REG - Scirocco Energy PLC - Full-Year Results 2021
30/06/2022 18:45
For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20220630:nRSd9166Qa&default-theme=true
RNS Number : 9166Q Scirocco Energy PLC 30 June 2022
30 June 2022
Scirocco Energy plc
("Scirocco Energy" or "the Company")
Full-Year Results 2021
Scirocco Energy (AIM: SCIR), the AIM investing company targeting attractive
assets within the European sustainable energy and circular economy markets, is
pleased to announce its audited annual results for the period ended 31
December 2021.
The Annual Report & Accounts will be posted to the Company's website later
today, and physically to Shareholders, where appropriate. The Company will
shortly be posting its Notice of AGM and a further announcement will be made
in this regard as and when appropriate.
Period and Post-Period Highlights
· During 2021 the Group developed and progressed its strategy to
invest in sustainable energy assets
· In June 2021, the Group announced a joint venture investment in
EAG to support the acquisition of a portfolio of Anaerobic Digestion ("AD")
plants in Northern Ireland and the rest of the UK.
· In July obtained shareholder approval for the adoption of the new
investment policy
· In September, supported EAG's first acquisition - of 100% of
shares of Greenan Generation Limited ("GGL")
o Since completion the asset has performed very well exceeding EBITDA
forecasts.
· In Q1, sold significant part of its holding of Helium One plc
("HE1") realising £3.4m and leaving the Group's holding in HE1 as less than
1%.
· On 13 June 2022 (post period) the Group announced that it had
entered into a conditional binding agreement with Wentworth Resources plc
(AIM: WEN) to divest its 25% non-operated interest in the Ruvuma asset,
Tanzania, for a total consideration of up to US$16 million
· Proposed Transaction was approved by way of an ordinary
resolution at a General Meeting on 29th June 2022
Commenting on the Results, Alastair Ferguson, Non-Executive Chairman, said:
"The Group has made significant steps through the course of 2021 and into the
first half of 2022 to re-position itself as a renewables business focused on
delivering green energy solutions alongside generating revenue and returns for
our shareholders.
With the establishment of the Joint Venture with EAG, the Group has
demonstrated the ability to work with a management team to construct a
business with attractive growth prospects and follow on investment
opportunities. This is our template which as we move forward will be used in
other renewable energy assets.
With the sale of Ruvuma moving ahead following the vote in favour at the
General Meeting on 29th June 2022, the Group's resources are now released to
fund follow-on and new investments in the target space and elements of the
consideration will provide additional investing firepower as they arrive."
For further information:
Scirocco Energy plc +44 (0) 20 7466 5000
Tom Reynolds, CEO
Doug Rycroft, COO
Strand Hanson Limited, Nominated Adviser +44 (0) 20 7409 3494
James Spinney / Ritchie Balmer / Rory Murphy
WH Ireland Limited, Broker +44 (0) 0207 220 1666
Harry Ansell / Katy Mitchell
Buchanan, Financial PR +44 (0) 20 7466 5000
Ben Romney / Jon Krinks
The information contained within this announcement is considered to be inside
information prior to its release, as defined in Article 7 of the Market Abuse
Regulation No. 596/2014, and is disclosed in accordance with the Company's
obligations under Article 17 of those Regulations.
Chairman's Statement
On behalf of the Board of Directors, I hereby present the financial statements
of Scirocco Energy plc (the "Company") and its subsidiaries (the "Group") for
the year ended 31 December 2021.
2021 was a year of transition for the Group as we looked to accelerate our
strategic pivot into the renewable energy and climate technology sector. 2021,
like 2020 before, remained a challenging year for all companies in the energy
sector regardless of size primarily due to the global pandemic. I am confident
that the Group has made the correct decision in pursuing a strategy that looks
to capitalise on the macro-environmental factors driving at the heart of
investment in the "new world order" of greener energy solutions. In my
capacity as Non-Executive Chairman of the Group, I am pleased to provide a
review of the financial year for 2021, as well as the outlook for 2022. I
would also like to take this opportunity to thank shareholders for their
patience as we implement a refreshed strategy in a difficult environment.
Strategy and Portfolio
During 2021 the Group developed and progressed its strategy to invest in
sustainable energy assets through a number of workstreams including a review
of opportunities which meet the core target areas, obtaining shareholder
approval for the adoption of the new investment policy and executing its first
investment in a sustainable energy platform company - Energy Acquisitions
Group Limited ("EAG").
Tanzanian Legacy Assets - Ruvuma Disposal
In line with this strategy and previous guidance to the market the Group
continued the sales process for legacy assets in Tanzania which was launched
in 2020. Engagement took place throughout 2021 with various interested parties
although no transaction was agreed within the period.
On 13 June 2022 (post period) the Group announced that it had entered into a
conditional binding agreement with Wentworth Resources plc (AIM: WEN) to
divest its 25% non-operated interest in the Ruvuma asset, Tanzania, for a
total consideration of up to US$16 million comprised of.
· Initial consideration of US$3 million payable on completion of
the Proposed Transaction;
· US$3 million payable upon final investment decision being taken
by the parties to the Ruvuma Asset Production Sharing Agreement or the JOA as
the case may be;
· Deferred consideration of up to US$8 million payable in the form
of a 25% net revenue share from the point when Ruvuma commences delivery of
gas to the gas buyer;
· Contingent consideration of US$2 million payable on gross
production reaching a level equal to or greater than 50Bcf.
In addition Wentworth will provide Scirocco with a loan of up to $6,250,000 to
meet all cash calls pursuant to the Ruvuma JOA arising between 1 January 2022
and expected Completion date.
The first $3m to be drawn under the loan is interest free however any amounts
drawn in excess of $3m will incur interest at a rate of 7% per annum until
such time as the grant of the security in respect of the loan is approved by
the Minister for Energy in Tanzania.
The total consideration represents over a significant premium to Scirocco's
prevailing market capitalisation and the deal strengthens Scirocco's balance
sheet and, critically, removes the imminent need to raise capital to fund the
Ruvuma work programme.
Pursuant to Rule 15 of the AIM Rules for Companies, the Proposed Transaction
was presented for shareholder approval by way of an ordinary resolution at a
General Meeting scheduled for 29th June 2022, The resolution was approved by
63.44% of shareholders voting.
The Group began 2021 with a developing strategy to invest in sustainable
energy assets.
As part of this development in the strategy, Scirocco announced the
appointment of Mr Muir Miller to the Board on 18 March 2021. Muir brings a
wealth of skills and experience in the low carbon sector and has taken an
active role in the review of new opportunities in the transition energy space
as well as joining the board of EAG to assist in the stewardship of this
important asset.
During 2021 the Group sold a significant part of its holding of Helium One plc
("HE1") taking advantage of an attractive valuation offered in Q1. Scirocco
realised £3,406,805 from the sale of 17,841,300 HE1 shares in 2021 leaving
the Group's holding in HE1 as less than 1%. This capital allowed the Group to
make its first investment under the new strategy as well as funding the
ongoing development plan in Ruvuma.
In June 2021, the Group announced a joint venture investment in EAG to support
the acquisition of a portfolio of Anaerobic Digestion ("AD") plants in
Northern Ireland and the rest of the UK. This investment remained contingent
on a revised shareholder mandate for investment policy.
In July 2021, the Group presented the following new investment policy to
shareholders at the Annual General Meeting.
Scirocco's investing policy is to acquire a diverse portfolio of direct and
indirect interests in sustainable energy and circular economy assets within
the European energy market. The Board is seeking to invest in opportunities
which meet the following criteria:
· cash generative, with the potential to re-invest operational cash
flow in further growth;
· situated within the European energy space;
· acquisition targets within the low-carbon space, including
renewable energy, circular economy and energy storage and transfer sectors;
· assets which can attract the necessary investment capital, taking
appropriate account of growing investor sentiment towards ESG and SRI
indicators; and
· assets which deliver stable returns, with lower exposure to
global commodity prices.
The investment policy was approved with a supportive vote of 99.6% of those
voting.
Scirocco then supported EAG's first acquisition - of 100% of shares of Greenan
Generation Limited ("GGL") - which was completed in September 2021 and was
funded from the proceeds of sale of HE1 shares. Since completion the asset has
performed very well exceeding EBITDA forecasts.
In December 2021, the Group announced the agreement of an exclusivity and
supply arrangement with SEM Energy Limited to access technology which will
allow the processing of digestate material from Anaerobic Digestion ('AD')
plants into organic fertiliser. This provides EAG a significant lever to add
value to each of the AD plants it acquires as well as to third party AD plants
through the installation of merchant digestate management equipment.
Outlook
Scirocco is now well placed to capitalise on the broad range of investment
opportunities within the sustainable energy and circular economy sectors.
With the establishment of the Joint Venture with EAG, the Group has
demonstrated the ability to work with a management team to construct a
business with attractive growth prospects and follow on investment
opportunities. This is our template which as we move forward will be used in
other renewable energy assets.
With the sale of Ruvuma moving ahead following the vote in favour at the
General Meeting on 29 June 2022, the Group's resources are now released to
fund follow-on and new investments in the target space and elements of the
consideration will provide additional investing firepower as they arrive.
With respect to the Ruvuma interest, the Board expects to support Wentworth in
its effort to deliver a prompt completion of the transfer of ownership which
will deliver the first of a series of payments under the APA.
This now clears the way for the Group to aggressively pursue incremental
investment opportunities by supporting EAG as well as other platform
companies.
EAG has now signed up a further three investment sites and has the potential
to grow rapidly in 2022 and 2023.
The Group has screened a number of additional investment opportunities through
2021 and 1H 2022 and expects to pursue them.
Recognising that growth will require funding, the Board has been investigating
sources of parallel investment which would reduce the call on Scirocco's
balance sheet in the short term by bringing in third party capital alongside
Scirocco balance sheet cash.
Section 172 (1) Statement
The Group was admitted to the AIM Market of the London Stock Exchange on 12
April 2007 and has been a public company from this date. The Group is required
to provide a Section 172(1) statement under the terms of its AIM listing. This
disclosure aims to describe how the Directors have acted to promote the
success of the company for the benefit of its members as a whole, taking into
account (amongst other matters) the matters set out in section 172(1)(a) to
(f) of the Companies Act which are set out below.
(a) the likely consequences of any decision in the long term
As discussed above, the decision to propose and adopt the new investment
policy - approved and adopted by shareholder vote at the AGM in July 2021 -
and the decision to sell the Ruvuma asset to Wentworth Resources plc have been
taken with the long term future of the company in mind. In taking these
decisions the Board has taken account of the relative risk involved in each of
the relevant investments and chosen a sustainable course of action which
allows the company to be developed in a more predictable manner by targeting
investment assets with significantly lower levels of uncertainty and which
deliver cash flow in the short term which is then available to be reinvested.
The Group has not made any other decisions which will likely affect the
company in the long term in the current financial year.
(b) the interests of the company's employees
Aside from the Directors, the Group has one employee and the decisions to
promote the success of the company for the benefit of its members as a whole
as described above are entirely consistent with the interests of the company's
employee.
(c) the need to foster the company's business relationships with suppliers,
customers and others
Aside from a small number of service providers, the success of the Group's
investment strategy will be driven in part by the business relationships that
exist between the Directors and the management of the Group's investee
companies and as such the maintenance of such relationships is given a very
high priority by the Directors.
(d) the impact of the company's operations on the community and the
environment
During the current investment phase the Group has no operations. The Directors
are nevertheless cognisant of the potential impact of future investments on
affected communities and the environment and such factors will continue to be
considered as part of investment appraisal and decision making.
(e) the desirability of the company maintaining a reputation for high
standards of business conduct
The Group's standing and reputation with other energy companies, equity
investors, providers of debt, advisers and the relevant authorities are key in
the Company achieving its investment objectives and the Group's ethics and
behaviour, as summarised in the Group's Business Principle and Ethics, will
continue to be central to the conduct of the Directors. The Group is advised
by blue-chip experienced advisers which also assist in maintaining high
standards of conduct.
(f) the need to act fairly as between members of the company
The Directors will continue to act fairly between the members of the Group as
required under the Companies Act, the AIM Rules and QCA corporate governance
principles.
Conclusion
The Group has made significant steps through the course of 2021 and into the
first half of 2022 to re-position itself as renewables business focused on
delivering green energy solutions alongside generating revenue and returns for
our shareholders. It feels like there has been a generational shift in
thinking which is going to lead to significant changes and opportunities in
the transition of the energy sector. The companies that recognize this and
move quickly to transform will be the beneficiaries, and the Board feels that
the Group is already well down this path and hopes to pay a leading role in
the public markets for investment in greener energy solutions. I was delighted
that we were able to complete our first deal in the transition energy space
and in doing so create a platform for future investment in the anaerobic
digestion sector and associated technologies, a market segment ripe for
consolidation.
The Board is excited and fully engaged in the transformation to the transition
energy space.
We see significant opportunities for value creation for a Group with the right
strategy, the right partners and focused on the right opportunities. We remain
convinced that the future lies in the low carbon sector. We have been laying
the building blocks to ensure we can be a part of this future, and believe
that 2022 will be the year when our hard work behind the scenes results in
value accretive transactions for the benefit of the Group and its
shareholders.
Once again I would like to thank the Board and the Executive Team for their
dedication and commitment and thank our shareholders for their patience and
understanding.
Alastair Ferguson
Non-Executive Chairman
Date: .....................
Strategic Report
Energy Acquisitions Group Limited
In June 2021, Scirocco Energy announced its first transaction in the European
transition energy market in line with the Group's new growth strategy. The
Group made an investment into Energy Acquisitions Group Ltd ("EAG"), a
specialist acquisition and operating vehicle in the sustainable energy sector,
and in which Scirocco holds a 50% interest.
This initial investment was be used by EAG to acquire 100% of Greenan
Generation Limited ("GGL") and associated 0.5 MWe Anaerobic Digestion plant
located in County Londonderry, Northern Ireland. GGL is a cash generative,
operational AD plant which the EAG team will focus on optimizing to enhance
EBITDA margins and free cash flow from the project.
Anaerobic digestion is a process that creates biogas, a renewable energy
source that will help the UK deliver on its decarbonisation commitments.
The investment into EAG was funded by cash on the balance sheet and the EAG
team has identified further opportunities to invest in a pipeline of AD plants
in the UK totalling c. £30 million in value.
The investment positives supporting the investment in the EAG platform are as
follows:
· Low carbon sustainable energy. The carbon intensity of sources of
energy is under critical review. As a result of the ability to generate
natural gas from agricultural waste, the carbon footprint of the biogas is
therefore lower.
· Index linked revenue streams. The assets targeted by EAG benefit
from government subsidised revenue streams which are escalated on an annual
basis in line with inflation. For example, at GGL, the NIROC credits
representing c. 60% of revenue are government backed and index linked.
In December 2021 the Company announced that its subsidiary, Scirocco Energy
(UK) Limited ('SEUK') signed an exclusivity agreement with leading
sustainability technology provider, SEM Energy Limited. The exclusivity
accrues to SEUK, its affiliates and its investee company EAG.
SEM is a developer of technologies within the circular economy sector. It is
anticipated that SEM will provide EAG with digestate management and nutrient
recovery technology, known as the H2OPE System.
The system processes digestate, a by-product of the biogas process, into
nutrient dense, high-quality fertiliser, nutritionally balanced growth media
and a sustainable peat substitute which can be used within a range of growing
environments. It also produces re-usable water, and significantly reduces CO2
emissions compared to traditional practices.
Key terms of the agreement:
· SEM will exclusively supply to SEUK, its Affiliates, EAG (the
"Scirocco Parties"), the H2OPE System for the application to digestate
generated from AD plants within the UK and Ireland;
· The exclusive period runs until end June 2023, unless extended by
the parties in accordance with the agreement;
· SEUK will use reasonable endeavours to purchase or procure that
the Scirocco Parties purchase a minimum of five units of the H2OPE System
within the exclusivity period;
· If Scirocco Parties do not meet certain order requirements during
the exclusivity period, the exclusivity may fall away, but Scirocco Parties
are still able to order units of the H2OPE System from SEM during the term on
a non-exclusive basis.
EAG intends to apply the technology to its operating plant at Greenan, as
well as working with owners of other operational AD plants to assess the
potential benefits of funding the installation of a 'bolt-on' nutrient
recovery system on a merchant basis.The addition of the H2OPE System
technology to existing AD plants has the potential to deliver an additional
revenue stream through the creation of high value co-product, depending on the
level of refinement required for a specific market sector while simultaneously
reducing the carbon intensity of the process.
Financial performance
In Q1 2022 the revenue received for the quarter by Greenan totalled £323k
(unaudited) supported by high power prices through the period. This compares
to the same period in 2021 where revenue was £240k (unaudited) - a 34.5% year
on year increase. EBITDA for Q1 2022 was £158k and at current power prices,
EBITDA for the first 12 months of EAG's ownership of GGL is on target to
exceed £600k.
Operational
During Q1 2022, in order to future proof the plant at its Greenan site, the
EAG team completed the replacement and recommissioning of a number of elements
of critical equipment, at a total cost of c. £230k funded from operational
cash flow:
· all mixers in the premix tank
· all primary digester mixers, and refurbishment of all mixer
infrastructure including winches, winch motors and guide rails
· Full Edina CHP (Combined Heat & Power) engine block change,
and completing major service
· Upgrade and replacement of augers and pumps in feed and
recirculation system including installation of automatic recirculation system
Tanzania
Scirocco continues to hold two licence interests in natural gas in Tanzania.
A. Ruvuma PSA
ARA Petroleum Tanzania Limited
("APT") 50% *
Aminex plc ("AEX") 25%
Scirocco Energy plc 25%
* APT became operator in October 2020 following the
completion of its farm-in to the AEX working interest
In 2021 Scirocco held a 25% working interest in the Ruvuma Petroleum Sharing
Agreement ("Ruvuma PSA") in the south-east of Tanzania covering an area of
3,447 square kilometres of which approximately 90% lies onshore and the
balance offshore. The Ruvuma PSA is in a region of southern Tanzania where
very substantial gas discoveries have been made offshore in recent years and
where gas has also been discovered onshore and along the coastal islands at
Ntorya, Mnazi Bay, Kiliwani North and Songo-Songo.
As a result of a review of the strategic options available to the Group the
Tanzanian assets were identified as held for sale during 2020 and a sale
process was launched.
On 13 June 2022 the Group announced that it has entered into a conditional
binding agreement with Wentworth Resources plc (AIM: WEN) to divest its 25%
non-operated interest in the Ruvuma asset, Tanzania, for a total consideration
of up to US$16 million comprised of.
· Initial consideration of US$3 million payable on completion of
the Proposed Transaction;
· US$3 million payable upon final investment decision being taken
by the parties to the Ruvuma Asset Production Sharing Agreement or the JOA as
the case may be;
· Deferred consideration of up to US$8 million payable in the form
of a 25% net revenue share from the point when Ruvuma commences delivery of
gas to the gas buyer;
· Contingent consideration of US$2 million payable on gross
production reaching a level equal to or greater than 50Bcf.
In addition Wentworth will provide Scirocco with a loan of up to $6,250,000 to
meet all cash calls pursuant to the Ruvuma JOA arising between the Economic
Date of 1 January 2022 and expected Completion timeline.
