TIDMI3E
RNS Number : 3877A
i3 Energy PLC
01 June 2021
1 June 2021
i3 Energy plc
("i3", "i3 Energy", or the "Company")
Final Results for the year ended 31 December 2020
i3 Energy plc (AIM:I3E) (TSX:ITE), an independent oil and gas
company with assets and operations in the UK and Canada, is pleased
to announce the audited results for the year ended 31 December
2020. A copy of the Company's financial statements will be posted
to shareholders and made available shortly on the Company's website
at https://i3.energy together with a Notice of Annual General
Meeting ("AGM"). The AGM will be held at 11:00 am BST on 30(th)
June 2021 at the offices of W H Ireland at 24 Martin Lane, London,
EC4R0DR.
CANADA UK AND CORPORATE
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Completed 3 September GAIN ACQUISITION SERENITY Counterparty negotiations
2020 ongoing
Completed 30 TOSCANA ACQUISITION GBP11.7 MILLION Profit after tax
October 2020
Total 2020 Revenue GBP13 MILLION 3.78 AND 3.46 Basic and diluted
PENCE EPS
Production acquisitions 9,000+ BOEPD GBP29 MILLION Equity raised
2P reserve addition 58 MMBOE 1H 2019 LOAN Aligned to i3's
NOTES transformation
Leasehold position 497k ACRES TSX:ITE Secondary listing
in Toronto
Net production 467 2021 ONWARD Dividend distributions
wells of up to 30% of
FCF
Highlights and Outlook
-- Obtained a corporate foothold in Western Canadian Sedimentary
Basin ("WCSB") production assets and management team through a debt
acquisition of Toscana Energy Income Corporation ("Toscana" or
"TEIC") and entry into an Option agreement to acquire all issued
and outstanding shares of TEIC
-- i3 Energy plc ("i3") paid CAD3.4 million (c.USD2.5 million),
half in March 2020 and half at end-December, to acquire all of
TEIC's outstanding debt and to assume the role of senior-secured
lender to Toscana, which was in default under its CAD28 million
(c.USD21 million) senior and subordinated credit facilities and was
conducting a competitive strategic review process; i3 additionally
issued 4,399,224 ordinary shares to TEIC shareholders at completion
of the TEIC acquisition, concluded via a Plan of Arrangement in
October
-- i3 acquired TEIC's 2019 year-end 2P reserves of 4.65 MMboe
(53% oil, 47% gas) with a reserve life index of 14.7 years, Q4 2019
production of 1,065 boepd at USD2,661/boepd and USD0.61/boe 2P
-- Built on WCSB position with major acquisition of producing
assets and infrastructure in Alberta and Saskatchewan from Gain
Energy Ltd. ("Gain") contemporaneous with i3 entering an onward
sale of Gain's Saskatchewan assets to Harvard Resources Inc
("Harvard"), leaving i3 with all of Gain's Alberta assets (the
"Gain Assets") post completion in September 2020
-- The Gain Assets were acquired for CAD35 million (USD26
million) and provided i3 with approximately 9,000 boepd of
long-life, low-decline production and 54 MMboe 2P reserves at
highly attractive acquisition metrics of 1.1x next twelve months
("NTM") net operating income ("NOI" = revenue less royalties, opex
and transportation and processing), USD2,876/boepd, and USD0.48/boe
2P
-- Suspended trading on AIM to separately conclude the reverse
take-overs ("RTO") of the Gain Assets and Toscana. i3 entered into
a Management Services Agreement with Toscana to manage i3's
enlarged Canadian portfolio and staff base between the closing of
the Gain Asset RTO and the conclusion of its Plan of Arrangement
with TEIC
-- Placed 581,147,255 new ordinary shares at 5 pence per share
for total fundraising of GBP29 million to acquire the Gain Assets
and announced it would issue 75,184,252 options at an exercise
price of 5 pence (subject to vesting conditions as disclosed in the
Company's August AIM Readmission document) to staff and board of
the enlarged group following its Readmission to AIM and the
completion of the Gain Asset and Toscana transactions
-- Concluded the Gain Asset and Toscana transactions in
September and October, respectively, with the Company being listed
thereafter on both AIM and the TSX
-- Completed key amendments to i3's May 2019 Loan Notes,
replacing obligations to enter a development funding facility for
the Company's UK assets with obligations to achieve certain
production and funding levels during 2020 and 2021 (these
replacement obligations have been fully satisfied through i3's
funding and acquisition of the Gain Assets). In exchange for the
amendment, all 55,981,044 warrants associated with the May 2019
Loan Notes had their exercise price reset to GBP0.0001 per share,
and the loan note amendments also required the repricing of
16,157,612 i3 management and director options to GBP0.0001 per
share.
-- Progressed farm-down process for Serenity and Liberator in
the UK North Sea and conducted a site survey over future appraisal
and potential development well locations.
Post Period and Outlook
The Company announced on 4 January 2021 that it had relinquished
UK Continental Shelf ("UKCS") licence P.1987 as it was at the end
of its two-year term and i3 had determined the contingent resources
associated with the licence were sub-commercial on a stand-alone
basis. i3 may re-apply for the licence in the future if it is
justified following the appraisal of the prospective Liberator West
and/or Minos High areas, or after further drilling at its Serenity
discovery. The relinquishment results in significant savings in
licence fees and has no impact on the Company's P.2358 licence
which contains the vast majority of i3's resource potential in the
UK North Sea.
Also on 4 January, the Company announced that it had replaced
one of its brokers, Mirabaud Securities, with Tennyson Securities,
the new home of the oil and gas corporate finance, equity research
and sales team that departed Mirabaud Securities.
On 10 January, the Company issued options over a total of
13,166,358 ordinary shares to key staff that joined its Canadian
subsidiary, i3 Energy Canada Ltd., following the acquisition of
Gain's oil & gas assets. The options were issued in accordance
with the rules of the Company's Employee Share Option Plan at an
exercise price of GBP0.061 per share, the closing price on 8
January 2021. One-third of the options vested immediately, with a
further one-third vesting in July 2021 if production exits at or
above 9,000 boepd, and 100 per cent will vest if there is an
addition of 5,000 boepd or, alternatively, 25 MMboe 2P reserves.
The options will otherwise fully vest on the third anniversary.
On 10 January, the Company also issued options over a total of
75,184,252 ordinary shares as described in the Gain-related
Readmission document released on 11 August 2020. The options were
issued in accordance with the rules of the Company's Employee Share
Option Plan at an exercise price of GBP0.05 per share. Options
issued to employees of i3 Canada contain the same vesting
conditions as the GBP0.061 options described in the paragraph
above. Of the options issued to employees of i3 North Sea Limited,
one-third of the options vested immediately, with a further
one-third vesting at the spud of the next Serenity / Liberator
appraisal well, and 100 per cent will vest upon a third-party
reserve auditor attributing 25 MMbbls 2P post drilling of a
Serenity / Liberator appraisal well. The options will otherwise
fully vest on the third anniversary. Of the options issued to the
executive and non-executive directors and one corporate employee,
one-third of the options vested immediately, with a further
one-third vesting upon the earlier of spud of the next Serenity or
Liberator appraisal well; and July 2021 production exits being at
or above 9,000 boepd, and 100% will vest upon the earlier of a
third-party reserve auditor attributing 25 MMbbls 2P post drilling
of a Serenity or Liberator appraisal well and the addition of 5,000
boepd or 25 MMboe 2P reserves. The options will otherwise fully
vest on the third anniversary.
On 23 February, the Company announced that production between
November 2020 and January 2021 had remained predictably stable at
9,150 boepd (41% liquids), with expected 2021 net operating income
("NOI" = revenue minus royalties, opex, transportation and
processing) of CAD35 million (USD27.6 million). i3 stated on 5 May
that Q1 2021 production had been 8,856 boepd (41% liquids),
outperforming expectations, and updating its 2021 NOI forecast to
CAD38 million (USD31 million).
Also on 23 February, i3 announced that in December 2020, it had
completed an 80 hour flow-test on a horizontal Falher formation
well located on its Noel acreage in Northeast British Columbia,
Canada. The flow-test ran for a sustained period at 4,200 mcf/d
(700 boepd) on a 1/4" choke. The Company has reiterated on 5 May
that the Noel well is expected to be brought on production at
approximately 500 boepd during the second quarter of 2021,
following tie-in.
On 5 May, the Company announced that during February and early
March, the following oil and propane hedges were executed:
Commodity Period bbl/d Type CAD/bbl
Crude 1/Apr/21 31/Dec/21 200 SWAP $73.70
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Crude 1/Apr/21 31/Dec/21 200 SWAP $75.20
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Crude 1/Mar/21 31/Dec/21 350 SWAP $64.50
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Propane 1/Apr/21 31/Dec/21 200 SWAP $32.45
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During March and April, a number of natural gas swaps were
executed for the period between 1 June to 31 October 2021,
totalling volumes of 21.4 MMscfd at an average price of
CAD2.83/mcf. There were no commodity hedges in place in 2020.
In May the Company provided an update on its continued expansion
into the prolific Clearwater play in Alberta, Canada. In February
and March of 2021, i3 took advantage of winter access to re-enter
three suspended gas wells to confirm the presence of oil within the
148 km(2) of historically gas-focused Clearwater acreage it had
acquired as part of its 2020 purchase of Toscana. Encouragingly,
oil samples were recovered from multiple intervals in two of the
three wells, and i3 has commenced planning for an appraisal and
development drilling programme to be implemented during the winter
drill window in either Q4 2021 or Q1 2022. Further, the Company
acquired a 15-year lease on 18 km(2) of land in the emerging
Cadotte area through an Alberta Crown Land sale for under USD300k,
and also entered a farm-in agreement that could earn it up to net
29 km(2) of land (for its 50% working interest) through the
drilling of up to 9 wells at a net cost of USD7 million. Each well
is expected to have a payout between one and two years and an
initial production rate of approximately 150 bopd following
start-up. The first farmout well is expected to be spud in Q2
2021.
On 17 May, i3 announced that it had successfully restructured
legacy contracts and agreements for equipment, oil field services,
and warrants with Baker Hughes, a GE Company, and GE Oil & Gas
Limited (collectively referred to as "BHGE" hereafter). In summary,
the remainder of a GBP5.8 million contract for subsea trees and
wellheads was cancelled, 5,277,045 warrants had an exercise price
reduction to GBP0.0001 per share (the "Warrant Shares"), and an
outstanding contingent payment for GBP3 million in oil field
services and equipment that becomes payable at such time as the
Company receives consideration from any sale or farm-down of its
Serenity or Liberator assets will be reduced by the exercise value
of the Warrant Shares, the market value of the Warrant Shares from
time to time, all dividends received by BHGE associated with the
Warrant Shares, and certain payments to be made to BHGE across 2021
totalling GBP374,383. The purpose of this restructuring was to
enable i3 to become a dividend payer, as certain conditions of the
abovementioned contracts prevented it from reducing its share
premium account - a required step in order for i3 to effect
dividend distributions to its shareholders. Also announced on 17
May was i3's confirmation that it had received consent from all
other pertinent creditors to proceed with the proposed reduction of
its share premium account, as described below.
On 18 May, i3 affirmed that its Board considers it highly
desirable that the Company has the maximum flexibility to consider
the payment of dividends and otherwise return value to
shareholders. The Company is generally precluded, however, from the
payment of any dividends or other distributions or the redemption
or buy-back of its shares in the absence of sufficient
distributable reserves. The Company's share premium account
currently stands at approximately GBP63 million. As at 28 February
2021, the Company had a retained earnings deficit of approximately
GBP11 million. i3 proposes that its share premium account be
cancelled. The proposed reduction of capital (the "Capital
Reduction") is intended to eliminate the retained earnings deficit
and create distributable reserves equal to the balance. i3 has
called a Notice of General Meeting of its shareholders and
recommends that they vote in favour of the proposed Capital
Reduction. If the proposed cancellation of the Company's share
premium account is approved by Shareholders at the General Meeting,
it will be subject to the scrutiny of, and confirmation by, the UK
High Court, which will take due account of the protection of
creditors and, subject to that confirmation and registration by the
Registrar of Companies in England and Wales of the order of the
High Court, is expected to take effect on or around 1 July 2021. A
Capital Reduction approved by i3's shareholders and the High Court
will allow it to pay the CAD2 million (GBP1.16 million) maiden
dividend announced on 31 March, and to enable its intention to make
regular, half-yearly dividend payments in the future.
On 31 May, the Company announced that it had exercised a Right
of First Refusal ("ROFR") to acquire the entire 49.5% operated
interest held by Anegada Oil Corporation in its South Simonette
property ("Anegada Interest"), taking i3 from a 49.5% non-operated
interest to a 99% operated interest in the asset. Post acquisition
and as Operator, i3 will bring two suspended wells back onto
production in July at a total estimated cost of USD 1.16 million
(USD 0.58 million for each of i3's current and acquired Anegada
Interest) by installing gas lift in one and repairing an electrical
submersible pump in the other, resulting in an expected increase to
i3's corporate production of 720 boepd (41% oil, 4% NGLs, 55% gas)
and NTM NOI of USD 5.2 million; effectively increasing the
Company's exposure to oil by 20% and expected NTM NOI by over 16%.
The combined rate associated with the Anegada Interest for the
three wells is estimated to be 430 boepd. The 2P reserves and
associated valuation estimate for the Anegada Interest are 4.9
mmboe and USD 30.9 million, respectively, based on GLJ's YE 2020
reserves evaluation, reflecting the high-impact potential oil
resource identified in the Lower Montney formation at South
Simonette. With all three wells on production, the forecasted next
twelve months net operating income for the Anegada Interest is
estimated at USD 3.2 million. At a total cost to i3 of USD 4.78
million for the acquisition and two well reactivation in July, the
Company is acquiring the Anegada Interest and reinstating
production for 1.49x NTM forecasted NOI of USD 3.2 million, USD
11,111/boepd, and USD 0.95/boe (2P), materially below the averages
since Q4 2020 for similar Western Canadian transactions of 4.53x
NTM NOI, USD 32,067/boepd, and USD 5.61/boe. For i3's already-owned
49.5% South Simonette interest (and incremental to i3's current
share of production from the existing producing well) the
reactivation of the two wells in July is estimated to increase i3's
production by 290 boepd and NTM NOI by USD 2.0 million. The Company
deems this acquisition to be highly strategic to its Montney
acreage where it now has a 99% operated interest at South
Simonette, a 100% operated interest at North Simonette, and gross
overriding royalty interests of 5% to 15% across a 41 km(2) area of
the Middle Montney interval between its North and South Simonette
acreage. If fully exploited, i3 believes that North and South
Simonette could deliver peak net production of approximately 26,000
boepd. The Anegada interest has a very healthy LLR of 46.1.
Negotiations continue with multiple potential farm-in partners
for the Serenity field appraisal drilling programme.
The Company's focus for the remainder of 2021 will be on 4 key
areas:
1 The growth of i3's Canadian business by way of operational
excellence, capital deployment and strategic upsizing in core
areas;
2 The farmout of its UK licences to conduct further appraisal
drilling at Serenity and/or Liberator;
3 Dividend distributions to its shareholders of up to 30% of
free cash flow and to return value to stakeholders as it is
generated; and
4 Conducting its operations safely and in an environmentally secure manner
The Company continuously evaluates opportunities to strengthen
its balance sheet whilst maintaining tight control of its costs and
working capital position.
