TIDMRXP
RNS Number : 1034A
Roxi Petroleum Plc
03 June 2016
Roxi Petroleum plc
("Roxi" or the "Company")
Final Results
Roxi, the Central Asian oil and gas company with a focus on
Kazakhstan, is pleased to announce its audited final results for
the year ended 31 December 2015.
The Report and Accounts will be posted to the Company's website
on: www.roxipetroleum.com/roxi/en/investors .
The Report and Accounts and Notice of Annual General Meeting
will shortly be posted to shareholders. The Company's AGM will be
held at the offices of Fladgate LLP, 16 Great Queen Street, London
WC2B 5DG, at 11.00am on Wednesday 29 June 2016.
Enquiries:
Roxi Petroleum PLC +7 727 375 0202
Clive Carver, Chairman
WH Ireland Limited +44 (0) 207 220 1666
James Joyce / James Bavister
Highlights
Operational
During the period under review & subsequently
-- Deep wells A5 and 801
o Drilled to a total depths of 4,442 meters and 5,050 meters
respectively
o Extended flow test to commence once wells are cleared of
excess drilling fluids
-- Deep well A6
o Spudded in November 2015, with a target total depth of 5,000
meters, has reached a depth of 3,944 meters
o Salt layer crossed without incident
o Delays resulting from cementing issues to be overcome by use
of new 7 inch casing
-- BNG Shallow wells
o Producing at the rate of 825 bopd (487 bopd net to Roxi)
o Production at Well 143 increased to a maximum of 815 bopd
using a 7 mm choke
-- Munaily
o Producing at the rate of 75 bopd (44 net to Roxi)
o Agreement reached with Chinese partner to re-enter 20 Soviet
era wells at no costs to Roxi
-- Beibars
o Expected to be released from force-majeure
Financial
During the period under review
-- Reported profit for the year $10.6 million (2014: $5.7 million)
-- Profit on the sale of Galaz $18.7 million
-- Proceeds from the sale of Galaz available to further develop BNG $35 million
-- BNG Royalty cancelled in return for the issue of 46,661,654 Roxi shares
Subsequently
-- Agreement in principle reached between Roxi and the
beneficial owners of Baverstock to merge our interests so that the
enlarged Roxi would increase its ownership of the BNG and Munaily
assets from 58.41% to 99%. A final legal agreement would be
conditional on shareholder and regulatory approval.
Strategic Report
The Directors present their strategic report on the Group for
the year ended 31 December 2015.
Introduction
This strategic report comprises; the Group's objectives; the
Group's strategy; the Group's business model; and a review of the
Group's business using key performance indicators.
The Chairman's statement, which also forms part of the strategic
review, contains review of and a comprehensive analysis of the
development and performance of the company's business during the
financial year, and the position of the company's business at the
end of that year and forms part of the strategic report.
Additionally, a summary of the principal risks and uncertainties
facing the business is set out following the Chairman's
statement.
Objectives
The Group's objective is to create shareholder value from the
development of oil and gas projects.
The Group has a number of secondary objectives, including
promoting the highest level of heath & safety standards,
developing our staff to their highest potential and being a good
corporate citizen in our chosen countries of operations.
Strategy
The Group's long term strategy is to build an attractive
portfolio of oil and gas exploration and production assets in
Central Asia, and in particular Kazakhstan where the board have the
greatest experience.
In the short term the Group will continue to seek to maximise
the value of the Company's flagship asset BNG.
Business model
The Board plans to develop the BNG Contract Area such that by
summer 2018, the expected date when a full production licence will
be applied for, the BNG Contract Area has been drilled to identify
the greatest level of reserves and production consistent with not
unduly diluting Roxi's shareholders interest in the asset.
Over the medium term the Group will consider acquiring
additional assets where the board believes an acquisition would
increase shareholder value. The Directors believe the Group is
exceptionally well placed through its local presence to increase
shareholder value by opportunistic acquisitions of undervalued oil
and gas assets.
Additionally, the Board believes there is a significant
opportunity to assist much larger companies seeking to enter the
vast Kazakhstan's oil and gas market where they wish to have a well
placed local partner.
Key performance indicators
Review of the Group's business using key performance indicators.
The Key Performance Indicators are:
Operational
Production
At the date of this report production from the:
-- BNG Contract Area was 825 bopd (487 bopd net to Roxi)
-- Munaily Contract Area was 75 bopd (44 net to Roxi)
Production from BNG must under the terms of the current licence
be sold at domestic prices.
Production from Munaily may be sold at international prices.
Reserves
Details of the Group's assets and reserves are set out in the
Chairman's statement.
