TIDMUOG
RNS Number : 2838J
United Oil & Gas PLC
26 April 2022
26 April 2022 Registered number: 09624969
United Oil and Gas Plc
("United" "the Group" or the "Company")
Final audited results for the year ended 31 December 2021
Shareholder call, Notice of AGM and 2021 Annual Report and
Accounts
United Oil & Gas PLC (AIM: "UOG"), the growing oil and gas
company with a portfolio of production, development, exploration
and appraisal assets is pleased to announce its audited results for
the year ended 31 December 2021. A shareholder and an analyst call
will take place this morning, details are below.
Brian Larkin, Chief Executive Officer commented:
"United has delivered strong financial performance and excellent
drilling success in 2021 with all five wells in the programme
adding production and cashflow to the Company. We have re-focused
the portfolio which offers attractive growth and investment
opportunities. We enter 2022 with an asset base leveraged to the
higher oil price environment and with a strong balance sheet which
provide a platform for growth.
"We have much to look forward to in 2022, with the five-well
drilling campaign in Egypt which has had a great start with the
successful ASD-2 development well and the recent spudding of the
ASD-1X exploration well. In Jamaica the combination of support from
our stakeholders in the form of a licence extension and high oil
price have re-invigorated the farmout campaign while in the UK, we
are excited about the commercialisation opportunities that the
licence containing the Maria discovery offers.
"We have multiple growth opportunities in our portfolio and with
our strong balance sheet, we look to complement organic growth with
the pursuit of new business opportunities "
2021 Operational summary
-- Group working interest 2021 production averaged 2,327 boepd
(2020: 2,195 boepd )(1) in line with production guidance of
2,100-2,300 boepd issued on 6 September 2021
- 100% drilling success in five-well 2021 drilling campaign on
the Abu Sennan licence replacing reserves
- Development concessions granted over the two commercial oil
discoveries made through exploration drilling
-- Jamaica licence extension granted - Initial Exploration
Period will now run to 31 January 2024
-- Zero Lost time incidents, Medical Treatment Injury, Restricted Work Injury, Spills, fires or environmental incidents
2021 Financial summary
-- Group Revenue of $19.2m (2020: $9.1m)(1)
-- Gross Profit of $12.2m (2020: $2.5m)
-- Profit after Tax $4.1m (2020: $0.9m)
-- Realised oil price of $68.9/bbl (2020: $37.8/bbl)(1)
-- Cash collections of $17.3m (2020:$9.5m)(1)
-- Cash operating costs of $5.90 /boe (2020: $5.77/boe)(1)
-- Repayments on BP Pre-payment facility $5.4m (2020: $1.7m)(1)
-- Group Cash balance of $0.4m at the period end (2020: $2.2m)(2)
(1) From the completion of Rockhopper Egypt acquisition to
period end, 28 February 2020 to 30 June 2020
(2) Payment of $0.8m from EGPC received on 2 Jan 22
Post- period
-- Commencement of the 2022 five-well drilling campaign with the
ASD-2 development well, which encountered at least 25.5 metres of
net pay and started production end-March 2022
-- Second well in the drilling campaign, the ASV-1X exploration
well commenced drilling on 14 April 2022
-- United terminated the sale and purchase agreement with
Quattro Energy Limited to sell its UK Central North Sea Licences;
P2480 and P2519
-- Agreement signed with Anasuria Hibiscus UK Ltd for $2.5m in
relation to the Crown milestone payment
-- Completion of the sale of UOG Italia Srl to Prospex Energy
for EUR2.2m plus EUR0.1m working capital adjustment
-- Pre-paid Swap facility maturity date extended from September
2022 to December 2023 creating further financial flexibility for
the Company
2022 Guidance
-- Group working interest production in Egypt for the full year
2022 is forecast to average between 1,500 - 1,650 boepd net;
- Includes production from current wells with historical decline
rates applied, and production from the two further development
wells to be drilled this year which are expected to come on stream
Q3/Q4 2022
- Does not include any contribution from our two planned exploration wells
-- Group cash capital expenditure for the full year is
forecasted to be approx.$7.2m, fully funded from existing
operations
- circa $6.8m to be invested in Egypt, on five wells, eight workovers, and facility upgrades
- $0.4m across the other assets in the portfolio
Outlook - Focused on growth
-- Cash generation is expected to continue strongly throughout
2022 in line with low-cost production leveraged to higher commodity
price environment
-- United's balance sheet has been significantly strengthened
recently via completion of divestments and the debt refinancing
providing a platform for growth
-- Multiple growth opportunities exist in our current portfolio
- Egypt through developing discovered resources, low-cost
production and high impact exploration potential in a proven
hydrocarbon basin
- Jamaica - Exploration assets with 2.4 billion barrel potential
- UK Central North Sea has attractive investment and commercialisation opportunities
-- Pursuit of new business opportunities in line with our investment criteria
Notice of Meeting and 2021 Annual Report and Accounts
The Annual General Meeting of the Company will be held at the
offices of Armstrong Teasdale, 38 - 43 Lincoln's Inn Fields, London
WC2A 3PE at 12.00 p.m. on 1 June 2022.
The Annual Report & Accounts of the Company for the year
ended 31 December 2021, Notice of the 2022 Annual General Meeting,
and a Form of Proxy are now available on the Company's website and
can be accessed via
https://www.uogplc.com/investors/reports-presentations-and-meetings
Hard copies of the above two documents, together with a Form of
Proxy, have been mailed to those shareholders having elected to
receive paper copies.
Events today
Management is hosting a call today at 0900 BST for analysts. For
dial in details please contact Tessa Gough-Allen at Camarco 0203
781 9245 or uog@camarco.co.uk
A shareholder call will take place at 1130 BST today. Investors
that wish to participate in the event, please click on this link to
register https://bit.ly/3MmMNgd
Confirmation email with the details of the dialling in process
will be sent to your email address.
A presentation will be available today on www.uogplc.com .
**S**
This announcement contains inside information for the purposes
of Article 7 of Regulation 2014/596/EU which is part of domestic UK
law pursuant to the Market Abuse (Amendment) (EU Exit) regulations
(SI 2019/310).
Enquiries
United Oil & Gas Plc (Company)
Brian Larkin, CEO brian.larkin@uogplc.com
Sharan Dhami, Head of IR & ESG sharan.dhami@uogplc.com
Beaumont Cornish Limited (Nominated
Adviser)
Roland Cornish | Felicity Geidt +44 (0) 20 7628 3396
Tennyson Securities (Joint Broker)
Peter Krens +44 (0) 20 7186 9030
Optiva Securities Limited (Joint
Broker)
Christian Dennis +44 (0) 20 3137 1902
Camarco (Financial PR)
Billy Clegg | James Crothers | Tessa +44 (0) 20 3757 4983 | uog@camarco.co.uk
Gough-Allen
Notes to Editors
United Oil & Gas is a high growth oil and gas company with a
portfolio of low-risk, cash generative production, development,
appraisal and exploration assets across Egypt, UK and a high impact
exploration licence in Jamaica.
The business is led by an experienced management team with a
strong track record of growing full cycle businesses, partnered
with established industry players and is well positioned to deliver
future growth through portfolio optimisation and targeted
acquisitions.
United Oil & Gas is listed on the AIM market of the London
Stock Exchange. For further information on United Oil and Gas
please visit www.uogplc.com
CHAIR'S STATEMENT
FOR THE YEARED 31 DECEMBER 2021
Dear Shareholders,
Introduction
I am pleased to report that in 2021 we took further steps to
refocus the company into a cash generative, low-risk production
business in Egypt complemented by high impact exploration
opportunities.
Our production portfolio is delivering strong operational
cashflow at current prices and I feel we are well placed to
capitalise on the new opportunities we now see emerging across the
industry and on our organic growth options.
In addition, in 2021 we strengthened our team in certain areas
and I believe now have the capability to handle an asset base many
times the current size without materially increasing our cost
base.
Key activities in 2021
In Egypt, we continued the drilling successes of 2020 with a
100% success rate for the five exploration and development wells in
the 2021 campaign. All of these wells encountered oil and were
quickly brought into production, with the exploration successes
further de-risking the upside on the licence. Our technical team
continue to play a very important role in working closely with the
operator and our Joint Venture (JV) partners in maximising the
returns from these assets and realising their full potential.
While the revision in our production guidance for the Abu Sennan
licence in September was disappointing, we are pleased that both
the decline of the production and the increase in water-cut has
been stable since September 2021. We will continue to work closely
with the operator to monitor field performance and ensure that
production from the field is optimise and new drilling
opportunities are appropriately de-risked.
During the year, and consistent with our strategy, we took steps
to divest our non-core assets in the UK Central North Sea (UK CNS)
and in Italy, with a view to reinvesting the proceeds to support
growth. The UK CNS transaction has now been terminated and we look
forward to evaluating further commercialisation opportunities in
what is now an area of significant development activity. The
Italian asset divestment has completed (post-period end) and we
were pleased to sign the settlement agreement on the Crown
milestone payment accelerating the receipt of the milestone payment
at a modest discount. The substantial proceeds raised from
portfolio management will be reinvested in the business.
In Jamaica, following close consultations with the Government,
we were awarded an extension of the Walton Morant licence to
January 2024. This affords us the time to complete a comprehensive
farmout process to attract the most suitable partners to work with
ourselves and the Government of Jamaica to unlock the full
potential of this highly prospective area.
Business development opportunities across the full cycle
continued to be offered to and assessed by the team in the course
of 2021, and a number of such opportunities are still under
consideration. However, only the most attractive ones consistent
with our strategy and investment criteria will be taken
forward.
Board and governance
There were no changes to the Board in the year, and the Board
and all Committees functioned effectively under their respective
Chairs, despite not being able to meet physically until the last
meetings of the year in December. An internal Board and Committee
evaluation was carried out post-year end, the findings, and
conclusions from which are reported in our 2021 Annual Report and
Accounts.
I believe that we continue to have a good balance of technical,
financial, commercial and governance experience on the Board and
that the non-executive directors give appropriate support and
challenge to the executives both at and outside of Board and
Committee meetings.
Strategy
Our strategy remains clear: create value by actively managing
our existing assets whilst growing our business through additional
high-margin opportunities.
Financial results for 2021
I am very pleased to report to a profit after tax in 2021 of
$4.1 With our production and revenues continuing strongly, and with
operating costs in 2021 of $5.90 per barrel, we entered 2022 with
an asset base resilient to low oil prices and with a strong balance
sheet.
Post year end
Since year-end we have made further progress. We commenced
production from the Al Jahraa-13 development well which was the
last well in the 2021 drilling campaign. Our 2022 drilling campaign
is fully funded from operating cashflow and includes five wells.
The campaign commenced with the ASD-2 development well which
encountered at least 25.5m of net pay and commenced production at
the end of March. We were also pleased to report the agreement of
the Crown milestone payment which will bring in $2.5m by the end of
2022 and the completion of the Italy asset divestment which
resulted in payment to United of c. EUR2.2m.. The proceeds of both
will be invested to grow the Group.
Impact of COVID-19
While COVID-19 had less of an impact on our activities in 2021
than in 2020, it continued to have some effect on the way in which
we worked, our ability to travel freely and our interactions with
employees, shareholders, and our other stakeholders. Despite this,
I feel the company has come through this era well without
significant disruption to our business and I'm pleased to report
that all our staff are in good health.
Dialogue with shareholders
Shareholders' views on the company, its strategy, remuneration
policy and indeed all aspects of our business and operations are
very important to the Board and we welcome every opportunity to
engage. We were particularly happy to have been able to meet a
number of our shareholders in person in London last November and we
look forward to further such meetings as COVID-19 restrictions
begin to ease. However, we would be very happy to hear from you in
whatever manner suits you best. I can be reached via the Company
Secretary at info@uogplc.com.
Conclusion and outlook for 2022
2021 was another very successful year for the company in the
development and pursuit of our strategy and I would like to record
my thanks to our executives and staff for their continued
commitment and energy throughout the year. We look forward very
positively to the year ahead. The oil price has started the year
high, we have a balanced full cycle portfolio, a fully funded
drilling and work programme in Egypt, engagement with potential
partners on the Jamaica farm-out, and we have exciting new
opportunities under review.
Graham Martin
Chair
CEO'S STATEMENT
FOR THE YEARED 31 DECEMBER 2021
Dear Shareholders,
During 2021 United's focus has been to reshape the portfolio via
divestment of non-core assets work with the Joint Venture (JV)
partners to increase and proactively manage production from Abu
Sennan, and further strengthen the business through the pursuit of
organic and inorganic opportunities to build scale. We have also
worked on moving forward the Jamaica farm-out process following the
extension of the exploration licence and we continue to manage the
business with a focus on capital and cost discipline.
COVID-19 and our response
The health, safety and wellbeing of our employees, contractors
and all our stakeholders is a priority for United. As the global
pandemic continued in 2021, the Joint Operating Company (JOC) in
Egypt, continued with the measures in place to minimise the risk of
any COVID-19 outbreak and procedures such that mitigation measure
were in place to ensure the impact of any outbreak could be quickly
contained. There was no disruption to the operations in Egypt. Our
head office staff continued to work remotely in line with
government directives with negligible disruption to our
business.
Egypt success
Our Egyptian portfolio includes exploration, production, and
development opportunities in the Abu Sennan licence. There are
currently eight producing fields. Production in 2021 averaged 2,327
boepd (2020: 2,195 boepd). In 2021 we drilled five wells in total:
two exploration and three development wells. The two exploration
wells ASD-1X and AS1-1X were commercial discoveries and the JV
partners were granted two new 20-year development leases covering
the new discoveries. The development wells, ASH-3, AJ-8, and AJ-13
also encountered oil. All five wells were successful, replacing
reserves and accelerating production of existing reserves. They
were brought into production within short timeframes, adding
immediate cashflow to the Company, and all of the wells
demonstrated exceptionally short payback periods of 3-12 months.
