REG - Independent Oil &Gas - Final Results for the Year Ended 31 December 2016 <Origin Href="QuoteRef">IOG.L</Origin> - Part 3
26/05/2017 07:06
- Part 3: For the preceding part double click ID:nRSZ2982Gb
modifications to allow for employee turnover before vesting and early exercise. The
inputs to the model include: the share price at the date of grant; exercise price; expected volatility; expected dividends;
risk-free rate of interest; and patterns of exercise of the plan participants. Where the terms and conditions of options
are modified before they vest, the increase in the fair value of the options, measured immediately before and after the
modification, is also charged to the Statement of Comprehensive Income over the remaining vesting period. No expense is
recognised for options that do not ultimately vest except where vesting is only conditional upon a market condition.
Where equity instruments are used to settle liabilities, 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.
Loss/earnings per share
Loss/earnings 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.
Critical accounting judgements and key sources of estimation uncertainty
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 clear from other sources. Actual results may differ from these estimates.
Key areas of estimation uncertainty are:
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 16 for further details of these assumptions.
Investments (Company)
If circumstances indicate that impairment may exist, investments in subsidiary undertakings of the Company are evaluated
using market values, where available, or the discounted expected future cash flows of the investment. If these cash flows
are lower than the Company's carrying value of the investment, an impairment charge is recorded in the Company. Evaluation
of impairments on such investments involves significant management judgement and may differ from actual results - see Note
11.
Commercial Reserves
Commercial reserves are proven and probable oil and gas reserves, calculated on an entitlement basis. Estimates of
commercial reserves underpin the calculation of depletion and amortisation on a UOP basis. Estimates of commercial
reserves include estimates of the amount of oil and gas in place, assumptions about reservoir performance over the life of
the field and assumptions about commercial factors which, in turn, will be affected by the future oil and gas price.
Impairment of assets
Management is required to assess oil and gas assets for indicators of impairment and has considered the economic value of
individual E&E and D&P assets. The carrying value of oil and gas assets is disclosed in Notes 8 and 9. The carrying value
of related investments in the Company Statement of Financial Position is disclosed in Note 11. Exploration and evaluation
assets are subject to a separate review for indicators of impairment, by reference to the impairment indicators set out in
IFRS 6, which is inherently judgmental.
Critical accounting judgements and key sources of estimation uncertainty (continued)
Key assumptions used in the value-in-use calculations
The calculation of value-in-use for oil and gas assets under development or in production is most sensitive to the
following assumptions:
· production volumes;
· commodity prices;
· fixed and variable operating costs;
· capital expenditure; and
· discount rates.
Production volumes/recoverable reserves
Annual estimates of oil and gas reserves are generated internally by the Group with external input from operator profiles.
These are reported annually to the Board. The self-certified estimated future production profiles are used in the life of
the fields which in turn are used as a basis in the value-in-use calculation.
Commodity prices
An average of published forward prices and the long-term assumption for natural gas and Brent oil are used for future cash
flows in accordance with the Group's corporate assumptions. Field specific discounts and prices are used where
applicable.
Fixed and variable operating costs
Typical examples of variable operating costs are pipeline tariffs, treatment charges and freight costs. Commercial
agreements are in place for most of these costs and the assumptions used in the value-in-use calculation are sourced from
these where available. Examples of fixed operating costs are platform costs and operator overheads. Fixed operating costs
are based on operator budgets.
Capital expenditure
Field development is capital intensive and future capital expenditure has a significant bearing on the value of an oil and
gas development asset. In addition, capital expenditure may be required for producing fields to increase production and/or
extend the life of the field. Cost assumptions are based on operator budgets or specific contracts where available. The
Company and Group were not exposed to development capital expenditures in the year.
Discount rates
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 risk specific to the field for which future estimated cash flows have not been adjusted. The Group has applied a
risk adjusted discount rate of 10% for the current year (2015: 10%).
Sensitivity to changes in assumptions
A potential change in any of the above assumptions may cause the estimated recoverable value to be lower than the carrying
value, resulting in an impairment loss. The assumptions which would have the greatest impact on the recoverable amounts of
the fields are production volumes and commodity prices.
Critical accounting judgements and key sources of estimation uncertainty (continued)
Decommissioning
The Company has obligations in respect of decommissioning the Vulcan Satellites' E&E asset. The extent to which a
provision is recognised depends on the legal requirements at the date of decommissioning, the estimated costs and timing of
the work and the discount rate applied. A full decommissioning estimate for the Vulcan Satellites' asset remains uncertain
until all development infrastructure has been installed and production volumes and time to abandonment has been considered.
