REG - Petro Matad Ltd - Final Results - Replacement <Origin Href="QuoteRef">MATD.L</Origin> - Part 2
16/07/2015 13:03
- Part 2: For the preceding part double click ID:nRSc4213Ra
- -
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 (3,940) (7,498)
Income tax benefit calculated at 10% (i) 394 750
Effect of different tax rates on entities in different jurisdictions (ii) (220) (527)
Change in unrecognised deferred tax assets (174) (223)
- -
(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.
31 Dec 2014 31 Dec 2013
cents per share cents per share
Basic loss per share 1.4 3.3
Diluted loss per share 1.4 3.3
$'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 3,940 7,498
Weighted average number of ordinary shares for the purposes of basic and diluted loss per share 279,377 227,541
6. Loss per share
The following reflects the loss and share data used in the total operations
basic and diluted loss per share computations:
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 2014 31 Dec 2013
Note $'000 $'000
7. Cash and cash equivalents
Cash at bank and in hand 895 3,308
895 3,308
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 $895,000 (2013: $3,308,000) 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 (3,940) (7,498)
Adjustments for:
Depreciation and amortisation 131 203
Net (profit)/loss on disposal of property, plant and equipment 6 9
Share based payments 638 1,074
Unrealised foreign exchange (gains)/ losses 50 23
Changes in assets and liabilities
(Increase)/decrease in trade and other receivables 69 112
(Increase)/decrease in prepayments and other assets 120 91
Increase/(decrease) in trade and other payables 635 (155)
Net cash flows used in operating activities (2,291) (6,141)
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 $0.180 million (2013: $1.179 million).
8. Trade and other receivables
Current
Other debtors 241 310
241 310
All amounts are recoverable and are not considered past due or impaired.
9. Prepayments and other assets
Prepayments 55 70
Other assets 309 414
364 484
Other current assets are mainly comprised of consumables, including casing,
mud and drilling materials purchased for Block XX.
31 Dec 2014 31 Dec 2013
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 936 1,071
Accumulated depreciation and impairment (497) (453)
439 618
Reconciliation of carrying amounts at the beginning and end of the year:
Plant and equipmentTotal
$'000
As at 1 January 2013 (net of accumulated depreciation) 901
Additions 32
Disposals (22)
Foreign exchange (90)
Depreciation charge for the year (203)
As at 31 December 2013 (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
31 Dec 2014 31 Dec 2013
Note $'000 $'000
12. Trade and other payables (current)
Trade payables 1,351 716
Other payables 2 2
1,353 718
Trade payables are non-interest bearing and are normally settled within 60 day
terms.
13. Issued capital
Ordinary Shares
279,487,279 shares issued and fully paid (2013: 279,340,879) 105,278 105,097
105,278 105,097
Movements in ordinary shares on issue:
Number of Shares Issue Price $ $'000
As at 1 January 2013 186,176,001 98,893
Exercise of Conditional Share Awards on 24 January 2013 (note (a)) 500,000 0.010 5
Issue of shares to Petrovis on 22 July 2013 (note (b)) 90,612,540 0.055 5,000
Exercise of Conditional Share Awards on 22 July 2013 (note (c)) 671,550 0.010 6
Exercise of Conditional Share Awards on 27 November 2013 (note (d)) 1,380,788 0.010 14
5,025
Share based payment - - 1,179
As at 31 December 2013 279,340,879 105,097
Exercise of Conditional Share Awards on 3 October 2014 (note (e)) 146,400 0.010 1
1
Share based payment - - 180
As at 31 December 2014 279,487,279 105,278
(a) On 25 January 2013, pursuant to the Group's Plan, 500,000 shares were
awarded to a former Director exercising Conditional Share Awards with an
exercise price per share of $0.01.
(b) On 22 July 2013, Petrovis signed an Equity Subscription Agreement with
the Company that resulted in issuance of 90,612,540 ordinary shares to
Petrovis and concert parties at a subscription price of GBP0.0356 per share.
(c) On 22 July 2013, pursuant to the Group's Plan, 671,550 shares were
awarded to Directors and employees exercising Conditional Share Awards with an
exercise price per share of $0.01.
(d) On 27 November 2013, pursuant to the Group's Plan, 1,380,788 shares were
awarded to a Director and an employee exercising Conditional Share Awards with
an exercise price per share of $0.01.
(e) 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.
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 2013 831 5,841 (684) 5,988
Currency translation differences - - (212) (212)
Share based payments - (1,040) - (1,040)
As at 31 December 2013 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
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
The Group provides long term incentives to employees (including Executive
Directors), Non-Executive Directors and consultants through the Group's Long
Term Equity Incentive Plan (referred to as "Plan" or "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 2016;
· 25% vest on the first production of oil on a commercial
scale, estimated by management as being by 30 June 2017; and
· 50% vest on the Company achieving the sale of 1 million
barrels of oil, estimated by management as being by 30 June 2019.
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.
The following Table summarizes Options granted during 2013, along with
relevant details in relation to grant. No options have been issued during
2014.