Majid Shafiq, CEO of i3 Energy plc, commented:
"2020 truly was a transformational year for i3. We entered the
year on the back of a recently completed three well drilling
programme on our UK licenses. Drilling on the Liberator discovery
was disappointing but was offset by the discovery of the Serenity
oil field. The beginning of the year was spent analysing the
results and updating our geological models. We remain confident in
the potential in the Liberator field and the Minos High prospect to
the west, however we decided to focus our initial appraisal efforts
on the Serenity field and commenced a farm-out process, which we
hope to conclude in the near future and then commence planning for
appraisal drilling to delineate the field. The first few months of
2020 saw two massive market dislocations in the form of an
unprecedented collapse in the oil price due to the breakdown of
market sharing arrangements between the major national oil
producers and the demand destruction caused by the advent of the
global coronavirus pandemic. Amid this turmoil, we recognised a
time-limited opportunity to acquire long-life production assets in
Canada at market lows and set about sourcing deals which could be
financed through the UK capital markets. We exited October having
re-negotiated our existing debt obligations, completed two material
transactions in Canada, conducted two reverse takeover
re-admissions to the AIM market in London, listed the company on
the Toronto Stock Exchange and financed these deals with an
oversubscribed equity placing in extremely difficult market
conditions. The remainder of the year was spent
aggregating our UK business, the Toscana corporate transaction
and the asset base acquired from Gain Energy into one
organisational structure. We emerged from 2020 as a cash-flow
generating production business with a diverse portfolio of assets,
able to support a regular dividend and with multiple catalysts for
share price appreciation. Following shareholder and court approval
of our balance sheet re-structuring we will soon pay our maiden
dividend and commence a cycle of regular cash returns to our
shareholders. We see tremendous potential for growth, in Canada
both organically through exploitation of untapped potential in our
current asset base and through accretive acquisitions and in the UK
through the drill bit. We also recognise that climate change is
having and will have an increasing impact on the way we conduct our
business and our ESG strategy will evolve as we progress through
the energy transition to ensure we remain relevant to our
shareholders and stakeholders. Finally, I would like to pay tribute
to our staff both in the UK and Canada, who worked tirelessly
through very difficult circumstances last year to transform the
company and bring about a massive change in its circumstances and
prospects."
Enquiries:
i3 Energy plc
Majid Shafiq (CEO) / Graham Heath c/o Camarco
(CFO) Tel: +44 (0) 203 781 8331
WH Ireland Limited (Nomad and Joint
Broker)
James Joyce, James Sinclair-Ford Tel: +44 (0) 207 220 1666
Canaccord Genuity Limited (Joint
Broker)
Henry Fitzgerald- O'Connor, James Tel: +44 (0) 207 523 8000
Asensio
Tennyson Securities (Joint Broker) Tel: +44 (0) 207 186 9030
Peter Krens
Camarco
Owen Roberts, James Crothers, Violet Tel: +44 (0) 203 781 8331
Wilson
Notes to Editors:
i3 Energy is an oil and gas Company with a low cost,
diversified, growing production base in Canada's most prolific
hydrocarbon region, the Western Canadian Sedimentary Basin and
appraisal assets in the North Sea with significant upside.
The Company is well positioned to deliver future growth through
the optimisation of its existing 100% owned asset base and the
acquisition of long life, low decline conventional production
assets.
i3 is dedicated to responsible corporate practices and the
environment, and places high value on adhering to strong
Environmental, Social and Governance ("ESG") practices. i3 is proud
of its performance to date as a responsible steward of the
environment, people, and capital management. The Company is
committed to maintaining an ESG strategy, which has broader
implications to long-term value creation, as these benefits extend
beyond regulatory requirements.
i3 Energy is listed on the AIM market of the London Stock
Exchange under the symbol I3E and on the Toronto Stock Exchange
under the symbol ITE. For further information on i3 Energy please
visit https://i3.energy/
The information contained within this announcement is deemed by
the Company to constitute inside information under the Market Abuse
Regulation (EU) No. 596/2014.
Chairperson's and Chief Executive's Statement
Overview of the year
i3 is pleased with the results of 2020 given how the year began
for the Company. Mixed drilling results from its 100% working
interest three-well drilling programme in the UK North Sea at
Liberator and Serenity, followed by a price war amongst commodity
super-powers whilst the world entered the COVID pandemic, saw oil
demand destruction that drove the West Texas Intermediate crude
benchmark into negative territory for the first time in history.
For a non-revenue generating company with a dwindling cash balance
in a market largely closed to oil & gas financings, i3 started
2020 in uncomfortable territory. Recognising an opportunity to
acquire production assets on very attractive metrics in the market
depression that ensued, i3 employed creative acquisition,
divestment, and funding strategies to both stabilise and grow the
business.
i3 had an excellent drilling result at its Serenity prospect in
H2 2019. The typical market reaction that would be expected from
such a result was offset by the unexpectedly poor results we had at
our wells in the much smaller Liberator Phase I area. Not having
the financial capacity to conduct further drilling activity on a
100% basis, shortly into 2020 the Company began seeking farm-in
partners. This process was all but halted as oil & gas
companies shelved capital programs in light of unprecedented world
events. A farm-down and resulting equity raise to shore up the
Company's balance sheet and to fund its portion of a Serenity
appraisal was unlikely to happen on a timeline that would see i3
survive. To offset the concentration risk of our UK appraisal
portfolio - a risk exacerbated by a lack of capital markets
appetite to fund appraisal-style portfolios during times of sector
uncertainty - i3 urgently required a low-cost, low-decline
production portfolio that would remain cash generative under
distressed market conditions. It became critical that the Company
acquire assets that would provide internal free cash flow to grow
the company and provide near-term returns to our shareholders,
while balancing the geological, project life cycle, project capital
intensity and capital market risks it faced as a UK-focused entity
with a pre-production asset portfolio.
After considering several global oil and gas basins and specific
opportunities, we concluded that the Western Canadian Sedimentary
Basin provided a time-limited opportunity to build a strong
production portfolio on superior metrics. A short to medium term
lack of infrastructure to transport Canadian oil and gas to
international markets, in combination with depressed gas prices in
North America due to the growth in gas supply from shale drilling,
had resulted in many small, overleveraged producers reaching a
financial breaking point. Many of these companies held quality
production assets with solid growth potential, but burdensome debt
and closed equity capital markets left them unable to fund
maintenance opex or growth capex. Their assets were available on
acquisition metrics we deemed to be highly attractive.
In March 2020, i3 announced that it had acquired all of the
rights and interests in the senior-secured and subordinated debt of
Toscana. As a result of accessing debt to acquire assets in a much
stronger commodity environment, Toscana had struggled for some
years and was in default under the terms of its debt facility
agreements. i3 purchased Toscana's CAD28 million senior and junior
debt facilities for a total of CAD3.4 million. At the same time,
the Company announced its entry into an Option agreement with
Toscana to acquire 100% of its issued share capital in exchange for
4,399,224 i3 ordinary shares. On 23 June 2020, i3 announced that it
had exercised its Option with Toscana which, based on available
published financial information at the time, constituted a reverse
take-over under the AIM Rules for Companies. After later completing
its transaction with Toscana at the end of October, i3's enlarged
share capital was also listed on the TSX.
Toscana's strong management and operations teams and modest
production and reserves base provided a foundation for i3's entry
into Canada. As stated in March 2020, i3 intended to swiftly
leverage the TEIC platform to execute an M&A driven growth
strategy to build a large, low capital intensity, long-life
production base in the WCSB. On 23 June 2020, with further detail
on 6 July, i3 announced the planned acquisition of all the
petroleum assets of Gain, a private Canadian company with assets in
the WCSB for CAD80 million. Under the AIM Rules, the Gain
transaction also constituted a reverse take-over, and at the
Company's request its shares were suspended from trading on AIM
until such time as i3 either published a "Readmission document"
detailing the Gain transaction or provided confirmation that
discussions had ceased. Across the following month, the executive
tested institutional demand while considering the potential
dilution of conducting a sizeable transaction against a poor sector
backdrop and, partly to reduce dilution, on 7(th) August announced
its intention to sell a portion of Gain's portfolio (those assets
located in Saskatchewan), and complete a GBP 29 million equity
fundraise to fund the balance . The sale of 1,050 boepd in
Saskatchewan to Harvard for CAD45 million, representing
approximately 7x NTM NOI, decreased the Company's equity
requirement by almost 50% while seeing i3 retain the majority of
the Gain portfolio representing 83% of the NTM NOI, 88% of the
production, 79% of the PDP reserves, 87% of the 2P reserves, and
74% of the 2P NPV10. The Company is proud to have brought this
complex transaction to completion, having acquired 54 MMboe 2P and
over 9,000 boepd while raising equity capital equal to 5 times its
market cap during a period of unrivalled difficulty for the oil
sector.
i3 published its Gain-related Readmission document on 11 August
and completed the Gain acquisition and back-to-back sale of
Saskatchewan assets to Harvard on 3 September. Concurrently, i3
entered into a Management Services Agreement with Toscana to manage
i3's enlarged staff base in Canada and the Gain Assets until the
Toscana-related AIM Readmission, Plan of Arrangement to acquire
TEIC, and i3's TSX listing concluded during the course of September
and October. During one of the worst periods in our sector's
history, i3 transformed itself into a self-funding going concern
through the Toscana and Gain acquisitions, adding approximately
9,000 boepd and 58 MMboe of 2P reserves to its portfolio at
approximately 1.0 times 2021 net operating income.
As stated at the time of these transactions, the Board and
Management are focused on delivering consistent value to
shareholders. i3 committed to becoming a dividend payer that
distributes up to 30% of its free cash flow, and to protecting this
commitment through a conservative hedging program. Each of these is
well underway with our maiden dividend expected to be paid in July
2021 and a substantial portion of i3's expected 2021 production
hedged to manage commodity price risk. Residual free cash flow
above the dividend will be redeployed to acquire additional
production assets conditional on the associated acquisition metrics
competing with the organic returns achievable through the
development of our proven undeveloped (PUD) and 2P inventory. A
proportion of all incremental production will continue to be hedged
in order to secure future cash flow, and the Company will remain
commercial in monetizing assets when third-party interest warrants
consideration.
Reflecting on i3's pre-2020 portfolio then, our team remains
confident in its belief that the Serenity discovery holds a
company-making resource, and we expect that the next appraisal
drilling there will prove this premise.
Production Operations
Click on, or paste the following link into your web browser, to
view Figure 1
http://www.rns-pdf.londonstockexchange.com/rns/3877A_1-2021-6-1.pdf
Note: The above figures are unaudited and demonstrate volumes in
the month produced. They are based on a combination of the lease
operating statements of Gain Energy Ltd., Firenze Energy Ltd. (the
operating subsidiary of Toscana Energy Income Corporation), and i3
Energy Canada Ltd., and are intended to represent the monthly
production attributed to i3 Energy plc's Canadian operations from
the effective dates of each transaction consummated between these
entities.
Following the closing of the Gain asset transaction on 4
September 2020 and the Toscana corporate transaction on 30 October
2020 our initial focus was the integration of these businesses in
Canada and into i3 Energy plc. In parallel with that process, we
immediately began a detailed review of the asset portfolio to
identify production optimisation and cost reduction opportunities.
We focussed on maintaining high uptime, minimising operating costs,
optimising operated processing facilities and infrastructure and
actively implementing high return workovers to offset natural
production declines. These efforts managed to substantially
increase aggregate average net production across H2 2020. The
aggregate decline rate across the portfolio has been approximately
half that predicted by the competent persons reports produced for
the purposes of the 2020 reverse takeovers accompanying the
acquisition of the assets, which is a testament to the quality of
the assets in the portfolio and the dedication of our workforce. In
parallel with operational activity, we also commenced a review of
reservoir performance for the producing assets and identified a
number of mature fields where redevelopment, particularly through
the implementation of relatively low-cost secondary recovery
projects could materially increase production and ultimate
hydrocarbon recovery. These studies have advanced, and we hope to
commence implementation of some of these projects in 2021,
including tie-in of the Noel well in British Columbia which is
expected to be onstream in the middle of 2021 at up to 500 boepd.
Operating our assets in a safe and secure manner is fundamental to
our business and during Q4 2020 we commenced the integration of the
health and safety policies and procedures for the combined Gain and
Toscana portfolio. There were thirteen routine regulatory
government inspections during the fourth quarter all of which
returned satisfactory results and all reportable HSE incidents were
categorised as minor in nature apart from a release of produced
water from the Y-Battery at Simonette, which was contained on the
lease and subsequently remediated in Q1 2021.
Financial discipline
i3's 2020 equity fundraise to acquire its WCSB production
portfolio didn't conclude until late Q3. Having entered 2020 with
less than GBP1.2 million of net current assets demanded financial
discipline, spend control and payables management across the year.
Sizeable residual commitments from i3's 2019 drilling programme
were renegotiated and extended (out to mid-2021 in some instances),
with creditors being stern but creative in working with the
Company. With the onset of appraisal delays at Serenity, i3's UK
staff moved to half-time working while the farmout market softened,
and corporate staff shifted focus towards securing a cash
generative business in Canada.
i3 transformed itself into an oil and gas production company via
complex asset and funding transactions concluded in late 2020.
These were costly as the Company tried to balance frugality with
timing and deal risk. Post completion, the simultaneous integration
of numerous businesses - i3 UK, Toscana, and Gain's portfolio and
staff - increased costs and expenses on a one-time basis.
With the portfolios and teams now integrated, we expect to bring
future costs back in line with our peers in each jurisdiction.
Board changes
On 1 January 2020, David Knox, i3's Chairman since the Company's
listing on AIM in 2017, took on significant additional
responsibility as Chair of Snowy Hydro Limited, Australia's largest
renewable energy provider. After nearly 3 years as the Chairperson
of i3 Energy, he stepped down to ensure he had the necessary
capacity to focus on this new role during a critical and trying
time in Australia amidst unprecedented wildfires and environmental
pressures.
Linda Beal became Interim Chairperson, with i3 expecting to
conduct a formal search to replace David in due course.
On 8 December 2020, i3 appointed John Festival (a former Toscana
board member) as a Non-executive Director of the Company.
Governance
The Board recognises its responsibility for the proper
management of the Company and is committed to maintaining a high
standard of corporate governance. The Directors also recognise the
importance of sound corporate governance commensurate with the size
and nature of the Company and the interests of its Shareholders.
The Quoted Companies Alliance has published a set of corporate
governance guidelines for AIM companies, which include a code of
best practice comprising principles intended as a minimum standard,
and recommendations for reporting corporate governance matters. The
Directors intend to comply with the QCA Corporate Governance
Guidelines for Smaller Quoted Companies so far as it is practicable
having regard to the size and current stage of development of the
Company. The Board currently comprises two executive Directors
(being the Chief Executive Officer and the Chief Financial Officer)
and four non-executive Directors (including the interim
Chairperson).
The Board's decision-making process is not dominated by any one
individual or group of individuals. The composition of the Board
will be reviewed regularly and modified as appropriate in response
to the Company's changing requirements. The Board has established
an Audit Committee, Corporate Governance Committee, Health Safety
Environment and Security Committee, Reserves Committee, and
Remuneration Committee to ensure proper adherence to sound
governance and decision making.
