REG - Rockhopper Exp plc - Annual Results for the year ended 31 December 2016 <Origin Href="QuoteRef">RKH.L</Origin> - Part 2
11/04/2017 07:07
- Part 2: For the preceding part double click ID:nRSK1312Ca
accounting policies set out below. These policies have been
consistently applied unless otherwise stated.
These consolidated financial statements have been prepared under the
historical cost convention except, as set out in the accounting policies
below, where certain items are included at fair value.
Items included in the results of each of the Group's entities are measured in
the currency of the primary economic environment in which that entity operates
(the "functional currency").
All values are rounded to the nearest thousand dollars ($'000) or thousand
pounds (£'000), except when otherwise indicated.
1.4 change in accounting policy
Changes in accounting standards
In the current year new and revised standards, amendments and interpretations
were effective and are applicable to the consolidated financial statements of
the Group but did not affect amounts reported in these financial statements.
At the date of authorisation of this report the following standards and
interpretations, which have not been applied in this report, were in issue but
not yet effective.
· IFRS9 Financial Instruments (effective date for annual periods
beginning on or after 1 January 2018);
· IFRS15 Revenue from Contracts with customers (effective date for annual
periods beginning on or after 1 January 2018);
· IFRS16 Leases (effective date for annual periods beginning on or after
1 January 2019);
Management does not believe that the application of these standards will have
a material impact on the financial statements.
1.5 Going concern
At 31 December 2016, the Group had available cash and term deposits of $81
million. In addition the first phase of the Group's main development, Sea
Lion, is fully funded from sanction through a combination of Development
Carries and a loan facility from the operator.
It is for these reasons that the board is of the opinion, at the time of
approving the financial statements, that the Group and Company has adequate
resources to continue in operational existence for the foreseeable future,
being at least twelve months from the date of approval of the financial
statements. For this reason, the board has adopted the going concern basis in
preparation of the financial statements.
1.6 Significant accounting policies
(a) Basis of accounting
The Group has identified the accounting policies that are most significant to
its business operations and the understanding of its results. These accounting
policies are those which involve the most complex or subjective decisions or
assessments, and relate to the capitalisation of exploration expenditure. The
determination of this is fundamental to the financial results and position and
requires management to make a complex judgment based on information and data
that may change in future periods.
Since these policies involve the use of assumptions and subjective judgments
as to future events and are subject to change, the use of different
assumptions or data could produce materially different results. The
measurement basis that has been applied in preparing the results is historical
cost with the exception of financial assets, which are held at fair value.
The significant accounting policies adopted in the preparation of the results
are set out below.
(b) Basis of consolidation
The consolidated financial statements include the results of Rockhopper
Exploration plc and its subsidiary undertakings to the balance sheet date.
Where subsidiaries follow differing accounting policies from those of the
Group, those accounting policies have been adjusted to align with those of the
Group. Inter-company balances and transactions between Group companies are
eliminated on consolidation, though foreign exchange differences arising on
inter-company balances between subsidiaries with differing functional
currencies are not offset.
(c) Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision maker as required by IFRS8
Operating Segments. The chief operating decision maker, who is responsible for
allocating resources and assessing performance of the operating segments, has
been identified as the board of directors.
The Group's operations are made up of three segments, the oil and gas
exploration activities in the geographical regions of the Falkland Islands and
the Greater Mediterranean region as well as its corporate activities centered
in the UK.
(d) Oil and Gas Assets
The Group applies the successful efforts method of accounting for exploration
and evaluation ("E&E") costs, having regard to the requirements of IFRS6 -
'Exploration for and evaluation of mineral resources'.
Exploration and evaluation ("E&E") expenditure
Expensed exploration & evaluation costs
Expenditure on costs incurred prior to obtaining the legal rights to explore
an area, geological and geophysical costs are expensed immediately to the
income statement.
Capitalised intangible exploration and evaluation assets
All directly attributable E&E costs are initially capitalised in well, field,
prospect, or other specific, cost pools as appropriate, pending
determination.
Treatment of intangible E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each cost pool are carried forward until the
existence, or otherwise, of commercial reserves have been determined, subject
to certain limitations including review for indications of impairment. If
commercial reserves have been discovered, the carrying value, after any
impairment loss, of the relevant E&E assets, are then reclassified as
development and production assets within property plant and equipment.
However, if commercial reserves have not been found, the capitalised costs are
charged to expense.
The Group's definition of commercial reserves for such purpose is proved and
probable reserves on an entitlement basis. Proved and probable reserves are
the estimated quantities of crude oil, natural gas and natural gas liquids
which geological, geophysical and engineering data demonstrate with a
specified degree of certainty (see below) to be recoverable in future years
from known reservoirs and which are considered commercially producible. There
should be a 50% statistical probability that the actual quantity of
recoverable reserves will be more than the amount estimated as proved and
probable. The equivalent statistical probabilities for the proven component of
proved and probable reserves are 90%.