The first US$3 million to be drawn under the loan is interest free however any
amounts drawn in excess of US$3 million will incur interest at a rate of 7%
per annum until such time as the grant of the security in respect of the loan
is approved by the Minister for Energy in Tanzania.
Background to the Proposed Transaction
In March 2020 the Group announced its intention to sell its 25% interest in
the Ruvuma PSA, onshore Tanzania. As a further development of this initiative,
in November 2020 the Group outlined a strategic pivot to invest in sustainable
energy assets. In the Board's view, the main drivers for the pivot were the
following:
· access to capital for small cap E&P investment was facing
numerous challenges due to a significant shift of investor sentiment away from
the sector;
· availability of investable assets. With the increasing momentum
to decarbonize the energy sector the Board expected to be able to identify a
strong supply of investable opportunities in that space;
· ability to build cashflow. The nature of assets being targeted
would allow the Group to build immediate cashflow which would then be
available for re-investment in further growth; and
· manageable investment scale. The type of investments being
targeted are expected to support capital investments at smaller scale allowing
the Group to grow its asset base in smaller incremental steps with a lower
average capital expenditure requirement per investment.
If the Proposed Transaction completes, Scirocco will no longer be exposed to
the costs (or the potential upside) associated with the Ruvuma Asset and will
be free to pursue its Investing Policy approved in July 2021, with a view to
building a portfolio of sustainable energy assets. An update on the Group's
recent activities and the Board's intentions in respect of the Investing
Policy are set out at the end of this section.
The Proposed Transaction will involve the disposal of the Group's entire
interest in the Ruvuma Asset for an initial consideration of US$3 million in
cash payable upon completion of the Proposed Transaction, plus deferred
consideration of up to US$13 million in aggregate, payment of which is
contingent upon fulfilment of certain conditions and milestones set out in the
Asset Purchase Agreement (and as detailed below).
In addition to entering into the Asset Purchase Agreement, the Group and
Wentworth have entered into the Facility Agreement under which Wentworth has
agreed, subject to the satisfaction of certain conditions, to provide loan
funding to the Group to allow it to meet its cash call obligations pursuant to
the Ruvuma JOA prior to completion of the Proposed Transaction.
Reasons for the Proposed Transaction
Throughout the course of 2021 and in early 2022, the Group conducted an
extensive asset marketing process with a view to divesting its Tanzanian
assets in line with its strategy re-fresh in 2020 and in furtherance of its
Investing Policy.
The Group and the Directors are of the view that early-stage hydrocarbon
assets remain a challenging investment space for micro-cap companies that
ultimately lack the balance sheet strength or the depth of portfolio to absorb
the range of potential outcomes for such assets. Additionally, the ability for
micro-cap companies to access capital in the oil and gas sector has been
significantly impaired in the last few years. These dynamics have primarily
been driven by:
· overall lack of returns in the sector for investors, driven by
persistently low oil prices for a number of years until the recent increases
witnessed; and
· an exodus of capital from the oil and gas sector in light of the
ongoing pressure to decarbonize the global energy sector.
Against that backdrop, the Directors announced in 2021 that they intended to
deliver on a new investment strategy focused on sustainable energy assets and
the circular economy, which culminated in the adoption by the Group of the
Investing Policy. The primary objective of this strategy is to create a
business capable of delivering a return premium for its shareholders while not
exposing them to the bifurcated outcomes of success and failure that are often
associated with the oil and gas sector (and, in particular, early-stage assets
such as the Ruvuma Asset).
The Directors believe that the Proposed Transaction will be beneficial in the
following respects:
· if the maximum potential consideration is received, the Proposed
Transaction will be a highly-accretive deal for Scirocco, representing a
premium of over 200% against Scirocco's current market cap (assuming a market
cap of approximately £3.4 million);
· the Proposed Transaction is firmly aligned with the Group's
strategy to divest its oil and gas assets and focus on opportunities in the
circular economy and sustainable energy assets;
· the terms of the Proposed Transaction are the result of extensive
negotiations with Wentworth and, before that, a two-year sales process that
exhausted all other reasonably viable purchasers;
· the Proposed Transaction strengthens Scirocco's balance sheet
and, critically, removes the imminent need to raise capital equivalent to or
potentially in excess of the current market cap to fund the 2022 work
programme for the Ruvuma Asset (the estimated funding gap at present being
equal to c. £3.5 million);
· the contingent aspects of the Proposed Transaction provide
exposure to material upside potential in the event certain key project
milestones are achieved, while also reducing exposure to the downside risks
associated with the uncertain prospects of the Ruvuma Asset;
· Wentworth is a particularly suitable counterparty given its
existing relationships and presence in Tanzania, which should reduce execution
risk;
· the Proposed Transaction is appropriately structured to reflect
the ongoing risk associated with the Ruvuma Asset, as well as the challenges
of operating in the current macro environment as described above;
· exiting the Ruvuma Asset will enable the Group to accelerate its
strategy of building a portfolio of cash generative assets focused on
renewables and the circular economy, as well as streamlining its activities
and strengthening its strategic narrative to appeal to a broader range of
potential investors;
· the Proposed Transaction provides cash that can be deployed to
fund near-term non-dilutive growth for the Group; and
· while the Ruvuma Asset represents a compelling project, it has
technical and commercial risk that is in the Directors' view not suitable for
a Group of Scirocco's size and strategic direction as highlighted by the Board
when proposed the new Investing Policy in 2021.
License Extension
In August 2021, the Joint Venture formally received the extension of the
Mtwara Licence in respect to the Ntorya Location from the Ministry of Energy
of Tanzania. The extension is valid for a two years. Under the terms of the
extension the Joint Venture must carry out the following work programme:
· Acquired 200 square kilometres (surface coverage) of 3D seismic
(min. expenditure of US $7 million)
· Drill the Chikumbi-1 exploration well (min. expenditure of US$15
million)
· Complete the negotiation of the Gas Terms for the Ruvuma PSA with
the Tanzania Petroleum Development Corporation
2021 Operational Update
Despite challenges to operational progress in 2021, due in part to the effect
of COVID-19 on operations, the Board believes that all projects made progress
from a technical evaluation and planning perspective.
The proposed gross 2021 work programme and budget for Ruvuma was US$22.9
million which included seismic acquisition work and drilling preparation.
However due to delays in receiving the approvals for the seismic contract
award and the restriction in international travel resulting from the COVID-19
pandemic the Joint Venture was unable to make significant operational progress
on the asset during the period. Had the full work programme been executed as
budgeted Scirocco would have been expected to fund approximately US$5.7
million.
During 2021, the operator, ARA Petroleum Tanzania Limited ("APT" or the
"Operator") completed the tendering work for the acquisition of 454 km2 3D
seismic and following approval of the contract award by the Tanzanian
authorities for the issue of the seismic acquisition contract made the award
in September 2021 to Africa Geophysical Services Limited ("AGS").
The award followed an extensive tendering exercise conducted by the Operator
for the seismic programme during which the joint venture was able to take
advantage of favourable market conditions securing a Lumpsum contract
considerably below the joint venture's expected budget for the activity.
The final contract consists of approximately 338 km² of 3D seismic data
focusing on the area of primary interest.
AGS commenced mobilization to location in late 2021 and continue to progress
with the data acquisition, weather permitting, and focus on the proposed
location for the Chikumbi-1 well ("CH-1") to acquire as much data as possible
before the start of the rainy season with the programme re-commencing after
that with no additional cost to the JV partners.
The Chikumbi-1 exploration and appraisal well is now expected to spud in the
fourth quarter of 2022. Assuming a successful outcome from the drilling of the
Chikumbi-1 well, first gas from the project is anticipated to be delivered by
the end of 2024. The work programme scheduling is in line with the Group's
expected funding commitments towards it.
APT has also re-interpreted the existing 2D seismic dataset and considers the
Ntorya gas reservoir to be the product of a stacked, high-energy, channelised
sand system. The Operator's revised mapping and internal management estimates
suggest a mean risked gas in place ("GIIP") for the Ntorya accumulation of
3,024 Bcf in multiple lobes and a mean risked recoverable gas resource of
1,990 Bcf which will be appraised by the planned seismic and drilling
programme.
Technical Overview
During 2018 the Joint Venture conducted technical work with the support of RPS
Energy Consultants Limited, on the resource estimates, and by IO Consulting,
on the development engineering and economics, leading to the upgraded resource
estimates included in Table 1. The independent studies now estimate gross 2C
contingent resources of 763 bcf, of which 191 bcf are net to Scirocco's
working interest, equivalent to approximately 31.8 mmbbls oil equivalent.
Resource summary - Ntorya Field
Gross Licence Basis (bcf)
Licence 1C
2C 3C Gross Mean unrestricted GIIP
Mtwara Development pending 26
81 213
Mtwara Development unclarified
324 682 950 1870
763
Resource summary excluding Ntorya Field
Prospective Resources (bcf)*
Gross on Licence
Prospect/Lead 1U 2U
3U Mean unrisked Pg %
Chikumbi Jurassic 399
936 1,798 1,351** 8***
* Assuming development licence is
ratified
** P50
*** RPS assessment of PG
B. Kiliwani North Development Licence ("KNDL")
Scirocco holds a 8.3918% working interest in the Kiliwani North Development
Licence. This interest was finalised following the exit of Bounty Oil and Gas
NL from the Joint Venture. TPDC has a back-in right to take up an interest in
the KNDL which would reduce Scirocco's interest to 7.975%. To date TPDC has
not taken up that right.
2021 Operational Update
As a result of reservoir pressure decline and compartmentalisation, the
Kiliwani North-1 well has not produced during the period.
The well has produced approximately 6.4 bcf of gas to date from a compartment
estimated to contain approximately 10 BCF. Estimated gas resources have been
independently audited by RPS Energy, who show the Kiliwani North structure to
contain approximately 31 bcf (gross mean GIIP).
The Joint Venture has been exploring various options to reinstate production
from the well. The Operator has prepared, and is awaiting approval for, a
remedial work programme intended to establish fluid levels in the well bore,
measure reservoir pressure and to unload fluid using foam treatment
technology.
Aminex (the operator) undertook preliminary remedial work to repair the
downhole safety valve in late 2018. This resulted in the flow of a small
volume of gas to the gas facility before the well quickly ceased flow, likely
due to fluid build-up in the wellbore. Aminex has prepared a perforation
strategy for a lower zone within the reservoir and an alternative remedial
work programme intended to establish fluid levels in the wellbore, reservoir
pressure and to unload potential fluid using foam treatment. The operator is
working with the TPDC on agreed methods to handle wellbore fluids which will
potentially be unloaded during operations on the well. Agreement and planning
will be required prior to starting operations.
If successful, this operation is expected to re-establish gas production from
the well. The Joint Venture has been waiting on final approvals for a
significant period of time and whilst the Joint Venture is confident that the
unloading and perforation operations can be carried out, there is no firm
timeline on when the approvals will be granted which would allow the operation
to commence. The Joint Venture estimates that once approvals are in place the
work could be carried out within a 3 - 6 month time period subject to travel
restrictions associated with the ongoing COVID-19 pandemic being lifted.
A resource report by LR Senergy, completed in May 2015, attributed
approximately 28 bcf gross best estimate contingent resource to the Kiliwani
North field. These estimates were revisited by RPS in 2018 following
production over an 18-month period totalling approximately 6.4 bcf. This
resulted in a new Pmean GIIP of 30.8 bcf and a remaining gross 2P reserve of
1.94 bcf. It is felt that with further intervention additional gas can be
recovered from the KN-1 well.
In October 2021, the Operator announced that on behalf of the Joint Venture,
reached an agreement with the Tanzania Petroleum Development Corporation
("TPDC") for the payment of outstanding monies owed for past gas sales to the
TPDC.
The agreed settlement followed constructive negotiations over the course of
2021 between Aminex and the TPDC.
The settlement between the parties involves netting off past gas sales of
US$6.77 million due to the Kiliwani North Joint Venture ("KNJV"), of which
Scirocco Energy holds an 8.39% working interest, against licence and training
fees and the profit share on the unpaid gas sales owed to TPDC.
As at 30 June 2021, and as previously reported, the KNJV was owed US$8.34
million by the TPDC. Of this amount, the KNJV has agreed to waive its claim
for interest of US$1.57 million under the Kiliwani North Gas Sales Agreement
("GSA") on the unpaid gas sales to settle the matter and secure payment by the
TPDC.
Scirocco Energy shall receive US$0.15 million its share of the gas sales net
of remittance of indirect taxes and export duties.
The well has not produced since the first quarter of 2018, during which the
Kiliwani North-1 ("KN-1") well produced intermittently. The intermittent
production was mainly as a result of increased water production, natural
reservoir depletion and a relatively high inlet pressure at the Songo Songo
Island Gas Processing Plant ("SSIGPP").
The Joint Venture has identified the possibility of perforating a lower and
potentially gas saturated section of the reservoir. Operator conducted
analysis indicates the possibility of providing up to 8 bcf of additional
resource from KN-1. The Joint Venture will continue to consider plans for 3D
seismic acquisition over Kiliwani North to support the identification of
further drilling or side-track opportunities which may be required to drain
the remainder of the structure.
Helium One
Scirocco was an early investor in and largest (pre-IPO) shareholder of Helium
One Limited ("Helium One") following an original equity subscription in 2017
and participation within a convertible loan note issuance in early 2019.
Immediately prior to the company's IPO in December 2020 Scirocco held a c. 12%
interest.
Helium One completed an IPO in early December 2020 when it completed its
admission to the AIM market of the London Stock Exchange following the
amalgamation with Attis Oil and Gas. The IPO highlights included;
· Successfully raised £6 million by way of an oversubscribed
placing of 211,267,597 ordinary shares with institutional and other investors
at a price of 2.84 pence per Ordinary Share
· Large-scale, high-grade primary helium project with un-risked
prospective helium resource (2U/P50) of c. 138 bcf;
· Management team with an extensive track record of exploration,
development and operations in Africa
· Fully funded for exploration programme commencing in Q1/Q2 2021
consisting of infill seismic acquisition and three well drilling programme
targeting high priority Prospects over the Rukwa Project
Immediately following the IPO, Scirocco held a 4.29% interest in Helium One
Operational Update
Seismic campaign
In February 2021, Helium One announced that it had commenced the 150km infill
seismic campaign with the objective of providing improved resolution over
identified drill targets.
Close spaced seismic data acquisition will be focussed in areas of known
prospectivity to assist in providing greater clarity on the subsurface
structures which Helium One believe have the highest chances of successfully
discovering Helium. The seismic campaign is fully permitted and benefits
from strong community and governmental support.
Drilling campaign
The company executed its first drilling campaign in Q2 2021, the highlight of
which included:
• Securing all necessary
drilling permits to execute its drilling campaign as planned
• Safe drilling of the Tai-1
exploration well
• Tai-1 well encountered
elevated helium levels as connection gas
• Tai-1A completed to a depth of
1121m with helium shows identified in all three target formations
• Helium shows encountered over
five intervals in the Karoo Formation
• A 130m thick claystone unit
was encountered above the top Karoo sands, indicating good seal presence for
the Karoo reservoir
• Wireline logging of the
uppermost Karoo indicates good reservoir potential with 15-20% porosities.
• Petrophysical analysis
indicates no free gas in the uppermost thinly bedded Karoo sands associated
with helium shows
• Helium shows within the deeper
and thicker sandstone units of the main Karoo reservoir were not able to be
logged due to poor and deteriorating hole conditions
• Subsequently the Tai-2
exploration well was drilled - although completed without identifying helium
has, the well provided valuable information on shallow trap and seal
potential.
Disposal
During 2021 Scirocco sold a substantial proportion of its holding in Helium
One in a series of tranches as announced on 18 May 2021 and on 27 July 2021.
The Group also exercised 1 million share options (with strike price US$0.035)
that it held over Helium One's share capital.
Following the above transactions, Scirocco's holding in Helium One at 31
December 2021 was 4,456,088 ordinary shares, which represents c. 0.85% of
Helium One's currently issued share capital.
In aggregate, Scirocco has realised c. £3.41 million in proceeds from its
sale of Helium One shares since Helium One was admitted to trading on AIM.
Other investments - non-core
A. Ausable Reef gas assets located in Ontario, Canada (28.56%
interest)
On 22 March 2019, Scirocco announced that as part of the portfolio
rationalisation, the Group had signed Heads of Terms ("HoT") with Levant
Exploration and Production Corp. ("Levant") for the divestment of Scirocco's
28.56% in the Ausable Reef gas assets (the "Assets") to Levant.
In July 2020, the Group announced that it had entered into a conditional asset
purchase agreement ("Agreement") with Reef Resources Limited ("Reef") and
Levant for the sale of its 28.56% interest in the Assets to Levant.
Unfortunately, Levant was unable to satisfy certain of the conditions to
completion contained in the Agreement and consequently Reef and Scirocco
elected to terminate the Agreement in March 2021.
Following the termination of the Agreement, Scirocco entered into a quit claim
agreement with Reef on the 15 March 2021 pursuant to which Scirocco has
transferred, for nominal consideration, its 28.56% interest in the Assets to
Reef and Reef has assumed the associated liabilities, historic and future, in
each case with effect from 1 December 2020.
The Group fully impaired the value of its holding in the Assets to zero in
2017 and incurred only nominal costs related to its holding in the Assets in
2021 in the lead up to executing the quit claim agreement with Reef.
Mr Tom Reynolds
Director
Glossary and Notes
2D seismic seismic data collected using the two dimensional common depth point method
3D three-dimensional
AIM London Stock Exchange Alternative Investment Market
API American Petroleum Institute
barrel or bbl 45 US gallons
bbls barrels of oil
bcf billion cubic feet
best estimate or P50 the most likely estimate of a parameter based on all available data, also
often termed the P50 (or the value of a probability distribution of outcomes
ta the 50% confidence level)
billion 10 to the power of 9
bopd barrels of oil per day
CNG condensed natural gas
contingent resources those quantities of petroleum estimated, at a given date, to be potentially
recoverable from known accumulations, but the associated projects are not yet
considered mature enough for commercial development due to one or more
contingencies
CPR Competent Persons Report
discovery a petroleum accumulation for which one or several exploratory wells have been
established through testing, sampling and/or logging the existence of a
significant quantity of potentially moveable hydrocarbons
electric logs tools used within the wellbore to measure the rock and fluid properties of the
surrounding formations
GIIP gas initially in place
GSA gas sales agreement
HH-1 Horse Hill-1 well
HHDL Horse Hill Developments Limited
KN-1 Kiliwani North-1 well
KNDL Kiliwani North Development Licence
m thousand (ten to the power 3)
mm million (ten to the power 6)
mmbbls milion barrels of oil
mmscf million standard cubic feet of gas
mmscfd millon standard cubic feet of gas per day
OGA UK Oil and Gas Authority (formally the Department of Energy and Climate Change
oil in place or STOIIP stock tank oil initially in place, those quantities of oil that are estimated
to be known reservoirs prior to production commencing
pay reservoir in portion of a reservoir formation that contains economically
producible hydrocarbons. The overall interval in which pay sections occur is
the gross pay; the portion of the gross pay that meets specific criteria such
as minimum porosity, perme
PEDL Petroleum Exploration and Development Licence
permeability the capability of a porous rock or sediment to permit the flow of fluids
through the pore space
petrophysics the study of the physical and chemical properties of rock formations and their
interactions with fluids
play a set of known or postulated oil or gas accumulations sharing similar geologic
properties
porosity the percentage of void space in a rock formation
prospective resources those quantities of petroleum which are estimated, at a given date, to be
potentially recovered from undiscovered accumulations
proven reserves those quantities of petroleum, which, by analysis of geoscience and
engineering data, can be estimated with reasonable certainty to be
commercially recoverable (1P), from a given data forward, from known
reservoirs and under defined economic conditions,
probable reserves those additional reserves which analysis of geoscience and engineering data
indicate are less likely to be recovered than Proven Reserves but more certain
to be recovered than Possible Reserves. It is equally likely that actual
remaining quantities recover
possible reserves those additional reserves which analysis of geoscience and engineering data
suggest are less likely to be recoverable than Probable Reserves. The total
quantities ultimately recovered from the project have a low probability to
exceed the sum of Proved reserves
PSA petroleum sharing agreement
PRMS Petroleum Resources Management system
reserves those quantities of petroleum anticipated to be commercially recovered by
application of development projects to known accumulations from a given date
forward under defined conditions
reservoir a subsurface rock formation containing an individual natural accumulation of
moveable petroleum
SPE Society of Petroleum Engineers
tcf trillion cubic feet
trillion 10 to the power of 12
unconventional reservoir widely accepted to mean those hydrocarbon reservoirs that are tight; that is
have low permeability
The Directors are pleased to present this year's annual report together with
the financial statements for the year ended 31 December 2021.
