TIDMPGR
RNS Number : 7511Y
Phoenix Global Resources PLC
17 May 2021
17 May 2021
Phoenix Global Resources plc
("Phoenix" or the "Company")
Final Results for the year ended 31 December 2020
Phoenix Global Resources plc (AIM: PGR; BCBA: PGR), the upstream
oil and gas company, announces its audited final results for the
year ended 31 December 2020.
Summary
-- Revenue of US$54.0 million (2019: US$129.4 million)
-- Adjusted EBITDA loss of US$7.2 million (2019: Adjusted EBITDA of US$12.6 million)(1)
-- Operating loss of US$ 219.7 million (2019: loss of US$110.2 million)
-- Average daily production in 2020 of 4,549 beopd (2019: 7,023 beopd)(2)
-- 2P reserves at 18.8 MMboe (2019: 29.8 MMboe)
Outlook
Whilst these are truly unprecedented times with disruption on
the demand and supply side, the directors believe they are able to
leverage this situation and take this opportunity to continue to
reduce and optimise its normalised production cost base. The
Company is fundamentally focused on unconventional development and
has excellent assets in this space and believes it is now better
placed to progress the development of these assets, which is the
Company's core objective. The directors recognise that significant
investment will be required in the coming years to develop these
assets and enhance value and acknowledges this may include third
party partners and local debt providers in the funding mix to
support this development.
Notes:
(1)Adjusted EBITDA represents earnings before interest, taxes,
depreciation, amortisation and non-recurring expenses
(2)Excluding production from non-core assets sold
For further information, please contact:
Phoenix Global Resources plc Pablo Bizzotto, CEO T: +54 11 5258 7500
Nigel Duxbury, CFO T: +44 20 3912 2800
Shore Capital Toby Gibbs T: +44 20 7408 4090
Nominated Adviser and Joint David Coaten
Broker
Panmure Gordon Daniel Norman T: +44 20 7886 2500
Joint Broker Atholl Tweedie
About Phoenix
Phoenix Global Resources is an independent oil and gas
exploration and production company focused on Argentina and listed
on both the London Stock Exchange (AIM: PGR) and the Buenos Aires
Stock Exchange (BCBA: PGR) and offers its investors an opportunity
to invest directly into Argentina's Vaca Muerta shale formation and
other unconventional resources. The Company has over 0.9 million
licenced working interest acres in Argentina (of which
approximately 0.7 million are operated), 18.8 million boe of
working interest 2P reserves and average working interest
production of 4,549 boepd in 2020. Phoenix has signi cant exposure
to the unconventional opportunity in Argentina through its
approximately 0.6 million working interest acres with Vaca Muerta
and other unconventional potential.
Annual Report
The Company will be posting to shareholders a copy of the
audited annual report for the year ended 31 December 2020 on or
around 24 May 2021 together with the notice for a General Meeting,
to be held at the offices of Phoenix Global Resources at King's
House, 10 Haymarket, London SW1Y 4BP at 11.00am on 30 June 2021.
The annual report will be made available on the Company's website
on the day of its posting
The Company's website is www.phoenixglobalresources.com
CHAIRMAN'S STATEMENT
Whilst the environment continues to be extremely challenging,
the directors have taken significant steps to restructure the
Company, which the directors believe will put the Company in a
stronger position to focus on the continued development of its
unconventional assets.
The Company's major shareholder, Mercuria Group Limited
('Mercuria'), continues to be supportive and the directors, whilst
exercising a degree of caution, believe the actions taken put the
Company on a stronger financial footing, whilst appreciating this
position could change very quickly in these uncertain times.
Overview and current operations
2020 was dominated by Covid-19 and its rapid development as a
life-threatening global pandemic. Globally, respective governments'
response has been one of containment through lock-down, social
distancing restrictions, quarantine and self-isolation for
substantially all citizens, whilst countries strive to roll out
vaccination programs. This has resulted in a significant adverse
impact on industrial and commercial activity, which led to the
shut-down of the Company's production in April 2020. Consequently,
the Company took significant steps to reduce its costs in all areas
of the business. Annual general and administration costs were
reduced by over 50% and field contracts restructured to reposition
the cost base of the Company. The directors believe these cost
reduction actions mean the Company is in a better position to
produce oil economically at lower oil prices with a positive
contribution to cash flow at normalised production levels, which
will allow the Company to focus on the continued development of its
unconventional assets.
During the year Kevin Dennehy, David Jackson and Javier Alvarez
stepped down from the board and we would like to thank them for the
significant contributions they have made during their time with the
Company.
Our new CEO, Pablo Bizzotto, was appointed in September 2020 and
has extensive oil industry experience, particularly in
unconventional activities in the Vaca Muerta through his previous
role with YPF. With the appointment of Pablo Bizzotto, the
Company's prime focus for 2021 and 2022 is the development of its
Mata Mora licences and the exploration of its Corralera licences
and a new study and execution team has been hired to facilitate
these objectives.
The Company has been in discussions with the Neuquen Province to
secure an unconventional exploitation concession for its Mata Mora
block and an extension of its Corralera licence commitment
obligations. Since the year end, the Province has issued a Decree
granting a 35-year unconventional exploitation concession over
approximately 43,372 acres in the northern part of Mata Mora and
extending for 5 years to April 2026 the exploration rights over
approximately 11,918 acres in the southern part of Mata Mora.
Furthermore, the Province has issued a Decree approving a one-year
extension of the exploration rights for the Corralera Noreste and
Corralera Sur blocks to April 2022.
The Mata Mora concession involves a pilot phase, with certain
works to be completed by March 2026, which includes a capex
commitment of US$110 million, consisting of four pads of three
horizontal wells each, with an average lateral length of 2,150
metres. The Corralera exploration commitment includes obligations
to execute two horizontal wells by April 2022.
The work program planned for 2021 includes the drilling of the
first pad of three wells in Mata Mora and the drilling and
completion of the two horizontal wells in Corralera with the second
pad of three wells in Mata Mora to be drilled and completed in 2022
together with the completion of the first pad of three wells.
Funding
Our major shareholder, Mercuria continues to be supportive of
the Company's plans and has extended short-term debt facilities to
fund operations. Mercuria has written to the Company stating its
intention to continue to provide financial support to the Company
in order that it may continue to operate and service its
liabilities as they fall due in the next 12 months and also fund
the planned work programs. Mercuria has also specifically agreed to
not demand repayment of the existing loans (principal and interest)
within the next 12 months whilst discussions with the Company to
restructure these loans continue. This letter, which by its nature
is not legally binding, represents a letter of comfort stating
Mercuria's current intention to continue to provide financial
support.
The directors believe they will be able to agree the
renegotiation of the existing debt with Mercuria and formalise an
agreement for new funding and that the Group and Company can
continue as a going concern for the foreseeable future. The
application of the going concern basis of preparation of the
financial statements included in this annual report is based on the
letter that has been received from Mercuria and the ongoing
discussion with the Mercuria principals. Accordingly, the directors
continue to adopt the going concern basis for accounting in
preparing the 2020 financial statements.
However, the directors recognise that if financial support over
the next 12 months from Mercuria were not to be available and the
Company is unable to restructure the existing loan agreements from
Mercuria or obtain funding from alternative sources, this gives
rise to a material uncertainty that may cast significant doubt on
the Group's and Company's ability to continue as a going
concern.
Summary
Whilst we have seen Covid-19 restrictions gradually lifting and
economic and industrial activity increasing, the situation
continues to be fluid and can change very quickly as we have seen
with a number of countries experiencing 'second and third
waves'.
Argentina continues to experience high inflation and a
continuous devaluation of the Peso. The country is in its third
straight year of recession. Whilst it announced at the end of
August 2020, that 99% of the holders of the country's US$65 billion
international bonds had agreed to restructure this debt, giving the
country a better chance of recovery, discussions between the
Argentine government and the IMF to reschedule US$45 billion of
debt are ongoing and the outcome of the 2021 legislative elections
in Argentina is uncertain. The current administration continues its
intent to provide economic and regulatory support to four key
sectors of the economy: agriculture; oil and gas; mining; and
intellectual services.
The Company is also conscious of its environmental, social
governance responsibilities and developing policies and procedures
to reduce emissions and establish goals that minimise the impact on
the environment and our stakeholders.