Such reserves may be considered commercially producible if management has the
intention of developing and producing them and such intention is based upon:
- a reasonable assessment of the future economics of such production;
- a reasonable expectation that there is a market for all or substantially all
the expected hydrocarbon production;
- evidence that the necessary production, transmission and transportation
facilities are available or can be made available; and
- the making of a final investment decision.
Furthermore:
(i) Reserves may only be considered proved and probable if producibility is
supported by either actual production or a conclusive formation test. The area
of reservoir considered proved includes: (a) that portion delineated by
drilling and defined by gas-oil and/or oil-water contacts, if any, or both;
and (b) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geophysical, geological and engineering data. In the absence of information on
fluid contacts, the lowest known structural occurrence of hydrocarbons
controls the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application of
improved recovery techniques (such as fluid injection) are only included in
the proved and probable classification when successful testing by a pilot
project, the operation of an installed programme in the reservoir, or other
reasonable evidence (such as, experience of the same techniques on similar
reservoirs or reservoir simulation studies) provides support for the
engineering analysis on which the project or programme was based.
Development and production assets
Development and production assets, classified within property, plant and
equipment, are accumulated generally on a field-by-field basis and represent
the costs of developing the commercial reserves discovered and bringing them
into production, together with the E&E expenditures incurred in finding
commercial reserves transferred from intangible E&E assets.
Depreciation of producing assets
The net book values of producing assets are depreciated generally on a
field-by-field basis using the unit-of-production method by reference to the
ratio of production in the year and the related commercial reserves of the
field, taking into account the future development expenditure necessary to
bring those reserves into production.
Disposals
Net cash proceeds from any disposal of an intangible E&E asset are initially
credited against the previously capitalised costs. Any surplus proceeds are
credited to the income statement.
Decommissioning
Provision for decommissioning is recognised in full when the related
facilities are installed. The amount recognised is the present value of the
estimated future expenditure. A corresponding amount equivalent to the
provision is also recognised as part of the cost of the related oil and gas
property. This is subsequently depreciated as part of the capital costs of the
production facilities. Any change in the present value of the estimated
expenditure is dealt with prospectively as an adjustment to the provision and
the oil and gas property. The unwinding of the discount is included in finance
cost.
(E) Capital commitments
Capital commitments include all projects for which specific board approval has
been obtained up to the reporting date. Projects still under investigation for
which specific board approvals have not yet been obtained are excluded.
(F) Foreign currency translation
Functional and presentation currency:
Items included in the results of each of the Group's entities are measured
using the currency of the primary economic environment in which the entity
operates, the functional currency. The consolidated financial statements are
presented in US$ as this best reflects the economic environment of the oil
exploration sector in which the Group operates. The Group maintains the
accounts of the parent and subsidiary undertakings in their functional
currency. Where applicable, the Group translates subsidiary accounts into the
presentation currency, US$, using the closing rate method for assets and
liabilities which are translated at the rate of exchange prevailing at the
balance sheet date and rates at the date of transactions for income statement
accounts. Differences are taken directly to reserves.
Transactions and balances:
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions
and from the translation at year end exchange rates of monetary assets and
liabilities denominated in foreign currencies are capitalised in the income
statement, except when deferred in equity as qualifying cash flow hedges and
qualifying net investment hedges.
The period end rates of exchange actually used were:
31 Dec 2016 31 Dec 2015
£ : US$ 1.22 1.48
E : US$ 1.05 1.09
(g) Revenue and income
(i) Revenue
Revenue arising from the sale of goods is recognized when the significant
risks and rewards of ownership have passed to the buyer, which is typically at
the point that title passes, and the revenue can be reliably measured. Revenue
is measured at the fair value of the consideration received or receivable and
represents amounts receivable for goods provided in the normal course of
business, net of discounts, customs duties and sales taxes.
(ii) Investment income
Investment income consists of interest receivable for the period. Interest
income is recognised as it accrues, taking into account the effective yield on
the investment.
(h) NON-DERIVATIVE Financial instruments
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group has become a party to the contractual provisions
of the instrument.
(i) Other receivables
Other receivables are classified as loans and receivables and are initially
recognised at fair value. They are subsequently measured at their amortised
cost using the effective interest method less any provision for impairment. A
provision for impairment is made where there is objective evidence that
amounts will not be recovered in accordance with original terms of the
agreement. A provision for impairment is established when the carrying value
of the receivable exceeds the present value of the future cash flow discounted
using the original effective interest rate. The carrying value of the
receivable is reduced through the use of an allowance account and any
impairment loss is recognised in the income statement.