Financial
Other than the costs associated with maintaining the London
listing for the Group's shares the principal expenses of the
Company relate to the drilling programme at BNG, which after the
work programme obligations are essentially discretionary.
To fund these costs Roxi has the proceeds of the production from
BNG, which is currently 825 bopd. This is expected to increase
materially should any of the three deep well, A5, 801 or A6
commence production under testing.
In the event the Roxi board decides to develop BNG at a rate
faster than could be funded by current production additional equity
or debt would be required.
The principal and other risks and uncertainties facing the
business
The Company and the Group are subject to various risks relating
to political, economic, legal, social, industry, business and
financial conditions. The following risk factors, which are not
exhaustive, are particularly relevant to the Company and the
Group's business activities:
Financing risks
Despite the recent dramatic fall in the price of rigs and crew
exploring due to Kazakh Tenge depreciation it is still an expensive
business, with each well drilled potentially costing between $1.5-2
million for a shallow well and up to $4-6 million for a 5,000 meter
well.
The Group continually monitors the financing arrangements to
ensure the continuation of the operational activities and expects
to fund the costs of its planned development programme over the
next 12 months from the proceeds of the receipt of oil plus, if
appropriate, from the introduction of new equity of loan
capital.
Exploration risk
Despite our recent successes with our shallow wells there is no
assurance that the Group's future exploration activities will
continue to be successful. Accordingly, the Group seeks to reduce
this risk by acquiring and evaluating 3D seismic information before
committing to drill exploration and appraisal wells. The Company
also seeks to engage suitably skilled personnel either as employees
or contractors to undertake detailed assessments of the areas under
exploration.
Environmental and other regulatory requirements
Existing and possible future environmental legislation,
regulations and actions could cause additional expense, capital
expenditures, restrictions and delays in the activities of the
Group, the extent of which cannot be predicted.
Before exploration and production can commence the Group must
obtain regulatory approval and there is no assurance that such
approvals will be obtained. No assurance can be given that new
rules and regulations will not be enacted or existing legislations
will not be applied in a manner, which could limit or curtail the
Group's activities.
The Group employs staff experienced in the requirements of the
Kazakh environmental authorities and seeks through their experience
to mitigate the risk of non-compliance with accepted best
practice.
Operational risks
It is the nature of oil and gas operations that each project is
long term. It may be many years before the exploration and
evaluation expenditures incurred are proven to be viable and
progress to reach commercial production.
To control these risks the Board arranges for the provision of
technical support, directly or through appointed agents and also as
appropriate commissions technical research and feasibility studies
both prior to entering into these commitments and subsequently in
the life of these projects.
In addition, operational risks include equipment failure, well
blowouts, pollution, fire and the consequences of bad weather.
Where the Group is project operator, it takes an increased
responsibility for ensuring that the Company is compliant with all
relevant legislation.
The Group has hired competent people with appropriate skills to
manage such risks at the appropriate levels within the Group
structure.
Political risk
The Group currently operates primarily in Kazakhstan. The nature
of the Group's investments requires the commitment of significant
funding to facilitate exploration and evaluation expenditure in
Kazakhstan.
While the Company enjoys very good working relationships with
the Kazakh regulatory authorities there can be no assurances that
the laws and regulations and their interpretation will not change
in future periods and that as a result the Company activities would
be affected.
However, the Directors believe with the exceptionally high
content of Kazakh nationals in key positions and Roxi's prolonged
experience of operating in Kazakhstan it is as well placed as any
internationally listed company operating in Kazakhstan to avoid
inadvertently falling foul of local regulations or customs.
Pricing risk
As the Group increases production during the exploration and
estimation phases of its licences its financial performance could
be adversely affected by falls in the price of oil.
Production to date has been limited and the sharp fall in oil
prices has only recently begun to affect the Company.
While in the short term the impact of such falls can be
mitigated by hedging strategies over the medium and longer terms
the Company will inevitably be impacted by movements in the price
of oil. Production levels to date have not warranted active hedging
and no oil price hedging is anticipated in the coming year.
Exchange rate risk
The Group's income is denominated in US$ and its expenditure is
denominated in US$ and Kazakh Tenge. In recent years the Tenge has
suffered serious depreciation against the US$, which has materially
benefitted the Company. In the event the Kazakh Tenge is devalued
further against the US$ the Company benefits as income is
unaffected but Tenge denominated costs fall when reported in
US$.
The Group's presentational currency is the US$. In 2015, the
Kazakh Tenge depreciated by 87% against the US$ resulting in an
accounting reduction in the carrying value of our unproven oil and
gas assets of 87%.
Given the relative strengths of the US$ and the Kazakh Tenge the
Group has decided not to seek to hedge this foreign currency
exposure.