Prior to full development infrastructure and commissioning, the Group will utilise technical reports to estimate costs of
abandonment.
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 based upon 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 (loss)/profit
The Group operating (loss)/profit is stated after charging/(crediting) the following:
2016 2015
£000 £000
Fees payable to the Company's auditor:- for the audit of the Company's and Group's financial statements 40 28
Depreciation, depletion and amortisation 4 -
Exploration costs written offNet impairment/(impairment reversal) of oil and gas properties 71220,013 10(6,169)
Impairment of creditors (307) -
Personnel costs 399 247
Personnel costs - share-based payments 206 321
Net gain on settlement of liabilities (458) -
Foreign exchange loss 299 65
_________ _________
4 Staff costs and directors' remuneration
During the year, the average number of personnel for both the Company and Group was: -
2016Number 2015Number
Management/operational 13 10
________ ________
Directors 5 5
________ ________
Personnel costs £000 £000
Wages, salaries and fees 645 301
Social security costs 49 21
Share-based incentives 358 321
________ ________
1,052 643
________ ________
An amount of £448,000 has been capitalised in exploration and evaluation assets relating to the personnel costs.
No pension plans are provided for directors nor staff. Key management personnel are deemed to be directors.
Directors' remuneration Salary Share-based incentives 2016Total Salary Share-based incentives 2015Total
£000 £000 £000 £000 £000 £000
Mark Routh 59 139 198 106 156 262
Peter Young 141 22 163 124 63 187
Marie-Louise Clayton1 - 13 13 9 19 28
Michael Jordan2 10 15 25 20 10 30
Paul Murray3 - 29 29 10 17 27
David Peattie4 - 6 6 - - -
Martin Ruscoe5 - 15 15 - - -
Andrew Hay6 - 3 3 - - -
_______ ________ ________ ________ ________ ________
210 242 452 269 265 534
_______ ________ ________ ________ ________ ________
1 Marie-Louise Clayton resigned on 9 February 2016;
2 Michael Jordan resigned on 31 August 2016;
3 Paul Murray resigned on 29 July 2016;
4 David Peattie was appointed on 29 July 2016;
5 Martin Ruscoe was appointed on 9 February 2016;
6 Andrew Hay was appointed on 29 July 2016.
The share-based incentive amounts represent the fair value of options issued on both 1 March 2016 and 1 September 2016 in
lieu of cash salary and/or director fees.
Social security costs for the year for key management personnel were £39,000 (2015 - £21,000).
The service agreements for Mark Routh, Peter Young, David Peattie, Martin Ruscoe and Andrew Hay provide that only a
proportion of the full contractual amount will be paid with the balance to be settled in share options granted.
The proportions paid in 2016 were 30% for Mark Routh, 94% for Peter Young, 50% for Michael Jordan and 0% for each of
Marie-Louise Clayton, Paul Murray, David Peattie, Martin Ruscoe and Andrew Hay. For each six-month interval, ending on 28
(or 29) February and 31 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 31 December 2016 to which these terms relate totalled
£91,000 (31 December 2015 - £83,000) for directors and £36,000 (2015 - £81,000) for other personnel and were subsequently
settled in share options on 1 March 2017.
Share option exercise transactions for Marie-Louise Clayton and Michael Jordan were made following their departure from the
Board; however, for completeness, these are included in the table below.
Directors' interests in options on 1p ordinary shares of the Company at 31 December 2016 were as follows:
Granted Total 31 Dec 2015 Awarded / (Exercised) in 2016 Total 31 Dec 2016 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
1 Mar 2016 - 888,494 888,494 1p 28 Feb 2021
1 Sep 2016 - 365,550 365,550 1p 31 Aug 2021
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
1 Mar 2016 - 240,393 240,393 1p 28 Feb 2021
1 Sep 2016 - 34,270 34,270 1p 31 Aug 2021
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
1 Mar 2016 - 168,742 - 1p 28 Feb 2021
(168,742)
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
1 Mar 2016 - 96,157 - 1p 28 Feb 2021
(96,157)
1 Sep 2016 - 39,562 39,562 1p 31 Aug 2021
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 Mar 2016 - 192,315 - 1p 28 Feb 2021
(192,315)
29 Jul 2016 - 103,462 - 1p 28 Jul 2021
(103,462)
David Peattie 1 Sep 2016 - 22,861 22,861 1p 31 Aug 2021
Martin Ruscoe 1 Sep 2016 - 79,558 79,558 1p 31 Aug 2021
Andrew Hay 1 Sep 2016 - 11,430 11,430 1p 31 Aug 2021
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").