(ii) Term deposits
Term deposits are disclosed separately on the face of the balance sheet when
their term is greater than three months and they are unbreakable.
(iii) Restricted cash
Restricted cash is disclosed separately on the face of the balance sheet and
denoted as restricted when it is not under the exclusive control of the
Group.
(iv) Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and at bank and other
short-term deposits held by the Group including breakable and unbreakable
deposits with terms of less than three months and breakable term deposits of
greater terms than three months where amounts can be accessed within three
months without material loss. They are stated at carrying value which is
deemed to be fair value.
(v) Financial liabilities and equity
Financial liabilities and equity instruments are classified according to the
substance of the contractual arrangements entered into. An equity instrument
is any contract that evidences a residual interest in the assets of the Group
after deducting all of its liabilities.
(vi) Account and other payables
Account payables are initially recognised at fair value and subsequently at
amortised cost using the effective interest method.
(vii) Equity instruments
Equity instruments issued by the Company are recorded at the proceeds
received, net of direct issue costs.
(I) INCOME TAXES AND DEFERRED TAXATION
The current tax expense is based on the taxable profits for the period, after
any adjustments in respect of prior years. Tax, including tax relief for
losses if applicable, is allocated over profits before tax and amounts charged
or credited to reserves as appropriate.
Deferred taxation is recognised in respect of all taxable temporary
differences that have originated but not reversed at the balance sheet date
where a transaction or events have occurred at that date that will result in
an obligation to pay more, or a right to pay less or to receive more, tax,
with the exception that deferred tax assets are recognised only to the extent
that the directors consider that it is probable that there will be suitable
taxable profits from which the future reversal of the underlying temporary
differences can be deducted.
Deferred tax is measured on an undiscounted basis at the tax rates that are
expected to apply in the periods in which temporary differences reverse, based
on tax rates and laws enacted or substantively enacted at the balance sheet
date.
(j) Share based remuneration
The Group issues equity settled share based payments to certain employees.
Equity settled share based payments are measured at fair value (excluding the
effect of non market based vesting conditions) at the date of grant. The fair
value determined at the grant date of the equity settled share based payments
is expensed on a straight line basis over the vesting period, based on the
Group's estimate of shares that will eventually vest and adjusted for non
market based vesting conditions.
Fair value is measured by use of either Binomial or Monte-Carlo simulation.
The main assumptions are disclosed in note 9.
Cash settled share based payment transactions result in a liability. Services
received and liability incurred are measured initially at fair value of the
liability at grant date, and the liability is remeasured each reporting period
until settlement. The liability is recognised on a straight line basis over
the period that services are rendered.
2 Use of estimates, assumptions and judgements
The Group makes estimates, assumptions and judgements that affect the reported
amounts of assets and liabilities. Estimates, assumptions and judgements are
continually evaluated and based on historical experience and other factors,
including expectations of future events that are believed to be reasonable
under the circumstances.
The key assumptions concerning the future, and other key sources of estimation
uncertainty at the balance sheet date, that have a significant risk of causing
a material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are discussed below.
Carrying value of intangible exploration and evaluation assets (note 14) and
property, plant and equipment (note 15)
The amounts for intangible exploration and evaluation assets represent active
exploration and evaluation projects. These amounts will be written off to the
income statement as exploration costs unless commercial reserves are
established or the determination process is not completed and there are
indications of impairment in accordance with the Group's accounting policy.
In addition for assets under evaluation where discoveries have been made, such
as Sea Lion, and property plant and equipment assets their carrying value is
checked by reference to the net present value of future cashflows which
requires key assumptions and estimates in relation to: commodity prices that
are based on forward curves for a number of years and the long-term corporate
economic assumptions thereafter, discount rates that are adjusted to reflect
risks specific to individual assets, the quantum of commercial reserves and
the associated production and cost profiles. Future development costs are
estimated taking into account the level of development required to produce the
reserves by reference to operators, where applicable, and internal engineers.
Carrying value of goodwill (note 16)
Following the acquisition of Mediterranean Oil & Gas plc during 2014,
Rockhopper recognised goodwill in line with the requirements of IFRS 3-
Business Combinations. Management performs annual impairment tests on the
carrying value of goodwill and the Greater Mediterranean CGU that the goodwill
is attributed to. The calculation of the recoverable amount is based on the
likely future economic benefits of the exploration and evaluation assets in
the acquired portfolio and is based on estimated value of the potential and
actual discoveries as noted above.
