REG - Scirocco Energy PLC - Publication of Annual Report and Final Results
30/06/2023 07:00
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RNS Number : 4611E Scirocco Energy PLC 30 June 2023
30 June 2023
Scirocco Energy plc
("Scirocco Energy" or "the Company")
Publication of Annual Report and Final Results
Scirocco Energy (AIM: SCIR), the AIM investing company targeting attractive
assets within the European sustainable energy and circular economy markets, is
pleased to announce the publication of its annual report and audited annual
results for the period ended 31 December 2022. The Company will shortly be
publishing its Notice of AGM and a further announcement will be made in this
regard.
The Annual Report & Accounts will be posted to the Company's website at
https://www.sciroccoenergy.com/ (https://www.sciroccoenergy.com/) .
Highlights
· Agreed in June 2022 to divest of 25% non-operated interest in
Ruvuma asset for up to $16 million
o Initial consideration of US$3 million payable on completion of the
disposal, which is now expected to be in Q3 2023
· Ruvuma disposal approved by Shareholders at a general meeting
held on 29th June 2022
· In December 2022, the Tanzanian Fair Competition Commission
("FCC") granted its unconditional approval for the transaction and issued the
Company with the Merger Clearance Certificate - an important step towards
completion of the asset divestment.
· Strong operational and financial performance from Greenan (GGL)
through 2022 including:
o GGL delivered c. 4 million kWh during 12 month period of EAG ownership
o Operational availability in excess of 93%
o EAG/GGL Revenue of £1,414k (2021:£1,163k)
o
o EAG/GGL EBITDA of £619k (2021: £352k)
o £295,000 of mechanical upgrades and improvements made to future proof the
GGL asset
Post Period Highlights
· Scirocco and APT have executed amendments to extend the longstop
date of the proposed transaction from 30 June 2023 to 31 August 2023
· Operational and financial performance at Greenan Generation
Limited ("GGL") remains on a positive trend
· Board changes to reflect strategic evolution of business with
appointments of Matt Bower and Niall Roberts replacing Muir Miller and the
outgoing Don Nicolson
· Continued focus on cost management to preserve cash and establish
a sustainable burn-rate
Commenting on the Results, Alastair Ferguson, Non-Executive Chairman, said:
"2022 was a year of strategic progress for the Group as we worked towards
completion of the divestment of legacy assets, in particular Ruvuma, and
continued the development of the Company's sustainable energy investment
strategy. This being said, it is important to acknowledge the delay to the
initially anticipated timeline for completion of the Ruvuma divestment and its
impact on our strategic progress, we therefore thank our shareholders, new and
old, for their patience and for supporting the strategy to build a business of
scale that is capable of delivering long-term growth and sustainable
shareholder value."
For further information:
Scirocco Energy plc +44 (0) 20 7466 5000
Tom Reynolds, CEO
Strand Hanson Limited, Nominated Adviser +44 (0) 20 7409 3494
Ritchie Balmer / James Spinney / Robert Collins
WH Ireland Limited, Broker +44 (0) 207 220 1666
Harry Ansell / Katy Mitchell
Buchanan, Financial PR +44 (0) 20 7466 5000
Ben Romney / George Pope
CHAIRMAN'S STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2022
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 2022.
2022 was a year of strategic progress for the Group as we worked towards
completion of the divestment of legacy assets, in particular Ruvuma, and
continued the development of the Company's sustainable energy investment
strategy. The macro backdrop continues to support the new strategy as the
importance of delivering secure and sustainable energy solutions for the UK
and beyond becomes increasingly clear, while increased volatility in the oil
and gas markets, exacerbated by Russia's invasion of Ukraine, has demonstrated
the prudence of the Board and shareholders' decision to pivot to an investment
strategy that offers a risk/reward profile better aligned to a company of
Scirocco's scale and ability to deliver sustainable long-term returns.
With this in mind, in my capacity as Non-Executive Chairman of the Group, I am
pleased to provide a review of the 2022 financial year along with an outlook
for the current fiscal year and beyond.
Strategy and Portfolio
During 2022 the Group made significant strides towards divesting its legacy
oil and gas assets in order to progress its strategy to invest in sustainable
and circular economy assets which meet our criteria for value creation, such
as the Company's ongoing investment into Energy Acquisitions Group Limited
("EAG") and support for its acquisition and subsequent operation of Greenan
Generation Limited ("GGL"), which EAG acquired in September 2021.
A significant amount of work was undertaken in the second half of 2022 to
identify and high grade potential portfolio opportunities to build on what has
been achieved in GGL. In line with our strategy we continue to review
opportunities across all three target investment segments: energy, circular
and vector.
Ruvuma Disposal
As initially announced to the market in the RNS dated 13 June 2022, the Group
entered into a conditional binding agreement with Wentworth Resources plc to
divest its 25% non-operated interest in the Ruvuma asset, Tanzania. Following
this announcement, and in accordance with the terms of the Joint Operating
Agreement ("JOA") associated with Ruvuma, ARA Petroleum Tanzania Limited
("APT") informed the Company that it would be exercising its pre-emption
rights in relation to the sale of the Company's interest in the asset for a
total consideration of up to US$16 million comprised of:
• Initial consideration of US$3 million payable on completion of the
disposal, which is now expected to be in Q3 2023;
• 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, APT would provide Scirocco with a loan of up to ceiling
$6,250,000 to meet all cash calls pursuant to the Ruvuma JOA arising between 1
January 2022 and the expected completion date - thereby removing the risk of
default and possible relinquishment of Scirocco's interest in the project.
