TIDMGED
RNS Number : 8427G
Global Energy Development PLC
09 March 2015
GLOBAL ENERGY DEVELOPMENT PLC
(the "Company" or "Global")
AUDITED FINAL RESULTS FOR THE YEAR ENDED 31 DECEMBER 2014
Global Energy Development PLC, the Latin America focused
petroleum exploration, development and production company (AIM:
GED) with operations in Colombia, announces its audited final
results for the year ended 31 December 2014.
2014 Highlights:
-- Completed the sale of the rights and obligations of the
Company's Llanos Basin properties in Colombia, South America,
through the sale of the entire issued share capital of the
Company's wholly-owned subsidiary, Colombia Energy Development
Company, ("CEDCO") for gross cash consideration of $50 million, net
of purchase price adjustments
-- Eliminated all outstanding debt obligations
-- As at 31 December 2014:
-- Cash and cash equivalents: $41.2 million
-- Working capital: $38.0 million
-- Debt balance: nil
-- Current ratio: 8.7 to 1
-- Dramatically lower oil prices as at 31 December 2014 led to
the full impairment of $11.2 million of the carrying value of the
Company's Bocachico Contract oil assets at year-end 2014
-- Preserving remaining contract acreage in Colombia (Bolivar
and Bocachico Contract areas) with no mandatory contract
obligations during low oil pricing environment
Stephen C. Voss, Global's Managing Director, commented, "In the
current low oil price environment and capital-tight economy, the
Company has a robust cash position, a streamlined overhead
structure and no mandatory contract or debt obligations. While
preserving our remaining oil reserves and acreage in Colombia until
prices rebound, we are in a strong position to watch for and pursue
strategic opportunities in this precarious sector."
For further information please contact:
Global Energy Development PLC
Anna Williams, Finance Director
awilliams@globalenergyplc.com +001 817 310
www.globalenergyplc.com 0240
Northland Capital Partners Limited +44 (0)20 7382
Matthew Johnson / Gerry Beaney 1100
Notes to Editors:
The Company's shares have been traded on AIM, a market operated
by the London Stock Exchange, since March 2002 (AIM: GED). The
Company's portfolio includes exploration and developmental drilling
opportunities in Colombia, South America. The Company currently
holds two operated contracts in Colombia.
Proven and probable oil and gas reserves are estimated
quantities of commercially producible hydrocarbons which the
existing geological, geophysical and engineering data show to be
recoverable in future years from known reservoirs. The proved
reserves reported by Ralph E. David, Inc., ("RED"), an independent
petroleum engineering firm, conform to the definition approved by
the Society of Petroleum Engineers ("SPE") and the World Petroleum
Council ("WPC"). The probable and possible reserves reported by RED
conform to definitions of probable and possible reserves approved
by the SPE/WPC using the deterministic methodology. The information
contained within this announcement has been reviewed by RED. The
information contained within this announcement has been reviewed by
Mr. Stephen Voss, a Director of the Company, for the purpose of the
Guidance Note for Mining, Oil and Gas Companies issued by the
London Stock Exchange in respect of AIM companies which outlines
standards of disclosure for natural resource projects. Mr. Voss is
a Registered Professional Engineer in Texas and has been a Member
of SPE for 45 years.
Forward-looking statements
This release may include statements that are, or may be deemed
to be, "forward-looking statements". These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms "believes", "estimates", "plans",
"projects", "anticipates", "expects", "intends", "may", "will" or
"should" or, in each case, their negative or other variations or
comparable terminology, or by discussions of strategy, plans,
objectives, goals, future events or intentions. These
forward-looking statements include all matters that are not
historical facts. They appear in a number of places throughout this
release and include, but are not limited to, statements regarding
the Group's intentions, beliefs or current expectations concerning,
among other things, the Group's results of operations, financial
position, liquidity, prospects, growth, strategies and expectations
of the industry. By their nature, forward-looking statements
involve risk and uncertainty because they relate to future events
and circumstances. Forward-looking statements are not guarantees of
future performance and the development of the markets and the
industry in which the Group operates may differ materially from
those described in, or suggested by, any forward-looking statements
contained in this release. In addition, even if the development of
the markets and the industry in which the Group operates are
consistent with the forward-looking statements contained in this
release, those developments may not be indicative of developments
in subsequent periods. A number of factors could cause developments
to differ materially from those expressed or implied by the
forward-looking statements including, without limitation, general
economic and business conditions, industry trends, competition,
commodity prices, changes in law or regulation, currency
fluctuations (including the US dollar), the Group's ability to
recover its reserves or develop new reserves, changes in its
business strategy, political and economic uncertainty. Save as
required by law or the AIM Rules for Companies, the Company is
under no obligation to update the information contained in this
release.
Past performance cannot be relied on as a guide to future
performance.
Chairman's Statement
In December 2014, the Group disposed of its rights and
obligations of its Llanos Basin Contract areas (Rio Verde,
Alcaravan and Los Hatos) through the sale of the entire issued
share capital of its wholly-owned subsidiary, Colombia Exploration
and Development Company ("CEDCO") for gross cash consideration of
$50 million, net of approximately $1.0 million adjusted for CEDCO's
operating income received and capital expenditures spent by the
Group during the period between the transaction's effective date (1
August 2014) and the closing date in December 2014. Per the share
purchase agreement, the purchaser of CEDCO may send their final
proposed adjustments to the purchase price following 90 days after
the closing date. In February 2015, the Group received the
purchaser's adjustment statement with proposed additional purchase
price adjustments totalling $1.5 million. The Group is reviewing
the proposed adjustments, and in accordance with the share purchase
agreement, will pay allowable adjustments as agreed upon by the
parties. The Llanos properties had historically provided consistent
cash flow for the Group, but the downtime of certain of its
producing wells was continuing to increase as the producing
properties declined in production. The Group had already taken
numerous steps over the past few years to reduce operational costs.