Decommissioning costs (note 22)
Decommissioning costs are uncertain and cost estimates can vary in response to
many factors, including changes to the relevant legal requirements, the
emergence of new technology or experience at other assets. The expected
timing, work scope and amount of expenditure may also change. Therefore
significant estimates and assumptions are made in determining the provision
for decommissioning. The estimated decommissioning costs are reviewed annually
by an external expert and the results of the most recent available review used
as a basis for the amounts in the Financial Statements. Provision for
environmental clean-up and remediation costs is based on current legal and
contractual requirements, technology and price levels.
Fair value on acquisition (note 29)
Following the acquisition of Falkland Oil and Gas Limited ("FOGL") assets and
liabilities acquired and the fair value allocation in accordance with the
provisions of "IFRS3 - Business Combinations" has been determined. Inherently
determining fair values, particularly of intangible exploration and evaluation
assets, is subjective. The valuation was based on the $ per barrel multiples
applied in similar transactions in the market place involving similar early
stage development assets. Not all factors in any particular transaction may be
known and the market provides only a range of possible values. For
reasonableness, this fair value was compared and supported by the net present
value of future cashflows which requires key assumptions and estimates in
relation to: commodity prices that are based on forward curves for a number of
years and the long-term corporate economic assumptions thereafter, discount
rates that are adjusted to reflect risks specific to individual assets, the
quantum of commercial reserves and the associated production and cost
profiles.
3 Revenue and segmental information
Year ended 31 December 2016
Falkland Greater
Islands Mediterranean Corporate Total
$'000 $'000 $'000 $'000
Revenue - 7,417 - 7,417
Cost of sales - (7,667) - (7,667)
Gross loss - (250) - (250)
Exploration and evaluation expenses (35) (7,427) (775) (8,237)
Costs in relation to acquisition and group restructuring - (1,350) (1,179) (2,529)
Other administrative costs - (2,557) (4,884) (7,441)
Total administrative expenses - (3,907) (6,063) (9,970)
Excess of fair value over cost 111,842 - - 111,842
Charge for share based payments - - (994) (994)
Foreign exchange movement 8,292 27 (2,640) 5,679
Results from operating activities and other income 120,099 (11,557) (10,472) 98,070
Finance income - - 307 307
Finance expense - (325) (8) (333)
Profit/(loss) before tax 120,099 (11,882) (10,173) 98,044
Tax - - - -
Profit /(loss) for year 120,099 (11,882) (10,173) 98,044
Reporting segments assets 424,867 36,369 92,953 554,189
Reporting segments liabilities 77,952 18,968 30,275 127,195
Depreciation - 4,529 196 4,725
Year ended 31 December 2015
Falkland Greater
Islands Mediterranean Corporate Total
$'000 $'000 $'000 $'000
Revenue - 3,966 - 3,966
Cost of sales - (11,049) - (11,049)
Gross loss - (7,083) - (7,083)
Exploration and evaluation expenses (52) (22,382) (500) (22,934)
Costs in relation to acquisition and restructuring - - (1,544) (1,544)
Other administrative costs - (1,943) (7,408) (9,351)
Total administrative expenses - (1,943) (8,952) (10,895)
Charge for share based payments - - (1,937) (1,937)
Foreign exchange movement 1,990 196 (259) 1,927
Results from operating activities and other income 1,938 (31,212) (11,648) (40,922)
Finance income - - 975 975
Finance expense (4,354) (396) - (4,750)
Loss before tax (2,416) (31,608) (10,673) (44,697)
Tax 55,391 4 - 55,395
Profit/(loss) for period 52,975 (31,604) (10,673) 10,698
Reporting segments assets 251,424 37,687 110,482 399,593
Reporting segments liabilities 86,542 25,978 24,839 137,359
Depreciation - 2,468 276 2,744
4 Cost of sales
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
Cost of sales 4,373 2,951
Depreciation of oil and gas assets 4,499 2,449
(Reversal of) impairment loss of oil and gas assets - 5,649
Other non-cash movements (1,205) -
7,667 11,049
5 exploration and evaluation expenses
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
Allocated from administrative expenses (see note 6) 754 310
Capitalised exploration costs impaired (see note 14) 3,549 22,335
Other exploration and evaluation expenses 3,957 318
Amounts recharged to partners (23) (29)
8,237 22,934
6 Administrative expenses
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
Directors' salaries and fees, including bonuses (see note 7) 2,469 3,008
Other employees' salaries 3,157 3,975
National insurance costs 1,098 1,377
Pension costs 1,337 455
Employee benefit costs 333 180
Total staff costs (including group restructuring costs) 8,394 8,995
Amounts reallocated (3,375) (4,438)
Total staff costs charged to administrative expenses 5,019 4,557
Costs in relation to acquisition 1,179 1,544
Auditor's remuneration (see note 8) 278 293
Other professional fees 1,832 1,962
Other 2,905 3,185
Depreciation 283 352
Amounts reallocated (1,526) (998)
9,970 10,895
The average number of staff employed during the year was 31 (31 December 2015:
39). The relative decrease between years reflects the restructuring of the
Greater Mediterranean operation. As at 31 December 2016 the number of staff
employed had reduced to 25 following a review of staffing levels.
