REG - UK Oil & Gas PLC - Annual Accounts for year ended 30 September 2022
31/03/2023 16:45
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RNS Number : 0150V UK Oil & Gas PLC 31 March 2023
UK Oil & Gas Plc
("UKOG" or the "Company")
Annual Review and Accounts for the year ended 30 September 2022
UK Oil & Gas Plc (AIM: UKOG), a UK and internationally focused energy
company, is pleased to announce its full year results for the full year ended
30 September 2022. A copy of the full annual report and details of the
Company's annual general meeting will be posted to shareholders in due course.
A copy of the full annual report will also be made available on the Company's
website: www.ukogplc.com (http://www.ukogplc.com)
STRATEGIC REPORT FOR THE YEAR ENDED 30 September 2022
OUR BUSINESS
UKOG aims to build a sustainable oil and gas production base that can act as a
springboard to further worldwide opportunities and to build its UK gas storage
and hydrogen energy business in the transition to net zero.
Our current operational focus is on the UK and Turkey onshore sectors. UKOG
has operated safely and environmentally responsibly in the UK since 2013.
Our current UK onshore portfolio consists of direct and indirect interests in
six oil & gas exploration, appraisal, development and production assets,
all situated within the Weald and Purbeck-Wight Basins of southern England. We
are the largest acreage holder in the south of England, with assets covering
689 gross km².
We hold majority interests in four UK onshore oil & gas discoveries, the
most notable being at Horse Hill and Loxley in Surrey, together with a
significant position in the Kimmeridge Limestone (KL) oil deposit or "play".
UKOG holds the largest acreage position within the play's most prospective
area or "sweet spot", covering 489 gross km².
Our UK oil & gas portfolio contains a good balance of low-risk production,
appraisal and development assets as well as upside exploration assets within
both the Kimmeridge Limestone and Portland conventional plays.
Our expanding portfolio in Turkey consists of a 50% non-operated working
interest in the 305 km² Resan licence in south east Turkey, containing the
potentially significant undeveloped Basur-Resan oil discovery plus further
exploration prospects. This project is assessed to contain significantly
greater discovered oil volumes than any of our UK projects and, if successful,
offers potentially transformational growth for the Company.
In order to move our business forwards, we maintain a high level of
operational activity, conducting near-continuous drilling and flow testing
operations since May 2017.
Our portfolio, notably Basur-Resan in Turkey and Loxley in the UK, has the
potential to generate significant returns for the Company and its
shareholders.
In May 2022, the Company's wholly-owned subsidiary, UK Energy Storage Ltd
("UKEn"), signed an Agreement to Lease with Portland Port Limited covering two
sites at the former Royal Navy port in Dorset, with the intent to develop,
subject to new planning consent and securing necessary development finance, a
planned integrated Energy-Hub, centred around hydrogen-ready gas storage and a
future green hydrogen generation capability.
OUR STRATEGY
UKOG aims to build a diverse, sustainable and self-funding energy business
which has the following strategic objectives:
Oil & Gas:
1. Find and Develop Low-Cost and Long-life Assets
- Continuing to invest in new and existing near-term production
assets in the international sector is a key priority.
- New assets added to the Company's portfolio must demonstrate
potential self-funding capacity in the near term. Once in production, revenues
from these assets will provide free cash flow to re-invest and deliver
shareholder returns.
2. Resource and Reserve Growth
- Building our recoverable resources, reserves and future
production through targeted and disciplined high-impact exploration, appraisal
projects and acquisitions, both in UK and increasingly in the international
sector.
- Balance Risk and Reward Maximising value by ground floor or
early entry where possible. Judicious use of farmouts to provide operational
funding. Maximising return on investment by actively considering divestment
after an asset has been de-risked, where appropriate.
3. Balance Risk and Reward
- Aiming to maximise value by ground floor or early entry where
possible. Judicious use of farmouts to provide operational funding. Aiming to
maximise return on investment by actively considering divestment after an
asset has been de-risked, where appropriate..
Hydrogen and Renewables:
1. Hydrogen
- Investigate potential sites for hydrogen generation, storage and
hydrogen battery concept.
- Focus initially on the UK, with international expansion if
successful or if commercially viable opportunities arise.
- Ground floor operated entry through planning permission stages,
with possible subsequent strategic partnerships/JV arrangements with a large
infrastructure player.
- Strategic partnerships with sector technology specialists.
2. UK Energy Diversification - Reduce Carbon Footprint of Company's
Existing Petroleum Producing Sites
- Where viable, implement geothermal and/or solar energy
cogeneration plus battery storage from existing wells/sites.
- Where viable, add new standalone geothermal and battery storage
for grid/heat export.
- Investigate replacement of diesel powered off grid mobile
generation with hydrogen equivalent.
3. Find and Develop New Stand-alone Energy-Hub Projects
- Ground floor entry, either operated or as joint venture partner.
- UK initial focus, international expansion if successful or
commercially viable opportunities arise.
Targeted Portfolio Management:
Continuously review and high-grade our portfolio to either acquire or divest
further stakes in existing assets. We also look to acquire assets at any stage
in the life cycle and are not limited by geography, where we can create
significant value for shareholders.
UKOG shares this vision and strategy through internal dialogue with employees
and externally with shareholders and stakeholders via public announcements and
dissemination of information through our website and the Annual Report and
Accounts.
STATEMENT FROM THE CHAIRMAN
With unprecedented turmoil both here and abroad, there have been few dull
moments over the reporting period for our highly energised team. Rising energy
prices, largely resulting from the war in Ukraine, have put a much needed, if
painful, focus on increased energy security. It has also highlighted the UK's
pressing need for materially greater energy storage resources and a switch to
sustainable home grown green energy.
Many of our projects have taken great strides forward over the past year and
are designed to help play a part in the UK's quest for increased energy
independence. To this end we have also embarked firmly upon our own transition
away from traditional oil and gas towards hydrogen as a new future green
sustainable energy source.
I am delighted that UKOG has fully embraced the opportunity to become a
potentially significant player in the future hydrogen world with its Portland
Port project in Dorset. The ambition is large and aims to establish the UK's
largest onshore underground salt cavern energy storage project, constructing
it to handle both pure hydrogen and natural gas at inception with the ability
to switch seamlessly into full hydrogen usage as that new market develops.
We also envisage Portland to be the centre of an integrated energy hub which
exploits hydrogen's ability to store excess energy from offshore over the
horizon wind. We envisage that green hydrogen could be generated from wind
power in the English Channel that would otherwise be curtailed and then stored
in our caverns. In effect this would be a large-scale hydrogen battery,
storing wind energy to be rapidly converted to electricity when the demand
arose. We are in preliminary discussions with both the wind and power
generation sectors to try and make this a reality. Given the UK's abundant
wind resources and extensive rock salt deposits this could be a sector that
the UK should exploit to establish itself as a world leader.
With high level conversations taking place with government, infrastructure
operators and possible strategic investors, our wholly owned subsidiary UKEn
is gearing up for a busy 2023 in the full knowledge that Portland has the
support of both central and local authorities. We have also become a member of
the new Solent Cluster where we envisage supplying the necessary underground
hydrogen storage for the cluster's blue hydrogen producer and customers alike.
I feel confident that the well-polished and extensive subsurface, engineering
and commercial skills of UKOG's team are readily transferable to this new
sector and that the project can be delivered as envisaged. There is a long way
to go but we are firmly on the road to delivery.
I was also delighted to see that the Loxley project's materiality and
significance has been finally established via RPS' Competent Persons Report.
This should have made an outstanding read for any investor, highlighting both
the present value and the substantive envisaged future net revenues it can
potentially provide. The asset is also fully aligned with the Government's
energy transition, energy security and hydrogen strategies and has planning
and environmental consents for the forthcoming appraisal programme. Utilising
Loxley's gas could save the UK some one million tonnes of CO(2)e over its
lifetime compared with importing the same gas volume.
Whilst Loxley is, of course, a conventional gas accumulation, it aligns very
well with the Company's transition into hydrogen. The project's planned direct
link into the UK's national transmission gas grid will help make the Company's
plans to supply the gas for reforming into hydrogen a reality. As a member of
the Solent Cluster it would seem a natural fit to deliver our gas to the
planned blue hydrogen plant at its centre.
The highlighted value of the Loxley accumulation also provides the Company
with more options for funding future development, including regular oil and
gas debt funding or a farmout where UKOG's costs are carried by a new partner.
Either way, I feel sure we can deliver the planned Loxley appraisal programme
during 2024.
I am mindful that the Company must still provide itself with near term cash
flow so, consequently, was heartened by the discovery of the light oil seep
and the underlying Pinarova shallow oil prospect in our Resan licence in
Turkey. Many of the world's original oil fields were found by drilling beneath
oil seeps so it's interesting to see that such opportunities still exist if
capable people scratch away hard and long enough. Confirmation that Pinarova
contains a commercially viable high quality oil accumulation would be an
excellent result so early in 2023. I look forward to the forthcoming results
and a successful year ahead.
Nicholas Mardon Taylor
Non-Executive Chairman
CHIEF EXECUTIVE'S STATEMENT
This has been an unprecedented year of change, a period of transition for our
industry and our country. We have all had to learn a new language and a new
way of thinking to keep ahead of the transition from petroleum to renewable
energy, while also keeping a keen focus on traditional ways of generating
cashflow.
LOXLEY
Post period, UKOG received outstanding news about our 100%-owned gas appraisal
project at Loxley in Surrey. In February we received a Competent Person's
Report (CPR) by RPS Energy (RPS) illustrating the potential material economic
value of the Loxley Gas discovery, located 9 miles south of Guildford in
Surrey.
The CPR assigned a post-tax present value at a 10% annual discount rate of
Loxley's 2C recoverable gas ranges of £123.7 million net to UKOG, assuming a
gas price of £1.86/therm, the UK gas price on 31(st) December 2022, the
effective date of the CPR, and £86.5 million net to UKOG utilising RPS'
proprietary gas price forecast.
UKOG's net share of Loxley's 2C Contingent Resources is now estimated at 31
billion cubic feet (approximately 1 billion cubic metres) within UKOG's
PEDL234 licence, very much in keeping with the prior published estimates
arrived at by Xodus in 2020. Planning and environmental consents are in place
for the proposed Loxley-1 appraisal programme.
The CPR confirms that Loxley, one of the UK's largest onshore gas discoveries,
possesses material present value in today's prevailing higher gas price world.
Its potential future revenue streams have the capacity to deliver material
shareholder value in the foreseeable future and its recoverable resources to
contribute towards the UK's future energy security.
Delivery of a successful Loxley-1 appraisal programme, currently planned for
2024, could further help cement this value in the foreseeable future .
In October last year, the High Court rejected legal challenges against the
Secretary of State's decision to grant planning permission for Loxley, so
planning consent remains in full force and the Company's plans to implement
the project remain unchanged.
Mrs Justice Lang considered both challenges as "unarguable" and ordered
Waverley and Protect Dunsfold to pay costs of £8,835 and £3,000
respectively.
This follows the decision in June last year by the Right Hon Stuart Andrew
MP, Minister for Housing acting for the Secretary of State for Levelling Up,
Housing and Communities, to overturn Surrey County Council's refusal of
planning consent.
UKOG has consistently stated that Loxley can play its part in the government's
Hydrogen and British Energy Security Strategies via the supply of its gas as
feedstock for reformation into clean burning hydrogen. Once the field has been
depleted of natural gas, Loxley can also be readily repurposed to store over
31 billion cubic feet of hydrogen (approximately 1 billion cubic metres), or
around a tenth of National Grid's Future Energy Scenarios forecast of required
hydrogen storage by 2035. Combined with our planned Portland salt cavern
storage project of up to 2 billion cubic metres, the Company could be a
significant force in the UK's future hydroegen storage sector.
It is the Company's and its legal counsel's view that, whilst further
challenges by either claimant are to be expected, the emphatic rulings of both
the SoS and Justice Lang make the likelihood of their success doubtful. In
any case, the Company will continue to rigorously defend its position in any
subsequent action as and when it may occur.
It is worth noting that the Environment Agency, the body responsible for
safeguarding the UK's environment, granted UKOG a full environmental permit
covering all aspects of the Loxley operation back in June 2020.
TURKEY- PINAROVA
The tragic loss of so many lives in southern Turkey clearly had a profound
impact on our partners and licence operator, Aladdin Middle East ("AME"), but
we were relieved to learn that the earthquakes did not claim the lives of any
of the AME staff or their immediate relatives.
The earthquakes were a considerable distance away from our 300 km² Resan
licence area containing the Basur-1 oil discovery and the new Pinarova shallow
oil prospect, in which UKOG's wholly-owned subsidiary, UKOG Turkey Ltd, holds
a 50% non-operated interest.
On a positive note, we are very excited by the discovery of the active live
light oil seep in one of last year's seismic programme's shot holes and the
realisation that it likely resulted from a direct connection with an
underlying shallow oil accumulation, which we've named Pinarova after the
nearby village located some 6 km north of our Basur-1 oil discovery. We plan
to drill Pinarova-1 to a total depth of around 550 metres in early Spring
2023.
Upon closer examination of seismic and well data, UKOG and its partner Aladdin
Middle East (AME) saw that the culmination of the Pinarova structure, which
extends over an area of around 9 km² within Eocene Hoya group limestones,
300-645m below surface, had been penetrated by the 2018 Kezer-1 geothermal
borehole. This well, whilst being considered to unsuitable for geothermal
energy, had strong oil shows within the Hoya and is reported to have flowed
heavily oil-cut fluids to surface on a short open-hole geothermal test.
Further encouragement for Pinarova is also provided by the presence of seismic
amplitude anomalies at multiple levels withing Pinarova's Hoya target section.
These anomalies could be indicative of the presence of hydrocarbons and/or the
development of higher porosity within the Hoya.
Meanwhile, the new Phase 2 seismic data also helped confirm our view of Basur-
Resan and we continue to believe that the next Basur-4 appraisal well presents
a commercially viable opportunity to be actioned post Pinarova-1.
The Company and AME both consider Pinarova to offer similar potential success
case outcomes to a Basur-4 appraisal well, but at much lower drilling and
development costs and with a shorter time to execution and delivery. The
Company has ample funds to cover its share of the $0.4 million dry hole to
$0.63 million drilled, tested and completed as a pumped oil producer drilling
campaign costs.
PORTLAND PORT
Much attention has been focused on our former Royal Navy facility at Portland
Port in Dorset where our wholly-owned subsidiary UKEn signed a legal agreement
in May 2022 to develop a planned integrated energy hub, centred around
hydrogen-ready gas storage using underground salt caverns and a future green
hydrogen generation capability.
Subject to gaining planning consent and the necessary development finance,
this promises to be the biggest project the Company has been involved with,
in terms of scope, investment and future revenue potential. Indeed, if the
Phase 1 and 2 storage volumes are delivered as we foresee, the project would
be the UK onshore's largest underground storage facility, being roughly
equivalent to the peak capacity of the offshore Rough gas storage facility,
which prior to its closure in 2017, supplied around 70% of the UK's gas
storage capacity.
Our dealings with government regarding Portland have been highly encouraging
and fruitful, including meetings with the Energy Minister, the Rt. Hon. Graham
Stuart MP, Mr Richard Drax, MP for South Dorset, and Mr Matt Prosser, CEO of
Dorset Council. All expressed support for our project.
In spring 2022, the then Secretary of State for Business, Energy and
Industrial Strategy, Kwasi Kwarteng, wrote in a letter to me: "We know that
hydrogen network and storage infrastructure will be essential to the
development of the hydrogen economy, providing the link between production and
demand. In particular, hydrogen's ability to store energy for long periods of
time and in large quantities is central to its strategic value to a fully
decarbonised energy system and we envisage hydrogen storage being a key part
of future network infrastructure … we warmly welcome UKOG's project
proposal."
To move things forwards we have also been in regular discussions with the
appropriate experts from the Minister's teams in both the hydrogen and natural
gas storage sectors and submitted an extensive response to the government's
consultation on Hydrogen Transport and Storage. We are also actively
contributing to the design of the UK's future hydrogen storage business model
and the UK's future requirements for both natural gas and hydrogen storage
volumes.
Given the material size and strategic location of Portland, we have requested
that the government considers adding our project to its list of critical UK
infrastructure as a Tier 2 hydrogen storage facility.
Recently we have also become a member of the new Solent Cluster, acting as the
future provider of underground hydrogen storage for this large-scale hydrogen
cluster centred on decarbonising ExxonMobil's Fawley refinery, the Southampton
area and the South's current gas transportation network.
Portland Port is ideally situated for the construction of large salt caverns
as it overlies a thick, high quality halite section of Triassic age. Halite
deposits with sufficient thickness to accommodate significant caverns are
confined to only three areas of the UK and are found in Cheshire, the
northeast Yorkshire coast, as well as Dorset.
Underground salt caverns are by far the best receptor for both natural gas and
hydrogen as they are modular, can be sized to suit, have a low surface visual
impact, and involve lower development capital per unit of stored energy than
repurposed gas fields. The envisaged scheme for Portland will be constructed
to deliver back 100% of any gas/hydrogen stored, giving it a big advantage
over repurposed fields and other porous rock storage media by removing the
necessity for up to 30% of unrecoverable "cushion gas".
The Company has been advised by its planning consultants, Zetland Ltd, that
the scale and nature of the energy hub development means that planning consent
must be sought under Nationally Significant Infrastructure Project rules. This
would require planning consent to be sought via an application for a
Development Consent Order (DCO) directly to the Planning Inspectorate.
Ultimate authority over the decision on whether to issue a DCO would rest with
the SoS for Levelling Up, Housing and Communities. We are currently working
towards an application submission in H2 2024.
We are, however concerned that the current planning system could hinder any
swift transition into hydrogen. The uncertainties and length of time required
to obtain necessary permissions must ideally be shortened. Business and
industry need greater certainty as to when projects can obtain permissions in
order to make the sector attractive to investment. We urge the government to
bring planning into the 21(st) Century to enable future infrastructure to be
built in a timely and cost-effective manner.