The sub-surface information gathered from the wells further
de-risks future exploration. While JV partners had originally
planned to drill four wells based on the success of the initial
drilling programme and the increase in commodity price the JV
partners added the AJ-13 development well to the programme making
it the fifth and final well of the 2021 drilling campaign. This
flexibility and adjustment to the drilling programme allows the JV
partners to capitalise when oil prices are high and also allows us
to adjust the drilling programme in a low oil-price
environment.
Operational challenges and remedial work
Operationally 2021 was not without its challenges. In the latter
part of 2021, the wells in one of the producing fields, ASH,
started to experience an increase in the proportion of water to oil
being produced (water-cut) and associated decline in production. As
a result, the Company revised its full-year guidance for the Abu
Sennan licence from 2,500-2,700 to 2,100-2,300 boepd. Although this
was disappointing, the technical team now have more data and
information on how the reservoir functions and can use this
information to optimise future drill targets. Since the beginning
of September 2021, decline of the production and the increase in
water-cut has been stable, and United modestly exceeded the revised
guidance. Electrical Submersible Pumps (ESP) will be installed in
all three producing wells located in the ASH field as part of the
2022 work programme. The ESPs will be aiming to maintain the flow
rates, optimise production and extend the life of field.
Refocusing our portfolio
I am pleased with the progress the Company has made during 2021.
Following a review of the Company's portfolio we began the process
to divest our non-core assets in Italy and the UK Central North
Sea. Since year-end we have made further progress. We have
completed the Italy divestment. We also agreed a settlement
regarding the Crown milestone payment. These two transactions will
bring in approximately $5m in aggregate and we will be re-investing
the proceeds to support growth. We decided to terminate the UK CNS
deal, and we look forward to evaluating further commercialisation
opportunities in an area of significant development activity when
oil prices are at a seven-year high.
The Company's portfolio is re-focused on the cash generative
Egyptian producing asset and the high-impact exploration in Jamaica
and a development asset in the UK, which gives us a strong platform
for organic growth.
2022 production guidance
Average production for the first quarter of 2022 was 1,567 boped
net, well within the guided range of 1,500-1,650 boepd for H1. The
H1 production guidance range of 1,500-1,650 boepd has now been
extended to the full-year 2022. A prudent approach has been taken
to provide this full-year guidance, which includes production from
the current wells declined in line with historic trends, production
from Al Jahraa-14 commencing in Q3 and production from ASH-5
commencing in Q4. No production additions have been included for
the two exploration wells that are planned for 2022.
Jamaica progress
We were delighted to report that United was granted a two-year
extension to the Initial Exploration Period of the Walton Morant
Licence, Jamaica, by the Jamaican Cabinet. The Initial Exploration
period will now run to 31 January 2024. The support of the
Government of Jamaica has been excellent and reflects our strong
relationship and the positive outlook for the industry in Jamaica.
United has done extensive technical work on this asset, which has
over 2.4 billion barrels of unrisked oil potential and the
basin-opening Colibri prospect at a drill-ready stage. The
extension allows us to continue the farm-out process with
confidence as we look for an investment partner(s) to unlock the
vast potential in this region.
Environmental, Social, Governance
United is committed to conducting business in a safe and
responsible manner to deliver long term growth. We are working with
the operator in Egypt to identify, quantify and categorised our
emissions. Once we establish a baseline, we will work with our JV
partners to consider initiatives that may help to reduce emissions.
Our community and social investment programmes focus on capacity
building, health, and education. In 2021 United sponsored the
Capacity Building Feature at the Upstream Technical Convention in
Egypt. United also supporting the Al Amal mentorship programme for
over 40 students.
Multiple Growth opportunities
United has several growth opportunities in its current portfolio
and looks to complement this growth with inorganic growth to build
scale. Egypt is a dynamic and growing economy, providing a stable
business environment. In Egypt, we have an asset with high-quality
oil production operations, development and exploration upside, and
our current organic growth opportunities include near-term
development from existing resources and low-risk exploration. The
2022 drilling programme has started and consists of both
development and exploration wells. The exploration wells, ASF-1X
and ASV-1X, will target combined mean recoverable resources
estimated by United in excess of 10 mmbbls gross. This is five
times the mean recoverable resources that the JV partners targeted
in 2021. The two exploration wells that will be drilled in 2022 are
part of a wider portfolio of over 20 exploration prospects and
leads at Abu Sennan. We look forward to building on the impressive
returns to date and optimising production from this licence in the
years to come.
In Jamaica the sentiment to exploration and recovery of the
investment cycle is returning due to higher commodity prices, the
expectation that the energy transition will take time, and the
recent discoveries in new basins such as Namibia and Morocco. We
are encouraged by the interest shown in our farm-out process so far
and we look forward to pursuing this significant opportunity.
Our people
Another year of the global pandemic has meant the lives of
individuals across the globe continue to change in extraordinary
ways. As variants of COVID-19 developed and lockdowns across the
world occurred our colleagues had to keep adapting their working
environments to working from home. I wish to add my own thanks to
the staff at United for all their commitment, enthusiasm, and
energy.
Outlook
We are focusing on near term-value adding activities in Egypt,
which have potential to generate additional free cash flow, and on
the longer-term prospects in Jamaica.
There are extensive growth opportunities remaining in the Abu
Sennan licence, as demonstrated by the drilling success so far, and
it has the potential to deliver large reserve and production
upside.
Our Egypt production base continues to deliver operational
cashflow, and this, combined with our portfolio management
initiatives, ensure that United remains in a strong position to
execute our strategy.
We enter 2022 as a producing, cash generative business, with a
complementary portfolio of low-risk development and exploration in
Egypt, with the potential of high impact exploration in Jamaica and
a development asset in UK with commercialisation opportunities. We
have had a great start to the year, with the encouraging result
achieved on the first well in the 2022 drilling campaign. We were
also pleased to finalise a Crown milestone settlement agreement and
complete the divestment of our Italian assets which will bring in
c.5m of proceeds.
United has a balanced portfolio, we have a constant focus on
cost control, and careful investment of our capital to maximise
returns for our stakeholders. With an entrepreneurial management
team and a diverse, experienced Board, we can leverage on our
extensive industry relationships and knowledge to use our refocused
portfolio as a platform from which to grow the business through
organic opportunities within our current portfolio and new business
opportunities. We are confident that our continued focus on
long-term growth will generate value for our shareholders. I would
like to thank our shareholders and stakeholders for their continued
support throughout the period.
Brian Larkin
Chief Executive Officer
REVIEW OF OPERATIONS
Introduction
T here was a significant amount of operational activity for
United in 2021. In Egypt, the run of success experienced with the
drill-bit since United acquired the licence continued, with
successful results from all five of the wells drilled in 2021 -
including two new exploration discoveries that were rapidly brought
onstream. This brought the number of fields in production on the
Abu Sennan licence up to eight, delivering record-high full-year
average production of 2,327 boepd net.
In Jamaica, as well as the good progress that was made with the
continuing work programme, the granting of a two -year extension to
the Initial Exploration Period of the Walton Morant licence puts
United in a strong position to take advantage of the positive
sentiment that is returning to exploration and progressing the
farm-down.
Egypt (22% non-operated working interest, operated by Kuwait
Energy Egypt)
The Abu Sennan licence is located in the Western Desert, onshore
Egypt, c.200km west of Cairo. United acquired its 22% working
interest in the licence in April 2020. The licence offers low-risk
development and exploration. The entirety of the Abu Sennan licence
area of 644km(2) is covered by existing 3D seismic data, with
multiple exploration prospects and leads identified in what has
proven to be a prolific petroleum basin. There are eight producing
fields the largest of which are the Al Jahraa and the ASH
fields.
Production
F ull-year 2021 production averaged 2,327 boepd net (1,869 bopd
oil and 458 boepd gas) (2020: 2,195 boepd), slightly above the
production guidance of 2,100-2,300 issued on 6 September 2021.
This production is split between eight separate fields, and
although there were issues with increased water-cut at the ASH
field in the beginning of Q3 2021, production from Abu Sennan
remained stable through the second part of Q3 and Q4.
2021 Abu Sennan work programme
The 2021 work programme at Abu Sennan consisted of five wells
and six workovers. All five wells encountered oil and were quickly
brought into production.
The drilling programme began with the ASH-3 development well.
This reached total depth (TD) of 4,087m in February, and
encountered 27.5m of net pay in the Alam El Bueib (AEB) reservoir.
It was brought onstream at gross rates of over 3,000 bopd in early
March, achieving payback in less than three months.
This was followed by the ASD-1X exploration well. This reached
TD of 3,750m in March, and encountered 22m of net oil pay in Abu
Roash, Bahariya and Kharita reservoirs. ASD-1X was announced as a
commercial discovery on 4 May and after approval was granted from
the Minister of Petroleum for the award of a 20-year development
lease covering the new discovery, it was brought into production on
26 May with average flow-rates of c. 600 bopd, less than two months
after the initial well results.
The third well in the 2021 drilling programme was the Al
Jahraa-8 development well, which was side-tracked to a TD of 4,314m
in July. The side-track encountered over 40m of net oil pay across
three different reservoir units including over 30m of net pay in
the Upper and Lower Bahariya reservoirs, significantly above
pre-drill expectations. The well was brought onstream during
August, with gross initial flow rates in excess of 950 boepd.
The fourth 2021 well was the ASX-1X exploration well. This
reached TD of 4,272m in September, encountering over 10m of net pay
in a new commercial discovery. Approval was granted from the
Minister of Petroleum for the award of a 20-year development lease
over the new discovery in October, and the Abu Roash C reservoir
was brought onstream at an initial gross production rate of 870
bopd - just three weeks after the initial drilling results
A fifth well, the Al Jahraa-13 development well, was added to
the 2021 programme in September. The well reached TD of 3,840m on
the 15 December, and encountered 17.5m of net pay in the Upper and
Lower Bahariya. The well was brought onstream on the 11 January
2022 at gross flow-rates of c.600bopd. This led to the Al Jahraa
field becoming the largest producing field on the licence.
2022 work programme and production guidance
Average production for the first quarter of 2022 was 1,567 boped
net, well within the guided range of 1,500-1,650 boepd for H1. The
H1 production guidance range of 1,500-1,650 boepd has now been
extended to the full-year 2022. A prudent approach has been taken
to provide this full-year guidance, which includes production from
the current wells declined in line with historic trends, production
from Al Jahraa-14 commencing in Q3 and production from ASH-5
commencing in Q4. No production additions have been included for
the two exploration wells that are planned for 2022.
The 2022 approved work programme consists of five firm wells
(three development and two exploration wells) and eight workovers.
The fifth well was included in the programme following the results
of ongoing technical studies and is planned to be the Al Jahraa-14
("AJ-14") development well. The workovers planned for 2022 will
include the installation of Electrical Submersible Pumps (ESPs) in
all three producing wells located in the ASH field. The ESPs will
be aiming to maintain the flow rates, optimise production and
extend the life of field, and two of these have already been
installed.
Seismic reprocessing of a 452km(2) area of the Abu Sennan 3D
seismic volume is currently nearing completion. This reprocessing
work will cover the ASH field and neighbouring AEB targets, as well
as the ASF prospect (to be drilled in 2022). Additional seismic
reprocessing in the north-east of the licence area is planned to be
carried out later in 2022.
The drilling programme commenced in late January 2022 with the
ASD-2 development well. This was drilled to test the north-western
culmination of the ASD field discovered last year, and safely
reached TD of 3,631m in March. The well encountered at least 25.5
metres of net pay and was brought onstream less than six days after
completion at an initial gross rate of c. 2,100 bopd.
In March, United announced that the second well in the 2022
programme would be the ASV-1X exploration well, which spud on the
14 April. The ASV-1X exploration well is a high impact well,
targeting unrisked mean recoverable resources estimated by United
at c.2.6 mmbbls gross. The primary targets are Abu Roash
reservoirs, similar to those currently in production at the Al
Jahraa field. A secondary target will be tested at the deeper
Kharita level.
This AJ-14 development well is planned to be the third well
drilled in 2022. This will be followed by ASH-5, a development well
to be drilled in the ASH field, targeting the prolific Alam El
Bueib ( AEB) reservoirs that have so far delivered in excess of 3.5
million barrels of oil from the field.
Analysis of the ASH field incorporating the results of the ASH-3
well indicates a large in-place oil volume estimated by United to
be in the range of 14-16 mmbbls gross, with significant potential
remaining within the structure. Seismic reprocessing is currently
underway to ensure that this development drilling is located
optimally in the field.
The fifth and final well in the 2022 programme is the ASF-1X
exploration well. The ASF-1X well has been high-graded by United,
and will target unrisked mean recoverable resources estimated by
United at c.8 mmbbls gross in the AEB and Abu Roash reservoirs to
the south-west of the ASH field. The well location will be
finalised using the reprocessed seismic data.
Jamaica (100% working interest)
In Jamaica, United holds a 100% working interest in the Walton
Morant licence. This is a 22,400km(2) offshore exploration licence,
located to the south of the island of Jamaica. It offers a
high-impact frontier exploration opportunity with the potential to
open an entirely new hydrocarbon frontier.
With extensive seismic data coverage, including 2,250km(2) of 3D
data, numerous plays and prospects have already been identified and
mapped across the area - leading to over 2.4 billion barrels
unrisked mean prospective resources being assigned to the licence.
Indeed, the drill-ready, high-impact Colibri prospect alone
contains mean prospective resources of 406mmbbls.
The results of the work programme carried out in 2021 have
enhanced understanding of regional source rock development,
quantified the basin-wide potential, and demonstrated robust
economics based on an independent assessment of viable development
options for the high-graded Colibri prospect.
A formal farm-out campaign was launched in April 2021, assisted
by Envoi, a specialist Upstream Acquisition and Divestment advisory
group. In November 2021 United announced that the request for a
two-year extension to the Initial Exploration Period of the Walton
Morant Licence was granted by the Jamaican Cabinet. Final signature
from the Ministry of Science, Energy and Technology to the amended
Production Sharing Agreement was received in January 2022. The
Initial Exploration period will now run to 31 January 2024.
The extension allows us to continue the farm-out process with
confidence as we look for an investment partner(s) to unlock the
vast potential in this region.
