REG - Petro Matad Ltd - Final results for year ended 31 December 2015 <Origin Href="QuoteRef">MATD.L</Origin> - Part 2
30/06/2016 16:00
- Part 2: For the preceding part double click ID:nRSd8646Ca
4 Revenues and expenses
(a) Revenue
Interest income 22 72
Other income:
Consideration for the BG Group farm-out agreement* 4,486 -
Cash calls received from BG Group* 7,234 -
Other income* 2 5
Foreign exchange gains - -
11,744 77
* On 7 April 2015, the Company announced the successful completion of a
farm-out agreement with BG International Limited and BG Mongolia Holdings
Limited ("BG Group"). On 22 June 2015, all conditions to the farm-out were
satisfied and unconditional status was therefore received. Under the terms of
the farm-out, BG Group acquired 78% of Blocks IV and V in exchange for funding
the Group's share of a mutually agreed $28 million work programme which will
fulfil the minimum work obligations for both blocks within the current licence
period to July 2017. The Group will also receive additional cash consideration
of $4.55 million to fund ongoing operations and obligations. Also refer to
Note 21 - Events after the reporting date.
(b) Employee benefits expense
Included in employee benefits expense are the following:
Wages and salaries 1,601 610
Directors' fees (including Directors of affiliates) 175 104
Consultancy fees 557 589
Share-based payments 105 638
2,438 1,941
(c) Exploration and evaluation expenditure
Exploration and evaluation expenditure relates to the following PSCs:
Block XX 1 30
Blocks IV and V 7,235 236
7,236 266
(d) Other expenses
Included in other expenses are the following:
Administration costs 903 623
PSC administration costs 533 732
Audit fees 114 99
Travel expenses 137 78
1,687 1,532
31 Dec 2015 31 Dec 2014
Note $'000 $'000
5 Income tax
Income tax recognised in the statement of profit or loss:
Tax expense/(benefit) comprises:
Current tax expense/(benefit) - -
Deferred tax expense/(benefit) relating to the
origination and reversal of temporary differences - -
Total tax expense/(benefit) reported in the statement of profit or loss - -
The prima facie income tax benefit on pre-tax accounting loss from continuing
operations reconciles to the income tax expense/(benefit) in the financial
statements as follows:
Net loss for the year (190) (3,940)
Income tax benefit calculated at 10% (i) 19 394
Effect of different tax rates on entities in different jurisdictions (ii) 650 (220)
Change in unrecognised deferred tax assets (669) (174)
- -
(i) The tax rate used in the above reconciliation is the corporate
tax rate of 10% payable by Mongolian corporate entities on taxable profits up
to 3 billion MNT under Mongolian tax law.
(ii) Petromatad Invest Limited and Capcorp are exempt of Mongolian
corporate tax on profits derived from the sale of oil under their PSCs once
production commences and are subject to Cayman Islands income tax at a rate of
0%. As a consequence, no provision for Mongolian corporate tax or Cayman
Islands current tax or deferred tax has been made in the Company's accounts in
relation to them.
Petro Matad Limited is subject to Isle of Man income tax at a rate of 0%. As a
consequence, no provision for Isle of Man current tax or deferred tax has been
made in the Company's accounts.
6 Loss per share
The following reflects the loss and share data used in the total operations
basic and diluted loss per share computations:
31 Dec 2015 31 Dec 2014
cents per share cents per share
Basic loss per share 0.1 1.4
Diluted loss per share 0.1 1.4
$'000's $'000's
The loss and weighted average number of ordinary shares used in the calculation of basic and diluted loss per share are as follows:
Net loss attributable to owners of the parent 190 3,940
Weighted average number of ordinary shares for the purposes of basic and diluted loss per share (in thousands) 284,450 279,377
Share Options and Conditional Share Awards could potentially dilute basic loss
per share in the future, however they have been excluded from the calculation
of diluted loss per share because they are anti-dilutive for both years
presented.
31 Dec 2015 31 Dec 2014
Note $'000 $'000
7 Cash and cash equivalents
Cash at bank and in hand 5,339 895
5,339 895
Cash at bank and in hand earns interest at fixed and floating rates based on
prevailing bank rates, and the fair value of the above cash and cash
equivalents is $5,339,000 (2014: $895,000) due to the short-term nature of the
instruments.
