REG - UK Oil & Gas Inv PLC - Final Results <Origin Href="QuoteRef">UKOGa.L</Origin> - Part 2
26/02/2016 07:10
- Part 2: For the preceding part double click ID:nRSZ2303Qa
(31,661) 3,652
Loss for the year - - - - (1,695) (1,695)
Other comprehensive income
- Transfer to income statement - - - (44) - (44)
Total comprehensive income - - - (44) (1,695) (1,739)
Issue of shares 61 8,922 - - - 8,983
Cost of share issue - (492) - - - (492)
Share options exercised - - (70) - 70 -
Share based payments - - 378 - - 378
Balance at 30 September 2015 11,787 31,622 659 - (33,286) 10,782
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2015
Share capital Share premium Share based payment reserve Revaluation reserve Accumulated losses Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 October 2013 11,595 19,039 866 - (31,621) (121)
Loss for the year - - - - (906) (906)
Other comprehensive income
- Gain on revaluation of derivative financial instrument - - - 44 - 44
Total comprehensive income - - - 44 (906) (862)
Issue of shares 131 4,365 - - - 4,496
Cost of share issue - (212) - - - (212)
Share options expired - - (866) - 866 -
Share based payments - - 351 - - 351
Balance at 30 September 2014 11,726 23,192 351 44 (31,661) 3,652
Loss for the year - - - - (1,715) (1,715)
Other comprehensive income
- Transfer to income statement - - - (44) - (44)
Total comprehensive income - - - (44) (1,715) (1,759)
Issue of shares 61 8,922 - - - 8,922
Cost of share issue - (492) - - - (492)
Share options exercised - - (70) - 70 -
Share based payments - - 378 - - 378
Balance at 30 September 2015 11,787 31,622 659 - (33,306) 10,762
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 30 SEPTEMBER 2015
Year ended Year ended
30 September 30 September
2015 2014
£'000 £'000
Cash flow from operating activities
Loss from operations (1,607) (889)
Foreign currency losses 48 -
Other non-cash income & expenses (52) -
Depletion & impairment 82 -
Share based payment charge 378 351
(Increase) in inventories (2) -
Decrease/(increase) in trade and other receivables 262 (1,044)
(Decrease)/increase in trade and other payables (167) 375
Net cash (outflow) from operating activities (1,058) (1,207)
Cash flows from investing activities
Expenditures on exploration & evaluation assets (1,013) -
Expenditures on oil & gas properties (40) -
Payments to acquire available for sale investments (580) (1,200)
Loans advanced to investee companies (531) (370)
Acquisition of subsidiaries, net of cash acquired (1,493) -
Net cash (outflow) from investing activities (3,657) (1,570)
Cash flows from financing activities
Proceeds from issue of share capital 8,630 4,129
Share issue costs (492) (212)
Proceeds from loan & borrowings 622 -
Repayments of loan & borrowings (557) -
Finance costs paid (81) -
Payments to acquire derivative financial instrument - (250)
Receipts from settlements of financial instrument 201 92
Net cash inflow from financing activities 8,323 3,759
Net change in cash and cash equivalents 3,608 982
Cash and cash equivalents at beginning of period 982 -
Cash and cash equivalents at end of period 4,590 982
COMPANY STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 30 SEPTEMBER 2015
Year ended Year ended
30 September 30 September
2015 2014
£'000 £'000
Cash flow from operating activities
(Loss) from operations (1,627) (889)
Foreign currency losses 48 -
Share based payment charge 378 351
Decrease/(increase) in trade and other receivables 277 (1,044)
(Decrease)/increase in trade and other payables (183) 375
Net cash (outflow) from operating activities (1,107) (1,207)
Cash flows from investing activities
Expenditures on exploration & evaluation assets (662) -
Payments for acquisition of subsidiaries (1,512) -
Payments to acquire available for sale investments (580) (1,200)
Loans advanced to investee companies (531) (370)
Loan advanced to subsidiary (452) -
Net cash (outflow) from investing activities (3,737) (1,570)
Cash flows from financing activities
Proceeds from issue of share capital 8,630 4,129
Share issue costs (492) (212)
Proceeds from loan & borrowings 622 -
Repayments of loan & borrowings (557) -
Finance costs paid (81) -
Payments to acquire derivative financial instrument - (250)
Receipts from settlements of financial instrument 201 92
Net cash inflow from financing activities 8,323 3,759
Net change in cash and cash equivalents 3,479 982
Cash and cash equivalents at beginning of period 982 -
Cash and cash equivalents at end of period 4,461 982
NOTES TO THE FINANCIAL STATEMENTS
1. Principal Accounting Policies
Basis of Preparation
UK Oil and Gas Investments PLC is a company incorporated in the United
Kingdom. The Company's shares are listed on the AIM market of the London Stock
Exchange.