UK
Central North Sea (100% working interests) Licences P2480 (Zeta)
and P2519 (Maria)
Licences P2480 (Zeta) and P2519 (Maria) cover a combined area of
c.725km(2) in the Outer Moray Firth Basin of the UK Central North
Sea (CNS).
Maria
Licence P2519 includes Blocks 15/18e and 15/19c and covers an
area of c. 225 km(2) . The licence contains the existing Maria
discovery in the Forties Sandstone, drilled by Shell/Esso in 1976.
United estimated as part of its licence application that Maria
holds c. 6 mmboe mid-case recoverable resources. The P2519 Licence
also contains two Jurassic discoveries, Brochel and Maol. Maol was
drilled by Shell in 1987, and on test flowed at over 2,000
boepd.
Previous analysis suggests that the commercial threshold for oil
developments with proximity to infrastructure in this part of the
North Sea is c. 4-5 MMbbls, indicating that a viable development
should be possible, and indeed these economics are likely to be
further enhanced in light of the recent increase in commodity
prices.
During the first- half of 2021 progress was made on the work
programmes associated with the licences: new 3D seismic data was
purchased and interpreted, with the initial mapping providing
positive indications on the existing Maria, Brochel and Maol
discoveries, and on the identified prospectivity, including Zeta,
Dunvegan, and the deeper Jurassic targets.
In September 2021, the Company announced that it had entered
into a binding sale and purchase agreement (SPA) with Quattro
Energy Limited (Quattro) to sell its UK Central North Sea Licences.
Completion of the sale was conditional on receipt of approval from
the Oil and Gas Authority (OGA) and Quattro completing a
fundraising process. OGA approval was received, however, Quattro
did not complete a fundraising process by the long stop date (28
February 2022). In Mach 2022 United terminated the SPA with Quattro
and have retained the licences as part of the Company's
portfolio.
Both licences are located in a highly prospective area of the
CNS, where there is significant development activity taking place.
They are situated close to existing infrastructure as well as the
Marigold and Yeoman discoveries, and the substantial Piper,
MacCulloch and Claymore oil fields.
There are low-cost commitments on both licences, and with rising
commodity prices and renewed activity in the nearby area United
believes they each contain attractive investment opportunities.
United look forward to progressing the commercialisation
opportunities and potential partnerships the assets offer.
Waddock Cross (26.25% working interest, non-operator)
Licence PL090 containing the shut-in Waddock Cross Field is
situated c. 11km to the east of Dorchester, in the onshore Wessex
Basin, UK.
The operator, Egdon Resources U.K Limited has updated the
modelling for the shut-in field, demonstrating that a possible
phased redevelopment of Waddock Cross would be commercial. A Final
Investment Decision is expected to be made by the end of 2022.
Waddock Cross remains non-core, and United are continuing to review
alternatives for this asset.
Italy (20% working interest, non-operator)
Selva
United has completed the sale of 100% of the share capital of
UOG Italia Srl PXOG Marshall Limited, a subsidiary of Prospex
Energy PLC (Prospex), for a consideration of EUR2.165m (c. $2.54m)
with an effective date of 1 Jan 2021.
Health, Safety and Environment
While United had no field activity in 2021 in which we were the
operator, we continued to work with our Joint Venture partners and
as part of the Joint Operating Company (JOC) in Egypt. Measures
were in place to minimise the risk of any COVID-19 outbreak and
procedures were in place to ensure the impact of any outbreak could
be quickly contained. There was no disruption to the operations in
Egypt.
Our operator in Egypt maintained another year of zero
Fatalities, Medical Treatment Cases, Restricted Work Injuries and a
zero rate for Lost Time Injury frequency and Total recordable
incidents frequency or environmental spills. There were three motor
vehicle incidents with no harm to the drivers. All incidents were
investigated, and lessons learned as appropriate and actions to
prevent recurrence were implemented. There was also a fire
incident, during the periodic maintenance of a plant generator by a
contractor's technician. The trained team at the gas plant quickly
controlled the fire using fire extinguishers. The preliminary
investigation revealed that the fire caused by damaged insulation
of the electric cable of the motor oil charging pump. The fire
resulted in damage to the generator and minor injury on the hand of
the contractor's technician. A detailed investigation will be
carried out to understand mitigation measure and lessons
learnt.
Group reserves and resources
Country Egypt Jamaica UK UK UK Total
Asset Abu Walton Morant Maria Zeta Waddock Cross
Sennan
-------- -------------- ------- -------- -------------- --------
Working Interest 22% 100% 100% 100% 26.25%
-------- -------------- ------- -------- -------------- --------
Net 2P Reserves
(mmboe) 3.0(1) 3.0
-------- -------------- ------- -------- -------------- --------
Net 2C Resources
(mmboe) 6.1(3) 0.4(4) 6.5
-------- -------------- ------- -------- -------------- --------
Net Prospective
Resources
(mmboe) 10.4(3) 2,421(2) 27.5(3) 2.3(3) 2,461.2
-------- -------------- ------- -------- -------------- --------
(1) ERCE reserves report, April 2022. Reserves of 3.0 MMboe are
Net Working Interest and do not represent the Net Entitlement share
of future production legally accruing under the terms of the
development and production contract
(2) GaffneyCline & Associates report, December 2020;
Summation of Walton Morant Prospective Resources completed by
United
(3) Figures based on United interpretation and calculations
(4) ERCE Competent Persons Report, December 2019
FINANCIAL REVIEW
Financial Strategy
United's Financial Strategy underpins the business strategy and
is founded on three core principles: capital discipline, financial
management and risk management. The existing portfolio is funded
entirely from operating cashflow, and we have further strengthened
the balance sheet since the start of 2022 via the refinancing of
our prepaid swap facility, the agreement on the Crown milestone
payment and the completion of our Italian divestment. Our balance
sheet provides a stable platform for growth from both organic
opportunities and via new business development opportunities. Our
cash operating costs are low by industry standards and we are fully
leveraged to benefit from the current high oil price
environment.
Financial Results Summary 2021 2020(1)
Net Average Production volumes
(boepd) 2,327 2,195
Oil Price Realised ($/bbl) 68.90 37.76
Gas Price Realised ($/mmbtu) 2.63 2.63
Revenue $19.2m $9.1m(2)
Gross Profit $12.2m $2.5m
Cash operating cost per boe
(3) $5.90 $5.77
Exploration costs written off $0.4m $0.3m
Impairment of property, plant $0.6m -
and equipment
Profit after Tax $4.1m $.9m
Basic profit per share (cents) 0.64 0.15
Cash Capex $5.5m $2.5m
EBITDAX(3) $13.6m $3.5m
Operating Cashflow $9.1m $4.8m
================================ ======== =========
(1) Amounts stated are for the 10 months from completion date of
Egyptian Acquisition
(2) 22% interest net of government take
(3) See Non-IFRS measure
Group Production and Commodity Prices
Total group working interest production 2021 was 2,327 boepd an
increase of 6% for the year (2020 2,195 boepd for ten months). The
Group's average realised oil price was $68.90/bbl representing an
increase of 82% on the prior year, and the average (fixed) gas
price was $2.63/mmbtu. Group revenue for the year totalled $19.2m
representing an increase of 110% on the prior year largely down to
higher commodity prices and also increased production. Revenues
from the Abu Sennan concession are stated after accounting for
government entitlements under the production sharing contract.
Crude oil from Abu Sennan is sold as Western Desert Blend and the
average discount to Brent was $1.85/bbl.
Group Operating Costs
Group cash operating costs were $4.9m (2020 $3.9m) an increase
of $1.0m on the prior mainly due to an additional two months
reported in 2021 and higher production during the year. The cash
operating cost per barrel of $5.90/boe remains largely unchanged in
2021 (2020 $5.77/boe) which demonstrates the efficiency of our
Egyptian assets.
Group DD&A
Group DD&A associated with producing and development assets
amounted to $4.0m (2020; $2.6m). DD&A per boe is currently
$4.70/boe.
Administrative Expenses
Administrative Expenses for the year totalled $3.4m (2020 $1.7m)
Adjusting for the non-cash items under IFRS 2 Share Based Payment
and IFRS 16 Leases, the administrative expense is $3m (2020:$1.4m).
This included $0.4m on new venture activity relating to the
evaluation of business development opportunities, a write-down of
$0.39m relating to the Crown milestone agreement of $2.5m and the
carried receivable was $2.85m a and a net impairment charge on
development assets of $0.6m (2020: $Nil) relating to the Waddock
Cross asset in the UK. The gain on non-current assets held for sale
of $0.1m relates to the divestment of the Italian business
Divestments
During 2021 the Group signed conditional sale and purchase
agreements (SPA's) for the disposal of the share capital of UOG
Italia Srl for a consideration of EUR2.165m (c. $2.54m) with an
effective date of 1 Jan 2021 and to sell its UK Central North Sea
(UK CNS) Licences; P2480 and P2519 for a consideration of up to
GBP3.2m (c $4.4m). On 28 February 2022 the SPA for the sale of the
UKCN licences was terminated. The assets and liabilities of UOG
Italia Srl are held as assets for sale on the balance sheet as at
31st December 2021. This divestment completed on 8 April 2022.
Derivative financial instrument
The Company's pre-payment facility with BP provided downside
protection by effectively hedging a volume of bbls of oil at
$60/bbl per month for a thirty-month term from March 2020 through
to September 2022. As at 31 December 2021, an unrealised loss of
$1.5m has been recognised as a result of oil price movements in the
period. On January 31 2022, the Company and BP extended the
maturity of this facility until 31 December 2023 to create further
financial flexibility for the Company. The new terms provide
downside protection at $70/bbl for a volume of bbls through to end
December 2023.
Taxation and Other Income
The Egypt concession is subject to corporate income tax at the
standard rate of 40.55%. However, responsibility for payment of
corporate income taxes falls upon EGPC on behalf of UOG Egypt Pty
Ltd. The Group records a tax charge with a corresponding increase
in other income for the tax paid by EGPC on its behalf. Due to
accumulated tax- deductible balances there was no tax due in the
prior period.
Profit/loss post tax
The profit for the year from continuing operations and prior to
any exceptional costs was $4m (2020: $0.9m).
Cash flow
Net cashflow from continuing operations amounted to $9.1 (2020:
$4.8m). An increase/decrease of 90% compared to 2020. Cost control
and liquidity management both served to protect the cashflows. A
significant year end revenue receipt of $0.8m was not received at
our bank until 2 January 2022 and hence is not reflected in the
year end cash balance.
Capital investment
Total capital expenditure on continuing operations for the year
amounted to $5.5m (2020 $2.5m); with $2.3m incurred on the two
successful development wells, $2.7m on other exploration,
development and infrastructure projects in Abu Sennan. The
remaining $0.5m was invested in other assets across the remainder
of the portfolio.
The company will continue to focus on capital discipline with
2022 capital investment largely directed at maximising value from
the Group's producing assets. The Group's cash capital expenditure
for the full year is forecasted to be approx.$6m, fully funded from
existing operations, with circa $5.5m to be invested in Egypt and
up to $0.5m across the other assets in the portfolio.
Balance sheet
Intangibles Assets additions during the period amounted to $3m
and were then reduced by both a transfer of Exploration success
wells at both ASD 1X and ASX 1X amounting to $2.5m in total, and
the transfer of Italian assets for divestment to Assets Held for
sale (AHFS), leaving a closing Intangibles Balance Sheet position
of $5m comprised of $4.5m in Jamaica and $.5m on our North Sea
assets (2020: $7.9m). Of the additions in 2021 $1.7m relates to the
two exploration campaigns in Abu Sennan, $0.9m was spent in Jamaica
on the Walton Morant licence and the remainder of the movement of
$0.4m on other exploration assets within the portfolio. The
movement in Property, Plant and Equipment was $4.4m which
represents spend on the five well campaign , two exploration
successes transferred from Intangibles, and two development wells
plus additional facilities and workovers on the Abu Sennan
producing assets in Egypt. Additions were $8.5m in total, offset by
$4m of DD&A on a unit of production basis. Trade and other
receivables amounted to $7.7m and included $5m of accrued income on
oil and gas sales plus $2.5m relating to the Crown disposal
milestone payment. Borrowings at year end were $3.8m.
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chair's statement and the Strategic Report.
United regularly monitors its business activities, financial
position, cash flows and liquidity through detailed forecasts.
Scenarios and sensitivities are also regularly presented to the
Board, including changes in commodity prices and in production
levels from the existing assets, plus other factors which could
affect the Group's future performance and position. A base case
forecast has been considered which uses budgeted commitments and
prevailing forward curve assumptions for oil prices. The key
assumptions and related sensitivities include a "Reasonable Worst
Case" ("RWC") sensitivity where the Board has considered a scenario
with significant aggregated downside, including a reduction in
forecast production rates of 15%, a reduction in oil prices by 20%
and an increase in forecast capital expenditure in Egypt by
10%.
Both the base case and RWC take into consideration the Crown
Milestone Settlement Agreement for $2.5m and the completion of the
Italian divestment for EUR2.2m in early 2022. The likelihood of all
these downside sensitivities taking place simultaneously and
lasting for the entire forecast period is considered to be remote.
Under such a RWC scenario, we have identified appropriate
mitigating actions, including the deferral of additional
uncommitted capital expenditure, further divestment of the
portfolio, restructuring of debt arrangements and adjustment of the
Group cost base, which would be available to us and have been
demonstrated as effective strategies in previous periods of low oil
prices. Our business in Egypt remains robust given cash operating
costs of less than $6/boe, flexible drilling contracts, downside
price protection on our hedged volumes and gas contracts that are
fixed price in nature. There are limited capital commitments in the
other assets in our portfolio. The forecasts outlined above show
that the Group will have sufficient financial headroom for the 12
months from the date of approval of the 2021 Accounts. Based on
this analysis, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence
for the foreseeable future. Therefore, they continue to use the
going concern basis of accounting in preparing the annual Financial
Statements.
Financial Outlook
United's financial strength is founded on our long-term approach
to prudently managing capital to generate value. United has a
streamlined portfolio of assets which are funded from operating
cashflow. We have taken significant steps to strengthening our
balance sheet and generate investment flexibility, via the
completion of two of our asset divestments and extending the
maturity on our pre-paid swap facility with the ongoing support of
our debt provider BP. The measures that we have taken and the
benefits of our stable low-cost production benefitting from the
prevailing stronger commodity price environment ensures that o ur
balance sheet provides a stable platform for growth from both
organic and inorganic opportunities.