Consequently the Directors believe their decision to monetise the
Llanos properties and relinquish the related plugging and
abandonment liabilities of these properties was in the best
interests of shareholders.
During 2014, the Group's actions for the development of its
Middle Magdalena contract areas (Bolivar and Bocachico) included
the hydraulic-fracturing of the Simiti formation in its existing
Catalina #1 well, located in the Bolivar contract area of the
Northern Middle Magdalena Valley in Colombia. Flowback of the well
commenced at low rates after the injection of significant volumes
of fracture fluids. After efforts to facilitate fracture fluid
recovery were unsuccessful, the Group temporarily shut in the well
in July 2014. Also during 2014, the Group closed two separate
farm-out agreements covering the Bolivar and Bocachico contract
areas which provided the Group's farm-out partner a 50 per cent.
interest in the respective areas in exchange for the payment of
certain work commitments and programmes as set out in the
agreements, together with gross cash payments of $5.0 million in
respect of the Bolivar agreement and $1.0 million in respect of the
Bocachico agreement. The re-entry of the Catalina #1 well was
financed entirely by the Group's farm-out partner.
Subsequent to the re-entry of the Catalina #1 and with the
beginning of the decline in oil prices during the second half of
2014, the Group turned its focus and efforts to completing a sale
of its Llanos properties. Following months of due diligence and
negotiation, the Group entered into the conditional share purchase
agreement for the disposal of CEDCO in October 2014 with the
closing of the transaction occurring in December 2014. As a result
of the Group's focus and efforts on the sale of CEDCO coupled with
the decline of oil prices, the Group chose not to pursue
exploration or development projects on its Bolivar and Bocachico
contract areas during the second half of 2014.
Given the significant decrease in oil prices, in December 2014,
the Group's farm-out partner elected to exercise its option under
the farm-out agreements to terminate and release their rights and
obligations with respect to the Group's Bolivar and Bocachico
Contracts. All future obligations by the Group's farm-out partner
to undertake the future funding of work programmes for either
contract area, including an obligation to pay all future costs and
expenses incurred with respect to the proposed operations, were
released with effect from 12 December 2014 in exchange for the
return of the 50 per cent interest in these contract areas.
The decrease in oil prices also affected the Group's oil
reserves included in its reserve report at 31 December 2014, which
was produced by an independent petroleum engineering firm. Lower
oil benchmark pricing at 31 December 2014 of $57.33 per barrel
("bbl") was used to price the Group's year-end oil reserves (2013:
$109.95 per bbl). The lower oil prices resulted in a reduction in
the estimated quantity of proved and probable reserves and in the
estimated future net cash flows expected to be generated from the
Group's Bolivar and Bocachico contract areas. In addition, the low
oil prices caused the heavy oil reserves within the Bocachico
contract area to be uneconomic at 31 December 2014 which required
the Group to fully impair the carrying value of its Bocachico
contract oil assets within the Group's financial statements.
Whilst 2014 did not bring about production success at Bolivar
from the re-entry of the Catalina #1 well, the monetisation of the
Llanos properties proved to be a timely and strategic divestiture
in the face of declining oil prices. Immediately following the sale
of the Llanos properties, the Group extinguished all remaining debt
obligations. The Company has a strong cash balance, no outstanding
debt obligations and proven oil reserves in Colombia, South
America. In addition, the Company has no mandatory contractual
obligations with its Middle Magdalena contract areas. At this time,
the Company is poised and financially liquid while other companies,
with much higher market-caps in comparison to ours, may be
struggling in this low oil price environment. With the outlook for
oil pricing uncertain for 2015, the Company continues to streamline
its overhead structure, preserve its acreage in Colombia and review
alternatives to create value for our shareholders.
Mikel Faulkner
Chairman
9 March 2015
Managing Director's Review of Operations
Financial overview
On 5 December 2014, the Group completed the disposal of the
Llanos properties through the sale of CEDCO, and consequently the
Llanos properties have been treated as a discontinued operation for
reporting purposes. The results for the period to the effective
date of disposal (1 August 2014) together with the loss on
disposal, have been shown as loss from discontinued operations, net
of tax, in the statement of comprehensive income. As required by
accounting standards, the comparative figures for the year ended 31
December 2013 have also been restated to show the discontinued
operations separately from continuing operations.
Revenue from continuing operations during 2014 related solely to
production from the Company's Torcaz #2 well located in the
Bocachico contract area. During 2013, continuing operations
included production from the Torcaz #2 well as well the Olivo #1
well located in the Bolivar contract area. Turnover from continuing
operations declined to $689,000 in 2014 (2013: $1.5 million) due to
lower realised average oil pricing of $64 per barrel ("bbl") (2013:
$90 per bbl) as well as lower production volumes resulting from the
shut-in of the Olivo #1 well during late 2013. Net production
volumes from continuing operations declined by 19 per cent with
10,772 bbls sold in 2014 (2013: 13,262 bbls).
Cost of sales decreased by 13 per cent to $1.7 million during
the year (2013: $1.9 million) due to lower production volumes.
Based on lower turnover, the gross loss increased to $990,000 from
continuing operations in 2014 (2013: $405,000). Administrative
expenses from continuing operations increased to $3.6 million
during 2014 (2013: $2.7 million) due primarily to higher
allocations of operations and technical personnel salaries to
administrative expense during the second half of 2014. Salary costs
for technical and operational personnel can only be capitalised
when their related time is clearly allocated to the development of
a qualifying asset. During the second half of the year, there were
fewer ongoing operational and development projects while the focus
of the Group was to close the sale of the Llanos properties. In
December 2014, the Group's employee count declined dramatically
subsequent to the sale of CEDCO, and the Group anticipates lower
salary expense and administrative costs in 2015.
