REG - Independent Oil &Gas - Audited Results for the Year Ended 31 December 15 <Origin Href="QuoteRef">IOG.L</Origin> - Part 2
27/05/2016 11:03
- Part 2: For the preceding part double click ID:nRSa4722Za
Net cash generated from financing activities 610 1,045
Decrease in cash and cash equivalents in the year (375) (722)
Cash and cash equivalents at start of year 398 1,120
_________ _________
Cash and cash equivalents at end of year 15 23 398
_________ _________
NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER
2015
Notes Forming Part of the Financial Statements
1 Accounting policies
Basis of preparation
Independent Oil and Gas plc is a public limited company incorporated and
domiciled in England and Wales. The Group's and Company's financial
statements for the year ended 31 December 2015 were authorised for issue by
the Board of Directors on 26 May 2016 and the balance sheets were signed on
the Board's behalf by the CFO Peter Young.
The principal accounting policies adopted in the preparation of the financial
statements are set out below. The policies have been consistently applied to
all the years presented, unless otherwise stated. The consolidated financial
statements are presented in Pounds Sterling, which is also the Group's
functional currency. Amounts are rounded to the nearest thousand, unless
otherwise stated.
These financial statements have been prepared in accordance with International
Financial Reporting Standards adopted by the European Union, International
Accounting Standards and Interpretations (collectively "IFRSs") and with those
parts of Companies Act 2006 applicable to companies preparing their accounts
under IFRS.
The preparation of financial statements in compliance with adopted IFRS
requires the use of certain critical accounting estimates. It also requires
Group management to exercise judgment in applying the Group's accounting
policies. The areas where significant judgments and estimates have been made
in preparing the financial statements and their effect are disclosed in note 1
on page 23.
The consolidated financial statements have been prepared on a historical cost
basis, except for derivative financial instruments at fair value as disclosed
in note 1 on page 23.
Financial resources and liquidity
As at 24 May 2016 the Group had cash resources of £65,000. In addition, the
Company has arranged loan finance totalling £15.55 million which is available
to fund the planned Skipper appraisal well, acquisitions including that of the
remaining 50% of Blythe and general corporate and administrative expenditures.
This funding is also expected to be sufficient to take the Company's Blythe
gas field through to submission of a field development plan, at which point
the Company intends to arrange finance for the full development project.
Since the start of 2016, the Company has demonstrated a capability to reach
effective arrangements with contractors though an agreement with GE Oil and
Gas Limited to defer payment of £0.61 million of Skipper appraisal
expenditures until end 2016 and through the satisfaction of £0.64 million due
to AGR Well Management Limited through the issue of shares in the Company.
Management will continue to seek mutually beneficial arrangements of this type
so as to manage its cash resources efficiently.
On this basis, management considers that the Company has sufficient financial
resources to meet its obligations and contractual commitments over at least
the next twelve months.
New Accounting Standards
(i) New and amended standards adopted by the Group:
The accounting policies adopted are consistent with those of the previous
financial year. There are no new or amended financial standards or
interpretations adopted during the year that have a significant impact upon
the financial statements.
(ii) The following standards, amendments and interpretations, which are
effective for reporting periods beginning after the date of these financial
statements, have not been adopted early:
Standard Description Effective date
IAS 9 Financial Instruments 1 January 2018
IFRS 15 Revenues from Contract with Customers 1 January 2018
IFRS 16 Leases 1 January 2019
Amendments to IAS 16 and 38 Clarification of Accountable Methods of Depreciation and Amortisation 1 January 2016
Amendments to IFRS 11 Accounting for Acquisition of Interests in Joint Operations 1 January 2016
The application of the above standards in future financial statements is not
expected to have a material impact on the financial statements.
Basis of consolidation
Where the Company has control over an investee, it is classified as a
subsidiary. The Company controls an investee if all three of the following
elements are present: power over the investee, exposure to variable returns
from the investee, and the ability of the investor to use its power to affect
those variable returns. Control is reassessed whenever facts and
circumstances indicate that there may be a change in any of these elements of
control. De-facto control exists in situations where the Company has the
practical ability to direct the relevant activities of the investee without
holding the majority of the voting rights. In determining whether de-facto
control exists the Company considers all relevant facts and circumstances,
including:
- The size of the Company's voting rights relative to both the size and
dispersion of other parties who hold voting rights
- Substantive potential voting rights held by the Company and by other
parties
- Other contractual arrangements
- Historic patterns in voting attendance.
The consolidated financial statements present the results of the Company and
its subsidiaries as if they formed a single entity. Inter-company
transactions and balances between Group companies are therefore eliminated in
full. The financial statements of subsidiaries are included in the Group's
financial statements from the date that control commences until the date that
control ceases.