Chairman's Statement
Business performance overview
Introduction
2015 was a lively year for the industry and for Roxi. Despite
the dramatically fluctuating oil price I believe we emerged from
the year a stronger company and crucially one that is not saddled
with unsupportable debt.
Our flagship BNG asset is demonstrating signs of being a very
significant asset.
The sale of our second asset Galaz for a total consideration of
$100 million and an accounting profit of $18.7 million was
exceptionally well timed and has provided $35 million for the
further development of BNG without diluting shareholders
interests.
Our shallow wells at BNG have demonstrated a consistent record
of success with five wells contributing to the current 825 bopd
production levels.
Progress in getting our deep wells to flow has been slower than
we would have wished. We continue to wait for confirmation of
management's belief that the deep prospects at BNG, which to date
have been targeted with the three deep wells drilled, will prove
BNG to be an extremely valuable field.
In January 2016 we extended the size of the BNG Contract Area by
140.6 square kilometres for just $2 million. We are also now well
placed for bolt on acquisitions to add to the commercial value of
BNG.
At Munaily, our second asset after the disposal of Galaz, we
concluded an agreement with a Chinese company to re-enter up to 24
wells drilled during Soviet times with our Chinese partner bearing
the drilling costs and any incremental production being split on a
50:50 basis.
Our licences and work programme obligations
In June 2015 the BNG licence was successfully extended until
June 2018. During this Estimation Phase any oil produced from
exploration and appraisal activities at BNG must be sold on the
domestic Kazakh market, with prices significantly lower than
international prices.
A condition of the licence renewal was that a further 2 shallow
and 1 deep wells be drilled before the next anticipated licence
renewal in June 2018.
In January 2016, Roxi invested a further $2 million in extending
the area of its BNG Contract Area by 140.6 square kilometres to the
north west of the existing BNG Contract Area. The minimum work
programme commitment for the extension area is one additional
well.
The licence at Munaily is a full production licence, with an
expiry term of 9 years where production can be sold at export
prices. Our work programme commitments at Munaily will be satisfied
by the well re-entry programme referred to above.
Drilling programme at BNG
During 2015, a further $23 million was invested into BNG.
Our assets
% Interest At 31 December At 1January
2015 2015
BNG Ltd LLP 58.41 58.41
Galaz and Company
LLP * 0.00 34.22
Munaily Kazakhstan
LLP 58.41 58.41
Beibars Munai LLP 50.00 50.00
Note: The disposal of the Galaz Contract Area was completed in
May 2015
Reserves and Resources
Set out below are the Group's historic reserves, which have not
been updated since 2011.
Contract Area Prospect Roxi Interest
gross net %
Contingent Resources
BNG (best) 12.7 7.4 58.41
Prospective Resources
BNG (best) 904.0 528.0 58.41
BNG
Background
The BNG Contract Area is located in the west of Kazakhstan 40
kilometers southeast of Tengiz on the edge of the Mangistau Oblast,
covering an area of 1,561 square kilometers of which 1,376 square
kilometers has 3D seismic coverage acquired in 2009 and 2010. Roxi
resumed full control of BNG Ltd LLP in the second quarter of 2011
after the announcement of Canamens's withdrawal from the
contract.
In January 2016, Roxi announced that the area of the Contract
Area was extended with the addition of 140.6 square kilometres to
the north-east of the current block. The extended BNG Contract Area
now covers 1,702 square kilometers.
The price for the extension was $2 million and has been paid by
Roxi. Roxi intends to acquire 3D seismic data on the new territory
before finalising its drilling plans. Of particular interest is the
deep formation currently being explored by Deep Wells A5, 801 &
A6, which the Company believes extends into the new extension
area.
Our development approach
The BNG Contract Area has both shallow and deep prospects, which
Roxi is keen to develop.
Geology
In January 2011, BNG engaged Gaffney Cline & Associates
("GCA") to undertake a technical audit of the BNG Contract Area and
subsequently Petroleum Geology Services ("PGS") to undertake depth
migration work, based on the 3D seismic work carried out in 2009
and 2010.
The work of GCA resulted in confirming total unrisked resources
of 900 million barrels from 37 prospects and leads mapped from the
3D seismic work undertaken in 2009 and 2010. The report of GCA also
confirmed risked resources of 202 million barrels as well as
Most-Likely Contingent Resources of 13 million barrels on South
Yelemes.
The depth migration work that was carried out by PGS enabled
Roxi to gain a greater understanding of some of the deeper
prospects yet to be explored. Roxi believes the greater potential
exists in the pre salt prospects and has plans to drill further
wells to validate this belief.
Gaffney Cline has been retained to reconsider its estimates for
the shallow areas developed based on the developments since their
initial findings and the output of their considerations is expected
in the coming weeks.