The Company's Investing Policy is to invest in and/or acquire companies and/or
projects within the natural resources sector with potential for growth. The
Company will also consider opportunities in other sectors as they arise if the
Board considers that there is an opportunity to generate potential value for
Shareholders. Where appropriate, the Board may seek to invest in businesses
where it may add its expertise to the management of the business and utilise
its industry relationships.
The geographical focus will primarily be in regions in the world where the
Board considers that valuable opportunities exist and potential returns can be
achieved. The Board has identified United Kingdom as the current Company's
focus. The Company's interests in an investment and/or acquisition may range
from a minority position to full ownership and may comprise one investment or
multiple investments. The investments may be in either quoted or unquoted
companies; be made by direct acquisitions or farm-ins; and may be in
companies, partnerships, earn-in joint ventures, debt or other loan
structures, joint ventures or direct or indirect interests in assets or
projects. The Board may focus on investments where intrinsic value may be
achieved from the restructuring of investments or merger of complementary
businesses.
The Board expects that investments will typically be held for the medium to
long term, although short term disposal of assets cannot be ruled out if there
is an opportunity to generate a potentially attractive return for
Shareholders. The Board will place no minimum or maximum limit on the length
of time that any investment may be held. The Company may be both an active and
a passive investor depending on the nature of the individual investment. There
is no limit on the number of projects in which the Company may invest, and the
Company's financial resources may be invested in a number of propositions or
in just one investment, which may be deemed to be a reverse takeover under the
AIM Rules. The Board intends to mitigate risk by appropriate due diligence and
transaction analysis. Any transaction constituting a reverse takeover under
the AIM Rules will also require Shareholder approval. The Board considers that
as investments are made, and new promising investment opportunities arise,
further funding of the Company may also be required.
Where the Company builds a portfolio of related assets it is possible that
there may be cross holdings between such assets. Investments in early stage
assets are expected to be mainly in the form of equity, with debt potentially
being raised later to fund the development of such assets. Investments in
later stage assets are more likely to include an element of debt to equity
gearing. The Board may also offer New Ordinary Shares by way of consideration
as well as cash, thereby helping to preserve the Company's cash for working
capital and as a reserve against unforeseen contingencies including, for
example, delays in collecting accounts receivable, unexpected changes in the
economic environment and operational problems. Investments may be made in all
types of assets and there will be no investment restrictions on the type of
investment that the Company might make nor the type of opportunity that may be
considered. The Company may consider possible opportunities anywhere in the
world.
The Board will conduct initial due diligence appraisals of potential business
or projects and, where they believe further investigation is warranted, intend
to appoint appropriately qualified persons to assist. The Board believes its
expertise will enable it to determine quickly which opportunities could be
viable and so progress quickly to formal due diligence. The Company will not
have a separate investment manager.
The initial focus of the Company will be the achievement of capital growth for
Shareholders and therefore the Company will only consider the payment of
dividends as and when it is appropriate to do so. As such, it is not possible
at this stage to give an indication of the likely level or timing of any
future dividends. To the extent that any dividends are paid they will be paid
in accordance with any applicable laws and the regulations to which the
Company is subject. The amount of the dividends paid to Shareholders will
fluctuate according to the levels of profits earned by the Company and will be
dependent on sufficient distributable reserves being available to the
Company.
The Consolidated Financial Statements are for the year ended 30 September 2015
and have been prepared under the historical cost convention and in accordance
with International Financial Reporting Standards as adopted by the EU
("adopted IFRS"). These Consolidated Financial Statements (the "Financial
Statements") have been prepared and approved by the Directors on 25 February
2016 and signed on their behalf by Stephen Sanderson and Jason Berry.
The accounting policies have been applied consistently throughout the
preparation of these Financial Statements, and the financial report is
presented in Pound Sterling (£) and all values are rounded to the nearest
thousand pounds (£'000) unless otherwise stated.
New standards, amendments and interpretations adopted by the Company
No new and/or revised Standards and Interpretations have been required to be
adopted, and/or are applicable in the current year by/to the Group and/or
Company, as standards, amendments and interpretations which are effective for
the financial year beginning on 1 October 2014 are not material to the
Company.
New standards, amendments and interpretations not yet adopted
At the date of authorisation of these financial statements, the following
Standards and Interpretations which have not been applied in these financial
statements, were in issue but not yet effective for the year presented:
- IFRS 9 in respect of Financial Instruments which will be effective for the
accounting periods beginning on or after 1 January 2018.
- IFRS 14 in respect of Regulatory Deferral Accounts which will be effective
for accounting periods beginning on or after 1 January 2016.