Joint arrangements
Joint arrangements are arrangements in which the Group shares joint control
with one or more parties. Joint control is the contractually agreed sharing
of control of an arrangement, and exists only when decisions about the
activities that significantly affect the arrangement's returns require the
unanimous consent of the parties sharing control.
Joint arrangements are classified as either joint operations or joint ventures
based on the rights and obligations of the parties to the arrangement. In
joint operations, the parties have rights to the assets and obligations for
the liabilities relating to the arrangement, whereas in joint ventures, the
parties have rights to the net assets of the arrangement.
Joint arrangements that are not structured through a separate vehicle are
always joint operations. Joint arrangements that are structured through a
separate vehicle may be either joint operations or joint ventures depending on
the substance of the arrangement. In these cases, consideration is given to
the legal form of the separate vehicle, the terms of the contractual
arrangement and, when relevant, other facts and circumstances. When the
activities of an arrangement are primarily designed for the provision of
output to the parties, and the parties are substantially the only source of
cash flows contributing to the continuity of the operations of the
arrangement, this indicates the parties to the arrangements have rights to the
assets and obligations for the liabilities.
The Group accounts for all its joint arrangements as joint operations by
recognising the assets, liabilities, and expenses for which it has rights or
obligations, including its share of such items held or incurred jointly.
Oil and gas exploration, development and producing assets
The Group adopts the following accounting policies for oil and gas asset
expenditure, based on the stage of development of the assets:
1) Pre-licensing
Expenditure incurred prior to the acquisition of a licence interest is
expensed to the statement of comprehensive income as exploration costs written
off.
2) Exploration and evaluation ("E&E")
The Group applies the full cost method of accounting for E&E costs, having
regard to the requirements of IFRS 6 'Exploration for and Evaluation of
Mineral Resources'. Under the full cost method of accounting, costs of
exploring and evaluating oil and gas properties are accumulated and
capitalised by reference to appropriate cash generating units ("CGUs"). Such
CGU's are based on geographic areas such as a licence area or a basin and are
not larger than an operating segment - as defined by IFRS 8 'Operating
segments'. The Group has one identified CGU, being the North Sea.
E&E costs may include costs of licence acquisition, technical services and
studies, geological and geophysical data acquisition, exploration drilling and
testing. These costs are initially capitalised within 'Intangible assets'.
Intangible E&E assets are not depreciated and are carried forward until the
existence (or otherwise) of commercial reserves has been determined. The
Group's definition of commercial reserves for such purpose is proven and
probable reserves on an entitlement basis.
If commercial reserves are discovered, the related E&E assets are assessed for
impairment, and any impairment loss is recognised in the statement of
comprehensive income. The carrying value, after any impairment loss, of the
relevant E&E assets is then reclassified to development and production assets
within property, plant and equipment and is amortised on a unit of production
basis over the life of the commercial reserves of the CGU to which they
relate.
Oil and gas exploration, development and producing assets
Intangible E&E assets that relate to E&E activities that are not yet
determined to have resulted in the discovery of commercial reserves remain
capitalised as intangible E&E assets at cost, subject to impairment
assessments as set out below.
E&E assets are assessed for impairment when facts and circumstances suggest
that the carrying value of the E&E CGU to which they relate may exceed its
future recoverable amount. Where the E&E assets concerned fall within the
scope of an established CGU, the E&E assets are tested for impairment together
with all development and production assets associated with that CGU, as a
single cash generating unit. The aggregate carrying value is compared against
the expected recoverable amount of the CGU. The recoverable amount is the
higher of value in use and the fair value less costs to sell. Where the E&E
assets to be tested fall outside the scope of any established CGU, there will
generally be no commercial reserves and the E&E assets concerned will
generally be written off in full. Any impairment loss is recognised in the
statement of comprehensive income.
3) Development
All costs incurred after the technical feasibility and commercial viability of
producing hydrocarbons have been demonstrated are capitalised as oil and gas
development costs on a field-by-field basis. Subsequent expenditure is
capitalised only where it either enhances the economic benefits of the
development/producing asset or replaces part of the existing
development/producing asset. Such costs are charged to the statement of
comprehensive income on a unit of production basis.
4) Production
All costs of producing, transporting and processing oil and gas reserves are
expensed in the statement of comprehensive income in the period in which the
oil and gas is sold.
Disposals
Net proceeds from any disposal of an oil or gas asset are initially credited
against the previously capitalised costs of that asset and any surplus
proceeds are credited to the statement of comprehensive income. Net proceeds
from any disposal of development/producing assets are credited against the
previously capitalised cost of that asset and any surplus proceeds are
credited to the statement of comprehensive income.
Investments and loans
Shares in subsidiary undertakings are shown at cost. Loans to subsidiary
undertakings are stated at amortised cost. Provisions are made for any
impairment in value.
Financial instruments
(i) Financial assets
Cash and cash equivalents
Cash includes cash on hand and demand deposits with any bank or other
financial institution. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash which are
subject to an insignificant risk of changes in value.