Amounts reallocated relate to the costs of staff and associated overhead in
relation to non administrative tasks. These costs are allocated to exploration
and evaluation expenses or capitalised as part of the intangible exploration
and evaluation assets as appropriate.
7 directors' remuneration
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
Executive salaries 1,283 1,497
Executive bonuses 508 1,013
Company pension contributions to money purchase schemes 139 150
Benefits 52 33
Non-executive fees 487 498
Gain on exercise of share options - 946
2,469 4,137
Gain on exercise of share options during the prior period relates to the
exercise by two Directors of the Company of 3,000,000 shares in the Company at
an exercise price of 42 pence per share. The options were due to expire during
the year.
The total remuneration of the highest paid director was:
Year ended31 Dec 16 Year ended31 Dec 15
£ £
Annual salary 362,100 362,100
Bonuses 153,900 253,470
Money purchase pension schemes 44,600 36,210
Benefits 14,361 7,069
Gain on exercise of share options - 318,750
574,961 977,599
Interest in outstanding share options and SARs, by director, are separately
disclosed in the directors' remuneration report.
8 Auditor's remuneration
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
KPMG LLP
Fees payable to the Company's auditor for the audit of the Company's annual financial statements 148 152
Fees payable to the Company's auditor and its associates for other services:
Audit of the accounts of subsidiaries 79 82
Half year review 41 48
Tax compliance services 10 11
278 293
9 Share based Payments
The charge for share based payments relate to options granted to employees of
the Group.
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
Charge for the long term incentive plan options 934 1,796
Charge for shares issued under the SIP throughout the year 60 141
994 1,937
The models and key assumptions used to value each of the grants and hence
calculate the above charges are set out below:
Long term incentive plan
During 2013 a long term incentive plan ("LTIP") was approved by shareholders.
The LTIP is operated and administered by the Remuneration Committee. During
the year a number of LTIP awards ('Awards'), structured as nil cost options,
were granted to executive directors and senior staff.
LTIP awards will generally only vest or become exercisable subject to the
satisfaction of a performance condition measured over a three year period
("Performance Period") determined by the Remuneration Committee at the time of
grant. The performance conditions must contain objective conditions, which
must be related to the underlying financial performance of the Company. The
current performance condition used is based on Total Shareholder Return
("TSR") measured over a three-year period against the TSR of a peer group of
at least 9 other oil and gas companies comprising both FTSE 250, larger AIM
oil and gas companies and Falkland Islands focused companies ("Peer Group").
The Peer Group for the Awards may be amended by the Remuneration Committee at
their sole discretion as appropriate.
Performance measurement for the Awards are based on the average price over the
relevant 90 day dealing period measured against the 90 dealing day period
three years later. Awards will typically vest on a sliding scale from 35% to
100% for performance in the top two quartiles of the Peer Group. Certain
awards have an escalator applied which means that they vest in excess of 100%
if the Company is the top or second highest performer in the Peer Group. No
awards will vest for performance in the bottom two quartiles.
The Awards granted on 8 October 2013 and 10 March 2014 had an additional
performance condition so that no awards would vest if the Company's share
price did not exceed £1.80 based on the average price over the 90 day dealing
period up to 31 March 2016. The Remuneration Committee has exercised its
discretion to vary the performance condition so that the period for
achievement of the£1.80 hurdle rate is extended to 31 March 2023. As a result,
any LTIP awards that would have vested on 31 March 2016 will not be
exercisable unless the Company's share price exceeds £1.80 based on an average
price over any 90 day dealing period up to 31 March 2023. At the same time,
the Remuneration Committee agreed to remove its discretion to allow vesting
for performance in the third quartile for all existing and future LTIP
awards.