The Group performed its annual impairment test as at 31 December
2014. The Group considers the relationship between its market
capitalisation and its book value, among other factors, when
reviewing for indicators of impairment. As at 31 December 2014, the
market capitalisation of the Group was below the book value of its
equity, indicating a potential impairment of the assets of the
Company's two continuing operating segments (the Bolivar contract
area and the Bocachico contract area). Low oil prices caused the
heavy oil reserves within the Bocachico area to be uneconomic at 31
December 2014. The significant decline in oil prices at 31 December
2014 and the resulting uneconomic nature of the proved and probable
reserves within the Bocachico area required the Group to fully
impair the $11.2 million of carrying value of its Bocachico area
oil assets within its consolidated financial statements at 31
December 2014. Under current accounting standards, the Group may
reverse such impairment in the future if there is an indication
that the previously recognised impairment loss no longer exists or
has decreased. Management did not identify an impairment for the
Bolivar contract area as at 31 December 2014. Consequently, the
operating loss from continuing operations before tax and interest
expense increased to $15.5 million during 2014 from $2.4 million in
the prior year.
During 2014, the Group transferred its Bolivar and Bocachico
contracts from its wholly-owned subsidiary, CEDCO, to new
wholly-owned Colombian branches resulting in a decrease in deferred
tax expense due to the revaluation of tax balances resulting from
this transfer of assets and liabilities at the Colombian branch
level. Overall, the Group's net tax benefit related to continuing
operations was $2.3 million (2013: $1.1 million expense), resulting
in a net loss from continuing operations of $15.0 million (2013:
$5.8 million).
The Group generated $6.3 million of cash from operations before
tax in 2014 (2013: $11.6 million). Capital expenditures of $7.5
million relate primarily to the completion of the Catalina #1 well
test and improvements to surface facilities at the Group's Torcaz
field. During 2014, the Group received a non-refundable payment of
$6.2 million from its farm-out partner for reimbursement of the
costs for the Catalina #1 well test, as this well test was to be
fully funded by the farm-out partner under the previously existing
farm-out agreement. The Group also received gross non-refundable
payments totalling $6.0 million (net proceeds of $3.6 million after
fees) from the establishment of the Bolivar and Bocachico farm-out
agreements. In December 2014, the Group's farm-out partner elected
to exercise its option to terminate both farm-out agreements.
Upon closing of the sale of CEDCO, the Group received net cash
proceeds of $49 million. The Group extinguished all of its
previously-outstanding debt obligations during 2014 with debt and
interest payments totalling $13.9 million. As of 31 December 2014,
the Group no longer holds any outstanding debt obligations. The
Group ended 2014 with cash in bank of $41.2 million (2013: $3.4
million).
Operational overview
Following the conclusion of the Catalina #1 well test on the
Simiti Formation, the well was temporarily shut-in during July
2014. The Group continues to monitor the pressure in the well.
Although this well test is considered an economical failure, the
Group did gain various technical insights, in particular that
high-pressure and high-volume hydraulic fracturing are unlikely to
be required in future Bolivar projects due to the
naturally-fractured formations within the area.
In the Bocachico contract area, the Group took measures during
2014 to reduce the operational costs for its one producing well,
Torcaz #2, by intermittently producing the well in cycles of 18
hours on and 6 hours off to lower diesel fuel costs for the pump.
In addition, the Group implemented additional cost-saving measures
to reduce operational expenses related to engineering services,
boiler fuel, maintenance, and field personnel. The Group has
identified other cost-saving measures to implement in 2015 to
minimise operating expenses for Torcaz #2. Certain operational
costs are fixed and cannot be suspended, such as environmental and
social compliance along with security and maintenance of the
surface facilities.
During this environment of low oil prices, the Group has
currently paused its discretionary capital spending on exploration
and developmental drilling on its Bolivar and Bocachico contract
areas in Colombia. The Group has no mandatory drilling obligations.
Whilst the oil pricing environment remains depressed and uncertain,
the Group will maintain its acreage position in Colombia while
seeking to implement further cost reduction initiatives to reduce
operational and overhead costs.
Conclusion
2015 could prove to be an interesting year for the Company and
its shareholders. Other oil companies with much higher production,
turnover and market capitalisation tend to also hold high levels of
outstanding debt. In the previous high oil pricing environment,
cash flows from operations could easily satisfy any ongoing debt
requirements for these types of companies. Low oil pricing and the
resulting decrease in cash flow from operations coupled with lower
oil reserve values can be difficult circumstances to survive during
a prolonged amount of time. Our Company is currently structured to
allow us to seek alternatives and opportunities to create value for
our shareholders during this precarious time in our industry.
Stephen Voss
Managing Director
9 March 2015
Oil Reserves Information (unaudited)
As at 31 December 2014
The reserve estimates shown in this report were developed by
Ralph E. Davis Associates, Inc., an independent petroleum
engineering firm, and are based on the PRMS joint reserve and
resource definitions of the Society of Petroleum Engineers, the
World Petroleum Council, the American Association of Petroleum
Geologists and the Society of Petroleum Evaluation Engineers
consistent with UK reporting purposes. Proved and probable reserve
estimates are based on a number of underlying assumptions including
oil prices, future costs, oil in place and reservoir performance,
which are inherently uncertain. Management uses established
industry techniques to generate its estimates and regularly
references its estimates against those of joint venture partners or
external consultants. However, the amount of reserves that will
ultimately be recovered from any field cannot be known with
certainty until the end of the field's life.