Reconciliation from the net loss after tax to the net cash flows from
operations:
Net loss after tax (190) (3,940)
Adjustments for:
Depreciation and amortisation 97 131
Net (profit)/loss on disposal of property, plant and equipment 9 6
Share based payments 140 638
Unrealised foreign exchange (gains)/ losses 10 50
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables (1,117) 69
(Increase)/decrease in prepayments and other assets (448) 120
Increase/(decrease) in trade and other payables 6,083 635
Net cash flows used in operating activities 4,584 (2,291)
Non-cash investing and financing activities
There were no non-cash investing or financing activities undertaken in the
financial year or prior year, other than the exercise of Options and
Conditional Share Awards of $0.79 million (2014: $0.180 million).
8 Trade and other receivables
Current
Receivable from BG Group 600 -
Other debtors 222 241
Non-Current
Receivable from BG Group 536 -
1,358 241
All amounts are recoverable and are not considered past due or impaired.
9 Prepayments and other assets
Prepayments 505 55
Other assets 307 309
812 364
Other current assets are mainly comprised of consumables, including casing,
mud and drilling materials purchased for Block XX.
31 Dec 2015 31 Dec 2014
Note $'000 $'000
10 Exploration and evaluation assets
Exploration and evaluation assets 15,275 15,275
15,275 15,275
The exploration and evaluation asset arose following the initial acquisition
in February 2007 of 50% of Petromatad Invest Limited, together with
acquisition on 12 November 2007 of the remaining 50% not already held by the
Group, for a consideration of 23,340,000 ordinary shares credited as fully
paid up and with an estimated fair value of $0.50 per share, taking into
account assets and liabilities acquired on acquisition. This relates to the
exploration and evaluation of PSC Block XX.
The ultimate recoupment of exploration and evaluation expenditure is dependent
upon successful development and commercial exploitation or alternatively the
sale of the respective areas of interest at an amount at least equal to book
value.
Management have reviewed for impairment indicators on Block XX and no
impairment has been noted.
11 Property, plant and equipment
Plant and equipment at cost 1,050 936
Accumulated depreciation and impairment (548) (497)
502 439
Reconciliation of carrying amounts at the beginning and end of the year:
Plant and equipmentTotal
$'000
As at 1 January 2014 (net of accumulated depreciation) 618
Additions 20
Disposals (21)
Foreign exchange (47)
Depreciation charge for the year (131)
As at 31 December 2014 (net of accumulated depreciation) 439
Additions 183
Disposals (9)
Foreign exchange (14)
Depreciation charge for the year (97)
As at 31 December 2015 (net of accumulated depreciation) 502
31 Dec 2015 31 Dec 2014
Note $'000 $'000
12 Trade and other payables (current)
Trade payables 4,097 1,351
Funding received in advance from BG Group 3,337 -
Other payables 2 2
7,436 1,353
Trade payables are non-interest bearing and are normally settled within 60 day
terms.
13 Issued capital
Ordinary Shares
287,494,775 shares issued and fully paid (2014: 279,489,279) 106,150 105,278
106,150 105,278
Movements in ordinary shares on issue:
Number of Shares Issue Price $ $'000
As at 1 January 2014 279,340,879 105,097
Exercise of Conditional Share Awards on 3 October 2014 (note (a)) 146,400 0.010 1
1
Share based payment - - 180
As at 31 December 2014 279,487,279 105,278
Exercise of Conditional Share Awards on 23 April 2015 (note (b)) 5,750,946 0.010 58
Exercise of Conditional Share Awards on 27 July 2015 (note (c)) 2,256,550 0.010 23
81
Share based payment - - 791
As at 31 December 2015 287,494,775 106,150
(a) On 3 October 2014, pursuant to the Group's Plan, 146,400 shares were
awarded to former employees exercising Conditional Share Awards with an
exercise price per share of $0.01.
(b) On 23 April 2015, pursuant to the Group's Plan, 5,750,946 shares were
awarded upon exercise of Conditional Share Awards with an exercise price per
share of $0.01.
(c) On 27 July 2015, pursuant to the Group's Plan, 2,256,550 shares were
awarded upon exercise of Conditional Share Awards with an exercise price per
share of $0.01.