A statement on Corporate Governance is set out on pages 21 to 34.
Principal Activities
The principal activity, in line with the investing policy approved by
shareholders in July 2021, is to acquire a diverse portfolio of direct and
indirect interests in attractive cash generative and development assets within
the European sustainable energy market. The Board is seeking to invest in
assets which meet the following criteria:
· cash generative, with the potential to re-invest operational cash
flow in further growth;
· situated within the broad energy space, a market which the Board
knows well;
· primary targets within one of three asset classifications:
Energy. Assets which are involved in the direct production of low carbon
energy
Circular. Assets which recover valuable components from waste streams
Vector. Assets involved with the transmission, storage and delivery of low
carbon energy
· assets which can attract the necessary investment capital, taking
appropriate account of growing investor sentiment towards ESG and SRI
indicators; and
· assets which deliver stable returns, with lower exposure to
global commodity prices.
The Group may invest by way of outright acquisition, including the
intellectual property, of a relevant business, partnerships or joint venture
arrangements, or by the acquisition of assets. Such investments, for the most
part, will be focused on the Group acquiring part of a company or project
(which in the case of an investment in a company may be private or listed on a
stock exchange, and which may be pre-revenue), and such investments may
constitute a minority stake in the company or project in question. The Group's
investments may take the form of equity, joint venture debt, convertible
instruments, licence rights, or other financial instruments as the Directors
deem appropriate.
Scirocco intends to be a long-term investor and the Directors will place no
minimum or maximum limit on the length of time that any investment may be
held.
There is no limit on the number of projects into which the Group may invest,
nor the proportion of the Group's gross assets that any investment may
represent at any time.
Business Review and Future Developments
A detailed review of the Group's business is set out in the Chairman's
statement incorporating the strategic report (pages 1-15).
Details of expected future developments for the Group are set out in the
Chairman's statement incorporating the strategic report (pages 1-15).
Results and Dividends
Loss on ordinary activities after taxation amounted to £3.691 million (2020:
£4.118 million). The Directors do not recommend payment of a dividend (2020:
nil).
Key Performance Indicators
Given the nature of the business and that the Group had adopted a new
investing policy and is in the early stages of developing new operations, the
directors are of the opinion that analysis using KPIs is not appropriate for
an understanding of the development, performance or position of our businesses
at this time. The Board will review this position during 2023 and will look to
introduce a KPI indicators when the Group is in the position to do so.
Directors
The directors who held office during the year and up to the date of signature
of the financial statements were as follows:
Date of appointment Date of resignation
Executive Directors
Jonathan Fitzpatrick 2 May 2018 9 July 2021
Alastair Ferguson 6 August 2018 -
Thomas Reynolds 4 December 2018 -
Non-Executive Directors
Donald Nicolson 11 November 2019
Muir Miller 18 February 2021
Directors' Remuneration
The Company remunerates the Directors at a level commensurate with the size of
the Company and the experience of its Directors. The Remuneration Committee
has reviewed the Directors' remuneration and believes it upholds the
objectives of the Company with regard to these issues. Details of the Director
emoluments and payments made for professional services rendered are set out in
Note 7 to the financial statements.
Directors' Interests
The Directors' interests in the share capital of the Company at 31 December
2021 were:
At 31 December 2021 At 31 December 2020
Director Shares Options Shares Options
Jonathan Fitzpatrick 26,203,189 * 22,608,067 26,203,189 * 18,461,483
Alastair Ferguson 24,325,395 27,778,237 24,325,395 16,323,575
Tom Reynolds 2,464,108 ** 18,843,342 2,464,108 ** 18,843,342
Donald Nicolson - 15,332,053 - 10,419,772
Muir Miller *** - 4,484,314 - -
* includes indirect interest of 916,624 shares held by Carolyn Fitzpatrick
** includes indirect interest of 286,738 shares held by Paula Reynolds
*** Mr Muir Miller joined the Board on 18 February 2021
No Director had, during the year or at the end of the year, other than
disclosed above, a material interest in any contract in relation to the
Group's activities except in respect of service agreements. Gneiss Energy,
which is wholly owned by Mr Fitzpatrick and his wife, maintains a service
contract for the provision of operational and technical management services,
guidance and support on public relations and market engagement strategy,
flexible work space and meeting rooms, telephones, company secretary support
and corporate finance advisory services with the Company, the details of which
are disclosed in Note 22 to the financial statements.
Subject to the conditions set out in the Companies Act 2006, the Company has
arranged appropriate Directors' and Officers' insurance to indemnify the
Directors against liability in respect of proceedings brought by third
parties. Such provisions remain in force at the date of this report.
Substantial Shareholdings
At 30 June 2022 the following had notified the Company of disclosable
interests in 3% or more of the nominal value of the Company's shares:
Shareholder Number of shares % of Issued Capital
Interactive Investor Services Nominees Limited 83,339,933 10.98%
Forest Nominees Limited 68,534,128 9.03%
Interactive Investor Services Nominees Limited 48,053,575 6.33%
Hargreaves Lansdown (Nominees) Limited 45,758,207 6.03%
Barclays Direct Investing Nominees Limited 42,905,615 5.65%
HSDL Nominees Limited 37,327,678 4.92%
Hargreaves Lansdown (Nominees) Limited 34,626,161 4.56%
Hargreaves Lansdown (Nominees) Limited 33,728,233 4.45%
Securities Services Nominees Limited 24,598,242 3.24%
The Bank of New York (Nominees) Limited 24,525,123 3.23%
Pershing Nominees Limited 24,325,395 3.21%
HSBC Client Holdings Nominee (UK) Limited 24,111,619 3.18%
Environmental Responsibility
The Group is aware of the potential impact that its investee companies may
have on the environment. The Group ensures that it, and its investee companies
at a minimum comply with the local regulatory requirements and the revised
Equator Principles with regard to the environment.
Supplier Payment Policy
The Group's policy is to agree terms and conditions with suppliers in advance;
payment is then made in accordance with the agreement provided the supplier
has met the terms and conditions. Suppliers are typically paid within 30 days
of issue of invoice.
Employment Policies
The Group will be committed to promoting policies which ensure that high
calibre employees are attracted, retained and motivated, to ensure the ongoing
success for the business. Employees and those who seek to work within the
Group are treated equally regardless of sex, marital status, creed, colour,
race or ethnic origin.
Political Contributions and Charitable Donations
During the period the Group did not make any political contributions or
charitable donations.
Financial Instruments
See Note 21 to the financial statements.
Related Party Transactions
See Note 22 to the financial statements.
Post Reporting Date Events
At the date these financial statements were approved, being 30 June 2022, the
Directors were not aware of any significant post balance sheet events other
than those set out in the notes to the financial statements.
Annual General Meeting ("AGM")
This report and financial statements will be presented to shareholders for
their approval at the AGM. The Notice of the AGM will be distributed to
shareholders together with the Annual Report.
Health and Safety
The Group's aim will always be to achieve and maintain the highest standard of
workplace safety. In order to achieve this objective the Group sets demanding
standards for workplace safety and will provide comprehensive training and
support to employees.
Auditor
PKF Littlejohn LLP were reappointed as auditors of the Group and in accordance
with Section 285 of the Companies Act 2006, a resolution preposing they be
reappointed will be proposed at the next Annual General Meeting.
Going Concern
The Directors note the losses that the Group has made for the year ended 31
December 2021. The Directors have prepared cash flow forecasts for the period
ending 30 June 2023 which take account of the current cost and operational
structure of the Group. The base case forecast takes account of the sale of
Ruvuma to Wentworth Resources plc and the loan structure provided within that
structure to cover cash calls arising from the asset. With the Ruvuma cash
calls covered following the approval of shareholders at the general meeting on
29th June 2022, the remaining cost structure of the Group comprises a
proportion of discretionary spend and therefore in the event that cash flows
become constrained, costs can be reduced to enable the Group to operate within
its available funding. These forecasts demonstrate that the Group has
sufficient cash funds available, on the assumption that further funds can be
sourced as and when needed, to allow it to continue in business for a period
of at least twelve months from the date of approval of these financial
statements.
Accordingly, the financial statements have been prepared on a going concern
basis. Comments on going concern are included in the Operations report and
note 1. Although the Ruvuma asset has been sold, no guarantee can be made that
the sale completes. The critical assumption in the going concern determination
is that the Ruvuma PSA and the costs associated with the development of the
Ntoyra natural gas discovery are met by the Group drawing against the loan
provided by Wentworth for its 25% interest. In the event the sale did not
complete, it is assumed that - if required - the Group would be able to access
additional funding. If additional funding was not available there is a risk
that commitments could not be fulfilled, and assets would be relinquished.
Statement of Disclosure to the Auditor
In the case of each person who was a Director at the time this report was
approved:
· So far as that Director was aware there was no relevant available
information of which the Group's auditor was unaware; and
· That Director had taken all necessary steps to make themselves
aware of any relevant audit information, and to establish that the Group's
auditors were aware of that information.
Electronic Communication
The maintenance and integrity of the Group's website is the responsibility of
the Directors: the work carried out by the auditors does not involve
consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the financial
statements since they were initially presented on the website.
The Group's website is maintained in accordance with AIM Rule 26.
Legislation in the United Kingdom governing the preparation and dissemination
of the financial statements may differ from legislation in other
jurisdictions.
On behalf of the board
..............................
Mr Tom Reynolds
Director
Date: 30 June 2022.
The Directors are responsible for preparing the financial statements in
accordance with applicable law and regulations. Company law requires the
Directors to prepare financial statements for each financial year. Under that
law the Directors are required to prepare the Financial Statements in
accordance with UK-adopted international accounting standards.
Under company law the Directors must not approve the financial statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company as at the end of the financial year and of the profit
or loss of the Company for that period. In preparing these financial
statements, the Directors are required to:
· select suitable accounting policies and then apply them
consistently;
· make judgments and accounting estimates that are reasonable and
prudent;
· state whether the UK adopted international accounting standards
have been followed subject to any material departures disclosed and explained
in the financial statements; and
· prepare the financial statements on a going concern basis unless
it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of the financial statements may differ from legislation in other
jurisdictions.
The Company is compliant with AIM Rule 26 regarding the Company's website.
As Chairman of Scirocco Energy plc, it is my responsibility to ensure that the
Board is performing its role effectively and has the capacity and ability,
structure and support to enable it to continue to do so.
How we govern the Company
Information on how the Company organises its Corporate Governance is set out
below and can also be found on the Company's website www.sciroccoenergy.com
and is, in the opinion of the Board, fully in accordance with the revised
requirements of AIM Rule 26.
From September 2018 onwards, all AIM quoted companies were required to set out
details of the recognised corporate governance code that the Board of
Directors has decided to adopt and provide reasons for any departures where it
does not comply with the code. The Company has elected to adopt the 2018
Quoted Companies Alliance Corporate Governance Code for Small and Mid-Sized
Companies (the "QCA Code").
The Company intends to adhere to the recommendations of the QCA Code to the
extent it considers them appropriate in light of the Company's size, liquidity
and capital resources.
The QCA code is constructed around 10 broad principles and a set of
disclosures. The QCA has stated what it considers to be appropriate
arrangements for growing companies and asks companies to provide an
explanation of how they are meeting the principles through the prescribed
disclosures. We have considered how we apply each principle to the extent that
the Board judges these to be appropriate in the circumstances, and below we
provide an explanation of the approach take in relation to each.
2020 and 2021 have seen, amongst others, the following governance
developments:
· The Chairman, CEO and COO met with major shareholders and hosted
a number conference calls with investors;
· AIM Rules Compliance and Disclosure Committee established;
· Developed the transition energy strategy through 2020 and issued
an augmented strategy in Q1 2021;
· Addition of Muir Miller to the Board in February 2021;
· Establishing an ESG Committee that Muir Miller chaired in 1H21.
Board of Directors
The Board is responsible for the overall governance of the Company. Its
responsibilities include setting the strategic direction of the Company,
providing leadership to put the strategy into action and to supervise the
management of the business.
During 2021, Scirocco Energy operated with a five-member Board and the Board
between February 2021 and the beginning of July 2021 when it reverted to a
four-member Board. The Board was further strengthened in February 2021 when Mr
Muir Miller was appointed as an Independent Non-Executive Director. Mr Miller
brings with him a wealth of experience in the low carbon sector and will be
instrumental in building the company in line with the stated transition energy
strategy. As part of a managed transition and maintaining an appropriate
number of Directors Mr Jon Fitzpatrick did not seek re-election at the 2021
AGM and down on the 9th July 2021 as a Director of the Company.
The Board currently comprises three non-executive Directors ('NEDs') and the
CEO. Biographies of the Directors are on pages 25-26. Due to their
shareholding in the Company, one of the NEDs are not considered by the Board
to be independent. The roles and responsibilities of the Chairman, CEO,
Non-Executive Directors and Company Secretary are set out on the website and
summarised below.
The Board has established the corporate governance values of the Company and
has overall responsibility for setting the Company's strategic aims, defining
the business plan and strategy and managing the financial and operational
resources of the Company. Overall supervision, acquisition, divestment and
other strategic decisions are considered and determined by the Board. The
Executive team is supported by the wider team and external service providers
as required. The Directors are of the opinion that the Board comprises a
suitable balance and that the recommendations of the QCA Code have been
implemented to an appropriate level. The Board, through the Chairman in
particular, maintains regular contact with its advisers and public relations
consultants in order to ensure that the Board develops an understanding of the
views of major shareholders about the Company.
Terms of Reference
The Terms of Reference of all Board Committees are available on the website.
Record of meetings
The Board meets regularly throughout the year. For the period ending 31
December 2021 the Board met 6 times (2020: 17, 2019: 14, 2018: 10, 2017: 4) in
relation to normal operational matters and on an ad hoc basis as required to
transact additional business to support the Company's activities.
The Board is responsible for formulating, reviewing and approving the
Company's strategy, financial activities and operating performance.
Day-to-day management is devolved to the Executive Director and management who
are charged with consulting the Board on all significant financial and
operational matters. All Directors have access to the advice of the Company's
solicitors and the Company Secretary necessary information is supplied to the
Directors on a timely basis to enable them to discharge their duties
effectively and all Directors have access to independent professional advice,
at the Company's expense, as and when required.
Internal controls
The Directors acknowledge their responsibility for the Company's systems of
internal controls and for reviewing their effectiveness. These internal
controls are designed to safeguard the assets of the Company and to ensure the
reliability of financial information for both internal use and external
publication. Whilst they are aware that no system can provide absolute
assurance against material misstatement or loss, in light of increased
activity and further development of the Company, continuing reviews of
internal controls will be undertaken to ensure that they are adequate and
effective.
Compliance
The Company has also reviewed the appropriate policies and procedures to
ensure compliance with the UK Bribery Act. The Company continues actively to
promote good practice throughout the Company and has initiated a rolling
programme of anti-bribery and corruption training for all relevant employees
and consultants.
QCA Principles
Review of each of the QCA Principles:
Principle 1:
Establish a strategy and business model which promote long-term value for Scirocco Energy plc is an investment company whose strategy is to acquire a
shareholders diverse portfolio of direct and indirect interests in attractive cash
generative and development assets within the European sustainable energy
market. In 2020, the Board announced its plan to review and augment its
strategy to invest in a broader European energy market strategy targeting
attractive growth opportunities predominantly within the European gas and
energy transition market whilst maximising value for shareholders from the
Company's existing portfolio. This has been further developed as announced on
18 February 2021 and the Board is seeking opportunities which meet the
following criteria:
· cash generative, with the potential to re-invest operational cash flow in
further growth;
· situated within the broad energy space, a market which the Board knows well;
· primary targets within one of three asset classifications:
- Energy - assets which are involved in the direct production of low carbon
energy.
- Circular - Assets which recover valuable components from waste streams.
- Vector - Assets involved with the transmission, storage and delivery of low
carbon energy.
· assets which can attract the necessary investment capital, taking appropriate
account of growing investor sentiment towards ESG and SRI indicators; and
· assets which deliver stable returns, with lower exposure to global commodity
prices.
Principle 2:
Seek to understand and meet shareholder needs and expectations The Board is committed to maintaining good communication and having
constructive dialogue with all its shareholders. The Company has close ongoing
relationships with its private shareholders. Institutional shareholders and
analysts have the opportunity to discuss issues and provide feedback at
meetings with the Company. In addition, all shareholders are encouraged to
attend, where possible, the Company's Annual General Meeting. Investors also
have access to current information on the Company though its website,
www.sciroccoenergy.com, and via Tom Reynolds (CEO) and Doug Rycroft (COO), who
are available to answer investor relations enquiries. The Company in
conjunction with its investor relations advisor has developed a Communications
Strategy to formalise how shareholder communications are managed.
Principle 3:
Take into account wider stakeholder and social responsibilities and their The Board recognises that the long-term success of the Company is reliant upon
implications for long-term success its ability and willingness to engage with the broader range of stakeholders
to positively influence the development of the Company and the communities we
interact with operationally and corporately. The Board has put in place a
range of processes and systems to ensure that there is close oversight and
contact with its key resources and relationships.
Given that Scirocco Energy plc is a small company there is close interaction
between the Board and Executive Management to help ensure successful two-way
communication with agreement on goals, targets and aspirations for the
Company. Scirocco Energy plc through its advisers and JV partners has
developed close ongoing relationships with a broad range of its stakeholders
and provides them with the opportunity to raise issues and provide feedback to
the Company.
Principle 4:
Embed effective risk management, considering both opportunities and threats, It is critical that Scirocco Energy plc has a robust view of its risk profile
throughout the organization. and appetite so as to ensure both its existing and new investments are managed
within acceptable margins of risk. The processes are in place to understand
the Company's key drivers for success and to be able to assess the associated
risks in delivering on its strategy successfully. Given the specialised nature
of investing in, and being involved in, the operations of specialised assets
in the energy sector, it is imperative that the Board considers at all times
that it has the appropriate risk management system including both people and
processes to successfully mitigate these risks.
