TIDMHAWK
RNS Number : 9239Z
Nighthawk Energy plc
02 June 2016
2 June 2016
NIGHTHAWK ENERGY PLC
("Nighthawk" or "the Company")
Final Results for the year ended 31 December 2015
Nighthawk, the US focused oil development and production company
(AIM: HAWK and OTCQX: NHEGY), announces its final results for the
year ended 31 December 2015.
Operational Highlights
-- Sales volumes
o Gross oil sales for 2015 of 653,431 bbls; 536,972 bbls net to
Nighthawk's net revenue interest(1) (2014: 703,414 gross bbls,
575,275 net bbls)
o Gross daily oil sales for 2015 averaged 1,791 bbls/day; 1,471
bbls day net (2014: 1,927 gross bbls, 1,576 net bbls)
-- Conditional approval for new water flood project in existing production areas
Financial Highlights
-- Group revenues decreased 38% to US$29.6 million in 2015 from
US$47.5 million in 2014, mainly due to the 50.7% decrease in the
per barrel price received during 2015, partially mitigated by the
effect of US$7.8 million of gains resulting from oil price swaps
settled during the year
-- Normalised EBITDA(2) for 2015 of US$14.5 million or US$ 22.17
per gross barrel sold as compared to US$27.6 million or US$39.20
per gross barrel sold for 2014
-- Cost reduction program successfully implemented
-- Non-cash impairment (exceptional administrative expenses) of
$75.1 million, principally attributable to: $38.5 million of
exploration costs included in intangible assets, and $36.1 million
to property, plant and equipment, resulting in net loss after tax
of US$ 70.3 million (2014: net loss US$ 3.9m)
-- Waivers of debt non-compliance obtained until 10 June 2016.
Negotiations with bankers ongoing regarding renegotiation of bank
facilities
The audited report and accounts for the year ended 31 December
2015, approved on 1 June 2016, will be available on the Company's
website at www.nighthawkenergy.com later today and will shortly be
posted to Shareholders, as applicable, together with the notice of
Annual General Meeting, to be held on 30 June 2016, and Form of
Proxy.
The financial information in this announcement does not
constitute the Company's complete statutory financial statements
for the year ended 31 December 2015 or 2014 within the meaning of
section 434 of the Companies Act 2006, but is extracted from those
financial statements. References to 'financial statements' in this
announcement should not be considered to refer to the complete
statutory financial statements. The Group's Auditor has reported on
those financial statements; its reports were unqualified, but did
contain an emphasis of matter paragraph in respect of the material
uncertainty in respect of the going concern disclosure set out in
Note 2.
The Auditor's Report did not contain statements under sections
498(2) or (3) of the Companies Act 2006. The emphasis of matter is
set out below:
Emphasis of matter - Going concern
The audited statutory financial statements include an emphasis
of matter (without modification of the audit opinion) concerning
the group's ability to continue as a going concern. The group's
cash flow forecasts indicate that its ability to meet its
liabilities as they fall due for next 12 months is dependent upon
successfully renegotiating the Commonwealth Bank of Australia
("CBA") existing loan facility on terms acceptable to the Company
or securing alternative funding. Whilst the Directors are confident
that the loan facility can be renegotiated or alternative funding
secured, the outcomes of these negotiations are unknown. These
conditions indicate the existence of a material uncertainty which
may cast significant doubt as to the group's ability to continue as
a going concern. The financial statements do not include the
adjustments that would result if the group was unable to continue
as a going concern.
Notes and Definitions:
1. Net revenue interest (NRI) - Nighthawk's share of oil, gas,
and associated hydrocarbons produced, saved, and marketed, after
satisfaction of all royalties, overriding royalties, or other
similar burdens on or measured by production of oil, gas, and
associated hydrocarbons
2. Normalised EBITDA is operating profit adjusted for
depreciation, amortisation, and contribution from test revenue,
together with exceptional expenses.
"Group" Nighthawk Energy plc and its subsidiaries
"Parent Company" Nighthawk Energy plc
Enquiries:
Nighthawk Energy plc
Rick McCullough, Chairman +1 303 407 9600
Kurtis Hooley, Chief Financial +44 (0) 20 3582 1350
Officer +1 303 407 9600
Stockdale Securities +44 (0) 20 7601 6100
Richard Johnson
David Coaten
Chairman's Statement
(all amounts in US$)
As I write this letter to shareholders, WTI oil prices are near
$48 per barrel, the highest levels in almost a year. When prices
first collapsed in late 2014, we expected prices to remain low for
6-12 months. Now, 18 months into the down cycle, it is clear that
countries like Saudi Arabia, Iran and Russia have been making
decisions based on factors other than just economics. However, the
cuts in supply in the US and Canada, along with temporary
disruptions in some countries, have now brought supply and demand
more in balance and for the first time in months, there is more of
a neutral, slightly bullish sentiment developing in the market.
Fortunately, we had begun the year with significant hedges in
place, at prices that ranged from $49-$75 per barrel. These hedges
helped mitigate the effect of the decline in oil prices during the
year. Our hedging program contributed $7.8 million to revenue
during 2015. In addition, our actual production was higher than
originally projected due to cost effective workovers and production
enhancement projects we pursued, which altered the decline
behaviour of the producing wells. We also continued to focus on
cost reductions throughout our organization. During the year, we
have reduced our oil transportation from approximately $11 per
barrel to less than $5 per barrel today. We also consolidated our
financial functions in the US, substantially reducing our UK costs,
we reduced head count in our Denver staff, we cut salaries for the
entire Denver team and we made across the board cuts in spending
resulting in an expected reduction of approximately $1.8 million in
recurring annual administrative costs going into 2016.
As we entered 2015, we established a conservative capital
budget, with drilling limited to our newly created Monarch Joint
Development Area ("JDA") and workover and up-hole production
enhancement projects. As prices remained low other than a short
period in April and May, we deferred our drilling, raised $10
million from shareholders and reduced both our trade payable and
commercial debt balances with a reduction of $4 million in early
January 2016.
In our 2015 capital budget, Nighthawk had planned to drill six
wells in areas that indicated structural fields. Unfortunately, the
five wells we drilled in late 2015, four in the Monarch JDA and one
in Arikaree Creek area, resulted in little success. We tested
potential in other zones, primarily the Pennsylvanian, which
included the Atoka zone. Based on the drilling and tests results,
and taking into account the current oil price environment, only two
of the wells were completed. In these two wells, we believe there
exists untested, up-hole potential based upon hydrocarbon shows
during drilling.
Although the drilling results were disappointing, the results in
the Monarch JDA have not totally condemned this acreage. However,
with oil prices projected to stay low through 2016, we have
decreased our capital budget and do not plan any drilling beyond
our existing two commitment wells.
On a positive note, the Nighthawk team recognized the potential
of an enhanced oil recovery (water flood) project in our existing
Arikaree Creek field. In October 2015, we submitted the application
for the project and through the end of the year, worked with the
Colorado Oil and Gas Conservation Commission's (COGCC) regulatory
staff. In March 2016, we received conditional approval to proceed
with the project. Preliminary estimates of the potential upside
indicates that a 20%-25% additional recovery of the original oil in
place could be achieved. In April 2016, we introduced a pilot
program for the water flood project, covering the southern portion
of the Arikaree Creek structure. For the pilot program, it is
estimated that the recovery could result in an additional 1-2
million barrels of total oil being produced. We believe we have met
all the requirements of the conditional approval from the COGCC,
and we anticipate the pilot program to be operational in the fourth
quarter of 2016.
The water flood project is the kind of project oil and gas
companies want to implement in a recovering oil market. As we have
disclosed previously, production is expected to substantially
increase and to remain higher than otherwise possible for most of
the life of the project. One of the key drivers of this project is
that it requires minimal capital to implement which based upon
current estimates is expected to be less than $3 million.
In a related matter, we have been negotiating with our banking
partner on an extension of terms. They have been supportive of the
water flood project and see the upside that it can provide. The
Company believes that with obtaining the approval by 80% of the
non-cost bearing owners, the likelihood of this project being
ultimately approved in early June 2016 is substantially enhanced.
We are working with the bank on new terms that will allow this
project to move forward and we hope to have those new terms in
place around the time the project is approved.
I would like to thank the shareholders, the Board and the entire
staff for their support through what has been a very tough year for
Nighthawk. As I said above, for the first time in months, we see
some reason for optimism in oil pricing. While, we do not expect
prices to reach $70 in the next 18 months, we do believe they could
trade more often in the $45-$60 range. When you consider our
relatively low operating cost structure, our operating margins
almost double at $60 WTI pricing as compared to the pricing we
experienced in 2015.
As we continue to work through arrangements with the bank,
implement the water flood pilot project and hopefully enjoy better
pricing in the next year, our future results should improve
substantially. We exit the year with a good bit of cautious
optimism.
Rick McCullough
Executive Chairman
Chief Financial Officer's Statement
(all amounts are shown in US$)
Financial highlights
The following information relates to the accounts of Nighthawk
Energy plc and its wholly-owned subsidiaries, collectively the
"Group" or the "Company".
Fiscal 2015 was a challenging year for the Group and the oil and
gas industry as a whole. Oil prices declined significantly during
the year which resulted in decreased revenues, increased
impairments of assets and a net loss for the year ended 31 December
2015. Following is a summary of the key results for the year.
Financial Results
Loss for the year
The Group reported a net loss of $70.3 million for the year
ended 31 December 2015 as compared to a net loss of $3.9 million
for the year ended 31 December 2014. The increase to the net loss
was due primarily to reduced sales revenues resulting from the
significant decrease in oil prices during the year as well as an
increase to non-cash impairments of $75.1 million for the year
ended 31 December 2015. Non-cash impairments were $20.3 million for
the year ended 31 December 2014. A portion of the non-cash
impairments resulted from the Group having drilled five wells that
did not result in commercial economic reserves. As a result, the
costs to drill and complete these wells were written off as of 31
December 2015 and totalled $5.2 million. In addition, an impairment
charge of $28.9 million has been taken representing impairment of
certain production wells which arises due to the reduction in the
spot and forward oil price assumptions used in estimating the
future discounted cash flows for each well. The Group also assessed
the recoverability of its undeveloped assets based upon factors
such as market conditions, current spot and forward prices of oil,
and future exploration and development plans. Due primarily to the
significant reduction in oil prices and no current plans to pursue
an aggressive drilling program, an additional $40.5 million was
written off or impaired relating to the undeveloped assets as at 31
December 2015. An additional $0.5 million was recorded as
impairments for costs incurred during the current period for wells
which had been fully impaired in prior periods.
Of the total impairment of $75.1 million, $38.5 million was
attributable to exploration costs included in intangible assets and
a $36.1 million was attributable to property, plant and equipment.
Of the total impairment for property, plant and equipment, $11.5
million was related to leasehold land, $10.2 million was related to
plant and equipment and $14.4 million related to production assets.
The reminder of $0.5 million was attributable to costs incurred on
wells previously fully impaired.
Normalised EBITDA
Normalised EBITDA ("NEBITDA") is presented to provide an
analysis of the Group's operations, excluding certain non-cash
related items. NEBITDA is defined as operating profit or loss
adjusted for interest, income taxes, depreciation, amortisation,
test revenue contribution adjustments, and exceptional
administrative expenses. For the year ended 31 December 2015
NEBITDA was $14.5 million, compared to $27.6 million for the year
ended 31 December 2014. This decline in NEBITDA reflected the
precipitous decline in the price of crude oil and a decrease in
production volumes, partially mitigated by the Group's commodity
derivatives. NEBITDA per gross and net barrel sold was $22.17/bbl
and $26.98/bbl for the year ended 31 December 2015, respectively,
as compared to $39.20/bbl and $47.93/bbl, respectively, for the
year ended 31 December 2014.
The following calculation reconciles the net loss under IFRS to
NEBITDA for 2015 and 2014.
2015 2014
---------------- ---------------
Net loss $ (70,332,136) $ (3,893,234)
Exceptional administrative
expenses 72,477,603 20,306,352
Finance income (173,641) (367)
Finance costs 5,078,442 5,914,049
Taxation 150,668 (1,855,837)
---------------- ---------------
Normalised operating profit(1) 7,200,936 20,470,963
Depreciation, amortisation
and contribution from test
revenue 7,285,137 7,103,010
---------------- ---------------
Normalised EBITDA $ 14,486,073 $ 27,573,973
================ ===============
The following table provides the consolidated income statement
to arrive at normalised operating profit and NEBITDA.
2015 2014
--------------- --------------
Revenue $ 29,608,915 $ 47,541,974
Cost of sales (14,866,589) (19,927,152)
--------------- --------------
Gross profit 14,742,326 27,614,822
Administrative expenses (7,541,390) (7,143,859)
--------------- --------------
Normalised operating profit(1) 7,200,936 20,470,963
Depreciation, amortisation
and contribution from test
revenue 7,285,137 7,103,010
--------------- --------------
Normalised EBITDA $ 14,486,073 $ 27,573,973
=============== ==============
1. Normalised operating profit is operating profit adjusted for
exceptional administrative expenses.
Production
The results of the Groups production as shown in the following
table:
2015 2014
--------- ---------
Gross barrels sold 653,431 703,414
Net barrels sold 536,972 575,275
Daily average barrels sold--gross 1,791 1,927
Daily average barrels sold-net 1,471 1,576
Average sales price per barrel $ 40.47 $ 82.16
Normalised EBITDA per barrel sold-gross $ 22.17 $ 39.20
Normalised EBITDA per barrel sold--net $ 26.98 $ 47.93
The decline in net sales volumes of 38,303 or 6.7% is indicative
of normal depletion of the Groups reserves offset by the workover
and production enhancement projects performed in 2015.
Revenues
The following is a comparative summary of net oil sales volumes,
prices and revenues, including the impact of commodity derivative
settlements:
2015 2014
-------------- --------------
Oil sales volumes 536,972 575,275
Oil prices $ 40.47 $ 82.16
-------------- --------------
Oil revenues 21,729,188 47,265,682
Gains on oil price swaps on designated hedging instruments in cash flow
hedges of sales revenue reclassified from equity to profit or loss 7,837,223 276,012
Other income 42,504 280
-------------- --------------
$ 29,608,915 $ 47,541,974
============== ==============
The $25.5 million or 54.0% decline in oil revenues is the result
of the 6.7% decrease in produced volumes (previously discussed) and
a $41.69 or 50.7% per barrel decline in the price received. The
Group, in order to mitigate the effect of volatile oil markets,
actively enters into various hedging instruments. As shown above,
the Group realised $7.8 million of gains resulting from oil price
swaps settled during the year.