- IFRS 15 in respect of Revenue from Contracts with Customers which will be
effective for accounting periods beginning on or after 1 January 2017.
- Amendments to IFRS 10, IFRS 12 and IAS 28 in respect of the application of
the consolidation exemption to investment entities which will be effective for
accounting periods beginning on or after 1 January 2016.
- Amendments to IFRS 10 and IAS 28 in respect of the treatment of a Sale or
Contribution of Assets between an Investor and its Associate or Joint Venture
which will be effective for accounting periods beginning on or after 1 January
2016.
- Amendments to IFRS 11 in respect of Accounting for Acquisitions of Interest
in Joint Operations which will be effective for accounting periods beginning
on or after 1 January 2016.
- Amendments to IAS 1 in respect of determining what information to disclose
in annual financial statements which will be effective for accounting periods
beginning on or after 1 January 2016.
- Amendments to IAS 16 and IAS 38 in respect of Clarification of Acceptable
Methods of Depreciation and Amortisation which will be effective for
accounting periods beginning on or after 1 January 2016.
- Amendments to IAS 16 and IAS 41 in respect of Bearer Plants which will be
effective for accounting periods beginning on or after 1 January 2016.
- Amendments to IAS 27 to allow entities to use the equity method to account
for investments in subsidiaries, joint ventures and associates which will be
effective for accounting periods beginning 1 January 2016.
- Annual improvements to IFRS's which will be effective for accounting periods
beginning on or after 1 January 2016 as follows:
o IFRS 5 - Changes in methods of disposal
o IFRS 7 - Servicing contracts
o IFRS 7 - Applicability of the amendments to IFRS 7 to condensed interim
financial statements
o IAS 19 - Discount rate: Regional market issue
o IAS 34 - Disclosure of information "elsewhere in the interim financial
report"
There are no other IFRSs or IFRIC interpretations that are not yet effective
that would be expected to have a material impact on the Group and/or Company.
Basis of consolidation
The consolidated financial information incorporates the financial statements
of the Company and its subsidiaries (the "Group"). Control is achieved where
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.
Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated; unrealised losses are also eliminated
unless the transaction provides evidence of an impairment of the asset
transferred.
Where necessary, adjustments are made to the financial statements of
subsidiaries to bring the accounting policies used in line with those used by
the Group.
Business combinations
Business combinations are accounted for using the acquisition method. The
consideration for acquisition is measured at the fair values of assets given,
liabilities incurred or assumed, and equity instruments issued by the Company
in order to obtain control of the acquiree (at the date of exchange). Costs
incurred in connection with the acquisition are recognised in profit or loss
as incurred. Where a business combination is achieved in stages, previously
held interests in the acquiree are re-measured to fair value at the
acquisition date (date the Group obtains control) and the resulting gain or
loss, is recognised in profit or loss. Adjustments are made to fair values to
bring the accounting policies of acquired businesses into alignment with those
of the group. The costs of integrating and reorganising acquired businesses
are charged to the post acquisition profit or loss where applicable.
Revenue
Revenue is measured by reference to the fair value of consideration received
or receivable by the Group for services provided, excluding VAT and trade
discounts. Revenue is credited to the Income Statement in the period it is
deemed to be earned.
Revenue from the sale of oil and petroleum products is recognised when the
significant risks and rewards of ownership have been transferred, which is
considered to occur when title passes to the customer. This generally occurs
when the product is physically transferred into a vessel, pipe or other
delivery mechanism.
Revenue from the production of oil, in which the Group has an interest with
other producers, is recognised based on the Group's working interest and the
terms of the relevant production sharing contracts. Differences between oil
lifted and sold and the Group's share of production are not significant.
Finance Income and Costs
Finance income and costs are reported on an accruals basis.
Oil & Gas properties ("OGP"), Exploration & Evaluation assets
Oil and natural gas exploration, evaluation and development expenditure is
accounted for using the successful efforts method of accounting.
(i) Pre-licence costs
Pre-licence costs are expensed in the period in which they are incurred.
(ii) Licence and property acquisition costs
Exploration licence and leasehold property acquisition costs are capitalised
in intangible assets. Licence costs paid in connection with a right to explore
in an existing exploration area are capitalised and amortised over the term of
the permit.
Licence and property acquisition costs are reviewed at each reporting date to
confirm that there is no indication that the carrying amount exceeds the
recoverable amount. This review includes confirming that exploration drilling
is still under way or firmly planned, or that it has been determined, or work
is under way to determine that the discovery is economically viable based on a
range of technical and commercial considerations and that sufficient progress
is being made on establishing development plans and timing.
If no future activity is planned or the licence has been relinquished or has
expired, the carrying value of the licence and property acquisition costs are
written off through the statement of profit or loss and other comprehensive
income. Upon recognition of proved reserves and internal approval for
development, the relevant expenditure is transferred to oil and gas
properties.