CONSOLIDATED INCOME STATEMENT
FOR THE YEARED 31 DECEMBER 2021
Notes Year to 31 December 2021 Year to 31 December 2020
$ $
Revenue 2 19,228,698 9,053,657
Other income 2 1,940,574
Cost of sales 3 (8,911,815) (6,505,011)
Gross profit 12,257,457 2,548,646
Administrative expenses:
------------------------------------------------------ ------ ------------------------- -------------------------
Other administrative expenses (1,763,362) (1,589,529)
Impairment of intangible assets (624,546) (37,161)
Impairment of divestment receivable (394,686) -
Exploration and New Venture write offs (377,934) (307,557)
Foreign exchange (losses) / gains (356,850) 189,918
Gain on non-current assets held for sale 13 118,651 -
Operating profit 4 8,858,730 804,317
Finance income 6 - 1,572,706
Finance expense 6 (2,922,754) (1,580,842)
Profit before taxation 5,935,976 796,181
Taxation 7 (1,861,882) 56,480
Profit for the financial year attributable to the
Company's equity shareholders 4,074,094 852,661
Earnings per share from continuing operations
expressed in cents per share: 8
Basic 0.64 0.15
========================= =========================
Diluted 0.62 0.14
========================= =========================
Consolidated Statement of Comprehensive Income
2021 2020
$ $
Profit for the financial year 4,074,094 852,661
Foreign exchange (losses)/ gains (209,164) (337,713)
Total comprehensive income for the financial
year attributable to the Company's equity
shareholders 3,864,930 514,948
Consolidated Balance Sheet as at 31 December 2021
Notes 2021 2020
Assets $ $
Non-current assets
Intangible assets 10 4,970,091 7,891,743
Property, plant and equipment 11 17,990,809 13,607,167
22,960,900 21,498,910
Non-current assets / assets in disposal groups
held for sale 13 2,561,250 -
25,522,150 21,498,910
Current assets
Inventory 14 145,570 35,729
Trade and other receivables 15 7,702,021 5,454,307
Cash and cash equivalents 16 397,308 2,188,902
8,244,900 7,678,938
Current liabilities:
Trade and other payables 19 (5,422,734) (2,996,115)
Derivative financial instruments 22 (1,346,044) (992,681)
Borrowings 22 (2,422,212) (2,133,655)
Lease liabilities 21 (83,368) (94,050)
Current tax payable (57,246) (135,388)
------------ ------------
(9,331,604) (6,351,889)
Non-current liabilities:
Borrowings 22 - (2,422,146)
Derivative financial instruments 22 - (647,376)
Lease liabilities 21 (24,494) (96,787)
------------ ------------
(24,494) (3,166,309)
Liabilities associated with assets in disposal
groups held for sale 13 (116,048) -
Net assets 24,294,904 19,659,650
============ ============
Equity and liabilities
Capital and reserves
Share capital 17 8,416,182 8,138,619
Share premium 17 16,215,361 16,047,975
Share-based payment reserve 18 2,247,465 1,922,090
Merger reserve (2,697,357) (2,697,357)
Translation reserve (558,104) (348,940)
Retained earnings 671,357 (3,402,737)
Shareholders' funds 24,294,904 19,659,650
============ ============
Consolidated Statement of Changes in Equity
Share-based
Share payments Retained Translation Merger
capital Share premium reserve earnings reserve reserve Total
$ $ $ $ $ $ $
For the year
ended 31
December 2021
Balance at 1
January 2021 8,138,619 16,047,975 1,922,090 (3,402,737) (348,940) (2,697,357) 19,659,650
Profit for the
year - - - 4,074,094 - - 4,074,094
Foreign
exchange
difference - - - - (209,164) - (209,164)
Total
comprehensive
income - - - 4,074,094 (209,164) - 3,864,930
Shares issued 277,563 167,386 - - - - 444,949
Share-based
payments - - 325,375 - - - 325,375
Balance at 31
December 2021 8,416,182 16,215,361 2,247,465 671,357 (558,104) (2,697,357) 24,294,904
---------- -------------- ------------- ------------ ------------- ------------- -----------
For the year
ended 31
December 2020
Balance at 1
January 2020 4,564,787 9,912,988 1,591,808 (4,255,398) (11,227) (2,697,357) 9,105,601
Loss for the
year - - - 852,661 - - 852,661
Foreign
exchange
difference - - - - (337,713) - (337,713)
Total
comprehensive
income - - - 852,661 (337,713) - 514,948
Shares issued 3,573,832 6,640,081 - - - - 10,213,913
Share issue
expenses - (505,094) 62,516 - - - (442,578)
Share-based
payments - - 267,766 - - - 267,766
Balance at 31
December 2020 8,138,619 16,047,975 1,922,090 (3,402,737) (348,940) (2,697,357) 19,659,650
---------- -------------- ------------- ------------ ------------- ------------- -----------
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARED 31 DECEMBER
2021 2020
$ $
Cash flow from operating activities
Profit for the financial year before tax 5,935,976 796,181
Share-based payments 325,375 267,766
Depreciation 4,107,685 2,628,990
Amortisation 3,985 3,862
Fair value loss / (gain) on derivatives 1,527,250 (1,572,706)
Impairment of intangible assets 624,546 37,161
Gain on non-current assets / disposal groups held for sale (118,651) -
Loss on disposal of intangible assets - 31,307
(Gain) / loss on disposal of property, plant and equipment (25,683) 42,318
Interest expense 1,395,504 1,580,842
Foreign exchange movements 356,850 (189,918)
Tax paid (1,940,574) -
------------ -------------
12,192,263 3,625,803
Changes in working capital
(Increase) / decrease in inventory (109,841) 64,433
(Increase) / decrease in trade and other receivables (2,276,303) 2,530,065
Decrease in trade and other payables (697,544) (1,390,182)
------------ -------------
Cash inflow from operating activities 9,108,575 4,830,119
Cash outflow from investing activities
Cash outflows on business combination - (11,200,000)
Cash acquired in business combination - 46,543
Deposits received on disposal of non-current assets 160,404 -
Purchase of property, plant & equipment (3,607,826) (2,816,460)
Spend on exploration activities (2,121,050) (1,457,307)
Net cash used in investing activities (5,568,472) (15,427,224)
Cash flow from financing activities
Issue of ordinary shares net of expenses 444,949 5,835,834
Proceeds on issue of oil swap financing arrangement - 7,760,288
Repayments on oil swap financing arrangement (3,518,359) (1,666,116)
Payments on oil price derivatives (1,805,086) (70,431)
Capital payments on lease (68,914) (73,183)
Interest paid on lease (14,421) (5,753)
Net cash (used in) / generated from financing activities (4,961,831) 11,780,639
Net (decrease) / increase in cash and cash equivalents (1,421,728) 1,183,534
Cash and cash equivalents at beginning of financial year 2,188,902 1,275,537
Effects of exchange rate changes (369,866) (270,169)
Cash and cash equivalents at end of financial year 397,308 2,188,902
============ =============
Notes to the consolidated financial statements
1. Principal Accounting Policies
Company information
United Oil & Gas plc is a public limited company
incorporated and domiciled in the United Kingdom.
Basis of preparation
The financial statements have been prepared in accordance with
International Accounting Standards in conformity with the
requirements of the Companies Act 2006 and with those parts of the
Companies Act 2006 applicable to companies reporting under UK
adopted IFRS.
IFRS is subject to amendment and interpretation by the IASB and
the IFRS Interpretations Committee, and there is an on-going
process of review. These accounting policies comply with each IFRS
that is mandatory for accounting periods ending on 31 December
2021.
The principal accounting policies set out below have been
consistently applied to all periods presented.
Basis of consolidation
The financial statements for the year ended 31 December 2021
incorporate the results of United Oil & Gas plc ("the Company")
and entities controlled by the Company (its subsidiaries). Control
is achieved where the Company has the power to govern the financial
and operating policies of an investee entity so as to obtain
benefits from its activities.
All intra-Group transactions, balances, income and expenses are
eliminated in full on consolidation. Accounting policies of
subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Going concern
United regularly monitors its business activities, financial
position, cash flows and liquidity through detailed forecasts.
Scenarios and sensitivities are also regularly presented to the
Board, including changes in commodity prices and in production
levels from the existing assets, plus other factors which could
affect the Group's future performance and position. A base case
forecast has been considered which uses budgeted commitments and
prevailing forward curve assumptions for oil prices. The key
assumptions and related sensitivities include a "Reasonable Worst
Case" ("RWC") sensitivity where the Board has considered a scenario
with significant aggregated downside, including a reduction in
forecast production rates of 15%, a reduction in oil prices by 20%
and an increase in forecast capital expenditure in Egypt by
10%.
Both the base case and RWC take into consideration the Crown
Milestone Settlement Agreement for $2.5m and the completion of the
Italian divestment for EUR2.2m in early 2022. The likelihood of all
these downside sensitivities taking place simultaneously and
lasting for the entire forecast period is considered to be remote.
Under such a RWC scenario, we have identified appropriate
mitigating actions, including the deferral of additional
uncommitted capital expenditure, further divestment of the
portfolio, restructuring of debt arrangements and adjustment of the
Group cost base, which would be available to us and have been
demonstrated as effective strategies in previous periods of low oil
prices. Our business in Egypt remains robust given cash operating
costs of less than $6/boe, flexible drilling contracts, downside
price protection on our hedged volumes and gas contracts that are
fixed price in nature. There are limited capital commitments in the
other assets in our portfolio. The forecasts outlined above show
that the Group will have sufficient financial headroom for the 12
months from the date of approval of the 2021 Accounts. Based on
this analysis, the Directors have a reasonable expectation that
the
Group has adequate resources to continue in operational
existence for the foreseeable future. Therefore, they continue to
use the going concern basis of accounting in preparing the annual
Financial Statements.
Revenue
Revenue comprises invoiced sales of hydrocarbons to customers,
excluding value added and similar taxes. Also disclosed within
revenue is tariff income recognised, excluding value added and
similar taxes, for gas transportation facilities provided to third
parties.
Revenue is recognised at a point in time as control passes to
the customer, which is typically the point of delivery of
hydrocarbons. The Group does not have performance obligations
subsequent to delivery.
Other Income - Tax Entitlement Volumes
Under the concession agreements in Egypt, income tax due on
taxable profit is paid on the Group's behalf by EGPC. To achieve
this through the agreements, the Group notionally receive a greater
share of hydrocarbon production in excess of the Group's
entitlement interest share of production equal to the amount
required to cover the tax payable. The oil is produced and sold on
the Group's behalf and proceeds remitted to the tax authorities.
This income does not fall within the definition of revenue and is
therefore shown as other income with an equal and opposite tax
charge recorded through current taxation.
Foreign currency
Transactions in foreign currencies are recorded at the rate
ruling at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are translated at the
rate of exchange ruling at the year-end date. All differences are
taken to the Income Statement.
Assets and liabilities of subsidiaries that have a functional
currency different from the presentation currency (US dollar), if
any, are translated at the closing rate at the date of each balance
sheet presented. Income and expenses are translated at average
exchange rates. All resulting exchange differences are recognised
in other comprehensive income (loss), if any.
Finance income and costs
Interest is recognised using the effective interest method which
calculates the amortised cost of a financial asset or liability and
allocates the interest income or expense over the relevant period.
The effective interest rate is the rate that exactly discounts
estimated future cash receipts or payments through the expected
life of the financial asset or liability to the net carrying amount
of the financial asset or liability.
Exploration and evaluation assets
The group accounts for oil and gas expenditure under the full
cost method of accounting.
Costs (other than payments to acquire the legal right to
explore) incurred prior to acquiring the rights to explore are
charged directly to the profit and loss account. All costs incurred
after the rights to explore an area have been obtained, such as
geological, geophysical, data costs and other direct costs of
exploration and appraisal are accumulated and capitalised as
intangible exploration and evaluation ("E&E") assets.
E&E costs are not amortised prior to the conclusion of
appraisal activities. At the completion of appraisal activities if
technical feasibility is demonstrated and commercial reserves are
discovered, then following development sanction, the carrying value
of the relevant E&E asset will be reclassified as a development
and production asset within tangible fixed assets.
If after completion of appraisal activities in an area, it is
not possible to determine technical feasibility or commercial
viability, then the costs of such unsuccessful exploration and
evaluation are impaired to the Income Statement. The costs
associated with any wells which are abandoned are fully amortised
when the abandonment decision is taken.
Development and production assets are accumulated generally on a
field by-field basis and represent the costs of developing the
commercial reserves discovered and bringing them into production,
together with the E&E expenditures incurred in finding
commercial reserves which have been transferred from intangible
E&E assets.
The net book values of development and production assets are
depreciated generally on a field-by-field basis using the unit of
production method based on the commercial proven and probable
reserves. Assets are not depreciated until production
commences.
Depreciation of production assets
Production assets are accumulated into cash generating units
(CGUs) and the net book values are depreciated on a prospective
basis using the unit-of-production method by reference to the ratio
of production in the year and the related economic commercial
reserves, taking into account future development expenditures
necessary to bring those reserves into production.
The gain or loss arising on disposal or scrapping of an asset is
determined as the difference between the sales proceeds, net of
selling costs, and the carrying amount of the asset and is
recognised in the income statement.
Each asset's estimated useful life has been assessed with regard
to both its own physical life limitations and the present
assessment of economically recoverable reserves of the oil and gas
asset at which the item is located, and to possible future
variations in those assessments. Estimates of remaining useful
lives are made on a regular basis for all oil and gas assets,
machinery and equipment, with annual reassessments for major items.
Changes in estimates which affect unit production calculations are
accounted for prospectively.
Other intangible assets
Other intangible assets acquired separately from a business
combination are capitalised at cost.
Intangible assets are amortised on a straight-line basis over
their useful lives as follows:
Computer software 33%
The carrying value of intangible assets is assessed annually and
any impairment is charged to the income statement.