Costs
The following is a comparative summary of cost of sales:
2015 2014
-------------- --------------
Lease operating costs per gross barrel $ 8.82 $ 10.46
============== ==============
Lease operating costs per net barrel $ 10.74 $ 12.79
============== ==============
Lease operating costs 5,765,018 7,358,018
Production severance taxes 1,543,507 4,256,716
Depreciation 6,594,358 5,271,671
Contribution from test revenue 569,521 1,743,846
Production profit shares and royalties 321,030 1,296,901
Other 73,155 -
-------------- --------------
$ 14,866,589 $ 19,927,152
============== ==============
With the economic decline in the oil and gas industry, the Group
has negotiated concessions with suppliers and service providers
resulting in a reduction to lease operating costs per barrel
despite a decrease in sales volumes. There have also been
corresponding reductions to severance taxes, contribution from test
revenue, and production profit shares and royalties. Depreciation
has increased as a result of a decline to the reserve base which
has been adversely impacted by a decline in oil prices and the
corresponding reduction in well economics.
Dividends
The Directors do not recommend the payment of a dividend for the
year ended 31 December 2015.
Cash flow, investment and liquidity
The following is a comparative summary of cash flow from
operating, investing and financing activities:
2015 2014
-------------- --------------
Cash flow from operating activities $ 16,663,460 $ 28,224,478
-------------- --------------
Cash flow from investing activities
Purchase of intangible assets (15,197,473) (27,253,794)
Purchase of property, plant and equipment (11,251,875) (15,002,661)
Other 8,765 1,502,195
-------------- --------------
Net cash from investing activities (26,440,583) (40,754,260)
-------------- --------------
Cash flow from financing activities
Repayment of loans (3,000,000) (10,000,000)
Proceeds on issue of loans, net of issue costs 7,000,000 27,886,400
Proceeds on issue of convertible loan notes 9,710,000 -
Interest paid (3,102,589) (2,787,068)
Other 130,137 764,026
-------------- --------------
Net cash flow from financing activities 10,737,548 15,863,358
-------------- --------------
Net increase in cash and cash equivalents 960,425 3,333,576
Cash and cash equivalents at beginning of financial year 5,019,527 1,681,163
Effects of exchange rate changes (10,467) 4,788
-------------- --------------
Cash and cash equivalents at end of financial year $ 5,969,485 $ 5,019,527
============== ==============
Cash flows from operating activities
For the year ended 31 December 2015, cash flow from operating
activities was $16.7 million as compared to cash flows of $28.2
million for the year ended 31 December 2014 reflecting the decrease
in NEBITDA discussed above.
Net Cash flow from investing activities
For the year ended 31 December 2015, net cash flow used in
investing activities was $26.4 million and comprised principally of
capital expenditures in the drilling and completion of new wells.
For the year ended 31 December 2014, net cash flow used in
investing activities was $40.8 million. The decline in spending in
2015 as compared to 2014 of 35.3% was a result of reduced acreage
acquisitions and drilling activities commensurate with the decline
in economics within the oil and gas industry.
Net cash flow from financing activities
For the year ended 31 December 2015, net cash from financing
activities during the year totalled $10.7 million and comprised
principally of $16.7 million (year ended 31 December 2014: $27.9
million) raised via debt facilities offset by $3.0 million in debt
repayments and $3.1 million in interest payments. For the year
ended 31 December 2014, net cash flow from financing activities
totalled $15.9 million and was comprised of proceeds from debt
facilities, offset by $10.0 million in debt repayments and $2.8
million in interest payments.
On 14 August 2015, the Company issued $10.0 million (GBP6.4
million) of nominal value, unsecured convertible loan notes
carrying zero coupon over a period up to March 2019, held by both
related parties and unrelated parties. The loan notes are
convertible by holders at any time, into such number of ordinary
shares as is calculated by dividing the nominal value of notes to
be converted by 3 pence, at any time up to and including the
redemption date. At 31 December 2015, the loan is convertible into
213,333,333 shares of the Group.
In September 2014, the Group entered into a senior secured
reserves based lending ("RBL") facility with Commonwealth Bank of
Australia ("CBA") with an initial RBL facility amount of up to
$100.0 million. Under this RBL facility, the initial borrowing base
was $35.0 million, subject to regular redeterminations based upon
factors including, but not limited to, petroleum reserves and oil
prices. The available borrowing base was subject to a $5.0 million
withholding by the bank such that the Group at all times maintains
a minimum liquidity requirement, effectively setting the net
borrowing base at $30.0 million.
During 2014, the Group drew $23.0 million under the RBL,
including $1.1 million of transaction costs. During the first half
of 2015, the Group drew an additional $7.0 million to the maximum
net borrowing base of $30.0 million. Due to falling oil prices in
the second half of the year, on 2 November 2015, CBA decreased the
net borrowing base to $27.0 million, resulting in a net borrowing
base deficit of $3 million. Under the terms of the RBL, the net
borrowing base deficit was required to be repaid in three equal
payments of $1.0 million at the beginning of December 2015, January
2016 and February 2016, to reduce the outstanding balance to the
new net borrowing base. Simultaneously, the RBL facility was
amended to include, among other provisions, a $5.0 million minimum
liquidity requirement and the elimination of the $5.0 million
withholding on the borrowing base amount.
In connection with negotiations to obtain waivers for certain
covenant non-compliance, the Group paid the total $3.0 million net
borrowing base deficit prior to 31 December 2015, resulting in an
outstanding balance as at 31 December 2015 of $27.0 million.
Certain requirements and covenants at 31 December 2015 were not in
compliance with the loan agreement including the minimum hedging
maintenance requirement and the leverage covenant. These
non-compliance items were waived by CBA as of year-end with a
period of grace until 9 January 2016
On 8 January 2016, the Group completed additional negotiations
with CBA that included a reduction to the net borrowing base from
$27.0 million to $23.0 million, the current outstanding balance. As
part of the negotiations for waiver extension and additional debt
amendments, the Group was required to pay an additional $4.0
million to reduce the outstanding balance to the reduced net
borrowing base amount. The RBL facility covenants were amended to
revise the leverage ratio and eliminate the minimum liquidity
requirement.
At the end of the first quarter of 2016, CBA notified the Group
that the borrowing base had been further reduced from $23.0 million
to $13.0 million. CBA has provided waivers to allow them and the
Group to explore options that would result in resolution of the
deficiency, including modification to the existing RBL facility or
securing alternative sources of capital to partially or fully
extinguish the existing RBL facility. The Group has received
additional waivers of non-compliance through 10 June 2016, as of
the date of these financial statements. Due to the limited nature
of the waivers, the entire outstanding balance under the RBL has
been classified as a current liability in the accompanying
financial statements. Management is confident that a mutually
beneficial agreement can be reached with CBA on the RBL.
From the initial draw on the RBL in September 2014, the Group
used a portion of the proceeds to repay $10.0 million of debt
provided by major shareholders and the remaining portion to fund
activities around the exploration and development of oil
reserves.
As part of entering into the RBL, the maturities for all
existing debt instruments at that time were extended to March 2019
or later, together with extensions to the related warrants.
At 31 December 2015, the Group held cash balances of $6.0
million as compared to $5.0 million at 31 December 2014.
Hedging
As part of managing the Group's liquidity position, during 2014,
the Group commenced a commodity hedging program in order to provide
more certainty around future operational cash flows and liquidity.
As at 31 December 2015, the Group held the following oil commodity
derivative hedge positions:
2016 2017
--------- ---------
Swap contracts
Total remaining volumes (bbls) 168,105 17,350
Price (WTI NYMEX; average) $ 62.51 $ 75.30
Costless collar contracts
Total volumes (bbls) 28,986 -
Ceiling $ 70.10 -
Floor $ 55.00 -
Note: All commodity derivative hedge prices are WTI NYMEX,
averaged across the total contracts for swap contracts.
For the commodity hedging activities entered into during 2014
and the first half of 2015, the Group elected to apply IFRS hedge
accounting in respect of the Group's commodity derivative hedge
positions. Hedge accounting mitigates the profit and loss
volatility through the income statement that can arise through the
use of derivatives. The Group's oil commodity derivative hedges
were designated as cash flow hedges and, accordingly, subject to
remaining effective, much of the derivative volatility arising from
mark-to-market positions on open contracts at period ends will be
recorded as an equity movement in the cash flow hedge reserve
rather than through the income statement. On utilisation of the oil
swaps when the oil sales take place, the amounts held in equity are
recycled to revenue. In the third quarter of 2015, the Company
entered into one swap contract that is accounted for as a
mark-to-market hedge instrument through profit or loss.
Shareholders' equity
As at 31 December 2015 there were 964,076,330 ordinary shares of
0.25 pence each in issue. Additionally, as at 31 December 2015, a
total of up to 652,383,333 new ordinary shares may be issued
pursuant to the exercise of share options, warrants or convertible
loan notes.
Cautionary Statement
This announcement contains certain judgements/assumptions and
forward-looking statements and assumptions that are subject to the
normal risks and uncertainties associated with the exploration,
development and production of hydrocarbons. Whilst the Directors
believe that expectations reflected throughout this announcement
are reasonable based on the information available at the time of
approval of this announcement, actual outcomes and results may be
materially different due to factors either beyond the Group's
reasonable control or within the Group's control but, for example,
following a change in project plans or corporate strategy.
Therefore absolute reliance should not be placed on these
judgements/assumptions and forward-looking statements.
Kurtis Hooley
Chief Financial Officer
Consolidated Income Statement
for the year ended 31 December 2015
(all amounts shown in US$)
For the Year Ended 31 December
Notes 2015 2014
---------------- ----------------
Continuing operations:
Revenue 4 $ 29,608,915 $ 47,541,974
Cost of sales (14,866,589) (19,927,152)
Gross profit 14,742,326 27,614,822
Administrative expenses (7,541,390) (7,143,849)
Exceptional administrative expenses 9 (72,477,603) (20,306,352)
Total administrative expenses (80,018,993) (27,450,201)
Operating profit (loss) 5 (65,276,667) 164,621
Finance income 173,641 367
Finance costs 8 (5,078,442) (5,914,059)
Net loss before taxation (70,181,468) (5,749,071)
Taxation 10 (150,668) 1,855,837
---------------- ----------------
Loss $(70,332,136) $ (3,893,234)
================ ================
Attributable to:
Equity shareholders of the Company $(70,332,136) $ (3,893,234)
Loss per share from continuing operations 11
Basic loss per share $(0.07) $(0.00)
Diluted loss per share $(0.07) $(0.00)
Consolidated Statement of Comprehensive Income and
Expenditure
for the year ended 31 December 2015
(all amounts shown in US$)
For the Year Ended 31 December
2015 2014
---------------- ----------------
Net loss $(70,332,136) $ (3,893,234)
Other comprehensive income (expense)
Items that may be reclassified subsequently to profit or loss:
Foreign exchange gains on consolidation 1,247,495 1,206,835
Gain on hedging instruments designated as cash flow hedges 6,304,905 6,136,124
Deferred tax on hedging instruments designated as cash flow hedges (2,244,635) (2,086,282)
Items reclassified to profit or loss:
Gain on hedging instruments designated as cash flow hedges (7,837,223) (276,012)
Deferred tax on gain 2,790,161 -
Other comprehensive income, net of tax 260,703 4,980,665
Total comprehensive (loss) income for the financial year $(70,071,433) $ 1,087,431
================ ================
Consolidated Balance Sheet
as at 31 December 2015
(all amounts shown in US$)
As at 31 December
Notes 2015 2014
-------------- ---------------
Assets
Non-current assets
Property, plant and equipment 13 $ 25,428,745 $ 47,129,451
Intangible assets 12 11,891,746 51,392,916
Derivative financial assets 17 502,648 620,000
-------------- ---------------
37,823,139 99,142,367
Current assets
Inventory 15 917,039 1,051,192
Derivative financial assets 17 3,997,996 5,240,112
Trade and other receivables 16 3,013,846 3,801,613
Cash and cash equivalents 5,969,485 5,019,527
-------------- ---------------
13,898,366 15,112,444
Total Assets $ 51,721,505 $ 114,254,811
Equity and liabilities
Capital and reserves attributable to the Company's equity shareholders
Share capital 20 $ 4,007,795 $ 4,001,288
Share premium 20 1,402,644 1,279,014
Foreign exchange translation reserve 21 7,713,305 6,465,810
Special (restricted) reserve 22 29,760,145 29,760,145
Retained (deficit) earnings (65,650,773) 4,376,618
Share-based payment reserve 23 5,367,376 5,420,455
Equity option on convertible loans 24 6,992,276 3,592,505
Cash flow hedging reserve 25 2,787,038 3,773,830
Total equity (7,620,194) 58,669,665
-------------- ---------------
Current liabilities
Trade and other payables 18 5,059,434 10,430,245
Borrowings 19 26,311,365 -
-------------- ---------------
31,370,799 10,430,245
-------------- ---------------
Non-current liabilities
Borrowings 19 24,776,368 40,082,974
Provisions and contingent consideration 30 3,194,532 5,071,927
27,970,900 45,154,901
-------------- ---------------
Total liabilities 59,341,699 55,585,146
Total equity and liabilities $ 51,721,505 $114,254,811
============== ===============
Consolidated Statement of Changes in Equity
for the year ended 31 December 2015
(all amounts shown in US$)
Foreign Share Equity
exchange Special Retained based option on Cash flow
Share Share translation (restricted) earnings payment convertible hedging
capital premium reserve reserve (deficit) reserve loans reserve Total
$ $ $ $ $ $ $ $ $
Balance at 1
January 2015 4,001,288 1,279,014 6,465,810 29,760,145 4,376,618 5,420,455 3,592,505 3,773,830 58,669,665
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
For the year
ended 31
December 2015
Loss for the
year - - - - (70,332,136) (70,332,136)
Other
comprehensive
income
(expense):
Foreign
exchange gain
on
consolidation - - 1,247,495 - - - - - 1,247,495
Gain on
hedging
instruments
designated in
cash flow
hedges - - - - - - - 6,304,905 6,304,905
Deferred tax
on hedging
instruments
designated in
cash flow
hedges - - - - - - - (2,244,635) (2,244,635)
Gain
reclassified
to profit or
loss - - - - - - - (7,837,223) (7,837,223)
Deferred tax
on gain
reclassified
to profit - - - - - - - 2,790,161 2,790,161
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
Total
comprehensive
income (loss) - - 1,247,495 - (70,332,136) - - (986,792) (70,071,433)
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
Share-based
payments - - - - - 251,666 - - 251,666
Issue of share
capital for
cash 6,507 123,630 - - - - - - 130,137
Exercised and
expired
options and
warrants - - - - 304,745 (304,745) - - -
Issue of
convertible
loan notes - - - - - - 3,399,771 - 3,399,771
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
Balance at 31
December 2015 4,007,795 1,402,644 7,713,305 29,760,145 (65,650,773) 5,367,376 6,992,276 2,787,038 (7,620,194)
=========== =========== ============= ============== ============== =========== ============= ============= ==============
Balance at 1
January 2014 3,940,516 - 5,258,975 29,760,145 5,454,326 3,101,951 2,480,398 - 49,996,311
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
For the year
ended 31
December 2014
Loss for the
year - - - - (3,893,234) - - - (3,893,234)
Other
comprehensive
income
(expense):
Foreign
exchange gain
on
consolidation - - 1,206,835 - - - - - 1,206,835
Gain on
hedging
instruments
designated in
cash flow
hedges - - - - - - - 6,136,124 6,136,124
Gain
reclassified
to profit or
loss - - - - - - - (276,012) (276,012)
Deferred tax
on hedging
instruments
designated in
cash flow
hedges (2,086,282) (2,086,282)
Total
comprehensive
income (loss) - - 1,206,835 - (3,893,234) - - 3,773,830 1,087,431
Share-based
payments - - - - - 702,695 - - 702,695
Issue of share
capital for
cash 19,404 410,258 - - - - - - 429,662
Exercised and
expired
options and
warrants - - - - 145,660 (145,660) - - -
Extension of
convertible
loan notes
and
borrowings - - - - 2,646,477 1,761,469 1,152,342 - 5,560,288
Conversion of
convertible
loan notes 41,368 868,756 - - 23,389 - (40,235) - 893,278
----------- ----------- ------------- -------------- -------------- ----------- ------------- ------------- --------------
Balance at 31
December 2014 4,001,288 1,279,014 6,465,810 29,760,145 4,376,618 5,420,455 3,592,505 3,773,830 58,669,665
=========== =========== ============= ============== ============== =========== ============= ============= ==============
Consolidated Cash Flow Statement
for the year ended 31 December 2014
(all amounts shown in US$)
For the Year Ended 31 December
Notes 2015 2014
---------------- ----------------
Net cash flow from operating activities 26 $ 16,663,460 $ 28,224,478
---------------- ----------------
Cash flow from investing activities
Purchase of intangible assets (15,197,473) (27,253,794)
Purchase of property, plant and equipment (11,251,875) (15,002,661)
Proceeds on disposal of property, plant and equipment 8,410 1,501,828
Interest received 355 367
Net cash from investing activities (26,440,583) (40,754,260)
---------------- ----------------
Cash flow from financing activities
Proceeds on issue of new shares 130,137 429,662
Proceeds from issue of derivative financial instruments - 843,639
Payments on derivative financial instruments - (509,275)
Repayment of loans (3,000,000) (10,000,000)
Proceeds on issue of loans net of issue costs 7,000,000 27,886,400
Proceeds on issue of convertible loan notes 9,710,000 -
Interest paid (3,102,589) (2,787,068)
Net cash flow from financing activities 10,737,548 15,863,358
---------------- ----------------
Net increase in cash and cash equivalents 960,425 3,333,576
Cash and cash equivalents at beginning of financial year 5,019,527 1,681,163
Effects of exchange rate changes (10,467) 4,788
Cash and cash equivalents at end of financial year $ 5,969,485 $ 5,019,527
================ ================
Notes to the Consolidated Financial Statements
Year ended 31 December 2015
all amounts are shown in US$
1. General Information
Nighthawk Energy PLC (the "Parent") is a company incorporated in
the United Kingdom, under the Companies Act 2006.