Environmental Stewardship
i3 is committed to conducting its operations to be in full
compliance with both provincial and state environmental regulations
and reporting obligations. In Q4 2020 we commenced the integration
of the reporting systems and databases inherited from Toscana and
with the Gain assets into i3's ESG management system and the
development of a corporate ESG strategy. Central to that strategy
is a commitment to achieve net zero carbon emissions by 2050. In
December 2020 we commenced the development of a strategy to
minimise fugitive GHG emissions from our production infrastructure.
The first element of this was a plan to replace hi-bleed natural
gas pneumatic controllers with low-bleed models across our
portfolio in addition to conversions to instrument air; these
projects commenced in December. These initiatives qualify for
carbon credits which can be sold or used to offset future carbon
tax obligations. The Company also takes very seriously its asset
retirement obligations and is an active participant in the
Government of Alberta's Site Rehabilitation Program ("SRP") and
Saskatchewan's Accelerated Site Closure Program ("ASCP"). We
received grants totalling CAD179,000 in Q4 2020 which contributed
to our decommissioning operations in our Wapiti, Simonette, Marten
Creek and Clair field locations.
Looking ahead
2020 was a transformational year for the Company, necessitated
by a fight to survive and a desire to flourish. The hours required
to accomplish this seemed innumerable for our staff, as a constant
series of hurdles had to be overcome on a near-daily basis. We
thank each of them for their part in the result - a company that is
stable, cash flow generating, and excited about its future
plans.
Moving forward then, i3 will continue to grow its Canadian
production business through our stated strategy of being
acquisitive when systemic or situational drivers offer good value
and drilling our ever-growing inventory of high-quality proven
undeveloped and 2P reserves when doing so offers better returns
than the M&A market. In the UK, we will progress our appraisal
and development plans at Serenity and Liberator as and when capital
becomes available from potential partners. Beyond our current
business, we see climate change as the most urgent matter of our
time and deem it critical to act in a manner that exhibits this
concern. Though we believe in this hydrocarbon-dependent world that
oil and gas will remain a necessary part of the energy and
industrial sector for decades yet, we understand that
petroleum-based energy companies have a crucial role to play in the
transition to net zero. As we enlarge the oil and gas business, we
have worked so hard to reenergise across the last 18 months, we
look forward to our balanced and intentional future transformation
into an energy company that benefits society for generations to
come.
As always, we extend gratitude to our capital providers for
their ongoing support. We will fight hard to honour the trust you
extended to us during such an uncertain time in our industry's
history. As promised, i3 will continue to manage our Canadian and
UK businesses in a manner that maximizes value creation and
distributed returns.
"Linda Beal" "Majid Shafiq"
Linda Beal Majid Shafiq
Interim Non-Executive Chairperson Chief Executive Officer
31 May 2021 31 May 2021
Consolidated Statement of Comprehensive Income
Notes Year Ended Year Ended
31 December 31 December
2020 2019
Restated
*
-------------------------------------------- ----- ------------ ------------
GBP'000 GBP'000
Revenue 6 12,991 -
Production costs (8,075) -
Depreciation and depletion 12 (4,854) -
------------ --------------
Gross profit 62 -
Administrative expenses 7 (5,755) (5,317)
Acquisition costs 4 (1,542) -
Gain on bargain purchase 4 25,211 -
------------ --------------
Operating profit / (loss) 17,976 (5,317)
Finance costs 8 (7,368) (5,534)
Profit / (loss) before tax 10,608 (10,851)
Tax credit for the year 9 1,110 -
------------ --------------
Profit (loss) for the year 11,718 (10,851)
============ ==============
Other comprehensive (loss):
Items that may be reclassified subsequently
to profit or loss:
Foreign exchange differences on translation
of foreign operations (147) -
------------ --------------
Other comprehensive (loss) for the
year, net of tax (147) -
Total compressive income / (loss)
for the year 11,571 (10,851)
============ ==============
Earnings / (loss) per share Pence Pence
Earnings / (loss) per share - basic 11 3.78 (13.42)
Earnings / (loss) per share - diluted 11 3.46 (13.42)
------------ --------------
All operations are continuing.
The accompanying notes form an integral part of these financial
statements.
* The presentation, description, and classification of certain
comparative lines have been restated - see Note 2.
Consolidated Statement of Financial Position
Assets Notes 31 December 31 December
2020 2019
------------------------------------- ----- ----------- -----------
GBP'000 GBP'000
Non-current assets
Property, plant & equipment 12 108,509 8
Exploration and evaluation assets 13 48,809 46,528
Deferred tax asset 9 1,052 -
Deposit 4 678 -
Total non-current assets 159,048 46,536
Current assets
Cash and cash equivalents 6,178 19,070
Trade and other receivables 14 8,731 305
Inventory 164 -
----------- -----------
Total current assets 15,073 19,375
Current liabilities
Trade and other payables 15 (13,156) (18,205)
Borrowings and leases 16 (28) -
Decommissioning provision 17 (1,234)
Total current liabilities (14,418) (18,205)
Net current assets 655 1,170
Non-current liabilities
Non-current accounts payable 15 (3,000) (3,000)
Borrowings and leases 16 (17,958) (13,046)
Decommissioning provision 17 (65,549) -
----------- -----------
Total non-current liabilities (86,507) (16,046)
Net assets 73,196 31,660
=========== ===========
Capital and reserves
Ordinary shares 18 70 11
Deferred shares 18 50 50
Share premium 18 61,605 32,572
Share-based payment reserve 19 6,337 3,803
Warrants - LNs 16 9,714 11,375
Foreign currency translation reserve (147) -
Accumulated deficit (4,433) (16,151)
Shareholders' funds 73,196 31,660
=========== ===========
The accompanying notes form an integral part of these financial
statements.
The consolidated financial statements of i3 Energy plc, company
number 10699593, were approved by the Board of Directors and
authorized for issue on 31 May 2021.
Signed on behalf of the Board of Directors by:
"Majid Shafiq"
Majid Shafiq
Director
Consolidated Statement of Changes in Equity
Ordinary Share Deferred Share-based Warrants Foreign Accumul-ated Total
shares premium shares payment - LN currency deficit
reserve translation
reserve
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- ----------- -------- ------------ ------------ --------
Balance at 31 December
2018 4 9,215 50 686 - - ( 5,300) 4,656
Total comprehensive
loss for the year - - - - - (10,851) (10,851)
Transactions with
owners:
Issue of share capital 18 7 23,357 - - - - - 23,363
Warrants - LNs - - - - 11,375 - - 11,375
Share-based payment
expense 19 - - - 3,117 - - - 3,117
-------- -------- -------- ----------- -------- ------------ ------------ --------
Balance at 31 December
2019 11 32,572 50 3,803 11,375 - ( 16,151) 31,660
-------- -------- -------- ----------- -------- ------------ ------------ --------
Total comprehensive
income for the year - - - - - (147) 11,718 11,571
Transactions with
owners:
Issue of share capital 18 58 27,372 - - - - - 27,430
Exercise of warrants
- LNs 19 1 1,661 - - (1,661) - - 1
Share-based payment
expense 19 - - - 2,534 - - - 2,534
-------- -------- -------- ----------- -------- ------------ ------------ --------
Balance at 31 December
2020 70 61,605 50 6,337 9,714 (147) ( 4,433) 73,196
======== ======== ======== =========== ======== ============ ============ ========
The accompanying notes form an integral part of these financial
statements.
The following describes the nature and purpose of each reserve
within equity:
Reserve Description and purpose
Ordinary shares Represents the nominal value of shares issued
Share premium account Amount subscribed for share capital in excess of nominal
value
Deferred shares Represents the nominal value of shares issued, the
shares have full capital distribution (including on
wind up) rights and do not confer any voting or dividend
rights, or any of redemption
Share-based payment Represents the accumulated balance of share-based
reserve payment charges recognised in respect of share options
granted by the Company less transfers to retained
deficit in respect of options exercised or cancelled/lapsed
Warrants - LNs Represents the accumulated balance of share-based
payment charges recognised in respect of warrants
granted by the Company in respect to warrants granted
to the loan note holders
Foreign currency Exchange differences arising on consolidating the
translation reserve assets and liabilities of the Group's non-Pound Sterling
functional currency operations (including comparatives)
recognised through the Consolidated Statement of Other
Comprehensive Income.
Retained earnings Cumulative net gains and losses recognised in the
Consolidated Statement of Comprehensive Income
Note: The issued share capital comprises of both ordinary and
deferred shares and the consolidated nominal value exceeds the
required minimum issued capital of GBP 50,000.
Consolidated Statement of Cash Flow
Notes Year ended Year ended
31 December 31 December
2020 2019
Restated *
------------------------------------------- ----- ------------ ------------
GBP'000 GBP'000
OPERATING ACTIVITIES
Profit / (loss) before tax 10,608 (10,851)
Adjustments for:
Depreciation and depletion 12 4,854 9
Gain on bargain purchase 4 (25,211) -
Finance costs 8 7,368 5,534
Unrealized FX loss / (Gain) 7 68 (28)
Stock-based payments expense - employees 7 336 1,206
Operating cash flows before movements
in working capital:
(Increase) in trade and other receivables (7,217) (146)
Increase in trade and other payables 4,974 295
Increase in inventory 69 -
------------ ------------
Net cash used in operating activities (4,151) (3,981)
------------ ------------
INVESTING ACTIVITIES
Business acquisitions 4 (18,474) -
Cash assumed on business acquisitions 4 262 -
Expenditures on property, plant &
equipment (229) (3)
Expenditures on exploration and evaluation
assets (17,403) (21,032)
Expenditure on decommissioning oil
and gas assets 17 (131) -
Tax credit for R&D expenditure 9 383 -
------------ ------------
Net cash used in investing activities (35,592) (21,035)
------------ ------------
FINANCING ACTIVITIES
Proceeds on issue of ordinary shares,
net of issue costs 18 27,253 23,363
Proceeds on issuance of H1-2019 LNs 16 - 22,000
Repayment CLNs 16 - (433)
Interest and other finance charges
paid 8 (114) (1,200)
Lease payments 16 (10) -
Net cash from financing activities 27,129 43,730
Effect of exchange rate changes on
cash (278) (242)
------------ ------------
Net (Decrease) / Increase in cash
and cash equivalents (12,892) 18,472
Cash and cash equivalents, beginning
of year 19,070 598
------------ ------------
CASH AND CASH EQUIVALENTS, OF
YEAR 6,178 19,070
============ ============
Net debt reconciliation is shown in note 16
The accompanying notes form an integral part of these financial
statements.
* The presentation, description, and classification of certain
comparative lines have been restated - see Note 2.
Notes Forming Part of the Financial Statements
1 Summary of significant accounting policies
General Information and Authorisation of Financial
Statements
i3 Energy plc ("the Company") is a Public Company, limited by
shares, registered in England and Wales under the Companies Act
2006 with registered number 10699593. The Company's ordinary shares
are traded on the Toronto Stock Exchange and the AIM Market
operated by the London Stock Exchange. The address of the Company's
registered office is New Kings Court, Tollgate, Chandler's Ford,
Eastleigh, Hampshire, SO53 3LG.
The Company and its subsidiaries (together, "the Group")
principal activities consist of the development and production of
oil and gas on the UK Continental Shelf and the Western Canadian
Sedimentary Basin.
2 Basis of preparation
The financial statements have been prepared under the historic
cost in accordance with international accounting standards in
conformity with the Companies Act 2006 and international financial
reporting standards adopted pursuant to Regulation (EC) No.
1606/2002 as it applies in the European Union in accordance with
the requirement of the AIM rules.
The financial information is presented in Pounds Sterling (GBP,
GBP), which is the Company's functional currency, and rounded to
the nearest thousand unless otherwise stated. The functional
currency of the Company's UK subsidiary, i3 Energy North Sea
Limited, is GBP, and the functional currency of its Canadian
subsidiary, i3 Energy Canada Limited, is CAD.
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below. These
policies have been consistently applied unless otherwise stated.
The Company has elected not to present individual financial
statements as it is not required to do so.
Basis of Consolidation
The consolidated financial statements consolidate the audited
financial statements of i3 Energy plc and the financial statements
of its subsidiary undertakings made up to 31 December 2020.
Subsidiaries are entities over which the Group has control. The
Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are de-consolidated
from the date that control ceases.
When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with
the Group's accounting policies. All intra-group assets and
liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on
consolidation.
Going concern
The directors have, at the time of approving the financial
statements, a reasonable expectation that the Company and the Group
have adequate resources to continue in operational existence for
the foreseeable future. Thus they continue to adopt the going
concern basis of accounting in preparing the financial statements.
The use of this basis of accounting takes into consideration the
Group's current and forecast financing position, additional details
of which are provided in the going concern section of the
Directors' Report and within the Group's Strategic Report on page
33 of the Company's Annual Report.
Restatement and reclassification of comparative information
Following the acquisitions completed in 2020, commencement of
production, and a review of the financial statements, the Group has
elected to change the presentation and classification of certain
items within the Statement of Consolidated Income and the Statement
of Cash Flow. There has been no change to the reported total
comprehensive loss for the year ended 31 December 2019.
Expenses related to the issuance of warrants of GBP1,911
thousand was previously presented within administrative expenses.
This expense is now presented within finance costs.
Interest and other finance charges paid of GBP1,200 thousand was
previously presented as a cash outflow from operating activities.
This is now presented as a cash outflow from financing
activities.
3 Significant accounting policies
The Gain and Toscana acquisitions resulted in the production and
sale of oil and gas by the Group for the first time. As a result,
the following accounting policies were adopted during the financial
year:
-- Property, plant and equipment - oil and gas assets
-- Inventory
-- Decommissioning provisions
-- Joint operations
-- Revenue
-- Foreign operations
-- Business combinations
All other accounting policies adopted are consistent with those
applied in the previous financial year, unless otherwise
indicated.
Financial instruments
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and cash held on
current account or on short-term deposits at variable interest
rates with original maturity periods of up to three months. Any
interest earned is accrued monthly and classified as interest
income within finance income.
Trade and other receivables
Trade and other receivables are initially recognised at fair
value when related amounts are invoiced then carried at this amount
less any impairment of these receivables using the expected credit
loss model. A provision for impairment is made when there is
objective evidence (such as the probability of insolvency or
significant financial difficulties of the debtor) that the Company
will not be able to collect all of the amounts due under the
original terms of the invoice. The carrying amount of receivables
is reduced through use of an allowance account. Impaired debts are
derecognised when they are assessed as uncollectible.
Trade and other payables
These financial liabilities are all non-interest bearing and are
initially recognised at the fair value of the consideration
payable.
Loan Notes
These financial liabilities are all interest bearing and are
initially recognised at amortised cost and include the transaction
costs directly related to the issuance. The transaction costs are
amortised using the effective interest rate method over the life of
the Loan Notes.
Financial liabilities at Fair Value Through Profit or Loss
("FVTPL")
Financial liabilities at FVTPL comprise of the Company's
convertible loan notes payable. Financial liabilities are
classified as at FVTPL when the financial liability is (i)
contingent consideration that may be paid by an acquirer as part of
a business combination to which IFRS 3 applies, (ii) held for
trading, or (iii) it is designated as at FVTPL.