14 Reserves
A detailed breakdown of the reserves of the Group is as follows:
Merger reserve Equity benefits reserve Foreign currency translation Total
$'000 $'000 $'000 $'000
As at 1 January 2014 831 4,801 (896) 4,736
Currency translation differences - - (115) (115)
Share based payments - 275 - 275
As at 31 December 2014 831 5,076 (1,011) 4,896
Currency translation differences - - (41) (41)
Share based payments - (845) - (845)
As at 31 December 2015 831 4,231 (1,052) 4,010
Nature and purpose of reserves
Merger reserve
The merger reserve arose from the Company's acquisition of Capcorp on 12
November 2007. This transaction is outside the scope of IFRS 3 'Business
Combinations' and as such Directors have elected to use UK Accounting
Standards FRS 6 'Acquisitions and Mergers'. The difference, if any, between
the nominal value of the shares issued plus the fair value of any other
consideration, and the nominal value of the shares received in exchange are
recorded as a movement on other reserves in the consolidated financial
statements.
Equity benefits reserve
The equity benefits reserve is used to record the value of Options and
Conditional Share Awards provided to employees and Directors as part of their
remuneration, pursuant to the Group's Long Term Equity Incentive Plan
(referred to as "Plan" or "Group's Plan"). Refer to Note 15 for further
details of these plans.
Foreign currency translation reserve
The foreign currency translation reserve is used to record exchange
differences arising from the translation of the financial statements of
foreign subsidiaries.
15 Share based payments
(a) Long Term Equity Incentive Plan ("Plan" or "Group's Plan")
The Group provides long term incentives to employees (including Executive
Directors), Non-Executive Directors and consultants through the Group's Plan
based on the achievement of certain performance criteria. The Plan provides
for share awards in the form of Options and Conditional Share Awards. The
incentives are awarded at the discretion of the Board, or in the case of
Executive Directors, the Remuneration Committee of the Board, who determine
the level of award and appropriate vesting, service and performance conditions
taking into account market practice and the need to recruit and retain the
best people.
Options may be exercised, subject only to continuing service, during such
period as the Board may determine. Options have a term of 10 years.
Conditional Share Awards shall vest subject to continuing service and
appropriate and challenging service and performance conditions determined by
the Remuneration Committee relating to the overall performance of the Group.
Conditional Share Awards based on performance conditions will vest on
achievement of the following performance conditions:
· 25% vest on the first discovery of oil on a commercial scale,
estimated by management as being by 30 September 2017;
· 25% vest on the first production of oil on a commercial
scale, estimated by management as being by 30 September 2019; and
· 50% vest on the Company achieving the sale of 1 million
barrels of oil, estimated by management as being by 30 September 2020.
Other Conditional Share Awards have service conditions tied to employment
continuity and are available for vesting in three equal annual instalments on
various dates.
(b) Option pricing model
The fair value of Options granted is estimated as at the date of grant using
the Black Scholes model, taking into account the terms and conditions upon
which the Options were granted.
No options have been issued during 2014 and 2015.
(c) Movement in Share Options
Opening balance at 1 January 2014 Granted during the year Forfeited during the year Exercised during the year Closing balance as at 31 December 2014 Exercisable as at 31 December 2014
Grant of Options on 3 June 2008 399,500 - (19,500) - 380,000 380,000
Grant of Options on 8 April 2009 268,750 - (52,500) - 216,250 216,250
Grant of Options on 9 July 2010 899,500 - (154,100) - 745,400 745,400
Grant of Options on 6 April 2011 75,000 - - - 75,000 75,000
Grant of Options on 5 July 2011 150,000 - - - 150,000 150,000
Grant of Options on 22 Nov 2011 120,000 - - - 120,000 120,000
Grant of Options on 5 Dec 2011 79,914 - (36,486) - 43,428 43,428
Grant of Options on 25 Apr 2012 928,300 - (66,360) - 861,940 570,900