Whilst these are truly unprecedented times with disruption on
the demand and supply side, the directors believe they can leverage
this situation and take this opportunity to continue to reduce and
optimise the Company's normalised production cost base. The Company
is fundamentally focused on unconventional development and has
excellent assets in this space and believes it is now better placed
to progress the development of these assets, which is the Company's
core objective. The directors recognise that significant investment
will be required in the coming years to develop these assets and
enhance value and acknowledges this may include third party
partners and local debt providers in the funding mix to support
this development.
Sir Michael Rake
Non-executive chairman
17 May 2021
OPERATING REVIEW
Covid-19
Like many other companies in Argentina, Phoenix has been heavily
impacted by the Covid-19 outbreak in the country. Quarantine
restrictions introduced in late March 2020 and the resulting drop
in the demand for oil, saw most refiners suspending the purchase of
oil. Following notice from YPF that it was temporarily suspending
the purchase of oil, the Company was faced with no option but to
shut-down production of crude oil from its operated licences Puesto
Rojas, Atamisqui and Tupungato with production of oil from licences
operated by third parties reduced significantly. Production has
restarted and is expected to continue if demand in Argentina
continues to increase, at its operated licences Puesto Rojas,
Tupungato and Atamisqui and its non-operated licence Chachahuen,
albeit initially at lower levels than before the Covid-19 pandemic.
Production has also recently restarted at the Company's
non-operated licences Rio Cullen/Las Violetas and Cajon de Los
Caballos and the Company restarted production at its operated
licence Mata Mora in November 2020. The Company is continuing to
follow all recommended procedures regarding Covid-19 and take all
the steps necessary to maintain the safety of its employees and
contractors.
Operated Assets - Neuquén Province
Mata Mora
The MMox-1002 was successfully reactivated in February 2020
after an extended shut-in designed to provide reservoir
surveillance regarding reservoir pressures and future well spacing.
Both Mata Mora wells were shut-in during May 2020 as there was no
market for the oil being produced and remained shut-in through
November 2020. Both wells are now active and in December producing
at a combined rate of approximately 630 barrels of oil per day.
Post year-end highlights:
In March 2021, Neuquén Province approved an unconventional
exploitation concession for approximately 78% of original Mata
Mora's acreage (43,372 acres), for a term of 35 years.
A pilot phase commitment of 12 horizontal wells consisting of
four pads of three wells each with an average lateral length of
2,150m with an estimated capital expenditure of US$110 million is
planned to be executed within the next five years.
The first pad is being planned and permitted to be drilled in
the fourth quarter of 2021. A complete suite of data acquisition is
planned in order to characterise the unconventional reservoir and
to start working on stimulation design and further well spacing
optimisation.
A full field development of 192 horizontal wells is being
considered with an estimated potential of 203 MMboe with a total
capital investment of US$2,440 million.
The remaining 22% of the original licence is now the new Mata
Mora Sur block (11,918 acres), covering a region that involves
agricultural activity and San Patricio del Chañar town, and will
remain in the exploration phase for a further five years with a
commitment of 3D seismic acquisition covering the region.
Corralera Area
The Company was progressing its plans to drill its first well
targeting Agrio Formation in the Corralera area until the Covid-19
restrictions resulted in the Company suspending these operations.
The well pad location was substantially completed, and the Company
evaluated options with GyP and the Neuquen Province regarding the
most effective way to fulfil the Company's licence commitment
obligations.
Post year-end highlights:
The primary unconventional target has changed from the Agrio to
the Vaca Muerta formation based on revised expectation of fluid
type given the contrasting thermal maturity, neighbouring well
results, and better understanding of landing zones alternatives for
the Vaca Muerta formation.
A one-year extension was agreed with GyP (and submitted for
provincial approval) for the first exploration period for Corralera
Noreste and Corralera Sur to execute the revised two horizontal
wells in planning to evaluate Vaca Muerta unconventional oil
potential. The proposed wells include the drilling of vertical
pilots for data acquisition needed to define the landing zone
targets and then the drilling of horizontal sidetracks with 2,000 m
of lateral length. A decree approving the extension was issued by
the Province on 13 April 2021.
It is expected to drill the committed wells in the third quarter
of 2021 and complete them by the first quarter of 2022, with a
total investment of US$29 million.
A new office has been inaugurated in the capital city of Neuquén
Province to handle the increasing activity that is being planned
for this region's assets and increased activity related to
exploration and pilot phases of Corralera, Mata Mora, and the
additional commitments to delineate the Vaca Muerta play as an
unconventional target.
Operated assets - Mendoza Province
After a three-month period of general well shut down, in July
2020 oil sales were re-established, wells were restarted with lower
production losses than previously estimated.
The main contracts were revised, such as the ones related with
operations and maintenance, oil transport and pulling rigs,
allowing an OPEX/boe reduction of 34% (from 26.4 US$/boe to 17.4
US$/boe comparing Q1 2020 and Q4 2020).
Post year-end:
With the objective of identifying and assessing the risks in our
facilities and implementing controls to avoid incidents, we are
planning to execute a risk assessment at seven facilities in our
operated assets (Tupungato oil treatment plant, Tupungato water
injection plant, Atamisqui oil treatment plant, Cerro Mollar oil
treatment plant, Cerro del Medio Separation unit, Cerro Pencal 1006
battery and Malargüe delivery plant).
Puesto Rojas Area
First quarter activity included a workover of CP-1014 and
workover jobs on older wells to maintain production levels. Like
other assets, Puesto Rojas was shut-in in April 2020 following
notice from YPF that they were suspending oil purchases in Mendoza
Province. The field was subsequently re-activated with minimal well
damage apart from wells CDM-3004, CDM-3007, CP-1003, PR-53 and
CP-1014. Wells CDM-3004, CP1003 and CP1014 have now been remediated
but remedial work is still due to be completed on wells CDM-3007
and PR-53, which currently remain offline. Wells CP-1006 and
CP-1008 remain shut-in for gas handling limits in the field.
In accordance with decree Ndeg 485/2019, in July 2020 the
Company advised the Mendoza Province Direction of Hydrocarbons that
it would be exercising its right to extend the 'Pilot Plan' phase
until 30 June 2022, in order to continue the Company's planning of
a horizontal well in the area, contingent on the results of a new
study of the region currently being undertaken. During this period,
12% royalties will be maintained on the production of the
unconventional wells.
Post year-end highlights:
Based on the variable results of the Vaca Muerta vertical wells,
related with the structural complexity of the area and the variable
hydrocarbon quality, an integrated post-mortem study is under
execution to define the next steps in the unconventional
project.
To date, most of the evaluated structures show at least some
amount of compartmentalisation, fault planes, low API oils, or a
combination of these factors that negatively affects hydraulic
fractures efficiency, well performance, and the ability to execute
unconventional 'factory mode' type development. We expect to
complete this initial study in the second quarter of 2021.
Rio Atuel
The evaluation of the MLx-1001 drilled in 2019 was completed and
based on the results it has been determined not to be commercial
and the costs were expensed in the second quarter. No other 2020
physical activity was planned while studies are ongoing of the well
results and other subsurface data previously collected.
Due to the constraints generated by the strict quarantine
defined by national authorities, in July 2020 a request was made to
the Mendoza Province Direction of Hydrocarbons for a one-year
extension until 18 December 2021 to execute the committed activity
within the third exploration period. The outstanding commitment
currently consists of drilling a vertical well in the block. This
request for an extension was approved in April 2021.
Four different well locations are under study for the remaining
commitment well with environmental impact studies recently
completed and approved for all the potential locations. Planning
and selection of the well location to be drilled is ongoing with
drilling planned for the second half of 2021.
La Paloma
The LP-9 and LP-7 wells were drilled in the La Paloma/Cerro
Alquitran area targeting the Grupo Neuquén formation in 2019 and
were planned for completion in the first half of 2020 prior to the
Covid-19 restrictions, causing us to suspend this activity. The
Company is currently evaluating options as to when it is best to
complete these wells.
LP-7 and LP-9 completions are still pending. In September 2020,
an extension to 30 July 2021 was requested to the authorities in
respect of which we are still awaiting a response.
Cerro Doña Juana-Loma Cortaderal
In the context of the commitment fulfilment date of 17 August
2021, the technical and subsurface teams continue to evaluate the
characteristics that will determine the scope and the timeframe of
the work to be performed in the licence.
Cuyana Basin
Like the Puesto Rojas area, the Company's Cuyana Basin fields of
Atamisqui and Tupungato were shut-in in April 2020 following notice
from YPF that they were suspending oil purchases in the Mendoza
Province. The field was subsequently re-activated with minimal well
damage.