The financial information in this announcement does not
constitute the Company's complete statutory financial statements
for the year ended 31 December 2015 or 2014 within the meaning of
section 434 of the Companies Act 2006, but is extracted from those
financial statements. References to 'financial statements' in this
announcement should not be considered to refer to the complete
statutory financial statements. The Group's Auditor has reported on
those financial statements; its reports were unqualified, but did
contain an emphasis of matter paragraph in 2015 in respect of the
material uncertainty in respect of the going concern disclosure set
out in note 2. The Auditor's Report did not contain statements
under sections 498(2) or (3) of the Companies Act 2006.
2. Significant accounting policies
Basis of accounting
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) as adopted by
the European Union and therefore the Group financial statements
comply with Article 4 of the EU Regulations and applied in
accordance with those provisions of the Companies Act 2006
applicable to companies reporting under IFRS.
The financial statements have been prepared on the historical
cost basis. Historical cost is generally based on the fair value of
the consideration given in exchange for the assets at the date of
transaction. The principal accounting policies adopted are set out
below.
The principal accounting policies set out below have been
consistently applied to all periods presented.
Certain reclassifications have been made to the 2014 amounts to
conform to the 2015 presentation. None of these reclassifications
resulted in changes to profit or loss.
Going Concern
The Directors have reviewed cash forecasts, the current
operations of the Group and plans for the next 12 months and
consider that the use of the going concern basis of accounting and
preparation of the financial statements is appropriate but, there
are material uncertainties related to events or conditions that may
cast significant doubt about the ability of the Group to continue
as a going concern. Currently, the Group is meeting its day-to-day
financial responsibilities and oil prices are trending upward.
Successful implementation of the water flood project is expected to
provide adequate cash flow for the foreseeable future to meet
operating cash flow requirements, although the COGCC approval of
the water flood project is not certain. The Directors note there is
a material liquidity risk related to the Company's outstanding loan
with Commonwealth Bank of Australia ("CBA") given non-compliance
with certain covenants and the reduction in the borrowing base from
$23.0 million to $13.0million in Q1 2016 which created a $10.0
million borrowing base deficiency. As of the date of approval of
these financial statements, the Company has obtained a waiver from
CBA of existing non-conformity to the loan provisions and covenants
through to 10 June 2016. As part of the existing waiver, CBA has
agreed to temporarily waive the current requirement to pay
approximately $6.7 million of amounts due based upon the
outstanding borrowing base deficiency of $10.0 million, with the
remaining $3.3 million due 28 June 2016. However, the Company's
ability to meet its liabilities as they fall due for next 12 months
is dependent upon successfully renegotiating the existing loan
facility on terms acceptable to the Company or securing alternative
funding. The Company and CBA are attempting to renegotiate the
existing loan document and current amounts payable and whilst the
Directors are confident that the borrowings can be renegotiated or
alternative funding secured, the outcomes of these negotiations are
unknown.
The financial statements do not include the adjustments that
would result if the Company was unable to continue as a going
concern.
2. Significant accounting policies continued
Basis of Consolidation
Where the company has control over an investee, it is classified
as a subsidiary. The company controls an investee if all three of
the following elements are present: power over the investee,
exposure to variable returns from the investee, and the ability of
the investor to use its power to affect those variable returns.
Control is reassessed whenever facts and circumstances indicate
that there may be a change in any of these elements of control.
The consolidated financial statements present the results of the
Group as if they formed a single entity. Intercompany transactions
and balances between group companies are therefore eliminated in
full. Intra-Group transactions with subsidiaries are eliminated on
consolidation. Transactions, balances, income and expenses with
Joint Operations are eliminated to the extent of the Group's
interest in these entities.
In accordance with the exemption in IFRS 1, where merger
accounting has been used prior to the transition date the
accounting method has not been restated.
Any difference between the nominal value of the shares acquired
by the Company and those issued by the Company to acquire these
shares is accounted for as merger reserve.
Segmental Reporting
The Group has only one operating segment: the production of,
exploration for and investment in hydrocarbons in one geographical
area, the United States of America.
New and amended IFRS standards in interpretations
No new or revised Standards and Interpretations have been
adopted during the year.
At the date of authorisation of these financial statements, the
following Standards and interpretations which have not been applied
in these financial statements were in issue but not yet effective
(and in some cases had not yet been adopted by the European Union)
(standards not expected to have any impact on the Group are not
included):
New/Revised International Financial Reporting Standards Effective Date: Annual EU
periods beginning on or after: adopted
IAS 1 Disclosure Initiative - Amendments 1 January 2016 No
IFRS 9 Financial Instruments: Classification and Measurement 1 January 2018 No
IFRS 15 Revenue from Contracts with Customers 1 January 2018 No
IFRS 16 Leases 1 January 2019 No
Annual Improvements to IFRSs 2012-2014 Cycle 1 January 2016 Yes
The Directors do not expect that the adoption of the Standards
and Interpretations listed above will have a material impact on the
financial statements of the Group in future periods.
Beyond the information above, it is not practicable to provide a
reasonable estimate of the effect of these standards until a
detailed review has been completed.
Joint Operations
The Group participates in Joint Operations, which involve the
joint control of assets used in the Group's oil and gas exploration
and producing activities.
2. Significant accounting policies continued
The Group accounts for its share of assets, liabilities, income
and expenditure of Joint Operations in which it holds an interest,
classified in the appropriate Balance Sheet and Income Statement
headings.
Details of the Group's interests in unincorporated Joint
Operations are given in Note 14.
Revenues
Sales revenue represents the sales value of the Group oil
liftings in the year. Oil revenue is recognised when it can be
reasonable measured and the risks and rewards of ownership have
transferred substantially to the buyer, which occurs at transfer of
the hydrocarbons from the Group's facilities to the purchaser's
tanker or infrastructure. Revenue is measured at the Group's share
of fair value of the consideration received or receivable and
represents amounts receivable for oil products in the normal course
of business, net discounts and sales related taxes. Royalty
interests are recognised on an accruals basis, in accordance with
the substance of the relevant agreement.
Oil and gas assets - exploration and evaluation assets
(intangibles)
The Group follows a successful efforts based accounting policy
for oil and gas assets. During the geological and geophysical
exploration phase, expenditures are charged against income as
incurred. Once the legal right to explore has been acquired,
expenditures directly associated with exploration and evaluation
are capitalised as intangible assets and are reviewed at each
reporting date to confirm that there is no indication of impairment
and that drilling is still underway or is planned. If no future
exploration or development activity is planned in the licence area,
the exploration licence and leasehold property acquisition costs
are written off. Pre-licencing expenditures on oil and gas assets
are recognised as an expense within the income statement when
incurred.
Oil and gas assets - development and production assets
(property, plant and equipment)
Once a well or project is commercially feasible and technically
viable, which in practice is when results indicate that hydrocarbon
reserves exist in adequate quantity and there is reasonable
evidence that the reserves are commercially viable, the carrying
values of the associated exploration licence and property
acquisition costs and the related cost of exploration wells are
transferred to development oil and gas properties after an
impairment test. Development and production assets are accumulated
generally on a well-by-well basis and represent the cost of
developing the commercial reserves discovered and bringing them
into production. The cost of development and production assets also
includes the cost of acquisitions and purchases of such assets,
directly attributable overheads, finance costs capitalised, and the
cost of recognising provisions for future restoration and
decommissioning. If a drilled well does not show commercially
viable reserves, the capitalized costs are written off upon
completion of the well.
Property, Plant and Equipment
Property, plant and equipment are stated at historical cost less
depreciation and recognised impairment losses. Cost includes
expenditure that is directly attributable to the acquisition or
construction of these items.
Subsequent costs are included in the asset's carrying amount
only when it is probable that future economic benefits associated
with the item will flow to the Group and the costs can be measured
reliably. All other costs, including repairs and maintenance costs,
are charged to the income statement in the period in which they are
incurred.
Depreciation is provided on all property, plant and equipment
and is calculated on a straight-line basis or unit of production
basis as follows:
Plant and equipment 5%
Leasehold land 10%
Office equipment 25%
Depreciation of producing assets
The net book values of producing assets are depreciated on a
well-by-well basis using the unit-of-production method by reference
to the ratio of production in the year and the related economic
commercial reserves of the well, taking into account future
development expenditures necessary to bring those reserves into
production.
2. Significant accounting policies continued
Where property, plant and equipment has been acquired for the
purposes of exploration, and technical feasibility of the project
has yet to be established, the depreciation on the property, plant
and equipment is added back to the cost of the intangible assets
within exploration costs.
The gain or loss arising on disposal or scrapping of an asset is
determined as the difference between the sales proceeds, net of
selling costs, and the carrying amount of the asset and is
recognised in the income statement.
Impairment of development and production assets
An impairment test is performed whenever events and
circumstances arising during the development or production phase
indicate that the carrying value of a development or production
asset may exceed its recoverable amount, but not less frequently
than twice a year. The carrying value is compared against the
expected recoverable amount of the asset, generally by reference to
the present value of the future net cash flows expected to be
derived from production of commercial reserves. The cash flows are
discounted using a pre-tax discounted rate adjusted for risks
specific to the assets. The cash generating unit applied for
impairment test purposes is generally at the well level, except
that a number of individual well interests may be grouped as a
single cash generating unit where the cash inflows of each well are
interdependent, as in a unit. Commercial reserves consist of proved
and probable oil, which are defined as the estimated quantities of
crude oil where geological, geophysical and engineering data has
demonstrated, with a specified degree of certainty, to be
recoverable in future years from known reservoirs and which are
considered commercially viable. There should be at least a 50%
statistical probability that the actual quantity of recoverable
reserves will be equal to or more than the amount estimated as
proved and probable reserves. Any impairment identified is charged
to the income statement. Where conditions giving rise to impairment
subsequently reverse, the effect of the impairment charge is also
reversed as a credit to the income statement, net of any
depreciation that would have been charged since the impairment.
Impairment of Exploration costs
The Group's intangible exploration cost assets are assessed for
impairment when facts and circumstances suggest that the carrying
amount of the exploration cost assets may exceed the assets
recoverable amount. In accordance with IFRS 6, the Group firstly
considers the following facts and circumstances in their assessment
of whether the Group's exploration and appraisal assets may be
impaired:
-- Whether the period for which the Group has the right to
explore in a specific area has expired during the period or will
expire in the near future, and is not expected to be renewed;
-- Whether substantive expenditure on further exploration for
and appraisal of mineral resources in a specific area is neither
budgeted nor planned;
-- Whether exploration for and evaluation of oil in a specific
area has not led to the discovery of commercially viable quantities
of oil and the Group has decided to discontinue such activities in
the specific area; and
-- Whether sufficient data exists to indicate that although a
development in a specific area is likely to proceed, the carrying
amount of the exploration and evaluation assets is unlikely to be
recovered in full from successful development or by sale.
If any such facts or circumstances are noted, the Group, as a
next step, performs an impairment test in accordance with the
provisions of IAS 36 as set out above.
Asset Retirement Obligation
An asset retirement obligation provision for plugging,
abandonment and reclamation costs has been included within the
exploration costs intangible assets and production assets and
within liabilities based on management's assessment of asset
retirement costs that will be incurred at the end of each project's
life. The estimated current date cash flows are adjusted for
inflation and are discounted at a risk free rate. The cash flows
used in the provision are risk adjusted.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand, deposits held
at call with banks and other short-term highly liquid investments
with original maturities of three months or less.
2. Significant accounting policies continued
Inventories
Inventories are stated at the lower of cost and net realisable
value. Costs of inventories are determined on a first-in-first-out
basis. Cost comprises direct materials, and where applicable,
direct labour costs and those overheads that have been incurred in
bringing the inventories to their present location and condition.
