and liabilities 84,999 148,443 178,433 181,916
By Order of the Board
Clive Carver, Chairman, 2 June 2016
Company number: 5966431
Consolidated and Parent Company Statements of Cash Flows
Notes Group2015$'000 Group2014$'000 Company2015$'000 Company2014$'000
Cash flows from operating activities
Cash received from/(repaid to) customers (3,125) 6,548 - -
Payments made to suppliers for goods and services (4,788) (4,588) (1,382) (817)
Net cash flow from operating activities (7,913) 1,960 (1,382) (817)
Cash flows from investing activities
Purchase of property, plant and equipment 12 (30) (190) -
Additions to unprovenoil and gas assets 11 (16,915) (9,233) - -
Transfers from restricted use cash 52 13 - -
Loans repaid by joint ventures 11,280 - 6,900 130
Disposal of joint venture (net of cash disposed) 18 21,908 1,000 - -
Loans given to subsidiaries - - (10,810) (5,270)
Return of exclusivity payment received in advance 18 - - (1,000) -
Exclusivity payment received in advance 18 - - - 1,000
Net cash flow from investing activities 16,295 (8,410) (4,910) (4,140)
Cash flows from financing activities
Net proceeds from issue of ordinary share capital 3,399 3,882 3,399 3,882
Loans repaid (1,924) - - -
Loans provided by subsidiaries - - 2,900 -
Net cash from financing activities 1,475 3,882 6,299 3,882
Net increase/(decrease) in cash and cash equivalents 9,857 (2,568) 7 (1,075)
Cash and cash equivalents at beginning of year 605 3,173 18 1,093
Cash and cash equivalents at end of year 17 10,462 605 25 18
Notes to the Financial Statements
General information
Roxi Petroleum Plc ("the Company") is a public limited company incorporated
and domiciled in England and Wales. The address of its registered office is 5
New Street Square, London, EC4A 3TW. These consolidated financial statements
were authorised for issue by the Board of Directors on 2 June 2016.
The principal activities of the Group are exploration and production of crude
oil.
1 Principal accounting policies
The principal accounting policies applied in the preparation of these
consolidated financial statements are set out below.
1.1 Basis of preparation
The Group's and Parent's financial statements have been prepared in accordance
with International Financial Reporting Standards as adopted by the European
Union ("IFRSs"), and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRSs.
The financial statements have been prepared on a going concern basis based
upon projected future cash flows and planned work programmes.
The financial information has been prepared on a going concern basis based
upon projected future cash flows and planned work programmes.
The receipts from the proceeds of the sale of Galaz are in the opinion of the
Directors sufficient to cover operating costs associated with the day to day
operation of the Company.
Additional funding would in the opinion of the Directors be available if
required from the sale of oil produced during testing, further draw downs
under the $40 million equity facility and if required by rescheduling various
loans.
The Directors are confident, on the above basis, that the Group will have
sufficient resources for its operational needs over the relevant period, being
until June 2017. Accordingly, the Directors continue to adopt the going
concern basis.
The Company has taken advantage of section 408 of the Companies Act 2006 and
has not included its own profit or loss in these financial statements. The
Group income for the year included an income on ordinary activities after tax
of US$2,562,000 in respect of the Company.
The preparation of financial statements in conformity with IFRSs requires the
Management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts in the financial statements. The
areas involving a higher degree of judgement or complexity, or areas where
assumptions or estimates are significant to the financial statements are
disclosed in note 2.
1.2 New and revised standards and interpretations applied
New and revised standards and amendments which are effective for annual
periods beginning on or after 1 January 2015, did not impact the Group's
financial position, performance and/or disclosures.