(iii) Exploration and evaluation costs
Exploration and evaluation activity involves the search for hydrocarbon
resources, the determination of technical feasibility and the assessment of
commercial viability of an identified resource.
Once the legal right to explore has been acquired, costs directly associated
with an exploration well are capitalised as exploration and evaluation
intangible assets until the drilling of the well is complete and the results
have been evaluated. These costs include directly attributable employee
remuneration, materials and fuel used, rig costs and payments made to
contractors.
If no potentially commercial hydrocarbons are discovered, the exploration
asset is written off through the statement of profit or loss and other
comprehensive income as a dry hole. If extractable hydrocarbons are found and,
subject to further appraisal activity (e.g., the drilling of additional
wells), it is probable that they can be commercially developed, the costs
continue to be carried as an intangible asset while sufficient/continued
progress is made in assessing the commerciality of the hydrocarbons. Costs
directly associated with appraisal activity undertaken to determine the size,
characteristics and commercial potential of a reservoir following the initial
discovery of hydrocarbons, including the costs of appraisal wells where
hydrocarbons were not found, are initially capitalised as an intangible
asset.
All such capitalised costs are subject to technical, commercial and management
review, as well as review for indicators of impairment at least once a year.
This is to confirm the continued intent to develop or otherwise extract value
from the discovery. When this is no longer the case, the costs are written off
through the statement of profit or loss and other comprehensive income.
When proved reserves of oil and natural gas are identified and development is
sanctioned by management, the relevant capitalised expenditure is first
assessed for impairment and (if required) any impairment loss is recognised,
then the remaining balance is transferred to oil and gas properties. Other
than licence costs, no amortisation is charged during the exploration and
evaluation phase.
(iv) Development costs
Expenditure on the construction, installation or completion of infrastructure
facilities such as platforms, pipelines and the drilling of development wells,
including unsuccessful development or delineation wells, is capitalised within
oil and gas properties.
Oil and gas properties and other property, plant and equipment
(i) Initial recognition
Oil and gas properties and other property, plant and equipment are stated at
cost, less accumulated depreciation and accumulated impairment losses.
The initial cost of an asset comprises its purchase price or construction
cost, any costs directly attributable to bringing the asset into operation,
the initial estimate of the decommissioning obligation and, for qualifying
assets (where relevant), borrowing costs. The purchase price or construction
cost is the aggregate amount paid and the fair value of any other
consideration given to acquire the asset. The capitalised value of a finance
lease is also included within property, plant and equipment.
When a development project moves into the production stage, the capitalisation
of certain construction/development costs ceases, and costs are either
regarded as part of the cost of inventory or expensed, except for costs which
qualify for capitalisation relating to oil and gas property asset additions,
improvements or new developments.
(ii) Depreciation/amortisation
Oil and gas properties are depreciated/amortised on a unit-of-production basis
over the total proved developed and undeveloped reserves of the field
concerned, except in the case of assets whose useful life is shorter than the
lifetime of the field, in which case the straight-line method is applied.
Rights and concessions are depleted on the unit-of-production basis over the
total proved developed and undeveloped reserves of the relevant area.
The unit-of-production rate calculation for the depreciation/amortisation of
field development costs takes into account expenditures incurred to date,
together with sanctioned future development expenditure. Other property, plant
and equipment are generally depreciated on a straight-line basis over their
estimated useful lives, which is generally 20 years for refineries, and major
inspection costs are amortised over three to five years, which represents the
estimated period before the next planned major inspection. Property, plant and
equipment held under finance leases are depreciated over the shorter of lease
term and estimated useful life. 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, if appropriate.
(ii) Major maintenance, inspection and repairs
Expenditure on major maintenance refits, inspections or repairs comprises the
cost of replacement assets or parts of assets, 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 probable that future economic
benefits associated with the item will flow to the Group, the expenditure is
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 to the next
inspection. All other day-to-day repairs and maintenance costs are expensed as
incurred.
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 probable 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 was 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.
If the change in estimate results in an increase in the decommissioning
liability and, therefore, an addition to the carrying value of the asset, the
Group considers whether this is an indication of impairment of the asset as a
whole, and if so, tests for impairment. If, for mature fields, the estimate
for the revised value of oil and gas assets net of decommissioning provisions
exceeds the recoverable value, that portion of the increase is charged
directly to expense. Over time, the discounted liability is increased for the
change in present value based on the discount rate that reflects current
market assessments and the risks specific to the liability. The periodic
unwinding of the discount is recognised in the statement of profit or loss and
other comprehensive income as a finance cost. The Company recognises neither
the deferred tax asset in respect of the temporary difference on the
decommissioning liability nor the corresponding deferred tax liability in
respect of the temporary difference on a decommissioning asset.