Fortunately, the Port has some positive planning 'history' which may help our
application. In 2008 Dorset County Council granted planning consent to a
previous company to create underground salt cavern storage, but the project
fell victim to the worldwide credit crunch and the failure of the old gas
storage merchant gas storage business model. Today, we live in equally
challenging times, but the need for global energy security, with storage at
its heart, has never been greater.
This need for energy security and a resilient UK energy system has been a
major talking point but it requires urgent action by the government, to
maintain the momentum featured in its British Energy Security and Hydrogen
Strategies and to help deliver a reality that matches the National Grid's 2021
Future Energy Scenarios. Both of these frameworks highlight the need for both
increased gas and future hydrogen storage and this is why Portland has the
potential to be a significant and strategic element of the energy transition
and the future green hydrogen economy.
If the government wishes the UK to become a world leader in the hydrogen
sector, an aspiration we share, then, in addition to swiftly establishing
viable business models, it must also swiftly introduce economic incentives for
companies to invest in the sector ahead of the establishment of a mature
hydrogen market.
This could be simply via breaks in corporation tax and more direct initial
support that helps remove the demand uncertainty for highly capital intensive
and longer lead time strategic level projects. The government could also
actively encourage oil and gas companies to transition into hydrogen and help
kick start the hydrogen sector, by permitting oil and gas profits that were
directly invested in the hydrogen sector to be set off against the Energy
Profit Levy.
Indeed, hydrogen is a fuel similar to natural gas that aligns very well with
oil and gas expertise. We would argue that, in the medium to long term, it
would be more beneficial to the UK to channel investment into hydrogen than
back into oil and gas in the North Sea.
We also encourage the government to consider establishing a sovereign hydrogen
fund that emulates the EU's €3 billion fund. The government could consider
allocating monies from the Energy Profit Levy on upstream oil & gas into
this fund as is muted in the Energy White Paper. That way the sector
generating the root of CO(2) emissions could help directly fund the new energy
sector.
Any future hydrogen energy system must also integrate seamlessly between
production, storage and a pipeline/transportation network. In our view this
will need a well-defined and more detailed strategic level plan than currently
exists and likely an entity responsible for implementing and developing the
system in conjunction with industry.
Portland Port represents a significant source of possible future value for the
Company and its loyal shareholders.
HORSE HILL PEDL137
Horse Hill (85.635% operated interest) has continued to produce steadily,
albeit with some unexpected down time to replace the old pump. Our focus has
been on reducing operating costs to improve the field's profitability and to
work up plans for a potential small 3D seismic survey to be followed by a new
infill well, Horse Hill-3.
Active consideration is also being given to adopting an incremental production
farmout, whereby an incoming entity would cover all or part of the cost of the
new programme for a share of future production from HH-3. We envisage that the
Company and its partners would retain the rights to all of HH-1 production.
We were delighted that the North Sea Transition Authority ("NSTA") granted
its formal consent for the conversion of Horse Hill-2z into a water
reinjection well. With both the Environment Agency and NSTA permissions in
hand, UKOG can now further expedite its plans for produced saline formation
water reinjection at Horse Hill, removing the need for costly transportation
and disposal of produced water at third-party sites. We estimate that the
removal of these costs would add around £250,000 net earnings to the Company
per year and reduce the field's carbon footprint.
The precursor stage to water reinjection was carried out successfully post
period, when three shallow water monitoring boreholes were installed at the
site. Initial sampling of the boreholes, which terminate within the underlying
impermeable Weald Clay formation, found no moveable groundwater immediately
beneath the site. A three month baseline monitoring period prior to the
reinjection workover is now underway and scheduled to be completed around the
end of April 2023.
Further to the Court of Appeal's February 2022 dismissal of the challenge by
the Weald Action Group (Finch et al) to Surrey County Council's grant of Horse
Hill production consent, the Company now understands that, disappointingly,
but perhaps not unsurprisingly, the claimant has been given a final legal
avenue to appeal to the Supreme Court, the last permissible bite at this
long-running legal cherry.
At the last count, five judges and the Court of Appeal have dismissed this
case. Consequently, the Company and its legal counsel remain convinced that
planning consent was granted entirely lawfully, and will, therefore, strongly
contest any further action against its interests.
Planning consent currently remains in full force and lawful oil production at
Horse Hill continues.
HORNDEAN
Although UKOG has a modest 10% interest in the Horndean field, the new
DeGolyer and McNaughton CPR ably demonstrates that it continues to provide
valuable reserves and earnings for the Company. The CPR ascribes aggregate mid
case 2P reserves and 2C Contingent Resource of 179,000 barrels net to UKOG.
The field has been in production for over 30 years and shows little recent
annual production decline.
During 2022, and with considerable downtime due to pump outages from three of
the four pumps, the field earnt UKOG a welcome net share of production
revenues of £287,000, with net earnings after operating costs of £136,000.
The current replacement of old and failing pumps with new lower opex pumps
should improve production rates, lower operating costs and, if oil prices
remain around their current levels, potentially make UKOG's Horndean interest
more profitable than in 2022.
BOARD & MANAGEMENT CHANGES
With effect from 1 January 2022 the Board was restructured. Kiran Morzaria
stepped down as Finance Director to become a Non-Executive Director. Allen
Howard moved from Non-Executive Chairman to become an Executive Director of
the Company on a part-time basis. Nicholas Mardon Taylor took over as
Non-Executive Chairman.
The departure of Matt Gormley as Chief Financial Officer led to the
appointment of Guzyal Mukhametzhanova in the same role. She started her career
within KPMG's Energy and Natural Resources practice before joining JKX Oil and
Gas Limited. Guzyal has 20 years of experience in the natural resources and
energy space and is a member of the Association of Chartered Certified
Accountants (ACCA). She graduated from the London Business School and holds an
MSc in Finance. Guzyal's role of CFO at UKOG is currently a non-board
position.
Fundraising
The Company successfully raised gross proceeds of £4.25 million (£1.25m and
£3m) by means of two separate placings during the reporting period to help
fund our operational work programmes, including drilling in Turkey.
Stephen Sanderson
Chief Executive
For further information, please contact:
UK Oil & Gas Plc
Stephen Sanderson / Allen D Howard Tel: 01483 941493
WH Ireland Ltd (Nominated Adviser and Broker)
James Joyce / James Bavister / Andrew de Andrade Tel: 020 7220 1666
Communications
Brian Alexander Tel: 01483 941493
Qualified Person's Statement
Matt Cartwright, UKOG's Commercial Director, who has 40 years of relevant
experience in the global oil industry, has approved the information contained
in this announcement. Mr Cartwright is a Chartered Engineer and member of the
Society of Petroleum Engineers.
The information contained within this announcement is deemed to constitute
inside information as stipulated under the retained EU law version of the
Market Abuse Regulation (EU) No. 596/2014 (the "UK MAR") which is part of UK
law by virtue of the European Union (Withdrawal) Act 2018. The information is
disclosed in accordance with the Company's obligations under Article 17 of the
UK MAR. Upon the publication of this announcement, this inside information is
now considered to be in the public domain. PRINCIPAL RISKS AND UNCERTAINTIES
UKOG continuously monitors its risk exposures and reports its review to the
board of directors ("The Board"). The Board reviews these risks and focuses on
ensuring effective systems of internal financial and non-financial controls
are in place and maintained.
Key Risk Areas
The high-risk areas surrounding our existing business is tabulated below; the
key areas are Strategic, Operational and Financial.
Risk Mitigation Magnitude and likelihood
Strategic risks
Exposure to political risk, We operate in and may seek new opportunities in Through industry associations and direct contact, the Company engages with Magnitude - Low to Moderate Likelihood - Low to Moderate
countries, regions and cities where political, economic and social transition Government and other appropriate organisations to ensure the Company is kept
may take place. Political instability, changes to the regulatory or taxation abreast of expected potential changes and takes an active role in making
environment, international trade disputes and barriers to free trade, appropriate representations.
international sanctions, expropriation or nationalisation of property, civil
strife, strikes, insurrections, acts of terrorism, acts of war and public
health situations (including any future epidemic or pandemic) may disrupt or
curtail our operations or development activities and could affect the ability
of UKOG to deliver to its Strategy
Operational risks
Permitting risk, planning, environmental, licensing and other permitting risks During the period the Company faced several challenges in obtianing all the Magnitude - Moderate
associated with our operations particularly with exploration drilling required permits. This is despite UKOG's compliance with regulations,
proactive engagement with regulators, communities and the expertise and Likelihood - Moderate to High
operations. experience of the management teams. We believe this is because of changing
priorities within the United Kingdom and the Company has sought to further
diversify this risk by seeking investments outside the United Kingdom
Exploration risk, the Company fails to locate and explore hydrocarbon-bearing Analysis of available technical information to determine the work programme. Magnitude- Moderate
prospects that have the potential to deliver commercially, e.g. key wells are Risk-sharing arrangements entered to reduce downside risk
dry or less successful than anticipated
Likelihood - Moderate
Oil production, oil is not produced in the anticipated quantities from the Analysis of available technical information to improve our understanding of Magnitude - Low
Group's assets, or it cannot be produced economically the reservoir and continue to review cost structure to target low production
costs Likelihood - Low to Moderate
Operational risks (continued)
Price and markets, our financial performance is impacted by fluctuating prices During the prior reporting period the Group entered into production at the Magnitude - Moderate
of oil, gas and refined products. Oil, gas and product prices are subject to Horse Hill assets. The Group determined that given its stage of development
international supply and demand and margins can be volatile. Political the costs of hedging would be prohibitive. The Group will keep this under Likelihood - Moderate to High
developments, increased supply from new oil and gas or alternative low carbon review. At this point the Group continues to review costs where appropriate.
energy sources, technological change, global economic conditions, public
health situations (including the continued impact of the COVID-19 pandemic or
any future epidemic or pandemic.
Loss of key staff Provide and maintain competitive remuneration packages to attract the right Magnitude- Moderate
calibre of staff. Build a strong and unified team
Likelihood - Low
Financial risks
Liquidity risk, exposure through its operations to liquidity risks. The Board regularly reviews UKOG's cash flow forecast and the availability or Magnitude- Moderate
adequacy of its current facilities to meet UKOG's cash flow requirements
Likelihood - Moderate
OPERATIONAL REVIEW
OIL AND GAS ASSETS
UKOG's operational activities were concentrated on the Loxley gas discovery,
Horse Hill oil field and on the Basur-Resan licence in south-east Turkey.
UKOG's second producing oil field is Horndean. The Avington oil field is being
targeted for early production re-start.
Loxley, Broadford Bridge, PEDL234 (UKOG (234) 100%)
Following UKOG's planning appeal the Planning Inspectorate's report
recommending the appeal be granted was submitted in March 2022 to the
Secretary of State (SoS), and in June 2022 the appeal determination by the SoS
granted UKOG's appeal, subject to conditions. Planning and environmental
consents for the Loxley gas project are now both in place. Waverley Borough
Council and a group of local residents have further challenged the appeal
decision. Despite this the Company's legal team remain robustly confident that
following the extensive public inquiry, the Secretary of State's decision to
grant planning consent was thoroughly considered and entirely lawful.
Consequently, we will continue to move our project ahead.
Kappa Engineering supported a review of the previous 1983 Godley Bridge-1 well
test which confirmed that the tested 1.3 MMscfd of gas was constrained by a
high mechanical skin value (+165) on the well. This skin was likely caused by
drilling damage due to Portland sandstone being exposed for 26 days to high
mud weights and use of lost circulation material whilst drilling deeper
sections. In addition, insufficiently sized perforating guns failed to
overcome this damage. Analysis indicates that a zero skin well, achieved by
improved drilling and completion practices, would provide gas rates of 15-18
MMscfd under the same test conditions.
An initial grid export study has been completed with network operator SGN for
Loxley gas entry into the 38 bar Local Transmission System confirming a route
for Loxley gas sales for a range between 10-30 MMscfd. A detailed pipeline
routing study to the identified grid entry point will now be undertaken. Gas
processing and facility cost studies have been completed with consultant IMB
Net Zero to provide up to date project development CAPEX estimates.
Port period RPS Energy issued a Competent Person's Report (CPR) illustrating
the potential economic value of the Loxley gas discovery. 31 billion cubic
feet of 2C Contingent Resources were estimated to be in the PEDL234 licence.
The CPR demonstrates that the NPV10 of Loxley's 2C recoverable gas ranges from
£123.7 million net to UKOG, assuming a gas price of £1.86/therm, the UK gas
price on 31(st) December 2022, the effective date of the CPR, and £86.5
million net to UKOG utilising RPS' proprietary gas price forecast.
Work has commenced to discharge planning conditions for Loxley after which
site construction plans can proceed. It is anticipated that site construction
will commence in the second half of 2023, with the drilling of Loxley-1 to
follow in 2024.
The Company's application for a two-year planning permission extension to West
Sussex County Council's Planning Committee for its Broadford Bridge-1/1z
Kimmeridge oil discovery was approved. Commercial discussions continue with
CeraPhi Energy regarding potential for a geothermal project incorporating the
Broadford Bridge asset.
Horse Hill Oil Field, PEDL137 and PEDL246 (UKOG 85.635%)
The field and surrounding licences are operated by UKOG's subsidiary company
Horse Hill Developments Ltd (HHDL) in which UKOG has 77.9% ownership. The
Licensees are HHDL (65% interest) and UKOG (137/246) Ltd (35% interest).
The North Sea Transition Authority (NSTA) granted consent for the conversion
of the Horse Hill-2z into a saline water reinjection well. NSTA also approved
the related Horse Hill Field Development Plan Addendum. Post period Surrey
County Council (SCC) approved the ground water boreholes required for water
reinjection.
With the Environment Agency (EA), NSTA and SCC permissions in hand, UKOG has
expedited its plans for produced saline formation water reinjection at Horse
Hill, removing the need for costly transportation and disposal of produced
water at distant third-party sites. Groundwater monitoring boreholes, a
condition of the new production permit, have been installed to demonstrate
continued environmental performance.
Thereafter the HH-2z well will be recompleted from a producer to an injector.
Produced water reinjection back into the Portland reservoir is then
anticipated to commence during Q2 2023 following confirmation that all EA
permit pre-operational conditions have been satisfied.
The Unico surface linear rod pump was replaced during August 2022, and the
previous pump refurbished as an operating spare. Routine site optimisation and
maintenance continued in line with regulatory requirements.
As of end-February 2023, 184,000 bbl of Brent quality crude had been produced
and exported from the Kimmeridge and Portland pools.
Further infill development of both Portland (HH-3 well) and Kimmeridge (HH-4
well) offer significant upside for the Horse Hill field. A third party
technical and cost estimate study has been completed for a 3D seismic survey
over Horse Hill to optimise future development drilling activity. Technical
and resource planning for future development of Horse Hill is underway.
The Company announced the signing of a Heads of Terms with geothermal
technology specialists CeraPhi Energy to enter into a joint venture agreement
to develop part of the Horse Hill site into a geothermal energy hub (GeoHub).
The GeoHub, currently at a conceptual stage, is targeted to generate and
supply more than 200,000 MWh per year of continuous baseload, primarily as
heat energy. The project's first phase would aim to supply significant
industrial end-users in the locality with 100% green heating, cooling and
green electricity.
Turkey, Basur-Resan Licence (UKOG 50%)
The Basur-Resan anticline containing the Basur-1 oil discovery is located
within the surrounding 305 km² Resan M47-b1, b2 licence, in which UKOG's
wholly owned subsidiary, UKOG Turkey Ltd, holds a 50% non-operated interest.
A Basur-Resan Licence Operating Committee meeting was held by Aladdin Middle
East (AME) in Ankara in late 2021, the first face to face meeting permitted
since the Covid pandemic. The 2022 work programme and budget were approved.
During our Ankara visit, it was confirmed that AME's and the Company's bid for
new licences in last year's Turkish mini-licence round was unsuccessful. The
mini licence round attracted several other bidders including the Turkish
national oil company, TPAO. Although disappointing given the work programme
offered, the bid was ancillary to the Company's focus of appraising
Basur-Resan.
AME successfully completed the acquisition of phase 1 (46.5km) and phase 2
(42.3km) of the 2D seismic programme over challenging terrain. The acquisition
was conducted by Viking Geological Services. In total 7 new 2D lines were
acquired to enhance imaging and understanding of the Basur-Resan discovery.
Post-period, Abu Dhabi based BGP completed the seismic processing.
Interpretation and geological mapping of the processed data have also been
completed.
UKOG's technical team spent a week in the field with AME, scouting potential
drilling locations.
1300m of surplus UKOG-owned 9-5/8" casing was transferred to operator AME for
utilisation during future drilling.
UKOG was advised by AME that their field crew discovered a significant live,
light, 41.7˚API oil seep, within a seismic shot hole approximately 4 km north
of the recent Basur-3 location. The seep's API gravity is close to the 43˚
API gravity of AME's nearby producing East Sadak oil field and provides
evidence of an active light oil petroleum system in the central area of the
licence. Oil was recovered from a sandstone layer at approximately 10-15m from
surface. Two new drill holes located 8m to the east and west were completed
several days later and also recovered light oil to surface from the same
depth.
Review confirmed the nearby Kezer-1 geothermal borehole, drilled in 2018,
reported strong oil shows throughout the shallow Hoya formation and flowed
heavily oil-cut fluids to surface on a short open-hole geothermal test.
Kezer-1 was deemed unsuitable for geothermal purposes and abandoned.
Integration of this live oil seep, Kezer-1 borehole data and phase 2 seismic
results has presented a new exciting potential shallow oil accumulation,
Pinarova, of some 9 km² areal extent, located 6 km north of the Basur-1 oil
discovery.
A new shallow Pinarova-1 exploration well is to be designed and drilled to
test a working hypothesis that the light oil seep, located above the Pinarova
structure, is directly fed by and connected to an underlying light oil
accumulation within Eocene Hoya group limestones, 300-645m below surface. Both
new and legacy seismic data also show a series of vertically stacked seismic
amplitude anomalies within the core of Pinarova's Hoya structure, possibly
directly indicating hydrocarbons and/or the development of good reservoir
within the Hoya.
UKOG and AME are now progressing preparations for the drilling of Pinarova-1.
Construction of the well pad and access road will commence shortly, and
drilling is expected in April 2023.