A financial liability is classified as held for trading if:
-- it has been incurred principally for the purpose of repurchasing it in the near term; or
-- on initial recognition it is part of a portfolio of
identified financial instruments that the Company manages together
and has a recent actual pattern of short-term profit-taking; or
-- it is a derivative that is not designated and effective as a hedging instrument.
A financial liability other than a financial liability held for
trading or contingent consideration that may be paid by an acquirer
as part of a business combination may be designated as at FVTPL
upon initial recognition if:
-- such designation eliminates or significantly reduces a
measurement or recognition inconsistency that would otherwise
arise; or
-- the financial liability forms part of a group of financial
assets or financial liabilities or both, which is managed, and its
performance is evaluated on a fair value basis, in accordance with
the Company's documented risk management or investment strategy,
and information about the grouping is provided internally on that
basis; or
-- it forms part of a contract containing one or more embedded
derivatives, and IFRS Financial Instruments: Recognition and
Measurement permits the entire combined contract (asset or
liability) to be designated as at FVTPL.
Financial liabilities at FVTPL are stated at fair value, with
any gains or losses arising on re-measurement recognised in profit
or loss. The net gain or loss recognised in profit or loss
incorporates any interest paid on the financial liability and is
included in the 'other gains and losses' line item in the statement
of comprehensive income.
Embedded derivatives
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives when their risks
and characteristics are not closely related to those of the host
contracts and the host contracts are not measured at FVTPL.
Leases
Lease liabilities are initially measured at the present value of
lease payments unpaid at the commencement date. Lease payments are
discounted using the incremental borrowing rate (being the rate
that the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment
with similar terms and conditions) unless the rate implicit in the
lease is available. The Group currently uses the rate implicit in
the lease as the discount rate for all leases. For the purposes of
measuring the lease liability, lease payments comprise fixed
payments.
Right-of-use assets are measured at cost, which comprises the
initial measurement of the lease liability, plus any lease payments
made prior to lease commencement, initial direct costs incurred and
the estimated cost of restoration or decommissioning, less any
lease incentives received. The right-of-use assets is depreciated
on a straight-line basis over their expected useful lives.
Right-of-use assets are subject to an impairment test if events and
circumstances indicate that the carrying value may exceed the
recoverable amount.
Lease repayments made are allocated to capital repayment and
interest so as to produce a constant periodic rate of interest on
the remaining lease liability balance.
Right-of-use assets are presented within property, plant and
equipment. Lease liabilities are presented within borrowings and
leases. In the cash flow statement, lease repayments (both the
principal and interest portion) are presented within cash used in
financing activities, except for payments for leases of short-term
and low-value assets and variable lease payments, which are
presented within cash flows from operating activities.
Leases of low-value items (such as office equipment) and
short-term leases (where the lease term is 12 months or less) are
expensed on a straight-line basis to the statement of comprehensive
income.
Inventory
Inventories comprise oil and gas in tanks and field parts and
supplies, all of which are stated at the lower of production cost
(including royalties, depletion and amortisation of plant, property
and equipment), and net realisable value. Net realisable value is
the estimated selling price in the ordinary course of business less
marketing costs. The cost of inventory is expensed in the period in
which the related revenue is recognised.
Equity
Equity instruments issued by the Company are usually recorded at
the proceeds received, net of direct issue costs, and allocated
between called up share capital and share premium accounts as
appropriate.
Foreign currency
Transactions denominated in currencies other than functional
currency are translated at the exchange rate ruling at the date of
the transaction. Monetary assets and liabilities denominated in
foreign currencies are re-translated at the rate of exchange ruling
at the balance sheet date. All differences that arise are recorded
in the statement of comprehensive income. The functional currency
of the Company is GBP, and the Group results and financial position
are presented in GBP.
For the purpose of presenting consolidated financial statements,
the assets and liabilities of the Group's foreign operations are
translated at exchange rates prevailing on the reporting date.
Income and expense items are translated at the average exchange
rates for the period, unless exchange rates fluctuate significantly
during that period, in which case the exchange rates at the date of
transactions are used. Exchange differences arising, if any, are
recognised in other comprehensive income and accumulated in a
separate component of equity (attributed to non--controlling
interests as appropriate).
Taxation
Tax is recognised in the consolidated Statement of Comprehensive
Income, except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this case, the
tax is also recognised in other comprehensive income or directly in
equity respectively.
Deferred tax is accounted for using the balance sheet liability
method in respect of temporary differences arising from differences
between the carrying amount of assets and liabilities in the
financial statements and the corresponding tax bases used in the
computation of taxable profit. However, deferred tax liabilities
are not recognised if they arise from the initial recognition of
goodwill; deferred tax is not accounted for if it arises from
initial recognition of an asset or liability in a transaction other
than a business combination that at the time of the transaction
affects neither accounting nor taxable profit or loss.
In principle, deferred tax liabilities are recognised for all
taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profit
will be available against which deductible temporary differences
can be utilised.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries and associates,
and interests in joint ventures, except where the Company is able
to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred tax assets and
liabilities relate to taxes levied by the same taxation authority
on either the same taxable entity or different taxable entities
where there is an intention to settle the balances on a net
basis.
Deferred tax is calculated at the tax rates that are expected to
apply to the period when the asset is realised or the liability is
settled. Deferred tax assets and liabilities are not
discounted.
Intangible assets - Exploration and evaluation expenditures
(E&E)
Development expenditure
Expenditure on the construction, installation and completion of
infrastructure facilities such as platforms, pipelines and the
drilling of development wells, including service, is capitalized
initially within intangible fixed assets and when the well has
formally commenced commercial production, then it is transferred to
property, plant and equipment and is depreciated from the
commencement of production as described in the accounting policy
for property, plant and equipment.
Drilling costs and intangible licenses
The Group applies the successful efforts method of accounting
for oil and gas assets, having regard to the requirements of IFRS 6
'Exploration for and Evaluation of Mineral Resources'. Costs
incurred prior to obtaining the legal rights to explore an area are
expensed immediately to the Statement of Comprehensive Income.
Expenditure incurred on the acquisition of a licence interest is
initially capitalised within intangible assets on a field by field
basis. Costs are held, unamortised, within Petroleum mineral leases
until such time as the exploration phase of the field area is
complete or commercial reserves have been discovered. The cost of
the licence is subsequently transferred into property, plant and
equipment and depreciated over its estimated useful economic
life.
Exploration expenditure incurred in the process of determining
exploration targets is capitalised initially within intangible
assets as drilling costs. Drilling costs are initially capitalised
on a well by well basis until the success or otherwise has been
established. Drilling costs are written off on completion of a well
unless the results indicate that hydrocarbon reserves exist and
there is a reasonable prospect that these reserves are commercially
viable. Drilling costs are subsequently transferred into 'Drilling
expenditure' within property, plant and equipment and depreciated
over their estimated useful economic life.
Impairment
The Group assesses at each reporting date whether there is an
indication that an asset may be impaired. This includes
consideration of the IFRS 6 impairment indicators for any
intangible exploration and evaluation expenditure capitalised as
intangible assets. Examples of indicators of impairment include
whether:
(a) the period for which the entity has the right to explore in
the specific area has expired during the period or will expire in
the near future and is not expected to be renewed.
(b) substantive expenditure on further exploration for and
evaluation of mineral resources in the specific area is neither
budgeted nor planned.
(c) exploration for and evaluation of mineral resources in the
specific area have not led to the discovery of commercially viable
quantities of mineral resources and the entity has decided to
discontinue such activities in the specific area.
(d) sufficient data exist to indicate that, although a
development in the specific area is likely to proceed, the carrying
amount of the exploration and evaluation asset is unlikely to be
recovered in full from successful development or by sale.
If any such indication exists, or when annual impairment testing
for an asset is required, the Group makes an estimate of the
asset's recoverable amount, which is the higher of its fair value
less costs to sell and its value in use. Any impairment identified
is recorded in the statement of comprehensive income.
Property, plant and equipment
Oil and gas assets - cost
Oil and gas assets are accumulated generally on a cost
generating unit (CGU) basis and represent the cost of developing
the commercial reserves discovered and bringing them into
production, together with the intangible exploration and evaluation
asset expenditures incurred in finding commercial reserves
transferred from intangible exploration and evaluation assets. The
cost of oil and gas properties also includes the cost of directly
attributable overheads, borrowing costs capitalised and the cost of
recognising provision for future restoration and
decommissioning.
Oil and gas assets - depreciation
Oil properties, including certain related pipelines, are
depreciated using a unit-of-production method. The cost of
producing wells is amortised over proved plus probable reserves.
Licence acquisition, common facilities and future decommissioning
costs are amortised over total proved plus probable reserves. The
unit-of-production rate for the depreciation of common facilities
takes into account expenditures incurred to date, together with
estimated future capital expenditure expected to be incurred
relating to as yet undeveloped reserves expected to be processed
through these common facilities.
Oil and gas assets - impairment
An impairment test is performed whenever events and
circumstances arising during the development or production phase
indicate that the carrying value of an oil and gas property may
exceed its recoverable amount.
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-generating unit applied for
impairment test purposes is generally the field, except that a
number of field interests may be grouped as a single
cash-generating unit where the cash inflows of each field are
interdependent.
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.
Non-oil and gas assets
Property, plant and equipment is stated at cost less accumulated
depreciation and any accumulated impairment losses. Depreciation is
provided on all property, plant and equipment to write off the cost
less estimated residual value of each asset over its expected
useful economic life on a straight-line basis at the following
annual rates:
-- Office equipment 20% or straight line over the life of the
equipment - whichever is the lesser
-- Field equipment - between 5% and 25%
-- All assets are subject to annual impairment reviews
Decommissioning provision
Liabilities for decommissioning costs are recognised when the
group has an obligation to plug and abandon a well, dismantle and
remove a facility or an item of plant and to restore the site on
which it is located, and when a reliable estimate of that liability
can be made. Where an obligation exists for a new facility or item
of plant, such as oil production or transportation facilities, this
liability will be recognised on construction or installation.
Similarly, where an obligation exists for a well, this liability is
recognised when it is drilled. An obligation for decommissioning
may also crystallise during the period of operation of a well,
facility or item of plant through a change in legislation or
through a decision to terminate operations; an obligation may also
arise in cases where an asset has been sold but the subsequent
owner is no longer able to fulfil its decommissioning obligations,
for example due to bankruptcy. The amount recognised is the present
value of the estimated future expenditure determined in accordance
with local conditions and requirements. The provision for the costs
of decommissioning wells, production facilities and pipelines at
the end of their economic lives is estimated using existing
technology, at future prices, depending on the expected timing of
the activity, and discounted using a risk-free rate.
An amount equivalent to the decommissioning provision is
recognised as part of the corresponding intangible asset (in the
case of an exploration or appraisal well) or property, plant and
equipment. The decommissioning portion of the property, plant and
equipment is subsequently depreciated at the same rate as the rest
of the asset. Other than the unwinding of discount on or
utilisation of the provision, any change in the present value of
the estimated expenditure is reflected as an adjustment to the
provision and the corresponding asset where that asset is
generating or is expected to generate future economic benefits. If
government assistance is obtained to reduce the liability, the
carrying value of the decommissioning provision and the
corresponding E&E or PP&E asset are reduced by the
estimated amount of the extinguished liability.
Joint operations
Substantially all of the Group's exploration and production
activities are conducted jointly with others and, accordingly,
these consolidated financial statements reflect only the Group's
interest in such activities.
Revenue
Revenue from contracts with customers is recognised, net of
royalties, when or as the group satisfies a performance obligation
by transferring control of a promised good or service to a
customer. The transfer of control of oil, natural gas, natural gas
liquids and petroleum, and other items usually coincides with title
passing to the customer and the customer taking physical
possession. The group principally satisfies its performance
obligations at a point in time; the amounts of revenue recognised
relating to performance obligations satisfied over time are not
significant.
When, or as, a performance obligation is satisfied, the group
recognises as revenue the amount of the transaction price that is
allocated to that performance obligation. The transaction price is
the amount of consideration to which the group expects to be
entitled. The transaction price is allocated to the performance
obligations in the contract based on standalone selling prices of
the goods or services promised.
Contracts for the sale of commodities are typically priced by
reference to quoted prices. Revenue from term commodity contracts
is recognised based on the contractual pricing provisions for each
delivery. Certain of these contracts have pricing terms based on
prices at a point in time after delivery has been made. Revenue
from such contracts is initially recognised based on relevant
prices at the time of delivery and subsequently adjusted as
appropriate. All revenue from these contracts, both that recognised
at the time of delivery and that from post-delivery price
adjustments, is disclosed as revenue from contracts with
customers.
Royalty income is recognized as it accrues in accordance with
the terms of the overriding royalty agreements.
Processing income is recognized at the time the services are
rendered.
Finance income
Finance income consists of bank interest on cash and cash
equivalents which is recognised as accruing on a straight-line
basis, over the period of the deposit.
Share-based payments
Equity-settled share-based payments to employees and others
providing similar services are measured at the fair value of the
equity instruments at the grant date. The fair value excludes the
effect of non-market-based vesting conditions.
The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Company's estimate of
equity instruments that will eventually vest. At each balance sheet
date, the Company revises its estimate of the number of 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.
Business combinations
Acquisitions of business are accounted for using the acquisition
method. The consideration transferred in a business combination is
measured at fair value, which is calculated as the sum of the
acquisition -- date fair values of assets transferred by the Group,
liabilities incurred by the Group to the former owners of the
acquiree and the equity interest issued by the Group in exchange
for control of the acquiree. Acquisition -- related costs are
recognised in profit or loss as incurred.
At the acquisition date, the identifiable assets acquired and
the liabilities assumed are recognised at their fair value at the
acquisition date.
Goodwill is measured as the excess of the sum of the
consideration transferred, the amount of any non -- controlling
interests in the acquiree, and the fair value of the acquirers
previously held equity interest in the acquiree (if any) over the
net of the acquisition -- date amounts of the identifiable assets
acquired and the liabilities assumed. If, after reassessment, the
net of the acquisition -- date amounts of the identifiable assets
acquired and liabilities assumed exceeds the sum of the
consideration transferred, the amount of any non -- controlling
interests in the acquiree and the fair value of the acquirers
previously held interest in the acquiree (if any), the excess is
recognised immediately in profit or loss as a bargain purchase
gain.
Changes in accounting standards
The standards which applied for the first time this year have
been adopted and have not had a material impact.
IFRS 11 'Joint Operations'
The standard is effective on or after 1 January 2020. The
amendments to IFRS 11 are related to changes in group composition.
If a joint operation becomes a subsidiary during the year, the
previously held interest in the joint operation should be
remeasured at fair value. However, no such remeasurement is
required in the joint operation if the entity obtains joint control
of another entity that is a joint operation. The amendments did not
have a material impact on the Company's financial statements.
IFRS 3 'Business Combination'
The standard is effective for periods beginning on or after 1
January 2020 and will be applied prospectively. The amendments
narrowed and clarified the definition of business and introduced an
election to use a fair value concentration test. This is a
simplified assessment that results in an asset acquisition, if
substantially all of the fair value of the gross assets is
concentrated in a single identifiable asset or a group of similar
identifiable assets. If an election to use a concentration test is
not made, or the test failed, then the assessment focuses on the
existence of a substantive process. The amendment did not have a
material impact on the Company's financial statements as both the
Gain and the Toscana acquisitions met the definition of a business
and the asset concentration test was not applied.