New and revised IFRS - issued, but not yet effective
The standards and interpretations that are issued, but not yet effective, up
to the date of issuance of the Group's financial statements and that could
impact the Group are disclosed below. The Group intends to adopt these
standards, if applicable, when they become effective.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9 Financial
Instruments that replaces IAS 39 Financial Instruments: Recognition and
Measurement and all previous versions of IFRS 9. IFRS 9 brings together all
three aspects of the accounting for financial instruments project:
classification and measurement, impairment and hedge accounting. IFRS 9 is
effective for annual periods beginning on or after 1 January 2018, with early
application permitted. Except for hedge accounting, retrospective application
is required but providing comparative information is not compulsory. For hedge
accounting, the requirements are generally applied prospectively, with some
limited exceptions. The Company plans to adopt the new standard on the
required effective date. The adoption of IFRS 9 is not expected to have effect
on the classification and measurement of the Group's financial instruments.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model to account
for revenue arising from contracts with customers. Under IFRS 15, revenue is
recognised at an amount that reflects the consideration to which an entity
expects to be entitled in exchange for transferring goods or services to a
customer. The new revenue standard will supersede all current revenue
recognition requirements under IFRS. Either a full retrospective application
or a modified retrospective application is required for annual periods
beginning on or after 1 January 2018, when the IASB finalises their amendments
to defer the effective date of IFRS 15 by one year. Early adoption is
permitted. The Group plans to adopt the new standard on the required effective
date and is currently assessing the impact.
Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of
Interests
The amendments to IFRS 11 require that a joint operator accounting for the
acquisition of an interest in a joint operation, in which the activity of the
joint operation constitutes a business, must apply the relevant IFRS 3
principles for business combinations accounting. The amendments also clarify
that a previously held interest in a joint operation is not remeasured on the
acquisition of an additional interest in the same joint operation while joint
control is retained. In addition, a scope exclusion has been added to IFRS 11
to specify that the amendments do not apply when the parties sharing joint
control, including the reporting entity, are under common control of the same
ultimate controlling party. The amendments apply to both the acquisition of
the initial interest in a joint operation and the acquisition of any
additional interests in the same joint operation and are prospectively
effective for annual periods beginning on or after 1 January 2016, with early
adoption permitted. These amendments are not expected to have any impact on
the Group.
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of
Depreciation and Amortisation
The amendments clarify the principle in IAS 16 and IAS 38 that revenue
reflects a pattern of economic benefits that are generated from operating a
business (of which the asset is part) rather than the economic benefits that
are consumed through use of the asset. As a result, a revenue-based method
cannot be used to depreciate property, plant and equipment and may only be
used in very limited circumstances to amortise intangible assets. The
amendments are effective prospectively for annual periods beginning on or
after 1 January 2016, with early adoption permitted. These amendments are not
expected to have any impact to the Group given that the Group has not used a
revenue-based method to depreciate its non-current assets.
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an
Investor and its Associate or Joint Venture
The amendments address the conflict between IFRS 10 and IAS 28 in dealing with
the loss of control of a subsidiary that is sold or contributed to an
associate or joint venture. The amendments clarify that the gain or loss
resulting from the sale or contribution of assets that constitute a business,
as defined in IFRS 3, between an investor and its associate or joint venture,
is recognised in full. Any gain or loss resulting from the sale or
contribution of assets that do not constitute a business, however, is
recognised only to the extent of unrelated investors' interests in the
associate or joint venture. These amendments must be applied prospectively and
are effective for annual periods beginning on or after 1 January 2016, with
early adoption permitted. These amendments are not expected to have any impact
on the Group.
Annual improvements 2012-2014 cycle
These improvements are effective for annual periods beginning on or after 1
January 2016. They include:
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
Assets (or disposal groups) are generally disposed of either through sale or
distribution to owners. The amendment clarifies that changing from one of
these disposal methods to the other would not be considered a new plan of
disposal, rather it is a continuation of the original plan. There is,
therefore, no interruption of the application of the requirements in IFRS 5.
This amendment must be applied prospectively.