The LTIP has been valued using a Monte Carlo model the key inputs of which are
summarised below
Grant date: 22 Apr 2016 13 Apr 2015 13 Oct 14 13 Oct 14 10 Mar 14 8 Oct 13
Closing share price 31.5p 64.0p 76.0p 76.0p 115.0p 131.0p
Minimum exercise/base price N/A N/A N/A N/A 180p 180p
Escalation applied for being best of peer group N/A N/A N/A 33% N/A N/A
Escalation applied for being second of peer group N/A N/A N/A 29% N/A N/A
Number granted 10,047,885 4,111,838 1,063,750 2,382,581 201,117 1,757,786
Weighted average volatility 60.4% 44.5% 36.5% 36.5% 60.1% 60.1%
Weighted average volatility of index 71.2% 55.8% 42.2% 42.2% 62.0% 62.0%
Weighted average risk free rate 0.58% 0.70% 1.27% 1.27% 0.30% 0.30%
Correlation in share price movement with comparator group 27.5% 33.5% 32.0% 32.0% 49.0% 49.0%
Exercise price 0p 0p 0p 0p 0p 0p
Dividend yield 0% 0% 0% 0% 0% 0%
The following movements occurred during the year:
At 31 December At 31 December
Issue date Expiry date 2015 Issued Lapsed 2016
8 October 2013 8 October 2023 1,560,418 - (1,014,273) 546,145
10 March 2014 10 March 2024 201,117 - (130,726) 70,391
13 October 2014 13 October 2024 3,446,331 - (404,143) 3,042,188
13 April 2015 13 April 2025 4,111,838 - (383,303) 3,728,535
22 April 2016 22 April 2026 - 10,047,885 - 10,047,885
9,319,704 10,047,885 (1,932,445) 17,435,144
Share incentive plan
The Group has in place an HMRC approved Share Incentive Plan ("SIP"). The SIP
allows the Group to award Free Shares to UK employees (including directors)
and to award shares to match Partnership Shares purchased by employees,
subject to HMRC limits.
Throughout this and the prior year the Group issued two Matching Shares for
every Partnership Share purchased.
In the year the Group made a free award of £50,997 (year ended 31 December
2015 £49,547) worth of Free Shares to eligible employees.
This resulted in 177,772 (year ended 31 December 2015:92,277) Free Shares and
216,778 (year ended 31 December 2015:99,456) Matching Shares being issued
under the SIP in the period.
31 Dec 31 Dec
2015 2015
The average fair value of the shares awarded (pence) 29 52
Vesting 100% 100%
Dividend yield Nil Nil
Lapse due to withdrawals Nil Nil
The fair value of the shares awarded will be spread over the expected vesting
period.
Share appreciation rights
A share appreciation right ("SAR") is effectively a share option that is
structured from the outset to deliver, on exercise, only the net gain in the
form of new ordinary shares that would have been made on the exercise of a
market value share option.
No consideration is payable on the grant of a SAR. On exercise, an option
price of 1 pence per ordinary share, being the nominal value of the Company's
ordinary shares, is paid and the relevant awardee will be issued with ordinary
shares with a market value at the date of exercise equivalent to the notional
gain that the awardee would have made, being the amount by which the aggregate
market value of the number of ordinary shares in respect of which the SAR is
exercised, exceeds a notional exercise price, equal to the market value of the
shares at the time of grant (the "base price"). The remuneration committee has
discretion to settle the exercise of SARs in cash.
The following movements occurred during the period on SARs:
Exercise price At 31 Dec At 31 Dec
Issue date Expiry date (pence) 2015 Exercised Lapsed 2016
22 November 2008 22 November 2018 19.25 355,844 - - 355,844
3 July 2009 3 July 2019 30.87 103,368 - - 103,368
11 January 2011 11 January 2021 372.75 212,641 - - 212,641
14 July 2011 14 July 2021 239.75 43,587 - - 43,587
16 August 2011 16 August 2021 237.00 17,035 - - 17,035
13 December 2011 13 December 2021 240.75 29,594 - - 29,594
17 January 2012 17 January 2022 303.75 291,531 - - 291,531
30 January 2013 30 January 2023 159.00 366,931 - - 366,931
1,420,531 - - 1,420,531
10 FOREign Exchange
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
Foreign exchange gain on Falkland Islands tax liability 8,290 1,990
Foreign exchange loss on term deposits, cash and restricted cash (2,103) (69)
6,187 1,921
Foreign exchange on operating activities (508) 6
Total net foreign exchange gain 5,679 1,927
11 FINANCE INCOME AND EXPENSE
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
Bank and other interest receivable 307 975
Total finance income 307 975
Unwinding of discount on provisions 300 378
Unwinding of discount on long term tax liability - 4,347
Other 33 25
Total finance expense 333 4,750
12 Taxation
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
Current tax:
Overseas tax - 9
Adjustment in respect of prior years - (55,405)
Total current tax - (55,396)
Deferred tax:
Overseas tax - 1
Total deferred tax - note 23 - 1
Tax on profit on ordinary activities - (55,395)
Profit / (loss) on ordinary activities before tax 98,044 (44,697)
Profit / (loss) on ordinary activities multiplied at 26% weighted average rate (31 December 2015: 26%) 25,491 (11,621)
Effects of:
Income and gains not subject to taxation (32,055) -
Expenditure not deductible for taxation 253 10,365
Depreciation in excess of capital allowances (349) (597)
IFRS2 Share based remuneration cost 216 174
Losses carried forward 6,894 2,537
Effect of tax rates in foreign jurisdictions (436) (539)
Adjustments in respect of prior years - (55,405)
Other (14) (309)
Tax (credit)/charge for the year - (55,395)
On the 8 April 2015 the Group agreed binding documentation ("Tax Settlement
Deed") with the Falkland Island Government ("FIG") in relation to the tax
arising from the Group's farm out to Premier Oil plc ("Premier"). As such the
Group is able to defer this tax liability under Extra Statutory Concession 16.