Horndean Oil Field (UKOG 10%)
UKOG's second producing field is Horndean located in Hampshire. IGas Energy
plc (IGas), the Horndean oil field operator, advised that the surface beam
pumps in the field are being replaced with new surface pumps. This is forecast
to result in 2023 in higher Horndean oil production, higher well availability
and lower operating costs through lower electrical power usage.
Horndean production in 2022 was impacted by well servicing work on three of
the four production wells. Following completion of the work, production levels
were once again in line with their historical stable performance. UKOG's net
share of Horndean production revenues in 2022 was £287,000, with a net profit
after operating costs of £136,000.
Avington Oil Field (UKOG 5%)
IGas, the Avington oil field operator, advised that the field is being
prepared to restart production. Avington ceased production in late 2017 due to
high operating costs. However, with higher oil prices and all regulatory
approvals in place, the joint venturers have agreed to restart production from
the field. A workover of the Avington-3z well will take place, followed by
surface facilities modifications. The target date for the restart of
production via Avington-3z is Q2 2023.
Arreton, Isle of Wight, PEDL331 (UKOG 95%)
UKOG's planning application to the Isle of Wight Council for the appraisal
drilling and flow testing of the Arreton oil discovery was refused. The
Company decided not to appeal this decision and has relinquished the PEDL331
licence.
GAS AND HYDROGEN STORAGE ASSET
Portland Energy Hub (UKEn 100%)
In May 2022 UKOG (through its wholly owned subsidiary UKEn) made a highly
strategic entry into the UK gas storage business via our legal agreement for a
very large gas storage facility on the Isle of Portland. We intend to create
an energy hub at the former Royal Navy port in Dorset.
Planning approval was granted in 2008 for a methane gas storage project
utilising salt caverns, but, in line with the move to a hydrogen economy,
UKEn's development, while still designed for 1 billion cubic metres of salt
cavern methane storage, will be hydrogen ready and is also intended to
incorporate in due course green hydrogen production via electrolysis using
offshore wind power.
The commercial and legal terms of an Agreement to Lease were negotiated and
executed with the landowner, Portland Port Ltd.
Since execution of the agreement, UKEn has:
· Carried out site activities to confirm ground conditions.
· Pursued the lease of the required subsurface mining and mineral
rights with the Crown Estate.
· Initiated planning and other regulatory activities, with a
detailed review of planning requirements, the DCO process and related
activities such as approvals required for the pipelines and other ancillaries.
· Prepared an overall work programme and budget to achieve the
Development Consent Order (DCO).
Technical reviews and studies are being completed, including an update of the
original salt cavern design, plus overall development cost estimation and
sensitivity/optimisations.
Kris Bone
Matt Cartwright
Operations Director
Commercial Director
FINANCIAL REVIEW
In the reporting period we managed to successfully raise capital to provide
the Group with a source of general working capital and to help deliver the
Group strategy.
Income Statement
Revenues for the year from sales of oil amounted to £1.8 million (2021: £1.6
million). This increase was largely driven by an increase in average sale
price from £43/bbl to £98/bbl which was offset by oil production decrease at
Horse Hill, via HH-1. For more detail please refer to the Operational update.
Depletion, Depreciation and Amortisation costs amounted to £0.8 million
(2021: £0.7 million), reflecting the production from Horse Hill during the
year and updated reserves used for calculation of depletion. Other Cost of
Sales reduced to £0.7 million (2021: £1.1 million). The Group recorded a
gross profit for the year of £0.3 million (2021: loss £0.2 million).
Following an impairment review carried out as at 30 September 2022, the net
present value of the Horse Hill-1 well was determined to be lower than its
recorded book value, and it was therefore determined that the value of
associated oil and gas properties should be impaired by £2.9m.
The Directors have also assessed the fair value of the exploration &
evaluation assets as at 30 September 2022. The Directors have determined the
net present value of the Horse Hill development to be £11.4 million, which
takes into account drilling of additional wells in the field, and supports the
value of intangible assets of Horse Hill.
Administration expenses during the year amounted to £2.7 million (2021: £2.1
million). An Operating loss for the year of £5.4 million was recorded (2021:
£3.8 million). Finance costs amounted to £0.2 million (2021: £0.1 million),
relating primarily to unwinding of discounts on decommissioning provisions.
Balance Sheet
During the financial year to 30 September 2022, non-current assets decreased
to £35.9 million (2021: £37.7 million). This included mainly the effects of
an impairment of oil & gas assets at Horse Hill offset by £2.0 million of
capital expenditure on oil exploration and evaluation assets, primarily at the
Basur-Resan oil discovery in Turkey. Cash and cash equivalents totalled £4.6
million at the year-end (2021: £4.7 million) which allowed liquidity to be
successfully maintained.
Cash Flow and Financing
The net cash outflow from operating activities during the reporting period was
£2.0 million (2021: cash outflow of £1.4 million). The reduced outflow is
primarily attributable to working capital movements and twelve months of
operating cash flows from Horse Hill in the year to 30 September 2022. UKOG
raised £3.9 million during the reporting period via the issue of equity (net
of share issue costs), which was used primarily to fund investing activities
(£2.0 million).
Going concern
The Directors have prepared cash flow forecasts for the period to 31 March
2024, which take into account anticipated production and costs, the forward
curve of Brent crude oil, expected revenue streams from new well in Turkey and
possible external funding, if required.
The Group's base case going concern model was run with average oil prices of
$81/bbl to March 2024. There is a high degree of uncertainty around these
forward rates. Taking into account anticipated production from current
portfolio of assets and Pinarova-1 well in Turkey, costs and the forward curve
of Brent crude oil, forecasts prepared demonstrate that the Group will have
sufficient cash funds available to allow it to continue in business for a
period of at least 12 months from the date of approval of these financial
statements. Notwithstanding the Company's current cash balance and contractual
expenditure commitments, the Board are cognisant of any possible unforeseen
events outside of its control on the Group. Whilst some of these events are
contingent (successful production in Turkey or farm-in to the Horse Hill Oil
Field), the Company, if required, will take actions to address any cash
constraints by seeking to raise capital through equity or debt. Whilst there
can be no certainty that sufficient funding can be obtained in the timescales
required, the Directors are confident of their ability to raise capital, which
is supported by successful capital placements in the past.
The Board considers that the current cash reserves of £2.4m and expectations
of future revenue and/or fund raises either through share placings, debt or
farm out processes will be 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.
Independent auditor's report refers to material uncertainty related to going
concern.
Guzyal Mukhametzhanova
Chief Financial Officer
RESERVES AND RESOURCES
Total aggregate net discovered 2C (mid case) contingent resources and 2P (mid
case) reserves now stand at 23.4 mmboe.
HH-1 production remains in contingent resource category, as the company
requires more data to establish the long-term decline trend of the well. The
company now holds the Environment Agency Production Permit. Once the company
gets sufficient data it intends to review the HH-1 production decline and
attribute reserves to HH-1, thus transferring them from contingent resources
to reserves category.
Prospective resources have reduced compared to last year due to the
relinquishment of PEDL331.
Table 1: Recoverable Reserves mmbbl: Producing Fields, Gross and Net (as of 31
December 2022)
Asset UKOG % Interest Gross mmbbl Net Attributable mmbbl Operator
1P 2P 3P 1P 2P 3P
Horndean (1) 10 0.86 1.00 1.17 0.09 0.10 0.12 IGas
Avington (1) 5 0.05 0.06 0.07 0.002 0.003 0.004 IGas
TOTAL (mmbbl)² 0.09 0.10 0.12
Notes:
1. DeGolyer and MacNaughton (D&M) for IGas Feb 2023, 2. Horse Hill reserve
volumes await external CP verification following 12 months of stable
production history, see text above.
Table 2: Oil Contingent Resources mmbbl (i.e., discovered and drill ready
recoverable volumes)
Asset Licence UKOG Gross Net Attributable Operator
% mmbbl mmbbl
1C 2C 3C Mean 1C 2C 3C Mean
Turkey, Basur-Resan (3) M47 50 14.9 30.5 67.0 37.2 7.5 15.3 33.5 18.6 AME
b1, b2
Horse-Hill Portland (1) PEDL137 85.64 0.5 1.4 3.5 1.8 0.4 1.2 3.0 1.5 HHDL
Horse-Hill Kimmeridge (4) PEDL137 85.64 0.4 1.6 6.1 2.7 0.3 1.4 5.2 2.3 HHDL
Avington (2) PEDL070 5 0.5 0.7 1.0 0.7 0.03 0.04 0.05 0.04 IGas
Horndean (2) PL211 10 0.3 0.8 1.3 0.8 0.03 0.08 0.13 0.08 IGas
TOTAL mmbbl 8.3 18.0 41.9 22.5
Notes:
1. Xodus June 2018 less Portland production to end Feb 2023, estimates for
Horse Hill are deterministic based upon per well recoveries, 2. D&M for
IGas Feb 2023, estimates for Horndean and Avington are deterministic, not
probabilistic, 3. Xodus June 2020, probabilistic based upon range of recovery
factors, 4. RPS Jun 2019.
Table 3: Gas Contingent Resources bcf (i.e., discovered and drill ready
recoverable volumes)
Asset Licence UKOG Gross Net Attributable Operator
% bcf bcf
1C 2C 3C Mean 1C 2C 3C Mean
Loxley (1) PEDL234 100 16.2 31.0 52.9 33.4 16.2 31.0 52.9 33.4 UKOG
Notes:
1. RPS CPR February 2023, probabilistic based upon range of recovery factors.
Table 4: Prospective Resources (i.e., exploration, drill ready but as yet
undiscovered recoverable volumes)
Asset Licence UKOG % Gross mmbbl Net Attributable mmbbl
Low Best High Mean Low Best High Mean
Turkey, Pinarova (1) M47 b1,b2 50 tbc tbc tbc tbc tbc tbc tbc tbc
Turkey, Prospect A (2) M47 b1,b2 50 4.0 8.7 17.0 9.9 2.0 4.4 8.5 5.0
TOTAL 2.0 4.4 8.5 5.0
Notes:
1. To be confirmed by external technical audit
2. Xodus June 2020
HEALTH, SAFETY AND THE ENVIRONMENT
UKOG is committed to providing, so far as is reasonably practicable, a quality
working environment that is safe and one that poses no risks to the health and
safety of our employees, contractors, the local community and stakeholders.
The health & safety of employees and the public, and the protection of the
environment are core business objectives of UKOG. They rank equally with the
company's other business objectives.
Health, safety and environmental (HSE) risks associated with the business
practices of UKOG are addressed through the effective implementation of our
HSE Policy, which is designed to ensure that every person who works for UKOG
is responsible for ensuring that health and safety is managed in all aspects
of our business.
The Company's HSE aspirations are: "get it right, first time, every time with
no accidents, no harm to people, the ecology and the environment".
To achieve the identified objectives, we will ensure that all necessary and
reasonable resources are made available. We will confirm that objectives are
being met by reviewing and reporting on performance and auditing the
implementation and operation of UKOG's HSE Management System.
Our full HSE framework is available on our website:
http://www.ukogplc.com/page.php?pID=101 (https://ukogplc.com/page.php?pID=101)
Health & safety review
UKOG, under our operating subsidiary Horse Hill Developments Ltd (HHDL), has
continued production activities at Horse Hill, including safe replacement of
the Unico linear rod pump system during August 2022. The new more efficient
enclosed gas flare with lower carbon emissions installed on the site in
November 2021 continued to operate effficintly in accordance with design and
environmental permit.
HHDL continued the process of obtaining the full environmental production
permit, including water injection and additional development drilling, from
the Environment Agency (EA). The permitting process took longer than
anticipated with the regulator but the permit was duly awarded in May 2022.
Subsequently planning conditions were then discharged to allow the
installation of groundwater water monitoring boreholes at Horse Hill. The
groundwater monitoring boreholes will be routinely monitored during field life
to demonstrate full environmental permit compliance.
There were no lost time injuries or environmental incidents on any of UKOG's
sites during the reporting period or post period. The lost time injury
frequency was also zero.
The EA and Health and Safety Executive made a number of site visits, linked to
Horse Hill well operations and production equipment.
Progress continued on the workscope for Horse Hill site modifications and
upgrades agreed with the Competent Authority (CA) under Regulation 6 of the
Control of Major Accident Hazards Regulations (2015) (COMAH).
UKOG continues to keep good housekeeping standards on its sites. The Company
continuously monitors all its live operations for noise, ensuring noise from
its sites is kept to a minimum and is compliant with the levels set by the
relevant site planning approval. UKOG only utilises service companies that can
demonstrate commitment to our HSE standards.
Community engagement
Any complaints received are reviewed and responded to. Communication links are
in place with the residents close to our sites, who can call UKOG at any time.
UKOG continues to operate a Covid-19 policy, in line with latest government
guidance, to ensure the safety of our staff and visitors.
The Company meets and communicates regularly with local police to give
operational updates where necessary.
Route to development
UKOG operates within a highly regulated industry, led by the North Sea
Transition Authority, a Government agency reporting to the Department for
Business, Energy & Industrial Strategy, who among other things are
responsible for checking a company's financial and operational competency
before issuing a Petroleum Exploration and Development Licence (PEDL) and
other regulatory approvals.
Once a potential site has been identified, UKOG must secure landowner consent
and a land lease to operate on the land, before the EA assess any risk to
groundwater and air quality, as well as the arrangements for waste management.
In parallel with seeking EA permits, discussions with local planning
authorities begin. They in turn seek the views of the local community and
statutory consultees. The Health and Safety Executive also regulates and
monitors all onshore oil & gas exploration and production activities.
DIRECTORS' SECTION 172 STATEMENT
The following disclosure describes how the Directors have had regard to the
matters set out in section 172(1)(a) to (f) and forms the Directors' statement
required under section 414CZA of The Companies Act 2006. This new reporting
requirement is made in accordance with the new corporate governance
requirements identified in The Companies (Miscellaneous Reporting) Regulations
2018, which apply to company reporting on financial years starting on or after
1 January 2019.
The matters set out in section 172(1) (a) to (f) are that a Director must act
in the way they consider, in good faith, would be most likely to promote the
success of the Company for the benefit of its members as a whole, and in doing
so have regard (amongst other matters) to:
• the likely consequences of any decisions in the long term;
• the interests of the company's employees;
• the need to foster the company's business relationships with
suppliers/customers and others;
• the impact of the company's operations on the community and
environment;
• the company's reputation for high standards of business conduct; and
• the need to act fairly between members of the company.
As set out above in the Strategic Report the Board remains focused on
providing for shareholders through the long term success of the Company. The
means by which this is achieved is set out further below.
Likely Consequences of any Decisions in the Long Term
The Chairman's Statement, the Chief Executive Officer's Commentary and the
Strategic Review set out the Company's strategy. In applying this strategy,
particularly in seeking new projects and developing current ones to deliver
reserves and resource growth. The Board assesses the long term future of our
projects and investments with a view to shareholder return. The approach to
general strategy and risk management strategy of the group is set out in the
Statement of Compliance with the QCA Code of Practice (Principles 1 and 4).
Interest of Employees
The Group has a very limited number of employees and all have direct access to
the Executive Directors on a daily basis and to the Chairman, if necessary.
The Group has a formal Employees' Policy manual which includes processes for
confidential report and whistleblowing.
Need to Foster the Company's Business Relationships with Suppliers/Customers
and Others
The Group continuously interacts with a variety of suppliers and customers
important to its success. The Group strives to strike the right balance
between engagement and communication. Furthermore, the Company works within
the limitations of what can be disclosed to the various stakeholders with
regards to maintaining confidentiality of market and/or commercially sensitive
information. Our suppliers are fundamental to ensuring that the Group can
execute its development and production strategy on time and on budget. Using
quality suppliers ensures that as a business we meet the high standards of
performance that we expect of ourselves and vendor partners. Our management
team work closely with our suppliers, via one on one meetings and where
possible supplier site visits and facility reviews to ensure our suppliers are
able to meet our requirements.
Impact of the Company's Operations on the Community and Environment
The Group takes its responsibility within the community and wider environment
seriously. Its approach to its social responsibilities is set out in the
Statement of Compliance with the QCA Code of Practice (Principle 3).
The Desirability of the Company Maintaining a Reputation for High Standards of
Business Conduct
The Directors are committed to high standards of business conduct and
governance and have adopted the QCA Code of Practice. Where there is a need to
seek advice on particular issues, the Board will consult with its lawyers and
nominated advisers to ensure that its reputation for good business conduct is
maintained.
The Need to Act Fairly Between Members of the Company
The Board's approach to shareholder communication is set out in the Statement
of Compliance with the QCA Code of Practice (Principle 2). The Company aims to
keep shareholders fully informed of significant developments in the Group's
progress. Information is disseminated through Stock Exchange announcements,
website updates and, where appropriate, video-casts.
During 2020 the Company issued numerous stock exchange announcements on
operational issues. All information is made available to all shareholders at
the same time and no individual shareholder, or group of shareholders, is
given preferential treatment.
CORPORATE GOVERNANCE
Introduction to Governance
The Directors recognise that good corporate governance is a key foundation for
the long-term success of the Company. As the Company is listed on the AIM
market of the London Stock Exchange and is subject to the continuing
requirements of the AIM Rules. The Board has therefore adopted the principles
set out in the Corporate Governance Code for small and midsized companies
published by the Quoted Companies Alliance ("QCA Code"). The principles are
listed below with an explanation of how the Company applies each principle,
and the reasons for any aspect of non-compliance.
1. Establish a strategy and business model which promote long- term value for
shareholders
UK Oil & Gas Plc provides shareholders with a full discussion of corporate
strategy within our Annual Report. A dedicated section explains how we will
establish long term shareholder value.
The Company is focused around 3 key strategic goals: Increase production and
recovery from its existing asset portfolio, grow the asset portfolio through
select onshore development and appraisal projects, actively manage costs and
risks through operational and management control of the entire process of
exploring, appraising and developing its assets.
The Management team actively evaluates projects that simultaneously de-risk
the current portfolio and create long-term shareholder value. Projects are
evaluated based on many characteristics to mitigate risk to our current
activities they include but are not limited to alignment with the Company's
core competencies, geography, time horizon and value creation. Further, a core
component of the Company's activities includes an active dialogue with our
legal and legislative advisors to ensure the Company remains up to date on
current legislation, policy and compliance issues.