Derivative financial instruments
Derivative financial instruments are held at fair value with any changes in
fair value arising charged to profit or loss.
(ii) Financial liabilities
Trade payables
Trade payables and other short-term monetary liabilities are held at amortised
cost which, in view of their short term nature, is not materially different
from their undiscounted cost.
Loans and borrowings
Loans and borrowings are initially recognised at fair value; less any issue
costs. They are subsequently held at amortised cost using the effective
interest method.
Convertible loan notes
Upon issue of a convertible loan note, the proceeds are split between the
liability component and the equity component at the date of issue. The fair
value of the equity component is included in equity and it not re-measured
whilst the liability component is included in liabilities, which is increased
by the effective rate of interest charged in each period. Upon conversion the
face value of the loan notes is transferred to the share capital and share
premium accounts.
Equity
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs, allocated between share capital and share
premium.
Share issue expenses and Share premium account
The costs of issuing new share capital are written off against the share
premium account arising out of the proceeds of the new issue.
Share-based payments
Share options are offered to personnel to incentivise and reward successful
corporate performance. The fair value of share options issued to Company
personnel is charged to the statement of comprehensive income, together with
an increase in equity reserves, over the relevant vesting period. Fair values
are calculated using the Black Scholes model and adjusted to reflect expected
levels of vesting and performance conditions. No expense is recognised for
options that do not ultimately vest except where vesting is only conditional
upon a market condition.
Where share options are used to settle deferred salary amounts, the liability
is extinguished by the share options and the difference between the fair value
of the options issued and the liability is debited or credited to the
statement of comprehensive income.
The fair value of warrants issued to third parties is calculated by reference
to the service provided or if this not considered possible, calculated in the
same way as for share options as detailed above. Typically, these amounts
have related to equity issues where the amount deducted from share premium or
other finance facilities where the charge treated as an arrangement fee and
included in the effective interest rate calculation of borrowings.
Taxation
Tax on the profit or loss for the period comprises current and deferred tax.
Tax is recognised in the profit or loss except to the extent that it relates
to items recognised in other comprehensive income, in which case it is
recognised in other comprehensive income.
Current tax is the expected tax payable on the taxable income for the period,
using tax rates enacted or substantively enacted at the reporting date, and
any adjustment to tax payable in respect of previous years.
Deferred tax assets and liabilities are recognised where the carrying amount
of an asset or liability in the statement of financial position differs to its
tax base, except for differences arising on the initial recognition of an
asset or liability in a transaction which is not a business combination and at
the time of the transaction affects neither accounting or taxable profit; and
investments in subsidiaries and jointly controlled entities where the Group is
able to control the timing of the reversal of the difference and it is
probable that the difference will not reverse in the foreseeable future.
Recognition of deferred tax assets is restricted to those instances where it
is probable that taxable profit will be available against which the difference
can be utilised.
The amount of the asset or liability is determined using tax rates that have
been enacted or substantively enacted by the reporting date and are expected
to apply when the deferred tax liabilities/(assets) are settled/(recovered).
Deferred tax balances are not discounted.
Deferred tax assets and liabilities are offset when the Group has a legally
enforceable right to offset current tax assets and liabilities and the
deferred tax assets and liabilities relate to taxes levied by the same tax
authority on either:
- the same taxable Group entity; or
- different Group entities which intend either to settle current tax assets
and liabilities on a net basis, or
- to realise the assets and settle the liabilities simultaneously, in each
future period in which significant amounts of deferred tax assets or
liabilities are expected to be settled or recovered.
Earnings/loss per share
Earnings/loss per share is calculated as profit/loss attributable to
shareholders divided by the weighted average number of ordinary shares in
issue for the relevant period. Diluted earnings per share is calculated using
the weighted average number of ordinary shares in issue plus the weighted
average number of ordinary shares that would be in issue on the conversion of
all relevant potentially dilutive shares to ordinary shares adjusted for any
proceeds obtained on the exercise of any options and warrants. Where the
impact of converted shares would be anti-dilutive they are excluded from the
calculation.
Foreign currencies
The functional and presentation currency of the Group and the Company is
Pounds Sterling.
The Group translates foreign currency transactions into the functional
currency at the rate of exchange prevailing at the transaction date. Monetary
assets and liabilities denominated in foreign currency are translated into the
functional currency at the rate of exchange prevailing at the reporting date.
Exchange differences arising are taken to the consolidated statement of
comprehensive income except for those incurred on borrowings specifically
allocable to development projects, which are capitalised as part of the cost
of the asset.
Critical Accounting Estimates, Uncertainties and Judgements
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on
historical experience and factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgements about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates.