All reserves are located in Colombia, South America.
Estimated net proved and probable reserves of crude oil
Proved Probable
South South Total
America America All
Barrels Barrels Barrels
('000s) ('000s) ('000s)
----------------------------------- ------------- --------- --------
At 1 January 2014
Developed 1,815 - 1,815
Undeveloped 44,837 54,412 99,249
----------------------------------- ------------- --------- --------
46,652 54,412 101,064
----------------------------------- ------------- --------- --------
Changes in year attributable to:
Revision of previous estimates(1) (23,467) (47,639) (71,106)
Sale of CEDCO(2) (3,226) (2,200) (5,426)
Production (201) - (201)
Developed - - -
Undeveloped 19,758 4,573 24,331
----------------------------------- ------------- --------- --------
At 31 December 2014 19,758 4,573 24,331
----------------------------------- ------------- --------- --------
(1) The revisions in previous estimates are due primarily to
lower oil benchmark prices as at 31 December 2014 as well as the
elimination of anticipated improved recoveries through fracture
stimulation within the Simiti Formation in the Bolivar Contract
area. The lower oil prices at year-end 2014 caused the heavy oil
reserves within the Bocachico Contract area to be uneconomic as at
31 December 2014.
(2) All proved and probable reserves associated with the
Company's Llanos Basin properties were disposed of in December 2014
through the sale of the entire issued share capital of the
Company's wholly-owned subsidiary, CEDCO.
PRIMARY FINANCIAL STATEMENTS
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2014
2014 2013
$'000 $'000
---------------------------------------------- --------- --------
Continuing Operations
Revenue 689 1,515
Cost of sales (1,679) (1,920)
---------------------------------------------- --------- --------
Gross loss (990) (405)
---------------------------------------------- --------- --------
Other income 14 62
Administrative expenses (3,644) (2,743)
Share-based credit 413 635
Exchange rate expense (113) 4
Impairment loss (11,163) -
Operating loss from continuing operations (15,483) (2,447)
---------------------------------------------- --------- --------
Finance income 1 -
Finance expense (1,793) (2,292)
---------------------------------------------- --------- --------
Loss before taxation from continuing
operations (17,275) (4,739)
---------------------------------------------- --------- --------
Tax benefit / (expense) 2,311 (1,094)
---------------------------------------------- --------- --------
Loss from continuing operations, net
of tax (14,964) (5,833)
---------------------------------------------- --------- --------
(Loss) / income from discontinued operations,
net of tax (7,173) 6,211
---------------------------------------------- --------- --------
Total comprehensive (loss) / income
for the year attributable to the equity
owners of the parent (22,137) 378
---------------------------------------------- --------- --------
Loss per share for continuing operations
* Basic $(0.41) $(0.16)
* Diluted $(0.41) $(0.16)
---------------------------------------------- --------- --------
(Loss) / income per share for discontinued
operations
* Basic $(0.20) $0.17
* Diluted $(0.20) $0.17
---------------------------------------------- --------- --------
Total (loss) / income per share
---------------------------------------------- --------- --------
* Basic $(0.61) $0.01
---------------------------------------------- --------- --------
* Diluted $(0.61) $0.01
---------------------------------------------- --------- --------
Consolidated Statement of Changes in Equity
for the year ended 31 December 2014
Share Share Capital Retained Total
capital premium reserve losses equity
$'000 $'000 $'000 $'000 $'000
------------------------------ -------- -------- --------- ---------- --------
At 1 January 2013 608 27,139 210,844 (158,123) 80,468
Total comprehensive income
for the year attributable
to equity holders of the
parent - - - 378 378
Share-based payment - options
equity settled - - - 44 44
At 1 January 2014 608 27,139 210,844 (157,701) 80,890
------------------------------ -------- -------- --------- ---------- --------
Total comprehensive (loss)
for the year attributable
to equity holders of the
parent - - - (22,137) (22,137)
Share-based payment - options
equity settled - - - 51 51
Disposal of CEDCO - - (158,989) 155,985 (3,004)
At 31 December 2014 608 27,139 51,855 (23,802) 55,800
------------------------------ -------- -------- --------- ---------- --------
Consolidated Statement of Financial Position
as at 31 December 2014
2014 2013
$'000 $'000
------------------------------------- -------- ----------
Assets
Non-current assets
Intangible assets 33 486
Property, plant and equipment 22,263 110,089
Trade receivables - 1,388
------------------------------------- -------- ----------
Total non-current assets 22,296 111,963
------------------------------------- -------- ----------
Current assets
Inventories 290 1,903
Trade and other receivables 467 3,445
Prepayments and other assets 1,014 1,697
Term deposits - 896
Cash and cash equivalents 41,153 3,415
------------------------------------- -------- ----------
Total current assets 42,924 11,356
------------------------------------- -------- ----------
Total assets 65,220 123,319
------------------------------------- -------- ----------
Liabilities
Non-current liabilities
Deferred tax liabilities (net) (2,375) (16,291)
Long-term provisions (2,130) (6,304)
Long-term loans payable - (6,878)
------------------------------------- -------- ----------
Total non-current liabilities (4,505) (29,473)
------------------------------------- -------- ----------
Current liabilities
Trade and other payables (3,782) (4,487)
Corporate and equity tax liability (1,133) (1,974)
Short-term loans and finance leases - (6,495)
------------------------------------- -------- ----------
Total current liabilities (4,915) (12,956)
------------------------------------- -------- ----------
Total liabilities (9,420) (42,429)
------------------------------------- -------- ----------
Net assets 55,800 80,890
------------------------------------- -------- ----------
Capital and reserves attributable to
equity holders of the parent
Share capital 608 608
Share premium account 27,139 27,139
Capital reserve 51,855 210,844
Retained deficit (23,802) (157,701)
------------------------------------- -------- ----------
Total equity 55,800 80,890
------------------------------------- -------- ----------