During the period between signature of the sale agreements and completion the
loan accrues as cash calls are paid by APT on Scirocco's behalf. The
consideration payable at completion is also increased by the cash calls
incurred. At completion the accrued loan will be offset against the increased
consideration balance, cancelling out the loan. In March 2023, Scirocco and
APT agreed to increase the contractional longstop date to 31 August 2023 from
30 June 2023.
The total potential consideration represents a significant premium to
Scirocco's prevailing market capitalisation and the deal strengthens
Scirocco's balance sheet and, critically, removed the imminent need to raise
capital to fund the Ruvuma work programme during 2022 and into 2023 - which
given the highly challenging market backdrop was a genuine risk that the Board
were committed to avoid at all costs.
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 in June 2022, and the resolution received the shareholders to
approve the transaction.
In December 2022, the Tanzanian Fair Competition Commission ("FCC") granted
its unconditional approval for the transaction and issued the Company with the
Merger Clearance Certificate - an important step towards completion of the
asset divestment. Following the end of the period we have seen significant
progress on the asset in terms of an accelerated timeline to first gas, which
we see as a positive step towards receiving the contingent payments relating
to FID and the deferred consideration linked to a share of gas revenue.
As communicated to the market in an RNS dated 25 May 2023, the Company and APT
have extended the long stop date to 31 August 2023 and both parties expect to
complete the transaction within this timeframe. Completion of this divestment
represents a material strategic event for the Company and enables the business
to move forward with a clear strategic vision, a significantly strengthened
balance sheet and belief that the material upside associated with contingent
elements of that transaction will provide funds to accelerate Scirocco's
stated growth strategy
EAG/GGL
Following the acquisition of GGL in September 2021, EAG implemented a number
of operational and technical improvements to the site, using their extensive
experience of operating and maintaining anaerobic digestion plants to minimise
downtime and maximise efficiency gains. As reported to the market in April
2023, in Q4'22 GGL supported by wholesale power prices performed strongly,
exceeding the key performance indicators of production, revenue and EBITDA
achieved in Q4'21 and clearly demonstrating the positive impact of EAG's
operatorship and the overall approach to optimisation of these low-risk,
cash-generative assets.
During the period, Scirocco supported EAG's team in identifying and reviewing
a number of potential investments with similar profiles to GGL and good
progress continues to be made in the screening and due diligence processes.
That being said, factors including the delayed completion of the Ruvuma
divestment and the absence of authority to issue new share capital have
hindered more substantial progress on these opportunities . However, the Board
remains confident of completing the Ruvuma transaction before the newly
extended long stop date of 31 August 2023 which will deliver funds and
potentially further contingent payments within the remainder of 2023 that will
provide capital for further investment.
In parallel, Scirocco will continue to support EAG as it investigates
alternative sources of potential investment funds to secure attractive
acquisition opportunities currently under consideration. Longer-term, as the
EAG JV continues to forge a track record for consistent delivery and value
uplift from its ownership and operatorship of Anaerobic Digestion
installations, we hope to broaden the appeal of our investment proposition.
Other Assets
Corallian Energy Limited
Under its previous investment policy, in 2018 Scirocco undertook a minor
investment in Corallian Energy Limited through the subscription for 83,333
shares at a price of £1.50 per share. In September 2022 Corallian's parent
company, Reabold Resources plc, announced the conditional sale of Corallian at
a price of up to £3.20 per share as a combination of initial cash plus
contingent payments, providing a profitable exit from a legacy investment for
Scirocco. The proceeds further strengthened the Company's balance sheet and
supported ongoing opportunity screening being undertaken by the Joint Venture
with EAG.
Helium One
During 1H 2022 Scirocco sold 1,550,000 shares of Helium One at an average
price of 6.7p/share.
Scirocco held its shares in an account with Pello Capital which entered
administration in October 2022. As a result, Scirocco's Helium One
shareholding was split into two tranches.
• 1,906,088 shares held in a brokerage account.
• 1,000,000 shares held within the general Pello Capital Crest
account which had not been credited to the Scirocco named account
Scirocco has been engaged with the administrator, Evelyn Partners, regarding
the recovery of the 1 million shares. At 31 December 2022 Scirocco held
2,906,088 shares in Helium, 1 million of which are the subject of ongoing
recovery discussions with the Pello Capital administrator.
I am pleased to see the monetisation of the Helium One investment continue.
Governance/Shareholder Engagement
As we report on the first full year of implementing Scirocco's reshaped
investment strategy, and despite the overwhelming mandate delivered by
shareholders in support of this strategy in 2021, the Board recognises that
there remained some shareholder objections to the pivot to investing in
sustainable energy and the circular economy which drove the strategic
divestment of the legacy investment in Ruvuma.
As a result, the Directors and I took part in several live sessions, both
virtual and in person, with shareholders throughout 2022 in order to better
understand shareholder concerns. This culminated in an investor event in
December 2022 around the Group's investment into EAG and its forward strategy
which was positively received by all attendees.