IAS 1 'Presentation of Financial Statements' and IAS 8
'Accounting Policies, Changes in Account Estimates and Errors'
The amendments are effective for periods beginning on or after 1
January 2020. Both the amendments to IAS 1 and IAS are related to
the definition of material and did not have a material impact on
the Company's financial statements.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial statements using accounting
policies consistent with IFRS requires the Directors to make
estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of income and expenses. The
preparation of financial statements also requires the Directors to
exercise judgement in the process of applying the accounting
policies. Changes in estimates, assumptions and judgements can have
a significant impact on the financial statements.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised
prospectively from the period in which the estimates are
revised.
There are no critical judgements identified, apart from those
involving estimations (which are dealt with separately below) that
the Directors have made in the process of applying the Company's
accounting policies and that have the most significant effect on
the amounts recognised in the financial statements.
Critical Accounting Judgements
The following are critical judgments, apart from those involving
estimations (which are presented separately below), 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 recognise in the financial statements.
Carrying value of intangible exploration and evaluation
assets
At 31 December 2020, the Group held oil and gas E&E assets
of GBP48.8m (2019: GBP46.5m), note 13. The carrying value of
E&E assets are assessed for impairment when circumstances
suggest that they carrying amount may exceed its recoverable value.
In making this judgement the Management considers the indicators of
impairment in the intangible exploration and evaluation asset
accounting policies set out above. In particular, Management has
considered the expiration of the P.1987 licence on 31 December
2020, concluding that this does not represent an indicator of
impairment. Further discussion is provided in note 13.
Carrying value of property, plant and equipment - oil and gas
assets
At 31 December 2020, the Group held oil and gas PP&E assets
of GBP108.5m (2019: nil), note 12, which were acquired through the
Gain and Toscana acquisitions which completed in the period, note
4. These assets are subject to an annual impairment assessment
under IAS 36 'Impairment of assets' whereby Management is first
required to consider if there are any indicators of impairment, and
if so, Management is then required to estimate the asset's
recoverable amounts. The judgement over indicators of impairment
considers several internal and external factors, including changes
in estimated commercial reserves, changes in oil prices, and
changes in expected future operating and capital expenditure,
decommissioning expenditure, increases in cost of capital which may
indicate a higher discount rate is likely required in assessing the
assets recoverable amount. After considering the above, Management
has concluded that there was no indicators of impairment of oil and
gas PP&E assets as at 31 December 2020.
Fair value judgements for businesses acquired
The Group completed 2 acquisitions during the year ended 31
December 2020. Management has applied judgement in concluding that
the Group had acquired a business in both the Gain and Toscana
acquisitions. In accordance with IFRS 3 'Business combinations',
management has then applied judgement in estimating the fair value
of assets acquired and liabilities assumed, which included
estimates relating to oil and gas reserves, future production
rates, oil and gas prices, operating and capital expenditure,
decommissioning expenditure, and discount rates. Further details
are provided in note 4.
Key sources of estimation uncertainty
The key assumptions concerning the future, and other key sources
of estimation uncertainty at the reporting period that may have a
significant risk of causing a material adjustment to the carrying
amounts of assets and liabilities within the next financial year,
are discussed below.
Commercial hydrocarbon reserves estimates
Commercial hydrocarbon reserves are those that can be
economically extracted from the Group's oil and gas assets. These
estimates are based on information compiled by independent
qualified persons as at 31 December 2020 and consider a number of
factors, including assumptions about future commodity prices,
production rates, operating costs, exchange rates, and various
geological and geophysical technical factors to model reservoir
size, quality, and extractability. Reserve estimates may change
from period to period. Changes to reserves estimates may have a
material impact on the depreciation charge for oil and gas PP&E
assets, the decommissioning provision, the carrying value of
deferred tax assets, and the Group's conclusions around indicators
of impairment for oil and gas PP&E assets. The reserve reports
are available at https://i3.energy/.
The Group estimates it had acquired 57.8 MMboe of proved plus
probable reserves through the Gain and Toscana acquisitions. A 1.0
MMboe increase/decrease in this estimate would have
decreased/increased the oil and gas depreciation charge for the
period by GBP144 thousand, respectively.
Decommissioning costs
At 31 December 2020 the Group had recorded a decommissioning
provision of GBP66.8 million (2019: nil), which were assumed
through the Gain and Toscana acquisitions which completed in the
period, note 4. In estimating the amount of the provision,
Management makes various assumptions around costs, time to
abandonment and inflation rates, which are discounted at long term
government bond rates, see note 17.
The most difficult, subjective or complex assumptions include
the inflation rate and the discount rate. A 0.5% increase/decrease
in the inflation rate would have increased/decreased the
decommissioning provision by GBP9.9 million and GBP8.3 million,
respectively. A 0.5% increase/decrease in the discount rate would
have decreased/increased the decommissioning provision by GBP8.2
million and GBP10.0 million, respectively.
Recognition and measurement of deferred tax assets
At 31 December 2020, the Group held deferred tax assets of
GBP1.1 million (2019: nil) which result from deductible temporary
differences at the Group's Canadian operations. In accordance with
IAS 12 'Income Taxes', deferred tax assets shall be recognised for
all deductible temporary differences to the extent that it is
probable that taxable profit will be available against which the
deductible temporary difference can be utilised. The Group has
generated positive cash flows and profits from its Canadian
operations following the completion of the Gain and Toscana
acquisitions and expects to continue to do so in the future.
Management has applied judgement in determining the extent to which
it is probable that taxable profits will be available based on
estimates of future profits, which include estimates of commercial
reserves, oil prices, operating and capital expenditure, and
decommissioning expenditure. If future taxable profits differ from
these estimates, the recoverability of the deferred tax asset could
be impacted.
4 Business combinations
The Group completed two business acquisitions during the period.
Acquisition costs of GBP1.5 million relating to the two
acquisitions have been recognised in the statement of comprehensive
income.
Gain acquisition
On 6 July 2020 ("Gain PSA Date") the Group through its wholly
owned subsidiary i3 Energy Canada Limited ("i3 Canada") entered
into a binding purchase and sale agreement to acquire 100% of the
petroleum and infrastructure assets from Gain Energy Ltd. ("Gain")
for gross consideration of CAD80 million. On 4 August 2020 i3
Canada entered into a binding purchase and sale agreement to sell
the petroleum and infrastructure assets held by Gain which are in
Saskatchewan, to Harvard Resources Inc. ("Harvard") for CAD45
million, which was conditional only on the completion of the Gain
acquisition. The assets retained by i3 following the purchase from
Gain and sale to Harvard are solely in Alberta and shall be
referred to as the "Gain Assets".
The transaction completed on 3 September 2020 ("Acquisition
Date") at which point i3 obtained control of the Gain Assets, which
consist of 242 Gain-operated wells at an average working interest
of 78%, 1,044 non-operated wells at an average working interest of
14%, and the associated infrastructure. The acquisition enabled the
Group to diversify its portfolio and to obtain cash flow generating
assets.
The Gain Assets are an integrated set of activities and assets
that is capable of being conducted and managed for the purpose of
providing a return, and therefore constitute a business.
Accordingly, the transaction has been accounted for in accordance
with IFRS 3 'Business Combinations' which requires the assets
acquired and liabilities assumed to be recognised on the
acquisition date at their fair value. Legal title to the
Saskatchewan assets passed directly from Gain to Harvard and the
consideration for the Saskatchewan assets was paid directly from
Harvard to Gain, and therefore the net acquisition price of CAD35
million has been allocated across the assets acquired and
liabilities assumed in Alberta.
The acquisition had an effective date of 1 May 2020 and
therefore acquisition price of CAD35 million was (i) reduced by
CAD7.2 million for the income generated from all of Gain's assets
between the "Economic Effective Date" of 1 May 2020 and the
Acquisition Date; (ii) increased by CAD1.5 million for interest
accruing from the Economic Effective Date to the Acquisition Date
at Canadian Prime + 2.0% on the Gross consideration; and (iii)
increased by CAD1.1 million to compensate Gain for its management
of the assets between the Gain PSA Date and the Acquisition Date,
resulting in a net consideration of CAD30.4 million (GBP17.4
million).
The fair value of oil and gas assets is estimated based on
pre-tax net present value of PDP reserves as derived from a
reserves report by a firm of independent reservoir engineers dated
30 June 2020, adjusted for production in the intervening period,
discounted at a rate of 10%. The fair value of the decommissioning
provision is estimated based on rates published by the AER. These
represent a level 3 valuation in the IFRS 13 fair value hierarchy
as they are based on valuation techniques that use inputs which are
not based on observable market data. The fair value of the assets
acquired and liabilities assumed exceed the consideration by
GBP19.2 million, the gain on bargain purchase. It is likely that
the gain on bargain purchase arose due to the oil price recovery
between the date the purchase price was agreed and the acquisition
date.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table
below.
3 September
2020
GBP'000
--------------------------------------------------- -----------
Net consideration to allocate 17,444
Property, plant and equipment - oil and gas assets 93,027
Inventory 233
Decommissioning provisions (50,887)
Deferred tax liability (5,680)
Gain on bargain purchase (19,249)
--------------------------------------------------- -----------
Total 17,444
=================================================== ===========
The Gain assets contributed GBP12.1 million revenue (net of
royalties) and GBP0.3 million to the Group's Gross profit for the
period between the acquisition date and the reporting date. If the
acquisition of the Gain assets had been completed on the first day
of the financial year, Group revenues for the year would have been
GBP34.9 million and Group operating netback would have been GBP11.8
million. Operating netback is a non-IFRS measure, refer to Appendix
B. It is considered impractical to present the impact on profit as
if the acquisition had competed on the first day of the financial
year as it would require estimation of commercial reserves, future
development costs, various judgements over the decommissioning
provision, and certain administrative costs, all of which are not
readily available to Management, and therefore the impact on
operating netback has been presented instead.
Toscana acquisition
On 30 March 2020 ("Loan Purchase Date") the Company purchased
the rights and interests in Toscana Energy Income Corporation's
("Toscana") CAD24.8 million senior debt facility and CAD3.2 million
junior debt facility for total consideration of CAD3.0 million and
CAD0.4 million, respectively, with the cash consideration paid 50%
upfront and 50% in early-2021. The Company also acquired an option
to purchase 100% of the issued and outstanding common shares of
Toscana, a TSX listed oil and gas company with operations in the
WCSB. On 23 June 2020 ("Arrangement Agreement Date") the Company
exercised this option for a total consideration of 4,399,215
ordinary shares of i3. The transaction completed on 30 October 2020
("Acquisition Date") following at which point i3 obtained control
of Toscana. The acquisition enabled the Group to diversify its
portfolio, increase operating cash flow, and provides an interest
in a Canadian operator.
The Toscana assets are an integrated set of activities and
assets that is capable of being conducted and managed for the
purpose of providing a return, and therefore constitute a business.
Accordingly, the transaction has been accounted for in accordance
with IFRS 3 'Business Combinations' which requires the assets
acquired and liabilities assumed to be recognised on the
acquisition date at their fair value.
The fair value of oil and gas assets is estimated based on
pre-tax net present value of PDP reserves as derived from a
reserves report by a firm of independent reservoir engineers dated
30 June 2020, adjusted for production in the intervening period,
discounted at a rate of 10%. The fair value of the decommissioning
provision is estimated based on rates published by the AER. These
represent a level 3 valuation in the IFRS 13 fair value hierarchy
as they are based on valuation techniques that use inputs which are
not based on observable market data. The carrying amount of the
acquired working capital is considered to represent the fair value.
The fair value of the assets acquired and liabilities assumed
exceed the consideration by GBP6.0 million, the gain on bargain
purchase. It is likely that the gain on bargain purchase arose due
to the oil price recovery between the date the purchase price was
agreed and the acquisition date.
The fair value of the 4,399,215 ordinary shares issued as part
of the consideration paid for Toscana was determined based on the
closing trading price of 4.05 pence on 30 October 2020, totalling
GBP178 thousand. This, together with the CAD3.4 million (GBP2.0
million), results in net consideration of GBP2.2 million.
The amounts recognised in respect of the identifiable assets
acquired and liabilities assumed are as set out in the table
below.
30 October
2020
GBP'000
--------------------------------------------------- ----------
Net consideration to allocate 2,186
Cash and cash equivalents 262
Trade and other receivables 926
Property, plant and equipment - oil and gas assets 21,799
Deposit 683
Deferred tax asset 6,073
Trade and other payables (3,390)
Decommissioning provisions (18,205)
Gain on bargain purchase (5,962)
--------------------------------------------------- ----------
Total 2,186
=================================================== ==========
The net cash outflow arising on acquisition was GBP0.7 million,
which consists of the GBP2.0 million cash consideration to acquire
Toscana's debt, less the GBP0.3 million cash and cash equivalent
balances acquired, less the second instalment of GBP1.0 million
which was paid in early 2021.
Toscana contributed GBP0.9 million revenue (net of royalties)
and lost GBP0.2 million to the Group's Gross profit for the period
between the acquisition date and the reporting date. If the
acquisition of Toscana had been completed on the first day of the
financial year, Group revenues for the year would have been GBP17.0
million and Group operating netback would have been GBP4.9 million.
Operating netback is a non-IFRS measure, refer to Appendix B. It is
considered impractical to present the impact on profit as if the
acquisition had competed on the first day of the financial year as
it would require estimation of commercial reserves, future
development costs, various judgements over the decommissioning
provision, and certain administrative costs, all of which are not
readily available to Management, and therefore the impact on
operating netback has been presented instead.
5 Segmental Reporting
The Chief Operating Decision Maker (CODM) is the Board of
Directors. In 2019, they considered that the Group operated in a
single segment, that of corporate activities in the UK and oil and
gas exploration, appraisal and development on the UKCS, and
therefore comparative 2019 information has not been presented.
Following the Gain and Toscana acquisitions in 2020, they consider
that the Group operates as two segments, as follows:
-- UK / Corporate - That of Corporate activities in the UK and
oil and gas exploration, appraisal and development on the UKCS.
-- Canada - That of oil and gas production in the WCSB.
Such components are identified on the basis of internal reports
that the Board reviews regularly.
The following is an analysis of the Group's revenue and results
by reportable segment in 2020:
UK / Corporate Canada Total
GBP'000 GBP'000 GBP'000
----------------------------- -------------- -------- --------
Revenue - 12,991 12,991
Production costs - (8,075) (8,075)
Depreciation and depletion (5) (4,849) (4,854)
----------------------------- -------------- -------- --------
Gross (loss) / profit (5) 67 62
Administrative expenses (3,335) (2,420) (5,755)
Acquisition costs (989) (553) (1,542)
Bargain purchase gain 5,962 19,249 25,211
----------------------------- -------------- -------- --------
Operating profit 1,633 16,343 17,976
Finance costs (7,108) (260) (7,368)
----------------------------- -------------- -------- --------
(Loss) / profit before tax (5,475) 16,083 10,608
Tax credit for the year 383 727 1,110
----------------------------- -------------- -------- --------
(Loss) / profit for the year (5,092) 16,810 11,718
============================= ============== ======== ========
The following is an analysis of the Group's assets and
liabilities by reportable segment as at 31 December 2020 and the
capital expenditure for the year then ended:
UK / Corporate Canada Total
GBP'000 GBP'000 GBP'000
--------------------------- -------------- -------- ---------
Total assets 48,932 125,189 174,121
Total liabilities (24,160) (76,765) (100,925)
Capital expenditure - E&E 2,281 - 2,281
Capital expenditure - PP&E - 697 697
6 Revenue
All revenue is derived from contracts with customers and is
comprised of the sale of oil and gas and processing income, net of
royalties, as follows:
2020 2019
GBP'000 GBP'000
------------------------------------- -------- --------
Oil and natural gas liquids 7,274 -
Natural Gas 5,978 -
Royalties (830) -
------------------------------------- -------- --------
Revenue from the sale of oil and gas 12,422 -
Processing income 569 -
------------------------------------- -------- --------
Total revenue 12,991 -
======== ========
All revenue is from the Group's Canadian operations and is
recognised at the point in time when title transfers to the
purchaser.