Key areas for the application of management judgement currently include:
Recoverability of capitalised oil and gas assets
Management is required to assess oil and gas assets for indicators of
impairment and have considered the economic value of these assets. Management
has estimated the future recoverable amounts of these assets based upon the
fair values attached to the significant exploration assets and have also
considered the present value calculation of future cash flows expected to be
derived from the production of commercial reserves. Judgment has been used in
estimating the fair values and also within the present value calculations
including the geological and commercial change of success, production volumes,
commodity prices, foreign exchange rates, operating costs, capital expenditure
and discount rates.
Specifically, discount rates reflect the current market assessment of the
risks specific to the oil and gas sector and are based on the weighted average
cost of capital for the Group. Where appropriate, the rates are adjusted to
reflect the market assessment of any specific risks. The Group has applied a
discount rate of 10% for the current year.
Fair value of share options and warrants
The fair value of options and warrants is calculated using appropriate
estimates of expected volatility, risk free rates of return, expected life of
the options/warrants, the dividend growth rate, the number of options expected
to vest and the impact of any attached conditions of exercise. See note 14
for further details of these assumptions.
Valuation of derivatives associated with the Darwin Facility
As the ultimate value of these notes was dependent upon the value of the
Company's ordinary shares, during 2014 management determined the fair value of
derivatives (at inception and at 31 December 2014) based on the market share
price of the Company of 25p and 6.75p respectively.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision only affects that period or in the period
of revision and future periods if the revision affects both current and future
periods.
2 Segmental information
The Group complies with IFRS 8, Operating Segments, which requires operating
segments to be identified on the basis of internal reports about components of
the Group that are regularly reviewed by the directors to allocate resources
to the segments and to assess their performance. In the opinion of the
directors, the operations of the Group comprise one class of business, being
the exploration and development of oil and gas opportunities in the UK North
Sea.
3 Operating profit/(loss)
The Group operating profit/(loss) is stated after charging/(crediting) the
following:
2015 2014
£000 £000
Fees payable to the Company's auditor:- for the audit of the Company's and Group's financial statements 28 22
Exploration costs written off(Impairment reversal)/impairment of oil and gas properties 10(6,169) 6418,254
Staff costs - fees and salaries 247 275
Staff costs - share-based incentives 321 1,343
Foreign exchange loss 65 77
_________ _________
4 Staff costs and directors' remuneration
During the year, the average number of personnel was:
2015Number 2014Number
Management/operational _______10 ______11
Directors _______5 ______6
Personnel costs £000 £000
Wages, salaries and fees 301 306
Social security costs 21 23
Share-based incentives 321 1,343
________ ________
643 1,672
________ ________
An amount of £54,000 (2014: £54,000) was capitalised into exploration and
evaluation assets.
No pension plans are provided for directors or staff. Key management
personnel are deemed to be directors.
Directors' remuneration Salary Share-based incentives 2015Total 2014Total
£000 £000 £000 £000
Mark Routh 106 156 262 667
Peter Young 124 63 187 443
Mehdi Varzi1 - - - 21
Marie-Louise Clayton 9 19 28 108
Michael Jordan 20 10 30 68
Paul Murray 10 17 27 -
_______ ________ ________ ________
269 265 534 1,307
_______ ________ ________ ________
1 Mehdi Varzi resigned on 5 November 2014.
The share-based incentive amounts represent the fair value of options issued
in lieu of cash salary.
Social security costs for the year for key management personnel were £21,000
(2014 - £23,000).
The service agreements for Mark Routh, Peter Young, Marie-Louise Clayton,
Michael Jordan and Paul Murray provide that only a proportion of the full
contractual amount will be paid until the sooner of either the date on which
the Company receives not less than gross funds of £10 million pursuant to a
fundraising, or 31 December 2016 with the balance to be settled in share
options granted.
The proportions paid in 2015 were 30% for Mark Routh, 75% for Peter Young, 50%
for Michael Jordan and 0% for each of Marie-Louise Clayton and Paul Murray.
For each six-month interval, ending on 28 February and 28 August respectively,
the Company settles the difference between the reduced rate and the full rate
through the granting of options over ordinary shares of the Company at the
volume-weighted average share price over the period to which they relate.
Amounts of salary outstanding at the 31 December 2015 to which these terms
relate totalled £83,000 (31 December 2014 - £93,000) for directors and £81,000
(2014 - nil) for other personnel and were subsequently settled in share
options on 1 March 2016.