The Board encourages a dynamic and constructive dialogue between Executive
Management, its advisers and the Board including the willingness to challenge
assumptions and the consideration of emerging and interrelated risks for its
investment portfolio.
In addition to its other roles and responsibilities, the Audit Committee is
responsible to the Board for ensuring that procedures are in place and are
being implemented effectively to identify, evaluate and manage the significant
risks faced by the Company. The risk assessment matrix below sets out those
risks, and identifies the controls that are currently in place. This matrix is
updated as changes arise in the nature of risks or the controls that are
implemented to mitigate them. The Audit Committee reviews the risk matrix and
the effectiveness of scenario testing on a regular basis. The Board has a
comprehensive review of the risks every six months and works with Executive
Management to understand and agree on the types and format of risk information
that the Board requires. In addition the Board periodically assesses the risk
oversight processes and ensure suitability with/and alongside its current
policies.
See risk management section which begins on page 29.
Principle 5:
Maintain the Board as a well-functioning, balanced team led by a chair The Board is currently comprised of four Directors; Alastair Ferguson,
Non-Executive Chairman; Donald Nicolson, Independent Non-Executive Director,
Muir Miller Independent Non-Executive Director and Tom Reynolds, CEO.
Biographical details of the current Directors are set out within Principle Six
below.
Executive and Non-Executive Directors are subject to re-election at intervals
of no more than three years. The letters of appointment of all Directors are
available for inspection at the Company's registered office during normal
business hours. The Executive Director is considered to be a full-time
employee whilst the Non-Executive Directors are considered to be part time but
are expected to provide as much time to the Company as is required. The
Board elects a Chairman to chair every meeting.
The Board notes that the QCA recommends that the Chairman's responsibilities
should be devolved from the day-to-day running of the business in order to
ensure independence.
The Board meets at least four times per calendar year. It has established an
Audit Committee, a Remuneration Committee and an AIM Rules Compliance and
Disclosures Committee, which are set out in more detail below. At this stage,
the Board does not consider it necessary to establish a separate Nominations
Committee. It shall continue to monitor the need to match resources to its
operational performance and costs and the matter will be kept under review
going forward.
Attendance at Board and Committee Meetings
The Company reports annually on the number of Board and Committee meetings
held during the year and the attendance record of individual Directors.
To date in the current financial year the Directors have a good record of
attendance at such meetings. In order to be efficient, the Directors meet
formally and informally both in person and by telephone. To date there have
been at least quarterly meetings of the Board, and the volume and frequency of
such meetings is expected to continue at this rate.
Principle 6:
Ensure that between them the Directors have the necessary up-to-date The Board currently consists of four Directors. The Company believes that the
experience, skills and capabilities current balance of skills and experience in the Board as a whole, reflects a
very broad range of commercial and professional skills across geographies and
industries and all of the Director's have experience in public markets.
The Board recognises that it currently has a limited diversity and this will
form a part of any future recruitment consideration if the Board concludes
that replacement or additional directors are required.
The Board shall review annually the appropriateness and opportunity for
continuing professional development whether formal or informal.
Alastair Ferguson (Non-Executive Chairman)
Mr Ferguson is a Chartered Engineer and has over 40 years' experience in the
oil and gas industry, the last seven of which have been spent in various
Chairman and non-executive director positions. Mr Ferguson has considerable
commercial management experience and has specific expertise in business
development and managing projects in complex political environments.
Donald Nicolson (Independent Non-Executive Director)
Mr Nicolson is a senior business leader with more than 35 years experience in
oil, gas, mining and natural stone sectors. During this time, he has held
multiple board roles, executive & non-executive, in both publicly-listed
and private companies. Between 2016 and 2019, Mr Nicolson held the role of
Chairman and interim CEO for mining and quarrying firm Levantina Natural Stone
Co., having previously held Vice Chairman, non-Executive Director and Advisor
roles. Mr Nicolson spent more than 26 years with BP Exploration, during which
he held roles including Director of BP North Sea, Chief of Staff to BP CEO
(E&P), Vice President for BP Alaska and Vice President for BP Canada. Mr
Nicolson is skilled in strategy development, asset management, business
planning, investment decision making, and business restructuring and has
significant fund-raising experience, including main market IPO and debt
refinancing.
Muir Miller (Independent Non-Executive Director)
Mr Miller is a Chartered Engineer and Member of the Institution of Mechanical
Engineers with over two decades of senior executive experience, with
particular focus on the renewable energy sector. Most recently, Mr Miller was
Managing Director of Peel Energy, part of the privately owned, diverse and
entrepreneurial Peel Group, a leading infrastructure, transport and real
estate investor in the UK, with collective investments owned and under
management of more than £5 billion. Prior to joining Peel Energy, he was
Business Development Manager at Energy Power Resources, with an installed
capacity of 113MW of dedicated biomass assets, 70MW of landfill gas assets,
and 100 MW of wind assets in France, UK and Sweden. Between 2005 and 2007, Mr
Miller was CEO of Novera Macquarie Renewable Energy, a joint venture with
annual turnover of £32 million and one of the largest independent renewable
energy operators in the UK with a total installed generating capacity of
117.5MW across 53 geographically diverse sites.
Tom Reynolds (CEO)
Mr Reynolds is a Chartered Engineer with over 25 years' experience in the
energy sector, including a range of technical and commercial roles with BP
plc, Total SA and British Nuclear Fuels plc. He has also held management
positions at private equity investment and advisory firms, including 3i plc,
and specialises in strategic planning, investment management and cross-border
M&A transaction execution in the oil, gas, energy and infrastructure
sectors.
Principle 7:
Evaluate Board performance base on clear and relevant objectives, seeking Internal evaluation of the Board, the Committees and individual Directors is
continuous improvement. to be undertaken on an annual basis in the form of peer appraisal and
discussions to determine their effectiveness and performance as well as
testing the Directors' continued independence. This will be undertaken in
conjunction with external advisers as appropriate.
The results and recommendations that come out of the appraisals for the
directors shall identify the key corporate and financial targets that are
relevant to each Director and their personal targets in terms of career
development and training. Progress against previous targets shall also be
assessed where relevant.
Principle 8:
Promote a corporate culture that is based on ethical values and behaviours The Board is aware that the tone and culture set by the Board will greatly
impact all aspects of the Company as a whole and the way that partners,
contractors and advisors behave. The corporate governance arrangements that
the Board has adopted are designed to ensure that the Company delivers long
term value to its shareholders and that shareholders have the opportunity to
express their views and expectations for the Company in a manner that
encourages open dialogue with the Board.
A large part of the Company's activities is centred upon what needs to be an
open and respectful dialogue with partners, clients and other stakeholders.
Therefore, the importance of sound ethical values and behaviours is crucial to
the ability of the Company to successfully achieve its corporate objectives.
The Board places great import on this aspect of corporate life and seeks to
ensure that this flows through all that the Company does.
The directors consider that at present the Company has an open culture
facilitating comprehensive dialogue and feedback and enabling positive and
constructive challenge. The Company has adopted a code for Directors' and
employees' dealings in securities which is appropriate for a company whose
securities are traded on AIM and is in accordance with the requirements of the
Market Abuse Regulation which came into effect in 2016.
Principle 9:
Maintain governance structures and process that are fit for purpose and Ultimate authority for all aspects of the Company's activities rests with the
support good decision making by the Board Board, the respective responsibilities of the Chairman and Executive Director
arising as a consequence of delegation by the Board. The Board has adopted
appropriate delegations of authority which set out matters which are reserved
to the Board. The Chairman is responsible for the effectiveness of the Board,
while management of the Company's business and primary contact with
shareholders has been delegated by the Board to the Executive Director.
Audit Committee
The Audit Committee is comprised of Donald Nicolson (Chairman) and Alastair
Ferguson. This committee has primary responsibility for monitoring the quality
of internal controls and ensuring that the financial performance of the
Company is properly measured and reported. It receives reports from the
Executive Management and auditors relating to the interim and annual accounts
and the accounting and internal control systems in use throughout the Company.
The Audit Committee shall meet not less than twice in each financial year and
it has unrestricted access to the Company's auditors.
Remuneration Committee
The Remuneration Committee is comprised of Alastair Ferguson (Chairman) and
Donald Nicolson. The Remuneration Committee reviews the performance of the
executive directors and employees and makes recommendations to the Board on
matters relating to their remuneration and terms of employment. The
Remuneration Committee also considers and approves the granting of share
options pursuant to the share option plan and the award of shares in lieu of
bonuses.
AIM Rules Compliance and Disclosures Committee
The AIM Rules Compliance and Disclosure Committee is responsible for ensuring
the Company has at all times sufficient procedures, resources and controls in
place to enable compliance with the AIM Rules for Companies and make accurate
disclosures to meet its disclosure obligations under MAR. The committee is
comprised of Alastair Ferguson (Chairman), Donald Nicolson, and Tom Reynolds.
ESG and Sustainability Committee
The ESG and Sustainability Committee is comprised of Muir Miller (Chairman),
Alastair Ferguson and Tom Reynolds. The Committee was established by Scirocco
Energy PLCs Board of Directors and has responsibility for shaping and steering
the group's approach to sustainability and ESG in all its investments. It
develops and reviews the Company's strategy and activities; ensures that
sustainability and ESG considerations and criteria are incorporated into the
Company's investment processes and asset management activities; and will
develop and review the policies, programmes, targets, and initiatives relating
to ESG matters. The ESG and Sustainability Committee shall meet at least twice
each year and otherwise as required.
Non-Executive Directors
The Board has adopted guidelines for the appointment of Non-Executive
Directors which have been in place and which have been observed throughout the
year. These provide for the orderly and constructive succession and rotation
of the Chairman and non-executive directors insofar as both the Chairman and
non-executive directors will be appointed for an initial term of five years
and may, at the Board's discretion believing it to be in the best interests of
the Company, be appointed for subsequent terms.
In accordance with the Companies Act 2006, the Board complies with: a duty to
act within their powers; to promote the success of the Company; to exercise
independent judgement; to exercise reasonable care, skill and diligence; to
avoid conflicts of interest; not to accept benefits from third parties and to
declare any interest in a proposed transaction or arrangement.
External Representation
The Company has in the past invested in projects and jurisdictions where it
believes it has a competitive advantage in providing early stage capital
alongside specialist knowledge to realise potential value. In order to ensure
the Company has full visibilty and appropriate controls over the projects it
has invested in the Company has representative participation in the various
operating committees and / or Boards. The detail of which is outlined in the
table below;
Asset
Ruvuma PSC - Operating Committee
Kiliwani North Development Licence - Operating Committee
EAG - Board representation
Principle 10:
Communicate how the company is governed and is performing by maintaining a The Board is committed to maintaining good communication and having
dialogue with shareholders and other relevant stakeholders constructive dialogue with all of its shareholders. The Company has close
ongoing relationships with its private shareholders. Institutional
shareholders and analysts have the opportunity to discuss issues and provide
feedback at meetings with the Company. In addition, all shareholders are
encouraged, where possible, to attend the Company's Annual General Meeting. As
part of the Communications Strategy the Board has engaged investor relations
advisers to guide the Company on best practice methods of communicating
through digital, print and verbal mediums.
Investors also have access to current information on the Company though its
website and via the Executive Management Team comprising of Tom Reynolds (CEO)
and Doug Rycroft (COO), who are available to answer investor relations
enquiries. The Company proposes in 2021, subject to the necessary formalities,
to move to electronic communications with shareholders.
The Company shall include, when relevant, in its annual report, any matters of
note arising from the three Board committees.
Risk Management
Scirocco's activities are subject to a range of financial risks including
commodity prices, liquidity, exchange rates and loss of operational equipment
or wells.
These risks are managed with the oversight of the Board of Directors and the
Audit Committee through ongoing review, considering the operational business
and economic circumstance at that time. The primary risk facing the business
is that of liquidity.
Activity Risk Impact Control(s)
Financial Liquidity, market and credit risk Inability to continue as a going concern Robust capital and cost management policies and procedures
Reduction in asset values
Inappropriate controls and accounting policies Incorrect reporting of assets Appropriate authority and investment levels as agreed and delegated by the
Board
Adherence to Statement of Accounting Policies as detailed in financial
statements
Audit Committee
Recoverability of trade debtors Reduction in net assets Trade debtors relate to a government entity with which the Joint Venture has a
valid Gas Sales Agreement, therefore the Board remains of the opinion that the
debt is fully recoverable
Regulatory adherence Breach of rules Censure of withdrawl of listing authorisation Strong compliance regime instilled at the management, advisory and Board
levels of the Company
Company established an AIM Rules Compliance and Disclosure Committee in 2020
Strategic Damage to reputation Inability to secure new capital or investments Effective communication with shareholders coupled with consistent messaging to
potential investees
Robust compliance and adherence to the Company's ABC Policy
Inadequate disaster recovery procedures Loss of key operational and financial data Secure off-site storage of data
Operational Significant operational event in JVs Damage/loss of equipment and injury/death Review of operator emergency response plans and appropriate contingency plans
Significant geopolitical event in one of our operating theatres Loss of operating ability and/or major project delays Stakeholders engagement plans to ensure visibility in political operating
environment
Management Recruitment and retention of key staff and advisors Reduction in operating capability Alignment of company's recruitment and retention objectives to ensure a
motivated workforce and a safe working environment
Balancing salary with longer term incentive and retention plans aligning
participants directly to the shareholder experience
Investment Discrete investments suffer a change in circumstance or other risks Reduction in value of investments Robust risk management process during the selection and investment process
manifesting during the period of ownership including where appropriate third party technical, financial, legal and
commercial due diligence activity
Tom Reynolds
Director
Audit Committee Report
Scirocco's Audit Committee meets at least twice a year and is presently
chaired by Donald Nicolson and Alastair Ferguson is the other member of the
Committee.
Mr Nicolson joined the Board on 11th November 2019 and assumed the role of
Audit Committee Chairman.
During the course of 2020 and 2021 the Committee has reviewed:
· The statements to be included in the Annual report concerning
internal control, risk management and the going concern statement;
· The carrying values of the producing and intangible assets;
· The procedures for detecting fraud;
· The systems and controls for the prevention of bribery; and
The committee has overseen the relationship with the external auditor,
including:
· Approved their remuneration for audit and non-audit services;
· Approved their terms of engagement and the scope of the audit;
· Satisfied itself that there are no relationships between the
auditor and the Company which could adversely affect the auditor's
independence and objectivity;
· Monitored the auditor's processes for maintaining independence,
its compliance with relevant UK law, regulation, other professional
requirements and the Ethical Standard, including the guidance on the rotation
of audit partner and staff;
· Assessed the qualifications, expertise and resources, and
independence of the external auditor and the effectiveness of the external
audit process;
· Evaluated the risks to the quality and effectiveness of the
financial reporting process in the light of the external auditor's
communications with the committee;
· Met with the external auditor without management being present,
to discuss the auditor's remit and any issues arising from the audit; and
· Discussed with the external auditor the factors that could affect
audit quality and reviewed and approved the annual audit plan, ensuring it is
consistent with the scope of the audit engagement, having regard to the
seniority, expertise and experience of the audit team.
The committee reviewed the findings of the audit with the external auditor,
including:
· A discussion of issues which arose during the audit, including
any errors identified during the audit; and the auditor's explanation of how
the risks to audit quality were addressed;
· Key accounting and audit judgements;
· The auditor's view of their interactions with senior management;
· A review of any representation letters requested by the external
auditor before they were signed by management;
· A review of the management letter and management's response to
the auditor's findings and recommendations; and
· A review of the effectiveness of the audit process, including an
assessment of the quality of the audit, the handling of key judgements by the
auditor, and the auditor's response to questions from the committee.
Donald Nicolson
Audit Committee Chair
Remuneration Committee Report
Scirocco's Remuneration Committee reviews the scale and structure of the
Executive Directors' remuneration and the terms of their service contracts.
The remuneration and terms and conditions of appointment of the Non-Executive
Directors are set by the Board with recommendations from the Remuneration
Committee.
Mr Alastair Ferguson chairs the committee and Mr Jon Fitzpatrick and Mr Donald
Nicolson are the other members. Mr Fitzpatrick stepped down from the Board in
July 2021 and his position on the Remuneration Committee was not replaced. The
Remuneration Committee met 4 times in 2021.
In setting the remuneration for the Executive Directors and key staff, the
committee compares published remuneration data for other AIM and Main LSE
Board energy transition companies of a similar market capitalisation and seeks
to ensure that the remuneration of the Executive Directors is broadly
comparable to their peers in other similarly sized organisations. Moving
forward the committee intends to broaden the group of companies it reviews in
this regard to include low carbon and renewable companies of a similar
standing.
In 2021 the Remuneration Committee supported the company in a number of
changes to the remuneration policy and compensation payments due to directors,
these included;
· Resetting the CEOs remuneration based on increased workload
· review and benchmarking of Directors' fees through 2021 and proposed
remuneration for Muir Miller who joined the Board in 1Q21
· continued implementation of the share option scheme in lieu of fees for the
Board and Executive Management which supports the Board's desire to preserve
the Company's cash position.
Alastair Ferguson
Remuneration Committee Chair
AIM Rules Compliance and Disclosures Committee
Scirocco's AIM Rules Compliance and Disclosures Committee is responsible for
ensuring the Company has, at all times, sufficient procedures, resources and
controls in place to enable compliance with the AIM Rules for Companies and
make accurate disclosures to meet its disclosure obligations under MAR.
The committee was comprised of Jon Fitzpatrick (Chairman) (until his departure
from the Board), Alastair Ferguson (current Chairman), Donald Nicolson, and
Tom Reynolds. Following the Mr Fitzpatrick's decision not to stand again for
election at the 2021 Annual General Meeting, the work of the committee has
been managed at the Board level with the plan to formally reconstitute the
committee as activity levels ramp up in 2022 and beyond.
The Committee has established protocols to:
· Ensure that each meeting of the full Board includes discussions of AIM
matters, in particular to brief the Board as to issues raised with the Nomad
and advice given, as they arise;
· Ensure that the executive Directors are communicating as necessary with the
Company's Nomad regarding ongoing compliance with the AIM Rules and in
relation to proposed or potential transactions;
· Ensure that advice received from the Nomad is recorded and taken into account;
· Ensure that all announcements made have been verified and approved by the
Nomad whose name must be on all material announcements to RNS;
· Ensure that the Nomad is supplied with information on the Company's financial
condition on a regular and timely basis and of any other key developments in
the Company from time to time;
· Ensure that the Nomad is maintaining regular contact with the Company;
· Circulate to other members of the Board details of any rule changes which are
notified to the Chairman of the Committee by the Nomad; and
· Ensure that the executive Directors take into account advice given by the
Nomad from time to time.
Alastair Ferguson
AIM Rules Compliance and Disclosures Committee Chair
ESG and Sustainability Committee Report
The ESG and Sustainability Committee was established by the Company's Board of
Directors and has the responsibility for shaping and steering the Group's
approach to sustainability and ESG in all its investments.
The ESG Committee was set up in September 2021 when it held the first formal
meeting and met three times in the year. The Committee is integral to the new
Company Investment Strategy to invest in sustainable energy assets, as adopted
and approved by shareholders at the 2021 AGM. During the course of 2021 and
2022, the Committee has completed the following work:
· Developed and approved a Terms of Reference for the ESG Committee going
forward which supports the Company's new Investment strategy.