At the same time, the Board acknowledges the results of the shareholder vote
at the AGM in August 2022, especially on Resolution 6 - Disapplication of
Pre-emption Rights. As stated at the time and above, we believe this has
impacted the Group's ability to execute swiftly on opportunities that meet our
criteria for value creation to the detriment of all stakeholders. In the
constructive spirit of shareholder engagement activity in 2022, where
appropriate the Board will continue its efforts to engage on this topic with
all shareholders to alleviate concerns, outline the long- term growth strategy
and emphasise how the decisions undertaken by the Board support delivery of
that strategy.
A final point on Governance, is the evolution of the Board composition to
reflect the change in strategic direction of Scirocco. The Board recognises
that it is of the utmost importance that it retains the appropriate level of
skills, experience and independence in order to be able to execute its
strategy on behalf of its shareholders. In that regard, post-period, there
have been a number of changes with Muir Miller stepping down, and Don Nicolson
notifying of his intention to step down in due course. I'd like to thank both
Muir and Don for their good insights and guidance through what has been a
highly transitional and challenging period for the Company.
Scirocco has been fortunate to replace these Directors with two candidates put
forward as representatives of our largest shareholder G.P. Jersey in the form
of Matt Bower and Niall Roberts who join as Non-Executive Directors. Both Matt
and Niall bring directly applicable skills and experience within the broader
renewables/clean-tech space which will be invaluable to Scirocco moving
forward. Reflecting our commitment to good Governance, we are in the process
of recruiting a suitable independent non-executive director with the requisite
skills to assume the role as Chairman of the Audit Committee which will come
available through the departure of Don Nicolson.
Outlook
While progress is being made across our strategic priorities, it is important
to acknowledge the delay to the initially anticipated timeline for completion
of the Ruvuma divestment and its impact on our strategic progress. While this
is not uncommon in transactions of this nature in Tanzania, we understand and
share shareholder frustration and acknowledge there has been a knock-on impact
on the Company's ability to deploy capital for further investments in the
sustainable energy sector as rapidly as we would have liked.
As outlined above, the Company expects to complete the transfer of ownership
of its 25% interest in Ruvuma to APT by the longstop date of 31 August 2023,
which will deliver net funds immediately upon completion and potentially
further funds through contingent payments during 2023 which will provide
capital for further investment within the sustainable energy and circular
economy sectors.
Recognising that growth will require funding, the Board continues to
investigate 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 as we seek to build a self-sustaining
business of scale.
Closing Remarks
The Group began 2022 with a mandate to pursue its strategy of investing in
sustainable energy and the circular economy while removing the overhang of
legacy investments in hydrocarbon production.
Having secured an agreement to divest Ruvuma to APT and realised significant
upside in the Company's investment in Corallian Energy, we have established a
clear path to strengthen Scirocco's balance sheet and, upon completion of the
Ruvuma divestment, will have the ability to fund follow on investments in the
anaerobic digestion space through the joint venture with EAG, as we seek to
replicate the success of Greenan over the past year and build a business of
scale for the benefit of all stakeholders.
The Company will continue to support EAG in its operatorship of Greenan and
its business development efforts, as it identifies, screens and pursues
potential acquisition targets and other growth opportunities. EAG has a high
quality team with a unique network and pipeline of opportunities. I'd like to
thank the EAG team for their patience while Scirocco fully completes its
strategic re-positioning and are pleased to be aligned with them as we jointly
pursue value accretive opportunities that deliver a multitude of stakeholder
benefits in terms of UK's pathway to net-zero.
I'd like to commend Tom Reynolds for his diligent work across the various
work-streams associated with the Ruvuma divestment, the development of the
investment strategy and the progression of the EAG Joint Venture.
Finally, I'd like to thank our shareholders, new and old, for their
patience. There is no doubt that long-term shareholders in the Company have
had a tough ride and we fully recognise that, despite our best efforts, things
did not work out the way that they had hoped when they invested in the Company
on the basis of Tanzania. That said, it is for exactly that reason that the
Board has changed the Company's investment strategy to reflect changing market
demand and broader macro drivers, and we see strong opportunities ahead to
build a business of scale and relevance that is capable of delivering
long-term growth and sustainable shareholder value.
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 -
the decision to sell the Ruvuma asset and the investment made in EAG (which
supported EAG to acquire GGL) 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.
Alastair Ferguson
Non-Executive Chairman
Date: 29 June 2023
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
Notes £000 £000
Share of profit in joint venture 5 40 -
Administrative expenses 6 (1,613) (1,892)
Operating loss (1,573) (1,892)
Other income 132 58
Other gains and losses 8 3 2,196
Profit before taxation (1,438) 362
Income tax expense 9 - -
Profit for the year from continuing operations (1,438) 362
Loss for the year from discontinued operations 10 (3,377) (4,053)
Loss and total comprehensive income for the year
(4,815)
(3,691)
Earnings per share 11
Basic (0.53) (0.49)
Diluted (0.47) (0.43)
Earnings per share from continuing operations
Basic (0.16) 0.05
Diluted (0.14) 0.04
Earnings per share from discontinued operations
Basic (0.38) (0.53)
Diluted (0.33) (0.47)
STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2022
2022 2021
GROUP Notes £000 £000
Non-current assets
Loan receivable from related party 16 1,448 1,244
Investment in joint venture 14 40 -
1,488 1,244
Current assets
Financial assets at fair value through profit or loss
273 437
Trade and other receivables 16 210 153
Cash and cash equivalents 750 2,059
Assets held for sale 15 10,715 11,600
11,948 14,249
Total assets 13,436 15,493
Current liabilities
Trade and other payables 17 224 178
Liabilities held for sale 15 3,110 166
3,334 344
Net current assets 8,614 13,905
Net assets 10,102 15,149
Equity
Called up share capital 18 1,801 1,518
Share premium account 19 38,408 38,155
Deferred share capital 18 1,831 2,729
Share based payments 20 2,071 1,941
Retained earnings (34,009) (29,194)
Total equity 10,102 15,149
The notes on pages 45 to 82 form part of these financial statements.