All LTIPs expired on 30 September 2016 and no options vested as none of the conditions set by the Remuneration Committee
were met.
The Company paid £10,000 for Directors and Officers Liability insurance during the year (2015: £11,000).
5 Finance expense/(gain)
2016 2015
£000 £000
Interest on loans 489 123
Fair value of warrants issued 31 -
Amortisation of loan finance charges 339 -
Current year loan finance charges 40 20
Gain on derivative financial asset - (204)
________ ________
899 (61)
________ _________
6 Taxation
a) Current taxation
There was no tax charge during the year as the Group loss was not chargeable to corporation tax. 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:
2016 2015
£000 £000
(Loss)/profit for the year (21,437) 5,322
Income tax expense - -
_________ _________
(Loss)/profit before income taxes (21,437) 5,322
Expected tax (credit)/charge based on the standard rate of United Kingdom corporation tax at the domestic rate of 40% (2015: 40%) (8,575) 2,129
Expenses not deductible for tax purposes - 100
Expense/(income) not taxable/allowable 7,994 (2,498)
Unrecognised taxable losses carried forward 581 269
_________ _________
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 £32,864,000 (2015: £693,000). This
includes a figure of £20,788,000 on acquisition of Oyster Petroleum Limited. A deferred tax asset will only be created if
there is reasonable certainty that profits will be earned in the foreseeable future.
7 (Loss)/profit per share
2016£000 2015£000
(Loss)/profit for the year attributable to shareholders (21,437) 5,322
_________ _________
Weighted average number of ordinary shares 92,489,621 71,510,947
Weighted average number of ordinary shares - diluted basis 134,400,703 81,608,317
_________ _________
(Loss)/profit per share in pence - undiluted (23.2p) 7.4p
(Loss)/profit per share in pence - diluted (23.2p) 6.5p
_________ ________
Diluted loss 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 2016 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
subsequently issued on 1 March 2017 has been to increase the weighted average number of ordinary shares on a diluted basis
to 135,305,802.
8 Intangible assets
Group
Exploration & evaluation assets Company & IT software assets Total Exploration & evaluation assets
2016 2016 2016 2015
£000 £000 £000 £000
At cost
At beginning of the year 16,903 - 16,903 15,767
Additions 11,331 3 11,334 1,136
Blythe asset acquisition (note 10) 1,662 - 1,662 -
Vulcan satellites asset acquisition (note 10) 5,533 - 5,533 -
Reclassified as Development & Production assets (7,506) - (7,506) -
_________ _________ ________ _________
At end of the year 27,923 3 27,926 16,903
_________ _________ ________ _________
Impairments and write-downs
At beginning of the year (2,085) - (2,085) (8,254)
DD&A - (1) (1) -
Impairment reversal/(impairment) (20,013) - (20,013) 6,169
_________ _________ ________ _________
At end of the year (22,098) (1) (22,099) (2,085)
_________ _________ ________ _________
Net book value
At 31 December 5,825 2 5,827 14,818
_________ _________ _________ _________
At 1 January 14,818 - 14,818 7,513
_________ _________ ________ _________
In 2015, following a revised valuation of both the Skipper and Blythe assets, the Skipper impairment of £6,169,000, charged
in 2014, was reversed and the gain was taken to the Statement of Comprehensive Income.
The 2016 impairment of £22,098,000 reflects the decision that the Skipper field is no longer commercial.
Exploration & evaluation assets at 31 December 2016 mainly comprise the Group's interest in the Vulcan Satellites, Elgood
and Harvey.
Following submission of the Blythe FDP in December 2016, as per the Group's accounting policy, the Blythe asset has been
re-categorised as property, plant and equipment. In accordance with IFRS6 and the Group's accounting policy, Blythe has
been assessed at the point of transfer and it was determined that based on the project economics; the impairment on Blythe
of £2,085,000 originally charged in 2014 should be reversed.
9 Property, plant and equipment
Group Development & production assets Company & administration assets Total Total
2016 2016 2016 2015
£000 £000 £000 £000
At cost
At beginning of the year - - - -
Additions - 30 30 -
Reclassified from E&E assets (see Note 8) 7,506 - 7,506 -
_________ _________ _________ _________
At end of the year 7,506 30 7,536 -
_________ _________ _________ _________
Accumulated depreciation
At beginning of the year - - - -
DD&A - (6) (6) -
_________ _________ _________ _________
At end of the year - (6) (6) -
_________ _________ _________ _________
Net book value
At 31 December 7,506 24 7,530 -
_________ _________ _________ _________
At 1 January - - - -
_________ _________ _________ _________
-
-
-
-
_________
_________
_________
_________
10 Asset Acquisitions
During the year, the Group had the following significant asset acquisition transactions.