IFRS 7 Financial Instruments: Disclosures
(i) Servicing contracts
The amendment clarifies that a servicing contract that includes a fee can
constitute continuing involvement in a financial asset. An entity must assess
the nature of the fee and the arrangement against the guidance for continuing
involvement in IFRS 7 in order to assess whether the disclosures are required.
The assessment of which servicing contracts constitute continuing involvement
must be done retrospectively. However, the required disclosures would not need
to be provided for any period beginning before the annual period in which the
entity first applies the amendments.
(ii) Applicability of the amendments to IFRS 7 to condensed interim
financial statements
The amendment clarifies that the offsetting disclosure requirements do not
apply to condensed interim financial statements, unless such disclosures
provide a significant update to the information reported in the most recent
annual report. This amendment must be applied retrospectively.
IAS 19 Employee Benefits
The amendment clarifies that market depth of high quality corporate bonds is
assessed based on the currency in which the obligation is denominated, rather
than the country where the obligation is located. When there is no deep market
for high quality corporate bonds in that currency, government bond rates must
be used. This amendment must be applied prospectively.
IAS 34 Interim Financial Reporting
The amendment clarifies that the required interim disclosures must either be
in the interim financial statements or incorporated by cross-reference between
the interim financial statements and wherever they are included within the
interim financial report (e.g., in the management commentary or risk report).
The other information within the interim financial report must be available to
users on the same terms as the interim financial statements and at the same
time. This amendment must be applied retrospectively. These amendments are not
expected to have any impact on the Group.
Amendments to IAS 1 Disclosure Initiative
The amendments to IAS 1 Presentation of Financial Statements clarify, rather
than significantly change, existing IAS 1 requirements. The amendments
clarify:
· The materiality requirements in IAS 1.
· That specific line items in the statement(s) of profit or loss and OCI
and the statement of financial position may be disaggregated.
· That entities have flexibility as to the order in which they present
the notes to financial statements.
· That the share of OCI of associates and joint ventures accounted for
using the equity method must be presented in aggregate as a single line item,
and classified between those items that will or will not be subsequently
reclassified to profit or loss.
Furthermore, the amendments clarify the requirements that apply when
additional subtotals are presented in the statement of financial position and
the statement(s) of profit or loss and OCI. These amendments are effective for
annual periods beginning on or after 1 January 2016, with early adoption
permitted. These amendments are not expected to have any impact on the Group.
Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the
Consolidation Exception
The amendments address issues that have arisen in applying the investment
entities exception under IFRS 10. The amendments to IFRS 10 clarify that the
exemption from presenting consolidated financial statements applies to a
parent entity that is a subsidiary of an investment entity, when the
investment entity measures all of its subsidiaries at fair value.
Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an
investment entity that is not an investment entity itself and that provides
support services to the investment entity is consolidated. All other
subsidiaries of an investment entity are measured at fair value. The
amendments to IAS 28 allow the investor, when applying the equity method, to
retain the fair value measurement applied by the investment entity associate
or joint venture to its interests in subsidiaries.
These amendments must be applied retrospectively and are effective for annual
periods beginning on or after 1 January 2016, with early adoption permitted.
These amendments are not expected to have any impact on the Group.
1.3 Basis of consolidation
Subsidiary undertakings are entities that are directly or indirectly
controlled by the Group. Control is achieved when the Group is exposed, or has
rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee.
Generally, there is a presumption that a majority of voting rights result in
control. To support this presumption and when the Group has less than a
majority of the voting or similar rights of an investee, the Group considers
all relevant facts and circumstances in assessing whether it has power over an
investee. The consolidated financial statements present the results of the
Company and its subsidiaries ("the Group") as if they formed a single entity.
Intercompany transactions and balances between group companies are therefore
eliminated in full.
The purchase method of accounting is used to account for the acquisition of
subsidiary undertakings by the Group. The cost of an acquisition is measured
at the fair value of the assets given, equity instruments issued and
liabilities incurred or assumed at the date of exchange. Identifiable assets
acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition
date, irrespective of the extent of any non-controlling interest. The excess
of the cost of acquisition over the fair value of the Group's share of the
identifiable net assets acquired is recorded as goodwill.