Property, plant and equipment
Property, plant and equipment are stated at cost less
depreciation. Depreciation is provided on a straight-line basis at
rates calculated to write off the cost less the estimated residual
value of each asset over its expected useful economic life. The
residual value is the estimated amount that would currently be
obtained from disposal of the asset if the asset were already of
the age and in the condition expected at the end of its useful
life.
The annual rate of depreciation for each class of depreciable
asset is:
Computer equipment 33%
The carrying value of property plant and equipment is assessed
annually and any impairment is charged to the income statement.
Non-current assets held for sale and disposal groups
Non-current assets and disposal groups are classified as held
for sale when:
- They are available for immediate sale
- Management is committed to a plan to sell
- It is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn
- An active programme to locate a buyer has been initiated
- The asset or disposal group is being marketed at a reasonable
price in relation to its fair value, and
- A sale is expected to complete within 12 months from the date of classification.
Non-current assets and disposal groups classified as held for
sale are measured at the lower of:
- Their carrying amount immediately prior to being classified as
held for sale in accordance with the Group's accounting policy;
and
- Fair value less costs of disposal.
Following their classification as held for sale, non-current
assets (including those in a disposal group) are not
depreciated.
The results of operations disposed during the year are included
in the consolidated statement of comprehensive income up to the
date of disposal.
A discontinued operation is a component of the Group's business
that represents a separate major line of business or geographical
area of operations or is a subsidiary acquired exclusively with a
view to resale, that has been disposed of, has been abandoned or
that meets the criteria to be classified as held for sale.
Discontinued operations are presented in the consolidated
statement of comprehensive income as a single line which comprises
the post-tax profit or loss of the discontinued operation along
with the post-tax gain or loss recognised on the re-measurement to
fair value less costs to sell or on disposal of the assets or
disposal groups constituting discontinued operations.
Impairment of non-financial assets
At each balance sheet date, the Directors review the carrying
amounts of the Group's tangible and intangible assets, other than
goodwill, to determine whether there is any indication that those
assets have suffered an impairment loss. If any such indication
exists, the recoverable amount of the asset is estimated in order
to determine the extent of the impairment loss, if any. Where the
asset does not generate cash flows that are independent from other
assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
Recoverable amount is the higher of fair value less costs to
sell and value in use. In assessing value in use, the estimated
future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of
the time value of money and the risks specific to the asset for
which the estimates of future cash flows have not been
adjusted.
If the recoverable amount of an asset or cash-generating unit is
estimated to be less than its carrying amount, the carrying amount
of the asset or cash-generating unit is reduced to its recoverable
amount. If the recoverable amount of a cash-generating unit is less
than its carrying amount, the impairment loss is allocated first to
reduce the carrying amount of any goodwill allocated to the unit
and then to the other assets of the unit pro rata based on the
carrying amount of each asset in the unit.
An impairment loss is recognised as an expense immediately.
An impairment loss recognised for goodwill is not reversed in
subsequent periods.
Where an impairment loss subsequently reverses, the carrying
amount of the asset or cash-generating unit is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset or cash-generating unit in prior periods. A reversal
of an impairment loss is recognised in the Income Statement
immediately.
Financial instruments
Recognition and derecognition
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of the
financial instrument.
Financial assets are derecognised when the contractual rights to
the cash flows from the financial asset expire, or when the
financial asset and substantially all the risks and rewards are
transferred.
A financial liability is derecognised when it is extinguished,
discharged, cancelled or expires.
Classification and initial measurement of financial assets
Except for those trade receivables that do not contain a
significant financing component and are measured at the transaction
price in accordance with IFRS 15, all financial assets are
initially measured at fair value adjusted for transaction costs
(where applicable).
Financial assets are classified into the following
categories:
-- amortised cost
-- fair value through profit or loss (FVTPL)
-- fair value through other comprehensive income (FVOCI).
In the periods presented the Group does not have any financial
assets categorised as FVOCI or FVTPL.
The classification is determined by both:
-- the entity's business model for managing the financial asset
-- the contractual cash flow characteristics of the financial asset.
Subsequent measurement of financial assets
Financial assets at amortised cost
Financial assets are measured at amortised cost if the assets
meet the following conditions:
-- they are held within a business model whose objective is to
hold the financial assets and collect its contractual cash flows;
and
-- the contractual terms of the financial assets give rise to
cash flows that are solely payments of principal and interest on
the principal amount outstanding.
After initial recognition, these are measured at amortised cost
using the effective interest method. Discounting is omitted where
the effect of discounting is immaterial. The Group's cash and cash
equivalents, trade and other receivables fall into this category of
financial instruments.
Impairment of Financial Assets
In relation to the impairment of financial assets, IFRS 9
requires an expected credit loss model to be applied. The expected
credit loss model requires the Group to account for expected credit
losses and changes in those expected credit losses at each
reporting date to reflect changes in credit risk since initial
recognition of the financial assets.
IFRS 9 requires the Group to recognise a loss allowance for
expected credit losses on trade receivables.
In particular, IFRS 9 requires the Group to measure the loss
allowance for a financial instrument at an amount equal to the
lifetime expected credit losses (ECL) if the credit risk on that
financial instrument has increased significantly since initial
recognition, or if the financial instrument is a purchased or
originated credit -- impaired financial asset. However, if the
credit risk on a financial instrument has not increased
significantly since initial recognition, the Group is required to
measure the loss allowance for that financial instrument at an
amount equal to 12 months ECL.
Classification and measurement of financial liabilities
The Group's financial liabilities include borrowings, trade and
other payables and embedded derivative financial instruments.
Financial liabilities are initially measured at fair value, and,
where applicable, adjusted for transaction costs unless the Group
designated a financial liability at fair value through profit or
loss.
Subsequently, financial liabilities are measured at amortised
cost using the effective interest method except for derivatives and
financial liabilities designated at FVTPL, which are carried
subsequently at fair value with gains or losses recognised in
profit or loss.
All interest-related charges and, if applicable, changes in an
instrument's fair value that are reported in profit or loss are
included within finance costs or fair value gains/(losses) on
derivative financial instruments.
Embedded derivative nancial instruments
A borrowing arrangement structured as a prepaid commodity swap
with monthly repayments over 30 months has embedded in it a
derivative that is indexed to the price of the commodity. This is
considered to be a separable embedded derivative of a loan
instrument.
At the date of issue, the fair value of the embedded derivative
is estimated by considering the derivative as a series of forward
contracts with modelling of the fixed and floating legs to
determine a repayment schedule and derive a net present value for
the forward contract embedded derivative.
This amount is recognised separately as a financial liability or
financial asset and measured at fair value through the income
statement. The residual amount of the loan is then recorded as a
liability on an amortised cost basis using the effective interest
method until extinguished upon conversion or at the instrument's
maturity date.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits held
at call with banks and other short-term highly liquid investments
with original maturities of three months or less.
Leases
The Group assesses whether a contract is or contains a lease, at
inception of the contract. The Group recognises a right-of-use
asset and a corresponding lease liability with respect to all lease
arrangements in which it is the lessee.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted by using the rate implicit in the lease. If this rate
cannot be readily determined, the lessee uses its incremental
borrowing rate.
The lease liability is presented as a separate line in the
statement of financial position.
The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using
the effective interest method) and by reducing the carrying amount
to reflect the lease payments made.
The Group remeasures the lease liability (and makes a
corresponding adjustment to the related right-of-use asset)
whenever:
-- The lease term has changed in which case the lease liability
is remeasured by discounting the revised lease payments using a
revised discount rate.
-- The lease payments change due to changes in an index or rate
or a change in expected payment under a guaranteed residual value,
in which cases the lease liability is remeasured by discounting the
revised lease payments using an unchanged discount rate (unless the
lease payments change is due to a change in a floating interest
rate, in which case a revised discount rate is used).
-- A lease contract is modified and the lease modification is
not accounted for as a separate lease, in which case the lease
liability is remeasured based on the lease term of the modified
lease by discounting the revised lease payments using a revised
discount rate at the effective date of the modification.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, prepayments made on the lease at or
before the commencement day, less any lease incentives received and
any initial direct costs. They are subsequently measured at cost
less accumulated depreciation and impairment losses.
Right-of-use assets are depreciated over the shorter period of
lease term and useful life of the underlying asset.
The depreciation starts at the commencement date of the
lease.
Taxation
Current taxation for each taxable entity in the Group is based
on the local taxable income at the local statutory tax rate enacted
or substantively enacted at the balance sheet date and includes
adjustments to tax payable or recoverable in respect of previous
periods.
Deferred taxation
Deferred taxation is calculated using the liability method, on
temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the financial statements.
However, if the deferred tax arises from the 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, it is not accounted for.
Deferred tax is determined using tax rates and laws that have been
enacted or substantively enacted by the balance sheet date and are
expected to apply when the related deferred tax asset is realised,
or the deferred tax liability is settled.
Deferred tax liabilities are provided in full.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profits will be available against
which the temporary differences can be utilised.
Changes in deferred tax assets or liabilities are recognised as
a component of tax expense in the Income Statement, except where
they relate to items that are charged or credited directly to
equity in which case the related deferred tax is also charged or
credited directly to equity.
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.
Share-based payments
Where share-based payments (warrants and options) have been
granted, IFRS 2 has been applied whereby the fair value of the
share-based payments is measured at the grant date and spread over
the period during which they vest. A valuation model is used to
assess the fair value, taking into account the terms and conditions
attached to the share-based payments. The fair value at grant date
is determined including the effect of market-based vesting
conditions, to the extent such vesting conditions have a material
impact.
The cost of equity settled transactions is recognised, together
with a corresponding increase in equity, over the period in which
the performance and/or service conditions are fulfilled, ending on
the date on which the holders become fully entitled to the award
("the vesting date").
The cumulative expense recognised for equity settled
transactions at each reporting date until the vesting date reflects
the extent to which the vesting period has expired and the Group's
best estimate of the number of equity instruments that will
ultimately vest.
Where the terms of an equity-settled award are modified, the
minimum expense recognised is the expense as if the terms had not
been modified. An additional expense is recognised for any
modification, which increases the total fair value of the
share-based payment arrangement or is otherwise beneficial to the
employee, as measured at the date of modification.
Where an equity-settled award (share options) is cancelled, it
is treated as if it had vested on the date of cancellation if it
had not yet fully vested, and any expense not yet recognised for
the award is recognised immediately. However, if a new award is
substituted for the cancelled award and designated as a replacement
award on the date that it is granted, the cancelled and new awards
are treated as if they were a modification of the original award,
as described in the previous paragraph.
Where an equity-settled award is forfeited, the cumulative
charge expensed up to the date of forfeiture is credited to the
Income Statement. Upon expiry of an equity-settled award, the
cumulative charge expensed is transferred from the Share-based
payment reserve to retained earnings.
Equity
Equity comprises the following:
-- "Share capital" represents amounts subscribed for shares at nominal value.
-- "Share premium" represents amounts subscribed for share
capital, net of issue costs, in excess of nominal value.
-- "Share-based payment reserve" represents the accumulated value of share-based payments.
-- "Retained earnings" represents the accumulated profits and
losses attributable to equity shareholders.
-- "Translation reserve" represents the exchange differences
arising from the translation of the financial statements of
subsidiaries into the Group's presentational currency.
-- "Merger reserve" represents amounts arising from statutory
merger relief arising on business combinations.
New and amended International Financial Reporting Standards
adopted by the Group
The Group has adopted the following standards, amendments to
standards and interpretations which are effective for the first
time this year. The impact is shown below:
New/Revised International Financial Reporting Effective Date: Annual periods UKEB Impact on
Standards beginning on or after: adopted the Group
Various Amendments to IFRS 9, IAS 39, IFRS 1 January 2021 Yes No material impact
7, IFRS 4 and IFRS 16 Interest Rate
Benchmark Reform -
Phase 2
------------------------------------- -------------------------------------- -------- -------------------
International Financial Reporting Standards in issue but not yet
effective
At the date of authorisation of the consolidated financial
statements, the IASB and IFRS Interpretations Committee have issued
standards, interpretations and amendments which are applicable to
the Group. For the next reporting period, applicable International
Financial Reporting Standards will be those endorsed by the UK
Endorsement Board (UKEB).
Whilst these standards and interpretations are not effective
for, and have not been applied in the preparation of, these
consolidated financial statements, the following could potentially
have a material impact on the Group's financial statements going
forward:
New/Revised International Financial Reporting Standards Effective Date: Annual periods beginning on or UKEB
after: adopted
Various Amendments to -- IFRS 3 Business Combinations; 1 January 2022 No
-- IAS 16 Property, Plant and Equipment; --
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets -- Annual Improvements
2018-2020
----------------------------------------------- ------------------------------------------------ ---------
IAS 12 Amendments to IAS 12: Deferred Tax relating to 1 January 2023 No
Assets and Liabilities arising from a Single
Transaction
----------------------------------------------- ------------------------------------------------ ---------
IAS 1 Amendments to IAS 1: Classification of 1 January 2024 No
Liabilities as Current or Non-current and
Classification
of Liabilities as Current or Non-current
----------------------------------------------- ------------------------------------------------ ---------
New / revised International Financial Reporting Standards which
are not considered to potentially have a material impact on the
Group's financial statements going forwards have been excluded from
the above.
Management anticipates that all relevant pronouncements will be
adopted in the Group's accounting policies for the first period
beginning after the effective date of the pronouncement. New
standards, interpretations and amendments not listed above are not
expected to have a material impact on the Group's financial
statements.
Critical accounting judgements and key sources of estimation
uncertainty
The preparation of financial statements in conformity with
generally accepted accounting practice requires management to make
estimates and judgements that affect the reported amounts of assets
and liabilities as well as the disclosure of contingent assets and
liabilities at the balance sheet date and the reported amounts of
revenues and expenses during the reporting period.
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The following are the key estimates used in applying the
accounting policies of the Group that have the most significant
effect on the financial statements:
Reserve Estimates
Reserves are estimates of the amount of product that can be
economically and legally extracted from the Group's properties. In
order to calculate the reserves, estimates and assumptions are
required about a range of geological, technical and economic
factors, including quantities, production techniques, recovery
rates, production costs, transport costs, commodity demand,
commodity prices and exchange rates.