Taxation
Current tax is the tax currently payable based on taxable profit for the
year.
Deferred income taxes are calculated using the liability method on temporary
differences. Deferred tax is generally provided on the difference between the
carrying amounts of assets and liabilities and their tax bases. However,
deferred tax is not provided on the initial recognition of goodwill, nor on
the initial recognition of an asset or liability unless the related
transaction is a business combination or affects tax or accounting profit.
Deferred tax on temporary differences associated with shares in subsidiaries
and joint ventures is not provided if reversal of these temporary differences
can be controlled by the Company and it is probable that reversal will not
occur in the foreseeable future. In addition, tax losses available to be
carried forward as well as other income tax credits to the Company are
assessed for recognition as deferred tax assets.
Deferred tax liabilities are provided in full, with no discounting. Deferred
tax assets are recognised to the extent that it is probable that the
underlying deductible temporary differences will be able to be offset against
future taxable income. Current and deferred tax assets and liabilities are
calculated at tax rates that are expected to apply to their respective period
of realisation, provided they are enacted or substantively enacted at the
balance sheet date.
Changes in deferred tax assets or liabilities are recognised as a component of
tax expense in the income statement, except where they relate to items that
are charged or credited directly to equity in which case the related deferred
tax is also charged or credited directly to equity.
Financial Assets
Financial assets are divided into the following categories: loans and
receivables and available-for-sale financial assets. Financial assets are
assigned to the different categories by management on initial recognition,
depending on the purpose for which they were acquired, and are recognised when
the Group becomes party to contractual arrangements. Both loans and
receivables and available for sale financial assets are initially recorded at
fair value.
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. Trade, most
other receivables and cash and cash equivalents fall into this category of
financial assets. Loans and receivables are measured subsequent to initial
recognition at amortised cost using the effective interest method, less
provision for impairment. Any change in their value through impairment or
reversal of impairment is recognised in the income statement.
Provision against trade receivables is made when there is objective evidence
that the Group will not be able to collect all amounts due to it in accordance
with the original terms of those receivables. The amount of the write-down is
determined as the difference between the asset's carrying amount and the
present value of estimated future cash flows.
A financial asset is derecognised only where the contractual rights to the
cash flows from the asset expire or the financial asset is transferred and
that transfer qualifies for derecognition. A financial asset is transferred
if the contractual rights to receive the cash flows of the asset have been
transferred or the Group retains the contractual rights to receive the cash
flows of the asset but assumes a contractual obligation to pay the cash flows
to one or more recipients. A financial asset that is transferred qualifies
for derecognition if the Group transfers substantially all the risks and
rewards of ownership of the asset, or if the Group neither retains nor
transfers substantially all the risks and rewards of ownership but does
transfer control of that asset.
Derivative instruments are recorded at cost, and adjust for their market value
as applicable. They are assessed for any equity and debt component which is
subsequently accounted for in accordance with IFRS's. The Group's and
Company's only derivative is considered to be the Equity Swap Arrangement as
detailed in Note 16, which is accounted for on a fair value basis in
accordance with the terms of the agreement, being based around the Company's
share price as traded on AIM.
Financial Liabilities
Financial liabilities are obligations to pay cash or other financial assets
and are recognised when the Group becomes a party to the contractual
provisions of the instrument.
All financial liabilities initially recognised at fair value less transaction
costs and thereafter carried at amortised cost using the effective interest
method, with interest-related charges recognised as an expense in finance cost
in the income statement. A financial liability is derecognised only when the
obligation is extinguished, that is, when the obligation is discharged or
cancelled or expires.
Borrowing costs
Where funds are borrowed specifically to finance a project, the amount
capitalised represents the actual borrowing costs incurred. Where surplus
funds are available for a short term from funds borrowed specifically to
finance a project, the income generated from the temporary investment of such
amounts is also capitalised and deducted from the total capitalised borrowing
costs. Where the funds used to finance a project form part of general
borrowings, the amount capitalised is calculated using a weighted average of
rates applicable to relevant general borrowings of the Group during the
period.
All other borrowing costs are recognised in the statement of profit or loss
and other comprehensive income in the period in which they are incurred.
Even though exploration and evaluation assets can be qualifying assets,
generally, they do not meet the 'probable economic benefits' test and also are
rarely debt funded. Any related borrowing costs incurred during this phase are
generally recognised in the statement of profit or loss and other
comprehensive income in the period in which they are incurred.
Inventories
Inventories are stated at the lower of cost and net realisable value. The cost
of materials is the purchase cost, determined on first-in, first-out basis.