Deep Wells
Progress with our deep wells has been slower than anticipated.
The problem across the three deep wells has been the exceptionally
high pressures and temperatures encountered in each well which have
led to a number of recurring issues.
Deep Well A5
At Deep Well A5, the first deep well to be drilled and which
briefly flowed at a rate of some 2,000 bopd, the issue has been to
clear the well sufficiently for a long-term flow test to be
conducted.
The pressure encountered outside the oil pipe has been
consistently of the order of 300 bar and we have stratrd to flow
the well periodically when the pressure in the oil pipe has
exceeded 320 bar. When the pressure in the oil pipe falls to 250
bar we have stopped flowing to protect the well. As, over time, the
obstructions in the well have been removed the time required for
the pressure inside the oil pipe to revert to 320 bar has fallen
from several days to now just a few hours.
Accordingly, Roxi management believes it should not now be long
before the well is able to flow continually with the pressure in
the oil pipe staying above the 250 bar level. Once flowing we
intend to let Deep Well A5 run for between one and two months
before closing the well temporarily to allow another attempt to
side track the well from a depth of 4,013 to 4,450 meters to gain
access to structures at these depths.
Deep Well A5 was spudded in July 2013 and drilled to a total
depth of 4,442 meters with casing set to a depth of 4,077 meters to
allow open hole testing. Core sampling revealed the existence of a
gross oil-bearing interval of at least 105 meters from 4,332 meters
to at least 4,437 meters.
Deep Well 801
At our second deep well 801 the issue again relates to high
pressure.
Several chemical washes have been used to help clear the well of
excess drilling fluid to allow flow testing to commence. As with
Deep Well A5 this well has flowed periodically and our expectation
is that following additional chemical washing the well will begin
to flow on a more consistent basis.
Separately work is underway to remove the stuck pipe occupying
the bottom 70 meters of the well. In the event this is not removed
before the well is capable of flowing on an extended basis the flow
tests will commence with the stuck pipe in place and the pipe
recovered at a later date.
Deep Well 801 was spudded on 15 December 2014 and reached a
Total Depth of 5,050 meters on August 2015. The well is located
approximately 8 kilometers from Deep Well A5 and was planned to
target the same structure as Deep Well A5 in the Middle and Lower
Carboniferous.
Core samples and logging reveal a potentially oil bearing
interval starting from 4,536 meters and extending 100 meters. The
pressure and temperatures encountered indicate this well is
unlikely to be connected to the reservoir targeted by Deep Well A5.
Therefore should Deep Well 801 prove commercially viable it would
be a separate discovery to the potential discovery previously
announced in connection with Deep Well A5.
Deep Well A6
At A6, our latest deep well, which was spudded in November 2015,
we have drilled a depth of 3,944 meters, with 9-inch casing set to
a depth of 3,726 meters. We have now drilled through the salt
layer, pausing at a depth of 3,944 meters just below the bottom of
the salt layer to deal with minor leakages from the well.
After several attempts we have recently succeeded in creating an
effective cement bridge spanning the salt layer. We have resumed
drilling and intend to continue to a depth of 4,450 meters when we
will set 7-inch casing to that depth. After this we plan to drill
to the planned total depth of 5,000 meters thereby targeting the
carboniferous structures we consider to be the most promising.
As we are now drilling through clay and expect the pace to pick
up and would expect to reach total depth in the next couple of
months.
Deep Well 6 is located some 1,200 meters from Deep Well A5.
Shallow wells
BNG's shallow wells are located in the Yelemes portion of the
BNG block. They extend over an area of 800 sq. km. and are focused
on proving the extent of a number of promising horizons. In
particular our belief has been for some time that the shallow
horizon produced from by wells 54,805, 806, & 807 extend
significantly further than the relatively small area in which they
were drilled. Well 143 is 3,000 meters distant from these other
wells and first indications from this well are that the shallow
horizon does indeed extend over a significant area.
Well 805
Well 805, which was drilled in 2010 to a total depth of 2,505
meters tested two hydrocarbon-bearing zones between 1,965 meters
and 2,230 meters at the rate of 150 bopd and 226 bopd with
sucker-rod pump respectively. In April 2013, further testing took
place at Well 805 at gross rates of 120 bopd. In June 2014 we
announced the interval between 1,960 and 1,972 meters had been
perforated and tested with a flow rate of 90 bopd using a 2mm
choke.
Since July 2015 the well has produced under test at rates
between 86 and 104 bopd.
Well 54
Well 54 was drilled in Soviet times to a depth of 3,000 meters
and re-tested in 2010.
Currently the well is shut down due to work-over operations.
Prior to this the production rate was 72 bopd.