Where the Group holds interests in jointly ventures, it accounts for its
interests using the equity method.
1.4 Operating Loss
Operating loss is stated after crediting all operating income and charging all
operating expenses, but before crediting or charging the financial income or
expenses.
1.5 Foreign currency translation
1.5.1 Functional and presentational currencies
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ("the functional currency"). The consolidated financial
statements are presented in US Dollars ("USD"), which is the Group's
presentational currency. Beibars Munai LLP, Munaily Kazakhstan LLP, BNG Ltd
LLP and Roxi Petroleum Kazakhstan LLP, subsidiary undertakings of the Group,
undertake their activities in Kazakhstan and the Kazakh Tenge is the
functional currency of these entities. The functional currency for the
Company, Beibars BV, Ravninnoe BV, Galaz Energy BV, BNG Energy BV and Eragon
Petroleum FZE is USD as USD reflects the underlying transactions, conducts and
events relevant to these companies.
1.5.2 Transactions and balances in foreign currencies
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity's functional currency ("foreign
currencies") are recorded at the rates of exchange prevailing at the dates of
the transactions. At each reporting date, monetary items denominated in
foreign currencies are retranslated at the rates prevailing at the reporting
date. Non-monetary items carried at fair value that are denominated in foreign
currencies are retranslated at the rates prevailing at the date when the fair
value was determined. Non-monetary items, including the parent's share
capital, that are measured in terms of historical cost in a foreign currency
are not retranslated. Exchange differences are recognised in profit or loss in
the period in which they arise.
1.5.3 Consolidation
For the purpose of consolidation all assets and liabilities of Group entities
with a functional currency that is not USD are translated at the rate
prevailing at the reporting date. The profit or loss is translated at the
exchange rates approximating to those ruling when the transaction took place.
Exchange difference arising on retranslating the opening net assets from the
opening rate and results of operations from the average rate are recognised
directly in other comprehensive income (the "cumulative translation reserve").
On disposal of a foreign operator related cumulative foreign exchange gains
and losses are reclassified to profit and loss and are recognized as part of
the gain or loss on disposal.
1.6 Current tax
Current tax is based on taxable profit for the year. Taxable profit differs
from profit as reported in the profit or loss because it excludes items of
income or expense that are taxable or deductible in other years and it further
excludes items that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
1.7 Deferred tax
Deferred tax is provided on temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. The following temporary differences are not
provided for: the initial recognition of assets or liabilities that affect
neither accounting nor taxable profit other than in a business combination,
and differences relating to investments in subsidiaries to the extent that
they will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of
realisation or settlement of the carrying amount of assets and liabilities,
using tax rates enacted or substantively enacted at the reporting date.
Deferred tax liabilities are generally recognised for all taxable temporary
differences. A deferred tax asset is recorded only to the extent that it is
probable that taxable profit will be available against which the deductible
temporary differences can be utilised.
1.8 Unproven oil and gas assets
The Group applies the full cost method of accounting for exploration and
unproven oil and gas asset costs, having regard to the requirements of IFRS 6
'Exploration for and Evaluation of Mineral Resources'. Under the full cost
method of accounting, costs of exploring for and evaluating oil and gas
properties are accumulated and capitalised by reference to appropriate cost
pools. Such cost pools are based on license areas. The Group currently has
four operating assets.
Exploration and evaluation costs include costs of license acquisition,
technical services and studies, seismic acquisition, exploration drilling and
testing, but do not include costs incurred prior to having obtained the legal
rights to explore an area, which are expensed directly to the profit or loss
as they are incurred.
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 intangible exploration and evaluation
asset, the amount reflecting that consumption is recorded as part of the cost
of the intangible asset.