The financial statements were approved by the board of directors and
authorised for issue on 29 June 2023 and are signed on its behalf by:
..............................
Mr Tom Reynolds
Director
STATEMENT OF FINANCIAL POSITION (CONTINUED)
AS AT 31 DECEMBER 2022
2022 2021
COMPANY Notes £000 £000
Non-current assets
Loan receivable from related party 16 1,450 1,244
1,450 1,244
Current assets
Financial assets at fair value through profit or loss
273 437
Trade and other receivables 16 210 153
Cash and cash equivalents 750 2,059
Assets held for sale 15 10,715 11,600
11,948 14,249
Total assets 13,398 15,493
Current liabilities
Trade and other payables 17 214 178
Liabilities held for sale 15 3,110 166
3,324 344
Net current assets 8,624 13,905
Net assets 10,074 15,149
Equity
Called up share capital 18 1,801 1,518
Share premium account 19 38,408 38,155
Deferred share capital 18 1,831 2,729
Share based payments 20 2,071 1,941
Retained earnings (34,037) (29,194)
Total equity 10,074 15,149
The notes on pages 45 to 82 form part of these financial statements.
The company has taken advantage of the exemption under section 408 of the
Companies act 2006 to not present a Company statement of comprehensive income.
Profit for the year for the Company was £4,845k.
The financial statements were approved by the board of directors and
authorised for issue on 29 June 2023 and are signed on its behalf by:
..............................
Mr Tom Reynolds
Director
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2022
Share capital Share premium Deferred share Share-based payments Retained earnings Total
account capital
Notes £000 £000 £000 £000 £000 £000
GROUP
Balance at 1 January 2021 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
Year ended 31 December 2022:
Loss and total comprehensive income for the year - - - - (4,815) (4,815)
Issue of share capital 283 253 - - - 536
Credit to equity for equity settled share-based payments 20 - - - 130 - 130
Repayment of consideration for shares not issued 18 - - (898) - - (898)
Balance at 31 December 2022 1,801 38,408 1,831 2,071 (34,009) 10,102
The notes on pages 45 to 82 form part of these financial statements.
* the adjustment is made to correct deferred shares incorrectly recorded as
share premium in the prior year
STATEMENT OF CHANGES IN EQUITY (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
Share capital Share premium Deferred share Share-based payments Retained earnings Total
account capital
Notes £000 £000 £000 £000 £000 £000
COMPANY
Balance at 1 January 2021 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
Year ended 31 December 2022:
Loss and total comprehensive income for the year - - - - (4,892) (4,892)
Issue of share capital 283 253 - - - 536
Credit to equity for equity settled share-based payments 20 - - - 130 - 130
Repayment of consideration for shares not issued 18 - - (898) - - (898)
Balance at 31 December 2022 1,801 38,408 1,831 2,071 (34,086) 10,025
The notes on pages 45 to 82 form part of these financial statements.
* the adjustment is made to correct deferred shares incorrectly recorded as
share premium in the prior year
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 31 DECEMBER 2022
2022 2021
Notes £000 £000 £000 £000
GROUP AND COMPANY
Cash flows from operating activities
Cash absorbed by operations 26 (1,515) (1,417)
Net cash outflow from operating activities (1,515) (1,417)
Investing activities
Cash movements in relation to assets held for sale
(2,467) (642)
Loans granted to related party (70) (1,200)
Proceeds from disposal of investments 161 3,426
Net cash (used in)/generated from
investing activities (2,376) 1,584
Financing activities
Proceeds from issue of shares - 724
Cash settlement of deferred shares not
issued (362) -
Loan proceeds in relation to assets held for
sale 2,944 -
Net cash generated from financing
activities 2,582 724
Net (decrease)/increase in cash and cash
equivalents (1,309) 891
Cash and cash equivalents at beginning of year 2,059 1,168
Cash and cash equivalents at end of year 750 2,059
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2022
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 2022 were
authorised for issue by the Board on X 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 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 Company may invest by way of outright acquisition or by the acquisition of
assets, including the intellectual property, of a relevant business,
partnerships or joint venture arrangements. Such investments may constitute a
minority stake in the company (which may be private or listed on a stock
exchange, and which may be pre-revenue) or project in question. The Company'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 Company may
invest, nor the proportion of the Company's gross assets that any investment
may represent at any time.
Statement of compliance with UK adopted IAS
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1 Accounting
policies
(Continued)
Going concern
The Directors note the losses that the Group has made for the year ended 31
December 2022. 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 ARA Petroleum Tanzania ("APT") 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 within 12 months of the approval of the financial
statements. 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 APT for its 25% interest. Based on this, there is material uncertainty
present, given that draws on the facility would become due in the event the
sale does not complete. 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 2022. 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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1 Accounting
policies
(Continued)
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 recognises 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.
Investment in 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 as part
of operating loss 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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1 Accounting
policies
(Continued)
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1 Accounting
policies
(Continued)
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.