Net realisable value represents the estimated selling price less
all estimated costs of completion and costs necessary to make the
sale.
Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle the
obligation, and a reliable estimate can be made of the amount of
the obligation.
The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the end
of the reporting period, taking into account the risks and
uncertainties surrounding the obligation. When a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows (when the effect of the time value of money is material).
When some or all of the economic benefits required to settle a
provision are expected to be recovered from a third party, a
receivable is recognised as an asset if it is virtually certain
that reimbursement will be received and the amount of the
receivable can be measured reliably.
Contingent consideration
The Group is party to a deferred contingent consideration
agreement in respect of its acquisition of an addition 25% working
interest in the Jolly Ranch and Smoky Hill Project in 2012, under
which the Group acquired operatorship of the joint operation and
increased its interest from 50% to 75%. The Group initially
recorded the fair value of the deferred contingent consideration as
part of the acquisition and the obligation is classified as a
provision and subsequently carried at the best estimate of the
payment that will be required to settle the obligation. Subsequent
changes in fair value are recorded in profit or loss.
Leases
Leases are classified as finance leases whenever the terms of
the lease transfer substantially all of the risks and rewards of
ownership to the lessee. All other leases are classified as
operating leases. Rentals payable under operating leases are
charged to income on a straight-line basis over the term of the
lease.
Foreign Currency
For the purpose of the consolidated financial statements, the
results and financial position of each Group company are expressed
in US Dollars, which is the reporting currency for the consolidated
financial statements. The functional currency of the Group's
subsidiaries is United States dollars. Foreign currency
transactions by Group companies are recorded in their functional
currencies at the exchange rate at the date of the transaction.
Monetary assets and liabilities have been translated at rates in
effect at the balance sheet date, with any exchange adjustments
being charged or credited to the Income Statement.
The Parent Company's functional currency is the British Pound
Sterling. On consolidation, the assets and liabilities of the
Parent Company are translated into the Group's reporting currency
at the exchange rate at the balance sheet date and the income and
expenditure account items are translated at the average rate for
the reporting period. The exchange difference arising on the
translation from functional currency to presentational currency of
the Parent Company is classified as other comprehensive income and
is accumulated within equity as a translation reserve.
Taxation
Current Taxation
Current tax for each taxable entity in the Group is based on the
statutory tax rate enacted or substantively enacted at the balance
sheet date and includes adjustments to taxes payable or recoverable
in respect of previous periods.
2. Significant accounting policies continued
Taxes that arise from production are recorded as cost of sales
and accrue as production arises. A deferred tax asset is recorded
when there is sufficient certainty that production taxes paid will
give rise to tax deductions in future periods.
Deferred Taxation
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax assets are recognised
to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be
utilised.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is
realised based on tax laws and rates that have been enacted or
substantively enacted at the balance sheet date. Deferred tax is
charged or credited in the income statement, except when it relates
to items charged or credited in other comprehensive income, in
which case the deferred tax is also dealt with in other
comprehensive income.
Financial Instruments
Financial assets and financial liabilities are recognised on the
Balance Sheet when the Group becomes a party to the contractual
provisions of the instrument.
Trade and other receivables
Trade receivables are measured on initial recognition at fair
value, and are subsequently measured at amortised cost using the
effective interest method. A provision is established when there is
objective evidence that the Group will not be able to collect all
amounts due. The amount of any provision is recognised in the
income statement.
Trade and other payables
Trade and other payables are initially recorded at fair value
and subsequently measured at amortised cost using the effective
interest rate method.
Borrowings and equity
Debt and equity instruments are classified as either financial
liabilities or as equity in accordance with the substance of the
contractual arrangement. Borrowings are initially recorded at fair
value and subsequently measured at amortised cost using the
effective interest method. If the terms of borrowings are modified,
the Group determines whether the modification represents a
substantial modification under IFRS. A modification is considered
substantial if the discounted present value of the cash flows under
the new terms, including any fees paid, net of any fees received
and discounted using the original effective interest rate, is at
least 10% different from the discounted present value of the
remaining cash flows of the original financial liability.
Borrowings that are considered to be substantially modified are
derecognised and transaction costs associated with such loan
modifications, are written off to the income statement. Transaction
costs arising from modifications of borrowings that do not qualify
as substantially modified are deducted from the liability and
amortised prospectively through the effective interest rate
method.
Royalty or profit share interests issued with loans are recorded
at fair value through profit or loss, unless the royalty terminates
upon disposal of the wells or a change in control, when such events
form part of the Group's strategy. In such circumstances the
royalty is recorded on an accrual basis as production arises.
An equity instrument is any contract that evidences a residual
interest in the assets of the Group after deducting all of its
liabilities. Equity instruments issued by the Company are recorded
at the proceeds received, net of direct issue costs.
2. Significant accounting policies continued
Compound instruments
The component parts of compound instruments (convertible notes
and loans with detachable warrants) issued by the Company are
classified separately as financial liabilities and equity in
accordance with the substance of the contractual arrangements and
the definitions of a financial liability and an equity instrument.
A conversion option that will be settled by the exchange of a fixed
amount of cash for a fixed number of the Company's own equity
instruments is an equity instrument.
At the date of issue, the fair value of the liability component
is estimated using the prevailing market interest rate for similar
non-convertible instruments. This amount is subsequently recorded
as a liability on an amortised cost basis using the effective
interest method until extinguished upon conversion or at the
instrument's maturity date.
The conversion option or detachable warrant classified as equity
is determined by deducting the amount of the liability component
from the fair value of the compound instrument as a whole. This is
recognised and included in equity, net of income tax effects, and
is not subsequently re-measured. No gain or loss is recognised in
profit or loss upon conversion or expiration of the conversion
option.
Transaction costs that relate to the issue of the compound
instruments are allocated to the liability and equity components in
proportion to the fair value of the debt and equity components.
Transaction costs relating to the equity component are recognised
directly in equity. Transaction costs relating to the liability
component are included in the carrying amount of the liability
component and are amortised over the lives of the compound
instruments using the effective interest method.
If the terms of a compound financial instrument are modified the
Group determines whether the modification represents a substantial
modification under IFRS. A modification is considered substantial
if the discounted present value of the cash flows under the new
terms, including any fees paid net of any fees received and
discounted using the original effective interest rate, is at least
10% different from the discounted present value of the remaining
cash flows of the original financial instrument. Compound financial
instruments that are considered to be substantially modified are
derecognised and transaction costs incurred as part of the loan
modifications are recorded to the income statement and equity
accounts in proportion to the relative fair values of the debt and
equity component at extinguishment. If the transaction costs can be
specifically attributed to the new instrument, the portion
attributable to the debt component is amortised prospectively
through the effective interest rate.
Incremental fair value changes arising from the modification of
warrants originally issued as part the compound financial
instrument are considered to represent transaction costs and are
determined using the Black-Scholes valuation model.
Derivative nancial instruments
The Group enters into derivative financial instruments in the
form of oil price swaps and costless collars to manage its exposure
to oil price risk. Derivatives are initially recognised at fair
value at the date the derivative contracts are entered into and are
subsequently re-measured to their fair value at the end of each
reporting period. Fair value is determined inclusive of adjustments
for the Group's own credit risk and the credit risk of counterparty
to the derivative. The resulting gain or loss is recognised in
profit or loss immediately, unless the instrument has been
designated as a hedging instrument.
2. Significant accounting policies continued
Hedge accounting
The Group designates certain hedging instruments, which are
derivatives, in respect of commodity price risk, as cash flow
hedges. At the inception of the hedge relationship, the Group
documents the relationship between the hedging instrument and the
hedged item, along with its risk management objectives and its
strategy for undertaking various hedge transactions. The Group
enters into such derivatives to manage the risk associated with oil
price fluctuations and therefore the impact of credit risk
adjustments are excluded from the hedging relationship.
Furthermore, at the inception of the hedge and on an on-going
basis, the Group documents whether the hedging instrument is highly
effective in offsetting cash flows of the hedged item attributable
to the hedged risk. The effective portion of changes in the fair
value of derivatives that are designated and qualify as cash flow
hedges is recognised in other comprehensive income and accumulated
in a cash flow hedging reserve. The gain or loss relating to the
ineffective portion is recognised immediately in profit or loss.
The portion of the change in fair value of the derivative
attributable to credit risk adjustments is recognised immediately
in profit and loss. Amounts previously recognised in other
comprehensive income and accumulated in equity are reclassified to
profit or loss in the periods when the hedged volumes affects
profit or loss, and recorded in the same line as the recognised
hedge item.
Hedge accounting is discontinued when the Group revokes the
hedging relationship; when the hedging instrument expires or is
sold, terminated or exercised; or when it no longer qualifies for
hedge accounting. Any gain or loss recognised in other
comprehensive income and accumulated in equity at that time remains
in equity and is recognised when the forecast transaction is
ultimately recognised in profit or loss. When a forecast
transaction is no longer expected to occur, the gain or loss
accumulated in equity is recognised immediately in profit or
loss.
Finance expenses
Interest is recognised using the effective interest method which
calculates the amortised cost of a financial liability and
allocates the interest expense over the relevant period. The
effective interest rate is the rate that discounts estimated future
cash payments, through the expected life of the financial liability
to the net carrying amount of the financial liability.,
Share-Based Payments
Equity settled share-based payments are measured at the fair
value of the equity instruments at the date of grant. The fair
value includes the effect of non-market-based vesting conditions.
Details regarding the determination of the fair value of equity
settled share-based transactions are set out in Note 23.
The fair value determined at the date of grant of the
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Group's estimate of the
number of equity instruments that will eventually vest. At each
balance sheet date, the Group revises its estimate of the number of
the equity instruments expected to vest as a result of the effect
of non-market-based vesting conditions. The impact of the revision
of the original estimates, if any, is recognised in profit or loss
such that the cumulative expense reflects the revised estimate,
with a corresponding adjustment to equity reserves. Where an
equity-settled award is forfeited, the cumulative charge expensed
up to the date of forfeiture is credited to the Income
Statement.
Warrants
Share warrants have been issued in lieu of interest on certain
convertible loans in the prior years; as such the associated cost
of these is accounted for as a finance cost.
The fair value of the warrants is measured at the grant date.
The Black Scholes valuation model is used to assess the fair value,
taking into account the terms and conditions attached to the
warrants. The finance costs recorded are measured by reference to
the fair value of warrants.
2. Significant accounting policies continued
Share warrants are recognised as an increase in equity
immediately on issue as warrants vest immediately. The expense
associated with the share warrants is recognised in accordance with
the substance of the transaction, either as an immediate expense in
the income statement or as a transaction cost associated with the
issue or extension of loan notes.
Employment Benefits
Provision is made in the financial statements for all employee
benefits. Liabilities for wages and salaries, including
non-monetary benefit and annual leave obliged to be settled within
12 months of the balance sheet date, are recognised as accrued
liabilities.
The Group's contributions to defined contribution pension plans
are charged to the income statements in the period to which the
contributions relate.
3. Critical accounting judgements and estimates
In the application of the Group's accounting policies, which are
described in Note 2, the Directors and management are required to
make critical accounting judgments and assumptions. The assumptions
are based on historical experience and other factors that are
considered to be relevant.
Estimates and judgments are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
prevailing circumstances.
The following are the critical judgements that the Directors
have made in the process of applying the Group's accounting
policies, and that have the most significant effect on the amounts
recognised in the financial statements.
Exploration and Evaluation Costs
The Group's accounting policy leads to the capitalisation of
tangible (Note 13) and intangible (Note 12) fixed assets, where it
is considered likely that the amount capitalized will be
recoverable by future exploitation, sale or, alternatively, where
the activities have not reached a stage which permits a reasonable
assessment of the existence of reserves. This requires management
to make estimates and assumptions as to the future events and
circumstances, especially in relation to whether an economically
viable extraction operation can be established. Such estimates are
subject to change and following initial capitalisation, should it
become apparent that recovery of the expenditure is unlikely, the
relevant capitalised amount will be written off to the Income
Statement.
Judgment is further required in determining the date at which
exploration assets achieve commercial production and commence
depreciation. In forming that assessment, the Group considers
factors such as the availability of economically recoverable
reserves and the production rates delivered by wells.
Carrying value of exploration, development and producing
properties
Management reviews intangible exploration cost assets (Note 12)
for indicators of impairment under IFRS 6 at the end of each
reporting period. This review of assets for potential indicators of
impairment requires judgment including whether renewal of licences
is planned, interpretation of the results of exploration activity
and the extent to which the Group plans to continue substantive
expenditure on the assets. In determining whether substantive
expenditure remains in the Group's plan, management considers
factors including future oil prices, plans to develop or renew
leases and future drilling plans. If impairment indicators exist
the assets are tested for impairment and carried at the lower of
the estimated recoverable amount and net book value.
3. Critical accounting judgements and estimates continued
The carrying value of development and producing oil and gas
assets (Note 13) is subject to judgement as to their recoverable
value. The calculation of recoverable value requires estimates of
future cash flows within complex value-in-use models. At each
balance sheet date the Directors review the carrying amounts of the
Group's development and producing properties to determine whether
there is any indication that those assets have suffered an
impairment loss.
For development and producing oil and gas properties, the
following are examples of the indicators used:
-- A significant and unexpected decline in the asset's market value or likely future revenue;
-- A significant change in the asset's reserves assessment;
-- Significant changes in the technological, market, economic or
legal environments for the asset; or
-- Evidence is available to indicate obsolescence or physical
damage of an asset, or that it is underperforming expectations.
The assessment of impairment indicators requires the exercise of
judgement. If an impairment indicator exists, then the recoverable
amounts of the cash-generating units and/or individual assets are
determined based on the higher of value-in-use and fair values less
costs of disposal calculations. These require the use of estimates
and assumptions, such as: future oil prices, life of field/well,
discount rates, operating costs, future capital requirements,
exploration potential, recompletion potential, oil reserves and
operating performance.
The key estimates were as follows:
-- Oil prices - determined based on the market WTI forward curve
as at year end, together with a discount to reflect the terms of
sales contracts.
-- Oil reserve quantities - determined based on estimated
economically recoverable reserves, including recompletion wells,
based on external and internal competent person assessments.
-- Production Costs-costs incurred to produce oil
-- Transportation costs
-- Discount rate - pre-tax discount rate specific to the risks
associated with the assets determined at 12%.
-- Capital development costs
In addition, wells which have been plugged and abandoned during
the year, or wells for which a decision has been taken during the
year to plug and abandon the well, have been impaired.
These estimates and assumptions are subject to risk and
uncertainty. Therefore, there is a possibility that changes in
circumstances will impact these projections, which may impact the
recoverable amount of assets and/or Cash Generating Units
(CGUs).
