REG - UK Oil & Gas Inv PLC - Final Results <Origin Href="QuoteRef">UKOGa.L</Origin> - Part 2
28/02/2017 07:06
- Part 2: For the preceding part double click ID:nRSb9881Xa
STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2016
Notes 2016 2015
£'000 £'000
Assets
Non-current assets
Exploration & evaluation assets 9 6,187 1,309
Oil & gas properties 10 1,500 1,566
Property, plant & equipment 10 370 -
Investment in associate 12 4,757 2,063
Available for sale investments 13 368 368
Total non-current assets 13,182 5,306
Current assets
Inventory 14 3 2
Trade and other receivables 15 2,890 1,683
Derivative financial instrument 16 - -
Cash and cash equivalents 17 2,444 4,590
Total current assets 5,337 6,275
Total Assets 18,519 11,581
Current liabilities
Trade and other payables 18 (591) (329)
Borrowings 19 - (111)
Total current liabilities (591) (440)
Non-current liabilities
Provisions 20 (359) (359)
Total non-current liabilities (359) (359)
Total liabilities (950) (799)
Net Assets 17,569 10,782
Shareholders' equity
Share capital 21 11,842 11,787
Share premium account 39,644 31,622
Share based payment reserve 1,224 659
Accumulated losses (35,141) (33,286)
Total shareholders' equity 17,569 10,782
These financial statements were approved by the Board of Directors on 27 February 2017 and are signed on its behalf by:
Stephen Sanderson
Kiran Morzaria
Director
Director
The accompanying accounting policies and notes form an integral part of these financial statements.
COMPANY STATEMENT OF FINANCIAL POSITION
AS AT 30 SEPTEMBER 2016
Notes 2016 2015
£'000 £'000
Assets
Non-current assets
Exploration & evaluation assets 9 742 662
Investment in subsidiary companies 11 5,019 1,512
Investment in associate 12 4,757 2,063
Available for sale investments 13 368 368
Total non-current assets 10,886 4,605
Current assets
Trade and other receivables 15 3,672 2,120
Derivative financial instrument 16 - -
Cash and cash equivalents 17 2,371 4,461
Total current assets 6,043 6,581
Total Assets 16,929 11,186
Current liabilities
Trade and other payables 18 (299) (313)
Borrowings 19 - (111)
Total Current liabilities (299) (424)
Total liabilities (299) (424)
Net Assets 16,630 10,762
Shareholders' equity
Share capital 21 11,842 11,787
Share premium account 39,644 31,622
Share Based Payment Reserve 1,224 659
Accumulated losses (36,080) (33,306)
Total shareholders' equity 16,630 10,762
These financial statements were approved by the Board of Directors on 27 February 2017 and are signed on its behalf by:
Stephen Sanderson
Kiran Morzaria
Director
Director
The accompanying accounting policies and notes form an integral part of these financial statements.
CONSOLDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2016
Share capital Share premium Share based payment reserve Revaluation reserve Accumulated losses Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 October 2014 11,726 23,192 351 44 (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 option exercised - - (70) - 70 -
Share based payments - - 378 - - 378
Total contributions by and distributions to owners of the Company 61 8,430 308 - 70 8,869
Balance at 30 September 2015 11,787 31,622 659 - (33,286) 10,782
Loss for the year - - - - (1,972) (1,972)
Total comprehensive income - - - - (1,972) (1,972)
Issue of shares 55 8,262 - - - 8,317
Cost of share issue - (240) - - - (240)
Share options exercised - - (117) - 117 -
Share based payments - - 682 - - 682
Total contributions by and distributions to owners of the Company 55 8,022 565 - 117 8,759
Balance at 30 September 2016 11,842 39,644 1,224 - (35,141) 17,569
COMPANY STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2016
Share capital Share premium Share based payment reserve Revaluation reserve Accumulated losses Total
£'000 £'000 £'000 £'000 £'000 £'000
Balance at 1 October 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 - - - 8,983
Cost of share issue - (492) - - - (492)
Share option exercised - - (70) - 70 -
Share based payments - - 378 - - 378
Total contributions by and distributions to owners of the Company 61 8,430 308 - 70 8,869
Balance at 30 September 2015 11,787 31,622 659 - (33,306) 10,762
Loss for the year - - - - (2,891) (2,891)
Total comprehensive income - - - - (2,891) (2,891)
Issue of shares 55 8,262 - - - 8,317
Cost of share issue - (240) - - - (240)
Share options exercised - - (117) - 117 -
Share based payments - - 682 - - 682
Total contributions by and distributions to owners of the Company 55 8,022 565 - 117 8,759
Balance at 30 September 2016 11,842 39,644 1,224 - (36,080) 16,630
CONSOLIDATED STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 30 SEPTEMBER 2016
Year ended Year ended
30 September 30 September
2016 2015
£'000 £'000
Cash flow from operating activities
Loss from operations (2,895) (1,607)
Foreign currency losses 20 48
Other non-cash income & expenses (19) (52)
Depletion & impairment 78 82
Share based payment charge 682 378
(Increase) in inventories (1) (2)
Decrease in trade and other receivables 9 262
Increase/(decrease) in trade and other payables 262 (167)
Net cash (outflow) from operating activities (1,864) (1,058)
Cash flows from investing activities
Expenditures on exploration & evaluation assets (458) (1,013)
Expenditures on oil & gas properties & PPE (266) (40)
Payments for acquisition of associate (1,150) -
Payments to acquire available for sale investments - (580)
Loans advanced to investee companies (1,216) (531)
Acquisition of subsidiaries, net of cash acquired (1,257) (1,493)
Net cash (outflow) from investing activities (4,347) (3,657)
Cash flows from financing activities
Proceeds from issue of share capital 4,416 8,630
Share issue costs (240) (492)
Proceeds from loan & borrowings - 622
Repayments of loan & borrowings (111) (557)
Finance costs paid - (81)
Receipts from settlements of financial instrument - 201
Net cash inflow from financing activities 4,065 8,323
Net change in cash and cash equivalents (2,146) 3,608
Cash and cash equivalents at beginning of period 4,590 982
Cash and cash equivalents at end of period 2,444 4,590
COMPANY STATEMENT OF CASH FLOW
FOR THE YEAR ENDED 30 SEPTEMBER 2016
Year ended Year ended
30 September 30 September
2016 2015
£'000 £'000
Cash flow from operating activities
(Loss) from operations (2,785) (1,627)
Foreign currency losses 1 48
Share based payment charge 682 378
Decrease in trade and other receivables 76 277
(Decrease) in trade and other payables (14) (183)
Net cash (outflow) from operating activities (2,040) (1,107)
Cash flows from investing activities
Expenditures on exploration & evaluation assets (80) (662)
Payments for acquisition of subsidiaries (1,257) (1,512)
Payments for acquisition of associate (1,150) -
Payments to acquire available for sale investments - (580)
Loans advanced to investee companies (1,216) (531)
Loan advanced to subsidiary (412) (452)
Net cash (outflow) from investing activities (4,115) (3,737)
Cash flows from financing activities
Proceeds from issue of share capital 4,416 8,630
Share issue costs (240) (492)
Proceeds from loan & borrowings - 622
Repayments of loan & borrowings (111) (557)
Finance costs paid - (81)
Receipts from settlements of financial instrument - 201
Net cash inflow from financing activities 4,065 8,323
Net change in cash and cash equivalents (2,090) 3,479
Cash and cash equivalents at beginning of period 4,461 982
Cash and cash equivalents at end of period 2,371 4,461
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 Consolidated Financial Statements are for the year ended 30 September 2016 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 27
February 2017 and signed on their behalf by Stephen Sanderson and Kiran Morzaria.
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 2015 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 2018.
- IFRS 16 in respect of Leases which will be effective for accounting periods beginning on or after 1 January 2019.
- 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.
Provision for rehabilitation / Decommissioning Liability
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 30 September 2016 is shown in Note 10.
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
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