Vulcan Satellites
On 28 October 2016, the Company announced the completion of the acquisition of Oyster Petroleum Limited comprising the
Vulcan Satellites. This has been accounted for as an asset acquisition given the status of the projects held by Oyster
Petroleum on the acquisition date. Under the terms of the agreement the Company paid £1 million, plus interim cash
adjustments, initial consideration upon completion, with a further £0.75 million payable nine months thereafter. Further
payments of £3.25 million are payable upon achievement of certain further milestones which remain contingent and
uncertain.
Given the £3.25m is dependent on achievement of future milestones and the transaction is considered an asset acquisition,
these amounts have not been recognised in the financial statements. The total assets are recognised at cost which is based
on the respective fair values at the acquisition date. The below assets and liabilities were acquired on 28 October 2016.
£000
Exploration and evaluation assets 5,533
Less:
Current assets less current liabilities (13)
Decommissioning provision (3,598)
_____
Net assets acquired 1,922
Blythe
On 21 June 2016, the Company announced the completion of the additional 50% operated stake in the Blythe field, thereby
increasing its interest to 100%. The consideration comprised an upfront payment of £1.5 million, plus interim cash
adjustments, payable at completion with deferred consideration of a further USD 5.0 million to be paid at first gas. Given
the USD 5.0 million is dependent on achievement of future milestones and the transaction is considered an asset
acquisition, these amounts have not been recognised in the financial statements.
11 Investments
Shares Loans
in Group to Group
Company companies companies Total
£000 £000 £000
At cost
At 1 January 2015 12,592 3,467 16,059
Additions - 1,311 1,311
_________ _________ _________
At 31 December 2015 12,592 4,778 17,370
Additions 1,922 7,217 9,139
_________ _________ _________
At 31 December 2016 14,514 11,995 26,509
Impairment
At 1 January 2015 (8,254) (1,870) (10,124)
Impairment reversal 6,169 - 6,169
_________ _________ _________
At 31 December 2015 (2,085) (1,870) (3,955)
Impairment reversal 2,085 - 2,085
_________ _________ _________
At 31 December 2016 - (1,870) (1,870)
Net book value
At 1 January 2016 10,507 2,908 13,415
At 31 December 2016 14,514 10,125 24,639
_________ _________ _________
The Company has undertaken not to seek repayment of loans from other Group subsidiary companies until each subsidiary has
sufficient funds to make such payments.
In recognition of the 2015 impairment reversal against the carrying value of the Group's exploration and evaluation assets
in 2015 described in Note 8 above, an equivalent impairment reversal of £6,169,000 against the carrying value of the
Company's investment in its subsidiaries was credited to the Company's Statement of Comprehensive Income.
In the current year, the Directors have reconsidered the economics of the underlying projects held by the subsidiaries
including the potential of the exploration projects and consider it appropriate to reverse an impairment of £2,085,000.
The Company's subsidiaries, all registered at 60 Gracechurch Street, London EC3V 0HR, are as follows: -
Country of Area of
Directly held incorporation operation %
IOG Infrastructure Limited United Kingdom United Kingdom 100
IOG North Sea Limited United Kingdom United Kingdom 100
IOG UK Limited United Kingdom United Kingdom 100
All three subsidiaries were incorporated in the United Kingdom and are engaged in the business of oil and gas exploration
and/or operations in the North Sea. The financial reporting periods for each subsidiary entity are consistent with the
Company and end on 31 December.
12 Interests in production licences
All Group UK Offshore Production Licences are held 100% by either IOG North Sea Limited or IOG UK Limited.