The Group has recorded an impairment of $75.1 million in 2015 as
compared to $20.3 million in 2014, in respect of exploration costs
and property, plant and equipment as detailed in Note 9. A 10%
decrease in realised oil prices would increase the impairment by
$0.4 million. An increase in the discount rate to 15% would
increase impairment by $0.1 million. Whilst sensitive to these
inputs, the Directors consider the inputs used to be appropriate
best estimates.
Reserve Estimates
Reserves are estimates of the amount of oil that can be
economically and legally extracted from the Group's properties. In
order to calculate the reserves, estimates and assumptions are
required about a range of geological, technical and economic
factors, including those detailed above.
3. Critical accounting judgements and estimates continued
Estimating the quantity and/or grade of reserves requires the
size, shape and depth of fields to be determined by analysing
geological data such as drilling samples. This process may require
complex and difficult geological judgements and calculations to
interpret the data.
Given that economic assumptions used to estimate reserves may
change from year to year, and because additional geological data is
generated during the course of operations, estimates of reserves
may change from year to year.
Changes in reported reserves may affect the Group's financial
results and financial position in a number of ways, including the
following:
-- Asset carrying values, detailed in Notes 12 and 13, may be
affected by possible impairment due to adverse changes in estimated
future cash flows and the commercial viability of reserves.
-- Depreciation, depletion and amortisation (detailed in Note 5)
that is charged in the Income Statement may change where such
charges are determined by the units of production basis, or where
the useful economic lives of assets change.
-- Provisions for plug and abandonment of wells may change as a
result of changes in the timing of such plugging and
abandonment.
Judgments associated with debt finance
During the year, the Group obtained a new loan as detailed in
Note 19. The accounting required judgments and estimates are set
out in that note but included the valuation of conversion rights
associated with the debt.
Estimation of contingent consideration
The estimation of a value attributable to the contingent
consideration, that forms part of the acquisition of additional
working interest completed in January 2012, is a key source of
estimation uncertainty.
Management has considered the key calculation inputs and
scenarios and has used their best judgment of risk-weighted
possible outcomes to estimate the value included in these financial
statements. These factors included consideration of the probability
of the consideration becoming due, the expected value of any such
payment under the terms of the agreements, and the current existing
lease prices.
The estimated value as per the acquisition agreement for this
contingent consideration is $333,500. Refer to Note 30 for
details.
Derivative valuations
The Group's oil swaps and costless collars are carried at fair
value. The fair value is determined based on mark-to-market
valuations provided by third parties, which in turn is dependent on
estimates regarding risk free discount rates and oil prices.
Additionally, when material, the mark-to-market valuations are
adjusted for credit risk associated with the Group and counterparty
which are determined based on credit spreads applicable to the
Group and the counterparty. Refer to Note 17 for details.
4. Revenue
An analysis of the Group's revenue is as follows:
2015 2014
-------------- --------------
Continuing operations
Sales revenue $ 21,729,188 $ 47,265,682
Gains on hedging instruments reclassified from equity to profit or loss 7,837,223 276,012
Other income 42,504 280
-------------- --------------
$ 29,608,915 $ 47,541,974
============== ==============
5. Operating (loss) / profit
The operating (loss)/profit before taxation for the years has
been arrived at after charging:
2015 2014
------------- -------------
Depreciation $ 6,711,917 $ 5,355,128
Amortisation and contribution to match test revenue $ 573,220 $ 1,747,882
Equity settled share-based payments $ 251,666 $ 702,695
Production profit share expense $ 321,030 $1,296,901
6. Auditor's remuneration
The analysis of auditor's remuneration is as follows:
2015 2014
----------- ------------
Fees payable to the Company's auditors for the audit of the annual financial
statements $ 132,140 $ 139, 825
Fees payable to the Company's auditor and their associates for other services to
the Group:
Tax legislative assistance 21,890 21,385
Tax compliance - 17,272
Tax advice and other advisory 10,607 24,181
----------- ------------
$ 164,637 $ 202,663
=========== ============
7. Staff Costs
The aggregate payroll costs of the employees, including both
management and executive Directors, were as follows:
2015 2014
------------- --------------------
Staff costs
Wages and salaries $ 4,063,190 $ 3,390,139
Social security costs 189,819 209,578
Pension costs 383,507 110,216
------------- --------------------
4,636,516 3,709,933
Equity settled share-based payments 251,666 702,695
------------- --------------------
$ 4,888,182 $ 4,412,628
============= ====================
Average number of persons employed by the Group during the year
was as follows:
2015 2014
------ ------
United Kingdom 2 3
United States 14 15
------ ------
16 18
====== ======
2015 2014
------------- -------------
Remuneration of Directors
Emoluments for qualifying services $ 1,134,682 $ 996,830
Company pension contributions and benefits 93,562 93,656
Social security costs 51,277 90,909
------------- -------------
$ 1,279,521 $ 1,181,395
============= =============
The number of Directors during 2015 and 2014, accruing benefits
under money purchase pension scheme arrangements was two.
During the year Steve Gutteridge, who retired from the Board of
Directors on 30 September 2014, exercised share options to acquire
1,700,000 ordinary shares. During 2014, 1,100,000 were exercised by
Chuck Wilson, COO and Director.
Details of each director's remuneration and share options
granted are included in the Remuneration Report.
2015 2014
---------------- ----------------
Highest paid director
Remuneration $ 369,600 $ 344,800
Company pension contributions and benefits 48,019 36,691
---------------- ----------------
$ 417,619 $ 381,491
================ ================
The gain during the financial year on exercised options for the
highest paid director was $nil.
8. Finance Costs
2015 2014
------------- -------------
Interest on shareholder loans $ - $ 1,160,571
Imputed interest on convertible loan notes 1,571,189 1,468,492
Interest on shareholder loan issued with warrants 1,584,916 1,551,710
Interest on bank loan 1,508,528 302,348
Loss on rescheduling of loans - 332,787
Losses on derivative financial instruments not designated as hedging
instruments - 192,489
Exchange losses on financial liabilities 384,928 636,920
Other 28,881 268,742
------------- -------------
$ 5,078,442 $ 5,914,059
============= =============
Finance costs include certain non-cash transactions in respect
of effective interest rate charges and losses on loan
rescheduling.
9. Exceptional administrative expenses
2015 2014
-------------- --------------
Exceptional Administrative Expenses:
Impairment of exploration and production assets $ 75,144,103 $ 20,306,352
Release of contingent consideration provision (2,666,500) -
-------------- --------------
$ 72,477,603 $ 20,306,352
============== ==============
During the year, the Group drilled five wells that did not
result in commercial economic reserves. As a result, the costs to
drill and complete these wells were written off as of 31 December
2015 and totalled $5.2 million. In addition, an impairment charge
of $28.9 million has been taken to the income statement and
represents an impairment of certain wells which mainly arises due
to the reduction in the spot and forward oil price assumptions used
in estimating the future discounted cash flows for each well. The
Group assessed the recoverability of its undeveloped assets based
upon factors such as market conditions, current spot and forward
prices of oil, and future exploration and development plans. Due
primarily to the significant reduction in oil prices, and with no
plans to pursue an aggressive drilling program, $40.5 million was
written off or impaired as at 31 December 2015. Of the total
impairment of $75.1 million, $38.5 million was attributable to
exploration costs included in intangible assets, and $11.5 million,
$10.2 million and $14.4 million were attributable to leasehold
land, plant and equipment and production assets, respectively, or a
total of $36.1 million included in property, plant and equipment.
An additional $0.5 million was recorded as impairments for costs
incurred during the current period for wells which had been fully
impaired in prior periods.
During 2014, the Group plugged and abandoned a total of seven
wells. The associated assets were fully impaired as at 31 December
2014 resulting in an exceptional charge to the income statement of
$6.7 million. An additional impairment charge of $13.6 million was
also taken to the income statement at 31 December 2014, of which
$12.7 million represented a partial impairment of certain wells
which arose primarily due to the reduction in the spot and forward
oil price assumptions used in estimating the future discounted cash
flows for each well. The balance of $0.9 million related to the
full impairment of legacy field infrastructure deemed to have no
value.
During the year, the Group released $2.7 million of the
contingent consideration provision. Refer to Note 30.
10. Taxation
The Parent Company is subject to taxation in the United Kingdom
at an estimated rate 20.25% for 2015 and 21.5% in 2014, and the
Group's subsidiaries are subject to taxation in the United States
at an estimated rate of 38.00% for 2015 and 2014.
As of 31 December 2015, there was a current tax credit of
$394,858 arising in the US in the nancial year. At 31 December
2014, the group recorded a $230,445 charge. No tax charge arose in
the UK for either 2015 or 2014.
The reasons for the di erences between the actual tax charge for
the year and the standard rate of corporation tax in the United
Kingdom applied to profits / (losses) for the year are as
follows:
Reconciliation of the effective tax charge: 2015 2014
---------------- ---------------
Loss before taxation $ (70,181,468) $ (5,749,071)
================ ===============
Current tax (credit) expense:
Loss before taxation multiplied by standard rate of corporation tax in the
UK of 20.25% (2014:
21.5%) $ (14,242,255) $ (1,236,050)
Tax effects of:
Other expenses not deductible for tax purposes 55,310 1,135,766
Di erent tax rates applied in overseas jurisdictions (8,959,430) 330,729
Effect of tax rate change 404,959 -
Unrecognised tax losses 22,346,558 -
---------------- ---------------
(394,858) 230,445
Deferred tax expense (credit):
Tax losses recognised (utilised) during the year 545,526 (2,086,282)
---------------- ---------------
Tax in income statement and effective tax rate $ 150,668 $ (1,855,837)
================ ===============
Amounts recorded in other comprehensive income (loss):
Deferred tax on hedging instruments designated in cash flow hedges $ 2,244,635 $ 2,086,282
Deferred tax on gain reclassified to income statement for
cash flow hedging instruments (2,790,161) -
---------------- ---------------
Total $ (545,526) $ 2,086,282
================ ===============
The main UK Corporation tax rate from 1 April 2014 of 21% was
reduced to 20% from 1 April 2015, resulting in an e ective
corporation tax rate of 20.25% for the year. A number of changes to
the UK Corporation tax system were announced in March 2012 Budget
Statement. The Finance Act 2013 which was substantially enacted on
2 July 2013 includes legislation reducing the main rate of
corporation tax from 24% to 23% from 1 April 2013 and further
reducing the main rate of corporation tax from 23% to 21% from 1
April 2014 and to 20% from 1 April 2015.
2015 2014
------------- ---------------
Deferred tax
Deferred tax liabilities:
Accelerated tax deductions $ - $ (9,298,946)
Fair value of derivatives (1,540,756) (2,086,282)
Deferred tax assets:
Capital allowances 1,062,144 -
Intercompany interest 478,612 -
Losses (generated) recognised - 11,385,228
Net deferred tax $ - $ -
============= ===============
No deferred tax asset has been recognised at 31 December 2015
and 2014, for the net operating loss carry forwards of $163.6
million and $94.6 million, respectively, which are available under
US tax statutes, due to uncertainty over the timing of future pro
ts as well as the fact that the Group's ability to utilise some of
these tax losses is restricted under Section 382 of the Internal
Revenue Code to an amount of $0.4 million per annum. The
unrecognized taxable losses in the U.S. can be carried forward for
U.S. Federal and Colorado State income tax purposes for up to 20
years. These losses, if not utilized, will expire in the years 2026
through 2033.
A deferred tax asset in respect of $ 20,417,083 at 31 December
2015 and $15,502,898 at 31 December 2014 of taxable losses
available in the UK has not been recognised due to the uncertainty
over timing of future pro ts. The taxable losses available in the
UK can be carried forward inde nitely.
11. Loss Per Share
Loss per share is calculated by dividing the loss attributable
to ordinary shareholders by the weighted average number of ordinary
shares outstanding during the year.
2015 2014
---------- -----------
Basic loss per share
Loss per share from continuing operations $ (0.07) $ (0.00)
========== ===========
Diluted loss per share
Loss per share from continuing operations $ (0.07) $(0.00)
========== ===========
The Group has 652,383,333 potentially dilutive shares in issue,
in respect of options to acquire 45,350,000 shares of the Group,
warrants to acquire 130,000,000 shares of the Group and conversion
rights to acquire 477,033,333 shares of the Group. Due to the
Group's reported losses share options and warrants were not taken
into account when determining the weighted average number of
ordinary shares in issue during the year as the options and
warrants were anti-dilutive. Subsequent to the balance sheet date,
no shares were issued.
The loss and weighted average number of ordinary shares used in
the calculation of basic and diluted net loss per share are as
follows:
2015 2014
Net loss used in the calculation of total basic and diluted loss per
share from continuing
operations $ (70,332,136) $ (3,893,234)
================ ===============
Number of shares
Weighted average number of ordinary shares for the purposes of basic
net loss per share 963,629,481 955,925,404
Dilutive effect of options, conversion shares and warrants - -
---------------- -------------------
Weighted average number of ordinary shares for the purposes of
diluted net loss per share 963,629,481 955,925,404
================ ===================
12. Intangible Assets
Exploration Royalty
costs interests Total
--------------- ------------ --------------
Cost
At 31 December 2013 $ 87,615,957 $ 359,391 $ 87,975,348
Additions 33,284,025 - 33,284,025
Transfers (note 13) (14,574,709) - (14,574,709)
At 31 December 2014 106,325,273 359,391 106,684,664
Additions 17,008,354 - 17,008,354
Transfers (note 13) (17,409,792) - (17,409,792)
At 31 December 2015 $ 105,923,835 $ 359,391 $106,283,226
=============== ============ ==============
Amortisation and impairment
At 31 December 2013 $ 40,310,734 $ 32,463 $ 40,343,197
Charge - 4,036 4,036
Contribution to match revenue 1,743,846 - 1,743,846
Impairment 13,200,669 - 13,200,669
At 31 December 2014 55,255,249 36,499 55,291,748
Charge - 3,700 3,700
Contribution to match revenue 569,521 - 569,521
Impairment 38,526,511 - 38,526,511
At 31 December 2015 $ 94,351,281 $ 40,199 $ 94,391,480
=============== ============ ==============
Net book value
At 31 December 2015 $ 11,572,554 $ 319,192 $ 11,891,746
=============== ============ ==============
At 31 December 2014 $ 51,070,024 $ 322,892 $ 51,392,916
At 31 December 2013 $ 47,305,223 $ 326,928 $ 47,632,151
=============== ============ ==============
Management reviews each exploration project for indication of
impairment at each balance sheet date based on IFRS 6 criteria.
Indicators of impairment were considered which included leases
being allowed to expire, decisions to abandon certain wells and the
estimated fair value less cost to sell of the underlying
assets.