Grant of Options on 16 Jul 2012 516,860 - (306,020) - 210,840 200,640
Grant of Options on 5 Oct 2012 98,300 - (23,300) - 75,000 49,500
Grant of Options on 4 Dec 2012 6,000 - - - 6,000 3,960
Grant of options on 9 July 2013 112,000 - (12,000) - 100,000 33,000
3,654,124 - (670,266) - 2,983,858 2,588,078
Weighted Average Exercise Price (cents per option) 53.96 - 31.68 - 58.96 63.54
Opening balance at 1 January 2015 Granted during the year Forfeited during the year Exercised during the year Closing balance as at 31 December 2015 Exercisable as at 31 December 2015
Grant of Options on 3 June 2008 380,000 - - - 380,000 380,000
Grant of Options on 8 April 2009 216,250 - - - 216,250 216,250
Grant of Options on 9 July 2010 745,400 - (125,000) - 620,400 620,400
Grant of Options on 6 April 2011 75,000 - - - 75,000 75,000
Grant of Options on 5 July 2011 150,000 - - - 150,000 150,000
Grant of Options on 22 Nov 2011 120,000 - - - 120,000 120,000
Grant of Options on 5 Dec 2011 43,428 - (3,828) - 39,600 39,600
Grant of Options on 25 Apr 2012 861,940 - (311,940) - 550,000 550,000
Grant of Options on 16 Jul 2012 210,840 - (45,840) - 165,000 165,000
Grant of Options on 5 Oct 2012 75,000 - - - 75,000 75,000
Grant of Options on 4 Dec 2012 6,000 - - - 6,000 6,000
Grant of options on 9 July 2013 100,000 - (50,000) - 50,000 33,000
2,983,858 - (536,608) - 2,447,250 2,430,250
Weighted Average Exercise Price (cents per option) 58.96 - 39.40 - 63.25 63.64
(d) Share Options Contractual Life
The weighted average remaining contractual life of outstanding share Options
is 5.7 years (2014: 6.3 years).
(e) Conditional share awards pricing model
The fair value of Conditional Share Awards granted is estimated as at the date
of grant using the Black Scholes model, taking into account the terms and
conditions upon which the Awards were granted.
The following Table summarizes Conditional Share Awards granted during 2014
and 2015, along with relevant details in relation to each grant.
(1) (2)
23 Apr 14 7 Jul 15
Conditional Share Awards granted 5,229,255 1,993,520
Share price at grant date $0.0923 $0.0621
Expected Volatility (%) 10 28
Risk-free interest rates (%) 0.50 0.50
Expected life (years) 10 10
Exercise Price $0.01 $0.01
Estimated fair value of each Conditional Share Award at the grant date $0.0827 $0.0527
Items (1): Conditional Share Awards vested on 1 October 2014.
Items (2): Conditional Share Awards vested immediately.
(f) Movement in Conditional share awards
Consolidated Opening balance at 1 January 2014 Granted during the year Awarded during the year Forfeited during the year Closing balance as at 31 December 2014 Exercisable as at 31 December 2014
Grant of Conditional Share Awards on 3 Jun 2008 535,000 - - (20,000) 515,000 -
Grant of Conditional Share Awards on 8 Apr 2009 145,000 - - (50,000) 95,000 -
Grant of Conditional Share Awards on 9 Jul 2010 1,061,000 - (87,000) (102,000) 872,000 -
Grant of Conditional Share Awards on 6 Apr 2011 325,000 - (24,000) (157,000) 144,000 -
Grant of Conditional Share Awards on 5 Jul 2011 230,000 - (12,000) (38,000) 180,000 -
Grant of Conditional Share Awards on 22 Nov 2011 50,000 - - - 50,000 -
Grant of Conditional Share Awards on 5 Dec 2011 78,000 - (3,400) (35,000) 39,600 -
Grant of Conditional Share Awards on 25 Apr 2012 1,440,060 - (20,000) (41,000) 1,379,060 263,030
Grant of Conditional Share Awards on 5 Oct 2012 165,000 - - (15,000) 150,000 -
Grant of Conditional Share Awards on 4 Dec 2012 261,661 - - - 261,661 258,661
Grant of Conditional Share Awards on 9 Jul 2013 176,000 - - (6,000) 170,000 -
Grant of Conditional Share Awards on 23 Apr 2014 - 5,229,255 - - 5,229,255 5,229,255
4,466,721 5,229,255 (146,400) (464,000) 9,085,576 5,750,946
Weighted Average Exercise Price (cents per award) 1.00 1.00 1.00 1.00 1.00 1.00
Consolidated Opening balance at 1 January 2015 Granted during the year Awarded during the year Forfeited during the year Closing balance as at 31 December 2015 Exercisable as at 31 December 2015
Grant of Conditional Share Awards on 3 Jun 2008 515,000 - - - 515,000 -
Grant of Conditional Share Awards on 8 Apr 2009 95,000 - - - 95,000 -
Grant of Conditional Share Awards on 9 Jul 2010 872,000 - - (125,000) 747,000 -
Grant of Conditional Share Awards on 6 Apr 2011 144,000 - - - 144,000 -
Grant of Conditional Share Awards on 5 Jul 2011 180,000 - - - 180,000 -