The amounts included within unproven oil and gas assets include the fair value
that was paid for the acquisition of partnerships holding subsoil use in
Kazakhstan. These licenses have been capitalised to the Group's full cost pool
in respect of each license area.
Exploration and unproven oil and gas assets related to each exploration
license/prospect are not amortised but are carried forward until the technical
feasibility and commercial usability of extracting a mineral resource are
demonstrated.
Commercial reserves are defined as proved oil and gas reserves.
Proven oil and gas properties
Once a project reaches the stage of commercial production and production
permits are received, the carrying values of the relevant exploration and
evaluation asset are assessed for impairment and transferred as proven oil and
gas properties and included within property plant and equipment.
Proven oil and gas properties are accounted for in accordance with provisions
of the cost model under IAS 16 "Property Plant and Equipment" and are depleted
on unit of production basis based on commercial reserves of the pool to which
they relate.
Impairment
Exploration and unproven intangible assets are reviewed for impairments if
events or changes in circumstances indicate that the carrying amount may not
be recoverable as at the reporting date. Intangible exploration and
evaluation assets that relate to exploration and evaluation activities that
are not yet determined to have resulted in the discovery of the commercial
reserve remain capitalised as intangible exploration and evaluation assets
subject to meeting a pool-wide impairment test as set out below.
Such indicators include the point at which a determination is made as to
whether or not commercial reserves exist. Where the exploration and evaluation
assets concerned fall within the scope of an established full cost pool, the
exploration and evaluation assets are tested for impairment together with all
development and production assets associated with that cost pool, as a single
cash generating unit. The aggregate carrying value is compared against the
expected recoverable amount of the pool, generally by reference to the present
value of the future net cash flows expected to be derived from production of
the commercial reserves. Where the exploration and evaluation assets to be
tested fall outside the scope of any established cost pool, there will
generally be no commercial reserves and the exploration and evaluation assets
concerned will be written off in full. Any impairment loss is recognised in
the profit or loss as impairment and separately disclosed.
An impairment loss is reversed if the asset's or cash-generating unit's
recoverable amount exceeds its carrying amount.
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 fall into one of two distinct
categories. The type of workover dictates the accounting policy and
recognition of the related costs:
Capitalisable costs - cost will be capitalised where the performance of an
asset is improved, where an asset being overhauled is being changed from its
initial use, the assets' useful life is being extended, or the asset is being
modified to assist the production of new reserves.
Non-capitalisable costs - expense type workover costs are costs incurred as
maintenance type expenditure, which would be considered day-to-day servicing
of the asset. These types of expenditures are recognised within cost of sales
in the statement of comprehensive income as incurred. Expense workovers
generally include work that is maintenance in nature and generally will not
increase production capability through accessing new reserves, production from
a new zone or significantly extend the life or change the nature of the well
from its original production profile.
1.9 Abandonment
Provision is made for the present value of the future cost of the
decommissioning of oil wells and related facilities. This provision is
recognised when the asset is installed. The estimated costs, based on
engineering cost levels prevailing at the reporting date, are computed on the
basis of the latest assumptions as to the scope and method of decommissioning.
The corresponding amount is capitalised as a part of property, plant and
equipment and is amortised on a unit-of-production basis as part of the
depreciation, depletion and amortisation charge. Any adjustment arising from
the reassessment of estimated cost of decommissioning is capitalised, while
the charge arising from the unwinding of the discount applied to the
decommissioning provision is treated as a component of the interest charge.
1.10 Restricted use cash
Restricted use cash is the amount set aside by the Group for the purpose of
creating an abandonment fund to cover the future cost of the decommissioning
of oil and gas wells and related facilities and in accordance with local legal
rulings.
Under the Subsoil Use Contracts the Group must place 1% of the value of
exploration costs in an escrow deposit account. At the end of the contract
this cash will be used to return the field to the condition that it was in
before exploration started.