Due to these indicators being present at 1 December 2015, and
the resultant impairment test, impairments have been recorded
during the current financial period. Consequentially, certain full
and partial impairments, as appropriate, of the remaining values
have been recognised, as disclosed in Note 9.
13. Property, Plant and Equipment
Leasehold Plant and Office Production
Land equipment equipment assets Total
-------------- ------------- ------------ ------------- --------------
Cost
At 31 December 2013 $ 41,373,682 $13,728,738 $ 122,961 $13,149,336 $68,374,717
Additions 4,622,904 10,914,161 77,203 664,603 16,278,871
Transfers (note 12) - - - 14,574,709 14,574,709
Disposals (1,422,101) - (1,089) - (1,423,190)
Foreign exchange variance - - (401) - (401)
At 31 December 2014 44,574,485 24,642,899 198,674 28,388,648 97,804,706
-------------- ------------- ------------ ------------- --------------
Additions 4,961,565 3,991,321 48,188 - 9,001,074
Transfers (note 12) - - - 17,409,792 17,409,792
Disposals (4,173,339) (1,766,763) (4,801) - (5,994,903)
Foreign exchange variance - - (257) - (257)
At 31 December 2015 $ 45,362,711 $26,867,457 $ 241,804 $45,798,440 $118,270,412
============== ============= ============ ============= ==============
Accumulated Depreciation
At 31 December 2013 $ 24,981,283 $ 3,337,421 $ 38,983 $ 4,854,354 $ 33,212,041
Charge 4,246,917 862,103 35,952 4,908,603 10,053,576
Impairment 251,545 776,035 - 6,382,603 7,410,183
Disposals - - (250) - (250)
Foreign exchange variance - - (295) - (295)
At 31 December 2014 29,479,745 4,975,559 74,390 16,145,560 50,675,254
Charge 4,803,356 1,395,378 29,199 5,776,885 12,004,818
Impairment 11,487,855 10,212,595 - 14,407,087 36,107,537
Disposals (4,173,339) (1,766,763) (4,330) - (5,944,432)
Foreign exchange variance - - (1,510) - (1,510)
At 31 December 2015 $ 41,597,617 $14,816,769 $ 97,749 $36,329,532 $92,841,667
Net book value
At 31 December 2015 $ 3,765,094 $12,050,688 $144,055 $ 9,468,908 $ 25,428,745
============== ============= ============ ============= ==============
At 31 December 2014 $15,094,740 $19,667,340 $124,284 $12,243,087 $ 47,129,451
============== ============= ============ ============= ==============
At 31 December 2013 $16,392,399 $10,391,317 $83,978 $ 8,294,982 $ 35,162,676
============== ============= ============ ============= ==============
Impairments during the current financial relate to 1) the
decision taken to plug and abandon certain wells and 2) a reduction
in the net present value of the producing assets of the Group due
primarily to the decline in oil prices used to estimate the value
of wells. Consequentially, certain impairments have been
recognised, as disclosed in Note 9. The Group determines the
recoverable amount for individual assets on a well by well basis.
An additional $0.5 million was recorded as impairments for costs
incurred during the current period for wells which had been fully
impaired in prior periods and is not reflected in the above
table.
For the year ended 31 December 2015, depreciation charges of
$5,292,915 have been capitalised within intangible assets. For the
year ended 31 December 2014, depreciation charges of $4,698,448
were capitalized within intangible assets.
14. Investment in Jointly Controlled Operations
On 29 October 2013, the Group entered into a farm out agreement
with an undisclosed party, covering 4,572 net mineral acres within
the Jolly Ranch Project. The farmee agreed to drill on a 100% cost
basis three Pennsylvanian wells to earn a 50% working interest (40%
net revenue interest). The farmee drilled one unsuccessful well and
the agreement expired on 30 September 2014.
On 29 January 2015, the Group entered into two joint development
agreements ("JDAs") with Cascade Petroleum LLC ("Cascade"). The
first JDA, the Monarch Joint Development operated by the Group,
covers 23,619 net mineral acres southwest from the Arikaree Creek
field and Snow King Project. To earn its 50% working interest in
the underlying acreage, the Group bore 100% of the $3.4 million in
costs to drill four wells prior to 31 December 2015, three of which
were dry holes, and one of which was completed, produces a minimal
amount of crude oil and was deemed uneconomic. All of the costs to
drill the four wells have been impaired at 31 December 2015. In
addition, the Group must bear 100% of the costs to drill two
additional wells on or before 30 June 2016, with estimated dry hole
costs of $1.2 million per well, and completed well costs of $0.6
million per well. Failure to drill the two additional wells would
result in a payment of $1.8 million to the JDA partner. Refer to
Note 29.
The second JDA, the El Dorado Joint Development operated by
Cascade, covers 40,372 net mineral acres on both sides of the
acreage covered by the Monarch Joint Development. As the owner of a
15% working interest, the Group has the right, but is not
obligated, to participate in the drilling of any well in the area
of mutual interest.
During 2015, a 3D seismic program over the entire area was
completed, covering by both the Monarch and El Dorado Joint
Development acreage. By the terms of the JDA, the Group bore 100%
of the $2.3 million cost of the seismic in exchange for a
proportional percentage ownership in the data within the Monarch
Joint Development area. This cost is included in Intangible
Assets.
15. Inventory
2015 2014
----------- -------------
Oil in tanks $ 172,071 $ 199,378
Spares, consumables and equipment 744,968 851,814
----------- -------------
$ 917,039 $ 1,051,192
=========== =============
Inventory includes oil held in tanks at year end and casing,
tubing and equipment to be used in existing and future wells. The
inventories are held at the lower of cost or net realisable
value.
16. Trade and Other Receivables
2015 2014
------------------- ----------------
Trade receivables $ 1,122,195 $ 2,818,988
Commodity derivative settlements from financial institutions 797,256 276,012
Other receivables 346,892 153,646
Prepayments 526,503 552,967
Income tax receivable 221,000 -
------------------- ----------------
$ 3,013,846 $ 3,801,613
=================== ================
The Directors consider the carrying value of trade and other
receivables are approximate to their fair value.
17. Derivative Financial Assets
2015 2014
-------------------- ----------------------------
Derivatives designated and effective as hedging instruments
--Oil price swaps and costless collars $ 4,327,794 $ 5,860,112
Derivatives that are not designated in hedge accounting
-- Oil price swaps 172,850 -
-------------------- ----------------------------
Total $ 4,500,644 $ 5,860,112
Current $ 3,997,996 $ 5,240,112
Non-current 502,648 620,000
-------------------- ----------------------------
Total $ 4,500,644 $ 5,860,112
==================== ============================
18. Trade and Other Payables
2015 2014
----------------- ------------------
Trade payables $ 916,903 $ 5,930,641
Royalty payables 62,130 131,648
Accruals 4,080,401 4,367,956
----------------- ------------------
$ 5,059,434 $ 10,430,245
================= ==================
Trade and other payables principally comprise amounts
outstanding for trade purchases and ongoing costs. The Directors
consider that the carrying amounts of trade and other payables are
approximate to their fair values.
19. Borrowings
The following table sets out the carrying values of the loans
and borrowings:
Loan A B C D E F G Total
---------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------ --------------
Date of issue May January June July January September August
2013 2012 2013 2013 2014 2014 2015
------------- ------------- ------------- ------------- ------------- ------------- ------------
Effective
interest
rate 15% 12% 12% 12% 5% 12%
------------- ------------- ------------- ------------- ------------- ------------- ------------ --------------
Borrowings at
31 December $ $ $
2013 $5,094,521 $7,592,606 $5,924,999 $9,099,596 - - - $27,711,722
------------- ------------- ------------- ------------- ------------- ------------- ------------ --------------
Foreign
exchange
variance - (253,472) (288,004) (16,438) - - - (557,914)
Issue of loans - - - - 1,032,491 18,886,401 - 19,918,892
Additional
loan
drawdown - - - 4,500,000 - 3,000,000 - 7,500,000
Interest
charge
to September
2014 552,299 675,145 470,268 1,143,646 608,272 - - 3,449,630
Interest paid
to September
2014 (646,820) - (404,642) (1,243,242) (140,763) - - (2,435,467)
Loan notes
converted - - (878,523) - - - - (878,523)
Repayment of
loan capital (5,000,000) - - (3,500,000) (1,500,000) - - (10,000,000)
Loan
de-recognised
on
rescheduling
at September
2014 - (8,160,214) (5,008,290) (9,967,124) - - - (23,135,628)
New financial
liability
recognised
on
rescheduling
at September
2014 - 3,772,285 4,653,440 9,510,780 - - - 17,936,505
Interest
charge
to 31
December
2014 - 176,156 136,775 408,065 - 302,348 - 1,023,344
Interest paid
to 31
December
2014 - - (117,022) (143,836) - (188,729) - (449,587)
------------
Borrowings at
31 December
2014 - 3,802,506 4,489,001 9,791,447 - 22,000,020 - 40,082,974
------------- ------------- ------------- ------------- ------------- ------------- ------------ --------------
Foreign
exchange
variance - (227,411) (264,450) (16,350) - - (359,303) (867,514)
6,310
Issue of loans - - - - - - ,229 6,310,229
Additional
loan
drawdown - - - - - 7,000,000 - 7,000,000
Repayment of
loan capital - - - - - (3,000,000) - (3,000,000)
Interest
expense - 723,393 506,934 1,584,916 - 1,508,528 340,862 4,664,633
Interest paid - - (405,406) (1,500,000) - (1,197,183) - (3,102,589)
------------
Borrowings at
31 December
2015 $ - $4,298,488 $4,326,079 $9,860,013 $ - $26,311,365 $6,291,788 $51,087,733
============= ============= ============= ============= ============= ============= ============ ==============
Except for loan F, as at 31 December 2015, all loan maturities
are greater than one year and the loans are classified as
non-current in the Consolidated Balance Sheet.
At 31 December 2015, the loans and borrowings include $2,360,431
of unamortised transaction costs held as a reduction in the
carrying value of the loans and borrowings. At 31 December 2014,
$2,875,068 of unamortised transaction costs held as a reduction in
the carrying value of the loans and borrowings. This includes
transaction costs on rescheduled loans that did not qualify as
significant modifications, as well as transaction costs on
significant modifications when such costs were considered wholly
attributable to the new loans.
Summary of borrowing arrangements
A. Shareholder loan issued May 2013 at 15% per annum (p.a.)
interest and a 10% production profit share on two wells (production
pro t being the Group's net revenue interest less associated
operating expenses for the wells). The loan was repaid in full in
September 2014. The production profit share survives until the
Company is sold or the Group sells the wells which are the subject
of the production pro t share.
B. The Company issued $15,604,889 (GBP10,000,000) nominal of
unsecured convertible loan notes, zero coupon over a three year
term on 23 January 2012. The loan notes are convertible by holders
at any time into such number of ordinary shares as is calculated by
dividing the nominal value of notes to be converted by 2.5 pence
per share at any time up to and including the redemption date.
Additionally, 100,000,000 share warrants were issued to holders of
these convertible loan notes. This debt was originally repayable on
demand after three years (if not previously converted), hence its
fair value on initial recognition was the US$ equivalent of GBP10m
discounted originally from three years. In September 2014, the
Company and the holders of the remaining carrying value of
$8,160,214 (GBP5,019,724) nominal agreed to extend the redemption
and final conversion date out to March 2019. As at 31 December
2015, the loan is convertible into 206,700,000 shares of the
Group.
The 2014 extension was considered to represent a substantial
modification of the convertible loan notes. The existing liability
portion of the loan notes was derecognised and the equity option on
the loan notes was transferred to retained earnings (deficit). The
revised convertible loan notes was recognised with the liability
component determined based on the future cash flows discounted at
12%, which was determined to be a market rate for equivalent debt
without conversion options. The difference between the loan notes
principal and the fair value of the liability component was
recorded in the equity option on the convertible loan note reserve.
The incremental fair value associated with extending the warrants
is considered to represent a transaction cost for new convertible
loan notes and the portion attributable to the liability is
deducted from the liability account and amortised over the
remaining term through the effective interest rate. The incremental
fair value of the warrant was determined using a Black-Scholes
model and required estimation in terms of the model inputs,
including volatility rates.
C. The Company issued $5.8 million (GBP3.8 million) nominal of
unsecured convertible loan notes at 9% p.a. interest originally
over a two year term on 3 June 2013.
The loan notes are convertible into ordinary shares at 5.5 pence
per share originally at any time up to and including the second
anniversary of issue. In September 2014, the Company and the
holders of the remaining unconverted carrying value of $5,008,290
million (GBP3,080,830) nominal agreed to extend the redemption and
final conversion date out to March 2019. At 31 December 2015, the
loan is convertible into 57,000,000 shares of the Group.
The extension was considered to represent a substantial
modification of the convertible loan note and was accounted for in
line with Loan B above, excluding the warrant extension which was
not applicable to this loan note.
D. Shareholder loan issued July 2013 for $12,000,000
(GBP7,728,799) at 9% p.a. interest, with 30,000,000 embedded
detachable warrants (included within the loan agreement in lieu of
arrangement fees).
The terms of the loan were subsequently varied as follows:
i) In November 2013, the terms of the loan were varied such that
the remaining balance of $9 million would be repaid in three
repayments of $3 million on or before 30 April 2014, 31 July 2014
and 31 October 2014.
Additionally, in consideration for the revised repayment
profile, the lender was granted a royalty payment equalling to 1%
of the Group's net revenue interest in six new well bores being or
to be drilled commencing with the Big Sky 12-11 well, which
survives until the Company is sold or the Group sells the wells the
subject of the royalty payment.
ii) In April and May 2014, the terms of the loan were further
varied such that an additional amount totalling $4.5 million was
made available and drawn with the entire loan to be repaid in three
instalments by 31 January 2015. The coupon was increased from 9% to
15% p.a.
iii) In September 2014, $3,500,000 of the loan principal was
repaid. The balance of $9,967,124 carrying value principal was
extended at 15% p.a. interest with a bullet repayment in March
2019, which can be repaid earlier at the Company's sole election
without penalty. The warrants attached to the loan were also
extended to March 2019.
The extension and modification of the coupon in April and May
2014 was considered to represent a substantial modification and the
loan was derecognised and unamortised transaction costs expensed.
The subsequent extension was not considered to represent a
significant modification. The incremental fair value associated
with extending the warrants is considered to represent a
transaction cost and is amortised over the remaining term through
the effective interest rate. The incremental fair value of the
warrant was determined using the Black-Scholes model and required
estimation in terms of the model inputs, including volatility
rates.
E. A loan issued January 2014 at 9% p.a. interest with a royalty
payment equalling to 3% of the Group's net revenue interest in two
specific well bores for the life of the wells. The loan was repaid
in full in September 2014. The royalty payment is recorded at fair
value through profit and loss and its fair value is principally a
function of future production estimates, oil price estimates,
operating cost estimates, discount rates and decline rates. The
fair value as at 31 December 2015 is $62,130. At 31 December 2014,
the fair value was $131,648.