7 Administrative expenses
2020 2019
GBP'000 GBP'000
Restated *
------------------------------ -------- -----------
Directors' fees 229 159
Employee costs** 2,879 2,726
Professional fees*** 1,207 1,906
Realised FX (gain) / loss (16) (268)
Unrealised FX loss 68 28
Other 1,388 766
------------------------------ -------- -----------
Total administrative expenses 5,755 5,317
======== ===========
* The presentation, description, and classification of certain
comparative lines have been restated - see Note 2.
** Group staff costs comprised:
2020 2019
GBP'000 GBP'000
------------------------------------------ -------- --------
Wages, salaries and benefits 3,293 2,871
Stock-based payments expense - employees 336 1,206
Less: capitalised exploration expenditure (750) (1,351)
------------------------------------------ -------- --------
Charge to the profit or loss 2,879 2,726
======== ========
i3 Energy plc had no staff during the year ended 31 December
2020 (2019 - Nil) and therefore no payments were made. Director
remuneration is disclosed in note 10.
The average number of persons employed by the Group, including
Executive Directors, was:
Average number of persons employed 2020 Number 2019 Number
------------------------------------ ------------ ------------
Operations 13 8
Corporate and administration 7 4
------------------------------------ ------------ ------------
Total 20 12
============ ============
*** Included within professional fees are fees payable to the
Company's auditor and its associates for the following:
2020 2019
GBP'000 GBP'000
------------------------------------------- -------- --------
Audit services
The audit of the Company's annual accounts 80 37
The audit of the Company's subsidiaries - -
------------------------------------------- -------- --------
Total audit fees 80 37
Reporting accountant work in relation
to 2020 admission documents 170 -
Total 250 37
======== ========
8 Finance Costs
2020 2019
GBP'000 GBP'000
Restated *
----------------------------------------- -------- -----------
Accretion of loan notes 2,355 2,251
Interest expense on loan notes 2,487 1,372
Stock-based compensation - warrants
(note 19) 2,198 1,911
Unwinding of discount on decommissioning
provision (note 17) 214 -
Bank charges and interest on creditors 114 -
-------- -----------
Total finance costs 7,368 5,534
======== ===========
* The presentation, description, and classification of certain
comparative lines have been restated - see Note 2.
9 Taxation
Taxation credit
The below table reconciles the tax charge for the year to the
expected tax charge based on the result for the year and the
corporation tax rate.
2020 2019
GBP'000 GBP'000
Profit (loss) before income tax 10,608 (10,851)
Rate of Corporate Tax 40% 40%
--------- ---------
Expected tax charge / (credit) 4,243 (4,340)
Effects of:
Interest and other not deductible for
SCT 491 363
Permanent differences (4,415) 1,372
Foreign tax rate difference (3,747) -
Derecognition of deferred tax asset 2,701 2,570
R&D tax credit received (383) 35
--------- ---------
Total income tax (credit) (1,110) -
========= =========
Of which: 2020 2019
GBP'000 GBP'000
Current tax - prior years (383) -
Deferred tax - current year (727) -
--------- ---------
Total income tax (credit) (1,110) -
========= =========
During the year the Group received GBP383 thousand in R&D
tax refunds in the UK in respect of the 2017 and 2018 fiscal years.
The difference on foreign tax rate results from the 23% rate of
corporate taxation at its Canadian subsidiary.
Deferred tax
The components of the net deferred tax asset and the movements
during the year is summarised as follows:
At 31 December Acquired Recognised FX movement At 31 December
2019 during the in income 2020
year
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- -------------- ----------- ---------- ----------- --------------
UK:
Deferred tax assets:
Losses 23,467 - 2,297 - 25,764
Valuation allowance (4,846) - (1,392) - (6,238)
Deferred tax liabilities:
PP&E (18,621) - (905) - (19,526)
-------------- ----------- ---------- ----------- --------------
Net deferred tax - - - - -
asset
Canada:
Deferred tax assets:
Decommissioning
provision - 15,891 (535) 4 15,360
Losses - 5,845 (177) (43) 5,625
Other - 38 120 (1) 157
Valuation allowance - (7,974) - 62 (7,912)
Deferred tax liabilities:
PP&E - (13,407) 1,319 (90) (12,178)
-------------- ----------- ---------- ----------- --------------
Net deferred tax
asset - 393 727 (68) 1,052
Net deferred tax
asset - 393 727 (68) 1,052
============== =========== ========== =========== ==============
A deferred tax asset has not been recognised in respect of tax
losses and allowances in the UK due to uncertainty over the
availability of future taxable profits in the UK to offset these
losses against.
The Group recognised a net deferred tax asset through the Gain
and Toscana acquisitions of GBP393 thousand, and a deferred tax
recovery of GBP727 thousand for changes in net deductible temporary
differences in the year. The deferred tax asset has been recognised
in Canada to the extent that the Group anticipates probable future
taxable profits to against which the assets can be utilised.
The Group's estimated tax pools are summarised in the following
table. The non-capital tax loss pools in Canada expire over a
period of 20 years. All other tax pools do not expire.
31 December 31 December
2020 2019
GBP'000 GBP'000
-------------------------------------- ----------- -----------
UK:
Taxable losses 20,585 14,942
Mineral extraction allowances 48,809 46,528
----------- -----------
69,394 61,470
Canada:
Canadian exploration expense 3,068 -
Canadian development expense 4,698 -
Canadian oil and gas property expense 39,311 -
Undepreciated capital cost 8,383 -
Non-capital losses 24,456 -
Other 684 -
-------------------------------------- ----------- -----------
Total 80,600 -
=========== ===========
10 Directors Remuneration
Salary / Bonus Share based payments Total
Fees
GBP'000 GBP'000 GBP'000 GBP'000
--------------------- -------- ------- -------------------- -------
2020
Executive Directors
Majid Shafiq 313 389 30 732
Graham Heath 244 329 19 592
Non-Executive
Directors
David Knox 22 - - 22
Neill Carson 57 - 6 63
Richard Ames 54 - 6 60
Linda Beal 70 - - 70
John Festival 6 - - 6
--------------------- -------- ------- -------------------- -------
Total 766 718 61 1,545
======== ======= ==================== =======
2019 Salary / Bonus Share based payments Total
Executive Directors Fees
Majid Shafiq 271 - 319 590
Graham Heath 201 163 146 510
Neill Carson - 110 - 110
Non-Executive
Directors
David Knox 60 - - 60
Neill Carson 35 - 30 65
Richard Ames 45 - 30 75
Linda Beal 15 - - 15
--------------------- -------- ------- -------------------- -------
Total 627 273 525 1,425
======== ======= ==================== =======
During the year the Company contributed GBP2 thousand to i3's
CEO's pension scheme (2019 - GBP2 thousand).
The total amount of Directors' fees to the Non-Executive
Directors, in 2020, in the amount of GBP59 thousand (2018 - GBP116
thousand) had been accrued. The accrued Non-Executive Directors'
fees were paid 5 January 2021.
11 Earnings per share
From continuing operations
Basic earnings or loss per share is calculated as profit/(loss)
for the period, adjusted to exclude any costs of servicing equity
(other than dividends), divided by the weighted average number of
ordinary shares, adjusted for any bonus element.
Diluted earnings or loss per share amounts are calculated by
dividing losses or profits for the period attributable to ordinary
equity holders of the parent by the weighted average number of
ordinary shares outstanding during the year, plus the weighted
average number of shares that would be issued on the conversion of
dilutive potential ordinary shares into ordinary shares.
The calculation of the basic and diluted earnings per share is
based on the following data:
Year Ended Year Ended
31 December 31 December
2020 2019
------------------------------------------ ------------ ------------
Earnings
Earnings (loss) for the purposes of
basic and diluted earnings per share
being net loss attributable to owners
of i3 Energy (GBP'000) 11,718 (10,851)
Weighted average number of shares
Weighted average number of Ordinary
Shares - basic 309,889,077 80,869,438
Effect of dilutive potential ordinary
shares:
Share options 2,399,909 -
Warrants 26,700,708 -
------------ ------------
Weighted average number of Ordinary
Shares - diluted 338,989,694 80,869,438
Basic earnings / (loss) per share (pence) 3.78 (13.42)
Diluted earnings / (loss) per share
(pence) 3.46 (13.42)
The Share options and Warrants were anti-dilutive in 2019 as the
Group incurred a loss. Prior to their repricing on 28 October 2020
and 23 June 2020 (note 20), respectively, these instruments were
anti-dilutive as their exercise prices exceeded the average market
price of the Ordinary Shares over this period. The Share options
and Warrants were dilutive following their re-pricing and their
impact is presented in the table above.
12 Property, plant and equipment
Oil and gas Right of use Other fixed Total
assets assets assets
------------------------------- ----------- ------------ ----------- -------
Cost
As at 1 January 2019 - - 19 19
Additions - - 3 3
------------------------------- ----------- ------------ ----------- -------
As at 31 December 2019 - - 22 22
Acquisitions 114,826 - 114,826
Additions 697 110 - 807
Changes to decommissioning
estimates (2,310) - - (2,310)
Decommissioning settlements
under SRP (note 17) (104) - - (104)
Exchange movement 84 (2) - 82
------------------------------- ----------- ------------ ----------- -------
As at 31 December 2020 113,193 108 22 113,323
Accumulated depreciation
As at 1 January 2019 - - (5) (5)
Charge for the year - - (9) (9)
------------------------------- ----------- ------------ ----------- -------
As at 31 December 2019 - - (14) (14)
Charge for the year (4,843) (6) (5) (4,854)
Exchange movement 54 - - 54
------------------------------- ----------- ------------ ----------- -------
As at 31 December 2020 (4,789) (6) (19) (4,814)
Carrying amount at 31 December
2019 - - 8 8
------------------------------- ----------- ------------ ----------- -------
Carrying amount at 31 December
2020 108,404 102 3 108,509
=========== ============ =========== =======
Right of use assets consist of certain field vehicles whose
leases commenced in September 2020.
13 Exploration and evaluation assets (Intangible)
Year Ended Year Ended
31 December 31 December
2020 2019
GBP'000 GBP'000
As at 1 January 46,528 5,707
Additions 2,281 40,821
------------ ------------
As at 31 December 48,809 46,528
============ ============
The Directors have considered the carrying value of the
exploration and evaluation assets as at 31 December 2020 and
concluded that no indicators of impairment arose during the period.
In reaching this conclusion, the Directors has given particular
attention to the relinquishment of UKCS Licence P.1987 which
reached the end of its two-year second term on 31 December 2020.
Licence P.1987 encompasses UK Block 13/23d which contains
contingent resources for the Group's Liberator asset, which have
been evaluated as sub-commercial by i3 and in an 'independent
competent person' report and as such do not represent a viable
commercial development. i3 may choose to re-apply for Licence
P.1987 licence in the future if justified by its appraisal of the
Liberator West / Minos High prospective areas and/or the Serenity
discovery. The relinquishment will result in a significant saving
in licence fees whilst i3 progresses its appraisal of resources on
its adjoining P.2358 Licence.
This relinquishment has no impact on Licence P.2358, which
commenced its four-year second term on 30th September 2020 and
contains the vast majority of the resources and potential reserves
in the Company's UK acreage. Licence P.2358 includes the Serenity
discovery and the Liberator West and Minos High prospective areas,
which will be the focus of plans for appraisal and exploration
drilling.
14 Trade and other receivables
31 December 31 December
2020 2019
GBP'000 GBP'000
---------------------------------- ----------- -----------
Trade receivables 6,295 -
VAT receivables 46 290
JV receivables 864 -
Prepayments & other receivables 1,526 15
----------- -----------
Total trade and other receivables 8,731 305
=========== ===========
Other receivables are all due within one year.
The fair value of other receivables is the same as their
carrying values as stated above and they do not contain any
impaired assets.
The maximum exposure to credit risk at the reporting date is the
carrying value of each class of receivable mentioned above. The
Group does not hold any collateral as security.
15 Trade and other payables
31 December 31 December
2020 2019
GBP'000 GBP'000
------------------------------- ----------- -----------
Trade creditors 7,780 12,024
Accruals 5,146 6,181
JV Payables 230 -
Total trade and other payables 13,156 18,205
=========== ===========
The average credit period taken for trade purchases is 30 days.
No interest is charged on the trade payables. The carrying values
of trade and other payables are considered to be a reasonable
approximation of the fair value and are considered by the Directors
as payable within one year.
Non-current accounts payable
On 2 July 2019 the Group agreed with a supplier that GBP3.0
million of oilfield service and oilfield equipment contract
payments will not become payable until such time as i3 has received
its first sales revenues from Liberator Phase I. This payable has
been recorded as a non-current accounts payable. On 17 May 2021 the
terms were restructured, see note 23.
16 Borrowings
H1-2019 loan note facility
In May 2019, the Company completed a GBP22 million H1-2019 loan
note facility ("H1-2019 LN"). The H1-2019 LNs have a term of 4
years, maturing on 31 May 2023 and bearing interest, payable on a
quarterly basis at the Company's option (i) in cash at a rate of 8%
per annum, or (ii) in kind (at i3's option) at a rate of 11% per
annum by the issuance of additional H1-2019 LNs.
The noteholders were granted warrants ("H1-2019 LN Warrants") in
the notional amount of GBP1 for each GBP1 of loan notes issued,
with H1-2019 Warrants being issued proportionately across three
series. The H1-2019 LN Warrants vested on the issue date and expire
4 years thereafter and can be exercised through either/or a
combination of a cash payment and/or surrender of H1-2019 LNs plus
accrued interest equal to the aggregate notional amount of the
H1-2019 LN Warrants being exercised. Each H1-2019 LN Warrant gives
the holder the right to convert the notional amount into such
number of shares as is derived by dividing the notional amount by
the exercise price.
Notional Exercise Shares to Share price Time to Value (
amount of price upon be issued at issuance maturity GBP/share)
warrants issuance upon exercise ( GBP) (years)
( GBP) ( GBP/share) of warrants
Tranche
1 7,333,333 0.4070 18,018,018 0.39 4 0.2557
Tranche
2 7,333,333 0.4810 15,246,015 0.39 4 0.2435
Tranche
3 7,333,333 0.5550 13,213,213 0.39 4 0.2313
Total fair value of the Tranche 1, Tranche 2 and Tranche 3
warrants on issuance was GBP11,375,184 and was bifurcated from the
debt contract and classified as equity.