Consolidated Statement of Cash Flows
for the year ended 31 December 2014
2014 2013
$'000 $'000
------------------------------------------------------------------ ------------------ ------------
Cash flows from operating activities
Cash generated from operations 6,295 11,535
Tax paid (continuing and discontinued operations) (5,560) (545)
Net cash generated from operating activities 735 10,990
------------------------------------------------------------------ ------------------ ------------
Cash flows from investing activities
Proceeds from sale of subsidiary 49,002 3,283
Interest received 19 30
Purchase of property, plant and equipment (7,539) (10,062)
Decrease in short term deposits (discontinued operations) (480) 712
Net cash provided by (used in) investing activities 41,002 (6,037)
------------------------------------------------------------------ ------------------ ------------
Cash flows from financing activities
Farm-out partner cash calls 6,238 _
Bolivar farm-out proceeds 5,000 _
Bocachico farm-out proceeds 1,000 _
Fees paid for Bolivar and Bocachico farm-outs (2,372) _
Debt principal repayments (12,000) (5,000)
Repayment of finance leases (360) (329)
Interest paid (1,505) (2,418)
------------------------------------------------------------------ ------------------ ------------
Net cash used in financing activities (3,999) (7,747)
------------------------------------------------------------------ ------------------ ------------
Increase (decrease) in cash and cash equivalents for the year 37,738 (2,794)
Cash and cash equivalents at beginning of year 3,415 6,209
------------------------------------------------------------------ ------------------ ------------
Cash and cash equivalents at the end of year 41,153 3,415
------------------------------------------------------------------ ------------------ ------------
ABRIDGED NOTES TO THE PRIMARY FINANCIAL STATEMENTS
For the twelve months ended 31 December 2014
1. Accounting Policies
Basis of preparation
The financial statements of the Group for the twelve months
ended 31 December 2014 have been prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively IFRS) issued
by the International Accounting Standards Board (IASB) as adopted
by European Union.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2014
or 2013 as defined by section 435 of the Companies Act 2006 but is
derived from those accounts. Statutory accounts for 2013 have been
delivered to the registrar of companies, and those for 2014 will be
delivered in due course. The auditors have reported on those
accounts; their reports were (i) unqualified, and (ii) did not
include a reference to any matters to which the auditors drew
attention by way of emphasis without qualifying their report and
(iii) did not contain a statement under section 498 (2) or (3) of
the Companies Act 2006 in respect of the accounts.
2. Discontinued operations - CEDCO
On 6 December 2014, the Group closed on the sale of its
wholly-owned subsidiary, CEDCO, with an effective date of 1 August
2014. CEDCO held the Company's contract areas (Rio Verde, Alcaravan
and Los Hatos contracts) within the Llanos Basin of Colombia, South
America. These contracts previously comprised the majority of the
Company's oil producing properties. As a result of this disposal,
the operations of CEDCO have been treated as discontinued
operations for the year ended 31 December 2014. A single amount is
shown on the face of the statement of operations comprising the
post-tax result of discontinued operations and the post-tax loss
recognised on the disposal of CEDCO. The table below provides
further details of the amount shown in the statement of operations
for CEDCO as of the effective date of 1 August 2014. The statement
of operations for the prior year has been restated to show the
discontinued operations separately from continuing operations.
Colombia 2014 2013
$'000 $'000
---------------------------------------------- --------- ----------
Revenue 16,440 32,097
Cost of sales (10,977) (20,816)
---------------------------------------------- --------- ----------
Gross profit 5,463 11,281
---------------------------------------------- --------- ----------
Other income (expense) (5) 61
Administrative expenses (1,060) (2,768)
Finance income 18 30
Finance expense (298) (454)
---------------------------------------------- --------- ----------
Profit before taxation 4,118 8,150
Tax expense(1) (4,274) (2,307)
---------------------------------------------- --------- ----------
(Loss) / profit after taxation (156) 5,843
Loss on disposal of business (including (7,017) _
costs of sale of business and purchase
price adjustments)
---------------------------------------------- --------- ----------
(Loss) / income from discontinued operations (7,173) 5,843
---------------------------------------------- --------- ----------
Peru 2014 2013
$'000 $'000
------------------------------------------------ -------- -------
Gain recognised on disposal of net assets
less costs to sell:
Other income(2) - 463
Administrative expenses - (106)
Exchange rate expense and other - 11
------------------------------------------------ -------- -------
Profit on disposal of discontinued operations,
net of tax - 368
------------------------------------------------ -------- -------
Total (loss) income from discontinued
operations (7,173) 6,211
------------------------------------------------ -------- -------
(1) In December 2013, CEDCO received a special requirement
letter from DIAN (Colombian tax authority) related to the review of
CEDCO's 2010 Colombian income tax return. A special requirement
letter is not a tax assessment but a basis for seeking additional
information regarding certain tax deductions taken by CEDCO. Under
the special requirement letter, the original possible tax effect of
losing the deductions under review could have been $6 million with
additional penalties upwards of $10 million (if the deductions were
challenged by the Group through the courts) for a possible
contingency amount of $16 million. During 2014, after filing the
Company's statutory response to DIAN, CEDCO received a final
assessment from DIAN in September 2014 which accepted certain of
the previously questioned deductions and assessed a reduced penalty
for the disallowed deductions in 2010. In November 2014, as a
condition prior to the closing of the sale of CEDCO, the Group
filed CEDCO's amended 2010 tax return and paid $5.0 million to
fully settle the matter.