F. On 26 September 2014 the Group entered into a $100 million
senior secured credit facility ("Facility') with Commonwealth Bank
of Australia ("Bank"). The Facility contains both a four year
Revolving Credit Facility and a Letter of Credit Facility. Interest
is charged on monies drawn down at a margin of up to 4.0% over US
Libor and a margin of 0.5% is charged on undrawn amounts within the
borrowing base. The amounts available to be drawn under the
borrowing base at 31 December 2015 was $27.0 million as compared to
$30.0 million at 31 December 2014. Transaction costs of $1.1
million were deducted from the carrying value of the loan and are
amortised through the effective interest rate. As of 31 December
2015, the Group was not in compliance with certain of the loans
covenants and provisions. The Group has obtained a covenant waiver
at year end with a grace period to 9 January 2016 and has
subsequently obtained further waivers through 10 June 2016. Due to
the limited nature of the waivers, the Facility has been recorded
as a currently liability on the accompanying financial statements.
Management is confident that a mutually beneficial agreement can be
reached with CBA on the RBL. See additional discussion at Note
36.
G. On 14 August 2015, the Company issued $10,000,000
(GBP6,400,000) nominal of unsecured convertible loan notes carrying
zero coupon over a period up to March 2019. The loan notes are
convertible by holders at any time into such number of ordinary
shares as is calculated by dividing the nominal value of notes to
be converted by 3 pence at any time up to and including the
redemption date. The liability was recorded at fair value, based on
the present value of the debt cash flows discounted at 12% with the
residual of the proceeds recorded in equity. As a result,
$3,399,771 of the fair value was assigned to the equity component
of this loan. Gross proceeds were reduced by $290,000 of
transaction costs which are shown net in the issue of loans amount.
As at 31 December 2015, the loan is convertible into 213,333,333
shares of the Group.
The rescheduling of the convertible loan notes and borrowings in
2014 gave rise to an increase in the share based payment reserve of
$1.76 million for the extension of warrants, and a $1.15 million
increase in equity option on convertible loans being the net effect
of the fair value of the revised equity option and reductions for
transfers of the previous $2.6 million reserve to retained earnings
(deficit). Notes A, B, C, D and G include holdings by related
parties. See Note 32 for discussion.
20. Share Capital and Premium
Presented below is the transactions which occurred during the
year relating to the Groups ordinary shares of 0.25 pence per
share. Shares are allotted, issued and fully paid.
Year ended December 2015 # of Shares
At beginning of the year 962,376,330 $ 5,280,302
Shares issued for exercise of share options at 5 p per share 1,700,000 130,137
At end of the year 964,076,330 $ 5,410,439
============= =============
Year ended December 2014 # of Shares
At beginning of the year 947,685,420 $ 3,940,514
Shares issued for conversion of loan notes 9,890,910 910,126
Shares issued for exercise of share options at 5.0-7.16 p per share 4,800,000 429,662
At end of the year 962,376,330 $ 5,280,302
============= =============
21. Foreign exchange translation reserve
Foreign exchange translation reserve represents the exchange
differences arising from the translation of the financial
statements of the Parent Company into the Group's reporting
currency and the translation at the closing rate of the net
investment in the subsidiaries.
22. Special (restricted) reserve
Special (restricted) reserve represents the restricted-use
reserves created as a result of the capital reduction exercise in
November 2013. The Special (restricted) reserve is not
distributable and shall remain un-distributable for so long as all
debts or claims against the Company that were in existence as at 20
November 2013 remain outstanding.
23. Share-based payment reserve
The Company operates a share option scheme to which Directors,
senior management and employees of the Company participate. Options
are exercisable at a price equal to the average market price of the
Company's shares on the date of grant or higher at the discretion
of the Remuneration Committee. The vesting period is three years or
shorter at the discretion of the Remuneration Committee and may be
subject to performance conditions. The options are settled in
equity once exercised. During 2014, the Remuneration Committee
approved the issue of Share Awards of 2,700,000 new ordinary shares
to two Directors. The options expire after 10 years from the date
of grant.
The Company has also issued share warrants in prior financial
years which were exercisable immediately upon issue.
Details of the number of share options and warrants and the
weighted average exercise price (WAEP) outstanding during the year
are as follows:
2015
Number of WAEP Number of WAEP
options GBP warrants GBP
------------- -------- ------------- ----------
Outstanding at the beginning of the year 52,350,000 0.0594 130,000,000 0.054938
Exercised (1,700,000) 0.0500 - -
Cancelled (5,300,000) 0.1004 - -
------------- -------- ------------- ----------
Outstanding at the year end 45,350,000 0.0549 130,000,000 0.054938
============= ======== ============= ==========
Number vested and exercisable at end of year 42,650,000 0.0583 130,000,000 0.054938
============= ======== ============= ==========
2014
Number of WAEP Number of WAEP
options GBP warrants GBP
------------- -------- ------------- ----------
Outstanding at the beginning of the year 54,050,000 0.0580 130,000,000 0.054938
Issued 3,300,000 0.0224 - -
Exercised (4,800,000) 0.0554 - -
Cancelled (200,000) 0.0619 - -
------------- -------- ------------- ----------
Outstanding at the year end 52,350,000 0.0594 130,000,000 0.054938
============= ======== ============= ==========
Number vested and exercisable at end of year 45,750,000 0.0577 130,000,000 0.054938
============= ======== ============= ==========
Details of the options and warrants issued or extended during
2014 are presented below:
-- 600,000 options were subject to a performance condition such
that they will vest upon the share price achieving an average of
15p per Ordinary Share (subject to adjustment in accordance with
the rules of the Share Option Scheme) over a period of 30
consecutive business days within a two year period from the date of
grant. Of the options issued, 300,000 had an exercise price of
12.75p and the remaining 300,000 had an exercise price of
9.65p.
-- 2,700,000 share awards were issued, which are comprised of
options with an exercise price of 0.25p. The share awards are based
on certain vesting conditions which are share price performance
over a 27 month period and value realised in any future change of
control event. The minimum price at which any award can be made is
11.66 pence per ordinary share, 25% above the closing mid-market
price of the Company's ordinary shares on the grant date of 1
October 2014. The share awards are also conditional upon the
recipient maintaining a certain minimum level of share-holding or
holding of unexercised share options throughout the performance
period.
-- 30,000,000 warrants with a two-year life issued in the prior
year attached to a loan agreement were extended to March 2019 (see
Note 19). The incremental fair value attributable to the warrants
was $489,220.
-- 100,000,000 warrants issued in 2012 in connection with the
issuance of $15,604,889 (GBP10.0 million) zero coupon convertible
unsecured loan notes were extended to March 2019 (see Note 19). The
incremental fair value attributable to the warrants was
$1,272,250.
The fair value of options issued or extended 2014 were
calculated using the Black Scholes model as the effect of
market-based conditions was immaterial, except for 2,700,000 share
awards issued in 2014, which have been valued using a Log-normal
Monte-Carlo stochastic model.
The inputs for the valuation of the option and warrants issued
in 2014 are as follows:
2014
Options Warrants
--------------------------- -------------
Number granted 600,000 2,700,000 130,000,000
Share price at date of grant 9.71-12.25p 9.3p 9.35p
Exercise price 9.65-12.75p 0.25p 7.25p
Expected volatility 68% 74% 55%
Expected life 1.5 years 2.25 years 2.25 years
Risk free rate 1.72%-1.84% 1.23% 1.81%
Expected dividend yield 0% 0% 0%
Fair value / incremental fair value at date of grant 9.71-12.25p 4.46p 0.78p
Expected volatility was determined by calculating the historical
volatility of comparable companies in the same industry. The
expected life used in the models has been adjusted, based on
management's best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
As at 31 December 2015, the number of share options and their
expiration by year are as follows:
2016 3,600,000
2017 7,050,000
2021 2,500,000
2022 29,500,000
Thereafter 2,700,000
------------
Total 45,350,000
============
24. Equity option on convertible loans
Equity option on convertible loans represents the equity
component of convertible loan notes issued discussed in Note
19.
25. Cash flow hedging reserve
The cash flow hedging reserve represents the cumulative
effective portion of gains or losses arising on changes in fair
value of hedging instruments entered into that, for accounting
purposes, qualify as cash flow hedges. At the time in which the
gains or losses are recorded, the associated deferred tax is also
recorded. As the cash flow hedge volume is realized, the cumulative
gain or loss arising on changes in fair value of the hedging
instruments related to the associated volumes are reclassified to
profit or loss.
2015 2014
----------------- ---------------------
Balance at beginning of year $ 3,773,830 $ -
Gain arising on changes in fair value of hedging instruments entered into
for cash flow hedges:
Unrealised gain on oil hedging instruments 6,304,905 6,136,124
Deferred tax on unrealised gain on oil hedging instruments (2,244,635) (2,086,282)
Gains reclassified to profit and loss:
Realised gain on oil hedging instruments reclassified to profit and
loss (7,837,223) (276,012)
Deferred tax on realised gain on oil hedging instruments 2,790,161
reclassified to profit and loss -
----------------- ---------------------
Balance at end of year $ 2,787,038 $ 3,773,830
================= =====================
26. Cash Flow from Operating Activities
2015 2014
--------------- --------------
Loss before tax $(70,181,468) $(5,749,071)
Finance income (173,641) (367)
Finance costs 5,078,442 5,914,059
Share-based payment 251,666 702,695
Release of contingent consideration provision (2,666,500) -
Gain on disposal of property, plant and equipment (7,940) (78,887)
Fair value (gain) loss on royalty liability 2,371 (294,910)
Impairment of intangible assets net of provision released for asset retirement
costs 38,526,511 12,896,169
Impairment of property, plant and equipment 36,617,592 7,410,183
Depreciation 6,711,917 5,355,128
Amortisation and contribution from test revenue 573,221 1,747,882
--------------- --------------
14,732,171 27,902,881
Changes in working capital
Decrease in inventory 134,153 47,150
Decrease in trade and other receivables 1,008,766 34,554
Increase in trade and other payables 788,370 470,338
--------------- --------------
16,663,460 28,454,923
Taxes paid - (230,445)
--------------- --------------
Net cash flow from operating activities $ 16,663,460 $28,224,478
=============== ==============
27. Financial Instruments
Categories of financial instruments
The tables below set out the Group's accounting classification
of each class of its financial assets and liabilities.
2015 2014
-------------- --------------
Financial assets
Cash and cash equivalents $ 5,969,485 $ 5,019,527
Derivatives not qualifying for hedge accounting carried at fair value through 172,850 -
profit and loss
Hedging instruments carried at fair value 4,327,794 5,860,112
Trade and other receivables (excluding prepayments) 2,487,343 3,248,646
Total $ 12,957,472 $14,128,285
============== ==============
Financial liabilities
Future loan royalty payments held at fair value through profit and loss $ 62,130 $ 131,648
Financial liabilities held at amortised cost 58,085,037 50,381,571
Contingent consideration 333,500 3,000,000
-------------- --------------
Total $ 58,480,667 $ 53,513,219
============== ==============
Fair value measurements
This note provides information about how the Group determines
fair values of various financial assets and financial
liabilities.
Fair value of the Group's financial assets and financial
liabilities that are measured at fair value on a recurring
basis:
Some of the Group's financial assets are measured at fair value
at the end of each reporting period. The following table gives
information about how the fair values of the material financial
assets are determined.
Financial Valuation Relationship
assets / Fair technique(s) Significant of unobservable
financial Fair value value and key unobservable inputs to
liabilities at 31 December hierarchy input(s) input(s) fair value
2015 2014
------------ ------------
Oil price
swaps (designated Level Discounted
for hedging) $4,327,794 $5,860,112 2 cash flow N/A N/A
Credit risk was not significant to derivative fair values.
Fair value of financial assets and financial liabilities that
are not measured at fair value on a recurring basis
The Directors consider that the carrying amounts of financial
assets and financial liabilities recognised in the consolidated
financial statements approximate their fair values (due to their
nature and short times to maturity).
28. Financial Instrument, Financial and Capital Risks
Management
The Group is exposed to various financial risks arising in the
normal course of business. It has adopted financial risk management
policies and utilised a variety of techniques to manage its
exposure to these risks
(a) Credit risk
The Group's credit risk is primarily attributable to its cash
balances and trade receivables, together with oil swap derivative
counterparties. Although the Group markets its crude oil to one
counterparty, the Group has not historically experienced any bad
debts or delays in payment with respect to its trade
receivables.
Trade and other receivables
The Group's total credit risk amounts to the total of the sum of
the receivables and derivative assets.
Cash and cash equivalents
Cash at bank is held with creditworthy financial institutions
which are licensed banks in the countries that the Group
operates.
(b) Liquidity risk
In managing liquidity risk, the main objective of the Group is
to ensure that it has the ability to pay all of its liabilities as
they fall due. The Group monitors its levels of working capital to
ensure that it can meet its liabilities as they fall due. The Group
ensures it has appropriate levels of working capital through
operational cash flows, debt facilities and, as applicable,
accessing equity markets, to meet its obligations as they fall
due.
The table below shows the undiscounted cash flows on the Group's
financial liabilities as at 31 December 2015 and 31 December 2014
on the basis of their earliest possible contractual maturity.
Total 0-60 Days 61-180 Days 181 -365 days 1-2 years 2-5 years
------------- ------------- ------------- --------------- ------------ -------------
At 31 December 2015
Trade payables $ 916,903 $ 916,903 $ - $ - $ - $ -
Royalty payables 62,130 3,175 6,350 9,525 16,105 26,975
Accruals 4,080,401 - 4,080,401 - - -
Shareholder loan issued
with warrants 15,100,000 378,082 369,863 756,164 1,500,000 12,095,891
Convertible loan notes -
Jan 12 7,628,971 - - - - 7,628,971
Convertible loan notes -
Jun 13 5,977,249 - 207,704 209,986 417,690 5,141,869
Convertible loan notes -
Aug 15 9,448,557 - - - - 9,448,557
Bank loan(1) 27,022,329 27,022,329 - - - -
Contingent Consideration 333,500 - - 333,500 -
------------- ------------- ------------- --------------- ------------ -------------
$70,570,040 $28,320,489 $4,664,318 $975,675 $2,267,295 $34,342,263
============= ============= ============= =============== ============ =============
Total 0-60 Days 61-180 Days 181 -365 days 1-2 years 2-5 years
------------- ------------ ------------- --------------- ------------- -------------
At 31 December 2014
Trade payables $ 5,930,641 $5,930,641 $ - $ - $ - $ -
Royalty payables 131,648 7,818 15,635 23,453 30,418 54,324
Accruals 4,367,956 - 4,367,956 - - -
Shareholder loan issued
with warrants 16,600,000 378,082 365,753 756,164 3,004,110 12,095,891
Convertible loan notes -
Jan 12 8,400,443 - - - - 8,400,443
Convertible loan notes -
Jun 13 6,751,453 - 219,283 221,693 6,310,477 -
Bank loan 26,946,526 18,493 461,559 611,741 1,073,152 24,781,581
Contingent Consideration 3,000,000 - - - - 3,000,000
------------- ------------ ------------- --------------- ------------- -------------
$72,128,667 $6,335,034 $5,430,186 $1,613,051 $10,418,157 $48,332,239
============= ============ ============= =============== ============= =============
(1) Subsequent to 31 December 2015, the Company has received
waivers on the bank loan through 10 June 2016 and paid down
$4,000,000 of the outstanding loan balance. See Note 19 for
additional disclosure
(c) Market Risk
Interest rate risk and sensitivity analysis
The Group has borrowings at fixed and at variable rates. At the
balance sheet date, the Group's exposure to variable interest rates
was not considered a material risk and no interest rate hedge
contracts had been entered into. The interest rate risk on both
interest received and paid is immaterial.