As it is deferred, the liability is classified as non-current and discounted.
Additional information is given in Note 21 Tax payable.
The total carried forward losses and carried forward pre trading expenditures
available for relief on commencement of trade are as follows:
Year ended31 Dec 16 Year ended31 Dec 15
$'000 $'000
UK 59,529 53,161
Falkland Islands 123,732 127,388
Italy 54,051 19,917
Egypt 3,010 -
No deferred tax asset has been recognised in respect of temporary differences
arising on losses carried forward, outstanding share options or depreciation
in excess of capital allowances due to the uncertainty in the timing of
profits and hence future utilisation.
13 Basic and diluted loss per share
31 Dec 16 31 Dec 15
Number Number
Shares in issue brought forward 296,579,834 292,805,453
Shares issued
- Issued in relation to acquisitions 159,684,668 -
- Issued in relation to share options - 3,532,920
- Issued under the SIP 394,550 241,461
Shares in issue carried forward 456,659,052 296,579,834
Weighted average number of Ordinary Shares for the purposes of basic earnings per share 446,106,108 293,442,707
Effects of dilutive potential Ordinary shares
Contingently issuable shares - 321,330
446,106,108 293,764,037
$'000 $'000
Net profit after tax for purposes of basic and diluted earnings per share 98,044 10,698
Earnings per share - cents
Basic 21.98 3.65
Diluted 21.98 3.64
The average market value of the Company's shares for the purpose of
calculating the dilutive effect of share options was on quoted market prices
for the year during which the options were outstanding.
14 intangible exploration and evaluation assets
Falkland Greater
Islands Mediterranean Total
$'000 $'000 $'000
As at 31 December 2014 175,504 28,660 204,164
Additions 75,920 2,577 78,497
Written off to exploration costs - (22,335) (22,335)
Foreign exchange movement - (3,668) (3,668)
As at 31 December 2015 251,424 5,234 256,658
Acquisitions through business combinations 170,000 - 170,000
Asset additions - 5,772 5,772
Additions (2,840) 587 (2,253)
Written off to exploration costs - (3,549) (3,549)
Foreign exchange movement - (209) (209)
As at 31 December 2016 418,584 7,835 426,419
FALKLAND ISLANDS LICENCES
The Acquisition during the period of $170 million reflects the fair value of
the licences held by Falkland Oil & Gas Limited and its subsidiary,
principally being its 40% interest in the PL004 licences, further details are
given in note 29.
The additions during the period relate to $7.2 million of costs for the
exploration campaign in the North Falkland Basin including the exploration
successes at Zebedee and Isobel Deep. $17.2 million relates to the Sea Lion
development. These have been offset by $27.7 million as a result of insurance
proceeds received on a claim relating to costs incurred on the Isobel deep
well during the 2015/16 North Falkland Basin exploration campaign. This
reflects the total insurance proceeds of $48.5 million that was recognised as
receivable on acquisition of FOGL. These costs have been previously
capitalised.
The carrying value of phase 1 of the Sea Lion Development, a discovered asset
still under evaluation was checked for impairment by reference to a discounted
cashflow model. The key inputs to this model were a 2016 real terms oil price
of $75/bbl, a post-tax discount rate of 12.5% and utilising the operator's
current estimates of capital and operating costs and production profiles. The
project is targeting project sanction decision in mid 2018 (with such decision
dependent on funding) and is expected to take three and half years from
sanction to first oil. The remaining barrels in Sea Lion are expected to be
recovered along with those in near field discoveries in a second phase of the
development. This second phase has been checked for impairment in a similar
manner.
Sensitivity analysis was performed by, in turn, reducing oil price by $10/bbl,
reducing production by 10%, increasing capital expenditure by 10%, increasing
operating expenditure by 10% and delaying the development by one year. None of
these sensitivities would have led to an impairment charge in the year.
Costs associated with Isobel/Elaine discoveries and a potential phase 3
development are carried at cost and no indication of impairment currently
exist although the assets require further appraisal.