(2) Other income recognised in 2013 related to the Company's
previous ownership in Peruvian Block 95 Licence Contract and was
related to a decrease in accrued taxes payable for the gain on
disposal from the prior year and recovery of legal fees provision
incurred during 2012.
The net assets at the effective date of disposal (1 August 2014)
were as follows:
$'000
---------------------------------------------------- --------
Net Assets disposed of:
Intangible assets 223
Property, plant and equipment 68,160
Trade receivables (long-term) 1,387
Inventories 2,341
Trade and other receivables (short-term) 3,244
Prepayments and other assets 2,027
Term deposits 1,376
Cash and cash equivalents _
Deferred tax liabilities (net) (8,796)
Long-term provisions (4,115)
Financing lease payables (short-term and long-term) (1,182)
Trade and other payables (8,811)
Corporate and equity tax liability (2,529)
Net Assets at effective date of disposal 53,325
Loss on disposal (including purchase price
adjustments, actual and contingent) (5,814)
Costs for sale of business (1,204)
Total consideration 46,307
---------------------------------------------------- --------
Satisfied by:
Cash 50,000
Less: Costs for sale of business and purchase
price adjustment (actual) (2,202)
Less: Purchase price adjustment (contingent)(1) (1,491)
---------------------------------------------------- --------
46,307
---------------------------------------------------- --------
(1) Per the share purchase agreement, the purchaser of CEDCO may
send proposed adjustments to the purchase price following 90 days
after the closing date. In February 2015, the Group received the
purchaser's adjustment statement with proposed additional purchase
price adjustments totalling $1.5 million. The Group is reviewing
the proposed adjustments, and in accordance with the share purchase
agreement, will pay allowable adjustments as agreed upon by the
parties.
Reconciliation of profit / (loss) before taxation to net cash
flow from operations
2014 2013
$'000 $'000
------------------------------------------- ----------------------- -------------------
Continuing operations
Loss before tax (17,275) (4,739)
Adjustments for:
Depreciation of property, plant
& equipment 191 360
Amortisation of intangible assets 1 -
Impairment charge 11,163 -
Share based payment expense (413) (635)
Finance income (1) -
Finance cost 1,793 2,292
Operating cash flow before movements
in working capital (4,541) (2,722)
------------------------------------------- ----------------------- -------------------
Decrease /(increase) in inventories 113 (360)
Increase in trade and other receivables (159) (512)
(Decrease)/ increase in trade and
other payables 2,328 (89)
Cash generated from continuing operations (2,259) (3,683)
------------------------------------------- ----------------------- -------------------
Discontinued operations
Profit before tax 4,118 8,520
Adjustments for:
Depreciation of property, plant
& equipment 5,379 6,747
Amortization of intangible assets 263 253
Loss on sale of subsidiary (7,017) -
Finance income (18) (30)
Finance cost 298 454
Operating cash flow before movements
in working capital 3,023 15,944
------------------------------------------- ----------------------- -------------------
Decrease / (increase) in inventories (841) 211
Decrease / (increase) in trade and
other receivables (1,361) 3,208
(Decrease) / increase in trade and
other payables 7,733 (4,145)
Cash generated from discontinued
operations 8,554 15,218
------------------------------------------- ----------------------- -------------------
Cash generated from operations 6,295 11,535
------------------------------------------- ----------------------- -------------------
The Statement of Cash Flows contains the following elements
related to discontinued operations:
2014 2013
$'000 $'000
--------------------------------------- --------------------- ---------------------
Net cash generated from operating
activities 3,004 14,672
Net cash used in investing activities (1,903) (8,057)
Net cash used in financing activities (433) (436)
--------------------------------------- --------------------- ---------------------
Total 188 6,179
--------------------------------------- --------------------- ---------------------
3. Farm-out agreements (Bolivar & Bocachico)
In March and May 2014, the Group entered into two separate
farm-out agreements with Everest Hill Energy Group Ltd ("Everest")
on behalf of its affiliated company, Magdalena Energy Management
Inc. ("Magdalena"), to share costs and risks associated with
development and production activities in the Bolivar and Bocachico
contract areas in Colombia. The Group was appointed as operator
under both farm-out arrangements. Everest is an affiliated company
of the Quasha family trusts which also have an interest in Lyford
Investments, Inc., an existing shareholder of the Group. HKN Inc,
("HKN"), the Group's principal shareholder, Lyford Investments,
Inc. and its parties acting in concert with it are interested in
21,849,016 shares of the Group, representing 60.50 per cent. of the
issued share capital of the Company. By virtue of these holdings,
entry into these farm-out agreements constituted related party
transactions.
The Group accounted for its farm-out arrangements as jointly
controlled operations under IFRS 11 "Joint Arrangements". A jointly
controlled operation involves the use of assets and other resources
of the Group and other venturers rather than the establishment of a
separate corporation, partnership or other entity.
Bolivar Farm-Out Arrangement
Under the Bolivar Agreement, Magdalena would have acquired,
subject to Ecopetrol approvals, a 50 per cent. interest in the
Contract Area, including any and all rights, obligations and duties
in respect of the Contract Area, in exchange for payment of the
work commitments stipulated in the Bolivar Agreement and cash
consideration of $5.0 million, net of fees, which was paid in March
2014. The work programme was governed by a joint-venture agreement
between the Group and Magdalena.