Well 806
Well 806 was also drilled in 2010 to a total depth of 2,557
meters. In November 2013 this well was tested at intervals at
1,985, 1,998 and 2,022 meters. In June 2014 we announced the
interval between 2,022 and 2,032 meters had been perforated and has
tested with a flow rate of 90 bopd using a 2mm choke.
The well is currently producing at 79 bopd
Well 807
Well 807 was drilled between September 2013 and November 2013 to
a depth of 2,500 meters and is targeting Cretaceous Limestone and
Jurassic Sandstone. Under testing the well is producing at the rate
of 40 bopd using a 2mm choke from the Valanginian horizon in the
interval between 1,966 meters and 1,979 meters.
The well is currently producing at 70 bopd.
Well 143
Well 143, which was the first of the shallow wells for 2013, was
spudded on 1 April 2013, on the MJ-F structure located towards the
North of South Yelemes field at BNG. The total depth of the well
was planned to be 2,500 meters. This exploration initially targeted
Jurassic Callovian sands at a depth of 2,170 meters with a
secondary objective in the Cretaceous Valanginian limestone at a
depth of 1,935 meters.
As the middle Jurassic section is also expected to be within
4-way dip closure in the MJ-F structure as well as the top Jurassic
section, Roxi decided to drill continuously to 2,750 meters, 250
meters deeper than the original planned depth.
During 2015 a further 5 intervals were perforated for testing.
At the interval at a depth of 17 meters production from this well
was significantly enhanced, reaching a rate of 815 bopd using a 7
mm choke.
Production from Well 143 is currently at the rate of 630 bopd
using a 5mm choke.
Operator status
BNG Ltd LLP, of which Roxi owns 58.41%, has been the operator at
BNG since 2011.
Work programme
In the remainder of 2016 Roxi plans to drill a further 1 deep
wells at BNG between Deep Wells A5 and 801 and 2 further shallow
wells in the MJF Structure plus well 808 in the extension area
Other assets
Munaily
The Munaily field is located in the Atyrau Oblast approximately
70 kilometres southeast of the town of Kulsary. The field was
discovered in the 1940s and produced from 12 reservoirs in the
Cretaceous through to the Triassic. Roxi acquired 58.41 per cent
interest of the 0.67 square kilometres rehabilitation block in 2008
and funded two wells and one well re-entry.
The field is capable of producing at the rate of 150 bopd (88
bopd net to Roxi). Sales of oil from Munaily are at export
prices.
We have concluded an agreement with a Chinese company to
re-enter up to 24 wells drilled during Soviet times with our
Chinese partner bearing the drilling costs and any incremental
production being split on a 50:50 basis.
Beibars
In 2007, Roxi acquired a 50 per cent interest in Beibars Munai
LLP, which operates the 167 square kilometer Beibars Contract Area
on the Caspian shoreline south of the city of Aktau. While
acquiring 3D seismic in 2008, the licence was put under Force
Majeure when the acreage was allocated as a military exercise area
(Polygon), by the Ministry of Defence. Since then no operations
have been carried out, and Roxi operates a care and maintenance
administrative budget on the project.
We understand a court hearing to consider the ending of the
force majeure has been convened for June 2016 and we expect to have
this licence restored to us in due course.
Sale of Galaz
In February 2015, we announced the conditional sale of our
interests in the Galaz Contract Area to a consortium led by
Xinjiang Zhundong Petroleum Technology Co., a Company listed on the
Shenzhen Stock Exchange in China, for an aggregate consideration of
between $90 million and $100 million, depending on the price of
Brent crude oil.
Following a rise in the price of Brent Crude the aggregate
consideration increased to $100 million and the amount attributable
to Roxi increased to $23.5 million. Additionally a further $11.5
million was attributable to Baverstock GmbH, our partner at BNG,
accordingly a total of $35 million from the sale of Galaz has been
available for the development of BNG.
The accounting profit from the sale of Roxi's interest in Galaz
was $18.7 million.
Proposed Baverstock merger
Following the acquisition in 2008 from Baverstock, of a 59%
interest in Eragon Petroleum Limited, a company owning the BNG,
Galaz and Munaily assets, Roxi and Baverstock have been partners in
the development of the Eragon Assets, namely BNG, Galaz and
Munaily. Baverstock retained the 41 per cent holding in Eragon
Petroleum Limited.
Roxi had under the terms of the 2008 acquisition the requirement
to fund the first $100 million of development spending on these
Eragon Assets. This obligation was met in January 2015 and since
then responsibility for development spending on the Eragon Assets
has been split 59:41 Roxi : Baverstock.