Financial assets at fair value through profit or loss
Financial assets are classified as at FVTPL when the financial asset is held
for trading. This is the case if:
• the asset has been acquired principally for the purpose of selling in
the near term, or
• on initial recognition it is part of a portfolio of identified financial
instruments that the company manages together and has a recent actual pattern
of short-term profit taking, or
• it is a derivative that is not designated and effective as a hedging
instrument.
Financial assets at FVTPL are stated at fair value with any gains or losses
arising on remeasurement recognised in profit or loss. The net gain or loss
recognised in profit or loss incorporates any dividend or interest earned on
the financial asset. Interest and dividends are included in 'Investment
income' and gains and losses on remeasurement included in 'other gains and
losses' in the statement of comprehensive income.
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
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1 Accounting
policies
(Continued)
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1 Accounting
policies
(Continued)
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1 Accounting
policies
(Continued)
Oil and gas properties and other property, plant and equipment
• 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.
• 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.
• 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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
1 Accounting
policies
(Continued)
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
these associates is not considered to be appropriate.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
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 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
IFRIC Amendments to IFRS 1 (subsidiary as a first-time adopter), IFRS 9 (fees in the 1 January 2022
'10 liabilities), IFRS 16 (lease incentives), IAS 41 (taxation in the fair
value measurements)
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
Practice Statement Disclosure of accounting policies 1 January 2023
IAS 1 and IFRS
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
IFRS 16 (Amendments) Liability in a Sale and Leaseback 1 January 2024
IAS 1 (Amendments) Classification of liabilities as current or non-current deferral of effective 1 January 2024
date
IAS 1 (Amendments) Non-current liabilities with covenants 1 January 2024
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
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:
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 21 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 assets held for sale (note 15)
The Company assesses assets held for sale 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 fair value less costs of sale. 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.
Recoverability of loan receivable from joint venture (note 16)
The Company has determined that the loan to the joint venture is fully
recoverable and enforceable based on a signed loan agreement and the value of
the underlying company. At the time of signing the financial statements the
loan was repayable on demand, but will not be callable within twelve months of
the signing of the financial statements. The loan has been classified as a
non-current asset, reflecting Management's intention.
Decommissioning provisions (note 15)
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
• Critical accounting estimates and
judgements (Continued)
The estimated decommissioning costs are reviewed annually. 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. The company assess the reasonableness of the decommissioning provision
annually and believes it represents a fair view of the potential liability.
• 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
• Discontinued operations on its investments in Tanzania
Continuing Discontinued
Operations Operations
2022 UK Tanzania Total
£000 £000 £000
Revenue 40 - 40
Administrative expenses (1,613) - (1,613)
Interest income 134 - 134
Other gains and losses 3 (3,377) (3,374)
Other income (2) - (2)
(Loss) from operations per reportable segment (4,815)
(1,438) (3,377)
Additions to non-current assets 244 - 244
Reportable segment assets 2,477 10,715 13,192
Reportable segment liabilities 224 3,110 3,334
2021 Total Tanzania Total
£000 £000 £000
Administrative expenses (1,890) - (1,890)
Interest income - 12 12
Finance costs (2) - (2)
Other gains and losses 2,196 (4,065) (1,869)
Other income 58 - 58
Profit/(Loss) from operations per reportable segment (3,691)
362 (4,053)
Additions to non-current assets 26 - 26
Reportable segment assets 3,846 11,600 15,446
Reportable segment liabilities 157 166 323
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
5 Revenue
2022 2021
£000 £000
Share of profit in joint venture Interest income 40 - 12
-
40 12
Contract balances
2022 2021
£000 £000
Trade receivables - -
Accrued income and interest - -
Trade receivables accrue interest for non payment. Outstanding trade debtors
accrue interest at a rate in accordance with the joint venture agreement and
are generally on terms of 30 days. In 2022, there is a provision of £nil
(2021: nil) 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
2022 2021
Continuing Operations £000 £000
Exchange (gains)/losses (169) 8
Fees payable to the Company's auditor for the audit of the Company's financial
statements
74 19
Professional, legal and consulting fees 752 920
AIM related costs including investor relations 134 157
Accounting related services 152 93
Travel and subsistence 18 -
Office and administrative expenses 104 87
Other expenses 2 38
Share-based payments 130 471
Directors remuneration 334 94
Wages and salaries and other related costs 82 5
1,892
1,613
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
7 Employees
The average number of employees (excluding executive directors) was one
(2021:1).
During the year ended 31 December 2022 the Directors opted to receive
remuneration in the form of share options in lieu of fees (note 20).