13 Receivables and prepayments
2016 2015
£000 £000
Group
VAT recoverable 22 139
Warrants and prepaid costs associated with new loan facilities (Note 16) - 1,354
Prepayments 43 -
Debtors 20 -
Decommissioning guarantees 200 -
_________ _________
285 1,493
_________ _________
Company
VAT recoverable 22 139
Warrants and prepaid costs associated with new loan facilities (Note 16) - 1,354
Prepayments 38 -
Debtors 20 -
_________ _________
80 1,493
_________ _________
14 Current liabilities
2016 2015
£000 £000
Group
Loans 4,076 1,460
Trade payables 5,577 847
Amounts due to joint operation partners - 63
Accruals 205 195
_________ _________
9,858 2,565
_________ _________
Company
Trade payables 5,577 847
Amounts due to joint operation partners - 63
Accruals 149 176
_________ _________
5,726 1,086
_________ _________
Of the Group's loans, £1.99 million was due to Weatherford Technical Services Limited (2015: £1.46 million) and £2.08
million was due to GE Oil & Gas UK Limited (2015: £nil). Following Amendment, No. 6, to the loan agreement, the loan
repayable to Weatherford Technical Services Limited was discharged in full on 24 May 2017. The loan due to GE Oil & Gas UK
Limited is payable by 31 December 2017.
The interest rate on the Weatherford loan was 12% effective 1 January 2017.
The interest rate on the GE loan is LIBOR + 9%.
15 Non-current liabilities
2016 2015
£000 £000
Group
Long term loans 4,733 -
Trade creditors - 293
Decommissioning provision 3,598 -
_________ _________
8,331 293
_________ _________
Company
Trade creditors - 24
_________ _________
Trade creditors' book value stated at 31 December 2016 equates to fair value.
The balance on both the Group's and the Company's non-current liabilities at 31 December 2015 were written off in 2016
following management's commercial decision to impair in full, the Skipper P1609 licence and field.
On 7 December 2015, loan facilities were announced for £2.75 million and £2.0 million arranged with London Oil and Gas
Limited ('LOG') and GE Oil and Gas UK Limited respectively. On 11 December 2015, a further loan was announced for £0.8
million arranged with LOG.
The amounts drawn at 31 December 2016 (excluding accrued interest) were as follows: -
Loan Facility Amount Drawn
LOG £2.75 million facility £2.01 million
LOG £0.80 million facility £0.8 million
GE £2.0 million facility £2.0 million
There were warrants issued to LOG and GE Oil and Gas UK Limited in respect of the above facilities. The valuation of these
warrants is detailed in Note 16 and is amortised over the life of the facilities. Any outstanding non-amortised amount is
treated as a prepayment and debited against the loan facility.
On 5 February 2016, a further loan was announced arranged with LOG and provided for £10.0 million of secured convertible
debt funding. The loan is secured against the Group's assets and fully convertible at LOG's election into the Company's
shares at a conversion price of 8p. It is proposed that the loan would need to be drawn in full within three years of
completion and converted into ordinary shares in the Company within 36 months after each drawing.
The balance on the Group's long term loans at 31 December 2016 is represented by drawings of £5,542,000 plus accrued
interest of £208,000 on the LOG facilities, less the non-amortised value £1,017,000 of loan finance (which includes the
non-amortised amount of warrants as detailed above).
The interest rate on all LOG loans is LIBOR + 9%. This is deemed to be a market rate and hence no equity element has been
recognised for the £10.0 million convertible loan.
The Company has obligations in respect of decommissioning the Vulcan Satellites' E&E asset. A full decommissioning
estimate for the Vulcan Satellites' asset remains uncertain until all development infrastructure has been installed and
production volumes and time to abandonment has been considered. As per Note 1, the current estimate is based upon a recent
technical valuation.
16 Equity share capital
Share Share
capital premium Total
Number £000 £000 £000
Allotted, issued and fully paid
At 1 January 2015
- Ordinary shares of 1 pence each 69,247,764 692 17,163 17,855
Equity issued 609,500 6 139 145
Equity issued 210,174 2 48 50
Loan settlement 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
2016
Equity issued 3,961,382 40 - 40
Equity issued 5,777,310 58 630 688
Creditor settlement via issue of shares 20,811,776 208 2,181 2,389
_________ _________ _________ _________
At 31 December 2016
- Ordinary shares of 1 pence each 109,268,163 1,093 20,460 21,553
_________ _________ _________ _________
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.
During 2016, the Company issued 3,961,382 ordinary shares at a subscription price of 1 pence from the exercise of
management and other personnel share options.
During 2016, the Company issued 5,777,310 ordinary shares at a subscription price of 11.9p from the exercise of warrants by
GE Oil & Gas UK Limited.
During 2016, the Company issued 20,811,776 ordinary shares in lieu of creditor settlement cash payments.