9 Jul 13
Options Granted 112,000
Share price at grant date $0.0633
Expected Volatility (%) 85
Risk-free interest rates (%) 0.50
Expected life (years)
Tranche 1 5.50
Tranche 2 6.00
Tranche 3 6.50
Exercise Price (in GBP) 0.0425
Estimate fair value of option
Tranche 1 $0.0434
Tranche 2 $0.0447
Tranche 3 $0.0460
Options granted above are exercisable as follows:
· 33% one year after grant date
· 33% two years after grant date
· 34% three years after grant date
(c) Movement in Share Options
Opening balance at 1 January 2013 Granted during the year Forfeited during the year Exercised during the year Closing balance as at 31 December 2013 Exercisable as at 31 December 2013
Grant of Options on 24 April 2008 - - - - - -
Grant of Options on 3 June 2008 812,000 - (412,500) - 399,500 399,500
Grant of Options on 8 April 2009 425,000 - (156,250) - 268,750 268,750
Grant of Options on 9 July 2010 1,949,500 - (1,050,000) - 899,500 899,500
Grant of Options on 6 April 2011 75,000 - - - 75,000 49,500
Grant of Options on 5 July 2011 150,000 - - - 150,000 99,000
Grant of Options on 22 Nov 2011 120,000 - - - 120,000 79,200
Grant of Options on 5 Dec 2011 84,800 - (4,886) - 79,914 53,394
Grant of Options on 25 Apr 2012 935,000 - (6,700) - 928,300 308,550
Grant of Options on 16 Jul 2012 743,390 - (226,530) - 516,860 314,820
Grant of Options on 5 Oct 2012 115,000 - (16,700) - 98,300 34,650
Grant of Options on 4 Dec 2012 12,000 - (6,000) - 6,000 1,980
Grant of options on 9 July 2013 - 112,000 - - 112,000 -
5,421,690 112,000 (1,879,566) - 3,654,124 2,508,844
Weighted Average Exercise Price (cents per option) 56.67 6.33 58.94 - 53.96 60.16
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 24 April 2008 - - - - - -
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
(d) Share Options Contractual Life
The weighted average remaining contractual life of outstanding share Options
is 6.3 years (2013: 6.9 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 2013
and 2014, along with relevant details in relation to each grant.
(1) (2)
9 Jul 13 23 Apr 14
Conditional Share Awards granted 176,000 5,229,255
Share price at grant date $0.0633 $0.0923
Expected Volatility (%) 51 10
Risk-free interest rates (%) 0.50 0.50
Expected life (years) 5 10
Exercise Price $0.01 $0.01
Estimated fair value of each Conditional Share Award at the grant date $0.0541 $0.0827
Items (1): Conditional Share Awards will vest on achievement of the following
performance conditions: (Note: these dates are based on a farmout being
successfully concluded in near future, otherwise they will need to be
revised)
· 25% vest on the first discovery of oil on a commercial scale, estimated
by management as being by 30 September 2016;
· 25% vest on the first production of oil on a commercial scale,
estimated by management as being by 30 June 2017; and
· 50% vest on the company achieving the sale of 1 million barrels of oil,
estimated by management as being by 30 June 2019.
Items (2): Conditional Share Awards vested on 1 October 2014.
(f) Movement in Conditional share awards
Consolidated Opening balance at 1 January 2013 Granted during the year Awarded during the year Forfeited during the year Closing balance as at 31 December 2013 Exercisable as at 31 December 2013
Grant of Conditional Share Awards on 3 Jun 2008 1,085,000 - (550,000) - 535,000 -
Grant of Conditional Share Awards on 8 Apr 2009 145,000 - - - 145,000 -
Grant of Conditional Share Awards on 9 Jul 2010 1,277,666 - (216,666) - 1,061,000 -
Grant of Conditional Share Awards on 12 Nov 2010 139,854 - (139,854) - - -
Grant of Conditional Share Awards on 6 Apr 2011 366,000 - (2,000) (39,000) 325,000 -
Grant of Conditional Share Awards on 5 Jul 2011 341,082 - - (111,082) 230,000 -
Grant of Conditional Share Awards on 22 Nov 2011 150,000 - (100,000) - 50,000 -
Grant of Conditional Share Awards on 5 Dec 2011 84,800 - - (6,800) 78,000 -
Grant of Conditional Share Awards on 25 Apr 2012 1,708,090 - (263,030) (5,000) 1,440,060 -
Grant of Conditional Share Awards on 16 Jul 2012 660,000 - (660,000) - - -
Grant of Conditional Share Awards on 5 Oct 2012 175,000 - - (10,000) 165,000 -
Grant of Conditional Share Awards on 4 Dec 2012 1,868,364 - (620,788) (985,915) 261,661 -
Grant of Conditional Share Awards on 9 Jul 2013 - 176,000 - - 176,000 -
8,000,856 176,000 (2,552,338) (1,157,797) 4,466,721 -
Weighted Average Exercise Price (cents per award) 1.00 1.00 1.00 1.00 1.00 -
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 12 Nov 2010 - - - - - -
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 16 Jul 2012 - - - - - -
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
(g) Conditional Share Awards Contractual Life
The weighted average remaining contractual life of outstanding Conditional
awards is 13.5 years (2013: 14.5 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 $27,000
as at 31 December 2014.