Key business challenges and how they may be mitigated are detailed in the
Strategic Report.
2. Seek to understand and meet shareholder needs and expectations
UKOG encourages two-way communication with institutional and private
investors. The Company's major shareholders maintain an active dialogue to and
ensure that their views are communicated fully to the Board. Where voting
decisions are not in line with the company's expectations the Board will
engage with those shareholders to understand and address any issues. The
Company Secretary is the main point of contact for such matters.
The Company seeks out appropriate platforms to communicate to a broad audience
its current activities, strategic goals and broad view of the sector and other
related issues. This includes but is not limited to media interviews, website
videos in -person investor presentations and written content.
Communication to all stakeholders is the direct responsibility of the Senior
Management team. Managers work directly with professionals to ensure all
inquiries (through established channels for this specific purpose such as
email or phone) are addressed in a timely matter. And that the Company
communicates with clarity on its proprietary internet platforms. Senior
management routinely provides interviews to local media, and business
reporters in support of the company's activities. The Board routinely reviews
the Company communication policy and programmes to ensure the quality
communication with all stakeholders.
3. Take into account wider stakeholder and social responsibilities and their
implications for long-term success
In all endeavours, the Company gives due consideration to the impact on its
neighbours. The Company seeks out methodologies, processes and expertise in
order to address the concerns of the non-investment community. As such, it
actively identifies the bespoke needs of local communities and their
respective planners.
For example, the company provides for local hotlines and establishes community
liaison groups to address local questions and concerns.
UKOG seeks to maintain positive relationships within the communities we
operate. As such, UKOG is dedicated to ensuring:
• Open and honest dialogue;
• Engagement with stakeholders at all stages of development;
• Proactively address local concerns;
• Actively minimise impact on our neighbours; and
• Adherence to a strict health and safety code of conduct
As a responsible OGA approved and EA permitted UK operator, UKOG is committed
to utilising industry best practices and achieving the highest standards of
environmental management and safety.
Our operations:
• Continuously assess and monitor environmental impact;
• Promote internally and across our industry best practices for
environmental management and safety; and
• Constant attention to maintaining our exemplary track record of safe oil
& gas production.
For more information please refer to the Annual Report as well as the
Community section within the Company's corporate website.
4. Embed effective risk management, considering both opportunities and
threats, throughout the organization
Risk Management in the Annual Report details risks to the business, how these
are mitigated and the change in the identified risk over the last reporting
period.
The Board considers risk to the business at every Board meeting (at least 4
meetings are held each year) and the risk register is updated at each meeting.
The Company formally reviews and documents the principal risks to the business
at least annually.
Both the Board and senior managers are responsible for reviewing and
evaluating risk and the Executive Directors meet at least monthly to review
ongoing trading performance, discuss budgets and forecasts and new risks
associated with ongoing trading.
5. Maintain the Board as a well-functioning, balanced team led by the chair
Oversight of UKOG is performed by the Company's Board of Directors. Allen
Howard, the Non-Executive Chairman, is responsible for the running of the
Board and Stephen Sanderson, the Chief Executive, has executive responsibility
for running the Company's business and implementing Company strategy. All
Directors receive regular and timely information regarding the Company's
operational and financial performance.
Relevant information is circulated to the Directors in advance of meetings. In
addition, minutes of the meetings of the Directors of the UK subsidiaries are
circulated to the Board. All Directors have direct access to the advice and
services of the Company Secretary and are able to take independent
professional advice in the furtherance of the duties, if necessary, at the
company's expense.
The Board comprises two Executive Directors and two Non-Executive Directors
with a mix of significant industry and business experience within public
companies. The Board considers that all Non-Executive Directors bring an
independent judgement to bear. All Directors must commit the required time and
attention to thoroughly fulfil their duties.
The Board has a formal schedule of matters reserved to it and is supported by
the Audit, Remuneration, Nomination and AIM Rules compliance committee. The
Schedule of Matters Reserved and Committee Terms of Reference are available on
the Company's website and can be accessed on the Corporate Governance page of
the website.
6. Ensure that between them the Directors have the necessary up-to-date
experience, skills and capabilities
The Nomination Committee will determine the composition of the Board of the
Company and appointment of senior employees. It will develop succession plans
as necessary and report to the Directors. Where new Board appointments are
considered the search for candidates is conducted, and appointments are made,
on merit, against objective criteria and with due regard for the benefits of
diversity on the Board, including gender.
The Company Secretary supports the Chairman in addressing the training and
development needs of Directors.
As a small company, all members of the Board share responsibility for all
Board functions. As such the Board will from time to time engage outside
consultants to provide an independent assessment.
7. Evaluate Board performance based on clear and relevant objectives, seeking
continuous improvement
The Board intends to carry out an internal evaluation on individual Directors
on an ad-hoc basis in the form of peer reviews and appraisals. The individual
reviews and appraisals are used to identify group and individual targets which
are reviewed and assessed at the end of the financial year.
8. Promote a corporate culture that is based on ethical values and behaviours
The Company is committed to maintaining and promoting high standards of
business integrity. Company values, which incorporate the principles of
corporate social responsibilities (CSR) and sustainability, guide the
Company's relationships with clients, employees and the communities and
environment in which we operate. The Company's approach to sustainability
addresses both our environmental and social impacts, supporting the Company's
vision to remain an employer of choice, while meeting client demands for
socially responsible partners.
Company policy strictly adheres to local laws and customs while complying with
international laws and regulations. These policies have been integral in the
way group companies have done business in the past and will continue to play a
central role in influencing the Group's practice in the future.
The ethical values of UKOG including health, safety, environmental, social and
community and relationships, are set out in the Annual Report.
9. Maintain governance structures and processes that are fit for purpose and
support good decision-making by the Board
The Company has adopted a model code for directors' dealings and persons
discharging managerial responsibilities appropriate for an AIM company,
considering the requirements of the Market Abuse Regulations "MAR"), and take
reasonable steps to ensure compliance is also applicable to the Company's
employees (AIM Rule 21 in relation to directors' dealings).
The Corporate Governance Statement details the company's governance
structures, the role and responsibilities of each director. Details and
members of the Audit Committee, Remuneration Committee, Nomination Committee
and AIM Rules compliance committee can be found in the Annual Report.
10. Communicate how the company is governed and is performing by maintaining a
dialogue with shareholders and other relevant stakeholders
The Company encourages two- way communication with both its institutional and
private investors and responds quickly to all queries received. The Chief
Executive talks regularly with the Company's major shareholders and ensures
that their views are communicated fully to the Board.
The Board recognises the AGM as an important opportunity to meet private
shareholders. The Directors are available to listen to the views of
shareholders informally immediately following the AGM.
To the extent that voting decisions are not in line with expectations, the
Board will engage with shareholders to understand and address any issues.
In addition to the investor relations activities carried out by the Company as
set out above, and other relevant disclosures included on this Investor
Relations section of the Company's website, reports on the activities of each
of the Committees during the year will be set out in the Annual Report.
While building a strong governance framework we also try to ensure that we
take a proportionate approach and that our processes remain fit for purpose as
well as embedded within the culture of our organisation. We continue to evolve
our approach and make ongoing improvements as part of building a successful
and sustainable company.
Section 1.01 Board of Directors
The Board consists of a team of experienced multidisciplinary members who are
committed to delivering shareholder value.
(i) Nicholas Mardon Taylor, Non-Executive Chairman
Nicholas Mardon Taylor served as the Chief Financial Officer of Hurricane
Energy PLC from May 2012 until January 2016. He has worked in the oil industry
for over 35 years, his first involvement in the North Sea being in the early
licensing rounds. He was with Hurricane from 2005 to January 2016 when he was
the Company's first CFO and was subsequently responsible for the Company's
Environmental Management System.
(ii) Stephen Sanderson, Chief Executive
Stephen Sanderson joined UK Oil & Gas Plc in September 2014. He was
appointed Executive Chairman and Chief Executive in July 2015 and in August
2018 ceded his role as Executive Chairman as part of improvements in corporate
governance. A highly experienced petroleum geologist, oil industry veteran and
upstream energy business leader, with over 30 years operating experience,
Stephen is a proven oil finder and has been instrumental in the discovery of
more than 12 commercial conventional fields, including the Norwegian
Smorbuk-Midgaard field complex.
Stephen held a variety of senior management roles for ARCO (which was acquired
by BP in 2000), Wintershall AG (a subsidiary of German chemical giant BASF)
and three junior start-ups. He created and ran successful new exploration
businesses in Africa, Europe and South America. He has significant technical
and commercial expertise in the petroleum systems of Africa, the North Sea,
Norway, onshore UK & Europe, South America, the South Atlantic, Middle
East, Asia, India, Australia and the USA. He is a graduate and Associate of
the Royal School of Mines, Imperial College, London, a Fellow of the
Geological Society of London and a member of the American Association of
Petroleum Geologists.
(iii) Allen D Howard, Executive Director
Allen Howard was Senior Vice President of Houston-based Premier Oilfield
Laboratories, having been Chief Operating Officer of well analysis experts
Nutech. Allen also held senior positions with Schlumberger. He holds a degree
in Chemical Engineering from Texas Tech University and an MBA from Mays
Business School in Texas. Allen was appointed as Non-Executive Chairman for
UKOG in August 2018, before taking up his current Executive role at the
beginning of 2022.
(iv) Kiran Morzaria, Non-Executive Director
Kiran Morzaria holds a Bachelor of Engineering (Industrial Geology) from the
Camborne School of Mines and an MBA (Finance) from CASS Business School. He
has extensive experience in the mineral resource industry working in both
operational and management roles. Mr Morzaria spent the first four years of
his career in exploration, mining and civil engineering. He then obtained his
MBA and became the Finance Director of Vatukoula Gold Mines Plc for seven
years. He has served as a director of a number of public companies in both an
executive and non-executive capacity; he is a non-executive director of
European Metals Holdings Ltd and the Chief Executive Officer for Cadence
Minerals Plc. Mr Morzaria previously served in an Executive capacity as the
Finance Director of UKOG, transitioning to his current Non-Executive position
at the beginning of 2022.
Board and Committee Membership
Member Board Title Audit Committee Title Remuneration Committee Title
Stephen Sanderson Chief Executive
Allen D Howard Executive Director
Nicholas Mardon Taylor Non-Executive Chairman Member Member
Kiran Morzaria Non-Executive Director Chairman Chairman
The Board and its Committees
The Board of the Company consists of two Executive Directors and two
Non-Executive Directors. The Non-Executive Directors are not considered
independent under the QCA Code as they hold options and/or shares in the
Company. However, the Board considers that the Non-Executive Directors are
independent of management under all other measures and are able to exercise
independence of judgement.
With effect from 1 January 2022 the board was restructured. Kiran Morzaria
stepped down as Finance Director and became a Non-Executive Director. Allen
Howard moved from Non-Executive Chairman to become an Executive Director of
the Company on a part-time basis. Nicholas Mardon Taylor became the
Non-Executive Chairman.
The Board is responsible for formulating, reviewing and approving the
Company's strategy, financial activities and operating performance. Day-to-day
management is devolved to the executive directors, who are charged with
consulting the Board on all significant financial and operational matters. The
Board retains ultimate accountability for governance and is responsible for
monitoring the activities of the executive team.
The roles of Chairman and Chief Executive are split in accordance with best
practice. The Chairman has the responsibility of ensuring that the Board
discharges its responsibilities. The Chairman is also responsible for the
leadership and effective working of the Board, for setting the Board agenda,
and ensuring that Directors receive accurate, timely and clear information. No
one individual has unfettered powers of decision.
The Chief Executive has the overall responsibility for creating, planning,
implementing, and integrating the strategic direction of the Company. This
includes responsibility for all components and departments of the business.
The Chief Executive ensures that the organisation's leadership maintains
constant awareness of both the external and internal competitive landscape,
opportunities for expansion, customer base, markets, new industry developments
and standards.
The Board met regularly during the year. Tabulated below is the attendance of
Board Members during the reporting period.
Board Member Meetings attended (out of a total possible)
Nicholas Mardon Taylor 8/8
Stephen Sanderson 8/8
Allen D Howard 8/8
Kiran Morzaria 8/8
Audit Committee
The audit committee consists of Kiran Morzaria (Chairman) and Nicholas Mardon
Taylor. Prior to 1 January 2022 the audit committee consisted of Nicholas
Mardon Taylor (Chairman) and Allen D Howard. The Audit Committee met once
during the year.
Board member Meetings attended (out of a total possible)
Nicholas Mardon Taylor 1/1
Allen D Howard 1/1
The principal duties and responsibilities of the Audit Committee include:
· Overseeing the Company's financial reporting disclosure process;
this includes the choice of appropriate accounting policies
· Monitoring the Company's internal financial controls and assess
their adequacy
· Reviewing key estimates, judgements and assumptions applied by
management in preparing published financial statements
· Annually assessing the auditor's independence and objectivity
· Making recommendations in relation to the appointment,
re-appointment and removal of the company's external auditor
Remuneration Committee
The Remuneration Committee consists of Kiran Morzaria (Chairman) and Nicholas
Mardon Taylor. Prior to 1 January 2022 the Remuneration Committee consisted of
Nicholas Mardon Taylor (Chairman) and Allen D Howard. The Remuneration
Committee met once during the year.
Board member Meetings attended (out of a total possible)
Nicholas Mardon Taylor 1/1
Allen D Howard 1/1
The principal duties and responsibilities of the Remuneration Committee
include:
· Setting the remuneration policy for all Executive Directors
· Recommending and monitoring the level and structure of
remuneration for senior management
· Approving the design of, and determining targets for, performance
related pay schemes operated by the company and approve the total annual
payments made under such schemes
· Reviewing the design of all share incentive plans for approval by
the board and shareholders
None of the Committee members have any personal financial interest (other than
as shareholders and option holders), conflicts of interest arising from
cross-directorships or day-to-day involvement in the running of the business.
No director plays a part in any financial decision about his or her own
remuneration.
Internal controls
The Board is responsible for establishing and maintaining the Company's system
of internal controls and reviewing its effectiveness. The procedures that
include financial, operational, health and safety, compliance matters and risk
management are reviewed on an ongoing basis.
The Company's internal control procedures include the following:
· Board approval for all significant projects, including corporate
transactions and major capital projects;
· The Board receives and reviews regular reports covering both the
technical progress of projects and the Company's financial affairs to
facilitate its control;
· There is a comprehensive budgeting and planning system for all
items of expenditure with an annual budget approved by the Board;
· The Company has in place internal control and risk management
systems in relation to the Company's financial reporting process and the
Company's process for preparing consolidated accounts. These systems include
policies and procedures to ensure that adequate accounting records are
maintained, and transactions are recorded accurately and fairly to permit the
preparation of consolidated financial statements in accordance with
UK-Adopted IAS; and
· The Audit Committee reviews draft annual and interim reports
before recommending their publication to the Board. The Audit Committee
discusses with the Chief Financial Officer and external auditors the
significant accounting policies, estimates and judgements applied in preparing
these reports.
The internal control system can only provide reasonable and not absolute
assurance against material misstatement or loss. The Board has considered the
need for a separate internal audit function but, bearing in mind the present
size and composition of the Company, does not consider it necessary at the
current time.
UK Bribery Act
UK Oil & Gas Plc has reviewed the appropriate policies and procedures to
ensure compliance with the UK Bribery Act. The Company continues actively to
promote good practice throughout the Company and has initiated a rolling
programme of anti-bribery and corruption training for all relevant employees.
Relations with shareholders
Communications with shareholders are considered important by the Directors.
The primary contact with shareholders, investors and analysts is the Chief
Executive. Other senior management, however, regularly speak to investors and
analysts during the year.
Company circulars and press releases have also been issued throughout the year
for the purpose of keeping investors informed about the Company's progress and
in accordance with AIM regulations.
The Company also maintains a website (www.ukogplc.com) which is regularly
updated and contains a wide range of information about the Company.
DIRECTORS' REMUNERATION REPORT
This report explains our remuneration policy for Directors and sets out how
decisions regarding Directors' pay for the period under review have been
taken.
Directors' Remuneration Policy
The Company's policy is to maintain levels of remuneration sufficient to
attract, motivate and retain senior executives.
Executive Director remuneration currently consists of basic salary, pensions,
annual bonus (based on annually set targets) and long-term incentives (to
reward long term performance).
The Company seeks to strike an appropriate balance between fixed and
performance-related reward so that the total remuneration package is
structured to align a significant proportion to the achievement of performance
targets, reinforcing a clear link between pay and performance. The performance
targets for staff, senior executives and the Executive Director are each
aligned to the key drivers of the business strategy, thereby creating a strong
alignment of interest between staff, Executive Directors and shareholders.
The Remuneration Committee will continue to review the Company's remuneration
policy and make amendments, as and when necessary, to ensure it remains fit
for purpose and continues to drive high levels of executive performance and
remains both affordable and competitive in the market.
Remit of the Remuneration Committee
The remit of the Remuneration Committee is provided in the Corporate
Governance section.
Share price movements during the year
The share price range during the year was £0.00077 to £0.0017 (2021:
£0.0035 to £0.0012).
Current arrangement in financial year (audited)
Executive Directors are employed under rolling contracts with notice periods
of 12 months or less from the Company. Non-Executive Directors are employed
under rolling contracts with notice period of three months, under which they
are not entitled to any pension, benefits or bonuses.