Directors' interests in options on 1p ordinary shares of the Company at 31
December 2015 were as follows:
Granted Total 31 Dec 2014 Awarded in 2015 Total 31 Dec 2015 Exercise price Expiry date
Mark Routh 23 Sept 2013 2,933,946 - 2,933,946 1p 30 Sep 2018
23 Sept 2013 1,500,000 - 1,500,000 29.74p 23 Sept 2023
23 Sept 2013 1,500,000 - 1,500,000 41.63p 23 Sept 2023
19 Nov 2014 162,114 - 162,114 1p 28 Feb 2019
19 Nov 2014 218,672 - 218,672 1p 31 Aug 2019
1 Mar 2015 - 638,361 638,361 1p 28 Feb 2020
31 Aug 2015 - 611,601 611,601 1p 31 Aug 2020
Peter Young 23 Sept 2013 1,700,000 - 1,700,000 1p 30 Sep 2018
23 Sept 2013 750,000 - 750,000 29.74p 23 Sept 2023
23 Sept 2013 750,000 - 750,000 41.63p 23 Sept 2023
19 Nov 2014 122,814 - 122,814 1p 28 Feb 2019
19 Nov 2014 71,405 - 71,405 1p 31 Aug 2019
1 Mar 2015 - 172,717 172,717 1p 28 Feb 2020
31 Aug 2015 - 165,476 165,476 1p 31 Aug 2020
Marie-Louise 23 Sept 2013 570,000 570,000 1p 30 Sept 2018
Clayton1 19 Nov 2014 24,563 - 24,563 1p 28 Feb 2019
19 Nov 2014 45,699 - 45,699 1p 31 Aug 2019
1 Mar 2015 - 138,173 138,173 1p 28 Feb 2020
31 Aug 2015 - 132,381 132,381 1p 31 Aug 2020
Michael Jordan2 23 Sept 2013 290,000 290,000 1p 30 Sept 2018
19 Nov 2014 24,563 - 24,563 1p 28 Feb 2019
19 Nov 2014 24,754 - 24,754 1p 31 Aug 2019
1 Mar 2015 - 69,087 69,087 1p 28 Feb 2020
31 Aug 2015 - 66,191 66,191 1p 31 Aug 2020
Paul Murray 19 Nov 2014 51,878 - 51,878 1p 31 Aug 2019
1 Mar 2015 - 138,173 138,173 1p 28 Feb 2020
31 Aug 2015 - 132,381 132,381 1p 31 Aug 2020
1. Options granted to Clayton Consulting Partners Ltd, a company in which
Marie-Louise Clayton is a majority shareholder and a director.
2. Options granted to Acura Oil & Gas Ltd, a company in which Mike Jordan is
the majority shareholder and a director.
Mark Routh as CEO and Peter Young as CFO were entitled to participate under
the Group's Long Term Incentive Plan ("LTIP"). No gains have been made upon
the exercise of share options to date. Exercising of LTIP options are
conditional upon conditions set out in the Remuneration Policy and continued
employment within the Company.
The Company paid £11,000 for Directors and Officers Liability insurance during
the year (2014: £13,000).
5 Finance (gain)/expense
2015 2014
£000 £000
Interest on loans 123 100
Finance cost of derivative asset - 61
(Gain)/ loss on derivative financial asset (note 11) (204) 831
Other finance expense 20 145
________ ________
(61) 1,137
________ _________
6 Taxation
a) Current taxation
There was no tax charge during the year since the Group profit for the year
arose due to the reversal of impairment provisions. Applicable expenditures
to-date will be accumulated for offset against future tax charges
The reasons for the difference between the actual tax charge for the year and
the standard rate of corporation tax in the United Kingdom applied to profits
for the year are as follows:
2015 2014
£000 £000
Profit/(loss) for the year 5,322 (12,145)
Income tax expense - -
_________ _________
Profit/(loss) before income taxes 5,322 (12,145)
Expected tax charge/(credit) based on the standard rate of United Kingdom corporation tax at the domestic rate of 20.25% (2014: 21.5%) 1,078 (2,611)
Expenses not deductible for tax purposes 50 483
(Income)/expense not taxable/allowable (1,249) 1,775
Unrecognised taxable losses carried forward 121 353
_________ _________
Total tax expense - -
_________ _________
b) Deferred taxation
Due to the nature of the Group's exploration activities there is a long lead
time in either developing or otherwise realising exploration assets. The
amount of deductible temporary differences, unused tax losses and unused tax
credits for which no deferred tax asset is recognised in the statement of
financial position is £693,000 (2014: £572,000). A deferred tax asset will
only be created if there is reasonable certainty that profits will be earned
in the foreseeable future.
7 Profit/(loss) per share
2015£000 2014£000
Profit/(loss) for the year attributable to shareholders 5,322 (12,145)
_________ _________
Weighted average number of ordinary shares 71,510,947 63,303,336
Weighted average number of ordinary shares - diluted basis 81,608,317 76,437,935
_________ _________
Profit/(loss) per share in pence - undiluted 7.4p (19.2)p
Profit/(loss) per share in pence - diluted 6.5p (19.2)p
_________ ________
Diluted profit per share is calculated based upon the weighted average number
of ordinary shares plus the weighted average number of ordinary shares that
would be issued upon conversion of potentially dilutive share options and
warrants into ordinary shares. As the result for 2014 was a loss, the
calculation of the diluted EPS was anti-dilutive and therefore the potential
ordinary shares were ignored for the purposes of calculating diluted EPS. The
impact of options and warrants issued during 2016 to-date has been to increase
the weighted average number of ordinary shares on a diluted basis to
84,227,844 and reduce diluted earnings per share to 6.3 pence.