Grant of Conditional Share Awards on 22 Nov 2011 50,000 - - - 50,000 -
Grant of Conditional Share Awards on 5 Dec 2011 39,600 - - - 39,600 -
Grant of Conditional Share Awards on 25 Apr 2012 1,379,060 - (526,060) (3,000) 850,000 -
Grant of Conditional Share Awards on 5 Oct 2012 150,000 - - - 150,000 -
Grant of Conditional Share Awards on 4 Dec 2012 261,661 - (258,661) - 3,000 -
Grant of Conditional Share Awards on 9 Jul 2013 170,000 - - (50,000) 120,000 -
Grant of Conditional Share Awards on 23 Apr 2014 5,229,255 - (5,229,255) - - -
Grant of Conditional Share Awards on 7 Jul 2015 - 1,993,520 (1,993,520) - - -
9,085,576 1,993,520 (8,007,496) (178,000) 2,893,600 -
Weighted Average Exercise Price (cents per award) 1.00 1.00 1.00 1.00 1.00 -
(g) Conditional Share Awards Contractual Life
The weighted average remaining contractual life of outstanding Conditional
awards is 12.5 years (2014: 13.5 years).
16 Commitments and contingencies
(a) Operating lease commitments
Operating leases relate to premises used by the Group in its operations,
generally with terms between 2 and 5 years. Some of the operating leases
contain options to extend for further periods and an adjustment to bring the
lease payments into line with market rates prevailing at that time. The leases
do not contain an option to purchase the leased property.
The Group has committed to office lease in Mongolia in the amounts of $149,000
as at 31 December 2015.
31 Dec 2015 31 Dec 2014
Note $'000 $'000
Operating Leases:
Within one year 45 27
After one year but not more than five years 104 -
Greater than five years - -
149 27
(b) Exploration expenditure commitments
Petromatad Invest Limited and Capcorp have minimum spending obligations, under
the terms of their PSCs on Blocks IV, V and XX with PAM.
The amounts set out below do not include general and administrative expenses.
31 Dec 2015 31 Dec 2014
Note $'000 $'000
Production Sharing Contract Fees:
Within one year 898 1,677
After one year but not more than five years 40 835
Greater than five years - -
938 2,512
Minimum Exploration Work Obligations:
Within one year 19,374 7,515
Greater than one year but no more than two years 15,580 18,815
Greater than two years but no more than three years - 18,056
Greater than three years but no more than four years - -
Greater than five years - -
34,954 44,386
Prior year expenditure over and above minimum exploration work obligations may
be used to reduce the following year's obligation.
Due to the prior focus on Block XX and despite substantial work programme
activities occurring in 2015, Blocks IV and V are below the minimum PSC
commitment at the end of 31 December 2015 by $13.7 million.
On 28 April 2016, the company received an exit notice from BG Group advising
they were triggering the exit option under the farm-out agreement.
Consequently, the Company's working interests in Blocks IV and V will revert
to 100%. As required by the agreements, compensation of a minimum of $10
million will be paid to the Company by BG Group, which will partially enable
the Company to satisfy minimum spend obligations in relation to Blocks IV and
V.
Petromatad Invest Limited and Capcorp can voluntarily relinquish their rights
under the PSCs, if the minimum work obligations are completed.
The Company intends to undertake a fund raising effort later in the 2016 once
drillable prospects on Blocks IV and V have been defined from the ongoing
seismic acquisition program. This will ensure that the cumulative expenditures
shortfall for Blocks IV and V will be met by end of for the remainder
exploration term ending on 29 July 2017.
In relation to Block XX, cumulative expenditure shortfall is $4.3 million at
the end of 2015. PAM has agreed to a one-year moratorium which will enable the
Company to defer expenditures towards the minimum PSC obligation by one-year
and extends the exploration term to July 2018. In addition, the moratorium
approval allows the cumulative expenditure shortfall as at 31 December 2015 of
$4.3 million to be spent after the moratorium has ended. Prior to the
moratorium ending, the Company will have to arrange for alternative sources of
funding to fund the future exploration expenditure commitments of $21.3
million for Block XX due by July 2018. The Company is actively pursuing
farm-out options to raise the necessary funds to assist in meeting the
obligation.