The cost of crude oil and refined products is the purchase cost, the cost of
refining, including the appropriate proportion of depreciation, depletion and
amortisation and overheads based on normal operating capacity, determined on a
weighted average basis. The net realisable value of crude oil and refined
products is based on the estimated selling price in the ordinary course of
business, less the estimated costs of completion and the estimated costs
necessary to make the sale.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and demand deposits, together
with other short-term, highly liquid investments that are readily convertible
into known amounts of cash and which are subject to an insignificant risk of
changes in value.
Share-Based Payments
The Group operates a number of equity-settled, share-based compensation plans,
under which the entity receives services from employees as consideration for
equity instruments (options) of the Company. The fair value of the employee
services received in exchange for the grant of the options is recognised as an
expense. The total amount to be expensed is determined by reference to the
fair value of the options granted:
· Including any market performance conditions;
· Excluding the impact of any service and non-market performance vesting
conditions (for example, profitability or sales growth targets, or remaining
an employee of the entity over a specified time period; and
· Including the impact of any non-vesting conditions (for example, the
requirement for employees to save).
Non-market vesting conditions are included in assumptions about the number of
options that are expected to vest. The total expense is recognised over the
vesting period, which is the period over which all of the specified vesting
conditions are to be satisfied.
In addition, in some circumstances, employees may provide services in advance
of the grant date, and therefore the grant-date fair value is estimated for
the purposes of recognising the expense during the period between service
commencement period and grant date.
At the end of each reporting period, the entity revises its estimates of the
number of options that are expected to vest based on the non-market vesting
conditions. It recognises the impact of the revision to original estimates,
if any, in profit or loss, with a corresponding adjustment to equity.
When the options are exercised, the Company issues new shares. The proceeds
received, net of any directly attributable transaction costs, are credited to
share capital (nominal value) and share premium.
Equity
Equity comprises the following:
"Share capital" representing the nominal value of equity shares.
"Share premium" representing the excess over nominal value of the fair value
of consideration received for equity shares, net of expenses of the share
issue.
"Share based payment reserve" represents the value of equity benefits provided
to employees and directors as part of their remuneration and provided to
consultants and advisors hired by the Group from time to time as part of the
consideration paid.
"Revaluation reserve" represents the unrealised gain or loss on fair/market
value movement on available for sale investments, derivative financial
instruments and other assets which are valued at their fair value at the
balance sheet date.
"Retained earnings" represents retained profits and (losses).
Foreign Currencies
Transactions in foreign currencies are translated at the exchange rate ruling
at the date of the transaction. Monetary assets and liabilities in foreign
currencies are translated at the rates of exchange ruling at the balance sheet
date. Non-monetary items that are measured at historical cost in a foreign
currency are translated at the exchange rate at the date of the transaction.
Non-monetary items that are measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair value was
determined. Any exchange differences arising on the settlement of monetary
items or on translating monetary items at rates different from those at which
they were initially recorded are recognised in the profit or loss in the
period in which they arise. Exchange differences on non-monetary items are
recognised in other comprehensive income to the extent that they relate to a
gain or loss on that non-monetary item taken to other comprehensive income,
otherwise such gains and losses are recognised in the income statement.
The Group and Company's functional currency and presentational currency is
Sterling.
Significant accounting judgements, estimates and assumptions
The preparation of the Group's consolidated financial statements requires
management to make judgements, estimates and assumptions that affect the
reported amounts of revenues, expenses, assets and liabilities, and the
accompanying disclosures, and the disclosure of contingent liabilities at the
date of the consolidated financial statements. Estimates and assumptions are
continuously evaluated and are based on management's experience and other
factors, including expectations of future events that are believed to be
reasonable under the circumstances. Uncertainty about these assumptions and
estimates could result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future periods.
In particular, the Group has identified the following areas where significant
judgements, estimates and assumptions are required. Further information on
each of these areas and how they impact the various accounting policies are
described below and also in the relevant notes to the financial statements.
Changes in estimates are accounted for prospectively.
(i) Judgements
In the process of applying the Group's accounting policies, management has
made the following judgements, which have the most significant effect on the
amounts recognised in the consolidated financial statements:
(a) Contingencies
Contingent liabilities may arise from the ordinary course of business in
relation to claims against the Group, including legal, contractor, land access
and other claims. By their nature, contingencies will be resolved only when
one or more uncertain future events occur or fail to occur. The assessment of
the existence, and potential quantum, of contingencies inherently involves the
exercise of significant judgement and the use of estimates regarding the
outcome of future events.