1.11 Property, plant and equipment
All property, plant and equipment assets are stated at cost or fair value on
acquisition less accumulated depreciation. Depreciation is provided on a
straight-line basis, at rates calculated to write off the cost less the
estimated residual value of each asset over its expected useful economic life.
The residual value is the estimated amount that would currently be obtained
from disposal of the asset if the asset were already of the age and in the
condition expected at the end of its useful life. Expected useful economic
life and residual values are reviewed annually.
The annual rates of depreciation for class of property, plant and equipment
are as follows:
- motor vehicles over 7 years
- other over 2-4 years
The Group assesses at each reporting date whether there is any indication that
any of its property, plant and equipment has been impaired. If such an
indication exists, the asset's recoverable amount is estimated and compared to
its carrying value.
1.12 Investments (Company)
Non-current asset investments in subsidiary undertakings are shown at cost
less allowance for impairment.
1.13 Financial instruments
The Group classifies financial instruments, or their component parts on
initial recognition, as a financial asset, a financial liability or an equity
instrument in accordance with the substance of the contractual agreement.
Financial assets and financial liabilities are recognised when the Group
becomes a party to the contractual provisions of the financial instrument and
are measured initially at fair value adjusted for transaction costs, except
for those carried at fair value through profit or loss which are measured
initially at fair value. Subsequent measurement of financial assets and
financial liabilities is described below.
Financial assets are derecognised when the contractual rights to the cash
flows from the financial asset expire, or when the financial asset and
substantially all the risks and rewards are transferred. A financial liability
is derecognised when it is extinguished, discharged, cancelled or expires.
The Group's financial assets consist of cash and other receivables. Cash and
cash equivalents are defined as short term cash deposits which comprise cash
on deposit with an original maturity of less than 3 months. Other receivables
are initially measured at fair value and subsequently at amortised cost.
The Group's financial liabilities are non-interest bearing trade and other
payables, other interest bearing borrowings, profit oil royalty, and warrants.
Non-interest bearing trade and other payables and other interest bearing
borrowings are stated initially at fair value and subsequently at amortised
cost. Profit oil royalty and warrants are recognised and measured at fair
values through profit or loss.
There are long-term loans between Group entities and from related parties
which bear interest at a rate lower than that which the Directors consider the
Group would bear if the facility had been granted by a third party. Such
borrowings are recognised initially at fair value, net of transaction costs
incurred, and are subsequently stated at amortised cost. Any difference
between the proceeds (net of transaction costs) and the redemption value is
recognised in the profit or loss over the period of the borrowings using the
effective interest method. Fair value is calculated by discounting the
non-current borrowings and receivables using a market rate of interest.
Where a loan is renegotiated on substantially different terms, this is treated
as an extinguishment of the original financial liability and the recognition
of a new financial liability. The terms are considered to be 'substantially
different' if the discounted present value of the cash flows under the new
terms, including any fees paid net of any fees received and discounted using
the original effective interest rate, is at least 10 per cent different from
the discounted present value of the remaining cash flows of the original
financial liability. In addition to this quantitative test, a qualitative test
also needs to be applied.
Share capital issued to extinguish financial liabilities is fair valued with
any difference to the carrying value of the financial liability taken to the
profit or loss.
1.14 Inventories
Inventories are initially recognised at cost, and subsequently at the lower of
cost and net realisable value. Cost comprises all costs of purchase and other
costs incurred in bringing the inventories to their present location and
condition.
1.15 Other provisions
A provision is recognised when the Group has a present legal or constructive
obligation as a result of a past event, and it is probable that an outflow of
economic benefits will be required to settle the obligation. If the effect is
material, provisions are determined by discounting the expected future cash
flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability.
1.16 Share capital
Ordinary and deferred shares are classified as equity. Incremental costs
directly attributable to the issue of new shares or options are shown in
equity as a deduction from the proceeds.
1.17 Share-based payments
The Group has used shares and share options as consideration for services
received from employees.
Equity-settled share-based
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