During the years ended 30 September 2022 and 2021 the Directors occupied the
following Board positions: Allen D Howard (Non-Executive Chairman), Stephen
Sanderson (Chief Executive Officer), Kiran Morzaria (Finance Director),
Nicholas Mardon Taylor (Non-Executive Director). The Directors' emoluments for
the year were as follows:
Year ended 30 September 2022
Director Board Position* Salary Bonus Pension Share Based Payments Benefits in Total
£'000
£'000
£'000
£'000
Kind
£'000
£'000
Nicholas Mardon Taylor Non-Executive Chairman 56 - - - - 56
Stephen Sanderson Chief Executive 311 - 1 - - 312
Allen D Howard Executive Director 72 - - - - 72
Kiran Morzaria** Non-Executive Director 55 - 1 - - 56
Total Directors 494 - 2 - - 496
Year ended 30 September 2021
Director Board Position* Salary Bonus Pension Share Based Payments Benefits in Total
£'000
£'000
£'000
£'000
Kind
£'000
£'000
Nicholas Mardon Taylor Non-Executive Director 44 - - - - 44
Stephen Sanderson Chief Executive 284 - 1 - 1 287
Allen D Howard Non-Executive Chairman 48 - - - 48
Kiran Morzaria Finance Director 92 - 1 - - 93
Total Directors 468 - 2 - 1 471
* Board positions listed are the positions which were occupied at the end of
the financial year being reported. The Board was restructured with effect from
1 January 2022, as detailed within the Corporate Governance section.
** includes remuneration of Kiran Morzaria as Finance Director for the year
ended 30 September 2022
As at 30 September 2022, the outstanding long-term incentives, in the form of
options, held by the Directors who served during the period are set out in the
table below.
Share options At 1 October 2021 Issued during the year lapsed / exercised during the year At 30 September 2022 Exercise price Date from which exercisable Expiry date
No. million
No. million
No. million
No. million
Stephen Sanderson 25 - (25) - 0.0115 25/05/2017 24/05/2022
Stephen Sanderson 25 - - 25 0.0130 27/09/2020 25/09/2024
Total 50 - (25) 25
Share options At 1 October 2021 Issued during the year lapsed / exercised during the year At 30 September 2022 Exercise price Date from which exercisable Expiry date
No. million
No. million
No. million
No. million
Kiran Morzaria 20.0 - (20) - 0.0115 25/05/2017 24/05/2022
Kiran Morzaria 6.5 - - 6.5 0.0130 27/09/2020 25/09/2024
Total 26.5 - (20) 6.5
Share options At 1 October 2021 Issued during the year lapsed / exercised during the year At 30 September 2022 Exercise price Date from which exercisable Expiry date
No. million
No. million
No. million
No. million
Allen Howard 10 - (10) - 0.0115 25/05/2017 24/05/2022
Allen Howard 5 - - 5 0.0130 27/09/2020 25/09/2024
Total 15 - (10) 5
Share options At 1 October 2021 Issued during the year lapsed / exercised during the year At 30 September 2022 Exercise price Date from which exercisable Expiry date
No. million
No. million
No. million
No. million
Nicholas Mardon Taylor 4 - - 4 0.0130 27/09/2020 25/09/2024
Total 4 - - 4
The Directors present their annual report together with the audited
consolidated financial statements of the Group for the year ended
30 September 2022.
Business review and future developments
A review of business activities in the year and future developments is
outlined in the Chief Executive's Statement, the Statement from the Chairman,
and the Operational Review.
Principal activity and business review
The principal activity of the Group is exploring for, appraising and
developing oil & gas assets.
Results and dividends
Loss on ordinary activities of the Group after taxation amounted to
£5,624,000 (2021: loss of £4,833,000). The Directors do not recommend the
payment of a dividend (2021: £nil). The Company has no plans to adopt a
dividend policy in the immediate future.
Principal risks and uncertainties
Information of the principal risks and uncertainties facing the Group is
included in the Principal Risks and Uncertainties section of the Strategic
Report.
Financial risk management objectives and policies
The Group's principal financial instruments are trade receivables, trade
payables, cash at bank, and borrowings. The main purpose of these financial
instruments is to fund the Group's operations.
It is, and has been throughout the period under review, the Group's policy
that no trading in financial instruments shall be undertaken. The main risk
arising from the Group's financial instruments is liquidity risk. The Board
reviews and agrees policies for managing this risk and this is summarised
below.
Liquidity risk
The Group's objective is to maintain a balance between continuity of funding
and flexibility through the use of equity and its cash resources. Further
details of this are provided in the principal accounting policies, headed
'going concern'. Independent auditor's report refers to material uncertainty
related to going concern.
Key Performance Indicators ("KPIs")
KPIs adopted by the Group are detailed in the KPIs section of the Strategic
Report.
Going concern
The Directors note the losses and cash outflows that the Group has made for
the year ended 30 September 2022. The Directors have prepared cash flow
forecasts for the period to 31 March 2024, which take into account anticipated
production and costs, the forward curve of Brent crude oil, expected revenue
streams from new well in Turkey and possible external funding, if required.
The Group closely monitors and manages its liquidity risks. Cash flow
forecasts for the Group are regularly produced based on, inter alia,
management's best estimate of the Group's production and expenditure forecasts
and future oil prices. 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.
Taking into account anticipated production from current portfolio of assets
and Pinarova-1 well in Turkey, costs and the forward curve of Brent crude oil,
forecasts prepared demonstrate that the Group will have sufficient cash funds
available to allow it to continue in business for a period of at least 12
months from the date of approval of these financial statements.
Notwithstanding the Company's current cash balance and contractual expenditure
commitments, the Board are cognisant of any possible unforeseen events outside
of its control on the Group. Whilst some of these events are contingent
(successful production in Turkey or farm-in to the Horse Hill Oil Field), the
Company, if required, will take actions to address any cash constraints by
seeking to raise capital through equity or debt. Whilst there can be no
certainty that sufficient funding can be obtained in the timescales required,
the Directors are confident of their ability to raise capital, which is
supported by successful capital placements in the past.
The Board considers that the current cash reserves and expectations of
future revenue and/or fund raises either through share placings, debt or farm
out processes will be 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.
Events after the reporting period
Events after the Reporting Period are outlined in Note 24 to the Financial
Statements.
Corporate governance
Information in relation to the Corporate Governance of the Group is contained
within the Corporate Governance Section of the Strategic Report.
Suppliers' payment policy
The Group's policy is to agree terms and conditions with suppliers in advance;
payment is then made in accordance with the agreement provided the supplier
has met the terms and conditions. Suppliers are typically paid within 30 days
of issue of invoice.
Charitable contributions
During the year the Group made charitable donations amounting to £Nil (2021 -
£Nil).
Substantial shareholdings
As at 22 November 2022, the Company had been notified of the following
substantial shareholdings in its ordinary share capital:
Shareholder Number of Ordinary Shares Holding %
Hargreaves Lansdown (Nominees) Limited 5,965,008,886 28.28%
Interactive Investor Services Nominees Limited 3,950,235,223 18.72%
HSDL Nominees Limited 2,514,020,075 11.92%
Barclays Direct Investing Nominees Limited 1,511,498,081 7.16%
HSBC Client Holdings Nominee (UK) Limited 683,815,391 3.24%
Current Board and directors' interests
Nicholas Mardon Taylor Non-Executive Chairman
Stephen Sanderson Chief Executive
Allen D Howard Executive Director
Kiran Morzaria Non-Executive
Director
The directors hold options to purchase new ordinary shares in the Company,
details of which are specified in the Renumeration Report. In addition,
Stephen Sanderson holds 9,347,939 ordinary shares in the Company and Kiran
Morzaria holds 4,508,178 ordinary shares in the Company.
Auditor
PKF Littlejohn LLP has expressed their willingness to continue in office as
auditor and a resolution to reappoint PKF Littlejohn LLP as auditor will be
proposed at the forthcoming Annual General Meeting ("AGM").
Annual General Meeting
Notice of the forthcoming Annual General Meeting has been enclosed separately.
Statement of directors' responsibilities
The Directors are responsible for preparing the annual report and financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare Financial Statements for each
financial year. Under that law the Directors have elected to prepare the Group
and Parent Company financial statements in accordance with UK-adopted
international accounting standards in conformity with the requirements of the
Companies Act 2006. Under Company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and Company and of the profit or
loss of the Group for that period. These financial statements have been
prepared in accordance with:
· UK-adopted international accounting standards and
· the requirements of the Companies Act 2006.
In preparing these financial statements, the Directors are required to:
· Select suitable accounting policies and then apply them
consistently;
· Make judgements and estimates that are reasonable and prudent;
· Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group will continue in
business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Group and
Company and enable them to ensure that the financial statements comply with
the Companies Act 2006. They are also responsible for safeguarding the assets
of the Group and Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of the financial statements may differ from legislation in other
jurisdictions. The Company's website is maintained in accordance with AIM Rule
26.
Statement as to disclosure of information to the auditor
As at the date of this report the serving directors confirm that:
· So far as each Director is aware, there is no relevant audit
information of which the Group's auditors are unaware, and
· They have taken all the steps that they ought to have taken as
Directors in order to make themselves aware of any relevant audit information
and to establish that the Group's auditor are aware of that information.
On behalf of the board
Stephen Sanderson
Director
31 March 2023
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF UK OIL & GAS PLC
Opinion
We have audited the financial statements of UK Oil & Gas Plc (the 'Parent
Company') and its subsidiaries (the 'Group') for the year ended 30 September
2022 which comprise the Consolidated Statement of Comprehensive Income, the
Consolidated and Parent Company Statement of Financial Position, the
Consolidated and Parent Company Statements of Changes in Equity, the
Consolidated and Parent Company Statements of Cash Flows and notes to the
financial statements, including significant accounting policies. The financial
reporting framework that has been applied in their preparation is applicable
law and UK-adopted international accounting standards and as regards the
Parent company financial statements, as applied in accordance with the
provisions of the Companies Act 2006.
In our opinion:
· the financial statements give a true and fair view of the state
of the Group's and of the Parent company's affairs as at 30 September 2022 and
of the Group's loss for the year then ended;
· the Group financial statements have been properly prepared in
accordance with UK-adopted international accounting standards;
· the Parent company financial statements have been properly
prepared in accordance with UK-adopted international accounting standards and
as applied in accordance with the provisions of the Companies Act 2006; and
· the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We are independent of
the Group and Parent company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the
FRC's Ethical Standard as applied to listed entities, and we have fulfilled
our other ethical responsibilities in accordance with these requirements. We
believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our opinion.
Material uncertainty related to going concern
We draw attention to note 2b in the financial statements, which indicates that
the Group will require additional funding in the coming twelve months to meet
their ongoing cash requirements. Whilst the Directors anticipate that such
funding may be obtained from a number of sources, including production revenue
from their joint venture in Turkey and existing producing assets, the
completion of a share placing or farm out, there can be no certainty that such
sources of funding are obtained in the timeframes necessary. As stated in note
2b, these events or conditions, along with the other matters as set forth in
note 2b, indicate that a material uncertainty exists that may cast significant
doubt on the company's ability to continue as a going concern. Our opinion is
not modified in respect of this matter.
In auditing the financial statements, we have concluded that the director's
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate. Our evaluation of the directors'
assessment of the group's and parent company's ability to continue to adopt
the going concern basis of accounting included a review of budgets and cash
flow forecasts covering a period of at least 12 months from the date of
approval of the financial statements, including challenge of management on the
basis of preparation, together with ascertaining the most recent cash position
of the group and company, and identifying subsequent events impacting the
going concern position.
Our responsibilities and the responsibilities of the directors with respect to
going concern are described in the relevant sections of this report.
Our application of materiality
For the purposes of determining whether the financial statements are free from
material misstatement, we define materiality as a magnitude of misstatement
that makes it probable that the economic decisions of a reasonable
knowledgeable person, relying on the financial statements, would be charged or
influenced. We also determine a level of performance materiality which we use
to assess the extent of testing needed to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected misstatements
exceed materiality for the financial statements as a whole.
Materiality for the Group financial statements was set at £783,000 (2021:
£600,000). This was calculated based on 2% of net assets adjusted for
exceptional impairment charges (2021: 1.5%). Net assets was used as the
benchmark for the basis of materiality being the key area of relevance to
stakeholders in assessing the financial performance of the Group in its early
years of production. The same basis for the calculation of materiality for the
Parent company financial statements was used, however restricted to £782,999
(2021: £599,999), to ensure a level below that of Group materiality as
required by ISA (UK) 600.
We also determine a level of performance materiality which we use to assess
the extent of testing needed to reduce to an appropriately low level
probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality for the financial statements as a whole. Performance
materiality for the Group and Parent company was set at £508,950 (2021:
£390,000) and £508,949 (2021: £389,999) respectively, being 65% of
materiality for the financial statements as a whole.
We agreed to report to those charged with governance all corrected and
uncorrected misstatements we identified through our audit with a value in
excess of £39,150 for both the Group and Parent company. We also agreed to
report any other audit misstatements below that threshold that we believe
warranted reporting on qualitative grounds.
Our approach to the audit
The scope of our audit was influenced by our application of materiality. The
quantitative and qualitative thresholds for materiality determine the scope of
our audit and the nature, timing and extent of our audit procedures.
As part of our planning, we assessed all components of the Group for their
significance under ISA (UK) 600 in order to determine the scope of the work to
be performed. Those entities of the Group which were considered to be
significant components, being UK Oil & Gas plc and Horse Hill Developments
Limited, were subject to full scope audit procedures, and those considered to
be material, being UKOG (137/246) Holdings Limited was subject to audit
procedures on significant and identified risk areas only, in accordance with
ISA (UK) 600 for Group reporting purposes. Procedures were then performed to
address the risks identified and for the most significant assessed risks of
material misstatement, the procedures are outlined below in the key audit
matters section of this report. The remaining components were subject to
analytical review procedures.
We did not rely on the work of any component auditors.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Key Audit Matter How our scope addressed this matter
Carrying value and correct classification of exploration and evaluation assets
(Note 11)
The Group accounts for exploration and evaluation (E&E) costs in Our work in this area included:
accordance with the requirements of IFRS 6 - Exploration for and evaluation of
mineral resources. Costs such as exploration licences, leasehold land and • assessing whether the exploration licences remained in good
property acquisition costs and costs directly associated with an exploration standing at the yearend;
well (until the drilling of the well is complete) are capitalised as
exploration and evaluation intangible assets. There is a risk that the • a review of the clients review for indicators of impairment and
exploration and evaluation assets are incorrectly valued or need to be completing our own assessment of these on a licence by licence basis; and
impaired.
• vouching a sample of additions in the period to supporting
If no future activity is planned, the licence has been relinquished or has documentation and ensured they have been capitalised in line with the
expired, or where development is likely to proceed but there are indications requirements of IFRS 6.
that the E&E asset costs are unlikely to be recovered in full, the
carrying value of the asset is written off to the income statement. Key observations:
This risk is classed as a KAM given that management's review for indicators of Indicators of impairment were identified in respect of projects the group has
impairment may be subject to significant judgements and estimates and is one ceased to explore and impairment charges of £100k were made.
of the most significant balances on the statement of financial position.
No further material potential impairments were identified.
Carrying value of producing assets (Note 12)
The Group carries a significant amount of producing assets on its statement of Our work in this area included:
financial position. Management reviews the Group's producing assets annually
to determine whether any indication of impairment exists. Where indicators • a review of management's net present value workings, and
exist, a formal estimate of the recoverable amount is made, which requires the challenging key assumptions made including the discount rate, forecasted oil
use of key assumptions and judgements such as long-term oil prices, foreign price and reserves estimates;
exchange rates, discount rates, reserves, production profiles and capital
expenditure all of which are subject to risk and uncertainty. • reviewing the unit of production method of depletion and
performing a recalculation of the charge thereto;
There is therefore a risk of material misstatement around the carrying value
of producing assets, as to whether any impairment is required. • verifying the mathematical accuracy of calculations prepared by
management.
This is classed as a KAM given that management's valuation workings are
subject to significant judgements and estimates. Key Observations:
The impairment assessment of the Horse Hill Developments Oil & Gas
Properties indicated that that impairment was necessary as a result of the
revised estimate of recoverable oil reserves. An impairment charge of £2.9m
was agreed.
No further material impairments were identified.
Carrying value of investments - Company only (Note 13)
The investments held in UKOG Plc have a significant balance which increased Our work in this area included:
slightly from the Joint venture investment in Turkey. At the end of each year
the Directors carry out an impairment review of the Company's investment in • a review of any valuation and/or impairment workings, including
subsidiaries applying the same assumptions used for the impairment review of testing the inputs to supporting documentation.
oil and gas properties within Horse Hill Developments Ltd.
• agreed investment holdings to supporting documentation; and
There is a risk that these investments in subsidiaries are not fairly valued
as there have been historic impairments of investments which amounted to £8 • agreed capitalisation of intercompany loans to supporting
million. documentation.
This risk is classed as a KAM given that management's valuation workings are Key Observations:
subject to significant judgements and estimates.
We have obtained sufficient and appropriate audit evidence in respect of the
carrying value of investments.
Other information
The other information comprises the information included in the annual report,
other than the financial statements and our auditor's report thereon. The
directors are responsible for the other information contained within the
annual report. Our opinion on the Group and Parent Company financial
statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon. Our responsibility is to read the other
information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge
obtained in the course of the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of
this other information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the strategic report and the directors'
report for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
· the strategic report and the directors' report have been prepared
in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the Parent
Company and their environment obtained in the course of the audit, we have not
identified material misstatements in the strategic report or the directors'
report.
We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received from
branches not visited by us; or
· the Parent Company financial statements are not in agreement with
the accounting records and returns; or
· certain disclosures of directors' remuneration specified by law
are not made; or
· we have not received all the information and explanations we
require for our audit.
Responsibilities of directors
As explained more fully in the directors' responsibilities statement, the
directors are responsible for the preparation of the Group and Parent Company
financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the Group and Parent Company financial statements, the directors
are responsible for assessing the Group and the Parent Company's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the Group or the Parent Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
· We obtained an understanding of the Group and Parent Company and
the sector in which they operate to identify laws and regulations that could
reasonably be expected to have a direct effect on the financial statements. We
obtained our understanding in this regard through discussions with management,
industry research and application of cumulative audit knowledge and experience
of the sector.
· We determined the principal laws and regulations relevant to the
Group and Parent Company in this regard to be those arising from:
o Companies Act 2006
o FRS
o Employment Law
o Bribery Act
o Tax legislation
o Health and Safety legislation
o Environmental law
· We designed our audit procedures to ensure the audit team
considered whether there were any indications of non-compliance by the Group
and Parent Company with those laws and regulations. These procedures included,
but were not limited to:
o enquiries of management
o review of RNS announcements
o review of board and other committee minutes
· We also identified the risks of material misstatement of the
financial statements due to fraud. We considered, in addition to the
non-rebuttable presumption of a risk of fraud arising from management override
of controls, and the information disclosed in the Key Audit Matters section of
this report, we did not identify any significant fraud risks.