Contingent consideration risk and sensitivity analysis
The Group has a contingent consideration liability relating to
the acquisition of certain lease assets discussed in Note 30. At
the balance sheet date, the Group's exposure to variable lease
rates was not considered a material risk. A 10% change in either
the average price per mineralised acre or the probability of
occurrence would not result in a material change in the carrying
amount of the contingent consideration liability.
Oil price risk
The Group enters into certain crude oil price swap contracts,
costless collars and derivative financial instruments referenced to
WTI-NYMEX over a proportion of its oil sales volume in order to
manage its exposure to oil price risk associated with sales of
oil.
As at 31 December 2015, the Group held the following
contracts:
Product and Remaining Fixed price Estimated
type of hedging quantity WTI NYMEX Remaining fair value
contract (Bbls) Index term
-------------------------- ------------- ------------- -----------------------
Swaps:
Jan 16 -
A-Oil 56,340 $75.30 Nov 17 $ 1,822,377
Jan 16 -
B-Oil 26,685 $56.50 Apr 16 472,064
Jan 16 -
C-Oil 36,215 $63.00 Dec 16 785,757
Jan 16 -
D-Oil 36,215 $63.85 Dec 16 816,539
Jul 16 -
E-Oil 30,000 $49.00 Dec 16 172,850
-------------------------- -----------------------
185,455 4,069,587
Costless collars:
$55.00 - Jan 16 -
Oil 28,986 $70.10 Dec 16 431,057
--------------------------
214,441 $ 4,500,644
========================== =======================
Current $ 3,997,996
Non-current 502,648
-----------------------
$ 4,500,644
=======================
The swap contracts A-D outstanding at 31 December 2015 and 2014
were designated as cash flow hedges of highly probable forecast
transactions at inception and were assessed to be highly effective.
Based upon hedge effectiveness testing, the cash flow hedges were
deemed highly effective at year end, with a fair value movement of
$6.3 million charged directly in the cash flow hedging reserves.
None of these hedges were ineffective. Swap contract E was not
designated as a cash flow hedge during 2015.
During the year 2015, swap contracts for 373,464 barrels matured
generating income of $7.8 million compared to $0.3 million for
2014. This income is an addition to sales revenue.
The following table indicates the impact, for a change in crude
oil prices, on the value of the Group's swap contracts and costless
collars at the balance sheet date, and with all other variables
being held constant.
Change in WTI Crude Oil Price December 2015
----------------------------------- -------------------
WTI Oil Price +10.0% $(876,649)
-10.0% $ 882,472
Refer to the Consolidated Statement of Comprehensive Income and
Expenditure and Notes 2, 17 and 25 for further relevant
information.
Foreign exchange risk
The Group's principal exposure to foreign exchange risk is in
relation to the United States Dollar and Sterling exchange rates,
due to the concentration of cash and cash equivalents and
convertible loan notes that are held in Sterling. The following
table presents the financial assets and liabilities of the
Group.
The amounts which are held in Pound Sterling have been converted
to US$.
2015 Carrying values Sterling US Dollars
----------------- ------------- --------------
Financial assets
Cash and cash equivalents $ 5,969,485 $ 310,072 $ 5,659,413
Derivatives designated and effective as hedging instruments
carried at fair value 4,327,794 - 4,327,794
Derivatives not qualifying for hedge accounting 172,850 - 172,850
Trade and other receivables (excluding prepayments) 2,487,343 6,848 2,480,495
----------------- ------------- --------------
$ 12,957,472 $ 316,920 $ 12,640,552
================= ============= ==============
Financial liabilities
Fair value of future loan royalty payments $ 62,130 $ 62,130 $ -
Amortised cost 56,085,037 25,063,080 31,021,957
Contingent consideration 333,500 - 333,500
----------------- ------------- --------------
$56,480,667 $25,125,210 $ 31,355,457
================= ============= ==============
2014
Financial assets
Cash and cash equivalents $ 5,019,527 $ 97,655 $ 4,921,872
Derivatives designated and effective as hedging instruments
carried at fair value 5,860,112 - 5,860,112
Trade and other receivables (excluding prepayments) 3,248,646 58,011 3,190,635
-------------- ------------ -------------
$14,128,285 $ 155,666 $13,972,619
============== ============ =============
Financial liabilities
Fair value of future loan royalty payments $ 131,648 $ - $ 131,648
Amortised cost 50,381,571 8,857,510 41,524,061
Contingent consideration 3,000,000 - 3,000,000
-------------- ------------ -------------
$53,513,219 $8,857,510 $44,655,709
============== ============ =============
The foreign exchange rate risk on the value of the cash and cash
equivalents at the balance sheet date is immaterial.
The following table indicates the impact of a change in foreign
exchange rate on the value of the Sterling denominated loan notes
at the balance sheet date, and with all other variables being held
constant, on the Group's equity.
Change in
Change in US$/GBP US$/GBP
exchange rate December 2015 exchange rate December 2014
------------------- --------------- ---------------- ---------------
Sterling +5.0% $(745,571) +5.0% $(414,139)
-5.0% $ 745,571 -5.0% $ 414,139
Capital Management
The Group's objectives when managing capital are to safeguard
the Group's ability to continue as a going concern, to provide
returns for shareholders and to maintain an optimal capital
structure to manage the cost of capital effectively. The Group
defines capital as being share capital plus reserves as disclosed
in the Consolidated Statement of Changes in Equity, and monitors
its capital profile using a net debt to equity ratio. The Board of
Directors monitor the level of capital as compared to the Group's
commitments and, where necessary, adjusts the level of capital as
is determined to be necessary by issuing new shares.
The Group is not subject to any externally imposed capital
requirements.
2015 2014
--------------------------- ------------------------
Debt:
Straight $ 36,171,378 $ 31,791,467
Convertible 14,916,355 8,291,507
--------------------------- ------------------------
51,087,733 40,082,974
Cash (5,969,485) (5,019,527)
--------------------------- ------------------------
Net debt $ 45,118,248 $ 35,063,447
=========================== ========================
Equity $ (7,620,194) $ 58,669,665
=========================== ========================
Debt to equity ratio n/a 59.8%
=========================== ========================
29. Financial Commitments
Except for the commitments disclosed in Notes 14 and 31, the
Group had no financial commitments at 31 December 2015 (31 December
2014: $nil) .
30. Provisions and contingent consideration
The Company has recorded the following provisions for future
obligations.
2015 2014
-------------- -------------
Contingent consideration
At 1 January 2015 $ 3,000,000 $ 3,000,000
Release of contingent consideration provision (2,666,500) -
-------------- -------------
At 31 December 2015 333,500 3,000,000
-------------- -------------
Asset retirement obligations
At 1 January 2015 2,071,927 942,568
Recognition of obligations 765,734 1,302,818
Accretion expense 23,371 131,041
Provision released to match costs incurred - (304,500)
-------------- -------------
At 31 December 2015 2,861,032 2,071,927
-------------- -------------
Total $ 3,194,532 $ 5,071,927
============== =============
The contingent consideration relates to the acquisition on 23
January 2012 of an additional 25% interest in the Jolly Ranch
Project from Running Foxes Petroleum, Inc. ("RFP") (the
"Acquisition"), which increased the Group's working interest from
50% to 75%, prior to the subsequent purchase of the remaining 25%
in 2013.
By the terms of the Purchase and Sale Agreement ("PSA"), should
the Group enter into an agreement providing for the sale or
disposition of all or any portion of its working interest in the
acquired subject leases to an unrelated third party before 23
January 2017, then the Group would be required pay to RFP a
percentage, equal to the net mineral acres sold or disposed
relative to the net mineral acres retained, of the contingent
payment, an amount specified in the PSA that is subject to the
average price per net mineral acre paid by the unrelated third
party. During 2015, based upon the estimated lease values as of 31
December 2015, and expected acreage values to the expiration of the
provision on 23 January 2017, the Group reduced the contingent
consideration estimated fair value by $2,666,500, from $3,000,000
to $333,500.
The asset retirement obligation provision represents costs
estimated to be incurred for plugging, abandoning and reclaiming
existing wells sites. The obligation has been recognised and
included within the exploration costs intangible assets and
production assets based on management's assessment of asset
retirement costs that will be incurred at the end of each project's
life. The project lives are estimated to range from 1 to 7
years.
31. Operating Lease Arrangements
Minimum lease payments under non-cancellable operating leases
fall due as follows:
2015 2014
------- -----------
Less than one year - $ 461,328
======= ===========
During the year to 31 December 2015, the Company incurred
$461,328 in relation to operating leases as compared to $5,493,581
during 2014. The operating leases primarily related to drilling rig
commitments.
32. Related Party Transactions
The only related party transactions during the year were with
the Directors and certain senior management. Key management during
the years presented refers to the Board, Mr. K. Hooley and Mr. M.
Thomsen.
Short-term benefits
2015 2014
--------------------- -------------
Remuneration:
Mr R. McCullough $ 320,572 $ 79,675
Mr J. Claesson 45,763 32,910
Mr S. Gutteridge - 212,500
Mr R. Swindells(*) 372,873 279,368
Mr K. Hooley 32,813 -
Mr M. Thomsen(*) 672,698 379,081
Mr S. Eaton 48,814 57,329
Mr C. Wilson 369,600 371,091
1,863,133 1,411,654
Social security costs 90,774 103,977
Share-based payments 153,213 260,411
Pension contributions 102,056 68,313
$ 2,209,176 $ 1,844,655
===================== =============
*Includes severance payments upon termination of employment.
As discussed in Note 19, loans A, B, C, D and G are loans and
convertible loans in which Johan Claesson, his close family or
companies controlled by him have a material interest.
In the financial years ended 31 December 2015 and 2014, such
material interests were, in aggregate, as follows:
2015 2014
-------------- --------------
Brought forward balance $ 19,455,216 $ 24,275,651
New principal lent in year 7,180,000 4,500,000
Foreign exchange movement (890,985) (554,197)
Principal repaid - (8,500,000)
Production pro t share and royalty stream charged in year 355,713 1,526,933
Production pro t share and royalty stream paid in year (518,274) (1,812,094)
Interest charged in year 1,729,410 2,314,242
Interest paid in year (1,729,410) (2,295,319)
Balance owing at end of year (principal and interest) $ 25,581,670 $ 19,455,216
============== ==============
During the year, Johan Claesson, family members and entities
controlled by Mr. Claesson subscribed for $7.18 million
(GBP4,595,200) of zero coupon convertible loan notes.
In addition to the loans noted above, Mr. Claesson also holds
55,000,000 warrants to subscribe for new ordinary shares at 5.0
pence per share that were issued with the zero coupon convertible
loan note in January 2012. In the financial year ended 31 December
2013, in connection with the $12.0 million debt facility summarised
in Note 19, a company controlled by Johan Claesson was granted
30,000,000 warrants to subscribe for new ordinary shares at 7.25
pence per share.
All related party loan transactions are presented on a
contractual basis, rather than an effective interest recognition
basis.
33. Investment in Subsidiaries
The Group's Parent Company holds the issued share capital of the
following subsidiary undertakings, which are incorporated in the
USA and have been included in these consolidated financial
statements.
Company Principal activities Class Percentage held
Nighthawk Royalties LLC Oil and gas development Ordinary 100%
Nighthawk Production LLC Oil and gas development Ordinary (indirectly) 100%
OilQuest USA LLC Oil and gas development Ordinary (indirectly) 100%
34. Contingent Liabilities
The Directors are not aware of any contingent liabilities within
the Group or the Company at 31 December 2015.
35. Ultimate Controlling Party
As at 31 December 2015, Nighthawk Energy plc had no ultimate
controlling party.
36. Events After the Balance Sheet Date
Subsequent to 31 December 2015, the Group has negotiated
multiple waivers to its existing RBL with CBA, the last one through
10 June 2016.
The Company has also filed for approval of a water flood project
with the COGCC and obtained conditional approval in March 2016.
Amended filings have been made and final approval is expected in
early June 2016.
See Note 37 for subsequent event concerning the outstanding
lawsuit.
37. Litigation
The Group previously announced on 21 May 2014 that Running Foxes
Petroleum, Inc., as plaintiff, brought a lawsuit against Nighthawk
Production LLC, a subsidiary of the Group, as defendant, in the
United States District Court, District of Colorado. The Group
believes that the case is completely without merit. On 12 March
2015, the claim for breach of fiduciary duty was dismissed without
prejudice.
Nighthawk Production LLC filed a motion for summary judgment to
dispose of the remaining claims. The facts and governing law do not
give rise to any valid legal claim by Running Foxes Petroleum Inc.
against Nighthawk Production LLC, or otherwise raise a valid
business issue that needs to be resolved between the companies. On
30 March 2016, two of the remaining claims were dismissed, one in
which the plaintiff claimed breach of contract of a settlement
agreement, and the other in which the plaintiff claimed breach of
the implied covenant of good faith and fair dealing.
The other remaining claims in this case include Running Foxes
Petroleum, Inc.'s claim for declaratory judgment as to an
overriding royalty interest in a particular lease, and their
counterclaims to the 2013 Purchase and Sale Agreement. Trial is set
for the second half of 2015. Nighthawk Production LLC believes that
the allegations contained in the remaining complaints are baseless
and groundless actions, and will vigorously defend itself against
the complaints and seek all available legal remedies.
- End -
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SSMFDFFMSEFM
(END) Dow Jones Newswires
June 02, 2016 02:00 ET (06:00 GMT)
Nighthawk Energy (LSE:HAWK)
Historical Stock Chart
From Jun 2024 to Jul 2024
Nighthawk Energy (LSE:HAWK)
Historical Stock Chart
From Jul 2023 to Jul 2024