8 Non-current assets
Exploration and Evaluation assets - Group
2015 2014
£000 £000
At cost
At beginning of the year 15,767 15,259
Additions 1,136 508
_________ _________
At end of the year 16,903 15,767
_________ _________
Impairments and write-downs
At beginning of the year (8,254) -
Impairment reversal/(impairment) 6,169 (8,254)
_________ _________
At end of the year (2,085) (8,254)
_________ _________
Net book value
At 31 December 14,818 7,513
_________ _________
At 1 January 7,513 15,259
_________ _________
These costs principally comprise expenditures on the Group's Blythe and
Skipper field interests. On 28 August 2015 (Blythe) and on 28 January 2016
(Skipper) each licence was extended to 31 December 2016. Financial
commitments on these licences are covered in note 18.
Following the significant fall in oil prices in late 2014, an impairment test
was carried out on the carrying value of the Group's exploration and
evaluation assets and a charge of £8,254,000 was recognised in the statement
of comprehensive income. This comprised £6,169,000 for Skipper and £2,085,000
for Blythe.
On 22 December 2015, the Company announced the completion of the acquisition
of an additional 50% interest in licence P1609 containing the Skipper field.
The Company now owns 100% of the licence and field and has assumed
operatorship. Under the terms of the agreement the Company will pay US$3
million upon approval of a Skipper field development plan and a further US$15
million shortly after field production has commenced.
In 2015, following a revised valuation of both assets, the Skipper impairment
of £6,169,000 was reversed and the gain was taken to the statement of
comprehensive income.
9 Investments
Shares Loans
in Group to Group
companies companies Total
Company £000 £000 £000
At cost
At 1 January 2014 12,592 2,125 14,717
Additions - 1,342 1,342
_________ _________ _________
At 31 December 2014 12,592 3,467 16,059
Additions - 1,311 1,311
_________ _________ _________
At 31 December 2015 12,592 4,778 17,370
Impairment
At 1 January 2014 - - -
Impairment (8,254) (1,870) (10,124)
_________ _________ _________
At 31 December 2014 (8,254) (1,870) (10,124)
Impairment reversal 6,169 - 6,169
_________ _________ _________
At 31 December 2015 (2,085) (1,870) (3,955)
Net book value
At 1 January 2015 4,338 1,597 5,935
At 31 December 2015 10,507 2,908 13,415
_________ _________ _________
The Company has undertaken not to seek repayment of loans to other Group
companies until each borrower has sufficient funds to make such payments.
In recognition of the 2014 impairment charge against the carrying value of the
Group's exploration and evaluation assets in 2014 described in note 8 above,
an equivalent impairment of £10,124,000 against the carrying value of the
Company's investment in its subsidiaries was charged to the Company's
statement of comprehensive income. Of this £6,169,000 was reversed in 2015,
reflecting the equivalent reversal of Skipper carrying costs described in note
8, and taken as a gain to the statement of comprehensive income.
The Company's subsidiaries are as follows:
Country of Area of
Directly held incorporation operation %
IOG Skipper Limited United Kingdom United Kingdom 100
IOG North Sea Limited United Kingdom United Kingdom 100
Both subsidiaries were incorporated in the United Kingdom on 13 May 2011 and
are engaged in the business of oil and gas exploration in the North Sea. The
financial reporting periods for each end on 31 December.
10 Interests in jointly controlled operations
Beneficial
Licences United Kingdom interest Operator
Blythe gas fieldBlocks48/22b and 48/23a* 50%* Alpha Petroleum Resources
*IOG has signed an agreement to acquire the 50% balance of licence interest.
11 Receivables and prepayments
2015 2014
£000 £000
Group and Company
VAT recoverable 139 3
Warrants and prepaid costs associated with new loan facilities (note 14) 1,354 -
Derivative financial asset _______- _______307
The derivative financial asset represents the carrying value of notes held in
Darwin Strategic Limited which were provided as consideration for an equity
issue on 4 June 2014. All of the voting rights were transferred on the date
of the transaction. The actual consideration received will vary to the extent
that the actual share price is greater or lower than the reference point. As
the consideration is variable depending upon the Company's share price, the
agreement is treated as a derivative financial asset and re-valued through the
statement of comprehensive income with reference to the Company's share
price.
In 2014 a loss was recognised on revaluation to the year-end of £831,000
charged in Group's statement of comprehensive income based upon the market
value of the Company's ordinary shares of £0.675 at 31 December 2014 compared
to £0.25 at the point of issue in June 2014. The notes were fully settled in
2015 with the Company receiving £512,000 giving rise to a gain of £204,000 as
noted in note 5.