· As in all of our audits, we addressed the risk of fraud arising
from management override of controls by performing audit procedures which
included, but were not limited to: the testing of journals; reviewing
accounting estimates for evidence of bias; and evaluating the business
rationale of any significant transactions that are unusual or outside the
normal course of business
Because of the inherent limitations of an audit, there is a risk that we will
not detect all irregularities, including those leading to a material
misstatement in the financial statements or non-compliance with regulation.
This risk increases the more that compliance with a law or regulation is
removed from the events and transactions reflected in the financial
statements, as we will be less likely to become aware of instances of
non-compliance. The risk is also greater regarding irregularities occurring
due to fraud rather than error, as fraud involves intentional concealment,
forgery, collusion, omission or misrepresentation.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities
(http://www.frc.org.uk/auditorsresponsibilities) . This description forms part
of our auditor's report.
Use of our report
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we
are required to state to them in an auditor's report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone, other than the company and the company's members as
a body, for our audit work, for this report, or for the opinions we have
formed.
Daniel Hutson (Senior Statutory Auditor)
15 Westferry Circus
For and on behalf of PKF Littlejohn
LLP
Canary Wharf
Statutory
Auditor
London E14 4HD
31 March 2023
Financial Statements
Consolidated statement of comprehensive income
for year ended 30 September 2022
Notes 30 Sep 2022 30 Sep 2021
£'000
£'000
REVENUE 6 1,780 1,562
Cost of sales
Depletion, Depreciation and Amortisation (769) (684)
Other Cost of Sales (701) (1,067)
Gross profit/(loss) 310 (189)
Operating expenses
Administrative expenses (2,643) (2,098)
Impairment expense 12 (2,890) (1,456)
Foreign exchange losses (65) (62)
Operating loss 5 (5,288) (3,805)
Finance Cost 8 (234) (89)
Exploration Write-off 11 (100) (946)
Loss before taxation (5,622) (4,840)
Taxation 9 - (43)
Retained loss for the year (5,622) (4,883)
Retained loss attributable to;
Equity holders of the Parent (4,870) (4,492)
Non-Controlling Interests (752) (391)
(5,622) (4,883)
There are no other comprehensive income or expenses during the two reported
periods to disclose.
All operations are continuing.
Note Pence Pence
Earnings per share
Basic and diluted 10 (0.04) (0.03)
The accompanying accounting policies and notes form an integral part of these
financial statements.
Consolidated statement of financial position
as at 30 September 2022
Notes 2022 2021
£'000
£'000
ASSETS
Non-current assets
Exploration & evaluation assets 11 32,161 30,420
Decommissioning Asset 11 - 95
Oil & Gas properties 12 2,199 5,472
Property, Plant & Equipment 12 1,563 1,690
Total non-current assets 35,922 37,677
Current assets
Inventory 14 3 2
Trade and other receivables 15 748 627
Cash and cash equivalents 16 4,595 4,727
Total current assets 5,346 5,356
Total assets 41,269 43,033
LIABILITIES
Current liabilities
Trade and other payables 17 (801) (1,067)
Borrowings 18 (3,114) (3,087)
Total current liabilities (3,915) (4,154)
Non-current Liabilities
Provisions 19 (1,442) (1,376)
Total non-current liabilities (1,442) (1,376)
Total liabilities (5,355) (5,530)
Net Assets 35,912 37,503
Equity
Share capital 20 13,693 13,208
Share premium account 110,480 107,097
Share based payment reserve 21 1,745 2,056
Accumulated losses (88,976) (84,580)
36,942 37,781
Non-controlling interest (1,030) (278)
Total shareholders' equity 35,912 37,503
These financial statements were approved by the Board of Directors on 31 March
2023 and are signed on its behalf by:
Stephen
Sanderson
Allen Howard
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 2022
Notes 2022 2021
£'000
£'000
ASSETS
Non-current assets
Exploration & evaluation assets 11 841 823
Investment in subsidiary companies 13 26,242 26,242
Property, Plant and Equipment 12 1,505 1,632
Total non-current assets 28,588 28,697
Current assets
Trade and other receivables 15 229 308
Intercompany balances 15 24,753 21,727
Cash and cash equivalents 16 3,634 4,146
Total current assets 28,616 26,181
TOTAL ASSETS 57,204 54,878
LIABILITIES
Current liabilities
Trade and other payables 17 (341 (330)
Total Current Liabilities (341 (330)
TOTAL LIABILITIES (341 (330)
Net Assets 56,863 54,548
Shareholders' Equity
Share capital 20 13,693 13,208
Share premium account 110,480 107,097
Share based payment reserve 1,745 2,056
Accumulated losses (69,055) (67,813)
Total shareholders' equity 56,863 54,548
As permitted by section 408 of the Companies Act 2006, the profit and loss
account of the parent company has not been separately presented in these
accounts. The parent company loss for the year was £1,716,000 (2021: loss
£5,766,000).
These financial statements were approved by the Board of Directors on 31 March
2023 and are signed on its behalf by:
Stephen
Sanderson
Allen Howard
Director
Director
Registered number: 05299925
The accompanying accounting policies and notes form an integral part of these
financial statements.
Consolidated statement of changes in equity
for the year ended 30 September 2022
Share capital Share premium Share based payment reserve Accumulated losses Total Non-controlling Interests Total
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Balance at 1 October 2020 12,694 99,528 1,811 (80,088) 33,945 113 34,058
Loss for the year - - - (4,492) (4,492) (391) (4,883)
Total comprehensive income - - - (4,492) (4,492) (391) (4,883)
Issue of shares 507 8,231 - - 8,738 - 8,738
Cost of share issue - (765) 245 - (520) - (520)
Warrants exercised 7 103 - - 110 - 110
Total transactions with owners 514 7,569 245 - 8,328 - 8,328
Balance at 30 September 2021 13,208 107,097 2,056 (84,580) 37,780 (278) 37,503
Loss for the year - - - (4,870) (4,870) (752) (5,622)
Total comprehensive income - - - (4,870) (4,870) (752) (5,622)
Issue of shares 485 3,764 - - 4,249 - 4,249
Cost of share issue - (381) 163 - (218) - (218)
Share options expired - - (474) 474 - - -
Total transactions with owners 485 3,383 (311) 474 4,031 - 4,031
Balance at 30 September 2022 13,693 110,480 1,745 (88,976) 36,942 (1,030) 35,912
Company statement of changes in equity
for the year ended 30 September 2022
Share capital Share premium Share based payment reserve Accumulated losses Total
£'000
£'000
£'000
£'000
£'000
Balance at 1 October 2020 12,694 99,528 1,811 (62,047) 51,986
Loss for the year (5,766) (5,766)
Total comprehensive income (5,766) (5,766)
Issue of shares 507 8,231 - - 8,738
Cost of share issue - (765) 245 - (520)
Warrants exercised 7 103 - - 110
Total transactions with owners 514 7,569 245 - 8,328
Balance at 30 September 2021 13,208 107,097 2,056 (67,813) 54,548
Loss for the year (1,716) (1,716)
Total comprehensive income (1,716) (1,716)
Issue of shares 485 3,764 - - 4,249
Cost of share issue - (381) 163 - (218)
Share options expired - - (474) 474 -
Total transactions with owners 485 3,383 (311) 474 4,031
Balance at 30 September 2022 13,693 110,480 1,745 (69,055) 56,863
Consolidated statement of cash flow
for the year ended 30 September 2022
2022 2021
£'000
£'000
Cash flows from operating activities
Loss before tax (5,622) (4,840)
Depletion & impairment 3,659 2,140
Exploration write-off 100 946
Movement in provisions 146 -
Inventories (1) (1)
(Increase)/Decrease in Trade & other receivables (205) 115
(Decrease) / increase in Trade & other payables (268) 187
Finance cost 233 89
Taxation paid - (43)
Net cash outflow from operating activities (1,958) (1,407)
Cash flows from investing activities
Expenditures on exploration & evaluation assets (2,079) (2,107)
Expenditures on oil & gas properties (98) (594)
Expenditures on plant, property & equipment (39) (17)
Net cash outflow from investing activities (2,216) (2,718)
Cash flows from financing activities
Proceeds from issue of share capital 4,250 7,638
Share issue costs (208) (520)
Warrants exercised - 110
Loan transaction fees - (10)
Net cash inflow from financing activities 4,042 7,218
Net change in cash and cash equivalents (132) 3,093
Cash and cash equivalents at beginning of the period 4,727 1,634
Cash and cash equivalents at end of the period 4,595 4,727
Company statement of cash flow
for the year ended 30 September 2022
2022 2021
£'000
£'000
Cash flows from operating activities
Loss before tax (1,716) (5,766)
Depletion & impairment 132 4,163
Decrease in trade & other receivables 79 239
Increase in trade & other payables 15 10
Interest income (142) (16)
Finance cost 10 10
Net cash (outflow) from operating activities (1,622) (1,360)
Cash flows from investing activities
Expenditures on property, plant & equipment (14) (4)
Loan advanced to subsidiary (2,918) (3,054)
Net cash (outflow) from investing activities (2,932) (3,058)
Cash flows from financing activities
Proceeds from issue of share capital 4,250 7,638
Share issue costs (208) (520)
Warrants exercised - 110
Loan transaction fees - (10)
Net cash inflow from financing activities 4,042 7,218
Net change in cash and cash equivalents (512) 2,800
Cash and cash equivalents at beginning of the period 4,146 1,346
Cash and cash equivalents at end of the period 3,634 4,146
Notes to the Financial Statements
1. Corporate information
The consolidated financial statements of UK Oil & Gas Plc (the Company)
and its subsidiaries (collectively, the Group), for the year ended 30
September 2022 were authorised for issue by the directors on 30 March 2023. UK
Oil & Gas Plc (the Company & parent) is a public limited company
incorporated in England and Wales under the UK Companies Act and listed on the
Alternative Investment Market (AIM). The registered office is located at The
Broadgate Towers, 20 Primrose Street, London EC2A 2EW.
The Group is principally engaged in oil production and oil & gas
exploration and evaluation (see Note 4). Information on the Group's structure
is provided in Note 13 and information on other related parties is provided in
Note 25.
Subsidiary undertakings exempt from audit
UK Oil & Gas Plc has guaranteed the liabilities of the subsidiaries listed
below under section 479A of the Companies Act 2006 in respect of the year
ended 30 September 2022.
· UKOG (234) Ltd - 07055133
· UKOG (GB) Limited - 04050227
· UKOG Solent Limited - 0500092
· UKOG Weald Limited - 04881234
· UKOG (137/246) Holdings Ltd - 09010542
· UKOG (137/246) Ltd - 06807023
· UK Oil & Gas Investments Ltd - 11252712
· UKOG (Turkey) Ltd - 10212262
· UK Geothermal Ltd - 13386906
· UK Energy Storage Ltd - 14108327
New and amended standards and interpretations
There is no material impact on the financial statements following the adoption
of these new standards and interpretations.
New standards and interpretations not yet adopted
New and amended standards, and interpretations issued and effective for the
financial year beginning 1 October 2021
There were no new standards, amendments or interpretations effective for the
first time for periods beginning on or after 1 October 2021 that had a
material effect on the Group or Company financial statements.
New standards, amendments and interpretations in issue but not yet effective
At the date of approval 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:
· Amendments to IAS 1 Presentation of Financial Statements:
Classification of Liabilities as Current or Non-current and Amendments to IAS
1: Classification of Liabilities as Current or Non-current - Deferral of
Effective Date - effective 1 January 2023*
· Amendments to IAS 1 Presentation of Financial Statements and IFRS
Practice Statement 2: Disclosure of Accounting Policies - effective 1 January
2023*
· Amendments to IAS 8 Accounting policies, Changes in Accounting
Estimates and Errors - Definition of Accounting Estimates - effective 1
January 2023*
· Amendments to IAS 12 Deferred Tax Related to Assets and
Liabilities arising from a Single Transaction - effective 1 January 2023*
*Not yet endorsed in the UK
The Directors do not expect that the adoption of these standards will have a
material impact on the financial information of the Group and Company in
future periods.
a) Going concern
Going concern
The Directors note the losses and cash outflows that the Group has made for
the year ended 30 September 2022. The Directors have prepared cash flow
forecasts for the period to 31 March 2024, which take into account anticipated
production and costs, the forward curve of Brent crude oil, expected revenue
streams from new well in Turkey and possible external funding, if required.
The Group closely monitors and manages its liquidity risks. Cash flow
forecasts for the Group are regularly produced based on, inter alia,
management's best estimate of the Group's production and expenditure forecasts
and future oil prices.
At 30 September 2022 the Company had cash and cash equivalents of £4,595,000
and borrowings of £3,114,000. These borrowings are due by the Company's
subsidiary, Horse Hill Developments Ltd, to its shareholders. There is no
repayment schedule associated with this loan and repayment is determined by
the directors of Horse Hill Developments Ltd. The intent is to repay this loan
from the free cash flow generated from the HH-1 well or any other further
developments on the licence areas of Horse Hill Developments Ltd.
The Group's base case going concern model was run with average oil prices of
$81/bbl to March 2024. There is a high degree of uncertainty around these
forward rates. Taking into account anticipated production from current
portfolio of assets and Pinarova-1 well in Turkey, costs and the forward curve
of Brent crude oil, forecasts prepared demonstrate that the Group will have
sufficient cash funds available to allow it to continue in business for a
period of at least 12 months from the date of approval of these financial
statements. Notwithstanding the Company's current cash balance and contractual
expenditure commitments, the Board are cognisant of any possible unforeseen
events outside of its control on the Group. Whilst some of these events are
contingent (successful production in Turkey or farm-in to the Horse Hill Oil
Field), the Company, if required, will take actions to address any cash
constraints by seeking to raise capital through equity or debt. Whilst there
can be no certainty that sufficient funding can be obtained in the timescales
required, the Directors are confident of their ability to raise capital, which
is supported by successful capital placements in the past.
The Board considers that the current cash reserves of £2.5m and expectations
of future revenue and/or fund raises either through share placings, debt or
farm out processes will be 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.
b) Basis of consolidation
Subsidiaries are all entities (including structured entities) over which the
Group has control. The Group controls an entity when the Group is exposed to,
or has rights to, variable returns from its involvement with the entity and
has the ability to affect those returns through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control
ceases. All intercompany transactions and balances between Group companies,
including unrealised profits arising from them, are eliminated in full.
At 30 September 2022, the Group comprised the Company and entities controlled
by UK Oil & Gas Plc (its subsidiaries) (note 13).
c) Business combinations
The acquisition method of accounting is used to account for all business
combinations, regardless of whether equity instruments or other assets are
acquired. The consideration transferred for the acquisition of a subsidiary
comprises the:
· fair values of the assets transferred
· liabilities incurred to the former owners of the acquired
business
· equity interests issued by the group
· fair value of any asset or liability resulting from a contingent
consideration arrangement, and
· fair value of any pre-existing equity interest in the subsidiary.
Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are, with limited exceptions, measured
initially at their fair values at the acquisition date. The group recognises
any non-controlling interest in the acquired entity on an
acquisition-by-acquisition basis either at fair value or at the
non-controlling interest's proportionate share of the acquired entity's net
identifiable assets. Acquisition-related costs are expensed as incurred.
d) Joint arrangements
Some of the Group's licence interests are held jointly with others under
arrangements whereby unincorporated and jointly controlled ventures are used
to explore, evaluate and ultimately develop and produce from its oil & gas
interests. The Group's share of assets, liabilities, income and expenditure of
these joint operations, have been classified in the appropriate balance sheet
and income statement headings, except where its share of such amounts remain
the responsibility of another party in accordance with the terms of carried
interests.
When the Group, acting as an operator or manager of a joint arrangement,
receives reimbursement of direct costs recharged to the joint arrangement,
such recharges represent reimbursements of costs that the operator incurred as
an agent for the joint arrangement and therefore have no effect on profit or
loss.
e) Revenue
Revenue comprises the invoiced value of goods and services supplied by the
Group, excluding value added tax and trade discounts. Revenue is recognised
when control passes to the customer and there is no unfulfilled obligation
that could affect the customer's acceptance of the goods. In the case of oil
and petroleum products, this generally occurs when the product is physically
transferred into a vessel, pipe or other delivery mechanism.
Revenue from the production of oil, from fields 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. Non-current assets
(v) Intangible exploration and evaluation assets
The Group accounts for exploration and evaluation costs in accordance with the
requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources as
follows:
· Pre-licence costs (costs incurred prior to obtaining the legal
rights to explore an area) are expensed immediately to the Income Statement.
· Exploration licence and leasehold land and 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.
· 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
consumables, drilling (including coring and sampling), evaluation of technical
feasibility and commercial viability (including appraisal drilling and
production testing).
Exploration and evaluation assets are assessed for impairment at each
reporting date, before reclassification and whenever facts and circumstances
suggest that they may be impaired. If no future activity is planned, the
licence has been relinquished or has expired, or where development is likely
to proceed but there are indications that the exploration and evaluation asset
costs are unlikely to be recovered in full either by development or through
sale, the carrying value of the asset is written off to the Income Statement.
(vi) Property, plant and equipment - oil & gas properties
Oil & gas properties 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 any
associated finance lease is also included within property, plant and
equipment.
Oil & gas properties are depreciated/amortised on a unit-of-production
basis over the total proved developed and undeveloped reserves of the field
concerned. 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.
The Group's interests in oil & gas properties are assessed for indicators
of impairment including events or changes in circumstances which indicate that
the carrying value of an asset may not be recoverable. Any impairment in value
is charged to the Income Statement.
(vii) Other property, plant and equipment
Other property, plant and equipment is stated at cost to the Group less
accumulated depreciation. These assets are generally depreciated on a
straight-line basis over their estimated useful lives, which is between 2 and
10 years depending on the type of asset.