Share options and warrants
During the year, the Company granted share options under its share option plan as follows:
Number Price Date of Grant Expiry
1 January 2015 12,178,512 13.82p various various
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
Staff options 2,888,561 1p 1 Mar 2016 28 Feb 2021
Staff options 103,462 1p 29 Jul 2016 31 Aug 2021
Staff options 1,032,499 1p 1 Sep 2016 31 Aug 2021
Options exercised (3,961,382)
Options lapsed (4,500,000)
31 December 2016 11,029,143 1p
All LTIP options, 4,500,000 outstanding at 31 December 2015, expired on 30 September 2016. Accordingly, the fair value of
these awards has been transferred from the Share-based Payment Reserve to Accumulated Loss. Of the remaining staff options
granted prior to 31 December 2015, 3,117,362 were exercised during 2016. Of those staff options granted during 2016,
844,020 were exercised during 2016.
The remaining staff options, 11,029,143, outstanding at 31 December 2016 have been issued to directors and other personnel
under (i) an AIM bonus scheme upon listing of the Company's shares on 30 September 2013 (5,203,946 options) and (ii) as
salary sacrifice options issued periodically in lieu of salary (5,825,197 options). Further details for directors are
provided in Note 4. All options were issued at an exercise price of 1p per share and carry no additional performance
conditions.
The remaining average contractual life of the 11,029,143 share options outstanding at 31 December 2016 (2015 - 15,466,003)
was 2.81 years at that date (2015 - 4.56). All such share options were exercisable at 31 December 2016.
The weighted average exercise price of the options remaining was 1.00 pence at 31 December 2016 (2015 - 11.09 pence). No
further options have been exercised as at 25 May 2017.
The Company calculates the value of personnel sacrificed share-based compensation as the actual value of sacrificed
salary/fees. This is deemed to be the fair value of such awards. The fair value of share options granted in 2016, both
received and receivable, is calculated as £358,000 (2015 - £321,000) and this has been fully charged to the Statement of
Comprehensive Income. The exercise price was determined as 1p (2015 - 1p).
During 2016, LTIPS awarded to both Mark Routh and Peter Young in September 2013, expired. Accordingly, the fair value of
these awards has been transferred from the Share-based Payment Reserve to Accumulated Loss.
During the year, the Company granted warrants as follows:
Number Price Date of Grant Expiry
1 January 2015 956,087 31.36p various various
Issued to GE Oil and Gas UK Ltd 4,989,122 11.9p 7 Dec 2015 30 Dec 2016
Issued to GE Oil and Gas UK Ltd 788,188 11.9p 29 Dec 2015 30 Dec 2016
Issued to London Oil and Gas Ltd 5,777,310 11.9p 29 Dec 2015 30 Dec 2016
Issued to London Oil and Gas Ltd 7,500,000 8p 29 Dec 2015 31 Dec 2016
31 December 2015 20,010,707 11.37p
Issued to Weatherford Technical Services Limited 500,000 8p 29 Mar 2016 31 Mar 2019
Lapsed - Charles Stanley Securities (630,000)
Exercised by GE Oil & Gas UK Ltd (5,777,310)
31 December 2016 14,103,397 11.29p
The fair value of warrants granted in 2015 was calculated as £1,272,000 all of which was recognised and included within the
total of deferred/prepaid financing costs and taken to the Share-based Payment Reserve
All 2015 warrants granted to GE Oil & Gas UK Limited were exercised prior to 31 December 2016.
The Company calculates the value of share based compensation using the Black-Scholes option pricing model to estimate the
fair value of warrants at the date of grant.
The fair value of warrants granted in 2016 is calculated as £31,000 (2015 - £1,272,000) all of which has been recognised as
a current financing cost. The average exercise price was determined as 8 pence (2015 - 10.36 pence).
During 2016, 630,000 warrants awarded to Charles Stanley Securities in September 2013, expired. Accordingly, the fair
value of these awards has been transferred from the Share-based Payment Reserve to Accumulated Loss.
The following assumptions were applied in the above calculations
2016 warrants
Risk free interest rate 1.46%
Dividend yield nil
Weighted average life expectancy 3 years
Volatility factor 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 on 30 September 2013 until 31 December 2016.
17 Cash and cash equivalents
2016 2015
Group and Company £000 £000
Cash at bank 247 23
_________ _________
18 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 was £1,784,000 (2015: £5,667,000).
19 Financial instruments
Significant accounting policies
Details of the significant accounting policies in respect of financial instruments are disclosed in Note 1 of the financial
statements.
Financial risk management
The Board seeks to minimise its exposure to financial risk by reviewing and agreeing policies for managing each financial
risk and monitoring them on a regular basis. At this stage, no formal policies have been put in place to hedge the Group
and
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