GREATER MEDITERRANEAN LICENCES
The asset additions in the period ($5.8 million) relate to the Egyptian
exploration assets acquired as part of the acquisition of Beach Petroleum
(Egypt) Pty Limited, further details are provided in note 29.
The additions during the period ($0.6 million) predominantly relate to work on
the Egyptian and Italian license interests.
As at the end of the prior year the costs associated with the Ombrina Mare
exploration permit were impaired due to the Italian Parliament approving the
2016 Budget Law which reintroduces restrictions on offshore oil and gas
activity including the general ban on exploration and production activity
within 12 nautical miles of the coast of Italy. The Budget Law came into force
on 1 January 2016 and directly affects the Ombrina Mare Field Area.
The Group was also informed by the Ministry of Economic Development that,
following the re-introduction of the ban, the Production Concession covering
the Ombrina Mare Field Area will not be awarded. This is despite the Ombrina
Mare project having completed all the required technical and environmental
authorisations.
Given the current legal position the decision was made to plug and abandon the
Ombrina Mare well, the unprovided costs associated with this activity have
been initially capitalised in intangible assets and then impaired.
Following the decision in February 2016 by the Ministry of Economic
Development not to award the Company a Production Concession covering the
Ombrina Mare field, in March 2017 the Company commenced international
arbitration proceedings against the Republic of Italy. Based on legal and
expert opinions, Rockhopper has been advised that it has strong prospects of
recovering very significant monetary damages as a result of the Republic of
Italy's breaches of the Energy Charter Treaty. Damages would be sought on the
basis of lost profits.
The write-off in relation to Ombrina Mare has been taken without prejudice to
the legal remedies that may be obtained through the legal proceedings against
the Republic of Italy and organs of the Italian State.
At the end of the year, following a review of the operator's technical
evaluation of the Maltese assets, the decision was made to relinquish the
licence. This was the main component of the $3.5 million written off to
exploration costs in the Greater Mediterranean region as all costs associated
with the licence were written off.
15 property, plant and equipment
Oil and gas Other Oil and gas Other
assets assets 31 Dec 16 assets assets 31 Dec 15
$'000 $'000 $'000 $'000 $'000 $'000
Cost brought forward 23,245 1,645 24,890 14,413 1,990 16,403
Acquisitions - 58 58 - - -
Asset additions 9,696 33 9,729 - - -
Additions 1,615 96 1,711 10,513 60 10,573
Foreign exchange (787) (7) (794) (1,681) (22) (1,703)
Disposals (1,391) (729) (2,120) - (383) (383)
Cost carried forward 32,378 1,096 33,474 23,245 1,645 24,890
Accumulated depreciation and impairment loss brought forward (11,208) (1,045) (12,253) (3,245) (1,012) (4,257)
Current year depreciation charge (4,499) (226) (4,725) (2,449) (295) (2,744)
Impairment loss - - - (5,649) - (5,649)
Foreign exchange 566 3 569 135 2 137
Disposals 310 650 960 - 260 260
Accumulated depreciation and impairment loss carried forward (14,831) (618) (15,449) (11,208) (1,045) (12,253)
Net book value brought forward 12,037 600 12,637 11,168 978 12,146
Net book value carried forward 17,547 478 18,025 12,037 600 12,637
All oil and gas property plant and equipment assets relate to the Greater
Mediterranean region, specifically producing assets in Italy and Egypt.
Asset additions in the period relate almost entirely to the addition of the
Abu Sennan production asset in Egypt which was acquired as part of the
acquisition of Beach Petroleum (Egypt) Pty Limited, further information is
provided in note 29.
Impairment testing was performed across the Group's oil and gas assets and was
calculated by comparing the future discounted cash flows expected to be
derived from production of commercial reserves (the value in use being the
recoverable amount) against the carrying value of the asset. The future cash
flows were estimated using a realised gas price assumption equal to existing
contracts in place and relevant forward curve in 2017 and 2018, and E0.25/sm3
in 2017 real terms thereafter and were discounted using a post-tax rate of
10%. Assumptions involved in the impairment
- More to follow, for following part double click ID:nRSK1312CcRecent news on Rockhopper Exploration
See all newsREG - Rockhopper Exp plc - Total Voting Rights
AnnouncementREG - Rockhopper Exp plc - Sea Lion Operator’s Update
AnnouncementREG - United Oil & Gas PLC Rockhopper Exp plc - Holding(s) in Company
AnnouncementREG - Rockhopper Exp plc United Oil & Gas PLC - Full and Final Settlement with United Oil and Gas
AnnouncementREG - Rockhopper Exp plc - Blocklisting Interim Update
Announcement