During 2015 and to date in 2016 BNG development funding has been
met largely from the proceeds of the sale of Galaz. The board of
Roxi believes it now makes commercial sense for both Roxi and
Baverstock that the entities merge on the basis of their respective
interests in the remaining Eragon assets.
Accordingly, the board of Roxi and the management of Baverstock
have agreed in principle that their interests should be merged by
the issue to Baverstock of sufficient new Roxi shares to reflect
Baverstock's 41% interest in Eragon. This is subject to final
agreement and would be conditional upon the approval of the
relevant Kazakh authorities, the UK Takeover Panel, the
shareholders of Roxi and the beneficial owners of Baverstock.
Subject to a final agreement as soon as practical following
entering an agreement, a circular setting out the merger proposals
will be put before Roxi shareholders.
Finance
Funding
Other than the costs associated with general administration and
maintaining the London listing for the Company's shares, which were
$2.8 million in 2015, the principal expenses of the Company relate
to the drilling programme at BNG, which after the limited
outstanding work programme obligations are essentially
discretionary.
To fund these costs Roxi has the proceeds from the production
from BNG, which is currently 825 bopd. This is expected to increase
materially should any of the three deep well, A5, 801 or A6
commence production under testing.
In the event the Roxi board decides to develop BNG at a rate
faster than could be funded by current production additional equity
or debt would be required.
As noted above the $100 million funding benchmark for the Eragon
Assets was reached in January 2015. Since that time the
responsibility for funding the Eragon Assets no longer rest solely
with Roxi.
In January 2013, Roxi entered into an equity subscription
agreement with Mr Kairat Satylganov for a maximum of $40 million at
a price of 7.41p per share. To date some $29.2 million has been
drawn down under this agreement leaving some $10.8 million
available.
In April 2015, Roxi and Baverstock sold their interests in Galaz
for a combined sum of $35 million, all of which was available for
the further development of the BNG Contract Area.
In July 2015, Roxi issued 46,661,654 shares to cancel the BNG
Royalty calculated at 1.5% of the wellhead price of all future BNG
production.
Dividends
There is no current intention to pay a dividend. Revenue from
production is being used to fund further development.
Financial statements
The profit for the year 2015 was some $10.6 million (2014: $5.7
million). This was largely the result of the profit on the disposal
of Galaz being $18.7 million with the costs of drilling being added
to the investment in BNG.
The profit in 2014 of $5.7 million was largely the result of a
$25 million reversal of a previous impairment.
Once again other administrative costs fell from $3.4 million in
2014 to $2.8 million in 2015.
Tenge Depreciation
During 2015 the Kazakh Tenge depreciated against the US$, the
functional accounting currency of Roxi by 87%. Commercially this is
very much to the Company's advantage as all income and the value of
our reserves are denominated in US$ and only costs are denominated
in Tenge.
However, as in previous years, the international accounting
standards require the carrying value of the Company's assets to be
depreciated by 87%. The Tenge related depreciation charge to
unproven oil and gas assets for 2015 was $70 million (2014: $19
million). Therefore to be in compliance with the relevant
accounting standard we are obliged to write down the value of our
principal asset by $70 million (and by $89 million in aggregate
over the past 2 years) when for all commercial purposes it has
significantly appreciated in value.
Impairment assessment
The carrying value of the Group's principle asset BNG has to
date been based on implied valuations from a succession of
financing arrangements. It also reflects the impact of the
depreciation of the Tenge against the US$ (see above).
Following an impairment review resulting from the fall in the
oil price in 2015 we have decided not to make any further
adjustments to the carrying value of our flagship asset, BNG.
Going Concern
The Directors are confident, on the basis of the current
financial projections and the funding that will be available,
principally from the sale of oil plus if required additional equity
or loan capital, that the Group will have sufficient resources for
its operational needs over the relevant period, being until June
2017. Accordingly, the Directors continue to adopt the going
concern basis.
Board responsibilities
The senior management team comprises Kuat Oraziman, CEO, who has
overall responsibility for managing the Company's affairs in
Kazakhstan; Kairat Satylganov, CFO, with responsibility for the
Company's finances in Kazakhstan, and Clive Carver, Executive
Chairman, who is responsible for the Company's overall finances and
its activities in the UK, including the activities arising from
Roxi being a publicly listed company.
Edmund Limerick is the Company's senior non-executive Director,
and chairman of the audit and remuneration committees.
During the period under review the only change to the board was
the retirement at the 2015 Annual General Meeting of Mr HS Jang as
non-executive Director.
Staffing
We have 77 employees based in Kazakhstan, all of whom are Kazakh
nationals. The depreciation of the Tenge, against the US$, whilst
benefiting the Company, adversely affects our Kazakh staff and we
thank them for their continued hard work and commitment in these
difficult times.