(c) Contingencies
There are no contingencies outstanding at the year end.
17 Related party disclosures
The immediate parent and ultimate controlling party of the consolidated entity
is Petro Matad Limited.
The consolidated financial statements include the financial statements of
Petro Matad Limited and the subsidiaries listed in the following table:
Equity Interest
Country of 2015 2014
Incorporation % %
Central Asian Petroleum Corporation Limited Cayman Islands 100 100
Capcorp Mongolia LLC Mongolia 100 100
Petromatad Invest Limited Cayman Islands 100 100
Petro Matad LLC Mongolia 100 100
Petro Matad Services Limited Isle of Man 100 100
Subsidiary Details
Capcorp Mongolia LLC was acquired on the 14 August 2006, on incorporation of
the Company. Capcorp holds 1,000,000 ordinary shares of MNT150 each.
Petromatad Invest Limited was acquired on 12 November 2007. Petro Matad
Limited and Capcorp each hold 25,000 shares of $1 each.
Central Asian Petroleum Corporation Limited was acquired on 12 November 2007.
Petro Matad Limited holds 43,340,000 ordinary shares of $0.01 each.
Petro Matad LLC is 100% owned by Petromatad Invest Limited. Petromatad Invest
Limited holds 15,000 ordinary shares of MNT10,000 each.
Petro Matad Services Limited is 100% owned by Petro Matad Limited. Petro Matad
Limited holds 1 ordinary share of $1. Petro Matad Services Limited was
dissolved on 1 January 2016.
Balances and transactions between the Company and its subsidiaries, which are
related parties of the Company, have been eliminated on consolidation and are
not disclosed in this note.
The following table provides the total amount of transactions which have been
entered into with related parties for the relevant financial year:
31 Dec 2015 31 Dec 2014
$'000 $'000
Petrovis' subscription for shares in Petro Matad Limited - -
Petrovis Matad Inc. is a major shareholder of the Company, currently holding
approximately 32.06% of the shareholding.
18 Key management personnel
(a) Details of Directors
The names of the Company's Directors, having authority and responsibility for
planning, directing and controlling the activities of the Group, in office
during 2014 and 2015, are as below:
The Directors were in office until the date of this report and for this entire
year unless otherwise stated.
Directors
George Edward Watkins Non-Executive Chairperson
Resigned 24 November 2014
Oyungerel Janchiv Non-Executive Director
Resigned as Chairperson 1 August 2015
Mary Ellen Collins Non-Executive Director
Not re-appointed 21 November 2014
Enkhmaa Davaanyam Non-Executive Chairperson
Appointed as Chairperson 1 August 2015
David Daniel Skeels Non-Executive Director
Not re-appointed 21 November 2014
Philip Arthur Vingoe Non-Executive Director
Amarzul Tuul Executive Director
John Rene Henriksen Chief Financial Officer
Mehmed Ridvan Karpuz Chief Executive Officer
Appointed as CEO 1 October 2015
(b) Compensation of Directors
31 Dec 2015 31 Dec 2014
Note $'000 $'000
Short-term employee benefits 864 646
Post-employment benefits - -
Share based payment expense 143 499
1,007 1,145
(c) Other key management personnel transactions
There were no other key management personnel transactions during the year
(2014: Nil).
19 Financial risk management objectives and policies
The Group's principal financial instruments comprise cash and short-term
deposits classified as loans and receivables financial assets.
The main purpose of these financial instruments is to raise capital for the
Group's operations.
The Group also has various other financial instruments such as trade debtors
and trade creditors, which arise directly from its operations. It is, and has
been throughout the year under review, the Group's policy that no trading in
financial instruments shall be undertaken.
The main risks arising from the Group's financial instruments are interest
rate risk, foreign currency risk, credit risk and liquidity risk.
The Board is responsible for identification and control of financial risks.
The Board reviews and agrees policies for managing each of these risks as
summarised below.
Risk Exposures and Responses
Interest rate risk
Interest rate risk is the risk that the value of a financial instrument or
cash flow associated with the instrument will fluctuate due to changes in
market interest rate. Interest rate risk arises from fluctuations in interest
bearing financial assets and liabilities that the Group uses. Interest bearing
assets comprise cash and cash equivalents which are considered to be
short-term liquid assets. It is the Group's policy to settle trade payables
within the credit terms allowed and the Group does therefore not incur
interest on overdue balances.