31 Dec 2014 31 Dec 2013
Note $'000 $'000
Operating Leases:
Within one year 27 122
After one year but not more than five years - -
Greater than five years - -
27 122
(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 2014 31 Dec 2013
Note $'000 $'000
Production Sharing Contract Fees:
Within one year 1,677 779
After one year but not more than five years 835 336
Greater than five years - -
2,512 1,115
Minimum Exploration Work Obligations:
Within one year 7,515 22,758
Greater than one year but no more than two years 18,815 -
Greater than two years but no more than three years 18,056 11,300
Greater than three years but no more than four years - 10,299
Greater than five years - -
44,386 44,357
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, cumulative expenditures for Blocks IV and
V are currently below the minimum PSC commitment at the end of 31 December
2014 by $22.5 million. Under the new petroleum law, the initial exploration
term has been extended from five to eight years, without any additional
expenditure commitments required to be made; the Company therefore has the
years 2015 - 2017 to fulfil the shortfall at the end of 2014. Accordingly, the
deficit at end of 31 December 2014 has been allocated over the final three
years (2015-2017) of the initial exploration period for the Blocks IV and V
PSCs. Further, the relevant authorities have agreed to defer the fulfilling of
PSC fee payments until July 2015.
The successful completion of the farm-out of a portion of the Company's Blocks
IV and V interests will result in sufficient expenditures in those blocks to
fully satisfy all outstanding commitments over the remaining initial
exploration term of the PSCs, which runs until July 2017. The majority of the
expenditure in the Blocks will occur in 2015 and 2016.
(b) Exploration expenditure commitments (continued)
In relation to Block XX, expenditure in prior years has significantly exceeded
minimum PSC commitments and the Company has the option to reduce its spending
in Block XX until June 2015. Beyond June 2015, the company will have to
arrange for alternative sources of funding (ie capital raising and/or and
farm-out arrangements) to fund the future exploration expenditure commitments
of $21.8 million due by July 2017.
In event that the Company is unable to complete a successful farm-out or agree
a moratorium with the relevant authorities for Blocks, the Company would have
an obligation to pay the underspent amount of its minimum obligation
commitments at the end of the PSC contract period.
Petromatad Invest Limited and Capcorp can voluntarily relinquish their rights
under the PSCs, if the minimum work obligations are completed.
(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 2014 2013
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.
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 2014 31 Dec 2013
$'000 $'000
Petrovis' subscription for shares in Petro Matad Limited - 5,000
Petrovis Matad Inc. is a major shareholder of the Company, currently holding
approximately 33% 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 2013 and 2014, 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 Deputy
Chairperson Appointed Chairperson 27 November 2014
Mary Ellen Collins Non-Executive Director
Not re-appointed 21 November 2014
Enkhmaa Davaanyam Non-Executive Director
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 Non-Executive Director
On 31 December 2013, Ridvan Karpuz retired from his executive role as Director
of Exploration, while continuing on in a role as a Non-Executive Director.
(b) Compensation of Directors
31 Dec 2014 31 Dec 2013
Note $'000 $'000
Short-term employee benefits 646 1,348
Post-employment benefits - -
Share based payment expense 499 584
1,145 1,932
(c) Other key management personnel transactions
There were no other key management personnel transactions during the year
(2013: Nil).
Notes to the Consolidated Financial Statements
For the year ended 31 December 2014
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 2014 31 Dec 2013
Weighted Average Int. rate $'000 $'000
Financial Assets
Cash and cash equivalents 3.74% 895 3,308
895 3,308
Financial Liabilities
Trade and other payables 0% 1,353 718
1,353 718
Net exposure (458) 2,590
Sensitivity Analysis
If the interest rate on cash balances at 31 December 2013 and 2014
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 2014 2013 2014 2013
Mongolian Tugrug ("MNT") 1 1,817.27 1,523.27 1,888.44 1,659.34
Australian Dollar ("AUD") 1 1.10970 1.03730 1.22600 1.12690
Great British Pound ("GBP") 1 0.60730 0.64020 0.64380 0.60650
Sensitivity Analysis
A 5% strengthening/weakening of the MNT against USD at 31 December 2013 and
2014 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 2014 31 Dec 2013
Note $'000 $'000
Financial Assets
Trade and other receivables 8 241 310
Net exposure 241 310
Impairment Losses:
None of the Group's receivables are past due at 31 December 2014 (2013: 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 2014 31 Dec 2013
Note $'000 $'000
6 months or less 1,318 718
6-12 months 35 -
1-5 years - -
over 5 years - -
1,353 718
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 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
Fair Value Hierarchy as at 31 December 2013
Level 1 Level 2 Level 3 Total
Financial Assets
Trade and other receivables - 310 - 310
Total - 310 - 310
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