During 2014, the Group recorded the gross cash consideration of
$5.0 million as a reduction of the carrying value of its property,
plant and equipment (applied as a recovery of prior costs), and the
fees for the farm-out of $2.1 million were capitalised reducing the
overall increase to property, plant and equipment to net cash
received (after fees). Also during 2014, Magdalena funded the $6.2
million of costs for the obligation under the work program for the
re-entry of the Catalina #1 well, and the Group did not recognize
any related increase to property, plant and equipment in its
consolidated statement of financial position for these costs since
these costs were fully funded by its partner.
Bocachico Farm-Out Arrangement
Under the Bocachico Agreement, Magdalena would have acquired,
subject to Ecopetrol approvals, a 50 per cent. interest in the
Contract Area, including any and all rights, obligations and duties
in respect of the Contract Area, in exchange for payment of the
work commitments stipulated in the Bocachico Agreement and cash
consideration of $1.0 million, net of fees, which was paid in May
2014. The work programme was governed by a joint-venture agreement
between the Group and Magdalena. During 2014, the Group recorded
the gross cash consideration of $1.0 million as a reduction of the
carrying value of its property, plant and equipment (applied as a
recovery of prior costs), and the fees for the farm-out of $255,000
were capitalised reducing the overall increase to property, plant
and equipment to net cash received (after fees). During 2014, no
other activity under the Bocachico farm-out agreement occurred.
Termination of Farm-Out Arrangements
In December 2014, Everest elected to exercise its option under
the farm-out and joint operating agreements to terminate and
release its rights and obligations with respect to the Group's
Bolivar and Bocachico Contract areas due to the significant fall of
the price of oil. All obligations by Everest to undertake the
future funding of work programs for the Bolivar and Bocachico
Contract areas, including an obligation to pay all future costs and
expenses incurred with response to the proposed operations, were
released with effect from 12 December 2014 in exchange for the
return of the rights for the 50 per cent. interest in the Group's
interest in each of the Bolivar and Bocachico Contract areas.
4. Earnings per share (EPS)
Basic earnings per share amounts are calculated by dividing the
profit/(loss) for the period attributable to ordinary equity
holders of the parent by the weighted average number of ordinary
shares outstanding during the year. Diluted earnings per share are
calculated by dividing the profit/(loss) for the year attributable
to ordinary equity holders of the parent by the weighted average
number of ordinary shares outstanding at the end of the year, plus
the weighted average number of shares that would be issued on the
conversion of dilutive potential ordinary shares into ordinary
shares. The calculation of the dilutive potential ordinary shares
related to employee and Director Share option plans includes only
those options with exercise prices below the average share trading
price for each period.
2014 2013
$'000 $'000
----------------------------------------- ----------- ----------
Loss from continuing operations
after taxation (14,964) (5,833)
Profit (loss) from discontinued
operations after taxation (7,173) 6,211
----------------------------------------- ----------- ----------
Net (loss)/profit attributable
to equity holders used in dilutive
calculation (22,137) 378
----------------------------------------- ----------- ----------
Loss per share for continuing operations
* Basic $(0.41) $(0.16)
* Diluted $(0.41) $(0.16)
(Loss) / earnings per share for
discontinued operations
* Basic $(0.20) $0.17
* Diluted $(0.20) $0.17
Total (loss)/earnings per share
* Basic $(0.61) $0.01
* Diluted $(0.61) $0.01
----------------------------------------- ----------- ----------
Basic weighted average number of
shares 36,112,187 36,112,064
Dilutive potential ordinary shares
Employee and Director share option
plans 626,162 1,205,054
----------------------------------------- ----------- ----------
Diluted weighted average number
of shares 36,738,349 37,317,118
----------------------------------------- ----------- ----------
The calculation of the diluted EPS assumes all criteria giving
rise to the dilution of the EPS are achieved and all outstanding
share options with exercise prices lower than the average period
share price are exercised.
5. Property, plant and equipment
Facilities Office
Oil and equipment
properties pipelines & other Total
$'000 $'000 $'000 $'000
--------------------------------------- ----------- ---------- ---------- ---------
Cost
At 1 January 2013 141,304 29,919 1,487 172,710
Additions 1,534 8,459 159 10,152
Write off - (1,562) - (1,562)
At 31 December 2013 142,838 36,816 1,646 181,300
Additions 2,606 1 461 3,068
Reimbursement of prior costs (6,000) - - (6,000)
Sale of CEDCO (94,590) (33,871) (1,210) (129,671)
--------------------------------------- ----------- ---------- ---------- ---------
At 31 December 2014 44,854 2,946 897 48,697
--------------------------------------- ----------- ---------- ---------- ---------
Depreciation:
At 1 January 2013 (43,390) (19,784) (930) (64,104)
Provided during the year (6,100) (887) (120) (7,107)
--------------------------------------- ----------- ---------- ---------- ---------
At 31 December 2013 (49,490) (20,671) (1,050) (71,211)
--------------------------------------- ----------- ---------- ---------- ---------
Sale of CEDCO 40,641 20,204 665 61,510
Provided during the year (continued
operations) (148) (17) (26) (191)
Provided during the year (discontinued
operations) (3,951) (1,125) (303) (5,379)
Impairment loss (10,761) (287) (115) (11,163)
At 31 December 2014 (23,709) (1,896) (829) (26,434)
--------------------------------------- ----------- ---------- ---------- ---------
Net book value at 31 December
2014 21,145 1,050 68 22,263
--------------------------------------- ----------- ---------- ---------- ---------
Net book value at 31 December
2013 93,348 16,145 596 110,089
--------------------------------------- ----------- ---------- ---------- ---------
Net book value at 1 January
2013 97,914 10,135 557 108,606
--------------------------------------- ----------- ---------- ---------- ---------
As at 31 December 2014, there are no amounts included in the
cost of property, plant and equipment in respect of capitalised
financing costs (2013: $797,600). The amount of the financing costs
capitalised during the year was $nil (2013: $nil). There are no
amounts included in PP&E relating to capitalised finance leases
(2013: $1,595,575) as at 31 December 2014.