2022 2021
£000 £000
Their aggregate remuneration comprised :
Wages and salaries 11
44
Directors remuneration
Salary and fees Share-based payments Termination payments Total
£000 £000 £000 £000
Year ended 31 December 2022
Alastair Ferguson 75 25 - 100
Tom Reynolds 200 25 - 225
Donald Nicolson 33 41 - 74
Muir Miller (appointed 18 February 2021) 26 27 - 53
Doug Rycroft (senior management) - 12 - 12
464
334 130
Salary and fees Share-based payments Termination payments Total
£000 £000 £000 £000
Year ended 31 December 2020
Jonathan Fitzpatrick (resigned 9 July 2021) 36 - 36
Alastair Ferguson 7 140 - 133
Tom Reynolds 91 146 - 237
Donald Nicolson 10 89 - 99
Muir Miller (appointed 18 February 2021) - - 35 - 35
Doug Rycroft (senior management) - - 25 - 25
565
94 471 -
No directors received pension contributions in 2022 or 2021.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
8 Other gains and losses
2022 2021
£000 £000
Gain on sale of financial assets at fair value through profit or 2,196
loss 61
-
Impairment of financial assets at fair value through profit or
loss (58)
2,196
3
9 Income tax expense 2021
2022
£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
-
The charge for the year can be reconciled to the loss per the income statement
as follows:
2022 2021
£000 £000
(Loss) before (4,815) (3,692)
taxation
Expected tax credit based on a corporation tax rate of 19.00% (2021: (915) (701)
19.00%)
Effect of expenses not deductible in determining taxable 754 837
profit
Income not (35) (420)
taxable
Remeasurement of deferred tax for changes in tax 187 (45)
rates
Chargeable 9 329
gains
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 £7,079k (2021 - £6,312k).
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
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:
2022 2021
£000 £000
Impairment on fair value revaluation (3,377) (3,846)
Investment losses - (207)
Net loss attributable to discontinuation
(3,377) (4,053)
The loss after tax on carrying value of assets held for sale is made up as 2022
follows:
£000
Fair value less costs to sell 7,605
Net book value of assets disposed: Intangible assets
(18,368)
Oil and gas properties (380)
Loan to ARA Petroleum 2,944
Decommissioning provision 166
Impairment on fair value revaluation at 31 December 2021 4,656
(10,982)
Impairment on fair value revaluation at 31 December 2022
(3,377)
Loss per share impact from discontinued operations 2022 2021
Basic impact (pence)
(0.38) (0.51)
Diluted impact (pence) (0.34) (0.45)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
10 Discontinued operations (Continued)
Cash flow statement
2022 2021
£000 £000
Net cash flows from financing activities 2,467 -
Net cash flows from investing activities (2,467) (642)
Net cash flows from discontinued operations - (642)
Remaining cash received from financing activities was used for other
operational expenses.
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.
2022 2021
Number of shares
Weighted average number of ordinary shares for basic profit/loss per share
(000)
900,496 758,788
Weighted average number of ordinary shares for diluted profit per share (000) 1,022,703 854,621
Earnings £000 £000
Continuing operations
Profit for the period from continued operations 1,939 361
Discontinued operations
(Loss) for the period from discontinued operations (6,754) (4,053)
Basic earnings per share
From continuing operations (pence per share) 0.22 0.05
From discontinued operations (pence per share) (0.75) (0.53)
(0.53) (0.49)
Diluted earnings per share
From continuing operations (pence per share) (0.14) 0.04
From discontinued operations (pence per share) (0.33) (0.47)
(0.47) (0.43)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
14 Joint ventures
The Group has a 50% (2021: 50%) interest in joint venture, Energy Acquisitions
Group Limited, a company incorporated in Northern Ireland. The primary
activity of Energy Acquisitions Group Limited is to acquire and finance
renewable energy assets in the United Kingdom.
The Group's interest in EAG is accounted for using the equity method in the
consolidated financial statements. Summarised financial information of the
joint venture, and reconciliation with the carrying amount of the investment
in the consolidated financial statements at 31 December 2022 are set out
below:
Energy Acquisitions Group Limited consolidated summary statement of financial
position (unaudited)
2022 2021
£000 £000
Non-current assets 2,960 2,808
Current assets 593 445
Current liabilities (113) (411)
Non-current liabilities (3,360) (2,985)
The following amounts have been included in the amounts above
Cash and cash equivalents 326 245
Current financial liabilities (113) (411)
Non-current financial liabilities (3,360) (2,985)
Net Assets (100%) 80 (143)
Group share of net assets (50%) 40 (72)
Energy Acquisitions Group Limited consolidated summary profit and loss account
(unaudited)
2022 2021
£000 £000
Revenue 1,414 1,164
Direct Costs (561) (557)
Overhead and administrative expenses (297) (232)
Interest payable and similar expenses (334) (655)
Profit for the financial year 222 (80)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
14 Joint
ventures
(Continued)
The following amounts have been included in the amounts above
Depreciation and amortisation 62 (223)
Interest income - -
Interest expense 334 655
Income tax expense - 52
There were no dividends received from the joint venture during the year and
there are no dividends forecast.
The joint venture had no contingent liabilities or commitments as at 31
December 2022 and 221. The financial statements of the JV 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. Presentation of
the summarised financial information has been made on the basis of the Joint
Venture's published financial statements.
15 Assets and liabilities classified as held for sale
2022 2021
GROUP AND COMPANY £000 £000
Intangible assets 10,714 11,246
Oil and gas properties - 354
Total assets classified as held for sale 10,714 11,600
Loan 2,944 -
Decommissioning provision 166 166
Total liabilities classified as held for sale 3,110 166
At the date of authorisation of the financial statements it was determined
that a sale would be highly probable (see note 10).
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
16 Trade and other receivables
2022 2021
GROUP £000 £000
Current
Other receivables 96 111
VAT recoverable 74 21
Prepayments 40 21
210 153
Non current
Loan receivable from joint venture 1,448 1,244
The directors have assessed the trade and other receivables for impairment and
consider that the carrying amount of trade and other receivables approximates
to their fair value.