The H1-2019 LNs are comprised of the following components: the
debt contract, the conversion feature, the interest rate payment
option and the early conversion feature (at i3's option). At
inception the debt component was recorded at an estimated fair
value of GBP10,624,816. The debt balance is unwound using the
effective interest rate method to the principal value at maturity
with a corresponding non-cash accretion charge to earnings.
On the 23 June 2020 the Company amended the 30 April 2020
Development Funding Long-stop Date (previously amended on 8
November 2019 when the Majority Noteholders of the Company's
secured loan notes agreed to extend the date by which the Company
must either inter into a reserves based lending facility or find an
alternative means of funding to achieve first oil from the
Liberator field, to 30 April 2020). As the Company was not in a
position to enter into such a facility by 30 April 2020, the
Company and the Majority Noteholders have come to an agreement to
waive this condition in return for certain amendments to the May
2019 Loan Note Instrument and the associated Warrant
Instruments.
The Loan Note Instrument Amendments are as follows:
The obligation to enter into a development facility for
Liberator by a certain date has been removed. A new Corporate
Development Long-stop Date had been set for 30 September 2020 prior
to which i3 has to achieve one of the following Corporate
Development Longstop Conditions:
-- Secure firm irrevocable commitments for a minimum GBP15mm of
unsecured or fully subordinated financing, subject only to closing
mechanics; or
-- Agree a farm-out and/or funding term sheet, subject only to
legal documentation to fund the drilling of a least one appraisal
well on Serenity during 2020 or 2021; or
-- Execute an acquisition agreement for at least 2500 boepd of production net to i3.
In addition, the Company has an obligation to achieve net
corporate production at or above 5000 boepd by 30 April 2021. These
requirements were met with the completion of the Gain acquisition
on 3 September 2020.
The Loan Note Instrument amendments include the requirement that
the currently outstanding i3 management options will be cancelled,
and replacement options will be issued to i3 staff and directors
which replicate the terms of the adjusted Loan Note warrants (the
"New Options") in relation to the exercise price, to seek alignment
between the Noteholders and management (note 20).
The Warrant Instrument Amendments are as follows:
All warrants associated with the Loan Notes will have their
strike prices reset to the nominal value of i3 shares
(GBP0.0001/share). The Company calculated the difference in the
fair value of the unmodified and modified warrants at the
modification date of June 23, 2020 resulting in an additional
expense of GBP2,199 thousand recognized in share-based payment
expense (note 19).
The Loan Note Instrument Amendments is a related-party
transaction under Rule 13 of the AIM Rules for Companies as a
result of the Company's largest shareholder, Bybrook Capital LLP
(owning 13.87% of the Company's issued shares) being a Loan Note
holder. In addition, the amendments to the managements options is a
related-party transaction for the purposes of Rule 13 of the AIM
Rules for Companies. In relation to these transactions, Linda Beal
is considered to be independent for the purposes of AIM Rule 13.
Having consulted with WH Ireland Limited, the Company's Nominated
Advisor ("Nomad"), the independent director considers that the
terms of the related-party transactions are fair and reasonable
insofar as shareholders are concerned.
The H1-2019 LNs are redeemable before the maturity date and the
holders are secured against the Company's assets. The Company may
repay all or part of the H1-2019 LNs within the first 12 months at
116% of par and at par plus accrued interest thereafter. The fair
value of the repayment option is nil at 30 June 2020.
Interest expense and accretion expense to 31 December 2020 was
GBP2,486 and GBP2,355 respectively.
Borrowings reconciliation
Convertible H1-2019 LN Leases Total
loan notes
("CLNs")
GBP'000 GBP'000 GBP'000 GBP'000
-------------------- ----------- ---------- ------- --------
At 1 January
2019 592 - - 592
Issued - 22,000 - 22,000
H1-2019 LN Warrants - (11,375) - (11,375)
Increase through
interest (152) 1,227 - 1,075
Accretion expense 1,194 - 1,194
Conversion of
CLNs (65) - - (65)
Repayment of
CLNs (368) - - (368)
Foreign exchange (7) - - (7)
----------- ---------- ------- --------
At 31 December
2019 - 13,046 - 13,046
New leases - - 110 110
Increase through
interest - 2,486 1 2,487
Accretion expense - 2,355 - 2,355
Lease payments - - (10) (10)
Exchange movement - - (2) (2)
----------- ---------- ------- --------
At 31 December
2020 - 17,887 99 17,986
=========== ========== ======= ========
Convertible H1-2019 LN Leases Total
loan notes
("CLNs")
GBP'000 GBP'000 GBP'000 GBP'000
--------------- ----------- ---------- ------- -------
Of which:
Current - 28 28
Non-current - 17,887 71 17,958
----------- ---------- ------- -------
At 31 December
2020 - 17,887 99 17,986
=========== ========== ======= =======
17 Decommissioning provision
Year Ended
31 December
2020
GBP'000
-------------------------------------------------- ------------
At 1 January
Liabilities assumed through business combinations
(note 4) 69,092
Liabilities settled (109)
Liabilities settled under SRP (104)
Change in estimates (2,310)
Unwinding of discount (note 8) 214
At 31 December 66,783
============
Year Ended
31 December
2020
GBP'000
--------------- ------------
Of which:
Current 1,234
Non-current 65,549
At 31 December 66,783
============
The decommissioning provision relates to liabilities assumed
through the Gain and Toscana acquisitions for the abandonment,
reclamation, and remediation of wells and facilities. The wells and
facilities are expected to be decommissioned at the end of their
useful life, which ranges from 2021 to 2071. Estimated costs have
been inflated at a rate of 1.0% per annum and discounted at a rate
of 1.21% per annum. The change in estimate is largely due to
increases in market interest rates from the date of the
acquisitions, which was 1.04% at the time of the Gain acquisition
and 1.25% at the time of the Toscana acquisition. Abandonment costs
are forecast to occur between 1 and 50 years.
Liabilities settled reflect work undertaken in the year. This
includes wells decommissioned under Alberta's Site Rehabilitation
Program ("SRP") whereby certain costs of settling the Group's
liabilities were borne by the Government of Canada. Where
liabilities were settled through the SRP a corresponding decrease
to the decommissioning asset was recorded.
Liabilities settled reflect work undertaken in the year. This
includes wells decommissioned under Alberta's Site Rehabilitation
Program ("SRP") whereby certain costs of settling the Group's
liabilities were borne by the Government of Canada. Where
liabilities were settled through the SRP a corresponding decrease
to the decommissioning asset was recorded.
18 Authorised, issued and called-up share capital
Issuance Ordinary Deferred Nominal Ordinary Deferred Share Share Share
date shares shares value per shares shares premium issuance premium
Share before costs after
share Share
issuance issuance
costs costs
Shares Shares GBP GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
As at 31 December 2018 41,017,438 5,000 - 4 50 9,538 323 9,215
Issued at 37
pence/share 18 Mar 19 11,005,527 - 0.0001 1 - 4,071 266 3,805
Issued at 37
pence/share 01 Apr 19 32,237,716 - 0.0001 3 - 11,925 704 11,221
Issued at 37
pence/share 04 Apr 19 2,131,538 - 0.0001 - - 788 - 788
Issued at 37
pence/share 05 Apr 19 983,059 - 0.0001 - - 364 - 364
Issued at 37
pence/share 31 May 19 5,405,405 - 0.0001 1 - 1,999 100 1,899
Issued at 43
pence/share 31 May 19 653,002 - 0.0001 - - 281 - 281
Issued at 35
pence/share 06 Dec 19 14,285,715 - 0.0001 2 - 4,999 - 4,999
----------- ---------- --------- ---------- ---------- --------- ---------- ---------
As at 31 December 2019 107,719,400 5,000 - 11 50 33,965 1,393 32,572
Warrants
exercised
at 0.01
pence/share 24 Aug 20 6,788,945 - 0.0001 1 - - - 1,661
Issued at 5
pence/share 28 Aug 20 581,147,255 - 0.0001 58 - 28,999 1,806 27,194
Issued for
Toscana
acquisition
(note 4) 30 Oct 20 4,399,215 - 0.0001 - - 178 - 178
700,054,815 5,000 - 70 50 63,142 3,199 61,605
=========== ========== ========= ========== ========== ========= ========== =========
The ordinary shares confer the right to vote at general meetings
of the Company, to a repayment of capital in the event of
liquidation or winding up and certain other rights as set out in
the Company's articles of association.
The deferred shares do not confer any voting rights at general
meetings of the Company and do confer a right to a repayment of
capital in the event of liquidation or winding up, they do not
confer any dividend rights or any of redemption.
No dividends were proposed. (2019 - Nil).
19 Stock-based payments
During the year the Group had share based payment expense of
GBP2,534 thousand (2019: GBP3,117 thousand).
Employee and NED Share Options
During the year the Group had share based payment expense
relating to the issuance of share options of GBP335 thousand (2019:
GBP1,206 thousand). Details on the employee and NED share options
outstanding during the period are as follows:
Number of Weighted average Weighted average
options exercise price contractual
life
(pence)
---------------------------- ------------ ---------------- ----------------
At 1 January 2019 4,853,853 59.37 9.19
Granted during the year 7,398,160 37.28 10.00
------------ ---------------- ----------------
At 31 December 2019 12,252,013 46.03 8.91
Cancelled - 28 October 2020 (12,252,013) 46.06 8.09
Issued - 28 October 2020 12,128,955 0.01 4.00
Issued - 3 December 2020 4,028,659 0.01 4.00
At 31 December 2020 16,157,614 0.01 3.85
============ ================ ================
On 28 October 2020, the Group cancelled all 12,252,013 employee
and NED share options ("Old Options") and replaced them with
12,128,955 newly issued options ("New Options") which replicated
the terms of the modified 1H-2019 LN warrants. The Old Options were
issued between 2017 and 2019 and had exercise prices ranging from
21.50 pence to 63.50 pence and a term of 10 years. The New Options
have an exercise price equal to the nominal value of i3 shares of
0.01 pence, a term of 4 years, and certain non-market based vesting
conditions. The incremental fair value of GBP130 thousand was
expensed in 2020 as all vesting conditions had been achieved. The
fair values were calculated using the Black Scholes model with
inputs for stock price of 4.30 pence, exercise price of 0.01 pence,
time to maturity of 4 years, volatility of 116%, and the Risk-Free
Interest rate of 0.273%.
On 3 December 2020, the Group issued 4,028,659 employee share
options on terms which replicated the New Options described above.
The fair value of GBP205 thousand was expensed in 2020 as all
vesting conditions had been achieved. The fair value was calculated
using the Black Scholes model with inputs for stock price of 6.10
pence, exercise price of 0.01 pence, time to maturity of 2.94
years, volatility of 120%, and the Risk-Free Interest rate of
0.291%.
All 16,157,614 outstanding employee share options as at 31
December 2020 were fully vested and exercisable.
Warrants
During the year the Group had share based payment expense
relating to the modification and issuance of warrants of GBP2,198
thousand (2019: GBP1,911 thousand). Details on the warrants
outstanding during the period are as follows:
Number of Weighted average Weighted average
warrants exercise price contractual
life
(pence)
--------------------------- ------------ ---------------- ----------------
At 1 January 2019 - - -
Granted during the year 61,002,357 46.98 3.52
------------ ---------------- ----------------
At 31 December 2019 61,002,357 46.98 3.04
Modified - 23 June 2020 (55,981,044) 46.09 2.67
Modified - 23 June 2020 55,981,044 0.01 2.67
Exercised - 24 August 2020 (6,788,945) 0.01 2.77
At 31 December 2020 54,213,412 5.27 1.98
============ ================ ================
On 23 June 2020, the Group modified all 46,477,246 1H-2019 LN
Warrants and 9,503,798 work fee warrants ("Old Warrants") to reset
their strike price equal to the nominal value of i3 shares 0.01
pence. The Old Warrants were split across 3 tranches with exercise
prices ranging from 40.70 pence to 55.50 pence (see note 16), and
the work fee warrants had an exercise of 40 pence. The incremental
fair value of GBP2,198 thousand was expensed in 2020. The
incremental fair values were calculated using the Black Scholes
model with inputs for stock price of 6.10 pence, exercise price of
0.01 pence, time to maturity of ranging from 1.38 to 2.94 years,
volatility of 120%, and the Risk-Free Interest rate of 0.291%.
On 24 August 2020, 6,788,945 warrants were exercised, and GBP1.7
million was reclassified from the Warrants-LN to the Share premium
accounts within equity.
EMI Options
The Company operates an Employee Management Incentive (EMI)
share option scheme. Grants were made on 14th April 2016 and 6th
December 2016. The scheme is based on eligible employees being
granted EMI options. The right to exercise the option is at the
employee's discretion for a ten-year period from the date of
issuance. 500,000 options were exercisable at both 31 December 2019
and 2020 at a price equal to GBP0.11 per share respectively. If the
options remain unexercised after a period of ten years from the
date of grant the options expire. Employees who leave i3 Energy
have 60 days to exercise the Options prior to them being forfeited.
The options outstanding at 31 December 2020 have a weighted average
exercise price of GBP0.11 and a weighted average remaining
contractual life of 5.92 years.
20 Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Remuneration of Key Management Personnel
Directors of the Group are considered to be Key Management
Personnel. The remuneration of the Directors is set out in note
10.
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Ultimate parent
There is no ultimate controlling party of the Group.
21 Financial instruments and capital risk management
All financial instruments are carried at amortised cost.
Financial Risk Management
Financial Risk Factors
The Group's activities expose it to a variety of financial
risks; market risk (including foreign currency risk and price
risk), credit risk and liquidity risk. The Group's overall risk
management programme focuses on the unpredictability of financial
markets and seeks to minimise potential adverse effects on the
Group's financial performance.
Risk management is carried out by the Board of Directors under
policies approved at Board meetings. The Board frequently discusses
principles for overall risk management including policies for
specific areas such as foreign exchange.
a Market Risk
i Foreign Exchange Risk
The Group is exposed to foreign exchange risk arising from
various currency exposures, primarily with respect to the UK pound
sterling and the Canadian dollar and US Dollar. Foreign exchange
risk arises from recognised monetary assets and liabilities (USD
and CAD bank accounts) where they may be denominated in a currency
that is not the local functional currency. The Group mitigates is
foreign exchange exposure by holding monetary assets and
liabilities primarily in the local functional currency. All of the
monetary assets and liabilities held by the Group's Canadian
operations were held in CAD, the functional currency, and therefore
there is no foreign exchange exposure in the Canadian operations.
The UK operations held net monetary liabilities denominated in CAD
of GBP977 thousand. A 10% strengthening of GBP against CAD would
have increased profit after tax by GBP89 thousand, and a 10%
weakening of GBP to CAD would have decreased profit after tax by
GBP109 thousand. The UK operations held net monetary liabilities
denominated in USD of GBP2,181 thousand. A 10% strengthening of GBP
against USD would have increased profit after tax by GBP197
thousand, and a 10% weakening of GBP to USD would have decreased
profit after tax by GBP241 thousand. The impact on equity is the
same as the impact on profit after tax.
The Group is also exposed to exchange differences on translation
of its foreign operations in Canada, which resulted in a loss of
GBP185 thousand for the year ended 31 December 2020. A 10%
strengthening of GBP against CAD as at 31 December 2020 would have
resulted in a loss on translation of GBP4,522 thousand, and a 10%
weakening of GBP to CAD would have resulted in a gain of GBP5,201
thousand. Profit after tax would not be impacted.
b Credit Risk
Credit risk arises from cash and cash equivalents and trade
receivables from the sale of hydrcarbons. It is Group policy to
assess the credit risk of new customers.