· Following review, agreed to using the UN Sustainable Development Goals
(UNSDGs) as the foundation of the Companies sustainability strategy, as it
provides the Company with a structured environmental, social, and governance
(ESG) framework. The UNSDGs aim to tackle the global challenges we face,
including poverty, inequality, and climate change, by 2030.
· Reviewed each the 17 UN Sustainable Development Goals as part of a workshop to
determine which of the Goals are most relevant to Scirocco and how much the
Company can contribute to each Goal.
· Set commitments and targets for the four high priority UN Sustainable
Development Goals with the aim of integrating these as part of the Company's
new investment strategy.
Muir Miller
ESG and Sustainability Committee Chair
Opinion
We have audited the financial statements of Scirocco Energy Plc (the 'parent
company') and its subsidiaries (the 'group') for the year ended 31 December
2021 which comprise the Group Statement of comprehensive income, the Group and
Company Statement of financial position, the Group and Company Statement of
changes in equity, the Group and Company Statement of cash flows and Notes to
the Group and Company financial statements, including significant accounting
policies. The financial reporting framework that has been applied in their
preparation is applicable law and UK-adopted international accounting
standards and as regards the parent company financial statements, as applied
in accordance with the provisions of the Companies Act 2006.
In our opinion:
· the financial statements give a true and fair view of the state
of the group's and of the parent company's affairs as at 31 December 2021 and
of the group loss for the year then ended;
· the group financial statements have been properly prepared in
accordance with UK-adopted international accounting standards;
· the parent company financial statements have been properly
prepared in accordance with UK-adopted international accounting standards and
as applied in accordance with the provisions of the Companies Act 2006; and
· the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We are independent of
the group and parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors'
assessment of the group and parent company's ability to continue to adopt the
going concern basis of accounting included:
· Reviewing the cash flow forecasts prepared by management for the
period up to twelve monthes from the date of approval of these financial
statements
· Corroborating, providing challenge to key assumptions and
reviewing for reasonableness;
· A comparison of actual results for the year to past budgets to
assess the forecasting ability/accuracy of management;
· Reviewing post-year end Regulatory News Service (RNS)
announcements and holding discussions with management on future plans; and
· Assessing the adequacy of going concern disclosures within the
annual report and financial statements.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the group and parent company's
ability to continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report
Our application of materiality
The quantitative and qualitative thresholds for materiality determine the
scope of our audit and the nature, timing and extent of our audit procedures
Based on our professional judgement, we determined overall materiality for the
financial statements as a whole applied to the group financial statements was
£188,000 based on 1% of gross assets. The performance materiality for the
group was £131,000. The materiality for the financial statements as a whole
applied to the parent company financial statements was £186,000 (2020:
£190,000) based on 1% of gross assets. The performance materiality for the
parent company was £130,000 (2020: £133,000).
We use a different level of materiality ('performance materiality') to
determine the extent of our testing for the audit of the financial statements.
Performance materiality is set based on 70% of overall materiality as adjusted
for the judgements made as to the entity risk and our evaluation of the
specific risk of each audit area having regard to the internal control
environment.
Where considered appropriate performance materiality may be reduced to a lower
level, such as, for related
party transactions and directors' remuneration.
We agreed with the Audit Committee to report to it all identified errors in
excess of £9,400 for the group and £9,300 (2020:£9,500) for the parent
company. Errors below that threshold would also be reported to it if, in our
opinion as auditor, disclosure was required on qualitative grounds.
Our approach to the audit
In designing our audit, we determined materiality and assessed the risks of
material misstatement in the financial statements. In particular we looked at
areas involving significant accounting estimates and judgements by the
directors in respect of the carrying values of the group and parent company's
investments and intangible assets, and considered future events that are
inherently uncertain. We also addressed the risk of management override of
internal controls, including evaluation whether there was evidence of bias by
the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key Audit Matter How our scope addressed this matter
Valuation and Disclosure of Assets Held for sale (Note 10)
The group holds assets held for disposal for £14.7 million as at 31 December Our work in this area included but was not limited to:
2021.
· Reviewing RNS announcements during the year and post year end to
corroborate management's plan to sell the assets and the conditions attached
to the proposed sale.
Post year end, management have signed a binding agreement to divest the asset.
· Reviewing disclosures made in respect of the assets and ensuring
these are accurate and in accordance with IFRS 5;
There is a risk that these assets are not accounted for in accordance with · Reviewing disclosures made in respect of any linked liabilities
International Financial Reporting Standard (IFRS) 5. Given that management has as these will need to be separately disclosed as discontinued operations; and
an offer on the asset, there is also a risk that the realisable value of the
assets have decreased further and thus an impairment may be required but may · Reviewing management's assessment of the valuation and impairment
not have been accounted for by management. of assets held for sale. Challenging management assumptions and estimates and
ensuring these are valued at realisable value.
Valuation and impairment of Intercompany receivables (Note 16)
The group has granted loans amounting to £1.2 million to an associate. As the Our work in this area included but was not limited to:
associate is in pre-revenue start-up phase, there is uncertainty on the
recoverability of this loan. Management's forecasts to support the · Reviewing the valuation methodology for the recoverability held
recoverability involve estimates and judgements. There is the risk that these and ensuring that the carrying values are supported by sufficient and
recoverable balances have not been valued in accordance IFRS 9 and require appropriate audit evidence;
impairment.
· Reviewing the movement in intercompany receivables to ensure it
is accounted for and disclosed correctly in line with IFRS 9;
· Ensuring that appropriate disclosures surrounding the estimates
made in respect of any valuations are included in the financial statements;
Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report. Our opinion on the group and parent company financial
statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon. Our responsibility is to read the other
information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the strategic report and the directors' report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent
company and their environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the parent company financial statements are not in agreement with
the accounting records and returns; or
· certain disclosures of directors' remuneration specified by law
are not made; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the Directors' responsibilities statement, the
directors are responsible for the preparation of the group and parent company
financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the group and parent company financial statements, the directors
are responsible for assessing the group and the parent company's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· We obtained an understanding of the group and parent company and
the sector in which they operate to identify laws and regulations that could
reasonably be expected to have a direct effect on the financial statements. We
obtained our understanding in this regard through discussions with management,
industry research, application of cumulative audit knowledge and experience of
the sector etc. This is evidenced by discussion of laws and regulations with
the management, reviewing minutes of meetings of those charged with governance
and RNS announcements and review of legal or professional expenditures.
· We determined the principal laws and regulations relevant to the
group and parent company in this regard to be those arising from Companies Act
2006, AIM rules, GDPR, Employment Law, Health and Safety Law, Anti-Bribery and
Money Laundering Regulations and QCA compliance.
· We designed our audit procedures to ensure the audit team
considered whether there were any indications of non-compliance by the group
and parent company with those laws and regulations. These procedures included,
but were not limited to:
· Discussion with management regarding potential non-compliance;
· Review of legal and professional fees to understand the nature of
the costs and the existence of any non-compliance with laws and regulations;
and
· Review of minutes of meetings of those charged with governance
and RNS anouncements
· We also identified the risks of material misstatement of the
financial statements due to fraud. We considered, in addition to the
non-rebuttable presumption of a risk of fraud arising from management override
of controls, that the potential for management bias was identified in relation
to the carrying value of the investments and intangible assets.
· As in all of our audits, we addressed the risk of fraud arising
from management override of controls by performing audit procedures which
included, but were not limited to: the testing of journals; reviewing
accounting estimates for evidence of bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the
normal course of business and review of bank statements during the year to
identify any large and unusual transactions where the business rationale is
not clear.
Because of the inherent limitations of an audit, there is a risk that we will
not detect all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with regulation.
This risk increases the more that compliance with a law or regulation is
removed from the events and transactions reflected in the financial
statements, as we will be less likely to become aware of instances of
non-compliance. The risk is also greater regarding irregularities occurring
due to fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
Use of our report
This report is made solely to the company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we
are required to state to them in an auditor's report and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone, other than the company and the company's members as
a body, for our audit work, for this report, or for the opinions we have
formed.
Zahir Khaki (Senior Statutory Auditor)
for and on behalf of PKF Littlejohn LLP
Statutory Auditor
15 Westferry Circus, Canary Wharf, London E14 4HD
Date: .30 June 2022.
2021 2020
Notes £000 £000
GROUP
Administrative expenses (1,892) (3,323)
Operating loss 6 (1,892) (3,323)
Other income 58 -
Other gains and losses 8 2,196 -
Profit/(loss) before taxation 362 (3,323)
Income tax expense 9 - -
Profit/(loss) for the year from continuing operations 362 (3,323)
Loss for the year from discontinued operations 10 (4,053) (795)
Loss and total comprehensive income for the year (3,691) (4,118)
Other comprehensive income:
Earnings per share 11
Basic and diluted (0.49) (0.57)
Earnings per share from continuing operations
Basic 0.05 (0.46)
Diluted 0.04 -
Earnings per share from discontinued operations
Basic and diluted (0.53) (0.11)
The accounting policies and notes on pages 49 to 85 form part of these
financial statements.
2021 2020
GROUP Notes £000 £000
Non-current assets
Financial assets at fair value through profit or loss 12 437 1,667
437 1,667
Current assets
Trade and other receivables 16 153 421
Cash and cash equivalents 2,059 1,168
Loan receivable from related party 22 1,244 -
Assets held for sale 15 11,600 14,803
15,056 16,392
Total assets 15,493 18,059
Current liabilities
Trade and other payables 17 178 248
Liabilities held for sale 15 166 166
344 414
Net current assets 14,712 15,978
Net assets 15,149 17,645
Equity
Called up share capital 18 1,518 1,448
Share premium account 19 38,155 38,399
Deferred share capital 18 2,729 1,831
Share based payments 20 1,941 1,470
Retained earnings (29,194) (25,503)
Total equity 15,149 17,645
The accounting policies and notes on pages 49 to 85 form part of these
financial statements.
The financial statements were approved by the board of directors and
authorised for issue on ......................... and are signed on its behalf
by:
..............................
Mr Tom Reynolds
Director
Date: ..30 June 2022..
Company Registration No. 05542880
2021 2020
COMPANY Notes £000 £000
Non-current assets
Financial assets at fair value through profit or loss 12 437 1,667
437 1,667
Current assets
Trade and other receivables 16 153 421
Cash and cash equivalents 2,059 1,168
Loan receivable from subsidiary 22 1,244 -
Assets held for sale 15 11,600 14,803
15,056 16,392
Total assets 15,493 18,059
Current liabilities
Trade and other payables 17 178 248
Liabilities held for sale 15 166 166
344 414
Net current assets 14,712 15,978
Net assets 15,149 17,645
Equity
Called up share capital 18 1,518 1,448
Share premium account 19 38,155 38,399
Deferred share capital 18 2,729 1,831
Share based payments 20 1,941 1,470
Retained earnings (29,194) (25,503)
Total equity 15,149 17,645
The accounting policies and notes on pages 49 to 85 form part of these
financial statements.
The financial statements were approved by the board of directors and
authorised for issue on ......................... and are signed on its behalf
by:
..............................
Mr Tom Reynolds
Director
Date: .30 June 2022.
Company Registration No. 05542880
Share capital Share premium account Deferred share capital Share-based payments Retained earnings Total
Notes £000 £000 £000 £000 £000 £000
GROUP
Balance at 1 January 2020 1,264 37,316 1,831 1,135 (21,385) 20,161
Year ended 31 December 2020:
Loss and total comprehensive income for the year - - - - (4,118) (4,118)
Issue of share capital 18,19 184 1,083 - - - 1,267
Credit to equity for equity-settled share-based payments 20 - - - 335 - 335
Balance at 31 December 2020 1,448 38,399 1,831 1,470 (25,503) 17,645
Year ended 31 December 2021:
Loss and total comprehensive income for the year - - - - (3,691) (3,691)
Issue of share capital 18,19 70 292 (362) - - -
Shares not issued moved to deferred share capital* 18,19 - (536) 536 - - -
Consideration received for shares to be issued 18 - - 724 - - 724
Credit to equity for equity-settled share-based payments 20 - - - 471 - 471
Balance at 31 December 2021 1,518 38,155 2,729 1,941 (29,194) 15,149
The accounting policies and notes on pages 49 to 85 form part of these
financial statements.
* the adjustment is made to correct deferred shares incorrectly recorded as
share premium in the prior year
Share capital Share premium account Deferred share capital Share-based payments Retained earnings Total
Notes £000 £000 £000 £000 £000 £000
COMPANY
Balance at 1 January 2020 1,264 37,316 1,831 1,135 (21,385) 20,161
Year ended 31 December 2020:
Loss and total comprehensive income for the year - - - - (4,118) (4,118)
Issue of share capital 18,19 184 1,083 - - - 1,267
Credit to equity for equity-settled share-based payments 20 - - - 335 - 335
Balance at 31 December 2020 1,448 38,399 1,831 1,470 (25,503) 17,645
Year ended 31 December 2021:
Loss and total comprehensive income for the year - - - - (3,691) (3,691)
Issue of share capital 18,19 70 292 (362) - - -
Shares not issued moved to deferred share capital* 18,19 - (536) 536 - - -
Consideration received for shares to be issued 18 - - 724 - - 724
Credit to equity for equity-settled share-based payments 20 - - - 471 - 471
Balance at 31 December 2021 1,518 38,155 2,729 1,941 (29,194) 15,149
The accounting policies and notes on pages 49 to 85 form part of these
financial statements.
* the adjustment is made to correct deferred shares incorrectly recorded as
share premium in the prior year
2021 2020
Notes £000 £000 £000 £000
GROUP
Cash flows from operating activities
Cash absorbed by operations 26 (1,417) (877)
Interest paid - (3)
Net cash outflow from operating activities (1,417) (880)
Investing activities
Cash movements in relation to assets held for sale (642) -
Purchase of intangible assets - (293)
Loan granted to related party (1,200) -
Proceeds on disposal of investments - 10
Proceeds from sale of investment 3,426 -
Net cash generated in investing activities 1,584 (283)
Financing activities
Proceeds from issue of shares 724 1,267
Net cash generated from financing activities 724 1,267
Net increase in cash and cash equivalents 891 104
Cash and cash equivalents at beginning of year 1,168 1,064
Cash and cash equivalents at end of year 2,059 1,168
The accounting policies and notes on pages 49 to 85 form part of these
financial statements.
2021 2020
Notes £000 £000 £000 £000
COMPANY
Cash flows from operating activities
Cash absorbed by operations 26 (1,417) (877)
Interest paid - (3)
Net cash outflow from operating activities (1,417) (880)
Investing activities
Cash movements in relation to assets held for sale (642) -
Purchase of intangible assets - (293)
Loan granted to subsidiary (1,200) -
Proceeds on disposal of investments - 10
Proceeds from sale of investment 3,426 -
Net cash generated in investing activities 1,584 (283)
Financing activities
Proceeds from issue of shares 724 1,267
Net cash generated from financing activities 724 1,267
Net increase in cash and cash equivalents 891 104
Cash and cash equivalents at beginning of year 1,168 1,064
Cash and cash equivalents at end of year 2,059 1,168
The accounting policies and notes on pages 49 to 85 form part of these
financial statements.
1 Accounting policies
Company information
Scirocco Energy plc ("Scirocco", the "Group") is a public listed company
incorporated in England & Wales. The address of its registered office 1
Park Row, Leeds, United Kingdom, LS1 5AB. The Company's ordinary shares are
traded on the AIM Market operated by the London Stock Exchange. The financial
statements of Scirocco Energy plc for the year ended 31 December 2021 were
authorised for issue by the Board on 30 June 2022 and the statement of
financial position is signed on the Board's behalf by Mr Reynolds.
Investing policy
Scirocco's investing policy is to acquire a diverse portfolio of direct and
indirect interests in exploration, development and production oil and gas
assets, and any other subsurface gas assets of potential commercial
significance, located worldwide but predominantly in the Americas, Europe or
Africa.
The Group may invest by way of outright acquisition or by the acquisition of
assets, including the intellectual property, of relevant business,
partnerships or joint venture arrangements. Such investments may result in the
Group acquiring the whole part of a company or project (which in the case of
an investment in a company may be private or listed on a stock exchange, and
which may be pre-revenue), may constitute a minority stake in the Group or
project in question and may take the form of equity, joint venture debt,
convertible instruments, license rights, or other financial instruments as the
Directors deem appropriate.
Scirocco intends to be a long-term investor and the Directors will place no
minimum or maximum limit on the length of time that any investment may be
held.
There is no limit on the number of projects into which the Group may invest,
nor the proportion of the Group's gross assets that any investment may
represent at any time and the Group will consider possible opportunities
anywhere in the world.
All of Scirocco's assets will be held in its own name, or through wholly owned
subsidiaries (note 13).
Statement of compliance with IFRS
The financial statements of the Group and the Company have been prepared in
accordance with UK-adopted international accounting standards and as applied
in accordance with the provisions of the Companies Act 2006. The Directors
have taken advantage of the exemption available under Section 408 of the
Companies Act 2006 and not presented an income statement nor a statement of
comprehensive income for the Company alone. The principal accounting policies
adopted by the Group are set out below.
Accounting convention
The financial statements have been prepared on the historical cost basis,
except for the measurement to fair value of assets and financial instruments
as described in the accounting policies below, and on a going concern basis.
The financial report is presented in Pound Sterling (£) and all values are
rounded to the nearest thousand pounds (£'000) unless otherwise stated. The
functional currency of the Group and Company are also GBP.
1 Accounting policies
Going concern
The Directors note the losses that the Group has made for the year ended 31
December 2021. The Directors have prepared cash flow forecasts for the period
ending 30 June 2023 which take account of the current cost and operational
structure of the Group. The base case forecast takes account of the sale of
Ruvuma to Wentworth Resources plc and the loan structure provided within that
structure to cover cash calls arising from the asset. With the Ruvuma cash
calls covered following the approval of shareholders at the general meeting on
29th June 2022, the remaining cost structure of the Group comprises a
proportion of discretionary spend and therefore in the event that cash flows
become constrained, costs can be reduced to enable the Group to operate within
its available funding. These forecasts demonstrate that the Group has
sufficient cash funds available, on the assumption that further funds can be
sourced as and when needed, to allow it to continue in business for a period
of at least twelve months from the date of approval of these financial
statements.
Accordingly, the financial statements have been prepared on a going concern
basis. Comments on going concern are included in the Operations report and
note 1. Although the Ruvuma asset has been sold, no guarantee can be made that
the sale completes. The critical assumption in the going concern determination
is that the Ruvuma PSA and the costs associated with the development of the
Ntoyra natural gas discovery are met by the Group drawing against the loan
provided by Wentworth for its 25% interest. In the event the sale did not
complete, it is assumed that - if required - the Group would be able to access
additional funding. If additional funding was not available there is a risk
that commitments could not be fulfilled, and assets would be relinquished.