(ii) Estimates and assumptions
The key assumptions concerning the future and other key sources of estimation
uncertainty at the reporting date that have a significant risk of causing a
material adjustment to the carrying amounts of assets and liabilities within
the next financial year, are described below. The Group based its assumptions
and estimates on parameters available when the consolidated financial
statements were prepared. Existing circumstances and assumptions about future
developments, however, may change due to market change or circumstances
arising beyond the control of the Group. Such changes are reflected in the
assumptions when they occur.
(a) Hydrocarbon reserve and resource estimates
Hydrocarbon reserves are estimates of the amount of hydrocarbons that can be
economically and legally extracted from the Group's oil and gas properties.
The Group estimates its commercial reserves and resources based on information
compiled by appropriately qualified persons relating to the geological and
technical data on the size, depth, shape and grade of the hydrocarbon body and
suitable production techniques and recovery rates. Commercial reserves are
determined using estimates of oil and gas in place, recovery factors and
future commodity prices, the latter having an impact on the total amount of
recoverable reserves and the proportion of the gross reserves which are
attributable to the host government under the terms of the Production-Sharing
Agreements. Future development costs are estimated using assumptions as to the
number of wells required to produce the commercial reserves, the cost of such
wells and associated production facilities, and other capital costs. The
current long-term Brent oil price assumption used in the estimation of
commercial reserves is US$80/bbl. The carrying amount of oil and gas
development and production assets at 31 December 2015 is shown in Note 12.
The Group estimates and reports hydrocarbon reserves in line with the
principles contained in the SPE Petroleum Resources Management Reporting
System (PRMS) framework. As the economic assumptions used may change and as
additional geological information is obtained during the operation of a field,
estimates of recoverable reserves may change. Such changes may impact the
Group's reported financial position and results, which include:
· The carrying value of exploration and evaluation assets; oil and gas
properties; property, plant and equipment; and goodwill may be affected due to
changes in estimated future cash flows
· Depreciation and amortisation charges in the statement of profit or
loss and other comprehensive income may change where such charges are
determined using the Units of Production (UOP) method, or where the useful
life of the related assets change
· Provisions for decommissioning may require revision - where changes to
the reserve estimates affect expectations about when such activities will
occur and the associated cost of these activities
· The recognition and carrying value of deferred tax assets may change
due to changes in the judgements regarding the existence of such assets and in
estimates of the likely recovery of such assets
(b) Exploration and evaluation expenditures
The application of the Group's accounting policy for exploration and
evaluation expenditure requires judgement to determine whether future economic
benefits are likely, from future either exploitation or sale, or whether
activities have not reached a stage which permits a reasonable assessment of
the existence of reserves. The determination of reserves and resources is
itself an estimation process that involves varying degrees of uncertainty
depending on how the resources are classified. These estimates directly impact
when the Group defers exploration and evaluation expenditure. The deferral
policy requires management to make certain estimates and assumptions about
future events and circumstances, in particular, whether an economically viable
extraction operation can be established. Any such estimates and assumptions
may change as new information becomes available. If, after expenditure is
capitalised, information becomes available suggesting that the recovery of the
expenditure is unlikely, the relevant capitalised amount is written off in the
statement of profit or loss and other comprehensive income in the period when
the new information becomes available.
(c) Units of production (UOP) depreciation of oil and gas assets
Oil and gas properties are depreciated using the UOP method over total proved
developed and undeveloped hydrocarbon reserves. This results in a
depreciation/amortisation charge proportional to the depletion of the
anticipated remaining production from the field.
(c) Units of production (UOP) depreciation of oil and gas assets
The life of each item, which is assessed at least annually, has regard to both
its physical life limitations and present assessments of economically
recoverable reserves of the field at which the asset is located. These
calculations require the use of estimates and assumptions, including the
amount of recoverable reserves and estimates of future capital expenditure.
The calculation of the UOP rate of depreciation/amortisation will be impacted
to the extent that actual production in the future is different from current
forecast production based on total proved reserves, or future capital
expenditure estimates change. Changes to proved reserves could arise due to
changes in the factors or assumptions used in estimating reserves, including:
· The effect on proved reserves of differences between actual commodity
prices and commodity price assumptions
· Unforeseen operational issues
(d) Recoverability of oil and gas assets
The Group assesses each asset or cash generating unit (CGU) (excluding
goodwill, which is assessed annually regardless of indicators) each reporting
period to determine whether any indication of impairment exists. Where an
indicator of impairment exists, a formal estimate of the recoverable amount is
made, which is considered to be the higher of the fair value less costs of
disposal (FVLCD) and value in use (VIU). The assessments require the use of
estimates and assumptions such as long-term oil prices (considering current
and historical prices, price trends and related factors), discount rates,
operating costs, future capital requirements, decommissioning costs,
exploration potential, reserves (see (a) Hydrocarbon reserves and resource
estimates above) and operating performance (which includes production and
sales volumes). These estimates and assumptions are subject to risk and
uncertainty. Therefore, there is a possibility that changes in circumstances
will impact these projections, which may impact the recoverable amount of
assets and/or CGUs.