The following table sets out the carrying amount of the financial instruments
that are exposed to interest rate risk:
31 Dec 2015 31 Dec 2014
Weighted Average Int. rate $'000 $'000
Financial Assets
Cash and cash equivalents 1.10% 5,339 895
Trade and other receivables 0% 1,358 241
6,697 1,136
Financial Liabilities
Trade and other payables 0% 7,436 1,353
7,436 1,353
Net exposure (739) (217)
Sensitivity Analysis
If the interest rate on cash balances at 31 December 2014 and 2015
weakened/strengthened by 1%, there would be no material impact on profit or
loss. There would be no effect on the equity reserves other than those
directly related to other comprehensive income movements.
Foreign currency risk
As a result of operations overseas, the Group's Statement of Financial
Position can be affected by movements in various exchange rates.
The functional currency of Petro Matad Limited and presentational currency of
the Group is deemed to be USD because the future revenue from the sale of oil
will be denominated in USD and the costs of the Group are likewise
predominately in USD. Some transactions are however dominated in currencies
other than USD. These transactions comprise operating costs and capital
expenditure in the local currencies of the countries where the Group operates.
These currencies have a close relationship to the USD and management believes
that changes in the exchange rates will not have a significant effect on the
Group's financial statements.
The Group does not use forward currency contracts to eliminate the currency
exposures on any individual transactions.
The following significant exchange rates applied during the year:
Average rate Spot rate at the balance date
USD 2015 2014 2015 2014
Mongolian Tugrug ("MNT") 1 1,969.88 1,817.27 1,995.98 1,888.44
Australian Dollar ("AUD") 1 1.37978 1.10970 1.37003 1.22600
Great British Pound ("GBP") 1 0.66662 0.60730 0.67553 0.64380
Sensitivity Analysis
A 5% strengthening/weakening of the MNT against USD at 31 December 2014 and
2015 would not have a material effect on profit and loss or on equity.
Price risk
The Group's exposure to price risk is minimal as the Group is currently not
revenue producing other than from interest income.
Credit risk
Credit risk is the risk of financial loss to the Group if a customer or
counterparty to a financial instrument fails to meet its contractual
obligations. The Group is exposed to credit risk on its cash and cash
equivalents and other receivables as set out in Notes 7 and 8 which also
represent the maximum exposure to credit risk. The Group only deposits surplus
cash with well-established financial institutions of high quality credit
standing.
In addition, receivable balances are monitored on an ongoing basis with the
result that the Group's exposure to bad debts is not significant.
There are no significant concentrations of credit risk within the Group.
Maximum exposure to credit risk at reporting date:
31 Dec 2015 31 Dec 2014
Note $'000 $'000
Financial Assets
Trade and other receivables 8 1,358 241
Net exposure 1,358 241
Impairment Losses:
None of the Group's receivables are past due at 31 December 2015 (2014: Nil)
Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its
financial obligations as they fall due.
The Group's approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its liabilities when
due, under both normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Group's reputation.
The Group's objective is to ensure that sufficient funds are available to
allow it to continue its exploration activities.
The remaining contractual maturities of the Group's and parent entity's
financial liabilities are:
31 Dec 2015 31 Dec 2014
Note $'000 $'000
6 months or less 6,938 1,318
6-12 months 498 35
1-5 years - -
over 5 years - -
7,436 1,353
All of the Group's amounts payable and receivable are current.
Further, the Group has exploration expenditure commitments on its PSCs as
disclosed in Note 16(b).
Fair Value of Financial Assets and Liabilities
The fair value of cash and cash equivalents and non-interest bearing financial
assets and financial liabilities of the consolidated entity approximate their
carrying value due to their short term duration.
Fair Value Hierarchy as at 31 December 2015
Level 1 Level 2 Level 3 Total
Financial Assets
Trade and other receivables - 1,358 - 1,358
Total - 1,358 - 1,358
Financial Liabilities
Trade and other payables - 7,436 - 7,436
Total - 7,436 - 7,436
Fair Value Hierarchy as at 31 December 2014
Level 1 Level 2 Level 3 Total
Financial Assets
Trade and other receivables - 241 - 241
Total - 241 - 241
Financial Liabilities
Trade and other payables - 1,353 - 1,353
Total - 1,353 - 1,353
The fair values of the financial assets and
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