Estimating the quantity and/or grade of reserves requires the
size, shape and depth of fields to be determined by analysing
geological data such as drilling samples. This process may require
complex and difficult geological judgements and calculations to
interpret the data.
Given that the economic assumptions used to estimate reserves
change from year to year, and because additional geological data is
generated during the course of operations, estimates of reserves
may change from year to year. Changes in reported reserves may
affect the Group's financial results and financial position in a
number of ways, including the following:
-- Asset carrying values may be affected by possible impairment
due to adverse changes in estimated future cash flows;
-- Depreciation, depletion and amortisation charged in the
Income Statement may change where such charges are determined by
the units of production basis, or where the useful economic lives
of assets change.
Purchase Price Allocation
In the prior year Management used valuation techniques when
determining the fair value of assets transferred and liabilities
acquired in business combinations and the allocation of the
purchase price thereto, which includes estimates to determine the
valuation of assets.
Valuations prepared by an independent consultant taking into
account risks involved in the business acquired were used to inform
the purchase price allocation for the business combination in
2020.
Information regarding the purchase price allocations is
disclosed in note 12.
Impairment of Property, Plant and Equipment
The Group assesses at each reporting date whether there is any
indication that these assets may be impaired as indicated in note
11. If such indication exists, the Group estimates the recoverable
amount of the asset. The recoverable amount is assessed by
reference to the higher of 'value in use' (being the net present
value of expected future cash flows of the relevant cash generating
unit) and 'fair value less cost to sell'. The Group considers the
quantities of the Proven and Probable Reserves, future production
levels and future oil prices as well as other IAS 36 criteria in
their assessment of indicators of impairment. The directors do not
believe there are any indicators of impairment in respect of the
assets.
Valuation of embedded derivatives within financial liability
& standalone derivatives
In determining the value of both the embedded derivatives and
standalone derivatives, the Group makes assumptions about future
events and market conditions. The fair value is determined using a
valuation model which is dependent on further estimates.
Such assumptions are based on publicly available information and
are detailed further in note 22. Different assumptions about these
factors to those made by the Group could materially affect the
reported value of the embedded derivative liability.
As the financial liability is computed as the residual amount
after deduction of the embedded derivative valuation, any material
difference in the value of the embedded derivative liability on
initial recognition would materially reduce (or increase) the loan
financial liability thus increasing (or decreasing) the effective
interest rate applicable.
The following are the significant judgements used in applying
the accounting policies of the Group that have the most significant
effect on the financial statements:
Impairment of exploration licences
Management reviews intangible exploration assets for indicators
of impairment under IFRS 6 - Exploration for and Evaluation of
Mineral Resources at the end of each reporting period. This review
of assets for potential indicators of impairment requires judgement
including whether renewal of licences is planned, interpretation of
the results of exploration activity and the extent to which the
Group plans to continue substantive expenditure on the assets. In
determining whether substantive expenditure remains in the Group's
plan, management considers factors including future oil prices,
plans to develop or renew licences and future exploration plans. If
impairment indicators exist the assets are tested for impairment
and carried at the lower of the estimated recoverable amount and
net book value.
Fair value of consideration in relation to Crown Disposal
Management have applied judgement in determining the
consideration recognised for the Crown disposal in accordance with
IFRS 5, including a receivable for milestone payment of $2.5m.
Notes to the Consolidated Financial Statements
2. Segmental reporting
Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for
allocating resources, assessing the performance of the operating
segment and making strategic decision, has been identified as the
Board of Directors.
The Group operates in four geographic areas - the UK, Europe and
greater Mediterranean, Latin America and Egypt. The Group's revenue
from external customers and information about its non-current
assets (other than financial instruments, investments accounted for
using the equity method, deferred tax assets and post-employment
benefit assets) by geographical location are detailed below.
2021
Latin
$ UK Other EU America Egypt Total
Revenue - - - 19,228,698 19,228,698
Other income - - - 1,940,574 1,940,574
Non-current assets 505,963 2,518,642 4,460,303 17,921,194 25,406,102
-------- ---------- ---------- ----------- -----------
2020
Latin
$ UK Other EU America Egypt Total
Revenue - - - 9,053,657 9,053,657
Non-current assets 779,323 2,833,287 3,602,178 14,284,122 21,498,910
-------- ---------- ---------- ----------- -----------
3. Cost of sales
2021 2020
$ $
Production costs 4,906,713 3,941,743
Depreciation, depletion & amortisation 4,005,102 2,563,268
========== ==========
8,911,815 6,505,011
========== ==========
4. Operating Profit/(loss)
2021 2020
$ $
Operating loss is stated after charging/(crediting):
Depreciation:
Owned assets 4,009,427 2,566,668
Right of use leased assets 98,258 62,322
Amortisation 3,985 3,862
Share based payments 325,375 267,766
Foreign exchange losses / (gains) 356,850 (189,918)
Fees payable to the Company's auditors for the audit of the annual financial
statements 70,000 60,000
5. Directors and employees
The aggregate payroll costs of the employees, including
Executive Directors and Non-Executive directors, were as
follows:
2021 2020
$ $
Staff costs
Wages and salaries 1,939,014 1,700,487
Share-based payments 325,375 267,766
Pension 130,479 135,059
Social security 104,915 60,640
========== ==========
2,499,783 2,163,952
========== ==========
Average monthly number of persons employed by the Group during
the year was as follows:
2021 2020
Number Number
By activity:
Administrative 7 6
Directors 6 6
======= =======
13 12
======= =======
2021 2020
$ $
Remuneration of Directors
Emoluments and fees for qualifying services 890,604 1,149,729
Share-based payments 238,360 229,040
Pension 76,694 53,251
Social security 41,396 21,743
---------- ----------
1,247,054 1,453,763
========== ==========
Key management personnel are identified as the Executive
Directors.
6. Finance income and expense
Finance income 2021 2020
$ $
Fair value gain on derivatives - 1,572,706
----
- 1,572,706
==== =========
Finance expense 2021 2020
$ $
Fair value loss on derivatives 1,527,250 -
Effective interest on borrowings 1,381,083 1,576,607
Interest expense on lease liabilities 14,421 4,235
---------
2,922,754 1,580,842
========= =========
7. Taxation
2021 2020
$ $
Profit before tax 5,935,976 796,181
Loss on ordinary activities multiplied by
standard rate of corporation tax in the
UK of 19% (2020: 19%) 1,127,835 151,274
Tax effects of:
Foreign tax 1,940,574 -
Adjustments in respect of prior periods (78,692) (56,480)
Utilisation of tax losses (744,956) (151,274)
---------
Corporation tax charge/(credit) 1,861,882 (56,480)
========= =========
The Group has accumulated UK tax losses of approximately $5.5m
(2020: $8.0m). No deferred tax asset was recognised in respect of
these accumulated tax losses as there is insufficient evidence that
the amount will be recovered in future years.
8. Earnings per share
The Group has issued share warrants and options over Ordinary
shares which could potentially dilute basic earnings per share in
the future. Further details are given in note 18.
Basic earnings per share is calculated by dividing the profit
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year.
There were 113,697,454 (2020: 130,510,730) share warrants and
options outstanding at the end of the year that could potentially
dilute basic earnings per share in the future.
Basic and diluted earnings per share
2021 2020
Cents Cents
Basic earnings per share from continuing operations 0.64 0.15
----- -----
Diluted earnings per share from continuing operations 0.62 0.14
----- -----
The profit and weighted average number of ordinary shares used
in the calculation of basic earnings per share are as follows:
2021 2020
$ $
Profit used in the calculation of total basic and
diluted earnings per share 4,074,094 852,661
--------- -------
Number of shares 2021 2020
Number Number
Weighted average number of ordinary shares for the
purposes of basic earnings per share 637,482,325 578,248,726
Dilutive shares 24,871,644 23,207,377
----------- -----------
Weighted average number of ordinary shares for the
purposes of diluted earnings per share 662,353,969 601,456,103
----------- -----------
9. Subsidiaries
Details of the Group's subsidiaries in 2021 are as follows:
Name & address of subsidiary Principal activity Class Place of % ownership
of shares incorporation held by the
and operation Group
2021 2020
UOG Holdings plc Intermediate England and
200 Strand, London, WC2R 1DJ holding company Ordinary Wales 100 100
UOG Ireland Limited*
9 Upper Pembroke Street, Dublin Intermediate
2, Ireland holding company Ordinary Ireland 100 100
UOG PL090 Ltd* Oil and gas England and
200 Strand, London, WC2R 1DJ exploration Ordinary Wales 100 100
UOG Italia Srl*
Viale Gioacchino Rossini 9, Oil and gas
00198, Rome, Italy exploration Ordinary Italy 100 100
UOG Jamaica Ltd* Oil and gas England and
200 Strand, London, WC2R 1DJ exploration Ordinary Wales 100 100
UOG Crown Ltd* Oil and gas England and
200 Strand, London, WC2R 1DJ exploration Ordinary Wales 100 100
UOG Colter Ltd* Oil and gas England and
200 Strand, London, WC2R 1DJ exploration Ordinary Wales 100 100
Oil and gas
UOG Egypt Pty exploration Ordinary Australia 100 100
*held indirectly by United Oil & Gas Plc
10. Intangible assets
Exploration and Evaluation assets Computer software
$ $ Total
$
Cost
At 1 January 2020 7,728,138 11,374 7,739,512
Acquired in business combinations 3,181,362 - 3,181,362
Additions 1,457,307 - 1,457,307
Transfer to production assets (2,538,981) - (2,538,981)
Disposals (31,307) - (31,307)
Foreign exchange differences 335,459 1,070 336,529
------------------ ------------
At 31 December 2020 10,131,978 12,444 10,144,422
Additions 3,013,536 - 3,013,536
Disposals (2,576,724) - (2,576,724)
Transferred to non-current assets held
for sale (2,519,240) (2,519,240)
Foreign exchange differences (236,009) (970) (236,979)
------------------ ------------
At 31 December 2021 7,813,541 11,474 7,825,015
Amortisation and impairment
At 1 January 2020 2,158,648 - 2,158,648
Charge for the year - 3,862 3,862
Impairment 37,161 - 37,161
Foreign exchange differences 52,722 286 53,008
------------------ ------------
At 31 December 2020 2,248,531 4,148 2,252,679
Charge for the year - 3,985 3,985
Impairment 624,546 - 624,546
Foreign exchange differences (25,803) (483) (26,286)
---------------------------------- ------------------ ------------
At 31 December 2021 2,847,274 7,650 2,854,924
Net book value
At 31 December 2021 4,966,267 3,824 4,970,091
================================== ================== ============
At 31 December 2020 7,883,447 8,296 7,891,743
================================== ================== ============
At 31 December 2021 the group's E&E carrying values of $5m
related to our high impact exploration activity in Jamaica, and the
UK North Sea exploration/development work programmes.
In Egypt United and its partners drilled, tested and took
onstream two successful exploration wells in 2021, and as a result
all exploration spend in Egypt to date has been transferred to
PP&E as per the technical guidance of IFRS 6. Total was $2.5m
transferred to PP&E in 2021.
In Jamaica technical work continues on the Work Programme to
establish the development options on the Colibri prospect, in
conjunction with a farm out process that continues to attract
interest. In November 2021 a new exploration extension was granted
taking the licence period out until end January 2024. At year end
the carrying value of our exploration activity in Jamaica amounted
to $4.5m.
In the UK North Sea the Company has Intangibles of $0.5m at year
end, representing amount capitalised to date on the Maria discovery
and Zeta exploration prospect. In 2021 we announced a binding sale
and purchase agreement to sell these licences, an agreement that
subsequently failed to complete and was announced in March 2022. We
continue to review the options to commercialise the Maria discovery
and in the meantime will continue with a work programme involving
some Seismic data purchase, Rock physics and seismic inversion, and
have a new CPR report later in the year.
The Company's Italian assets are now recategorized to Assets
Held for sale (AHFS), at $2.6m having signed a conditional SPA with
PXOG Marshall Limited, a subsidiary of Prospex Energy PLC (Prospex)
for the sale of 100% of the share capital of UOG Italia Srl for a
consideration of EUR2.165m (c. $2.54m) with an effective date of 1
Jan 2021.
Commitments on the Waddock Cross licence have stalled pending
the outcome of some discussions with the operator to relinquish our
26.25% interest in the licence. Whilst the Operator continue the
work programme by running some economics to better determine the
numbers ahead of any well campaign, we believe at this stage full
value most likely cannot be recovered in the medium term by the
Company and as such the directors believed it prudent at this stage
to impair the carrying value of $625k.
Management reviews the intangible exploration assets for
indications of impairment at each balance sheet date based on IFRS
6 criteria such as where commercial reserves have not yet been
established and the evaluation, exploration work is ongoing and a
development plan has not been approved. The Directors believe the
only impairment indicators relate to Waddock Cross (as described
above) and have impaired all associated costs to date accordingly,
with all remaining assets described continuing to be carried at
cost.
11. Property, plant and equipment
Production assets Computer equipment Fixtures and Right of use asset
$ $ fittings $ Total
$ $
Cost
At 1 January
2020 - 8,589 114,775 123,364
Acquired in
business
combinations 10,630,944 - - 61,127 10,692,071
Transfer from
E&E assets 2,538,981 - - 2,538,981
Additions 2,806,734 6,755 2,971 204,763 3,021,223
Disposals - - - (186,700) (186,700)
Foreign
exchange
differences - (1,638) - 10,799 9,161
At 31 December
2020 15,976,659 13,706 2,971 204,764 16,198,100
Transfer from
production
assets 2,576,724 - - - 2,576,724
Additions 5,900,375 - - 42,951 5,943,326
Disposals - - - (43,862) (43,862)
Foreign
exchange
differences - (1,068) (231) (13,820) (15,119)
At 31 December
2021 24,453,758 12,638 2,740 190,033 24,659,169
Depreciation
At 1 January
2020 - 5,812 - 90,830 96,642
Charge for the
year 2,563,268 3,169 231 62,322 2,628,990
Disposals - - - (144,382) (144,382)
Foreign
exchange
differences - (1,665) 17 11,331 9,683
At 31 December
2020 2,563,268 7,316 248 20,101 2,590,933
Charge for the
year 4,005,103 3,373 951 98,258 4,107,685
Disposals - - - (16,625) (16,625)
Foreign
exchange
differences - (706) (57) (12,870) (13,633)
------------------ ------------------- ------------------ ------------------- -----------
At 31 December
2021 6,568,371 9,983 1,142 88,864 6,668,360
Net book
value
At 31 December
2021 17,885,387 2,655 1,598 101,169 17,990,809
================== =================== ================== =================== ===========
At 31 December
2020 13,413,391 6,390 2,723 184,663 13,607,167
================== =================== ================== =================== ===========
Depreciation is recognised within administrative expenses.