Basis of consolidation
The consolidated financial statements comprise the financial statements of the
Company and its subsidiaries as at 31 December 2021. Control is achieved when
the Group is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its
power over the investee. Specifically, the Group controls an investee if, and
only if, the Group has:
· Power over the investee (i.e., existing rights that give it the
current ability to direct the relevant activities of the investee)
· Exposure, or rights, to variable returns from its involvement
with the investee
· The ability to use its power over the investee to affect its
returns
Generally, there is a presumption that a majority of voting rights results in
control. To support this presumption and when the Group has less than a
majority of the voting or similar rights of an investee, the Group considers
all relevant facts and circumstances in assessing whether it has power over an
investee, including:
· The contractual arrangement(s) with the other vote holders of the
investee
· Rights arising from other contractual arrangements
· The Group's voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and
circumstances indicate that there are changes to one or more of the three
elements of control. Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the Group loses control of
the subsidiary. Assets, liabilities, income and expenses of a subsidiary
acquired or disposed of during the year are included in the consolidated
financial statements from the date the Group gains control until the date the
Group ceases to control the subsidiary.
1 Accounting policies
Profit or loss and each component of OCI are attributed to the equity holders
of the parent of the Group and to the non-controlling interests, even if this
results in the non-controlling interests having a deficit balance. When
necessary, adjustments are made to the financial statements of subsidiaries to
bring their accounting policies in line with the Group's accounting policies.
All intra-group assets and liabilities, equity, income, expenses and cash
flows relating to transactions between members of the Group are eliminated in
full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control,
is accounted for as an equity transaction. If the Group loses control over a
subsidiary, it derecognises the related assets (including goodwill),
liabilities, non-controlling interest and other components of equity, while
any resultant gain or loss is recognised in profit or loss. Any investment
retained is recognised at fair value.
b) Investment in associates and joint ventures
An associate is an entity over which the Group has significant influence.
Significant influence is the power to participate in the financial and
operating policy decisions of the investee, but is not control or joint
control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have
joint control of the arrangement have rights to the net assets of the joint
venture. Joint control is the contractually agreed sharing of control of an
arrangement, which exists only when decisions about the relevant activities
require the unanimous consent of the parties sharing control.
The considerations made in determining significant influence or joint control
are similar to those necessary to determine control over subsidiaries. The
Group's investment in its associate and joint venture are accounted for using
the equity method.
Under the equity method, the investment in an associate or a joint venture is
initially recognised at cost. The carrying amount of the investment is
adjusted to recognise changes in the Group's share of net assets of the
associate or joint venture since the acquisition date. Goodwill relating to
the associate or joint venture is included in the carrying amount of the
investment and is not tested for impairment separately.
The statement of profit or loss reflects the Group's share of the results of
operations of the associate or joint venture. Any change in OCI of those
investees is presented as part of the Group's OCI. In addition, when there has
been a change recognised directly in the equity of the associate or joint
venture, the Group recognises its share of any changes, when applicable, in
the statement of changes in equity. Unrealised gains and losses resulting from
transactions between the Group and the associate or joint venture are
eliminated to the extent of the interest in the associate or joint venture.
The aggregate of the Group's share of profit or loss of an associate and a
joint venture is shown on the face of the statement of profit or loss outside
operating profit and represents profit or loss after tax and non-controlling
interests in the subsidiaries of the associate or joint venture.
The financial statements of the associate or joint venture are prepared for
the same reporting period as the Group. When necessary, adjustments are made
to bring the accounting policies in line with those of the Group.
After application of the equity method, the Group determines whether it is
necessary to recognise an impairment loss on its investment in its associate
or joint venture. At each reporting date, the Group determines whether there
is objective evidence that the investment in the associate or joint venture is
impaired. If there is such evidence, the Group calculates the amount of
impairment as the difference between the recoverable amount of the associate
or joint venture and its carrying value, and then recognises the loss within
'Share of profit of an associate and a joint venture' in the statement of
profit or loss.
1 Accounting policies
Current assets held for sale
Current assets are classified as assets held for sale when their carrying
amount is to be recovered principally through a sale transaction and a sale is
considered highly probable. They are stated at the lower of carrying amount
and fair value less costs to sell.
Discontinued operations
In accordance with IFRS 5 'Non-current assets held for sale and discontinued
operations', the net results relating to the assets held for sale are
presented within discontinued operations in the income statement (for which
the comparatives have been restated) and the assets and liabilities of these
operations are presented separately in the balance sheet. Refer to note 10 for
further details.
Fair value measurement
IFRS 13 establishes a single source of guidance for all fair value
measurements. IFRS 13 does not change when an entity is required to use fair
value, but rather provides guidance on how to measure fair value under IFRS
when fair value is required or permitted. The resulting calculations under
IFRS 13 affected the principles that the Group uses to assess the fair value,
but the assessment of fair value under IFRS 13 has not materially changed the
fair values recognised or disclosed. IFRS 13 mainly impacts the disclosures of
the Group. It requires specific disclosures about fair value measurements and
disclosures of fair values, some of which replace existing disclosure
requirements in other standards.
Cash and cash equivalents
Cash in the statement of financial position comprise cash at banks and on
hand, which are subject to an insignificant risk of changes in value.
Financial instruments
Financial assets and financial liabilities are recognised on the balance sheet
when the Group has become a party to the contractual provisions of the
instrument.
Classification
The Group classifies its financial assets and liabilities in the following
measurement categories:
· those to be measured subsequently at fair value (either through
Other Comprehensive Income or through profit or loss); and
· those to be measured at amortised cost.
The classification depends on the entity's business model for managing the
financial assets and the contractual terms of the cash flows.
Recognition and measurement
A financial instrument is recognised if the Group becomes a party to the
contractual provisions of the instrument. Financial assets are derecognised if
the Group's contractual rights to the cash flows from the financial assets
expire or if the Group transfers the financial asset to another party without
retaining control or substantially all risks and rewards of the asset. Regular
way purchases and sales of financial assets are accounted for at trade date,
i.e. the date the Group commits itself to purchase or sell the asset.
At initial recognition, the Group measures a financial asset at its fair value
plus, in the case of a financial asset not at fair value through profit or
loss ("FVTPL"), transaction costs that are directly attributable to the
acquisition of the financial asset. Transaction costs of financial assets
carried at FVTPL are expensed in profit or loss.
Subsequent measurement of debt instruments depends on the Group's business
model for managing the asset and the cash flow characteristics of the asset.
Currently, the Group's financial assets are all held for collection of
contractual cash flows, which are solely payments of principal and interest.
Accordingly, the Group's financial assets are measured subsequent to initial
recognition at amortised cost.
1 Accounting policies
Impairment
On a forward-looking basis, the Group estimates the expected credit losses
associated with its receivables and other financial assets carried at
amortised cost, and records a loss allowance for these expected losses.
Trade and other receivables
Trade and other receivables outside of normal payment terms accrue interest at
a rate determined by the operator and are stated at their nominal value as
reduced by appropriate allowances for estimated irrecoverable amounts.
Financial liability 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.
Trade and other payables
Trade and other payables are non interest bearing and are stated at their
nominal value.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received,
net of direct issue costs.
Equity reserves
Share capital is determined using the nominal value of shares that have been
issued.
The share premium account represents premiums received on the initial issuing
of the share capital. Any transaction costs associated with the issuing of
shares are deducted from share premium, net of any related income tax
benefits.
The share based payment reserve represents the cumulative amount which has
been expensed in the income statement in connection with share based payments,
less any amounts transferred to retained earnings on the exercise of share
options.
Retained earnings includes all current and prior period results as disclosed
in the income statement.
Deferred shares includes shares that have been allocated to investment
partners that will be converted to share capital when certain future
conditions are met
Derivatives
Derivatives are initially recognised at fair value at the date a derivative
contract is entered into and are subsequently remeasured to fair value at each
reporting end date. The resulting gain or loss is recognised in profit or loss
immediately unless the derivative is designated and effective as a hedging
instrument, in which event the timing of the recognition in profit or loss
depends on the nature of the hedge relationship.
A derivative with a positive fair value is recognised as a financial asset,
whereas a derivative with a negative fair value is recognised as a financial
liability. A derivative is presented as a non-current asset or liability if
the remaining maturity of the instrument is more than 12 months and it is not
expected to be realised or settled within 12 months. Other derivatives are
classified as current.
1 Accounting policies
Taxation
The tax expense represents the sum of the current tax and deferred tax.
Current tax
The current tax is based on taxable profit for the period. Taxable profit
differs from net profit as reported in the income statement because it
excludes items of income or expense that are taxable or deductible in other
periods and it further excludes items that are never taxable or deductible.
The liability for current tax is calculated by using tax rates that have been
enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit, and is accounted for using the balance sheet liability method.
Deferred tax liabilities are recognised for all taxable temporary differences
and deferred tax assets are recognised to the extent that it is probable that
taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if
the temporary difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a
transaction which affects neither the tax profit not the accounting profit.
Provisions
Provisions are recognised for liabilities of uncertain timings or amounts that
have arisen as a result of past transactions and are discounted at a pre-tax
rate reflecting current market assessments of the time value of money and the
risks specific to the liability.
Share-based payments
Where share options are awarded to employees, the fair value of the options at
the date of grant is charged to the income statement over the vesting period.
Non-market vesting conditions are taken into account by adjusting the number
of equity instruments expected to vest at each balance sheet date so that,
ultimately, the cumulative amount recognised over the vesting period is based
on the number of options that eventually vest. Market vesting conditions are
factored into the fair value of the options granted. As long as all other
vesting conditions are satisfied, a charge is made irrespective of whether the
market vesting conditions are satisfied. The cumulative expense is not
adjusted for failure to achieve a market vesting condition.
Where the terms and conditions of options are modified before they vest, the
increase in the fair value of the options, measured immediately before and
after the modification, is also charged to the income statement over the
remaining vesting period.
Where equity instruments are granted to persons other than employees, the
income statement is charged with the fair value of goods and services
received. Equity-settled share-based payments are measured at a fair value at
the date of grant except if the value of the service can be reliably
established. The fair value determined at the grant date of 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.
Foreign exchange
Transactions in currencies other than Sterling are recorded at the rates of
exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated at the rates prevailing on the balance sheet date.
Gains and losses arising on retranslation are included in the income statement
for the period.
1 Accounting policies
Oil and gas properties and other property, plant and equipment
(i) Initial recognition
Oil and gas properties and other property, plant and equipment are stated at
cost, less accumulated depreciation and accumulated impairment losses.
The initial cost of an asset comprises its purchase price or construction
cost, any costs directly attributable to bringing the asset into operation,
the initial estimate of the decommissioning obligation and, for qualifying
assets (where relevant), borrowing costs. The purchase price or construction
cost is the aggregate amount paid and the fair value of any other
consideration given to acquire the asset. The capitalised value of a finance
lease is also included within property, plant and equipment.
When a development project moves into the production stage, the capitalisation
of certain construction/development costs ceases, and costs are either
regarded as part of the cost of inventory or expensed, except for costs which
qualify for capitalisation relating to oil and gas property asset additions,
improvements or new developments.
(ii) Depreciation/amortisation
Oil and gas properties are depreciated/amortised on a unit-of production basis
over the total proved developed and undeveloped reserves of the field
concerned, except in the case of assets whose useful life is shorter than the
lifetime of the field, in which case the straight-line method is applied.
Rights and concessions are depleted on the unit-of-production basis over the
total proved developed and undeveloped reserves of the relevant area.
The unit-of production rate calculation for the depreciation/amortisation of
field development costs takes into account expenditures incurred to date,
together with sanctioned future development expenditure. An item of property,
plant and equipment and any significant part initially recognised is
derecognised upon disposal or when no future economic benefits are expected
from its use or disposal. Any gain or loss arising on derecognition of the
asset (calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the statement of profit or loss
and other comprehensive income when the asset is derecognised.
The asset's residual values, useful lives and methods of
depreciation/amortisation are reviewed at each reporting period and adjusted
prospectively.
(iii) Major maintenance, inspection and repairs
Expenditure on major maintenance refits, inspections or repairs comprises the
cost of replacement assets or parts of asset, inspection costs and overhaul
costs. Where an asset, or part of an asset that was separately depreciated and
is now written off is replaced and it is probably that future economic
benefits associated with the item will flow to the Group, the expenditure will
be capitalised. Where part of the asset replaced was not separately considered
as a component and therefore not depreciated separately, the replacement value
is used to estimate the carrying amount of the replaced asset(s) and is
immediately written off. Inspection costs associated with major maintenance
programmes are capitalised and amortised over the period of the next
inspection. All other day-to-day repairs and maintenance costs are expensed as
incurred.
1 Accounting policies
Provision for rehabilitation / Decommissioning Liability
The Group recognises a decommissioning liability where it has a present legal
or constructive obligation as a result of past events, and it is probably that
an outflow of resources will be required to settle the obligation, and a
reliable estimate of the amount of obligation can be made.
The obligation generally arises when the asset is installed or the
ground/environment is disturbed at the field location. When the liability is
initially recognised, the present value of the estimated costs is capitalised
by increasing the carrying amount of the related oil and gas assets to the
extent that it is incurred by the development/construction of the field. Any
decommissioning obligations that arise through the production of inventory are
expensed when the inventory item is recognised in cost of goods sold.
Changes in the estimated timing or cost of decommissioning are dealt with
prospectively by recording an adjustment to the provision and a corresponding
adjustment to oil and gas assets. Any reduction in the decommissioning
liability and, therefore, any deduction from the asset to which it relates,
may not exceed the carrying amount of that asset. If it does, any excess over
the carrying value is taken immediately to the statement of profit or loss and
other comprehensive income.
Segmental reporting
A business segment is a group of assets or operations engaged in providing
services that are subject to risks and returns that are different from those
of other business segments. A geographical segment is engaged in providing
services within a particular economic environment that is subject to different
risks and returns from other segments in other economic environments. The
company has two segments; corporate head office costs and Tanzania.
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker (CODM). The CODM, who
is responsible for allocating resources and assessing performance of the
operating segments, has been identified as Thomas Reynolds that makes
strategic decisions. Segment results include items directly attributable to a
segment as well as those that can be allocated on a reasonable basis.
Investments
The Group's financial asset investments are classified and measured at fair
value, under IFRS 9, with changes in fair value recognised in profit and loss
as they arise.
Gains and losses on investments disposed of or identified are included in the
net profit or loss for the period.
Investments held by the Group are held for resale. Therefore where the Group's
equity stake in an investee company is 20% or more equity accounting for
associates is not considered to be appropriate.
2 Adoption of new and revised standards and changes in accounting policies
In the current year, the following new and revised Standards and
Interpretations have been adopted by the Company. The adoption of these
standards has had no impact on the current period however may have an effect
on future periods.
IFRS 4 (Amendments) Extension of the temporary exemption from applying IFRS 9 Immediate
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (Amendments) Interest rate benchmark reform - phase 2 1 January 2021
IFRS 16 (Amendments) Covid-19-related rent concessions 1 April 2021
IFRIC Cloud Computing Costs 1 January 2021
Standards which are in issue but not yet effective
At the date of authorisation of these financial statements, the following
Standards and Interpretations, which have not yet been applied in these
financial statements, were in issue but not yet effective (and in some cases
had not yet been adopted by the United Kingdom):
IFRS 17 Insurance contracts 1 January 2023
IAS 1 (Amendments) Classification of liabilities as current or non-current 1 January 2023
IFRS 3 (Amendments) Reference to the Conceptual Framework 1 January 2022
IAS 16 (Amendments) Property, plant and equipment - proceeds before intended use 1 January 2022
IAS 37 (Amendments) Onerous contracts - cost of fulfilling a contract 1 January 2022
Annual Improvements 2018-2020 Cycle Amendments to IFRS 1 (subsidiary as a first-time adopter), IFRS 9 (fees in the 1 January 2022
'10 percent' test for derecognition of financial liabilities), IFRS 16 (lease
incentives), IAS 41 (taxation in the fair value measurements)
IAS 1 (Amendments) Classification of liabilities as current or non-current - deferral of 1 January 2023
effective date
IAS 1 and IFRS Practice Statement 2 Disclosure of accounting policies 1 January 2023
IAS 8 (Amendments) Definition of accounting estimates 1 January 2023
IAS 12 (Amendments) Deferred tax related to assets and liabilities arising from a single 1 January 2023
transaction
The directors do not expect that the adoption of the other Standards listed
above will have a material impact on the financial statements of the Company
aside from additional disclosures.
3 Critical accounting estimates and judgements
The Group makes estimates and assumptions regarding the future. Estimates and
judgements are continually evaluated based on historical experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances. In the future, actual experience may
differ from these estimates and assumptions. The estimates and assumptions
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.
The preparation of the Financial Statements in conformity with IFRS requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amount of expenses
during the period. Actual results may vary from the estimates used to produce
these Financial Statements.
Estimates and judgements are regularly evaluated and are based on historical
experience and other factors, including expectations of future events that are
believed to be reasonable under the circumstances.
Items subject to such estimates and assumptions, that have a significant risk
of causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial years, include but are not limited to:
Useful lives of intangible assets and property, plant and equipment (note 12)
Intangible assets and property, plant and equipment are amortised or
depreciated over their useful lives. Useful lives are based on the
management's estimates of the period that the assets will generate revenue,
which are based on judgement and experience and periodically reviewed for
continued appropriateness. Changes to estimates can result in significant
variations in the carrying value and amounts charged to the income statement
in specific periods.
Share-based payments (note 20)
The Group utilised an equity-settled share-based remuneration scheme for
employees. Employee services received, and the corresponding increase in
equity, are measured by reference to the fair value of the equity instruments
at the date of grant, excluding the impact of any non-market vesting
conditions. The fair value of share options are estimated by using
Black-Scholes valuation method as at the date of grant. The assumptions used
in the valuation are described in Note 22 and include, among others, the
expected volatility, expected life of the options and number of options
expected to vest.
Deferred taxation (note 9)
Deferred tax assets are recognised when it is judged more likely than not that
they will be recovered. Deferred tax assets are currently nil based on the
likelihood of recovery.
Recoverability of oil and gas assets (note 12)
The Company assesses each asset or cash generating unit (CGU) each reporting
period to determine whether any indication of impairment exists. Where an
indicator of impairment exists, a formal estimate of the recoverable amount is
made, which is considered to be the higher of the fair value less costs of
disposal (VLCD) and value in use (VIU). The assessments require the use of
estimates and assumptions such as long-term oil prices (considering current
and historical prices, price trends and related factors), discount rates,
operating costs, future capital requirements, decommissioning costs,
exploration potential reserves (see(a) Hydrocarbon reserves and resource
estimates above) and operating performance (which includes production and
sales volumes). These estimates and assumptions are subject to risk and
uncertainty. Therefore, there is possibility that changes in circumstances
will impact these projections, which may impact the recoverable amount of
assets and/or CGUs.
3 Critical accounting estimates and judgements
Decommissioning provisions (note 12)
There is uncertainty around the cost of decommissioning as 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 and currency mix 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 internal
expert from the joint venture partner. Provision for environmental clean-up
and remediation costs is based on current legal and contractual requirements,
technology and management's estimate of costs with reference to current price
levels. Future cost estimates are discounted to present value using a rate
that approximates the time value of money, which is currently 5.89%. The
discount rate is based on the average yield on Tanzanian Government bonds for
foreign currency loans of a duration of more than 10 years.