NON-OPERATED ASSETS
Chachahuen Area
In the Chachahuen Sur area, the focus for 2020 was to improve
the water flooding projects and start a Polymer Pilot Project.
However, given the market conditions, most of this work was
postponed. At Cerro Morado Este, the focus for 2020 was on the
water flooding pilot plan, with three water injection patterns, and
performing production facilities improvements. In the first
quarter, three workovers were performed on injector wells
(ChuS-158; ChuS293 and ChuS-294). At Cerro Morado Este, the focus
for 2020 was on the water flooding pilot plan, with three water
injection patterns, and performing production facilities
improvements. During the first quarter of the year completion of
five wells on backlog from 2019 was performed on CMoE-20; CMoE-54;
CMoE-61; CMoE-66 and CMoE-67. Since April 2020, activity was
reduced to a minimum in this area due to the market situation and
Covid-19 restrictions and in May 2020, the Company's share of the
production was shut-in due to YPF's notice of suspension of oil
purchases. The Company's share of oil production has restarted,
with oil initially sold to a different off-taker and subsequently
to YPF.
Post year-end highlights:
Four Polymer Injection Units will be installed between the last
quarter of 2021 and first quarter of 2022, to begin an Enhanced Oil
Recovery project. Also, additional efforts are being made in order
to increase water injection in the secondary recovery project,
improve the water distribution system, and re-establish water
injection in wells currently shut-in due to integrity issues.
The operator continues a legal process to include 104km(2) of
the Chachahuen Sur evaluation area in the Cerro Morado Este
concession. This application is currently awaiting the authority's
response to the latest administrative appeal filed recently.
Tierra del Fuego Area
In the Terra del Fuego Province the Company has interests in
three non-operated assets in the Austral Basin in a joint venture
with Roch S.A. and others.
In January 2020, the water cut in the SM.x-1001 increased
rapidly to more than 50% of total production and the well was
shut-in. In March 2020, a workover job was performed on this well
with production tests in the middle and upper Tobifera as part of
the further evaluation of the well. A test in the upper Tobifera
section, above current productive perforations, showed an average
production rate of 1,576 bpd over seven days with lower water cut
and production was subsequently restored in this well. However, as
of January 2021 the water cut has increased again, and oil
production has fallen to below 300 bpd from this well.
Since the second half of 2019, the buoy at the YPF terminal has
been out of service and oil production has been trucked to the
Chilean ENAP terminal with an increased transportation cost.
Following a Covid-19 outbreak at the ENAP terminal, cross-border
sales were closed, causing most oil wells to be shut-in. Only gas
production continued with a small light associated oil volume.
However, the YPF buoy was subsequently repaired in August 2020 and
oil production was restarted in late September 2020. Due to
reservoir performance concerns and the market situation and
Covid-19 restrictions, planned drilling activity and facilities
improvements were postponed, leaving only HSE related activities to
continue where possible.
FINANCIAL REVIEW
Revenue and gross margin
Revenue for the year was US$54.0 million (2019: US$129.4
million), comprising revenue from oil sales of US$52.2 million
(2019: US$114.7 million) and revenue from gas sales of US$1.8
million (2019: US$14.8 million).
The reduction in oil revenue between years resulted from a
combination of the shut-in of production due to Covid-19, a
reduction in the realised price per barrel and lower sales volumes
year-on-year.
The average realised oil sales price in 2020 was US$37.74/bbl, a
21% decline on the average price of US$47.96/bbl in 2019. Realised
prices achieved by the Company are indirectly linked to Brent.
The emergence of Covid-19 as a global pandemic and the resulting
fall in the demand for oil has had a significant impact on the
operations of the Company. The over-supply of crude in the market
resulted in YPF, the state-controlled Argentine energy company,
giving notice to its customers of the suspension of the purchase of
oil until further notice. This resulted in refineries stopping the
acceptance of deliveries, leaving the Company with no option but to
shut-down production in April 2020.
Crude oil prices dropped to historic lows with the average Brent
crude price falling year-on-year by 33%, from an average of
US$64/bbl in 2019 to an average of US$43/bbl in 2020.
In May 2020, Argentina's Government issued a decree establishing
a fixed realised Medanito price of $45/bbl ('Barril Criollo'),
subject to certain conditions, demonstrating the intention of the
government to support the industry where possible. This pricing
support remained in place until September 2020 when the Brent crude
benchmark price exceeded US$45/bbl for 10 consecutive days, which
was one of the conditions that would cause the support to expire.
It has not been reinstated and prices were subject to the Brent
crude benchmark.
Average daily oil sales in the year was 3,776 bopd compared to
6,059 bopd in 2019 (excluding sales from non-core assets sold).
Gas revenues arise mostly in the non-operated segment and
declined by US$12.9 million in the year compared to 2019, mainly
due to the sale in 2019 of the Santa Cruz Sur asset and a reduction
of 40.4% in the realised price from an average of US$3.32/MMcf in
2019 to an average of US$1.98/MMcf in 2020. In addition, t he
shut-in of some of the gas producing wells on the non-operated
assets, Rio Cullen and Las Violetas, due to the impact of Covid-19,
resulted in lower volumes produced and sold.
Operating costs
Average operating costs increased year-on-year from US$17.7/boe
in 2019 (excluding non-core assets sold) to US$18.7/boe in 2020 ,
primarily due to the reduced production levels resulting in the
fixed element of production costs being allocated over lower
volumes . However, average operating cost for December 2020 had
fallen to US$14.4/boe by the end of 2020 reflecting the impact of
the cost reduction programs implemented during the year.
Depreciation decreased by US$24.8 million in the year from
US$66.1 million (including depreciation of assets sold of US$9
million) to US$41.3 million 2020, primarily due to the fall in
production volumes.
Other operating costs
An exploration expense of US$2.7 million has been recognised in
the year, primarily relating to the write-off of the US$2.5 million
cost of the Rio Atuel exploratory well.
At the year-end, management's impairment assessment considers
potential triggers for impairment including, inter-alia, adverse
results from drilling programs, changes in oil and gas prices and
other market conditions, cost of future development and licence
periods. Following this assessment, the Company has recognised an
impairment loss of US$15.2 million relating to the write down of
goodwill attributable to our interest in Chachahuen recognised at
the time of the business combination in 2017.
In addition, our assessment indicated that the carrying value of
certain licences had been potentially impaired and a charge for
impairment of US$149.3 million has been recognised, reflective of
lower reserves, lower oil price environment and higher discount
factor being applied to the DCF calculations (Chachahuen US$17.7
million, Puesto Rojas US$114.7 million, La Paloma US$5.6 million,
El Manzano US$8.6 million, Atamisqui US$1.8 million and Cajon
Oriental US$0.8 million, Rio Atuel and Vega Grande US$0.1
million).
Furthermore, an additional US$6.6 million charge has been
recognised against an asset held for sale.
Finance income and costs
Net finance costs decreased by US$9.3 million to US$15.4 million
in 2020 compared to US$24.7 million in 2019. The decrease in cost
was primarily driven by the benefit on transfers of US$ into
Argentina under the 'contado con liquidacion' mechanism, a
reduction in the foreign exchange losses on Peso denominated
balances held by the Company and a reduction in other finance
costs.
Taxation
A US$38.0 million tax credit was recognised in 2020, compared to
a US$21.0 million tax credit in 2019. The increase in the deferred
tax credit in the year primarily resulted from the reduction in the
book value of fixed assets when compared to the tax-deductible
value following the provision for impairment together with the
deferred tax benefit of the increase in net operating losses, which
the respective companies expect to recover in future periods.
Balance Sheet
At 31 December 2020 the Group had net assets of US$26.1 million,
a decrease of US$196.6 million compared to 31 December 2019.
During the year, intangible assets and property, plant and
equipment decreased by US$200.5 million primarily due to charges
for impairment of US$149.3 million, DD&A of US$41.3 million
offset by US$8.1 million of additions, the write down of goodwill
of US$15.2 million and the write-off of an unsuccessful exploration
well of US$2.8 million.