2022 2021
COMPANY £000 £000
Other receivables 96 111
VAT recoverable 74 21
Prepayments 40 21
210 153
Non current
Loan receivable from subsidiary 1,450 1,244
The directors have assessed the trade and other receivables for impairment and
consider that the carrying amount of trade and other receivables approximates
to their fair value.
17 Trade and other payables
2022 2021
GROUP £000 £000
Trade payables 38 142
Accruals 65 36
Other payables 121 -
224 178
The directors consider that the carrying amount of trade payables approximates
to their fair value.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
17 Trade and other payables (Continued)
2022 2021
COMPANY £000 £000
Trade payables 38 142
Accruals 55 36
Other payables 121 -
214
178
The directors consider that the carrying amount of trade payables approximates
to their fair value.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
• Total Share options in issue
During the year no incentive options were granted (2021: nil). As at 31
December 2022 there were 51,419,781 incentive options in issue (2021:
51,419,781)
During the year 26,733,539 (2021: 24,997,841) share options in lieu of salary
and/or fees due to the relevant option holders were granted. As at 31 December
2022 there were 70,787,245 share options in lieu of salary and/or fees in
issue (2021: 44,053,706).
• Total warrants in issue
All warrants lapsed in the year and no warrants were issued, cancelled or
exercised during the year (2021: no warrants were issued).
As at 31 December 2022 there were no warrants outstanding (2021: 12,500,000).
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
20 Share based payment GROUP AND COMPANY
The Company has opted to remunerate the directors for the year to 31 December
2022 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.
2022 2021
£000 £000
Directors options 130 285
Incentive options - 186
Credit to equity for equity-settled share-based payments 130 471
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 26,733,539 (2021: 24,997,841) 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 2022.
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. The value of the options and the inputs for
the year ended 31 December 2022 were as follows:
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
20 Share based payment (Continued)
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 £86,806
in relation to the issue of incentive options (2021: £186,013) and £nil
finance charges in relation to warrants (2021: £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.
2022 2021
£000 £000
Financial assets at amortised cost
Other debtors 96 111
Prepayments and accrued income 40 21
Cash and cash equivalents 750 2,059
Loan to joint venture 1,448 1,244
2,334 3,435
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial instruments (Continued)
Book Value Fair Value Book Value Fair Value
2022 2022 2021 2021
£000 £000 £000 £000
Financial assets at fair value
Non-current Investment - Helium One 206 206 312 312
Non-current Investment - Corallian Energy Limited
67 67 125 125
273 273 437 437
2022 2021
£000 £000
Financial liabilities at amortised cost
Trade payables 38 142
Accruals and deferred income 65 36
Other payables 121 -
224 178
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 206 - - 206
Non-current Investment - Corallian Energy Limited
- - 67 67
273
67
206
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial
instruments
(Continued)
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
the Corallian investment. Details of this can be found at Note 12.
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
• Liquidity risk in specific regard to sale of Ruvuma asset not completing
• 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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial
instruments
(Continued)
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 in the
statement of financial position.
2022 2021
$000 $000
USD USD
Trade and other receivables 116 150
Cash and cash equivalents 878 1,415
Trade and other payables - (166)
Net exposure 994
1,399
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. 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.
2022 2021
£000 £000
GBP:USD exchange rate increases 10% 136 116
GBP:USD exchange rate decreases 10% (69) (142)
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 6 to 12 months Between 1 and Between 2
months 2 years and 5 years
£000 £000 £000 £000
31 December 2022
Trade and other payables 224 - - -
31 December 2021
Trade and other payables 178 - - -
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial
instruments
(Continued)
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial
instruments
(Continued)
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.
The Company employs the simplified approach to make an estimate of ECL. There
are no outstanding balances as at 31 December 2022 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.
2022 2021
£000 £000
Financial assets at amortised cost
Other debtors 96 111
Prepayments and accrued income 40 21
Cash and cash equivalents 750 2,059
Loan to subsidiary 1,450 1,244
2,336 3,435
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial instruments (Continued)
Book Value Fair Value Book Value Fair Value
2022 2022 2021 2021
£000 £000 £000 £000
Financial assets at fair value
Non-current Investment - Helium One 206 206 312 312
Non-current Investment - Corallian Energy Limited
67 67 125 125
273 273 437 437
2022 2021
£000 £000
Financial liabilities at amortised cost
Trade payables 38 142
Accruals and deferred income 55 36
Other payables 121 -
214 178
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 206 - - 206
Non-current Investment - Corallian Energy Limited
- - 67 67
273
206 67
-
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial
instruments
(Continued)
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
the Corallian investment. Details of this can be found at Note 12.
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
• Liquidity risk in specific regard to sale of Ruvuma asset not completing
• 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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial
instruments
(Continued)
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 in the
statement of financial position.
2022 2021
$000 $000
USD USD
Trade and other receivables 116 150
Cash and cash equivalents 878 1,415
Trade and other payables - (166)
Net exposure 994
1,399
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. 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.
2022 2021
£000 £000
GBP:USD exchange rate increases 10% 136 116
GBP:USD exchange rate decreases 10% (69) (142)
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 6 to 12 months Between 1 and Between 2
months 2 years and 5 years
£000 £000 £000 £000
31 December 2022
Trade and other payables 214 - - -
31 December 2021
Trade and other payables 178 - - -
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial
instruments
(Continued)
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.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
21 Financial
instruments
(Continued)
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.