Expenditures in 2014 on oil assets primarily related to the
Catalina #1 well. Magdalena fully funded the $6.2 million of costs
for their obligation under the farm-out agreement for the re-entry
of the Catalina #1 well into the Simiti formation, and the Group
did not recognize any related increase to property, plant and
equipment in its consolidated statement of financial position for
these costs since these costs were fully funded by its partner.
Depletion and depreciation for oil assets is calculated on a
unit-of-production basis, using the ratio of oil production in the
period to the estimated quantities of proved and probable reserves
at the end of the period plus production in the period. Oil assets
are tested periodically for impairment to determine whether the net
book value of capitalised costs relating to the cash generating
unit, as defined, exceed the associated estimated future discounted
cash flows of the related commercial oil reserves. If an impairment
is identified, the depletion is charged through the statement of
comprehensive income in the period incurred.
The Group performed its annual impairment test as at 31 December
2014. The Group considers the relationship between its market
capitalisation and its book value, among other factors, when
reviewing for indicators of impairment. As at 31 December 2014, the
market capitalisation of the Group was below the book value of its
equity, indicating a potential impairment of the assets of the
Company's two operating segments. The recoverable amounts of the
two CGUs, the Bolivar area and the Bocachico area, were determined
based upon value in use calculations using risked cash flow
projections. The value in use calculations include estimates about
the future financial performance of each CGU. All estimates and
assumptions included in the value in use calculations are derived
from the reserve report developed by Ralph E. Davis Associates,
Inc., an independent petroleum engineering firm, and are based on
the PRMS joint reserve and resource definitions of the Society of
Petroleum Engineers, the World Petroleum Council, the American
Association of Petroleum Geologists and the Society of Petroleum
Evaluation Engineers consistent with UK reporting purposes. The
projected risked discounted cash flows are calculated using the
Brent oil pricing as at December 2014 of $57.33 per bbl (2013:
$109.95 per bbl), with an escalation of 3% each following year,
with historical pricing discounts and historical operating costs.
The pre-tax discount rate applied to the cash flow projections is
10 per cent (2013: 10 per cent).
Low oil prices caused the heavy oil reserves within the
Bocachico area to be uneconomic at 31 December 2014. The
significant decline in oil prices at 31 December 2014 and the
resulting uneconomic nature of the proved and probable reserves
within the Bocachico area required the Group to fully impair the
$11.2 million of carrying value of its Bocachico area oil assets
within its consolidated financial statements at 31 December 2014.
Under current accounting standards, the Group may reverse such
impairment in the future if there is an indication that the
previously recognised impairment loss no longer exists or has
decreased. Bolivar's proved and probable reserves continued to be
economic at the lower oil prices based upon many factors, such as
estimated oil recovery rates, quality of the oil and lower
estimated future operating costs. Management did not identify an
impairment for the Bolivar area as at 31 December 2014.
6. Borrowings
2014 2013
$'000 $'000
----------------------------- -------- ------
Non-current
Amortizing note payable - 5,966
Finance leases - 912
----------------------------- -------- ------
Total non-current borrowings - 6,878
----------------------------- -------- ------
Current
Amortizing note payable - 5,865
Finance leases - 630
Total current borrowings - 6,495
----------------------------- -------- ------
Total borrowings - 13,373
----------------------------- -------- ------
During 2013 and 2014, the Group previously had outstanding an
Amortising Note Payable (the "Amortising Note Payable") with HKN.
The Amortising Note Payable was not convertible into shares, and
was subject to an interest charge of 12.75 per cent. per annum
(which was increased to 13.50 per cent. per annum in September 2014
following the publication of the 2014 interim results), payable
quarterly in arrears. The Amortising Note Payable was subject to
quarterly principal repayment amounts with the final repayment
amount due on 15 June 2015.
The Amortising Note Payable was unsecured, but HKN could have
required the Company to provide adequate collateral security in the
event of a material adverse effect. In December 2014, following the
disposal of CEDCO, the Group extinguished the remaining principal
balance of $7.5 million (along with accrued interest payable of
$200,000 and a required prepayment penalty of $225,000). As of 31
December 2014, the outstanding principal balance of the Amortising
Note Payable is $nil (2013: $12 million).
2014 2013
$'000 $'000
------------------------------------- ------ ------
Analysis of borrowings
Debt can be analysed as falling due:
Within one year or on demand - 6,495
Between one and two years - 6,878
------------------------------------- ------ ------
- 13,373
------------------------------------- ------ ------
7. Finance leases
Prior to the sale of CEDCO in 2014, the Group's wholly-owned
subsidiary, CEDCO, leased operating equipment, and the Group
classified these costs as finance leases in accordance with IAS 17.
As part of the terms of the sale of CEDCO, the Group paid the
outstanding balance of the finance leases in full ($1 million) in
November 2014 as a condition prior to the closing of the sale.
8. Related party disclosures
HKN and its parties in concert are major shareholders of the
Group. During 2014 and 2013, the Group held an Amortising Note
Payable with HKN. The Amortising Note Payable was fully repaid in
December 2014 and is no longer outstanding (2013: $12 million).
The Group entered into two separate farm-out agreements with
Everest, an affiliate of Lyford Investments Inc., with respect to
the Bolivar and Bocachico Association Contract areas. These
farm-out agreements were terminated during December 2014.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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