Current and non-current trade and other receivables decreased
from US$39.3 million to US$29.5 million at 31 December 2020
principally due to the lower oil volumes sold at the end of the
year. Inventories increased from US$18.2 million to US$18.3 million
at 31 December 2020. Net deferred tax liabilities decreased from
US$69.1 million to US$33.57 million at 31 December 2020 primarily
due to an increase in the deferred tax credit in the year resulting
from the reduction in the book value of fixed assets when compared
to the tax deductible value following the write down of goodwill
and the provision for impairment and the deferred tax credit
resulting from the net operating loss for the year. Trade and other
payables decreased from US$44.8 million to US$26.2 million at 31
December 2020 due to the reduced costs resulting from the lower oil
volumes sold.
Funding status and going concern
Total borrowings in the year increased by US$28.6 million from
US$303.6 million at 31 December 2019 to US$332.2 million at 31
December 2020. The increase resulted primarily from the drawdown of
an additional US$14.3 million of funds from the revolving
convertible credit facility and bridging facility with Mercuria and
a total of US$15.2 million of accrued interest. Funds advanced
under the credit facilities have been used to satisfy working
capital needs.
The Group principally generates cash from its existing
conventional oil and gas production operations. Nevertheless, it
was formed with the stated intention of undertaking a significant
exploration, evaluation and development program focused on the
Group's unconventional oil and gas assets in Argentina, including
the Vaca Muerta formation.
2020 has been dominated by Covid-19 and its rapid development as
a life-threatening global pandemic. Globally, respective
governments' response has been one of containment through
lock-down, social distancing restrictions, quarantine and
self-isolation for substantially all citizens, whilst countries
strive to roll out vaccination programs. This has resulted in a
significant adverse impact on industrial and commercial activity,
which led to the shut-down of the Company's production in April
2020. Consequently, the Company took significant steps to reduce
its costs in all areas of the business. The directors believe these
cost reduction actions mean the Company is in a better position to
produce oil economically at lower oil prices with a positive
contribution to cash flow at normalised production levels, which
will allow the Company to focus on the continued development of its
unconventional assets. This situation is compounded by the
political and economic uncertainty in Argentina. The country is in
its third straight year of recession and whilst it announced at the
end of August 2020 that 99% of the holders of the country's US$65
billion international bonds had agreed to restructure this debt
discussions between the Argentine government and the IMF to
reschedule US$45 billion of debt are ongoing and the outcome of the
2021 legislative elections in Argentina is uncertain.
Notwithstanding, our major shareholder, Mercuria, continues to
be supportive of the Company's plans and continues to extend
short-term debt facilities to fund operations. Mercuria has written
to the Company stating its intention to continue to provide
financial support to the Company in order that it may continue to
operate and service its liabilities as they fall due in the next 12
months and also fund the planned work programs. Mercuria has also
specifically agreed to not demand repayment of the existing loans
(principal and interest) within the next 12 months whilst
discussions with the Company to restructure these loans continue.
This letter, which by its nature is not legally binding, represents
a letter of comfort stating Mercuria's current intention to
continue to provide financial support.
The directors believe they will be able to agree the
renegotiation of the existing debt with Mercuria and formalise an
agreement for new funding and that the Group and Company can
continue as a going concern for the foreseeable future. The
application of the going concern basis of preparation of the
financial statements included in this annual report is based on the
letter that has been received from Mercuria and the ongoing
discussion with the Mercuria principals. Accordingly, the directors
continue to adopt the going concern basis for accounting in
preparing the 2020 financial statements.
However, the directors recognise that if financial support over
the next 12 months from Mercuria were not to be available and the
Company is unable to restructure the existing loan agreements from
Mercuria or obtain funding from alternative sources, this gives
rise to a material uncertainty that may cast significant doubt on
the Group's and Company's ability to continue as a going
concern.
At 31 December 2020 the Group had cash and cash equivalents of
US$5.4 million (2019: US$11.0 million).
Consolidated Income Statement
For the year ended 31 December 2020
Note 2020 2019
US$'000 US$'000
Revenue 3 54,001 129,417
----- ----------------- -----------
Cost of sales (81,401) (144,813)
----- ----------------- -----------
Gross loss (27,400) (15,396)
----- ----------------- -----------
Selling and distribution expenses (1,958) (5,230)
----- ----------------- -----------
Exploration expenses (2,746) (4,240)
----- ----------------- -----------
Loss on termination of licences and other
impairment charges (171,129) (27,753)
----- ----------------- -----------
Loss on sale of non-current assets (6) (28,971)
----- ----------------- -----------
Administrative expenses (14,892) (27,144)
----- ----------------- -----------
Other operating income/(expenses) (1,527) (1,417)
----- ----------------- -----------
Operating loss (219,658) (110,151)
----- ----------------- -----------
Finance income 6,905 1,577
----- ----------------- -----------
Finance costs (22,276) (26,247)
----- ----------------- -----------
Loss before taxation (235,029) (134,821)
----- ----------------- -----------
Taxation 38,005 21,011
----- ----------------- -----------
Loss for the year (197,024) (113,810)
----- ----------------- -----------
Loss per ordinary share
----- ----------------- -----------
Basic and diluted loss per share 7 (0.07) (0.04)
----- ----------------- -----------
The above Consolidated Income Statement should be read in
conjunction with the accompanying notes.
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
2020 2019
US$'000 US$'000
Loss for the year (197,024) (113,810)
---------- ----------
Translation differences - -
---------- ----------
Total comprehensive loss for the year (197,024) 113,810)
---------- ----------
The above items will not be subsequently reclassified to profit
and loss. There are no impairment losses on revalued assets
recognised directly in equity.
The above Consolidated Statement of Comprehensive Income should
be read in conjunction with the accompanying notes.
Consolidated Statement of Financial Position
At 31 December 2020
Note 2020 2019
US$'000 US$'000
Non-current assets
----- -------------- ------------
Property, plant and equipment 4 158,357 324,249
----- -------------- ------------
Intangible assets and goodwill 5 211,974 246,540
----- -------------- ------------
Other receivables 4,124 4,744
----- -------------- ------------
Deferred tax assets 20,116 18,534
----- -------------- ------------
Total non-current assets 394,571 594,067
----- -------------- ------------
Current assets
----- -------------- ------------
Assets held for sale 11,965 18,208
----- -------------- ------------
Inventories 18,349 18,202
----- -------------- ------------
Trade and other receivables 25,399 34,527
----- -------------- ------------
Cash and cash equivalents 5,386 11,002
----- -------------- ------------
Total current assets 61,099 81,939
----- -------------- ------------
Total assets 455,670 676,006
----- -------------- ------------
Non-current liabilities
----- -------------- ------------
Trade and other payables 299 5,370
----- -------------- ------------
Borrowings 6 6,641 146,751
----- -------------- ------------
Deferred tax liabilities 53,682 87,636
----- -------------- ------------
Provisions 15,965 15,784
----- -------------- ------------
Total non-current liabilities 76,587 255,541
----- -------------- ------------
Current liabilities
----- -------------- ------------
Liabilities held for sale 447 447
----- -------------- ------------
Trade and other payables 25,909 39,446
----- -------------- ------------
Income tax liability 920 870
----- -------------- ------------
Borrowings 6 325,592 156,865
----- -------------- ------------
Provisions 121 120
----- -------------- ------------
Total current liabilities 352,989 197,748
----- -------------- ------------
Total liabilities 429,576 453,289
----- -------------- ------------
Net assets 26,094 222,717
----- -------------- ------------
Equity
----- -------------- ------------
Share capital and share premium 457,183 456,734
----- -------------- ------------
Other reserves (112,150) (112,150)
----- -------------- ------------
Retained deficit (318,939) (121,867)
----- -------------- ------------
Total equity 26,094 222,717
----- -------------- ------------
The above Consolidated Statement of Financial Position should be
read in conjunction with the accompanying notes.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Capital and reserves Called Share Treasury Retained Other Total
up premium shares (deficit)/ reserves equity
share US$'000 US$'000 earnings US$'000 US$'000
capital US$'000
US$'000
At 1 January 2019 364,175 93,023 - (8,878) (112,150) 336,170
--------- ---------- --------- ------------ ----------- ----------
Loss for the year - - - (113,810) - (113,810)
--------- ---------- --------- ------------ ----------- ----------
Total comprehensive loss for
the year - - - (113,810) - (113,810)
--------- ---------- --------- ------------ ----------- ----------
Purchase of own shares - - (572) - - (572)
--------- ---------- --------- ------------ ----------- ----------
Issue of employee share options - - 108 (126) - (18)
--------- ---------- --------- ------------ ----------- ----------
Cash settlement of employee
share options - - - (154) - (154)
--------- ---------- --------- ------------ ----------- ----------
Fair value of share based
payments - - - 971 - 971
--------- ---------- --------- ------------ ----------- ----------
Fair value of warrants - - - 130 - 130
--------- ---------- --------- ------------ ----------- ----------
At 31 December 2019 364,175 93,023 (464) (121,867) (112,150) 222,717
--------- ---------- --------- ------------ ----------- ----------
Loss for the year - - - (197,024) - (197,024)
--------- ---------- --------- ------------ ----------- ----------
Total comprehensive loss for
the year - - - (197,024) - (197,024)
--------- ---------- --------- ------------ ----------- ----------
Issue of employee vested shares - - 449 (449) - -
--------- ---------- --------- ------------ ----------- ----------
Fair value of share based
payments - - - 401 - 401
--------- ---------- --------- ------------ ----------- ----------
At 31 December 2020 364,175 93,023 (15) (318,939) (112,150) 26,094
--------- ---------- --------- ------------ ----------- ----------
Other reserves Merger Warrant Translation Total other
reserve reserve reserve reserves
US$'000 US$'000 US$'000 US$'000
At 1 January 2019 (112,000) 2,105 (2,255) (112,150)
---------- --------- ------------ ------------
At 31 December 2019 (112,000) 2,105 (2,255) (112,150)
---------- --------- ------------ ------------
At 31 December 2020 (112,000) 2,105 (2,255) (112,150)
---------- --------- ------------ ------------
The above Consolidated Statement of Changes in Equity should be
read in conjunction with the accompanying notes.