(viii) Decommissioning assets
A decommissioning asset is recognised in the appropriate category of the
Group's non-current assets (intangible exploration and evaluation assets and
property, plant and equipment) depending on the underlying accounting
treatment for the operations or asset leading to the associated
decommissioning provision. The asset is assessed for impairment as necessary
and otherwise depleted on a straight-line basis over the estimated period to
future removal of production facilities or site restoration.
f) Decommissioning provisions
A provision for decommissioning is recognised where a liability for the
removal of production facilities or site restoration exists. Provisions are
measured at the present value of the amount expected to be required to settle
the obligation using a pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the obligation. The
increase in the provision due to the passage of time is recognised as interest
expense.
g) Segmental information
An operating segment is a distinguishable component of the Group that is
involved in oil production, oil exploration or related activities, within a
particular economic environment, which is subject to risks and rewards that
are different from those of other segments.
Operating segments are reported in a manner consistent with internal reporting
provided to the chief operating decision-maker. The chief operating
decision-maker, who is responsible for allocating resources and assessing
performance of the operating segments, has been identified as the Board of
Directors of the Company.
h) Financial instruments
(ix) 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
receivables, 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.
Cash and cash equivalents comprise cash on hand and short term deposits. Any
interest earned is classified as interest income within finance income.
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.
(x) 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.
(xi) Impairment of financial assets
At the end of each reporting period, a provision is made if there is
sufficient evidence that a financial asset or group of financial assets has
been impaired. 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.
i) 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.
j) Taxation
The tax charge includes both current and deferred tax.
Current tax assets and liabilities are measured at the amount expected to be
paid to or received from the tax authorities, calculated using tax rates that
have been enacted or substantively enacted by the balance sheet date. Taxable
profits or losses differ from the reported profit or loss before taxation in
the Income Statement as it excludes items that are taxable or deductible in
different periods, as well as items that are never deductible or taxable.
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. 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.
k) 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.
l) 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. a
· "Accumulated losses " represents retained and (losses).
m) Foreign currencies
The consolidated financial statements are presented in UK pound sterling, the
functional currency of the Group. Transactions in other 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.
2. 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 during the reporting period, and
reported amounts of assets and liabilities, 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. However, actual outcomes
can differ from these estimates.
In particular, the Group has identified the following areas where significant
judgements, estimates and assumptions are required, and where if actual
results were to differ, this could materially affect the financial position of
financial results reported in a future period. 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.
Judgements
(xii) (i) 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.
(xiii) (ii) Hydrocarbon reserve and resource estimates
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.
The volume of proved and probable oil & gas reserves is an estimate that
affects the unit of production depreciation of producing oil & gas
property, plant and equipment as well as being a significant estimate
affecting decommissioning provisions, impairment calculations and the
valuation of oil & gas properties in business combinations. Contingent
resources affect the valuation of exploration and exploration assets acquired
in business combinations and the estimation of the recoverable value of those
assets in impairment tests. Proved and probable reserves and contingent
resources are estimated using standard recognised evaluation techniques.
Estimates are reviewed at least annually and are regularly estimated by
independent consultants. Future development costs are estimated taking into
account the level of development required to produce the reserves by reference
to operators, where applicable, and internal engineers.
The current long-term Brent oil price assumption used in the estimation of
reserves is US$81/bbl. The carrying amount of oil & gas development and
production assets at 30 September 2022 is shown in Note 12.
(xiv) (iii) Recoverable value of intangible exploration and evaluation assets and goodwill
The Group has capitalised intangible exploration and evaluation assets in
accordance with IFRS 6. Significant judgement is required to determine whether
it continues to be appropriate to carry these costs on the balance sheet and
whether the assets have been impaired.
The key areas in which management have applied judgement include the Group's
intention to proceed with a future work programme for a prospect or licence,
the likelihood of licence and planning permission renewal, plans for
relinquishment, assessment of results from wells or geological or geophysical
studies, and the assessment of whether the carrying value of the exploration
and evaluation assets is unlikely to be recovered in full from successful
development or by sale.
Goodwill is assessed in each reporting period to determine whether there is
any impairment.
In both the above areas, the assessments include estimates and assumptions
such as long-term oil prices, foreign exchange rates, discount rates,
reserves, production profiles and capital expenditure, all of which are
subject to risk and uncertainty. It is possible therefore that changes in
these estimates may impact the recoverable values of goodwill and exploration
and evaluation assets.
Details of the Group's intangible exploration and evaluation assets and
goodwill are disclosed in Note 11 to the financial statements.
(iv) Recoverable value of property, plant and equipment
Management reviews the Group's reported property, plant and equipment 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 requires the use of key assumptions and judgements such
as long-term oil prices, foreign exchange rates, discount rates, reserves,
production profiles and capital expenditure, all of which are subject to risk
and uncertainty.
Details of the Group's property, plant and equipment are disclosed in Note 12
to the financial statements.
(xv) (v) Decommissioning costs
The estimated cost of decommissioning at the end of the producing lives of
fields is periodically reviewed and is based on forecast prices and technology
at the balance sheet date. Provision is made for the estimated cost using a
discounted cash flow method and a risk free rate of return. Details of the
Group's decommissioning provisions are disclosed in Note 19 to the financial
statements.
3. Segmental reporting
All of the Group's assets and operations are located in the United Kingdom and
Turkey. For management purposes, the Group is organised into business units
based on the main types of activities and has three reportable segments, as
follows:
· Oil exploration and production: includes producing business
activities
· Oil exploration and evaluation: includes non-producing
activities.
· Head Office, corporate and administrative, including parent
company activities.
The Board of Directors monitors the operating results of its business units
separately for the purpose of making decisions about resource allocation and
performance assessment. Segment performance is evaluated based on operating
profit or loss and is measured consistently with operating profit or loss in
the consolidated financial statements. However, the Group's financing
(including finance costs and finance income) and income taxes are managed on a
group basis and are not allocated to operating segments.
The accounting policies used by the Group in reporting segments internally are
the same as those used in the financial statements.
Subject to further acquisitions and/or disposals, the Group expects to further
review its segmental information during the forthcoming financial year, as it
begins to see the full impact of its acquisitions and/or disposals.
Revenues of £1,780,000 are derived from a single external customer. These
revenues are attributed to the oil production segment.
Year ended 30 September 2022
Group Oil Oil exploration & Corporate & Consolidated
production
evaluation
administrative
£'000
£'000
£'000
£'000
REVENUE
External Customers 1,780 - - 1,780
Total revenue 1,780 - - 1,780
Results
Depreciation, Depletion & Amortisation (542) (292) (133) (610)
Write offs & Impairment (2,890) (100) - (2,990)
Finance costs (74) (128) (10) (211)
Loss before taxation (42) (669) (1,755) (2,466)
Taxation - - - -
Loss after taxation (42) (669) (1,755) (2,466)
Segment assets 5,015 5,499 33,890 41,267
Segment liabilities (3,004) (2,007) (344) (5,355)
Other disclosures:
Capital expenditure ((1)) 98 1,841 39 1,978
(1) Capital expenditure consists of capitalised exploration expenditure,
development expenditure, additions to oil & gas properties and to other
intangible assets including expenditure on assets from the acquisition of
subsidiaries.
Year ended 30 September 2021
Group Oil Oil exploration & Corporate & Consolidated
production
evaluation
administrative
£'000
£'000
£'000
£'000
REVENUE
External Customers 1,562 - - 1,562
Total revenue 1,562 - - 1,562
Results
Depreciation, Depletion & Amortisation (348) (190) (146) (684)
Exploration and Production Write offs & Impairment (1,456) (946) - (2,402)
Finance costs 2 (81) (10) (89)
Loss before taxation (1,716) (1,375) (1,749) (4,840)
Taxation - (43) - (43)
Loss after taxation (1,716) (1,418) (1,749) (4,883)
Segment assets 5,200 5,331 32,502 43,033
Segment liabilities (3,340) (1,955) (235) (5,530)
Other disclosures:
Capital expenditure ((1)) 594 2,107 17 2,718
(1) Capital expenditure consists of capitalised exploration expenditure,
development expenditure, additions to oil & gas properties and to other
intangible assets including expenditure on assets from the acquisition of
subsidiaries.
4. Operating loss
Group 2022 2021
£'000
£'000
Operating (loss) is stated after charging:
Directors' remuneration - fees & salaries 496 471
Employee Benefit Trust charge 7 7
Auditors' remuneration
Audit-related assurance services 71 62
Depletion of oil & gas properties 470 314
5. Revenue
The Group has recognised the following amounts relating to revenue in the
statement of comprehensive income:
Group 2022 2021
£'000
£'000
Revenue from contracts with customers 1,780 1,562
Total 1,780 1,562
All revenue is derived from sales of oil from one geographic location and is
recognised at a point in time.
6. Directors and employees
The Company employed the services of an average of 14 employees in the year
(2021: 14). Remuneration in respect of these employees was:
Group 2022 2021
£'000
£'000
Employment costs, including Directors, during the year:
Wages and salaries 1,628 1,369
Social security costs 216 174
Employee pension costs 13 13
Benefits in kind 10 9
Total 1,867 1,565
Employee pension costs payable at the end of the year amounted to £2,000
(2021: £2,000).
Average number of persons, including Executive Directors employed
2022 2021
No.
No.
Administration 8 8
Operations 6 6
Total 14 14
Directors' remuneration
2022 2021
£'000
£'000
Stephen Sanderson 312 287
Kiran Morzaria 56 93
Allen Howard 72 48
Nicholas Mardon Taylor 56 44
Total 496 471
2022 Fees and Bonuses Pension Benefits Share based payments (*) Total
salaries
£'000
£'000
in Kind
£'000
£'000
£'000
£'000
Stephen Sanderson 311 - 1 - - 312
Kiran Morzaria 55 - 1 - - 56
Allen Howard 72 - - - - 72
Nicholas Mardon Taylor 56 - - - - 56
Total 494 - 2 - - 496
2021 Fees and Bonuses Pension Benefits Share based payments (*) Total
salaries
£'000
£'000
in Kind
£'000
£'000
£'000
£'000
Stephen Sanderson 284 - 1 1 - 287
Kiran Morzaria 92 - 1 - - 93
Allen Howard 48 - - - - 48
Nicholas Mardon Taylor 44 - - - - 44
Total 468 - 2 1 - 471
* Share based payments are non-cash remuneration by way of the issue of share
options in the company.
7. Finance costs
2022 2021
£'000
£'000
Loan interest due to non-controlling interests 26 3
Unwind discount on decommissioning provision (note 19) 198 98
Change in estimate of decommissioning liability - (22)
Loan transaction fees 10 10
Total - Finance costs 234 89
8. Income tax
There is no tax credit on the loss for the current or prior year. The tax
assessed for the year differs from the standard rate of corporation tax in the
UK as follows:
2022 2021
£'000
£'000
Loss for the year before tax (5,622) (4,840)
Tax rate 40% (30% for ring-fenced activities plus 10% ring fence supplement) 40% 40%
Expected tax credit (2,249) (1,936)
Tax adjustment for non-deductible expenditure 192 207
Tax impact of capital allowances (8) (8)
Adjustment in respect of prior periods - 43
Impact of losses taxed at different rates 454 636
Tax impact of losses carried forward 1,464 1,101
Other movements 147 -
Total - Actual tax expense - 43
The Group estimated carried forward tax losses are £16,421,000 (2021:
£10,799,000), none of which are recognised as a deferred tax asset.
Deferred tax assets have not been recognised in respect of the unprovided
deferred taxation items because it is not probable that future taxable profit
will be available to utilise these deductible temporary differences.
9. Earnings per share
The calculation of the basic loss per share is calculated by dividing the
consolidated loss attributable to the equity holders of the Company by the
weighted average number of ordinary shares in issue during the year.
Group 2022 2021
£'000
£'000
Loss attributable to ordinary shareholders (4,870) (4,492)
Group 2022 2021
No.
No.
Weighted average number of ordinary shares for calculating basic loss per 16,605,573,760 13,481,093,231
share
Group 2022 2021
Pence
Pence
Basic and diluted loss per share (0.04) (0.03)
As inclusion of the potential ordinary shares would result in a decrease in
the earnings per share they are considered to be anti-dilutive, as such, a
diluted earnings per share is not included. The potential amount of dilutive
shares is 435,125,816, which represents outstanding options and warrants.
10. Intangible assets
Group
Cost & Net Book Value Exploration & Decommissioning Total
evaluation costs
asset
£'000
£'000
£'000
As at 30 September 2020 29,259 285 29,544
Additions 2,107 - 2,107
Exploration Write offs & Amortisation (946) (190) (1,136)
As at 30 September 2021 30,420 95 30,515
Additions 1,835 - 1,835
Exploration Write offs & Amortisation (100) (95) (195)
As at 30 September 2022 32,155 - 32,155
Company
Cost & Net Book Value Exploration &
evaluation costs
£'000
As at 30 September 2020 1,643
Additions 119
Exploration Write offs & Amortisation (939)
As at 30 September 2021 823
Additions 18
Exploration Write offs & Amortisation -
As at 30 September 2022 841
The Directors have assessed the fair value of the exploration & evaluation
assets as at 30 September 2022. The Directors have determined that the net
present value of the Horse Hill development to be £11.4 million, which takes
into account drilling of additional wells in the field, and supports the value
of intangible assets of Horse Hill.
As part of the impairment review carried out, impairment triggers of
exploration & evaluation assets were identified and the impairment charge
of £0.1m was recognised in respect of assets where there are no plans to
develop.
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. Additions during the year
reflect the associated exploration and evaluation activities.
At this point the Company is still assessing the potential of the remaining
assets and will continue to develop and evaluate these assets in the coming
year. Since their acquisition dates there has been no further material changes
to the Licence areas. The directors therefore consider that no further
impairment is required at 30 September 2022.
Joint operations
UKOG's wholly owned subsidiary UKOG Turkey Ltd signed a participation
agreement and joint operating agreement with AME in 2021, to take a 50%
non-operated working interest in the 305 km² Resan M47-b1, b2 licence in
Turkey. Together with AME, the business is working towards finalising the
design and delivery of a successful first appraisal well aimed at establishing
the commerciality of the aerially extensive and as yet undeveloped Basur-Resan
oil discovery contained within the licence.
11. Oil & gas properties
Group Oil & gas properties Decommissioning asset Property, plant & equipment Total Total
2022
2022
2022
2022
2021
Cost
As at 1 October 17,162 460 2,197 19,819 18,941
Transfers - - - - -
Additions 98 - 39 137 611
Change in estimate - - - - 267
As at 30 September 17,260 460 2,236 19,956 19,819
Depletion & impairment
As at 1 October (12,128) (23) (506) (12,657) (10,708)
Impairment (2,890) - - (2,890) (1,456)
Depletion charge (481) - (167) (648) (493)
As at 30 September (15,499) (23) (673) (16,195) (12,657)
Carrying value
As at 30 September 1,762 437 1,563 3,761 7,163
Impairment review
The Directors have carried out an impairment review of oil and gas assets of
HH-1 well as at 30 September 2022. The Directors determined that the net
present value of the HH-1 well was £0.8 million and therefore determined that
HH-1 should be impaired by £2.9 million. The net present value utilised an
internally generated depletion curve that was independently reviewed. Costs
were based on current costs less any anticipated savings. A long-term average
Brent oil price of US$81/bbl was used being the Brent curve until 2031 and
then kept flat at $81/bbl. A discount rate of 3.86% was based on a Capital
Asset Pricing Model analysis being the weighted average costs of capital of
Horse Hill Developments Ltd, the holding company of the assets under review.
Based on current production at Horndean no impairment was deemed necessary.
Property, plant & equipment
Company 2022 2021
£'000
£'000
Cost
As at 1 October 1,819 1,815
Additions 5 4
As at 30 September 1,824 1,819
Depletion & impairment
As at 1 October (187) (42)
Depletion charge (132) (145)
As at 30 September (319) (187)
Carrying value
As at 30 September 1,505 1,632
12. Investment in subsidiaries
Company 2022 2021
£'000
£'000
Cost and net book amount
At 1 October 26,242 21,406
Capital reorganisation of subsidiaries - 7,915
Impairment - (3,079)
At 30 September 26,242 26,242
The Directors carried out an impairment review of the Company's Investment in
its subsidiaries as at 30 September 2022 and determined that no impairment was
required. In the opinion of the Directors the carrying value of the
investments is supported by their underlying net assets of the Group's
subsidiaries or the net present value.
The Company holds more than 50 per cent of the share capital of the following
companies as at 30 September 2022:
Company Country of Registration Proportion held Functional Currency Nature of business
UKOG (GB) Limited UK 100% GB£ Oil production
UKOG Solent Limited UK 100% GB£ Oil exploration
UKOG Weald Limited UK 100% GB£ Oil exploration
UKOG (234) Limited UK 100% GB£ Oil exploration
Horse Hill Developments Ltd UK 77.9% GB£ Oil production
UKOG (137/246) Holdings Ltd UK 100% GB£ Holding Company
UKOG (137/246) Ltd UK 100% GB£ Oil exploration
UKOG (Turkey) Ltd UK 100% GB£ Oil exploration
UK Energy Storage Ltd UK 100% GB£ Energy storage
UK Oil & Gas Investments Limited UK 100% GB£ Dormant
UK Geothermal Limited UK 100% GB£ Dormant
The registered address of each of these subsidiaries can be found on the
website of Companies House.
All subsidiary undertakings are included in the consolidated financial
statements. The proportion of the voting rights in the subsidiary undertaking
held directly by the parent company do not differ from the proportion of the
ordinary shares held. The following companies are taking an exception from the
audit of the financial statements as per S479A of the Companies Act; UKOG (GB)
Limited (04050227), UKOG Solent Limited (05000092), UKOG Weald Limited
(04991234), UKOG (234) Ltd (07055133), UKOG (137/246) Holdings Ltd (09010542),
UKOG (Turkey) Ltd (10212262), UK Oil & Gas Investments Limited (11252712),
UK Geothermal Limited (13386906), UKOG (137/246) Limited (06807023 ), UK
Energy Storage Ltd (14108327).
13. Inventory
Group 2022 2021
£'000
£'000
Inventories - Crude Oil 3 2
Total 3 2
14. Trade and other receivables
Group Company
2022 2021 2022 2021
£'000
£'000
£'000
£'000
Trade debtors 217 44 24 22
Other debtors 228 268 77 47
Loans to subsidiary companies - - 24,753 21,727
Prepayments and accrued income 303 315 128 239
Total 748 627 24,982 22,035
The directors consider that the carrying amount of trade and other receivables
approximates to their fair value. Trade receivables are amounts due from
customers for goods sold in the ordinary course of business. They are
generally due for settlement within 30 days and are therefore all classified
as current.