Shareholders
I would also like to take this opportunity to thank shareholders
for their continued support.
Your interest in Roxi is very much appreciated. Please
understand though that it is often not possible to respond to
specific information requests on drilling activities as all
relevant information needs to be announced to the market generally
rather than selectively to interested shareholders.
Social Programmes
Under Kazakh regulations part of our obligations under various
work programmes on the assets in which we have an interest are paid
in the form of contributions to local social programmes.
In 2015 Roxi, made significant contributions to the Mangistau
regional social obligation fund $693,000 (BNG & Munaily)
These contributions help secure the good standing of the Company
with the local regional authorities and with centrally based
regulators.
Roxi is pleased to have assisted in the developments of these
projects.
Environmental
No significant environmental issues have arisen at any of the
properties acquired to date.
Current trading
Production from our shallow wells at BNG is being sold at
domestic prices and at Munaily at export prices predominantly to
local oil traders with the revenues used to fund continuing
development work at BNG.
Prospects
Oil exploration cycles do not generally fit equity financing
cycles. It can take years from the first interest in exploration
acreage to the commencement of commercial production.
Rarely does the interest from the equity markets last long
enough to fully fund the exploration cycle. The sharp decline in
the oil price in 2015 and early 2016 has severely dented
institutional fund managers' interest in funding exploration and
early stage production and the sector is understandably out of
favour.
However, we believe for companies with alternative access to
funding there has never been a better time to explore and develop
oil fields of the quality of BNG. The price of drilling rigs and
crews has fallen by more than half, which combined with the impact
of the fall in the Tenge puts Roxi in an exceptionally strong
position to develop the BNG Contract Area further.
As stated above our strategy is to develop the BNG Contract Area
to the fullest by mid 2018 without unduly diluting shareholders.
This is 24 months away and it strikes the Roxi board as unlikely
that the low prices of 2015 and early 2016 will prevail at that
time.
Following the proposed merger of Roxi and Baverstock the
enlarged Roxi will own 99% of BNG. Few large oil companies have
maintained their exploration and development programme at historic
levels. Provided we are able to demonstrate the quality of the deep
prospects at BNG by then logic dictates it is likely that by mid
2018 there may be a shortage of projects of the quality of BNG for
the majors to consider when reviewing their limited production
profiles.
Roxi intends to be as active as possible with the objective of
enhancing shareholder value over the medium term.
Key Objectives
The delays in testing our deep wells have resulted in missing
the objectives set in the two previous financial statements. We are
not making a production forecast this year. Nevertheless the board
believes that based on management expectations the future looks
good for Roxi.
The Strategic Report and these financial statement were approved
and authorised by the Board for issue on 2 June 2016 and signed on
its behalf by
Clive Carver
Chairman
2 June 2016
Qualified Person
Mr.Nurlybek Ospanov, Roxi's senior geologist who is a member of
the Society of Petroleum Engineers ("SPE"), has reviewed and
approved the technical disclosures in this announcement.
Glossary
SPE- The Society of Petroleum Engineers
Proven Reserves
Proved Reserves are those quantities of petroleum which, by
analysis of geosciences and engineering data, can be estimated with
reasonable certainty to be commercially recoverable, from a given
date forward, from known reservoirs and under defined economic
conditions, operating methods, and government regulations. If
deterministic methods are used, the term reasonable certainty is
intended to express a high degree of confidence that the quantities
will be recovered. If probabilistic methods are used, there should
be at least a 90% probability that the quantities actually
recovered will equal or exceed the estimate.
Probable Reserves
Probable Reserves are those additional Reserves which analysis
of geosciences and engineering data indicate are less likely to be
recovered than Proved Reserves but more certain to be recovered
than Possible Reserves. It is equally likely that actual remaining
quantities recovered will be greater than or less than the sum of
the estimated Proved plus Probable Reserves (2P). In this context,
when probabilistic methods are used, there should be at least a 50%
probability that the actual quantities recovered will equal or
exceed the 2P estimate.
Possible reserves
Possible reserves are those additional Reserves which analysis
of geosciences and engineering data indicate are less likely to be
recovered than Probable Reserves. The total quantities ultimately
recovered from the project have a low probability to exceed the sum
of Proved plus Probable plus Possible (3P), which is equivalent to
the high estimate scenario. In this context, when probabilistic
methods are used, there should be at least a 10% probability that
the actual quantities recovered will equal or exceed the 3P
estimate.
Contingent Resources
Contingent Resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from
known accumulations, but the applied project(s) are not yet
considered mature enough for commercial development due to one or
more contingencies. Contingent Resources may include, for example,
projects for which there are currently no viable markets, or where
commercial recovery is dependent on technology under development,
or where evaluation of the accumulation is insufficient to clearly
assess commerciality. Contingent Resources are further categorized
in accordance with the level of certainty associated with the
estimates and may be sub-classified based on project maturity
and/or characterized by their economic status.