The Group considers the credit ratings of banks in which it
holds funds in order to reduce exposure to credit risk. The Group
will only keep its holdings of cash with institutions which have a
minimum credit rating of 'A'. The Group sells hydrocarbons to
reputable purchasers and are settled the month following their
sale. Long-term deposits for decommissioning provisions are lodged
with government bodies. The carrying value of cash and cash
equivalents and trade and other receivables represents the Group's
maximum exposure to credit risk at year end.
The Group considers that it is not exposed to major
concentrations of credit risk.
The Group holds cash as a liquid resource to fund its
obligations. The Group's cash balances are held in Sterling
Canadian Dollar, and US Dollar. The Group's strategy for managing
cash is to maximise interest income whilst ensuring its
availability to match the profile of the Group's expenditure. This
is achieved by regular monitoring of interest rates and monthly
review of expenditure forecasts.
c Liquidity Risk
The Group has relies upon debt and equity funding, and cash flow
from its Canadian operations to finance operations. The Directors
are confident that adequate funding will be forthcoming with which
to finance operations. Controls over expenditure are carefully
managed.
The Group ensures that its liquidity is maintained by a
management process which includes projecting cash flows and
considering the level of liquid assets in relation thereto,
monitoring Balance Sheet liquidity and maintaining funding sources
and back-up facilities.
The Group's expected cash flows for its financial liabilities
are presented in the following table and includes undiscounted
principal and expected interest payments.
6 Months 6-12 months 1-2 years 2+ years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- -------- ----------- --------- -------- -------
Trade and other
payables 13,155 - - - 13,155
Non-current payable
* - - - 3,000 3,000
H1 2019 LNs - - - 22,000 22,000
H1 2019 PIK interest
** - - - 9,680 9,680
Leases 15 15 17 - 47
Total 13,170 15 17 34,680 47,882
======== =========== ========= ======== =======
* The non-current payable will not become payable until such
time as i3 has received its first sales revenues from Liberator
Phase I (see Note 15). As there is no fixed term and revenue is not
expected from Liberator Phase I for at least 2 years, this has been
categorised as 2+ years.
** The H1 2019 LNs have an early redemption option and the
interest can be paid in either cash or in kind (see note 16). The
table assumes no early redemption and that all interest is paid in
kind at the maturity.
d Commodity Price Risk
Commodity price risk in the Group primarily arises from price
fluctuations in markets for the Group's oil and gas products. The
Group currently does not actively managed commodity price risk
through entering into fixed price contracts or other hedging
activities. This Group continually reviews its hedging strategy and
may take measures to mitigate commodity price risk in the future.
The Group entered into certain commodity hedge contracts in 2021,
see note 23.
Capital Risk Management
The Group's objectives when managing capital are to safeguard
the Group's ability to position as a going concern and to continue
its development and production activities. The capital structure of
the Group consists of borrowings and leases of GBP17,986 thousand
at 31 December 2020 (2019 - GBP13,046 thousand) (note 16), has
capital, defined as the total equity and reserves of the Group of
GBP79,888 (2019 - GBP31,660) and cash and equivalents of GBP6,178
(2019 - GBP19,070).
The group monitors its level of cash resources available against
future planned exploration and evaluation activities and may issue
new shares in order to raise further funds from time to time.
22 Commitments
1 year 1-2 years 3-4 years 5+ years Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------- ------- --------- --------- -------- -------
Operating 57 11 - - 68
Transportation 1,605 1,099 340 121 3,165
Total 1,662 1,110 340 121 3,233
======= ========= ========= ======== =======
Operating commitments relate to offices leases in the UK that
expires in April 2022 and a field office lease in Canada that
expires in July 2021. Transportation commitments relate to
take-or-pay pipeline capacity in Alberta.
In addition to the above, as at 31 December 2020, the Company
had cancellation exposure to certain long-lead items for its
Liberator development totalling GBP3,960 thousand (2019 - GBP3,960
thousand).
23 Events after the reporting period
On 4 January 2021 the Company announced that it had relinquished
UKCS licence P.1987 as it was at the end of its two-year term and
i3 had determined the contingent resources associated with the
licence were sub-commercial on a stand-alone basis. i3 may re-apply
for the licence in the future if it is justified following the
appraisal of the prospective Liberator West and/or Minos High
areas, or after further drilling at its Serenity discovery. The
relinquishment results in a significant savings in licence fees and
has no impact on the Company's P.2358 licence which contains the
vast majority of i3's resource potential in the UK North Sea.
Also on 4 January, the Company announced that it had replaced
one of its brokers, Mirabaud Securities, with Tennyson Securities,
the new home of the oil and gas corporate finance, equity research
and sales team that departed Mirabaud Securities.
On 10 January, the Company issued options over a total of
13,166,358 ordinary shares to key staff that joined its Canadian
subsidiary, i3 Energy Canada Ltd., following the acquisition of
Gain's oil & gas assets. The options were issued in accordance
with the rules of the Company's Employee Share Option Plan at an
exercise price of GBP0.061 per share, the closing price on 8
January 2021. One-third of the options vested immediately, with a
further one-third vesting in July 2021 if production exits at or
above 9,000 boepd, and 100 per cent will vest if there is an
addition of 5,000 boepd or, alternatively, 25 MMboe 2P reserves.
The options will otherwise fully vest on the third anniversary.
On 10 January, the Company also issued options over a total of
75,184,252 ordinary shares as described in the Gain-related
Readmission document released on 11 August 2020. The options were
issued in accordance with the rules of the Company's Employee Share
Option Plan at an exercise price of GBP0.05 per share. Options
issued to employees of i3 Canada contain the same vesting
conditions as the GBP0.061 options described in the paragraph
above. Of the options issued to employees of i3 North Sea Limited,
one-third of the options vested immediately, with a further
one-third vesting at the spud of the next Serenity / Liberator
appraisal well, and 100 per cent will vest upon a third-party
reserve auditor attributing 25 MMbbls 2P post drilling of a
Serenity / Liberator appraisal well. The options will otherwise
fully vest on the third anniversary. Of the options issued to the
executive and non-executive directors and one corporate employee,
one-third of the options vested immediately, with a further
one-third vesting upon the earlier of spud of the next Serenity or
Liberator appraisal well; and July 2021 production exits being at
or above 9,000 boepd, and 100% will vest upon the earlier of a
third-party reserve auditor attributing 25 MMbbls 2P post drilling
of a Serenity or Liberator appraisal well and the addition of 5,000
boepd or 25 MMboe 2P reserves. The options will otherwise fully
vest on the third anniversary. .Of the options issued to the
executive and non-executive directors and one corporate employee,
one-third of the options vested immediately, with a further
one-third vesting upon the earlier of spud of the next Serenity or
Liberator appraisal well; and July 2021 production exits being at
or above 9,000 boepd, and 100% will vest upon the earlier of a
third-party reserve auditor attributing 25 MMbbls 2P post drilling
of a Serenity or Liberator appraisal well and the addition of 5,000
boepd or 25 MMboe 2P reserves. The options will otherwise fully
vest on the third anniversary.
On 23 February, the Company announced that production between
November 2020 and January 2021 had remained predictably stable at
9,150 boepd (41% liquids), with expected 2021 net operating income
("NOI" = revenue minus royalties, opex, transportation and
processing) of CAD35 million (USD27.6 million). i3 stated on 5
May that Q1 2021 production had been 8,856 boepd (41% liquids),
outperforming expectations, and updating its 2021 NOI forecast to
CAD38 million (USD31 million).
Also on 23 February, i3 announced that in December 2020, it had
completed an 80-hour flow-test on a horizontal Falher formation
well located on its Noel acreage in Northeast British Columbia,
Canada. The flow-test ran for a sustained period at 4,200 mcf/d
(700 boepd) on a 1/4" choke. The Company has reiterated as recently
as 5 May that the Noel well is expected to be brought on production
at approximately 500 boepd during the second quarter of 2021,
following tie-in.
On 5 May, the Company announced that during February and early
March, the following oil and propane hedges were executed:
Commodity Period bbl/d Type CAD/bbl
Crude 1/Apr/21 31/Dec/21 200 SWAP $73.70
---------- ----------- ------ ----- --------
Crude 1/Apr/21 31/Dec/21 200 SWAP $75.20
---------- ----------- ------ ----- --------
Crude 1/Mar/21 31/Dec/21 350 SWAP $64.50
---------- ----------- ------ ----- --------
Propane 1/Apr/21 31/Dec/21 200 SWAP $32.45
---------- ----------- ------ ----- --------
During March and April, a number of natural gas swaps were
executed for the period between 1 June to 31 October 2021,
totalling volumes of 21.4 MMscfd at an average price of
CAD2.83/mcf.
In May the Company provided an update on its continued expansion
into the prolific Clearwater play in Alberta, Canada. In February
and March of 2021, i3 took advantage of winter access to re-enter
three suspended gas wells in search of oil on the 148 km(2) of
historically gas-focused Clearwater acreage it had acquired as part
of its 2020 purchase of Toscana. Encouragingly, oil samples were
recovered from multiple intervals in two of the three wells, and i3
has commenced planning for an appraisal and development drilling
programme to be implemented during the winter drill window in
either Q4 2021 or Q1 2022. Further, the Company acquired a 15-year
lease on 18 km(2) of land in the emerging Cadotte area through an
Alberta Crown Land sale for under USD300k, and also entered a
farm-in agreement that could earn it up to net 29 km(2) of land
(for its 50% working interest) through the drilling of up to 9
wells at a net cost of USD7 million. Each well is expected to have
a payout between one and two years and an initial production rate
of approximately 150 bopd following start-up. The first farmout
well is expected to be spud in Q2 2021.
On 17 May, i3 announced that it had successfully restructured
legacy contracts and agreements for equipment, oil field services,
and warrants with Baker Hughes, a GE Company, and GE Oil & Gas
Limited (collectively referred to as "BHGE" hereafter). In summary,
the remainder of a GBP5.8 million contract for subsea trees and
wellheads was cancelled, 5,277,045 warrants had an exercise price
reduction to GBP0.0001 per share (the "Warrant Shares"), and an
outstanding contingent payment for GBP3 million in oil field
services and equipment that becomes payable at such time as the
Company receives consideration from any sale or farm-down of its
Serenity or Liberator assets will be reduced by the exercise value
of the Warrant Shares, the market value of the Warrant Shares from
time to time, all dividends received by BHGE associated with the
Warrant Shares, and certain payments to be made to BHGE across 2021
totalling GBP374,383. The purpose of this restructuring was to
enable i3 to become a dividend payer, as certain conditions of the
abovementioned contracts prevented it from reducing its share
premium account - a required step in order for i3 to effect
dividend distributions to its shareholders. Also announced on 17
May was i3's confirmation that it had received consent from all
other pertinent creditors to proceed with the proposed reduction of
its share premium account, as described below.
On 18 May, i3 affirmed that its Board considers it highly
desirable that the Company has the maximum flexibility to consider
the payment of dividends and otherwise return value to
shareholders. The Company is generally precluded, however, from the
payment of any dividends or other distributions or the redemption
or buy-back of its shares in the absence of sufficient
distributable reserves. The Company's share premium account
currently stands at approximately GBP62 million. As at 28 February
2021, the Company had a retained earnings deficit of approximately
GBP11 million. i3 proposes that its share premium account be
cancelled. The proposed reduction of capital (the "Capital
Reduction") is intended to eliminate the retained earnings deficit
and create distributable reserves equal to the balance. i3 has
called a Notice of General Meeting of its shareholders and
recommends that they vote in favour of the proposed Capital
Reduction. If the proposed cancellation of the Company's share
premium account is approved by Shareholders at the General Meeting,
it will be subject to the scrutiny of, and confirmation by, the UK
High Court, which will take due account of the protection of
creditors and, subject to that confirmation and registration by the
Registrar of Companies in England and Wales of the order of the
High Court, is expected to take effect on or around 1 July 2021. A
Capital Reduction approved by i3's shareholders and the High Court
will allow it to pay the CAD2 million (GBP1.16 million) dividend
associated with its Q1 20201 cash flow that it announced on 31
March, and to enable its intention to make regular, half-yearly
dividend payments in the future.
On 31 May, the Company announced that it had exercised a Right
of First Refusal ("ROFR") to acquire the entire 49.5% operated
interest held by Anegada Oil Corporation in its South Simonette
property ("Anegada Interest"), taking i3 from a 49.5% non-operated
interest to a 99% operated interest in the asset. Post acquisition
and as Operator, i3 will bring two suspended wells back onto
production in July at a total estimated cost of USD 1.16 million
(USD 0.58 million for each of i3's current and acquired Anegada
Interest) by installing gas lift in one and repairing an electrical
submersible pump in the other, resulting in an expected increase to
i3's corporate production of 720 boepd (41% oil, 4% NGLs, 55% gas)
and NTM NOI of USD 5.2 million; effectively increasing the
Company's exposure to oil by 20% and expected NTM NOI by over 16%.
The combined rate associated with the Anegada Interest for the
three wells is estimated to be 430 boepd. The 2P reserves and
associated valuation estimate for the Anegada Interest are 4.9
mmboe and USD 30.9 million, respectively, based on GLJ's YE 2020
reserves evaluation, reflecting the high-impact potential oil
resource identified in the Lower Montney formation at South
Simonette. With all three wells on production, the forecasted next
twelve months net operating income for the Anegada Interest is
estimated at USD 3.2 million. At a total cost to i3 of USD 4.78
million for the acquisition and two well reactivation in July, the
Company is acquiring the Anegada Interest and reinstating
production for 1.49x NTM forecasted NOI of USD 3.2 million, USD
11,111/boepd, and USD 0.95/boe (2P), materially below the averages
since Q4 2020 for similar Western Canadian transactions of 4.53x
NTM NOI, USD 32,067/boepd, and USD 5.61/boe. For i3's already-owned
49.5% South Simonette interest (and incremental to i3's current
share of production from the existing producing well) the
reactivation of the two wells in July is estimated to increase i3's
production by 290 boepd and NTM NOI by USD 2.0 million. The Company
deems this acquisition to
be highly strategic to its Montney acreage where it now has a
99% operated interest at South Simonette, a 100% operated interest
at North Simonette, and gross overriding royalty interests of 5% to
15% across a 41 km(2) area of the Middle Montney interval between
its North and South Simonette acreage. If fully exploited, i3
believes that North and South Simonette could deliver peak net
production of approximately 26,000 boepd. The Anegada interest has
a very healthy LLR of 46.1.
24 Operating income statement of the Anegada Interest
In accordance with the AIM Rules for Companies relating to the
acquisition by the Company of the Anegada Interest the operating
income statement of the Anegada Interest for the twelve months to
31 December 2020 are presented below:
Anegada Interest Operating Statement of Income Before Depletion
and Taxation
Twelve Months Ended
31 December 2020 (unaudited)
GBP
Revenue
Production Revenue 2,359,407
Net Royalties (99,963)
------------------------------
Net Revenues 2,259,444
Operating Expense (631,303)
------------------------------
Total expenses (631,303)
------------------------------
Net Income Before Depletion and Taxation 1,628,141
==============================
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