Management reviews the property, plant and equipment for
indications of impairment at each balance sheet date in accordance
with IAS 36. No indications of impairment have been identified at
either 31 December 2021 or 31 December 2020.
12. Business combinations
On 28 February 2020, the company announced that it had completed
the acquisition of 100% of the equity share capital of UOG Egypt
Pty Ltd (formerly Rockhopper Egypt Pty Ltd). from Rockhopper
Exploration plc ("Rockhopper").
The Acquisition, which had an effective date of 1 January 2019,
included a 22% non-operating interest in the producing Abu Sennan
concession, onshore Egypt. The consideration payable to Rockhopper
for the Acquisition was US$16 million which was funded by:
-- the issue to Rockhopper of 114,503,817 Consideration Shares
at 3 pence per Ordinary Share representing 18.5% of the Company's
Enlarged Ordinary Share Capital,
-- a pre-payment financing structure of US$8 million provided by BP ('the BP Facility') and
-- the issue of 150,616,669 Placing Shares at 3 pence per share
with certain existing and new investors and 8,419,498 Subscription
Shares also at 3 pence per share.
No goodwill has been recognised on the acquisition because the
fair value of the identifiable net assets was the same as the fair
value of the consideration transferred, as shown in the table
below.
$
Fair value of consideration transferred
Cash 11,500,000
Liabilities assumed 3,259,090
Shares issued 3,933,276
18,692,366
Recognised amounts of identifiable
net assets
Intangible assets 3,181,362
Property, plant and equipment 10,692,071
------------
Total non-current assets 13,873,433
Inventory 100,162
Trade and other receivables 4,759,717
Cash at bank and in hand 46,543
Total current assets 4,906,422
Trade and other payables (25,337)
Lease liabilities (62,152)
------------
Total current liabilities (87,489)
Fair value of net assets acquired 18,692,366
The fair value of acquired receivables was equal to the
contractual amounts receivable and all cash flows were
collected.
$
Net cash outflow on acquisition of subsidiary
Consideration paid in cash 11,500,000
Less: cash and cash equivalent balances acquired (46,543)
-----------
Total 11,453,457
===========
Post-acquisition contribution
The acquisition of UOG Egypt contributed $9,053,657 revenue and
$2,136,680 profit to the Group's results for the year acquired.
If UOG Egypt had been acquired on 1 January 2020, revenue of the
Group for the year would have been $11,192,276 and profit for the
year would have been $5,754,327
13. Non-current assets and disposal groups held for sale
On the 11(th) April 2022 United announced the completion of the
sale of 100% of the share capital of UOG Italia Srl to PXOG
Marshall Limited, a subsidiary of Prospex Energy PLC (Prospex), for
a consideration of EUR2,164,701 (c. $2.54m)
Assets and liabilities held for sale
The following major classes of assets and liabilities relating
to these operations have been classified as held for sale in the
consolidated balance sheet at 31 December 2021:
UOG Italia Elimination Fair value Total held
of inter-company adjustment for sale
$ payables $ $
$
Intangible assets 2,519,240 - 12,914 2,532,154
Trade and other receivables 28,588 - - 28,58
Cash at bank and in hand 508 - - 508
------------ ------------------ ------------ -----------
Assets held for sale 2,548,336 - 12,914 2,561,250
Trade and other payables (2,456,775) 2,340,727 - (116,048)
------------ ------------------ ------------ -----------
Liabilities held for sale (2,456,775) 2,340,727 - (116,048)
Fair value measurement
The fair value of the net assets of $2,445,202 are categorised
as level 3 non-recurring fair value measurements.
The fair valuations have been determined by reference to signed
disposal agreements, in relation to which non-refundable deposits
have been received.
Gain on disposal
The net gain on disposal recognised in the income statement is
comprised of:
$
Gain on disposal of UOG Italia net of disposal expenses incurred 233,357
Loss on aborted North Sea Quattro disposal (114,706)
118,651
==========
14. Inventory
2021 2020
$ $
Oil in tanks 145,570 35,729
145,570 35,729
======== =======
15. Trade and other receivables
2021 2020
$ $
Trade receivables 2,257,609 -
Other tax receivables 71,764 77,529
Prepayments 7,361 7,984
Contract assets 2,865,287 2,518,794
Crown disposal proceeds due 2,500,000 2,850,000
7,702,021 5,454,307
========== ==========
The Directors consider that the carrying values of trade and
other receivables are approximate to their fair values.
No expected credit losses exist in relation to the Group's
receivables as at 31 December 2021 (2020: $nil).
Contract assets relate to two months Oil & and three months
Gas invoices for the Abu Sennan producing assets in Egypt under the
receivable terms of the agreement with EGPC.
Crown disposal proceeds due are being carried at the full value
expected to be received.
16. Cash and cash equivalents
2021 2020
$ $
Cash at bank (GBP) 50,831 132,913
Cash at bank (EUR) 16,286 25,561
Cash at bank (USD) 3,226 16,980
Cash at bank (EGY) 326,965 2,013,448
397,308 2,188,902
======== ==========
At 31 December 2021 and 2020 all significant cash and cash
equivalents were deposited in creditworthy financial institutions
in UK, Ireland and Egypt.
17. Share capital, share premium and merger reserve
Allotted, issued, and fully paid:
2021
Share capital Share premium
No $ $
Ordinary shares of GBP0.01 each
At 1 January 2021 625,153,969 8,138,619 16,047,975
Allotments:
Shares issued for cash (exercise of warrants) 19,650,000 277,563 167,386
At 31 December 2021 644,803,969 8,416,182 16,215,361
2020
Share capital Share premium
No $ $
Ordinary shares of GBP0.01 each
At 1 January 2020 345,613,985 4,564,787 9,912,988
Allotments:
Shares issued in consideration for business combination 114,503,817 1,463,002 2,470,274
Shares issued for cash 159,036,167 2,031,987 4,051,541
Shares issued for cash (exercise of warrants) 6,000,000 78,843 118,266
Share issue expenses - - (505,094)
At 31 December 2020 625,153,969 8,138,619 16,047,975
As regards income and capital distributions, all categories of
shares rank pari passu as if the same constituted one class of
share.
18. Share-based payments
Share Options
Details of the number of share options and the weighted average
exercise price (WAEP) outstanding during the year are as
follows:
2021
Number of WAEP
Options GBP
Outstanding at the beginning of the year 46,767,690 0.04
Issued 3,939,665 0.04
Expired (1,102,941) 0.04
Outstanding at the year end 49,604,414 0.04
Number vested and exercisable at 31 December 2021 - -
2020
Number of WAEP
Options GBP
Outstanding at the beginning of the year 11,117,647 0.05
Issued 35,650,043 0.04
Outstanding at the year end 46,767,690 0.04
Number vested and exercisable at 31 December 2020 - -
The fair values of share options issued in the current and
previous financial year were calculated using the Black Scholes
model as follows:
Share Share Share Share Share Share Share
options options options options options options options
Date of 1 Aug 2021 4 Jan 2021 27 Oct 2020 29 Sep 2020 1 July 2020 17 June 2020 20 March
grant 2020
Number
granted 2,597,403 1,342,282 1,481,481 1,565,741 6,107,843 14,767,500 8,060,811
Share price GBP0.04 GBP0.03 GBP0.03 GBP0.03 GBP0.03 GBP0.03 GBP0.01
at date of
grant
Exercise GBP0.04 GBP0.03 GBP0.03 GBP0.03 GBP0.03 GBP0.04 GBP0.04
price
Expected
volatility 59,25% 83.28% 85.31% 85.27% 82.66% 82.01% 65.31%
Expected
life from
date of
grant
(years) 6.5 6.5 6.5 6.5 6.5 6.5 6.5
Risk free
rate 0.2867% -0.0678% -0.0384% -0.0821% -0.0280% -0.0322% 0.2543%
Expected
dividend
yield 0% 0% 0% 0% 0% 0% 0%
Fair value GBP0.021 GBP0.021 GBP0.018 GBP0.019 GBP0.018 GBP0.019 GBP0.004
at date of
grant
Earliest 1 Aug 2024 4 Jan 2024 27 Oct 2023 29 Sep 2023 1 July 2023 17 June 2023 20 March
vesting 2023
date
Expiry date 1 Aug 2031 4 Jan 2031 27 Oct 2030 29 Sep 2030 1 July 2030 17 June 2030 20 March
2030
Expected volatility was determined based on the historic
volatility of the Company's shares for a period averaging 1 year.
The expected life used in the model has been adjusted, based on
management's best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
The Group recognised total expenses of $325,375 (2020: $267,766)
in the income statement in relation to share options accounted for
as equity-settled share-based payment transactions during the
year.
Warrants
Details of the number of share warrants and the weighted average
exercise price (WAEP) outstanding during the year are as
follows:
2021
Number of WAEP
Warrants GBP
Outstanding at the beginning of the year 83,743,040 0.04
Exercised (19,650,000) 0.02
Outstanding at the year end 64,093,040 0.05
Number vested and exercisable at 31 December 2021 64,093,040 -
2020
Number of WAEP
Warrants GBP
Outstanding at the beginning of the year 82,212,206 0.04
Issued 7,530,834 0.03
Exercised (6,000,000) 0.03
Outstanding at the year end 83,743,040 0.04
Number vested and exercisable at 31 December 2020 83,743,040 0.04
The fair values of share warrants issued or extended in the
current and previous financial year were calculated using the Black
Scholes model as follows:
Share warrants
Date of grant 28 Feb 2020
Number granted 7,530,834
Share price at date of grant GBP0.03
Exercise price GBP0.03
Expected volatility 49.57%
Expected life from date of grant (years) 1.5
Risk free rate 0.2813%
Expected dividend yield 0%
Fair value / incremental fair value at date of grant GBP0.0064
Earliest vesting date 28 Feb 2020
Expected volatility was determined based on the historic
volatility of a comparable company's shares for a period averaging
1 year. The expected life used in the model has been adjusted,
based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
The Group recognised total expenses of $nil (2020: $62,516) in
relation to share warrants accounted for as equity-settled
share-based payment transactions during the year in relation. These
were recognised as follows:
$nil (2020: $62,516) as a deduction from share premium related
to share warrants accounted for as equity-settled share-based
payment transactions during the year.
19. Trade and other payables
2021 2020
$ $
Trade payables 1,180,088 836,759
Other payables 1,599,414 1,431,078
Deferred shares (note 20) 40,476 40,739
Accruals 2,602,756 687,539
5,422,734 2,996,115
========== ==========
20. Deferred shares
On 12 October 2015, the Company issued 30,000 Deferred Shares of
GBP1 for GBP30,000 to the founder, which have an entitlement to a
non-cumulative annual dividend at a fixed rate of 0.1 per cent of
their nominal value. The Deferred Shares have no voting rights
attached to them and may be redeemed in their entirety by the
Company for an aggregate redemption payment of GBP1.
21. Leases
Right of use assets
The Group used leasing arrangements relating to property, plant
and equipment. As the Group has the right of use of the asset for
the duration of the lease arrangement, a "right of use" asset is
recognised within property, plant and equipment.
When a lease begins, a liability and right of use asset are
recognised based on the present value of future lease payments.
2021 2020
$ $
Interest expense on lease liabilities 14,421 4,235
Total cash outflow for leases (83,335) (78,936)
Additions to right-of-use assets 42,951 265,890
Disposals from right-of-use assets (27,237) (42,318)
Depreciation charge - right of use assets (98,258) (62,322)
Foreign exchange movement on right of use assets (949) (532)
Right of use assets - carrying amount at the beginning
of the year: 184,663 23,945
-------------- --------------
Carrying amount at the end of the year: 101,169 184,663
============== ==============
Lease liabilities
2021 2020
$ $
Current 83,368 94,050
Non-current 24,494 96,787
------------- -------------
107,862 190,837
============= =============
22. Borrowings and derivatives
Amounts payable on borrowings held by the Group falling due
within one year and in more than one year are:
2021 2020
$ $
Secured - at amortised cost
Other loans 2,422,212 4,555,801
Current 2,422,212 2,133,655
Non-current - 2,422,146
2,422,212 4,555,801
2021 2020
$ $
Separated embedded derivative
* Loan derivative liability (current) 1,346,044 904,702
* Loan derivative liability (non-current) - 647,376
========== ==========
--
-- 1,346,044 1,552,078
========== ==========
* Other derivative financial instruments
* Hedge derivative liability (current) - 87,979
--
========== ==========
Summary of borrowing arrangements:
In February 2020, the Group entered into a prepaid commodity
swap arrangement for $8 million to part-finance the acquisition of
Rockhopper Egypt Pty Ltd. The repayment schedule provided for 30
monthly repayments which were structured as a fixed notional amount
with variations based on movements in oil prices with a cap. During
2020 modifications were agreed to the loan whereby there was a
three-month period where payments were suspended and the deferred
amounts were rolled into payments in the final 12 months of the
loan.
Due to the price structure, the arrangement includes an embedded
derivative (a forward contract). For financial reporting purposes,
this must be separately accounted for at fair value at each balance
sheet date. The balance of proceeds that did not relate to the
derivative were treated as the opening carrying amount of the loan
which will then be measured at amortised cost over its life, with
finance charges recognised to give an even return over the loan
life and repayments of capital allocated appropriately.