Consolidated Statement of Cash Flows
For the year ended 31 December 2020
2020 2019
US$'000 US$'000
Cash flows from operating activities
---------------- ---------------
Cash used in operations (6,318) (16,280)
---------------- ---------------
Income taxes paid (73) (144)
---------------- ---------------
Net cash outflow from operating activities (6,391) (16,424)
---------------- ---------------
Cash flows from investing activities
---------------- ---------------
Payments for property, plant and equipment (4,099) (46,375)
---------------- ---------------
Payments for intangibles (998) (38,852)
---------------- ---------------
Payments for held for sale assets (371) -
---------------- ---------------
Proceeds from sale of non-current assets - 7,563
---------------- ---------------
Net cash outflow from investing activities (5,468) (77,664)
---------------- ---------------
Cash flows from financing activities
---------------- ---------------
Proceeds from borrowings 14,260 96,000
---------------- ---------------
Repayment of borrowings (801) (8,000)
---------------- ---------------
Interest paid (709) (1,548)
---------------- ---------------
Principle lease payments (5,327) (1,419)
---------------- ---------------
Net cash inflow from financing activities 7,423 85,033
---------------- ---------------
Net decrease in cash and cash equivalents (4,436) (9,055)
---------------- ---------------
Cash and cash equivalents at the beginning
of the year 11,002 21,085
---------------- ---------------
Effects of exchange rates on cash and cash
equivalents (1,180) (1,028)
---------------- ---------------
Cash and cash equivalents at end of year 5,386 11,002
---------------- ---------------
The above Consolidated Statement of Cash Flows should be read in
conjunction with the accompanying notes.
NOTES
1. General information
The financial information set out in this announcement does not
comprise the Group's statutory accounts for the years ended 31
December 2020 or 31 December 2019.
The financial information has been extracted from the audited
statutory accounts of the Company for the year ended 31 December
2020, which were approved by the directors and authorised for issue
on 17 May 2021. The auditors reported on these accounts; the report
was unqualified and did not contain a statement under Section
498(2) or Section 498(3) of the Companies Act 2006.
The statutory accounts for the year ended 31 December 2019 have
been delivered to the Registrar of Companies and those for the year
ended 31 December 2020 will be delivered to the Registrar of
Companies in due course.
2. Basis of preparation
These consolidated financial statements have been prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006.
The significant accounting policies applied in preparing these
consolidated financial statements are set out below. These policies
have been consistently applied throughout the period and to each
subsidiary of the Group.
The financial statements have been prepared under the historical
cost convention except as where stated.
Going concern
The Group generates cash from its existing conventional oil and
gas production operations. However, it was formed with the stated
intention of undertaking a significant exploration, evaluation and
development program focused on the Group's unconventional oil and
gas assets in Argentina, including the Vaca Muerta formation, which
requires significant investment. To date, the funding required to
support these activities has been provided by Mercuria.
2020 has been dominated by Covid-19 and its rapid development as
a life-threatening global pandemic. Globally, respective
governments' response has been one of containment through
lock-down, social distancing restrictions, quarantine and
self-isolation for substantially all citizens, whilst countries
strive to roll out vaccination programs. This has resulted in a
significant adverse impact on industrial and commercial activity,
which led to the shut-down of the Company's production in April
2020. Consequently, the Company took significant steps to reduce
its costs in all areas of the business. The directors believe these
cost reduction actions mean the Company is in a better position to
produce oil economically at lower oil prices with a positive
contribution to cash flow at normalised production levels, which
will allow the Company to focus on the continued development of its
unconventional assets. This situation is compounded by the
political and economic uncertainty in Argentina. The country is in
its third straight year of recession and whilst it announced at the
end of August 2020 that 99% of the holders of the country's US$65
billion international bonds had agreed to restructure this debt
discussions between the Argentine government and the IMF to
reschedule US$45 billion of debt are ongoing and the outcome of the
2021 legislative elections in Argentina is uncertain.
Notwithstanding, our major shareholder, Mercuria continues to be
supportive of the Company's plans and continues to extend
short-term debt facilities to fund operations. Mercuria has written
to the Company stating its intention to continue to provide
financial support to the Company in order that it may continue to
operate and service its liabilities as they fall due in the next 12
months and also fund the planned work programs. Mercuria has also
specifically agreed to not demand repayment of the existing loans
(principal and interest) within the next 12 months whilst
discussions with the Company to restructure these loans continue.
This letter, which by its nature is not legally binding, represents
a letter of comfort stating Mercuria's current intention to
continue to provide financial support.
The directors believe they will be able to agree the
renegotiation of the existing debt with Mercuria and formalise an
agreement for new funding and that the Group and Company can
continue as a going concern for the foreseeable future. The
application of the going concern basis of preparation of the
financial statements included in this annual report is based on the
letter that has been received from Mercuria and the ongoing
discussion with the Mercuria principals. Accordingly, the directors
continue to adopt the going concern basis for accounting in
preparing the 2020 financial statements.
However, the directors recognise that if financial support over
the next 12 months from Mercuria were not to be available and the
Company is unable to restructure the existing loan agreements from
Mercuria or obtain funding from alternative sources, this gives
rise to a material uncertainty that may cast significant doubt on
the Group's and Company's ability to continue as a going
concern.
The financial statements do not include any adjustments that
would be required if the Group and Company were unable to continue
as a going concern.
3. Segment information
The Group's executive management team comprising the chief
executive officer and the chief financial officer has been
determined collectively as the chief operating decision maker for
the Group. The information reported to the Group's executive
management team for the purposes of resource allocation and
assessment of segment performance is split between those assets
which are operated by the Group and those which are not.
The strategy of the Group is focused on the development of its
unconventional operated assets in the Vaca Muerta and other
unconventional opportunities in Argentina, while optimising its
operated conventional production assets. The Group also
participates in joint arrangements as a non-operated partner.
Operated and non-operated assets of the Group have therefore been
determined to represent the reportable segments of the business.
The third segment 'corporate', primarily relates to administrative
costs, financing costs and taxation incurred in running the
business which are not directly attributable to one of the
identified segments.
The Group's executive management primarily uses a measure of
earnings before interest, tax, depreciation, loss on termination of
licences and other impairment charge and loss on sale of
non-current assets ('EBITDA') to assess the performance of the
operating segments. However, the executive management team also
receives information about segment revenue and capital expenditure
on a monthly basis.