12 Current liabilities 2015 2014
£000 £000
Group
Loans - 461
Trade payables 2,307 21
Amounts due to joint operation partners 63 8
Accruals 195 165
_________ _________
2,565 655
_________ _________
Company
Loans - 461
Trade payables 847 21
Amounts due to joint operation partners 63 8
Accruals 176 149
_________ _________
1,086 639
_________ _________
Of the Group's total trade payables, £1,460,000 was due to Weatherford
Technical Services Limited no later than 20 September 2016. Subsequently,
during 2016 this date was extended by fifteen months to 20 December 2017 in
return for increasing the interest rate from 9% to 12% effective from 31
December 2016 and lowering of the exercise price for 500,000 warrants to be
issued to 8 pence each from the previously agreed price of 32 pence. In
addition, if during 2016 the Brent crude price closes above US$40 per barrel
for 30 consecutive days, 50% of the outstanding principal plus accrued
interest will become payable by 31 December 2016. Similarly, if Brent closes
above US$50 per barrel over the same period then the balance of the amount
will become payable by 31 December 2016. As the first condition has now been
met, 50% of the outstanding principal will become payable on 31 December
2016.
On 4 June 2014, the Company received £517,500 under a loan arrangement with
Darwin Strategic Limited Repayment of the loan was to be £575,000 if paid
within six months with further increases thereafter taking the final total due
to £601,000. Of this £118,500 was repaid in July 2014 and further amounts
totalling £236,500 were paid during 2015 before the balance of £246,000 was
converted into ordinary shares on 13 October 2015.
Amounts of £57,500 in respect of the first six months and £4,000 in respect of
part of the second six months were included in the amount outstanding at 31
December 2014.
13 Non-current liabilities
2015 2014
£000 £000
Group
Trade creditors 293 1,586
_________ _________
Company
Trade creditors 24 24
_________ _________
During 2015 Group trade creditors denominated in US$ were increased by £65,000
(2014 - £77,000) through changes to the £/US$ exchange rate.
Creditors' book value equates to fair value.
The balance of the Group's creditors and also the Company's creditors are not
due until after sustained production is achieved from the Skipper field.
On 7 December 2015 new loan facilities were announced for £2.75 million and
£2.0 million arranged with London Oil and Gas Limited and GEC Oil and Gas
Limited respectively. On 11 December 2015 a further loan was announced for
£0.8 million arranged with London Oil and Gas Limited. Each facility remained
undrawn as 31 December 2015. There were warrants issued to London Oil and Gas
Limited and GEC Oil and Gas Limited in respect of the above facilities. The
valuation of these warrants is detailed in note 14 and as the facilities were
undrawn at the year end the warrants are treated as a prepayment at the year
end. On draw down the amounts will be debited against the loan facility and
will be amortised over the life of the facility through the effective interest
rate calculation.
14 Equity share capital
Share Share
capital premium Total
Number £000 £000 £000
Allotted, issued and fully paid
At 1 January 2014
- Ordinary shares of 1 pence each 59,531,854 595 15,425 16,020
Equity issued 5,625,000 56 1,350 1,406
Equity issued 4,090,910 41 409 450
Equity issue costs - - (11) (11)
Warrants issued - - (10) (10)
_________ _________ _________ _________
At 31 December 2014
- Ordinary shares of 1 pence each 69,247,764 692 17,163 17,855
2015
Equity issued 609,500 6 139 145
Equity issued 210,174 2 48 50
Settlement of loan via issue of shares 6,507,399 65 181 246
Equity issued 2,142,858 22 128 150
Placing fees - - (10) (10)
_________ _________ _________ _________
At 31 December 2015
- Ordinary shares of 1 pence each 78,717,695 787 17,649 18,436
_________ _________ _________ _________
On 4 June 2014, the Company entered into an agreement with Darwin Strategic
Limited ("Darwin") pursuant to which Darwin subscribed for 5,625,000 ordinary
shares in the Company satisfied through the issue of 1,800,000 redeemable
subscription notes by Darwin to the Company. These were recorded at the
market price for ordinary shares on the date of issue of 25 pence applied to
the total number of shares issued giving a total of £1,406,000.
The Company also agreed to issue 326,087 warrants to Darwin with an exercise
price of 46 pence each expiring on 12 June 2017 to which a fair value of 3.09
pence each has been attributed using the Black Scholes model with a risk-free
interest rate of 0.43%, a weighted life expectancy of three years and a 50%
volatility factor resulting in a total charge of £10,000 to the share premium
account.
On 5 November 2014, the Company issued 4,090,910 ordinary shares at a
subscription price of 11 pence each to raise total proceeds of £450,000.
On 25 June 2015, the Company issued 609,500 ordinary shares and on 2 July
2015, the Company issued a further 210,174 ordinary shares at a subscription
prices of 23.79 pence each to raise total proceeds of £145,000 and £50,000
respectively.