As at 31 December 2021, a fair value loss has been recognised
(as finance expense) as a result of oil price movements in the
period and on forward price rates.
In January 2022 the Group extended the final maturity date on
the facility from 30 September 2022 to 31 December 2023.
The valuations of the host debt and derivative on initial
recognition and valuation of the remaining embedded derivative as
at 31 December 2021 were undertaken using data provided by
independent third parties.
The fair value of the contracts has been estimated using a
valuation technique that maximises the use of observable market
inputs. These are classified as Level 2 in the fair value hierarchy
(see note 23).
Reconciliation of liabilities arising from financing
activities
2021
At 31
At 1 January Cash Interest Repaid Fair value FX movements December
2021 received accrued in cash movements 2021
$ $ $ $ $ $ $
Loan 4,555,801 - 1,381,083 (3,518,359) - 3,687 2,422,212
Embedded
derivative 1,552,078 - - (1,666,975) 1,477,118 (16,177) 1,346,044
Derivative 87,979 - - (138,111) 50,132 - -
6,195,858 - 1,381,083 (5,323,445) 1,527,250 (12,490) 3,768,256
============= ========== ========== ============ ============= ============== ==============
2020
At 1
January Cash Interest Repaid Fair value FX movements At 31 December
2020 received accrued in cash movements 2020
$ $ $ $ $ $ $
Loan - 4,853,381 1,576,607 (1,866,712) - (7,475) 4,555,801
Embedded
derivative - 2,906,907 - 200,596 (1,731,116) 175,691 1,552,078
Derivative - - - (70,431) 158,410 - 87,979
- 7,760,288 1,576,607 (1,736,547) (1,572,706) 168,216 6,195,858
============================== ========== ========== ============ ============= =============== ===============
Fair value movements are recognised in finance income (see note
6).
23. Financial instruments
Classification of financial instruments
The fair value hierarchy groups financial assets and liabilities
into three levels based on the significance of inputs used in
measuring the fair value of the financial assets and
liabilities.
The fair value hierarchy has the following levels:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
The level within which the financial asset or liability is
classified is determined based on the lowest level of significant
input to the fair value measurement.
The only financial instruments measured at fair value in the
balance sheet are the embedded derivatives and standalone
derivatives which are classified as Level 2 according to the above
definitions. There were no transfers in or out of Level 2 in the
year.
There are no financial instruments classified at Level 1 or
Level 3 in the years presented.
The tables below set out the Group's accounting classification
of each class of its financial assets and liabilities.
Financial assets measured at amortised cost 2021 2020
$ $
Trade receivables (note 15) 2,257,609 -
Contract assets (note 15) 2,865,287 2,518,794
Crown disposal proceeds due (note 15) 2,500,000 2,850,000
Cash and cash equivalents (note 16) 397,308 2,188,902
---------- ----------
8,020,204 7,557,696
========== ==========
All of the above financial assets' carrying values are
approximate to their fair values, as at 31 December 2021 and
2020.
Financial liabilities
Measured at amortised cost
2021 2020
$ $
Trade payables (note 19) 1,180,088 836,759
Other payables (note 19) 1,599,414 1,431,078
Lease liabilities (note 21) 107,862 190,837
Borrowings (note 22) 2,422,212 4,555,801
Accruals (note 19) 2,602,756 687,539
7,912,332 7,702,014
In the view of management, all of the above financial
liabilities' carrying values approximate to their fair values as at
31 December 2021 and 2020.
Measured at fair value through profit or loss
2021 2020
$ $
Derivative financial instruments (note 22) 1,346,044 1,640,057
1,346,044 1,640,057
Fair value measurements
This note provides information about how the Group determines
fair values of various financial assets and financial
liabilities.
Fair value of financial assets and financial liabilities that
are not measured at fair value on a recurring basis
The directors consider that the carrying amounts of financial
assets and financial liabilities recognised in the consolidated
financial statements approximate their fair values (due to their
nature and short times to maturity).
Fair value of financial liabilities that are measured at fair
value on a recurring basis
The fair value of derivative financial instruments has been
estimated using a valuation technique that maximises the use of
observable market inputs.
24. Financial instrument risk exposure and management
The Group's operations expose it to degrees of financial risk
that include liquidity risk, credit risk, interest rate risk.
This note describes the Group's objectives, policies and process
for managing those risks and the methods used to measure them.
Further quantitative information in respect of these risks is
presented in notes 15, 16, 19, 21, 22, 23 and 25.
Liquidity risk
Liquidity risk is dealt with in note 25 of these financial
statements.
Credit risk
The Group's credit risk is primarily attributable to its cash
balances.
The credit risk on liquid funds is limited because the third
parties are large international banks with a minimum investment
grade credit rating.
The Group's total credit risk amounts to the total of other
receivables and cash and cash equivalents. Credit assessments are
routinely reviewed on all of the Group's joint venture partners and
other counterparties.
Interest rate risk
The Group's only exposure to interest rate risk is the interest
received on the cash held on deposit, which is immaterial. The
Group's borrowings outstanding at 31 December 2021 and 31 December
2020 are structured in such a way, through the use of a pre-paid
commodity swap, so that the notional interest charge is fixed and
therefore there is no interest rate risk.
Commodity Price risk
The company manages its exposure to commodity price risk on an
ongoing basis. As described in note 12, the loan for the
acquisition of Rockhopper Egypt also involved a derivative
arrangement to manage the exposure arising from having the loan
payments based on oil quantities rather than a fixed cash price.
The combined put and call arrangements provide the group with
protection against price movements on either side of a protected
collar.
Foreign exchange risk
The Group is exposed to foreign exchange movements on monetary
assets and liabilities denominated in currencies other than USD.
The Group's transactions are carried out in GBP, EUR and USD..
Operational transactions are carried out predominantly in USD but
also in GBP, EUR and EGP.
The monetary assets and liabilities denominated in currencies
other than USD are relatively immaterial (see notes 15 and 16) and
transactional risk is considered manageable.
The Group does not hold material non-domestic balances and
currently does not consider it necessary to take any action to
mitigate foreign exchange risk due to the immateriality of that
risk.
25. Liquidity risk
Prudent liquidity risk management includes maintaining
sufficient cash balances to ensure the Group can meet liabilities
as they fall due.
In managing liquidity risk, the main objective of the Group is
therefore to ensure that it has the ability to pay all of its
liabilities as they fall due. The Group monitors its levels of
working capital to ensure that it can meet its debt repayments as
they fall due. The table below shows the undiscounted cash flows on
the Group's financial liabilities as at 31 December 2021 and 2020,
on the basis of their earliest possible contractual maturity.
Within Within Within Within
Within 2 2 -6 6 - 12 1-2 2-5
Total Payable on demand months months months years years
$ $ $ $ $ $ $
At 31 December 2021
Trade payables 1,180,088 - 1,180,088 - - - -
Other payables 1,599,414 1,599,414 - - - - -
Lease liabilities 116,359 - 18,526 33,250 37,813 17,568 9,202
Borrowings 2,769,947 - 692,487 1,384,973 692,487 - -
Derivative financial
instruments 1,346,044 - - - 1,346,044 - -
Accruals 2,602,756 - - 2,602,756 - - -
---------- ------------------ ---------- ---------- ---------- ------- -------
9,614,608 1,599,414 1,891,101 4,020,979 2,076,344 17,568 9,202
Within Within Within Within
Within 2 2 -6 6 - 12 1-2 2-5
Total Payable on demand months months months years years
$ $ $ $ $ $ $
At 31 December 2020
Trade payables 836,759 - 836,759 - - - -
Other payables 1,431,078 1,431,078 - - - - -
Lease liabilities 210,007 - 22,081 31,937 54,630 93,963 7,396
Borrowings 6,288,305 - 533,346 1,066,692 1,918,320 2,769,947 -
Derivative financial
instruments 87,980 - - - 87,980 - -
Accruals 687,539 - - 687,539 - - -
---------- ------------------ ---------- ---------- ---------- ---------- -------
9,541,668 1,431,078 1,392,186 1,786,168 2,060,930 2,863,910 7,396
26. Capital management
The Group's capital management objectives are:
-- To provide long-term returns to shareholders
-- To ensure the Group's ability to continue as a going concern
The Group defines and monitors capital on the basis of the
carrying amount of equity plus borrowings less cash and cash
equivalents as presented on the face of the balance sheet and as
follows:
2021 2020
$ $
Equity 24,294,904 19,659,650
Borrowings 2,422,212 4,555,801
Cash and cash equivalents (397,308) (2,188,902)
----------- ------------
26,319,808 22,026,549
=========== ============
The Board of Directors monitors the level of capital as compared
to the Group's commitments and adjusts the level of capital as is
determined to be necessary by issuing new shares. The Group is not
subject to any externally imposed capital requirements.
These policies have not changed in the year. The Directors
believe that they have been able to meet their objectives in
managing the capital of the Group.
27. Related party transactions
Key management personnel are identified as the Executive
Directors, and their remuneration is disclosed in note 5.
28. Financial commitments
As at 31 December 2021, the Group's commitments comprise their
producing assets and exploration expenditure in Egypt, and
exploration expenditure in the Walton-Morant licence. These
commitments have been summarised below:
Exploration/Production Year Year
licence ending 31 ending 31
December December
2021 2022
$ $
Abu Sennan 4,629,900 5,639,920
Crown 140,000 -
Colter - -
Walton-Morant licence 402,500 359,100
Selva Malvezzi 82,564 -
Waddock Cross 47,198 -
5,302,162 5,999,020
----------------- -----------------
29. Ultimate controlling party
The directors do not consider there to be an ultimate
controlling party.
30. Events after the balance sheet date
Pre-paid swap facility extension
On the 3rd of March 2022 the Company provided a corporate update
to the market in which it announced it has extended the final
maturity date on its existing prepayment facility from 30 September
2022 to 31 December 2023. The new terms provide downside protection
at $70/bbl for a volume of bbls through to end December 2023.
UK Central North Sea Licences (UK CNS) Sale & Purchase
Agreement termination
On the 3rd of March 2022 the Company announced the termination
of the SPA with Quattro Energy Ltd. signed in September 2021 for
the sale of its UK CNS Licences; P2480 and P2519 for a
consideration of up to GBP3.2m (c$4.4m) and the licences have been
retained as part of the Company's portfolio.
Crown milestone settlement agreement
On the 23rd of March 2022 the company announced that a
confidential settlement agreement ("Settlement Agreement") has been
signed between Anasuria Hibiscus UK Ltd ("AHUK") and United for the
Crown disposal milestone payment. United will receive $2,500,000 in
three separate instalments in 2022, the first of which being
$500,000 was received on 25th March 2022 with the subsequent
receipts of $1,000,000 on 29th June 2022 and $1,000,000 on 29th
December 2022. Subject to the full amount being received, this will
bring an end to the matter and no further amounts will be due to
United from AHUK in connection with the sale of licence P2366. This
has been accounted for in the 2021 accounts.
Completion of Italian asset divestment
On the 11th April 2022 United announced the completion of the
sale of 100% of the share capital of UOG Italia Srl to PXOG
Marshall Limited, a subsidiary of Prospex Energy PLC (Prospex), for
a consideration of EUR2,164,701 (c. $2.54m)
The company has received final completion proceeds of
EUR2,190,966 being the balance of the consideration plus a working
capital adjustment from the effective date of EUR134,500 less the
deposit of EUR108,235 which was received in August 2020. Completion
of the transaction means that United will now exit all activities
in Italy and therefore be no longer liable for a share of the Selva
gas development.
Non-IFRS measures
The Group uses certain measures of performance that are not
specifically defined under IFRS or other generally accepted
accounting principles.
Cash-operating costs per barrel
Cash operating costs are defined as cost of sales less
depreciation, depletion and amortisation, production based taxes,
movements in inventories and certain other immaterial cost of
sales.
Cash operating costs are then divided by barrels of oil
equivalent produced to demonstrate the cash cost incurred to
producing oil and gas from the Group's producing assets.
Year Year
ended ended
31 December 31 December
2021 2020
Audited Audited
$ $
Cost of Sales 8,911,815 6,505,011
Less
Depreciation, depletion and amortisation (4,005,102) (2,563,268)
Inventories 109,841 (64,433)
Cash operating costs 5,016,554 3,877,310
Production
(BOEPD) 2,327 2,195
Cash Operating Cost
BOE ($) 5.90 5.77
EBITDAX
EBITDAX is earnings from continuing activities before interest,
tax, depreciation, amortisation, reversal of impairment, and
exploration expenditure and exceptional items in the current
year.
Year Year
ended ended
31 December 31 December
2021 2020
Audited Audited
$ $
Operating Income 8,858,730 804,317
Depreciation, Depletion
& Amortisation 4,107,685 2,628,990
Exploration Expense 624,546 37,161
13,590,961 3,470,468
================ ===============
Glossary
Bbl Barrels
/Bbl Per barrel
Bn Billion
bopd Barrels of oil per day
Capex Capital Expenditure
EGPC Egyptian General Petroleum Corporation
ESG Environment, Social, Governance
ESP Electrical Submersible Pumps
HCIIP Hydrocarbon initially in place
HSE Health, safety and environment
JOC Joint Operating Company
JV Joint Venture
km Kilometres
km(2) Square kilometres
KPI(s) Key performance indicator(s)
m Metres
M Thousand
MBbl Thousand barrels
Mbopd Thousands of barrels of oil per day
MM Million
MMBbl Million barrels
MMboe Million barrels of oil equivalent
MSET Ministry for Science, Energy and Technology
NPV Net present value
OGA Oil and Gas Authority
OPEX Operating expenditure
Q1 First Quarter
Q2 Second Quarter
Q3 Third Quarter
Q4 Fourth Quarter
scf Standard cubic feet
SPA Sales and Purchase Agreement
TD Total Depth
UK CNS UK Central North Sea
WI Working interest
% Percentage
2C Best estimate of contingent resources
2D Two-dimensional
3D Three-dimensional
2P Proved plus probable reserves
======= ============================================
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END
FR EAFLSAFLAEAA
(END) Dow Jones Newswires
April 26, 2022 02:01 ET (06:01 GMT)
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