4 Operating Segments
Based on risks and returned, the directors consider that the primary reporting
format is by business segment. The directors consider that there are two
business segments:
· Head office support from the UK
· Segment assets for Canada relate to an investment in Corallian
Energy
· Discontinued operations on its investments in Tanzania
Continuing Operations Discontinuing Operations
2021 Canada UK Total Tanzania Total
£000 £000 £000 £000 £000
Revenue - - - - -
Administrative expenses - (1,890) (1,890) - (1,890)
Interest income - - - 12 12
Finance costs - (2) (2) - (2)
Other gains and losses - 2,196 2,196 (4,065) (1,869)
Other income - 58 58 - 58
Profit/(Loss) from operations per reportable segment - 362 362 (4,053) (3,691)
Additions to non-current assets - 26 26 - 26
Reportable segment assets 125 3,721 3,846 11,600 15,446
Reportable segment liabilities - 157 157 166 323
4 Operating Segments
2020 Canada UK Total Tanzania Total
£000 £000 £000 £000 £000
Revenue - - - - -
Administrative expenses - (3,323) (3,323) - (3,323)
Interest income - - - 18 18
Finance costs - - - (3) (3)
Other gains and losses - - - (810) (810)
Other income - - - - -
Profit/(Loss) from operations per reportable segment - (3,323) (3,323) (795) (4,118)
Additions to non-current assets - - - 293 293
Reportable segment assets 125 1,296 1,421 17,476 18,897
Reportable segment liabilities - 249 249 166 415
5 Revenue
2021 2020
£000 £000
Other significant revenue
Interest income 12 18
12 18
Contract balances
2021 2020
£000 £000
Trade receivables - 272
Accrued income and interest - 90
Trade receivables accrue interest for non payment. Outstanding debtors accrue
interest at a rate in accordance with the joint venture agreement and are
generally on terms of 30 days. In 2021, there is a provision of £nil (2020:
£55k) for expected credit losses on trade receivables.
Interest income relates to interest charged on outstanding invoices.
An operating segment is a distinguishable component of the Company that
engages in business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the Company's
chief operating decision maker to make decisions about the allocation of
resources and assessment of performance and about which discrete financial
information is available.
6 Expenses by Nature
2021 2020
Continuing Operations £000 £000
Exchange losses 8 68
Fees payable to the Company's auditor for the audit of the Company's financial 19 36
statements
Professional, legal and consulting fees 920 617
AIM related costs including investor relations 157 136
Costs relating to OneDYAS transaction - 640
Accounting related services 93 114
Travel and subsistence - 17
Office and administrative expenses 87 47
Other expenses 38 72
Impairment losses - 1,384
Share-based payments 471 335
Directors remuneration 94 (206)
Wages and salaries and other related costs 5 63
1,892 3,323
7 Employees
The average number of employees (excluding executive directors) was one (2020:
nil). There was one employee who began employment in October 2021.
During the year ended 31 December 2021 the Directors opted to receive
remuneration in the form of share options in lieu of fees (note 22).
2021 2020
£000 £000
Their aggregate remuneration comprised :
Wages and salaries 11 8
Directors remuneration 94 (206)
Salary and fees Share-based payments Termination payments Total
£000 £000 £000 £000
Year ended 31 December 2021
Jonathan Fitzpatrick (resigned 9 July 2021) - 36 - 36
Alastair Ferguson (7) 140 - 132
Tom Reynolds 91 146 - 237
Donald Nicolson 10 89 - 100
Muir Miller (appointed 18 February 2021) - 35 - 35
Doug Rycroft (senior management) - 25 - 25
94 471 - 564
7 Employees
Salary and fees Share-based payments Termination payments Total
£000 £000 £000 £000
Year ended 31 December 2020
Jonathan Fitzpatrick 6 67 - 73
Alastair Ferguson (44) 143 - 99
Tom Reynolds 16 57 - 73
Donald Nicolson 6 57 - 63
Don Strang (resigned 26 November 2018) (6) - - (6)
Dan Maling (resigned 7 February 2019) (184) - - (184)
Doug Rycroft (senior management) - 13 - 13
(206) 335 - 129
No directors received pension contributions in 2021 or 2020.
8 Other gains and losses
2021 2020
£000 £000
Gain on sale of financial assets at fair value through profit or loss 2,196 -
9 Income tax expense
2021 2020
£000 £000
UK corporation tax on profits for the current period - -
Total UK current tax - -
Deferred tax
Origination and reversal of temporary differences - -
Total tax charge - -
9 Income tax expense
The charge for the year can be reconciled to the loss per the income statement
as follows:
2021 2020
£000 £000
Loss before taxation (3,692) (4,118)
Expected tax credit based on a corporation tax rate of 19.00% (2020: 19.00%) (701) (783)
Effect of expenses not deductible in determining taxable profit 837 442
Income not taxable (420) (2)
Other non-reversing timing differences - (14)
Deferred tax not recognised - 596
Remeasurement of deferred tax for changes in tax rates (45) (239)
Chargeable gains 329 -
Taxation charge for the year - -
No deferred tax asset has been recognised because there is uncertainty of the
timing of suitable future profits against which they can be recovered. The
company has losses carried forward of £6,312k (2020 - £5,162k).
10 Discontinued operations
The Company has a 25% interest in a high-quality development project in
Tanzania which the Directors are actively seeking to divest. This stake has
been valued at $16m and operations relating to this stake are detailed below.
For details on the divestment please refer to the Strategic Report.
The results of the discontinued business, which have been included in the
income statement, balance sheet and cash flow statement, were as follows:
2021 2020
£000 £000
Impairment on fair value revaluation (3,846) (810)
Investment losses/revenues (207) 18
Finance costs - (3)
Loss before taxation (4,053) (795)
Net loss attributable to discontinuation (4,053) (795)
10 Discontinued operations
The loss after tax on disposal of the assets held for sale is made up as
follows:
£000
Fair value less costs to sell 11,828
Net book value of assets disposed:
Intangible assets (15,901)
Oil and gas properties (750)
Decommissioning provision 166
Impairment on fair value revaluation at 31 December 2020 810
(15,675)
Impairment on fair value revaluation at 31 December 2021 (3,846)
Loss per share impact from discontinued operations
2021 2020
Basic and diluted impact (pence) (0.10) (0.11)
Cash flow statement
2021 2020
£000 £000
Net cash flows from investing activities (642) (237)
Net cash flows from discontinued operations (642) (237)
11 Earnings per share
The calculation of loss per share is based on the loss after taxation divided
by the weighted average number of shares in issue during the year.
2021 2020
Number of shares
Weighted average number of ordinary shares for basic profit/loss per share 758,788 723,950
(000)
Weighted average number of ordinary shares for diluted profit per share (000) 854,621 -
Earnings £000 £000
Continuing operations
Profit/loss for the period from continued operations 361 (3,324)
Discontinued operations
(Loss) for the period from discontinued operations (4,053) (795)
Basic earnings per share
From continuing operations (pence per share) 0.05 (0.47)
From discontinued operations (pence per share) (0.53) (0.11)
(0.49) (0.57)
Diluted earnings per share
From continuing operations (pence per share) 0.04 -
From discontinued operations (pence per share) - -
- -
12 Financial assets at fair value through profit or loss
GROUP AND COMPANY
2021 2020
£000 £000
Financial assets at fair value through profit or loss
Quoted equity investments 312 1,542
Unquoted equity investments 125 125
437 1,667
The quoted investments in the current year relate to an equity investment held
in Helium One Ltd, a company incorporated in the British Virgin Islands. Their
subsidiaries hold helium mining licences across Tanzania. The shares held have
been valued at the mark-to-market value of 7.00p per share at 31 December
2021.
The unquoted investments in the current year relate to an equity investment
held in Corallian Energy Limited, a company incorporated in England. The
Company holds interests in oil and gas basins in the United Kingdom.
Unquoted Equity Investments
£000
At 1 January 2020 125
Remeasurement -
At 1 January 2021 125
Remeasurement -
At 31 December 2021 125
13 Subsidiaries
Details of the company's subsidiaries at 31 December 2021 are as follows:
Name of undertaking Registered office Principal activities Class of % Held
shares held Direct
Scirocco Energy International Limited 1 Park Row, Leeds, United Kingdom, LS1 5AB Dormant Holding Company Ordinary 100.00
Scirocco Energy (UK) Limited 1 Park Row, Leeds, United Kingdom, LS1 5AB Investment Holding Company Ordinary 100.00
The results of all subsidiaries are included within the consolidated results
of Scirocco Energy plc.
14 Associates
During the current year the Group acquired 50% of the share capital of Energy
Acquisitions Group Limited, a company incorporated in Northern Ireland. The
company acquires and finances renewable energy assets in the United Kingdom.
Details of the company's associates at 31 December 2021 are as follows:
Name of undertaking Registered office Principal activities Class of % Held
shares held Direct
Energy Acquisitions Group Limited 32 Lodge Road, Coleraine, Northern Ireland, BT52 1NB Investment in renewable energy assets Ordinary 50.00
Energy Acquisitions Group Limited summary statement of financial position
2021
£000
Non-current assets 617
Current assets 603
Current liabilities (461)
Non-current liabilities (900)
Equity (141)
Energy Acquisitions Group Limited summary profit and loss account
2021
£000
Administrative expenses (126)
Interest payable and similar expenses (6)
Loss for the financial year (132)
The results of Energy Acquisition Group Limited are standalone results and do
not include the results of Greenan Generation Limited
In accordance with IAS 28, as the Group's share of loss of an associate/joint
venture exceeds its interest in the associate/joint venture, the entity has
not recognised its share of losses.
15 Assets and liabilities classified as held for sale
2021 2020
GROUP AND COMPANY £000 £000
Intangible assets 11,246 14,449
Oil and gas properties 354 354
Total assets classified as held for sale 11,600 14,803
Decommissioning provision 166 166
Total liabilities classified as held for sale 166 166
At the date of authorisation of the financial statements it was determined
that a sale would be highly probable (see note 10).
16 Trade and other receivables
2021 2020
GROUP AND COMPANY £000 £000
Trade receivables - 273
Provision for bad and doubtful debts (note 23) - (55)
- 218
Other receivables 111 -
VAT recoverable 21 16
Loan receivable from associate 1,244 -
Loan to Helium One Ltd - 73
Prepayments 21 114
1,397 421
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value.
17 Trade and other payables
2021 2020
GROUP AND COMPANY £000 £000
Trade payables 142 152
Accruals 36 57
Social security and other taxation - 5
Other payables - 34
178 248
17 Trade and other payables
The directors consider that the carrying amount of trade payables approximates
to their fair value.
18 Share capital
GROUP AND COMPANY Number of shares Nominal value
£000
a) Called up, allotted, issued and fully paid: Ordinary shares of 0.2 p each
As at 31 December 2020 723,949,575 1,448
20 October 2021 - placing for cash at 0.02p 34,838,350 70
At 31 December 2021 758,787,925 1,518
b) Deferred shares
2021 2020
£000 £000
At beginning of year 1,831 1,831
Shares not issued moved to deferred share capital 536 -
Issue of new shares (362) -
Consideration received for shares to be issued 724 -
At end of year 2,729 1,831
c) Total Share options in issue
During the year no incentive options were granted (2020: 51,419,781). As at 31
December 2021 there were 51,419,781 incentive options in issue (2020:
585,000,000)
During the year 24,997,841 (2020: 19,055,864) share options in lieu of salary
and/or fees due to the relevant option holders were granted. As at 31 December
2021 there were 44,053,706 share options in lieu of salary and/or fees in
issue (2020: 19,055,864).
d) Total warrants in issue
No warrants lapsed in the year and no warrants were issued, cancelled or
exercised during the year (2020: 12,500,000 warrants were issued).
As at 31 December 2021 12,500,000 warrants were outstanding (2020:
12,500,000). In the post balance sheet period these warrants have expired
unexercised.
19 Share premium account
2021 2020
GROUP AND COMPANY £000 £000
At beginning of year 38,399 37,316
Shares not issued moved to deferred share capital (536) 1,083
Issue of new shares 292 -
At end of year 38,155 38,399
20 Share based payment
GROUP AND COMPANY
The Company has opted to remunerate the directors for the year to 31 December
2021 by a grant of an option over the ordinary shares of the capital of the
Company as detailed in the deed of option grants. The life of the options is
18 months. There are three executive directors and two non-executive directors
who are members of the plan. The following table summarises the expense
recognised in the Statement of Comprehensive Income since the options were
granted.
2021 2020
£000 £000
Directors options 285 236
Incentive options 186 99
Credit to equity for equity-settled share-based payments 471 335
During June 2020 (and the height of the Covid-19 pandemic) the Company sought
to put in place a strategy that would help to conserve the Company's cash
position in the near term and also to maximise alignment between the Board,
Management Team and Shareholders.
Accordingly, the Company proposed to grant nominal cost options over new
Ordinary Shares of 0.2p (£0.0020) to Directors and select members of the
Management Team ("the Director Options"). The Director Options were granted
over a total of 24,997,841 (2020: 19,055,864) Ordinary Shares and have an
aggregate value equal (on a net basis, after deduction of the nominal exercise
price per Ordinary Share) to the fair value of salary and/or fees due to the
relevant option holders up to December 2021.
Members of the Management Team were also awarded options over Ordinary Shares
with an exercise price of 1.3p (£0.013) ("the Incentive Options"), which was
approximately a 24% premium to the closing midmarket price of the Company's
Ordinary Shares on 26 June 2020. Each Incentive Option is ordinarily
exercisable on the 2nd anniversary of the grant date (being 30 June 2022),
except in the event of specified corporate events or, exceptionally, if the
option holder leaves as a 'good leaver'.
The Company used the Black-Scholes model to determine the value of the
incentive options and the inputs. There were no share options for the year
ended 31 December 2020. The value of the options and the inputs for the year
ended 31 December 2021 were as follows:
20 Share based payment
Issue 30 June 2020
Incentive options
Share price at grant (pence) 1.09
Exercise price at grant (pence) 1.30
Expected volatility (%) 84.42
Expected life (years) 6
Risk free rate (%) 0.17
Expected dividends (pence) nil
Expected volatility was determined by using the Company's share price for the
preceding 3 years.
The total share-based payment expense in the year for the Company was
£186,013 in relation to the issue of incentive options (2020: £99,207) and
£nil finance charges in relation to warrants (2020: £nil).
The Incentive Options granted represent approximately 7.9% of the Company's
issued share capital (excluding warrants issued to Prolific Basins LLC). The
Board has retained additional headroom for future Incentive Options as it
recognises that the future performance of the Company will be dependent on its
ability to retain the services of key executives.
21 Financial instruments
GROUP
Categories of financial instruments
The following table combines information about:
· Classes of financial instruments based on their nature and
characteristics; and
· The carrying amounts of financial instruments.
2021 2020
£000 £000
Financial assets at amortised cost
Trade receivables - 245
Other debtors 111 -
Prepayments and accrued income 21 114
Cash and cash equivalents 2,059 1,168
Loan to associate 1,244 -
3,435 1,527
21 Financial instruments
Book Value Fair Value Book Value Fair Value
2021 2021 2020 2020
£000 £000 £000 £000
Financial assets at fair value
Non-current Investment - Helium One 312 312 1,542 1,542
Non-current Investment - Corallian Energy Limited 125 125 125 125
Current Loans - Helium One - - 73 73
437 437 1,740 1,740
2021 2020
£000 £000
Financial liabilities at amortised cost
Trade payables 142 152
Accruals and deferred income 36 57
178 209
The table below analyses financial instruments carried at fair value, by
valuation method.
Fair values are categorised into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as follows:
· Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
· Level 2: inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e derived from prices).
· Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The fair values for the Company's assets and liabilities are not materially
different from their carrying values in the financial statements.
The following table presents the Company's financial assets that are measured
at fair value:
Level 1 Level 2 Level 3 Total
£000 £000 £000 £000
Non-current Investment - Helium One 312 - - 312
Non-current Investment - Corallian Energy Limited - - 125 125
312 - 125 437
The Company does not have any liabilities measured at fair value. There have
been no transfers in to or transfers out of fair value hierarchy levels in the
period.
21 Financial instruments
Financial instruments in level 1
The fair value of financial instruments traded in active markets is based on
quoted market prices at the reporting date. A market is regarded as active if
quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service, or regulatory agency, and those
prices represent actual and regularly occurring market transactions on an
arm's length basis. The quoted market price used for financial assets held by
the Company is the current bid price.
Financial instruments in level 2
The fair value of financial instruments that are not traded in an active
market is determined by using valuation techniques. These valuation techniques
maximise the use of observable market data where it is available and rely as
little as possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is
included in level 2. No investments are valued using level 2 inputs in the
period.
Financial instruments in level 3
If one or more of the significant inputs is not based on observable market
data, the instrument is included in Level 3. Following the guidance of IFRS 9,
these financial instruments have been assessed to determine the fair value of
the instrument. In their assessment, the Directors have considered both
external and internal indicators to decide whether an impairment charge must
be made or whether there needs to be a fair value uplift on the instrument.
Instruments included in Level 3 comprise of convertible loan notes held with
Helium One. Details of this can be found at Note 17.
The carrying value of the Company's financial assets and liabilities measured
at amortised cost are approximately equal to their fair value.
The Company is exposed through its operations to one or more of the following
financial risk:
· Fair value or cash flow interest rate risk
· Foreign currency risk
· Liquidity risk
· Credit risk
· Market risk
· Expected credit losses
Policy for managing these risks is set by the Board. The policy for each of
the above risks is described in more detail below.
Fair value and cashflow interest rate risk
Generally the Company has a policy of holding debt at a floating rate. The
directors will revisit the appropriateness of this policy should the Company's
operations change in size or nature. Operations are not permitted to borrow
long-term from external sources locally.
Foreign currency risk
Foreign exchange risk arises because the Company has operations located in
various parts of the world whose functional currency is not the same as the
functional currency in which the Company's investments are operating. The
Company's net assets are exposed to currency risk giving rise to gains or
losses on retranslation into sterling. Only in exceptional circumstances will
the Company consider hedging its net investments in overseas operations as
generally it does not consider that the reduction in volatility in net assets
warrants the cash flow risk created from such hedging techniques.
21 Financial instruments
The Company's exposure to foreign currency risk at the end of the reporting
period is summarised below. All amounts are presented in GBP equivalent.
2021 2020
$000 $000
USD USD
Trade and other receivables 150 274
Cash and cash equivalents 1,415 1,006
Trade and other payables (166) (142)
Net exposure 1,399 1,138
Sensitivity analysis
As shown in the table above, the Company is primarily exposed to changes in
the GBP:USD exchange rate through its cash balance held in USD and trading
balances and to changes in the GBP:EUR exchange rate due to the deposit
denominated in EUR. The table below shows the impact in GBP on pre-tax profit
and loss of a 10% increase/decrease in the GBP to USD exchange rate, holding
all other variables constant. Also shown is the impact of a 10%
increase/decrease in the GBP to EUR exchange rate, being the other primary
currency exposure.
2021 2020
£000 £000
GBP:USD exchange rate increases 10% 116 126
GBP:USD exchange rate decreases 10% (142) (154)
Liquidity risk
The liquidity risk of each entity is managed centrally by the treasury
function. Each operation has a facility with treasury, the amount of the
facility being based on budgets. The budgets are set locally and agreed by the
board annually in advance, enabling the cash requirements to be anticipated.
Where facilities of entities need to be increased, approval must be sought
from the finance director. Where the amount of the facility is above a certain
level agreement of the board is needed.
All surplus cash is held centrally to maximise the returns on deposits through
economies of scale. The type of cash instrument used and its maturity date
will depend on the forecast cash requirements.