On 13 October 2015, the Company issued 6,507,399 ordinary shares at a
subscription price of 3.777 pence each in satisfaction of the total debt of
£246,000. The conversion price reflected 85% of the average quoted market
price for IOG's ordinary shares over the three lowest average prices over the
preceding 10-day trading period.
On 21 October 2015, the Company issued 2,142,858 ordinary shares at a
subscription price of 7 pence each to raise total proceeds of £150,000.
Share options and warrants
During the year the Company granted share options under its share option plan
as follows:
Number Price Grant Expiry
1 January 2014 11,373,946 14.72p 23 Sep 2013 various
Staff options 334,054 1p 19 Nov 2014 28 Feb 2017
Staff options 470,512 1p 19 Nov 2014 31 Aug 2017
31 December 2014 12,178,512 13.82p
Staff options 230,029 1p 1 Mar 2015 30 Sep 2018
Staff options 41,757 1p 1 Mar 2015 28 Feb 2019
Staff options 131,856 1p 1 Mar 2015 31 Aug 2019
Staff options 1,352,071 1p 1 Mar 2015 28 Feb 2020
Staff options 1,531,778 1p 31 Aug 2015 31 Aug 2020
31 December 2015 15,466,003 11.09p
Options outstanding at 1 January 2014 include options granted under the
Group's Long-Term Incentive Plan ("LTIP"). These may not be exercised for a
minimum of three years after their grant dates and then only vest when the
market price of the Company's ordinary shares exceeds 47.58 pence in respect
of the 29.74 pence options and 59.48 pence in respect of the 41.63 pence
options for 20 consecutive days and provided conditions set by the
Remuneration Committee at the time of the grant are satisfied. Mark Routh as
CEO and Peter Young as CFO were entitled to participate under the LTIP and at
31 December 2015 held 3 million and 1.5 million such options respectively. No
LTIP options have vested or have been exercised to-date. Exercising of LTIP
options are conditional upon continued employment within the Company.
The remaining staff options have been issued to directors and other personnel
under (i) an AIM bonus scheme upon listing of the Company's shares in
September 2013 (7,103,975 options) and (ii) as salary sacrifice options issued
periodically in lieu of salary (3,862,028 options). Further details are
provided in note 4. All of these options were issued at an exercise price of
1p per share and carry no additional performance conditions.
The remaining average contractual life of the 15,466,003 share options
outstanding at 31 December 2015 (2014 - 12,178,512) was 4.56 years at that
date (2014 - 3.68). All of the AIM bonus and salary sacrifice options, a
total of 10,966,003, were exercisable at 31 December 2015.
The weighted average exercise price of the options was 11.09 pence at 31
December 2015 (2014 - 13.82 pence) and no options had been exercised, had
expired or had been forfeited at that date.
The Company calculates the value of share-based compensation using the
Black-Scholes option pricing model to estimate the fair value of share options
and warrants at the date of grant. The fair value of options granted in 2015
is calculated as £166,000 (2014 - £73,000) and this has been fully charged to
the statement of comprehensive income. The exercise price was determined as
1p (2014 - 1p).
During the year the Company granted warrants as follows:
Number Exercise price Grant Expiry
1 January 2014 630,000 23.79p 24 Sep 2013 30 Sep 2016
Issued 326,087 46p 30 May 2014 4 Jun 2017
31 December 2014 956,087 31.36p
Issued to GE Oil and Gas 4,989,122 11.9p 7 Dec 2015 30 Dec 2016
Issued to GE Oil and Gas 788,188 11.9p 29,Dec 2015 30 Dec 2016
Issued to London Oil and Gas 5,777,310 11.9p 29 Dec 2015 30 Dec 2016
Issued to London Oil and Gas 7,500,000 8p 29 Dec 2015 31 Dec 2016
31 December 2015 20,010,707 11.37p
The fair value of warrants granted in 2015 is calculated as £1,272,000 (2014 -
£10,000) all of which has been recognised as deferred financing costs and
taken to the share-based payment reserve (2014 - £10,000). The average
exercise price was determined as 10.36 pence (2014 - 46 pence).
The following assumptions were applied in the above calculations
2015 options 2015 warrants
Risk free interest rate 4.3% 4.3%
Dividend yield nil nil
Weighted average life expectancy 4.3 years 1 year
Volatility factor 100% 100%
An estimated volatility of 100% has been applied based upon the approximate
volatility of the Company's share price over the period from the Company's
listing on AIM in September 2013 until December 31 2015.
15 Cash and cash equivalents
2015 2014
Group and Company £000 £000
Cash at bank 23 398
_________ _________
16 Company profit for the year
The Company has taken advantage of the exemption allowed under Section 408 of
the Companies Act 2006 and has not presented its own Statement of
Comprehensive Income in these financial statements.
The Company profit for the year
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