2020 Operated Corporate Total
Non-operated
US$'000 US$'000 US$'000 US$'000
Revenue 24,132 29,869 - 54,001
------------------- --------------- ------------------- ---------------
(Loss)/profit for the year (155,759) (49,054) 7,789 (197,024)
------------------- --------------- ------------------- ---------------
Add: Depreciation, depletion
and amortisation 27,569 12,149 1,628 41,346
------------------- --------------- ------------------- ---------------
Less: Finance income - - (6,905) (6,905)
------------------- --------------- ------------------- ---------------
Add: finance costs 458 306 21,512 22,276
------------------- --------------- ------------------- ---------------
Less: taxation - - (38,005) (38,005)
------------------- --------------- ------------------- ---------------
EBITDA (127,732) (36,599) (13,981) (178,312)
------------------- --------------- ------------------- ---------------
Non-recurring expenses
------------------- --------------- ------------------- ---------------
Add: Loss on termination of
licences and other impairment
charge 127,501 43,628 - 171,129
------------------- --------------- ------------------- ---------------
Add: Loss on sale of non-current
assets 6 - - 6
------------------- --------------- ------------------- ---------------
Adjusted EBITDA (225) 7,029 (13,981) (7,177)
------------------- --------------- ------------------- ---------------
Oil revenues 24,130 28,029 - 52,159
------------------- --------------- ------------------- ---------------
bbls sold 605,476 776,435 - 1,381,911
------------------- --------------- ------------------- ---------------
Realised price (US$/bbl) 39.85 36.10 - 37.74
------------------- --------------- ------------------- ---------------
Gas revenues 2 1,840 - 1,842
------------------- --------------- ------------------- ---------------
MMcf sold 0.90 928.63 - 929.53
------------------- --------------- ------------------- ---------------
Realised price (US$/MMcf) 2.22 1.98 - 1.98
------------------- --------------- ------------------- ---------------
Capital expenditure
------------------- --------------- ------------------- ---------------
Property, plant and equipment 2,627 1,475 98 4,200
------------------- --------------- ------------------- ---------------
Intangible exploration and
evaluation assets 2,934 1,015 - 3,949
------------------- --------------- ------------------- ---------------
Total capital expenditure 5,561 2,490 98 8,149
------------------- --------------- ------------------- ---------------
Total assets 315,784 60,281 79,605 455,670
------------------- --------------- ------------------- ---------------
Total liabilities (7,010) (10,885) (411,681) (429,576)
------------------- --------------- ------------------- ---------------
2019 Operated Non-operated Corporate Total
US$'000
US$'000 US$'000 US$'000
Revenue 49,355 80,062 - 129,417
---------------- ------------------ ------------------- ------------
Loss for the year (32,952) (50,611) (30,247) (113,810)
---------------- ------------------ ------------------- ------------
Add: depreciation, depletion
and amortisation 32,470 31,954 1,633 66,057
---------------- ------------------ ------------------- ------------
Less: finance income - - (1,577) (1,577)
---------------- ------------------ ------------------- ------------
Add: finance costs 381 465 25,401 26,247
---------------- ------------------ ------------------- ------------
Add: taxation - - (21,011) (21,011)
---------------- ------------------ ------------------- ------------
EBITDA (101) (18,192) (25,801) (44,094)
---------------- ------------------ ------------------- ------------
Non-recurring expenses
---------------- ------------------ ------------------- ------------
Add: Loss on termination of
licences and other impairment
charge 11,938 15,815 - 27,753
---------------- ------------------ ------------------- ------------
Add: Loss on sale of non-current
assets - 29,041 (70) 28,971
---------------- ------------------ ------------------- ------------
Adjusted EBITDA* 11,837 26,664 (25,871) 12,630
---------------- ------------------ ------------------- ------------
Oil revenues 49,341 65,311 - 114,652
---------------- ------------------ ------------------- ------------
bbls sold 1,050,157 1,340,561 - 2,390,718
---------------- ------------------ ------------------- ------------
Realised price (US$/bbl) 46.98 48.72 - 47.96
---------------- ------------------ ------------------- ------------
Gas revenues 14 14,751 - 14,765
---------------- ------------------ ------------------- ------------
MMcf sold 5.43 4,448.47 - 4,453.90
---------------- ------------------ ------------------- ------------
Realised price (US$/MMcf) 2.58 3.32 - 3.32
---------------- ------------------ ------------------- ------------
Capital expenditure
---------------- ------------------ ------------------- ------------
Property, plant and equipment 34,630 19,015 3,774 57,419
---------------- ------------------ ------------------- ------------
Intangible exploration and
evaluation assets 36,915 2,139 - 39,054
---------------- ------------------ ------------------- ------------
Total capital expenditure 71,545 21,154 3,774 96,473
---------------- ------------------ ------------------- ------------
Total assets 482,453 115,547 78,006 676,006
---------------- ------------------ ------------------- ------------
Total liabilities (6,774) (7,786) (438,729) (453,289)
---------------- ------------------ ------------------- ------------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment Other assets Development Assets under Total
and production construction
assets
US$'000
US$'000 US$'000
US$'000
At 1 January 2020
---------------- ---------------- --------------- ----------------
Cost 13,072 539,100 7,290 559,462
---------------- ---------------- --------------- ----------------
Accumulated depreciation
and impairment (7,159) (228,054) - (235,213)
---------------- ---------------- --------------- ----------------
Net book amount 5,913 311,046 7,290 324,249
---------------- ---------------- --------------- ----------------
Year ended 31 December 2020
---------------- ---------------- --------------- ----------------
Opening net book amount 5,913 311,046 7,290 324,249
---------------- ---------------- --------------- ----------------
Additions 19 2,398 1,783 4,200
---------------- ---------------- --------------- ----------------
Transfers - 107 (107) -
---------------- ---------------- --------------- ----------------
Exploration costs written
off - (116) - (116)
---------------- ---------------- --------------- ----------------
Depreciation charge (1,637) (39,709) - (41,346)
---------------- ---------------- --------------- ----------------
Impairment charge - (128,630) - (128,630)
---------------- ---------------- --------------- ----------------
Closing net book amount 4,295 145,096 8,966 158,357
---------------- ---------------- --------------- ----------------
At 31 December 2020
---------------- ---------------- --------------- ----------------
Cost 13,091 541,489 8,966 563,546
---------------- ---------------- --------------- ----------------
Accumulated depreciation
and impairment (8,796) (396,393) - (405,189)
---------------- ---------------- --------------- ----------------
Net book amount 4,295 145,096 8,966 158,357
---------------- ---------------- --------------- ----------------
Additions
Additions to property, plant and equipment in the year ended 31
December 2020 do not include any interest capitalised in respect of
qualifying assets (2019: US$0.3 million). The total amount of
interest capitalised within property, plant and equipment at 31
December 2020 is US$3.1 million (2019: US$3.1 million).
Exploration costs
Exploration costs written off in 2020 include US$0.1 million
related to Laguna El Loro and Chachahuen.
Assets held for sale
Assets held for sale relates to certain non-core development and
production assets in the non-operated segment with a net book value
of US$12.0 million. An amount of US$0.5 million is also recognised
as held for sale in current liabilities in relation to the ARO
provision associated with these assets. In 2020 management engaged
in an active program for the sale of these assets and expected to
conclude discussions with interested parties before the end of the
year. However, the Covid-19 pandemic meant these discussions had to
be deferred as the Company focused on other priorities. It is still
the intention of management to sell these non-core assets and
management has now re-engaged with interested parties and is
actively pursuing the sale of these assets, which it looking to
complete in 2021. For this reason, the Company continues to
recognise these assets as assets held for sale but has recognised
an impairment of US$6.6 million in 2020 in recognition of
management's estimate of the fall in the net realisable value of
these assets. The asset is included with non-operated assets in the
segment analysis in note 3.