The Company employs the simplified approach to make an estimate of ECL. There
are no outstanding balances as at 31 December 2022 resulting in an ECL of
£nil in the current year.
• Related party transactions GROUP
The Company had the following amounts outstanding from its investee companies
(Note 13) at 31 December:
2022 2021
£000 £000
Helium One opening balance - 73
Conversion to shares in Helium One - (73)
Balance at 31 December - -
Details of director's remuneration, being key personnel, are given in Note 7.
The Company entered into transactions with the following related parties who
have common directors during the current year:
2022 2021
£000 £000
Gneiss Energy Limited - provision of corporate finance advisory
- common director Jonathan Fitzpatrick 489 606
Quixote Advisors Ltd - provision of management services - common director Tom
Reynolds
- (19)
The primary contract with Gneiss Energy Limited has terminated. The only
remaining contract with the related party is in relation to the sale of the
Ruvuma asset which will terminate automatically upon completion of the sale.
In the prior year, the Group loaned £1,200,000 to Energy Acquisitions Group
Limited, a 50% owned joint venture of the Group and accrued interest of
£134,000 (2021: £44,000). The loan is repayable on demand but is not
callable in the 12 months after the date of signing these financial
statements. Iinterest is payable and accrued in accordance with the loan
agreement. Outstanding balance at 31 December 2022 is $1,448k (2021:
£1,244k)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
22 Related party
transactions
(Continued)
COMPANY
The Company had the following amounts outstanding from its investee companies
(Note 13) at 31 December:
2022 2021
£000 £000
Helium One opening balance - 73
Conversion to shares in Helium One - (73)
Balance at 31 December -
-
Details of director's remuneration, being key personnel, are given in Note 7.
Amounts due from subsidiaries
2022 2021
£000 £000
Scirocco Energy (UK) Limited 1,451 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:
2022 2021
£000 £000
Gneiss Energy Limited - provision of corporate finance advisory
- common director Jonathan Fitzpatrick 489 606
Quixote Advisors Ltd - provision of management services - common director Tom
Reynolds
- (19)
The primary contract with Gneiss Energy Limited has terminated. The only
remaining contract with the related party is in relation to the sale of the
Ruvuma asset which will terminate automatically upon completion of the sale.
In the prior year, the Company loaned £1,200,000 to Scirocco Energy (UK)
Limited, a 100% owned subsidiary of the Company and accrued interest of
£134,000 (2021: £44,000). The loan is repayable on demand but is not
callable in the twelve months from the date of signing these financial
statements, interest is payable and accrued in accordance with the loan
agreement. Outstanding balance at 31 December 2022 is $1,448k (2021:
£1,244k)
23 Ultimate Controlling Party
In the opinion of the directors there is no controlling party.
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
24 Commitments
GROUP AND COMPANY
As at 31 December 2022, the Company had no material commitments (2021: £nil).
25 Retirement benefit scheme GROUP AND COMPANY
The Company operates only the basic pension plan required under UK
legislation, contributions there to during the year amounted to £nil (2021:
£nil).
26 Cash generated from operations
2022 2021
GROUP £000 £000
(Loss)/profit for the year after tax for continuing operations (1,438) 362
(Loss)/profit for the year after tax for discontinuing operations (3,377) (4,053)
Adjustments for:
Unrealised gain on investments held 2 -
Impairment of investments 58 -
Loss on fair value revaluation of assets held for sale 3,377 3,846
Gain from sale of investment (57) (2,196)
Interest accrued on loan to related party (134) (44)
Equity settled share based payment expense 130 471
Share of profit in joint venture (40) -
Movements in working capital:
(Increase)/decrease in trade and other receivables (82) 268
Increase/(decrease) in trade and other payables 46 (71)
Cash absorbed by operations (1,515) (1,417)
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED 31 DECEMBER 2022
27 Post balance sheet event
At the date these financial statements were approved, being 30 June 2022, the
Directors would like to call attention to the below post balance sheet events.
Sale of Tanzanian Assets
The sale of the 25% non-operating interest in the Ruvuma asset, Tanzania, was
originally announced in the prior period. An agreement has been entered into
for the sale of this asset with ARA Petroleum Tanzania ("APT"). As
communicated to the market in an RNS dated 25 May 2023, the long stop date on
this agreement has been extended to 31 August 2023 and both parties expect to
complete the transaction within this timeframe although completion cannot be
guaranteed.
Part sale of Helium One shareholding
In June 2023 the Company sold 1,906,088 shares of Helium One for an average
price of 7.5p/share.
Sale of Corallian shareholding
In March 2023, the Company sold it's 25% holding in the Corallian asset. Net
proceeds for this sale amounted to £67k. The asset has been reflected in the
financial statements as at 31 December 2022 at this sales price which is
considered to be representative of fair market value.
Changes to Board of Directors
As announced in RNS dated 1st March, 16th March and 27th April, to reflect the
change in strategic direction of the Company, and to retain the appropriate
level of skills, experience, and independence, there have been changes to the
Board of Directors in the period after the Balance Sheet date. Muir Miller has
stepped down from the Board effective 31 May 2023. In addition, Don Nicolson
has notified of his intention to step down in due course. The Company has
appointed directors Niall Roberts and Matt Bower after consultation with
significant shareholders who joined the Board on 1st March 2023 and 27th April
2023, respectively. The Company expects to identify and appoint a suitable
independent non-executive director to replace Don Nicolson in due course.
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