Information on how fair value is determined by the Group follows.
(e) Decommissioning costs
Decommissioning costs will be incurred by the Group at the end of the
operating life of some of the Group's facilities and properties. The Group
assesses its decommissioning provision at each reporting date. The ultimate
decommissioning costs are uncertain and cost estimates can vary in response to
many factors, including changes to relevant legal requirements, the emergence
of new restoration techniques or experience at other production sites. The
expected timing, extent and amount of expenditure may also change - for
example, in response to changes in reserves or changes in laws and regulations
or their interpretation.
Therefore, significant estimates and assumptions are made in determining the
provision for decommissioning.
As a result, there could be significant adjustments to the provisions
established which would affect future financial results.
External valuers may be used to assist with the assessment of future
decommissioning costs. The involvement of external valuers is determined on a
case by case basis, taking into account factors such as the expected gross
cost or timing of abandonment, and is approved by the Company's Audit
Committee. Selection criteria include market knowledge, reputation,
independence and whether professional standards are maintained. The provision
at reporting date represents management's best estimate of the present value
of the future decommissioning costs required
(f) Fair value measurement
The Group measures financial instruments, such as derivatives, at fair value
at each balance sheet date. From time to time, the fair values of
non-financial assets and liabilities are required to be determined, e.g., when
the entity acquires a business, or where an entity measures the recoverable
amount of an asset or cash-generating unit (CGU) at FVLCD.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date.
The fair value of an asset or a liability is measured using the assumptions
that market participants would use when pricing the asset or liability,
assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market
participant's ability to generate economic benefits by using the asset in its
highest and best use or by selling it to another market participant that would
use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances
and for which sufficient data are available to measure fair value, maximising
the use of relevant observable inputs and minimising the use of unobservable
inputs. From time to time external valuers are used to assess FVLCD of the
Group's non-financial assets. Involvement of external valuers is decided upon
by the valuation committee after discussion with and approval by the Company's
Audit Committee. Selection criteria include market knowledge, reputation,
independence and whether professional standards are maintained. Valuers are
normally rotated every three years. The valuation committee decides, after
discussions with the Group's external valuers, which valuation techniques and
inputs to use for each case.
Changes in estimates and assumptions about these inputs could affect the
reported fair value.
Going Concern
The Directors noted the losses that the Group has made for the Year Ended 30
September 2015. The Directors have prepared cash flow forecasts for the
period ending 28 February 2017 which take account of the current cost and
operational structure of the Group.
The cost structure of the Group comprises a high proportion of discretionary
spend and therefore in the event that cash flows become constrained, costs can
be quickly reduced to enable the Group to operate within its available
funding.
These forecasts demonstrate that the Group has sufficient cash funds available
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.
It is the prime responsibility of the Board to ensure the Group remains a
going concern. At 30 September 2015 the Company had cash and cash equivalents
of £4,590,000 and borrowings of £111,000. The Company has minimal contractual
expenditure commitments and the Board considers the present funds sufficient
to maintain the working capital of the Company for a period of at least 12
months from the date of signing the Annual Report and Financial Statements.
For these reasons the Directors adopt the going concern basis in the
preparation of the Financial Statements.
1. Business Combinations
On 19 October 2014 through UK Oil and Gas Investments Plc, the Group acquired
100 per cent of the entire issued share capital of Northern Petroleum (GB)
Limited, NP Weald Limited and NP Solent Limited. The companies were re-named
UKOG (GB) Limited, UKOG Weald Limited and UKOG Solent Limited.
Through the business combination the Group acquired the following assets:
· The Horndean (UKOG 10%) and Avington (UKOG 5%) onshore producing oil
fields, producing around 20 barrels of oil per day ("bopd") net to UKOG; both
fields are operated by IGas.
· Offshore Isle of Wight exploration licence, P1916 (UKOG 77.5% and
operator), containing the significant, drill-ready M prospect, with primary
targets in the Jurassic Upper Portland Limestone and Triassic Sherwood
sandstone.
· The Baxters Copse (UKOG 50%, IGas operator, PEDL233) and Markwells Wood
(UK 100% and operator, PEDL126) onshore oil discoveries.
The assets and liabilities arising on the day of the acquisition are as
follows:
Northern Petroleum NP Weald Limited NP Solent Limited Total
(GB) Limited
Fair Value Fair Value Fair Value Fair Value
£'000 £'000 £'000 £'000
Intangible Assets: Exploration Costs - 264 32 296
Tangible Assets: Oil Properties 1,609 - - 1,609
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