Property, plant and equipment Other assets Development Assets under Total
and production construction
assets
US$'000
US$'000 US$'000
US$'000
At 1 January 2019
------------- ---------------- -------------- ----------
Cost 9,431 694,747 6,070 710,248
------------- ---------------- -------------- ----------
Accumulated depreciation
and impairment (5,680) (338,377) - (344,057)
------------- ---------------- -------------- ----------
Net book amount 3,751 356,370 6,070 366,191
------------- ---------------- -------------- ----------
Year ended 31 December 2019
------------- ---------------- -------------- ----------
Opening net book amount 3,751 356,370 6,070 366,191
------------- ---------------- -------------- ----------
Additions 3,990 18,078 35,351 57,419
------------- ---------------- -------------- ----------
Transfers - 34,131 (34,131) -
------------- ---------------- -------------- ----------
Transfers from intangible
assets - 43,287 - 43,287
------------- ---------------- -------------- ----------
Transfers to assets held
for sale - cost (349) (67,233) - (67,582)
------------- ---------------- -------------- ----------
Disposal of assets - cost - (126,950) - (126,950)
------------- ---------------- -------------- ----------
Termination of licences -
cost - (53,334) - (53,334)
------------- ---------------- -------------- ----------
Exploration costs written
off - (3,626) - (3,626)
------------- ---------------- -------------- ----------
Depreciation charge (1,788) (64,269) - (66,057)
------------- ---------------- -------------- ----------
Impairment charge - (2,500) - (2,500)
------------- ---------------- -------------- ----------
Transfers to assets held
for sale - accumulated DD&A 309 49,682 - 49,991
------------- ---------------- -------------- ----------
Disposal of assets - accumulated
DD&A - 89,922 - 89,922
------------- ---------------- -------------- ----------
Termination of licences -
accumulated DD&A - 37,488 - 37,488
------------- ---------------- -------------- ----------
Closing net book amount 5,913 311,046 7,290 324,249
------------- ---------------- -------------- ----------
At 31 December 2019
------------- ---------------- -------------- ----------
Cost 13,072 539,100 7,290 559,462
------------- ---------------- -------------- ----------
Accumulated depreciation
and impairment (7,159) (228,054) - (235,213)
------------- ---------------- -------------- ----------
Net book amount 5,913 311,046 7,290 324,249
------------- ---------------- -------------- ----------
Exploration costs
Exploration costs written off in 2019 include US$3.4 million
related to the unsuccessful exploration well in the operated
segment that was previously being held as suspended.
Termination of licences
In May 2019, the Province of Mendoza issued a decree terminating
the concession for the Chañares Herrados block held by the
Company's joint venture partner, Chañares Energía S.A., as a result
of its failure to fulfil work commitments. The decree took
immediate effect and the Company has no intention of participating
in the re-tender process. The carrying value of the asset was
written off at 31 December 2019, causing a US$15.8 million loss to
be realised in the non-operated segment.
Disposals
In November 2019, the Company sold its 70% working interest in
the Santa Cruz Sur ('SCS') licences to Echo Energy plc ('Echo').
SCS forms part of the Group's non-operated asset portfolio, being
conventional oil production operated by ROCH S.A. On sale, the net
non-current assets related to SCS of US$34.2 million were written
off to the gain/loss on sale calculation.
Impairment
The Company defines the key indicators of impairment in relation
to its oil and gas assets within its accounting policies. When a
specific impairment trigger is identified during a period, the
Company will complete an impairment review of the associated CGU.
There has been no change in the CGU asset classification
year-on-year. The Group's accounting policy for long-lived assets
gives examples of potential triggers for impairment that management
will consider when assessing if a particular asset may be impaired.
Climate change is another factor to be considered and this is
reflected in the assumptions used to calculate the discount factor,
in particular the beta factor and the country risk.
These include:
-- Exploration drilling that has not resulted in the discovery
of reserves in potentially commercial quantities;
-- Changes in oil and gas prices or other market conditions that
indicate discoveries may not be commercial;
-- The anticipated cost of development indicates that it is
unlikely the carrying value of the exploration and evaluation asset
will be recovered in full;
-- There are no plans to conduct further exploration activities in an area; or
-- The exploration licence or concession period has expired or is due to expire.
In 2020, the primary method used in assessing impairment
triggers for producing assets, was an economic evaluation based on
fair values (level 3) less costs of disposal, using the NPV15
(2019: NPV10) of post-tax cash flows generated from the 2P reserves
of producing assets of the associated cash generating unit over the
life of the concession. Factors considered in this evaluation
include:
-- Historic and expected production
-- EUR and type curve analysis
-- Capex
-- Opex
-- Discount factors
-- Price deck
For exploration assets, management considered risked fair values
based on post-tax NPV15 of P3 reserves and contingent resources in
conjunction with fair values assessed on a per acreage basis (in
2019 impairment was assessed by comparing book value to its
respective NPV12 value). Fair values attributed on a per acreage
basis have been assessed by reference to values attributed to
precedent transactions by comparing the following characteristics
of the Company's licences with comparable characteristics of
licences the subject of precedent transactions:
-- degAPI
-- %TOC
-- Landing zones
-- Formation depth
-- DFIT (Psi)
-- Pressure gradient (Psi/ft)
-- Geohazards
Where the calculated fair values are less than the carrying
values an impairment test is performed.
Prices used in the assessment were based on an average of prices
sourced from various banks and analysts at the year-end increasing
from a forecast Brent price of US$50.16/bbl in 2021 to US$66.38/bbl
in 2030 and thereafter (2019: US$65/bbl with a 1.5% per annum
increase over time).
The impairment assessment review resulted in a pre-tax
impairment charge of US$128.6 million (2019: US$2.5 million) in
respect of property, plant and equipment, primarily resulting from
a revision in reserves associated with one CGU following poor
results from a drilling program and changes to the price deck
assumptions.
Management also carried out sensitivity analysis to determine
the impact of changes in the price and discount factor assumptions.
A summary of this sensitivity analysis is included at the end of
note 5 below.
5. Intangible assets and goodwill
Exploration and evaluation assets are primarily the Group's
licence interests in exploration and evaluation assets located in
Argentina. The exploration and evaluation assets consist of both
conventional and unconventional oil and gas properties.
Intangible assets Goodwill Exploration Total
and evaluation
assets
US$'000
US$'000
US$'000
At 1 January 2020
----------- ---------------- ------------
Cost 260,007 215,759 475,766
----------- ---------------- ------------
Accumulated amortisation and impairment
charges (224,169) (5,057) (229,226)
----------- ---------------- ------------
Net book amount 35,838 210,702 246,540
----------- ---------------- ------------
Year ended 31 December 2020
----------- ---------------- ------------
Opening net book amount 35,838 210,702 246,540
----------- ---------------- ------------
Additions - 3,949 3,949
----------- ---------------- ------------
Exploration cost written off - (2,630) (2,630)
----------- ---------------- ------------
Impairment charge (15,223) (20,662) (35,885)
----------- ---------------- ------------
Closing net book amount 20,615 191,359 211,974
----------- ---------------- ------------
At 31 December 2020
----------- ---------------- ------------
Cost 260,007 217,078 477,085
----------- ---------------- ------------
Accumulated amortisation and impairment
charges (239,392) (25,719) (265,111)
----------- ---------------- ------------
Net book amount 20,615 191,359 211,974
----------- ---------------- ------------
Additions
Additions to intangible assets during the year predominately
relate mainly to work programs carried out on the Mata Mora,
Corralera and El Manzano concessions.
Intangible assets Goodwill Exploration Total
and evaluation
assets
US$'000
US$'000
US$'000
At 1 January 2019
---------- ---------------- ----------
Cost 260,007 225,172 485,179
---------- ---------------- ----------
Accumulated amortisation and impairment
charges (224,169) - (224,169)
---------- ---------------- ----------
Net book amount 35,838 225,172 261,010
---------- ---------------- ----------
Year ended 31 December 2019
---------- ---------------- ----------
Opening net book amount 35,838 225,172 261,010
---------- ---------------- ----------
Additions - 39,054 39,054
---------- ---------------- ----------
Transfers from property, plant and equipment - (43,287) (43,287)
---------- ---------------- ----------
Transfers to assets held for sale - (616) (616)
---------- ---------------- ----------
Exploration cost written off - (230) (230)
---------- ---------------- ----------
Impairment charge - (5,057) (5,057)
---------- ---------------- ----------
Disposal of assets - cost - (4,334) (4,334)
---------- ---------------- ----------
Closing net book amount 35,838 210,702 246,540
---------- ---------------- ----------
At 31 December 2019
---------- ---------------- ----------
Cost 260,007 215,759 475,766
---------- ---------------- ----------
Accumulated amortisation and impairment
charges (224,169) (5,057) (229,226)
---------- ---------------- ----------
Net book amount 35,838 210,702 246,540
---------- ---------------- ----------
Additions
Additions to intangible assets during 2019 related to the
conclusion of the drilling of the MMx-1001 well, the drilling of
the MMx-1002 well and subsequent flowback and other testing and
completion works completed at Mata Mora. Additions also included
costs associated with securing the Group's interest in the
Corralera Noroeste concession.
The costs associated with the MMx-1001 and MMx-1002 wells were
transferred to development and production assets within property,
plant and equipment on completion of flowback and determination of
commercial reserves. The remaining exploration and evaluation costs
associated with the Mata Mora licence will be held as intangibles
until the licence area is commercially developed.
Impairment tests for exploration and evaluation assets
Exploration and evaluation assets are subject to impairment
testing prior to reclassification as tangible fixed assets where
commercially viable reserves are confirmed. Where commercially
viable reserves are not encountered at the end of the exploration
phase for an area the accumulated exploration costs are written off
in the income statement.