The table below analyses the company's financial liabilities into relevant
maturity groupings based on their contractual maturities. The amounts
presented are the undiscounted cash flows.
Less than 6 months 6 to 12 months Between 1 and 2 years Between 2 and 5 years
£000 £000 £000 £000
31 December 2021
Trade and other payables 178 - - -
31 December 2020
Trade and other payables 243 - - -
21 Financial instruments
Credit risk
The Company is mainly exposed to credit risk from credit sales. It is Company
policy, implemented locally, to access the credit risk of new customers before
entering contracts. Such credit ratings are taken into account by local
business practices.
The Company does not enter into complex derivatives to manage credit risk,
although in certain isolated cases may take steps to mitigate such risks if it
is sufficiently concentrated.
Market risk
As the Company is now investing in listed companies, the market risk will be
that of finding suitable investments for the Company to invest in and the
returns that those investments will return given the markets that in which
investments are made.
Expected credit losses
Allowances are recognised as required under the IFRS 9 impairment model and
continue to be carried until there are indicators that there is no reasonable
expectation of recovery.
For trade and other receivables which do not contain a significant financing
component, the Company applies the simplified approach. This approach requires
the allowance for expected credit losses to be recognised at an amount equal
to lifetime expected credit losses. For other debt financial assets the
Company applies the general approach to providing for expected credit losses
as prescribed by IFRS 9, which permits for the recognition of an allowance for
the estimated expected loss resulting from default in the subsequent 12-month
period. Exposure to credit loss is monitored on a continual basis and, where
material, the allowance for expected credit losses is adjusted to reflect the
risk of default during the lifetime of the financial asset should a
significant change in credit risk be identified.
The majority of the Company's financial assets are expected to have a low risk
of default. A review of the historical occurrence of credit losses indicates
that credit losses are insignificant due to the size of the Company's clients
and the nature of the services provided. The outlook for the oil and gas
industry is not expected to result in a significant change in the Company's
exposure to credit losses. As lifetime expected credit losses are not expected
to be significant the Company has opted not to adopt the practical expedient
available under IFRS 9 to utilise a provision matrix for the recognition of
lifetime expected credit losses on trade receivables. Allowances are
calculated on a case-by-case basis based on the credit risk applicable to
individual counterparties.
Exposure to credit risk is continually monitored in order to identify
financial assets which experience a significant change in credit risk. In
assessing for significant changes in credit risk the Company makes use of
operational simplifications permitted by IFRS 9. The Company considers a
financial asset to have low credit risk if the asset has a low risk of
default; the counterparty has a strong capacity to meet its contractual cash
flow obligations in the near term; and no adverse changes in economic or
business conditions have been identified which in the longer term may, but
will not necessarily, reduce the ability of the counterparty to fulfil its
contractual cash flow obligations. Where a financial asset becomes more than
30 days past its due date additional procedures are performed to determine the
reasons for non-payment in order to identify if a change in the exposure to
credit risk has occurred.
Should a significant change in the exposure to credit risk be identified the
allowance for expected credit losses is increased to reflect the risk of
expected default in the lifetime of the financial asset. The Company
continually monitors for indications that a financial asset has become credit
impaired with an allowance for credit impairment recognised when the loss is
incurred. Where a financial asset becomes more than 90 days past its due date
additional procedures are performed to determine the reasons for non-payment
in order to identify if the asset has become credit impaired.
21 Financial instruments
The Company considers an asset to be credit impaired once there is evidence
that a loss has been incurred. In addition to recognising an allowance for
expected credit loss, the Company monitors for the occurrence of events that
have a detrimental impact on the recoverability of financial assets. Evidence
of credit impairment includes, but is not limited to, indications of
significant financial difficulty of the counterparty, a breach of contract or
failure to adhere to payment terms, bankruptcy or financial reorganisation of
a counterparty or the disappearance of an active market for the financial
asset.
A financial asset is only written off when there is no reasonable expectation
of recovery.
A provision matrix can be used based on historical data of default rates
adjusted for a forward looking estimate. The history of default rates needs to
be accessed in conjunction with the aging of the trade receivable balance. The
aging of a balance alone does not require a provision but can be used as a
structure to apply the rates calculated. The historical default rates are used
in accordance with forward looking information.
In order to determine the amount of ECL to be recognised in the financial
statements, Scirocco is using a provision matrix based on its historical
observed default rates which is adjusted for forward-looking estimates and
establishes that ECL should be calculated as:
Non-past due 0.5% of carrying value
30 days past due 2% of carrying value
31-60 past due 4% of carrying value
61-90 past due 6% of carrying value
90 days-3 years past due 10% of carrying value
Over 3 years past due 20% of carrying value
The simplified approach enables Scirocco to make an estimate of ECL as they
are unable to track the credit worthiness of customers.
The total outstanding amount is £8k at 31 December 2021 which is not past due
resulting in an ECL of £nil in the current year.
COMPANY
Categories of financial instruments
The following table combines information about:
· Classes of financial instruments based on their nature and
characteristics; and
· The carrying amounts of financial instruments.
2021 2020
£000 £000
Financial assets at amortised cost
Trade receivables - 245
Other debtors 111 -
Prepayments and accrued income 21 114
Cash and cash equivalents 2,059 1,168
Loan to subsidiary 1,244 -
3,435 1,527
21 Financial instruments
Book Value Fair Value Book Value Fair Value
2021 2021 2020 2020
£000 £000 £000 £000
Financial assets at fair value
Non-current Investment - Helium One 312 312 1,542 1,542
Non-current Investment - Corallian Energy Limited 125 125 125 125
Current Loans - Helium One - - 73 73
437 437 1,740 1,740
2021 2020
£000 £000
Financial liabilities at amortised cost
Trade payables (142) (152)
Accruals and deferred income (36) (57)
178 209
The table below analyses financial instruments carried at fair value, by
valuation method.
Fair values are categorised into different levels in a fair value hierarchy
based on the inputs used in the valuation techniques as follows:
· Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities.
· Level 2: inputs other than quoted prices included in Level 1 that
are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e derived from prices).
· Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The fair values for the Company's assets and liabilities are not materially
different from their carrying values in the financial statements.
The following table presents the Company's financial assets that are measured
at fair value:
Level 1 Level 2 Level 3 Total
£000 £000 £000 £000
Non-current Investment - Helium One 312 - - 312
Non-current Investment - Corallian Energy Limited - - 125 125
312 - 125 437
The Company does not have any liabilities measured at fair value. There have
been no transfers in to or transfers out of fair value hierarchy levels in the
period.
21 Financial instruments
Financial instruments in level 1
The fair value of financial instruments traded in active markets is based on
quoted market prices at the reporting date. A market is regarded as active if
quoted prices are readily and regularly available from an exchange, dealer,
broker, industry group, pricing service, or regulatory agency, and those
prices represent actual and regularly occurring market transactions on an
arm's length basis. The quoted market price used for financial assets held by
the Company is the current bid price.
Financial instruments in level 2
The fair value of financial instruments that are not traded in an active
market is determined by using valuation techniques. These valuation techniques
maximise the use of observable market data where it is available and rely as
little as possible on entity specific estimates. If all significant inputs
required to fair value an instrument are observable, the instrument is
included in level 2. No investments are valued using level 2 inputs in the
period.
Financial instruments in level 3
If one or more of the significant inputs is not based on observable market
data, the instrument is included in Level 3. Following the guidance of IFRS 9,
these financial instruments have been assessed to determine the fair value of
the instrument. In their assessment, the Directors have considered both
external and internal indicators to decide whether an impairment charge must
be made or whether there needs to be a fair value uplift on the instrument.
Instruments included in Level 3 comprise of convertible loan notes held with
Helium One. Details of this can be found at Note 17.
The carrying value of the Company's financial assets and liabilities measured
at amortised cost are approximately equal to their fair value.
The Company is exposed through its operations to one or more of the following
financial risk:
· Fair value or cash flow interest rate risk
· Foreign currency risk
· Liquidity risk
· Credit risk
· Market risk
· Expected credit losses
Policy for managing these risks is set by the Board. The policy for each of
the above risks is described in more detail below.
Fair value and cashflow interest rate risk
Generally the Company has a policy of holding debt at a floating rate. The
directors will revisit the appropriateness of this policy should the Company's
operations change in size or nature. Operations are not permitted to borrow
long-term from external sources locally.
Foreign currency risk
Foreign exchange risk arises because the Company has operations located in
various parts of the world whose functional currency is not the same as the
functional currency in which the Company's investments are operating. The
Company's net assets are exposed to currency risk giving rise to gains or
losses on retranslation into sterling. Only in exceptional circumstances will
the Company consider hedging its net investments in overseas operations as
generally it does not consider that the reduction in volatility in net assets
warrants the cash flow risk created from such hedging techniques.
21 Financial instruments
The Company's exposure to foreign currency risk at the end of the reporting
period is summarised below. All amounts are presented in GBP equivalent.
2021 2020
$000 $000
USD USD
Trade and other receivables 150 274
Cash and cash equivalents 1,415 1,006
Trade and other payables (166) (142)
Net exposure 1,399 1,138
Sensitivity analysis
As shown in the table above, the Company is primarily exposed to changes in
the GBP:USD exchange rate through its cash balance held in USD and trading
balances and to changes in the GBP:EUR exchange rate due to the deposit
denominated in EUR. The table below shows the impact in GBP on pre-tax profit
and loss of a 10% increase/decrease in the GBP to USD exchange rate, holding
all other variables constant. Also shown is the impact of a 10%
increase/decrease in the GBP to EUR exchange rate, being the other primary
currency exposure.
2021 2020
£000 £000
GBP:USD exchange rate increases 10% 116 126
GBP:USD exchange rate decreases 10% (142) (154)
Liquidity risk
The liquidity risk of each entity is managed centrally by the treasury
function. Each operation has a facility with treasury, the amount of the
facility being based on budgets. The budgets are set locally and agreed by the
board annually in advance, enabling the cash requirements to be anticipated.
Where facilities of entities need to be increased, approval must be sought
from the finance director. Where the amount of the facility is above a certain
level agreement of the board is needed.
All surplus cash is held centrally to maximise the returns on deposits through
economies of scale. The type of cash instrument used and its maturity date
will depend on the forecast cash requirements.
The table below analyses the company's financial liabilities into relevant
maturity groupings based on their contractual maturities. The amounts
presented are the undiscounted cash flows.
Less than 6 months 6 to 12 months Between 1 and 2 years Between 2 and 5 years
£000 £000 £000 £000
31 December 2021
Trade and other payables 178 - - -
31 December 2020
Trade and other payables 243 - - -
21 Financial instruments
Credit risk
The Company is mainly exposed to credit risk from credit sales. It is Company
policy, implemented locally, to access the credit risk of new customers before
entering contracts. Such credit ratings are taken into account by local
business practices.
The Company does not enter into complex derivatives to manage credit risk,
although in certain isolated cases may take steps to mitigate such risks if it
is sufficiently concentrated.
Market risk
As the Company is now investing in listed companies, the market risk will be
that of finding suitable investments for the Company to invest in and the
returns that those investments will return given the markets that in which
investments are made.
Expected credit losses
Allowances are recognised as required under the IFRS 9 impairment model and
continue to be carried until there are indicators that there is no reasonable
expectation of recovery.
For trade and other receivables which do not contain a significant financing
component, the Company applies the simplified approach. This approach requires
the allowance for expected credit losses to be recognised at an amount equal
to lifetime expected credit losses. For other debt financial assets the
Company applies the general approach to providing for expected credit losses
as prescribed by IFRS 9, which permits for the recognition of an allowance for
the estimated expected loss resulting from default in the subsequent 12-month
period. Exposure to credit loss is monitored on a continual basis and, where
material, the allowance for expected credit losses is adjusted to reflect the
risk of default during the lifetime of the financial asset should a
significant change in credit risk be identified.
The majority of the Company's financial assets are expected to have a low risk
of default. A review of the historical occurrence of credit losses indicates
that credit losses are insignificant due to the size of the Company's clients
and the nature of the services provided. The outlook for the oil and gas
industry is not expected to result in a significant change in the Company's
exposure to credit losses. As lifetime expected credit losses are not expected
to be significant the Company has opted not to adopt the practical expedient
available under IFRS 9 to utilise a provision matrix for the recognition of
lifetime expected credit losses on trade receivables. Allowances are
calculated on a case-by-case basis based on the credit risk applicable to
individual counterparties.
Exposure to credit risk is continually monitored in order to identify
financial assets which experience a significant change in credit risk. In
assessing for significant changes in credit risk the Company makes use of
operational simplifications permitted by IFRS 9. The Company considers a
financial asset to have low credit risk if the asset has a low risk of
default; the counterparty has a strong capacity to meet its contractual cash
flow obligations in the near term; and no adverse changes in economic or
business conditions have been identified which in the longer term may, but
will not necessarily, reduce the ability of the counterparty to fulfil its
contractual cash flow obligations. Where a financial asset becomes more than
30 days past its due date additional procedures are performed to determine the
reasons for non-payment in order to identify if a change in the exposure to
credit risk has occurred.
Should a significant change in the exposure to credit risk be identified the
allowance for expected credit losses is increased to reflect the risk of
expected default in the lifetime of the financial asset. The Company
continually monitors for indications that a financial asset has become credit
impaired with an allowance for credit impairment recognised when the loss is
incurred. Where a financial asset becomes more than 90 days past its due date
additional procedures are performed to determine the reasons for non-payment
in order to identify if the asset has become credit impaired.
21 Financial instruments
The Company considers an asset to be credit impaired once there is evidence
that a loss has been incurred. In addition to recognising an allowance for
expected credit loss, the Company monitors for the occurrence of events that
have a detrimental impact on the recoverability of financial assets. Evidence
of credit impairment includes, but is not limited to, indications of
significant financial difficulty of the counterparty, a breach of contract or
failure to adhere to payment terms, bankruptcy or financial reorganisation of
a counterparty or the disappearance of an active market for the financial
asset.
A financial asset is only written off when there is no reasonable expectation
of recovery.
A provision matrix can be used based on historical data of default rates
adjusted for a forward looking estimate. The history of default rates needs to
be accessed in conjunction with the aging of the trade receivable balance. The
aging of a balance alone does not require a provision but can be used as a
structure to apply the rates calculated. The historical default rates are used
in accordance with forward looking information.
In order to determine the amount of ECL to be recognised in the financial
statements, Scirocco is using a provision matrix based on its historical
observed default rates which is adjusted for forward-looking estimates and
establishes that ECL should be calculated as:
Non-past due 0.5% of carrying value
30 days past due 2% of carrying value
31-60 past due 4% of carrying value
61-90 past due 6% of carrying value
90 days-3 years past due 10% of carrying value
Over 3 years past due 20% of carrying value
The simplified approach enables Scirocco to make an estimate of ECL as they
are unable to track the credit worthiness of customers.
The total outstanding amount is £8k at 31 December 2021 which is not past due
resulting in an ECL of £nil in the current year.
22 Related party transactions
GROUP
The Company had the following amounts outstanding from its investee companies
(Note 17) at 31 December:
2021 2020
£000 £000
Helium One opening balance 73 76
Foreign exchange movement - (3)
Conversion to shares in Helium One (73) -
Balance at 31 December - 73
Details of director's remuneration, being key personnel, are given in Note 7.
22 Related party transactions
The Company entered into transactions with the following related parties who
have common directors during the current year:
2021 2020
£000 £000
Gneiss Energy Limited - provision of corporate finance advisory - common 606 225
director Jonathan Fitzpatrick
Quixote Advisors Ltd - provision of management services - common director Tom (19) 27
Reynolds
During the current year, the Group loaned £1,200,000 to Energy Acquisitions
Group Limited, a 50% owned associate of the Group and accrued interest of
£44,000. The loan is repayable on demand and interest is payable and accrued
in accordance with loan agreement.
COMPANY
The Company had the following amounts outstanding from its investee companies
(Note 17) at 31 December:
2021 2020
£000 £000
Helium One opening balance 73 76
Foreign exchange movement - (3)
Conversion to shares in Helium One (73) -
Balance at 31 December - 73
Details of director's remuneration, being key personnel, are given in Note 7.
Amounts due from subsidiaries
2021 2020
£000 £000
Scirocco Energy (UK) Limited 1,244 -
Interest is payable and accrued in accordance with loan agreement.
Intercompany balances are repayable on demand.
The Company entered into transactions with the following related parties who
have common directors during the current year:
22 Related party transactions
2021 2020
£000 £000
Gneiss Energy Limited - provision of corporate finance advisory - common 606 225
director Jonathan Fitzpatrick
Quixote Advisors Ltd - provision of management services - common director Tom (19) 27
Reynolds
During the current year, the Company loaned £1,200,000 to Scirocco Energy
(UK) Limited, a 100% owned subsidiary of the Company and accrued interest of
£44,000. The loan is repayable on demand and interest is payable and accrued
in accordance with loan agreement.
23 Ultimate controlling party
GROUP AND COMPANY
In the opinion of the directors there is no controlling party.
24 Commitments
GROUP AND COMPANY
As at 31 December 2021, the Company had no material commitments (2020: £nil).
25 Retirement benefit scheme
GROUP AND COMPANY
The Company operates only the basic pension plan required under UK
legislation, contributions thereto during the year amounted to £nil (2020:
£nil).
26 Cash generated from operations
2021 2020
GROUP £000 £000
Profit/(loss) for the year after tax for continuing operations 361 (3,323)
(Loss)/profit for the year after tax for discontinuing operations (4,053) (795)
Adjustments for:
Finance costs - 3
Impairment of investments - 1,385
Loss on fair value revaluation of assets held for sale 3,846 810
Gain from sale of investment (2,196) -
Interest accrued on loan to related party (44) -
Equity settled share based payment expense 471 335
Decrease in provisions - (352)
Movements in working capital:
Decrease in trade and other receivables 268 1,011
(Decrease)/increase in trade and other payables (70) 49
Cash absorbed by operations (1,417) (877)
2021 2020
COMPANY £000 £000
Profit/(loss) for the year after tax for continuing operations 361 (3,323)
(Loss)/profit for the year after tax for discontinuing operations (4,053) (795)
Adjustments for:
Finance costs - 3
Impairment of investments - 1,385
Loss on fair value revaluation of assets held for sale 3,846 810
Gain from sale of investment (2,196) -
Interest accrued on loan to subsidiary (44) -
Equity settled share based payment expense 471 335
Decrease in provisions - (352)
Movements in working capital:
Decrease in trade and other receivables 268 1,011
(Decrease)/increase in trade and other payables (70) 49
Cash absorbed by operations (1,417) (877)
27 Post balance sheet event
At the date these financial statements were approved, being 30 June 2022, the
Directors were not aware of any significant post balance sheet events other
than those set out in the notes to the financial statements.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
or visit
www.rns.com (http://www.rns.com/)
.
RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
. END FR URABRUKUNOARRecent news on Scirocco Energy
See all newsREG - AIM Scirocco Energy PLC - Cancellation - SCIROCCO ENERGY PLC
AnnouncementREG - Scirocco Energy PLC - Cancellation of Listing on AIM
AnnouncementREG - FTSE Russell Scirocco Energy PLC - Scirocco Energy
AnnouncementREG - Scirocco Energy PLC - Result of GM
AnnouncementREG - Scirocco Energy PLC - Notification of Major Holdings
Announcement