15. Cash and cash equivalents
Group Company
2022 2021 2022 2021
£'000
£'000
£'000
£'000
Cash at bank and in hand 4,595 4,727 3,634 4,146
Total 4,595 4,727 3,634 4,146
16. Trade and other payables
Group Company
2022 2021 2022 2021
£'000
£'000
£'000
£'000
Trade creditors 564 745 165 84
Other creditors 63 48 63 49
Accruals and deferred income 174 273 113 197
Total 801 1,067 341 330
The Directors consider that the carrying amount of trade and other payables
approximates to their fair value.
17. Borrowings
Group Company
Borrowings 2022 2021 2022 2021
£'000
£'000
£'000
£'000
Loans payable to Non-Controlling Interests 3,114 3,087 - -
Total 3,114 3,087 - -
At 30 September 2022, the outstanding loan balances owed to HHDL's
shareholders were; Alba Mineral Resources PLC (Alba) £2.54 million (2021:
£2.52 million), Doriemus PLC (Doremius) £0.57 million (2021: £0.57 million)
and UK Oil & Gas Plc £16.59 million (2021: £16.03 million). The loans
are payable on determination by the Board of HHDL. The loans currently attract
an interest rate equivalent to the Bank of England base rate, which was 0.1%
during the year.
18. Provisions - decommissioning
Group 2022 2021
£'000
£'000
As at 1 October 1,376 1,031
Change of estimate (65) 247
Release - -
Unwind discount 131 98
As at 30 September 1,442 1,376
The amount provided for at 30 September 2022 represents the Group's share of
decommissioning liabilities in respect of the producing Horndean and Avington
fields, the producing site at Horse Hill and the Broadford Bridge drilling
site.
The Company makes full provision for the future cost of decommissioning oil
production facilities and pipelines on a discounted basis upon the
installation of those facilities. The decommissioning provision represents the
present value of decommissioning costs relating to oil & gas properties.
These provisions have been created based on the Company's internal estimates.
Assumptions used include an average group-wide discount rate of 10.0% and an
annual inflation rate of 3.0% applied to future decommissioning costs.
Assumptions based on the current economic environment have been made, which
management believes are a reasonable basis upon which to estimate the future
liability. These estimates are reviewed regularly to take into account any
material changes to the assumptions.
However, actual decommissioning costs will ultimately depend upon future
market prices for the necessary decommissioning works required which will
reflect market conditions at the relevant time. Furthermore, the timing of
decommissioning is likely to depend on when the fields cease to produce at
economically viable rates. This, in turn, will depend upon future oil &
gas prices, which are inherently uncertain.
19. Share capital
Ordinary Shares Number of Nominal Value Total Value
ordinary shares
£
£'000
Issued at 30 September 2020 11,099,385,057 0.0001 1,110
On 02 October 2020, placing for cash at 0.16p per share 1,374,999,993 0.0001 137
On 04 December 2020, warrant exercise at 0.16p per share 68,750,000 0.0001 7
On 11 February 2021, for acquisition at 0.20p per share 412,475,262 0.0001 41
On 25 May 2021, for acquisition at 0.13p per share 262,759,440 0.0001 26
On 05 July 2021, placing for cash at 0.18p per share 2,763,888,878 0.0001 276
On 27 July 2021, placing for cash at 0.18p per share 256,974,621 0.0001 26
Issued at 30 September 2021 16,239,233,251 0.0001 1,624
On 1 August 2022, for acquisition at 0.0875p per share 1,428,571,428 0.0001 142
On 16 September 2022, for acquisition at 0.0875p per share 3,428,571,425 0.0001 343
Issued at 30 September 2022 21,096,376,104 0.0001 2,109
Deferred shares
The Company has in existence at 30 September 2022 and 2021, 1,158,385,352,229
deferred shares of 0.001p. These deferred shares do not carry voting rights.
Total Ordinary and Deferred shares
The issued share capital as at 30 September 2022 is as follows:
Number of Nominal Value Total Value
shares
£
£'000
Ordinary shares 21,096,376,104 0.0001 2,109
Deferred shares 1,158,385,352,229 0.00001 11,584
Total 13,693
20. Share based payments
Share options
No options were granted during the year (2021: nil).
As at 30 September 2022 the options in issue were:
Exercise price Expiry date Options in issue
30 September 2022
1.6p 12 April 2023 17,500,000
1.13p 25 September 2024 121,500,000
Total 139,000,000
Weighted average remaining contractual life of options outstanding at end of
period is 22 months.
No options were exercised, and no options were cancelled during the year
(2021: none exercised, none cancelled). 117,000,000 options lapsed during the
year (2021: nil). £472,000 (2021: nil) was transferred via equity to retained
earnings on the lapse of options during the year.
Warrants
As of 30 September 2022, 421,982,958 warrants were in issue (2021:
179,125,816).
242,857,142 warrants were issued during the year (2021: 206,944,444). No
warrants lapsed during the year (2021: nil). No warrants were exercised during
the year (2021: 68,750,000 exercised).
Employee Benefit Trust
The Company established an employee benefit trust called the UK Oil & Gas
Employee Benefit Trust (EBT) on 29 September 2014, to implement the use of the
Company's existing share incentive plan over 10% of the Company's issued share
capital from time to time in as efficient a manner as possible for the
beneficiaries of that plan. The EBT is a discretionary trust for the benefit
of directors, employees and consultants of the Company. The shares held in the
EBT are intended to be used to satisfy future awards made by the Company's
Remuneration Committee under the share incentive scheme.
The EBT did not subscribe to shares during the year to 30 September 2022
(2021: nil). The balance of ordinary shares held by the EBT on 30 September
2022 was 250,000,000 (2021: 250,000,000). Awards of Ordinary Shares to
beneficiaries by the EBT will be subject to appropriate vesting and other
performance conditions, in line with normal market practice, which will be set
by the Remuneration Committee.
Details of share options granted during the year to Directors, consultants
& employees over the ordinary shares are as follows:
Share options At 1 October 2021 Issued during Lapsed / exercised during the year At 30 September 2022 Exercise price Date from which exercisable Expiry date
No. Million
the year
No. Million
No. Million
£
No. Million
Allen Howard 10 - (10) - 0.0115 25/05/2017 24/05/2022
Allen Howard 5 - - 5 0.0113 27/09/2019 25/09/2024
Kiran Morzaria 20 - (20) - 0.0115 25/05/2017 24/05/2022
Kiran Morzaria 6.5 - - 6.5 0.0113 27/09/2019 25/09/2024
Stephen Sanderson 25 - (25) - 0.0115 25/05/2017 24/05/2022
Stephen Sanderson 25 - - 25 0.0113 27/09/2019 25/09/2024
Nicholas Mardon Taylor 4 - - 4 0.0113 27/09/2019 25/09/2024
95.5 - (55) 40.5
Consultants 62 - (62) - 0.0115 25/05/2017 24/05/2022
Consultants & employees 17.5 - - 17.5 0.0160 13/04/2018 12/04/2023
Consultants & employees 81 - - 81 0.0113 27/09/2019 25/09/2024
Total 256 - (117) 139
Share options At 1 October 2020 Issued during Lapsed / exercised during the year At 30 September 2021 Exercise price Date from which exercisable Expiry date
No. Million
the year
No. Million
No. Million
£
No. Million
Allen Howard 10 - - 10 0.0115 25/05/2017 24/05/2022
Allen Howard 5 - - 5 0.0113 27/09/2019 25/09/2024
Kiran Morzaria 20 - - 20 0.0115 25/05/2017 24/05/2022
Kiran Morzaria 6.5 - - 6.5 0.0113 27/09/2019 25/09/2024
Stephen Sanderson 25 - - 25 0.0115 25/05/2017 24/05/2022
Stephen Sanderson 25 - - 25 0.0113 27/09/2019 25/09/2024
Nicholas Mardon Taylor 4 - - 4 0.0113 27/09/2019 25/09/2024
95.5 - - 95.5
Consultants 62 - - 62 0.0115 25/05/2017 24/05/2022
Consultants & employees 17.5 - - 17.5 0.0160 13/04/2018 12/04/2023
Consultants & employees 81 - - 81 0.0113 27/09/2019 25/09/2024
Total 256 - - 256
The share price range during the year was £0.00077 to £0.0017 (2021:
£0.0035 to £0.0012).
The disclosure of Weighted Average Exercise Prices and a Weighted Average
Contractual Life analysis is not viewed as informative because of the minimal
variation of options currently in issue, and therefore has accordingly not
been disclosed.
For those options granted where IFRS 2 "Share-Based Payment" is applicable,
the fair values were calculated using the Black-Scholes model. The inputs into
the model were as follows:
Risk free rate Share price volatility Expected life Share price at date of grant
13 April 2018 (0.4p) 0.8% 128.9% 1.72 years £0.015
13 April 2018 (1.6p) 0.9% 128.9% 5 years £0.015
27 September 2019 (1.13p) 0.4% 63.13% 5 years £0.011
Expected volatility was determined by calculating the historical volatility of
the Company's share price for 12 months prior to the date of grant. The
expected life used in the model has been adjusted, based on management's best
estimate, for the effects of non-transferability, exercise restrictions and
behavioural considerations. The Company recognised total expenses of £nil
(2021: £nil) relating to equity-settled share-based payment transactions
during the year, and £nil (2021: £nil) was transferred via equity to
retained earnings on the exercising or lapse of options during the year.
Details of warrants granted during the year to consultants over the ordinary
shares are as follows:
Warrants At 1 October 2021 Issued during Lapsed / exercised during the year At 30 September 2022 Exercise price Date from which exercisable Expiry date
No. Million
the year
No. Million
No. Million
£
No. Million
Consultants 17 - (17) - 0.0105 02/04/2019 02/04/2022
Consultants 5 - - 5 0.0115 04/11/2019 04/11/2022
Consultants 12 - - 12 0.0085 29/11/2019 29/11/2022
Consultants 8 - - 8 0.0020 24/05/2020 24/05/2023
Consultants 138 - - 138 0.0016 02/07/2021 01/07/2024
Consultants - 71 - 71 0.0009 01/08/2022 01/08/2025
Consultants - 171 - 171 0.0009 09/09/2022 09/09/2025
Total 180 242 (17) 405
21. Financial instruments and risk analysis
Financial assets by category
The categories of financial asset, all included initially measured at fair
value and subsequently carried at amortised cost in the balance sheet and the
headings in which they are included are as follows:
Current assets - Group 2022 2021
£'000
£'000
Inventory 3 2
Trade and other receivables 748 627
Cash and cash equivalents 4,595 4,727
Total 5,346 5,356
Current assets - Company 2022 2021
£'000
£'000
Trade and other receivables 229 308
Intercompany balances 24,753 21,727
Cash and cash equivalents 3,634 4,146
total 28,616 26,181
Financial liabilities by category
The categories of financial liability all included at fair value and
subsequently carried at amortised cost in the balance sheet and the headings
in which they are included are as follows:
Current liabilities - Group 2022 2021
£'000
£'000
Trade and other payables 799 1,067
Borrowings 3,114 3,087
Total 3,913 4,154
Current liabilities - Company 2022 2021
£'000
£'000
Trade and other payables (341) (330)
Total (341) (330)
The group is exposed to market risk through its use of financial instruments
and specifically to credit risk, and liquidity risk which result from both its
operating and investing activities. The group's risk management is coordinated
at its head office, in close co-operation with the board of Directors, and
focuses on actively securing the group's short to medium term cash flows by
minimising the exposure to financial markets.
Long term financial investments are managed to generate lasting returns. The
group does not actively engage in the trading of financial assets for
speculative purposes, nor does it write options. The most significant
financial risks to which the group is exposed to are described below.
Interest rate sensitivity
The group is not substantially exposed to interest rate sensitivity, other
than in relation to interest bearing bank accounts.
Credit risk analysis
The group's exposure to credit risk is limited to the carrying amount of trade
receivables and cash at bank. The group continuously monitors defaults of
customers and other counterparties, identified either individually or by
Company, and incorporates this information into its credit risk controls.
Where available at reasonable cost, external credit ratings and/or reports on
customers and other counterparties are obtained and used.
The group's policy is to deal only with creditworthy counterparties. Group
management considers that trade receivables that are not impaired for each of
the reporting dates under review are of good credit quality, including those
that are past due. None of the group's financial assets are secured by
collateral or other credit enhancements. The credit risk for liquid funds and
other short-term financial assets is considered negligible since the
counterparties are reputable banks with high quality external credit ratings.
Liquidity risk analysis
The majority of the Group's liabilities are contractually due within one year.
The loan due from Horse Hill Developments Limited to Alba and Doriemus is
payable on determination by the Board of Horse Hill Developments Limited.
The group's continued future operations depend on the ability to raise
sufficient working capital through the issue of equity share capital or debt
financing. The Directors are confident that adequate funding will be
forthcoming with which to finance operations. Controls over expenditure are
carefully managed.
Capital management policies
The group's capital management objectives are to:
· Ensure the group's ability to continue as a going concern;
· Provide a return to shareholders; and
· To provide capital for the purpose of strengthening the Group's
risk management capability.
The Group actively and regularly reviews and manages its capital structure, to
ensure an optimal capital structure, and equity holder returns, taking into
consideration the future capital requirements of the Group and capital
efficiency, prevailing and projected profitability, projected operating cash
flows, projected capital expenditures and projected strategic investment
opportunities. Management regards total equity as capital and reserves, for
capital management purposes.
Commodity price risk
The Group is exposed to the risk of fluctuations in prevailing market
commodity prices on the mix of oil & gas products it produces. The Group's
policy is to manage these risks through the use of contract-based prices with
customers.
Commodity Price Sensitivity
The table below summarises the impact on profit before tax for changes in
commodity prices. The analysis is based on the assumption that the crude oil
price moves 10% resulting in a change of US$ 8.90/bbl (2021: US$ 9.30/bbl),
with all other variables held constant. Reasonably possible movements in
commodity prices were determined based on a review of the last two years'
historical prices and economic forecasters' expectations.
Increase/decrease in crude oil prices Effect on profit before tax for the year ended Effect on profit before tax for the year ended
30 September 2022 Increase/(Decrease)
30 September 2021 Increase/(Decrease)
£'000
£'000
Increase US$ 8.90 /bbl (2021: US$ 9.30/bbl) 146 253
Decrease US$ 8.90 /bbl (2021: US$ 9.30/bbl) (146) (253)
Currency risk
The Group has no significant monetary assets or liabilities that are
denominated in a foreign currency. The Group is exposed to currency risk, with
the price of Brent Crude Oil being denominated in US$. The current exposure is
not seen as material, with the current level of revenue being generated
therefrom. The Board will continue to monitor this risk as the operations
and/or revenues increase.
22. Commitments & contingent liabilities
Ongoing exploration expenditure is required to maintain title to the Group's
exploration permits. No provision has been made in the financial statements
for these amounts as the expenditure is expected to be fulfilled in the normal
course of the operations of the Group. As at 30 September 2022, the Group had
no further material commitments (2021: none).
23. Events after the reporting date
In March 2023, Group subsidiaries UKOG (137/246) Ltd (UKOG 100% interest) and
Horse Hill Developments Ltd (UKOG 77.9% interest) have executed a conditional
binding term sheet with LSE main board listed Pennpetro Energy plc , whereby
Pennpetro Energy plc will farm-in to the Horse Hill Oil Field on an
incremental production basis via funding the acquisition of 3D seismic and the
drilling of the next infill production well.
In February 2023, UKOG received an RPS CPR demonstrating the potential
economic value of the Company's 100% owned Loxley gas discovery. The CPR
demonstrates that the NPV10 of Loxley's 2C recoverable gas ranges from £123.7
million net to UKOG, assuming a gas price of £1.86/therm, the UK gas price on
31 st December 2022, the effective date of the CPR, and £86.5 million net to
UKOG utilising RPS' proprietary gas price forecast.
In January 2023, the Resan JV (UKOG 50% working interest) has identified and
plans to drill in the first half of 2023, a new potential shallow oil
accumulation, Pinarova, of some 9 km² areal extent, located 6 km north of the
Basur-1 oil discovery. The new Pinarova-1 well is designed to test a working
hypothesis, supported by well and seismic data, that the active light oil seep
found in a seismic shot hole above the Pinarova structure, is directly fed by
and connected to an underlying light oil accumulation within Eocene Hoya group
limestones, 300- 645m below surface.
24. Related party transactions
Transactions with related parties
UK Oil & Gas Plc paid a subscription fee for membership with United
Kingdom Onshore Oil & Gas (UKOOG) during the year. UKOOG represent the
onshore oil and gas industry and wider supply chain and provides the Company
with general industry advice and representation. Stephen Sanderson, UKOG's
Chief Executive, is a Director of UKOOG and, as a result, the subscription fee
for membership is considered a related party transaction. During the year the
Company paid £30,000 for its membership with UKOOG (2021: £30,000).
Remuneration of key management personnel
The remuneration of the directors, and other key management personnel of the
Company, is set out below in aggregate for each of the categories specified in
IAS24 Related Party Disclosures. Further details in respect of the
remuneration of the directors can be found within the Directors Remuneration
Report.
2022 2021
£'000
£'000
Short-term employee benefits 496 471
Total 496 471
25. Ultimate controlling party
In the opinion of the Directors there is no controlling party.
COMPANY INFORMATION
Company registration number 05299925
Registered office The Broadgate Tower 8th Floor
20 Primrose Street
London
EC2A 2EW
Directors Nicholas Mardon Taylor
Stephen Sanderson
Allen Howard
Kiran Morzaria
Secretary Kiran Morzaria
Auditors PKF Littlejohn LLP
Chartered Accountants
Registered Auditor
15 Westferry Circus, Canary Wharf
London, E14 4HD
Nominated Adviser WH Ireland Limited
24 Martin Lane
London, EC4R 0DR
Solicitors Hill Dickinson
The Broadgate Tower 8th Floor
20 Primrose Street
London, EC2A 2EW
Registrars Share Registrars Limited
The Courtyard,
17 West Street
Farnham,
Surrey, GU9 7DR
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