Impairment tests for goodwill
Goodwill is monitored by management at the level of the
operating segments identified in note 3. A segment level summary of
goodwill allocation is presented below.
At acquisition Operated Non-operated Corporate Total
US$'000
US$'000
US$'000 US$'000
Chachahuen & Cerro Morado Este - 15,223 - 15,223
--------- ------------- ---------- ---------
Corralera 16,780 - - 16,780
--------- ------------- ---------- ---------
Mata Mora 3,835 - - 3,835
--------- ------------- ---------- ---------
Total goodwill 20,615 15,223 - 35,838
--------- ------------- ---------- ---------
No goodwill was recognised prior to 2017. All goodwill presented
relates to the allocation of technical goodwill arising as a result
of accounting for deferred tax on the business combination on 10
August 2017. Goodwill of US$224.2 million that was related to the
excess of the purchase consideration given over the fair value of
assets acquired and liabilities assumed at the acquisition date was
impaired in full on completion of the business combination in
2017.
Impairment
The carrying value of goodwill has been assessed for impairment
at the year-end on basis detailed in note 4. Where the calculated
fair values are less than the carrying values an impairment test is
performed.
The impairment assessment review resulted in an impairment
charge of US$15.2 million (2019: US$0 million) in respect of
goodwill and US$20.7 million (2019: US$5.1 million) in respect of
exploration and evaluation assets.
Sensitivity - Property, plant and equipment and intangible
assets
Management carried out sensitivity analysis to determine the
impact of changes in the price and discount factor assumptions on
the impairment charge recognised on property, plant and equipment
(see note 4 above) and intangible assets. A +US$5/bbl/-US$5/bbl per
annum price change reduced/increased the total impairment charge by
approximately US$16.8 million and US$18.2 million respectively and
-5%/+5% per annum change in the discount rate reduced/increased the
total impairment charge by approximately US$21.0 million and
US$22.9 million respectively.
At year end the goodwill is presented below:
At December 2020 Operated Non-operated Corporate Total
US$'000
US$'000
US$'000 US$'000
Corralera 16,780 - - 16,780
--------- ------------- ---------- ---------
Mata Mora 3,835 - - 3,835
--------- ------------- ---------- ---------
Total goodwill 20,615 - - 20,615
--------- ------------- ---------- ---------
6. Borrowings
2020 2019
Current Non-current Total Current Non-current Total
US$'000 US$'000
US$'000 US$'000 US$'000 US$'000
------------ ------------ --------- --------- ------------ ---------
Secured
------------ ------------ --------- --------- ------------ ---------
Bank loans 2,598 6,641 9,239 10,055 - 10,055
------------ ------------ --------- --------- ------------ ---------
Total secured borrowings 2,598 6,641 9,239 10,055 - 10,055
------------ ------------ --------- --------- ------------ ---------
Unsecured
------------ ------------ --------- --------- ------------ ---------
Bank loans - - - - - -
------------ ------------ --------- --------- ------------ ---------
Loans from related
parties 322,973 - 322,973 146,782 146,751 293,533
------------ ------------ --------- --------- ------------ ---------
Other loans 21 - 21 28 - 28
------------ ------------ --------- --------- ------------ ---------
Total unsecured borrowings 322,994 - 322,994 146,810 146,751 293,561
------------ ------------ --------- --------- ------------ ---------
Total borrowings 325,592 6,641 332,233 156,865 146,751 303,616
------------ ------------ --------- --------- ------------ ---------
Secured liabilities and assets pledged as security
Secured liabilities relate to US Dollar denominated loans at an
interest rate of Libor + 700 points for Dollar loans and Badlar +
700 points for Peso loans (2019: interest fixed rate of 8.0%). At
31 December 2020 the Group held US$2.7 million loans in Argentine
Peso (2019: US$nil).
Loans from related parties
The related party loan at 31 December 2020 relates to a
convertible rolling credit facility ('RCF') and non-convertible
bridging facility ('BF') provided to the Group by Mercuria Energy
Netherlands B.V., a subsidiary of the Mercuria group.
As part of the business combination in 2017, Mercuria advanced a
bridging and working capital facility to the Group for the amount
of US$160.0 million. In February 2018, US$100.0 million of the
facility was converted to equity of the Company at a price of
GBP0.37 per share. At the same time the facility was restructured
as a new convertible RCF in the amount of US$160.0 million with an
additional US$100.0 million of new funds made available to the
Company. In December 2018, Mercuria advanced an additional US$25.0
million as a Facility B element to the RCF. In February 2019, a
further US$50.0 million was made available under this Facility B
element. The original loan of US$160.0 million became Facility
A.
In May 2019, the amended convertible RCF was further extended to
add a Facility C commitment of US$40 million. Facility C was
extended in November 2019 by an additional US$10.0 million and in
March 2020 by an additional US$6 million.
At 31 December 2020, a total facility of US$291.0 million was
available to the Company, with a total of US$281.0 million drawn
down under the facility, with the undrawn balance of US$10 million
made available through the BF, which was subsequently increased to
US$11.5 million, with US$11.26 million drawn down at the year
end.
All funds drawn down under the RCF and BF bear interest at
three-month LIBOR+4%. The RCF provides for a grace period for
repayments (interest and principal) from 1 January 2019 to 30 June
2021 with a maturity date of 31 December 2021 amortised in equal
quarterly repayment instalments from and including 30 June 2021
until maturity. The BF, principal and interest, is repayable by 30
June 2021. At the year-end US$30.7 million of interest had been
capitalised.
Mercuria has the right to convert all or part of the outstanding
principal of Facility A into additional new ordinary shares of the
Company at a price of GBP0.45 per share. This conversion right can
be exercised at any time from 30 June 2018 until 10 business days
prior to the maturity of Facility A. A similar conversion feature
exists in relation to Facility B at a price of GBP0.28 per share
exercisable from 30 June 2019 until 10 business days prior to the
maturity date and in relation to Facility C at a price of GBP0.23
per share exercisable from 30 June 2020 until 10 business days
prior to the maturity date.
Fair value
Differences identified between the fair values and carrying
amounts of borrowings are as follows:
2020 2019
Carrying Fair value Carrying Fair
amount US$'000 amount value
US$'000 US$'000 US$'000
----------- ---------
Bank loans 9,239 8,981 10,055 10,018
----------- ------------ -------- ---------
Other loans 21 21 28 28
----------- ------------ -------- ---------
Loans from related parties 322,973 301,844 293,533 288,668
----------- ------------ -------- ---------
Total 332,233 310,846 303,616 298,714
----------- ------------ -------- ---------
The fair values of non-current borrowings are based on
discounted cash flows using a current borrowing rate. They are
classified as Level 3 fair values in the fair value hierarchy due
to the use of unobservable inputs, including own credit risk.
7. Loss per share
Basic and diluted loss per share 2020 2019
US$ US$
From continuing operations attributable to the ordinary
equity holders of the Company (0.07) (0.04)
------- -------
Total basic loss per share attributable to the ordinary
equity holders of the Company (0.07) (0.04)
------- -------
Basic and diluted loss per share 2020 2019
US$'000 US$'000
Loss attributable to the ordinary equity holders
of the Company used in calculating basic earnings
per share:
---------- ----------
From continuing operations (197,024) (113,810)
---------- ----------
(197,024) (113,810)
---------- ----------
Weighted average number of shares used as the denominator
Number of shares 2020 2019
'000 '000
Adjustments for calculation of diluted earnings
per share:
---------- ----------
At 1 January 2,785,024 2,786,645
---------- ----------
At 31 December 2,786,571 2,785,024
---------- ----------
Potential dilutive ordinary shares 3,386 3,989
---------- ----------
Weighted average number of shares used as the denominator
in calculating diluted earnings per share 2,788,956 2,785,791
---------- ----------
8. Post balance sheet events
Credit facilities
On 31 January 2021, the non-convertible bridging facility
provided by Mercuria was increased to US$20 million and
subsequently further increased to US$21 million on 30 March 2021,
to US$26 million on 12 April 2021, to US$31 million on 19 April
2021 and to US$41 million on 7 May 2021. The convertible facility
grace period for repayments (interest and principal) was extended
to 30 June 2021 with a loan maturity date of 31 December 2021 with
the non-convertible bridging facility, principal and interest,
repayable by 30 June 2021.
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