Prospective resources
Prospective Resources are those quantities of petroleum
estimated, as of a given date, to be potentially recoverable from
undiscovered accumulations. Potential accumulations are evaluated
according to their chance of discovery and, assuming a discovery,
the estimated quantities that would be recoverable under defined
development projects.
Directors' report
The Directors present their annual report on the operations of
the Company and the Group, together with the audited financial
statements for the year ended 31 December 2015. The Strategic
Report forms part of the business review for this year.
Results and dividends
The consolidated statement of profit or loss is set out on page
21 and shows the profit for the year. The Directors do not
recommend the payment of a dividend (2014: US$ nil). The position
and performance of the Group is discussed below and further details
are given in the business review.
Events after the reporting period
Other than as disclosed in this annual report, including note 29
to the financial statements, there have been no material events
between 31 December 2015 and the date of this report, which are
required to be brought to the attention of shareholders.
Employees
Staff employed by the Group are based primarily in Kazakhstan.
The recruitment and retention of staff, especially at management
level, is increasingly important as the Group continues to build
its portfolio of oil and gas assets.
As well as providing employees with appropriate remuneration and
other benefits together with a safe and enjoyable working
environment, the Board recognises the importance of communicating
with employees to motivate them and involve them fully in the
business. For the most part, this communication takes place at a
local level but staff are kept informed of major developments
through e-mail updates and access to the Company's website.
The Company has taken out full indemnity insurance on behalf of
the Directors and officers.
Health, safety and environment
It is the Group's policy and practice to comply with health,
safety and environmental regulations and the requirements of the
countries in which it operates, to protect its employees, assets
and environment.
Charitable and Political donations
During the year the Group made no charitable or political
donations. The Group did however, as required by the terms of the
Group's work programmes, make extensive social contributions to
projects in Kazakhstan as set out in more detail in the Strategic
Report.
Directors and Directors' interests
The Directors of the Company who served during the year
were:
Clive Carver Executive Chairman from
11 February 2013
Kuat Oraziman Chief Executive Officer
Kairat Satylganov from 1 June 2012
Appointed Chief Financial
Officer from 11 February
2013
Edmund Limerick Non-Executive Director
Hyunsik Jang from 1 February 2010
Non-Executive Director
from 1 January 2014 (resigned
24 July 2015)
Director Shareholding at Shareholding
31 December at 31 December
2015 2014
--------------------- ---------------- ----------------
Clive Carver nil nil
--------------------- ---------------- ----------------
Kuat Oraziman 374,408,033 335,165,716
--------------------- ---------------- ----------------
Kairat Satylganov 205,428,656 179,791,227
--------------------- ---------------- ----------------
Edmund Limerick 655,000 555,000
--------------------- ---------------- ----------------
Biographical details of the current Directors are set out on the
Company's website www.roxipetroleum.com.
Details of the Directors' individual remuneration, service
contracts and interests in share options are shown in the
Remuneration Committee Report.
Financial instruments
Details of the use of financial instruments by the Group and its
subsidiary undertakings are contained in note 27 of the financial
statements.
Statement of disclosure of information to auditors
All of the current Directors have taken all the steps that they
ought to have taken to make themselves aware of any information
needed by the Group's auditors for the purposes of their audit and
to establish that the auditors are aware of that information. The
Directors are not aware of any relevant audit information of which
the auditors are unaware.
Auditors
The Company's auditors, Grant Thornton UK LLP, have indicated
their willingness to continue in office and a resolution concerning
their reappointment will be proposed at the next Annual General
Meeting.
Directors' responsibilities
The Directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law and
regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have elected to prepare the Group's and Company's financial
statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union. Under Company's
law the Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Group and Company and of the profit or loss of
the Group and Company for that period. The Directors are also
required to prepare financial statements in accordance with the
rules of the London Stock Exchange for companies trading securities
on the London Stock Exchange AIM Market.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether they have been prepared in accordance with
IFRSs as adopted by the European Union, subject to any material
departures disclosed and explained in the financial statements;
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company and the
Group will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and enable them to ensure that
the financial statements comply with the requirements of the
Companies Act 2006. They are also responsible for safeguarding the
assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Website publication
The Directors are responsible for ensuring the annual report and
the financial statements are made available on a website. Financial
statements are published on the Company's website in accordance
with legislation in the United Kingdom governing the preparation
and dissemination of financial statements, which may vary from
legislation in other jurisdictions. The maintenance and integrity
of the Company's website is the responsibility of the Directors.
The Directors' responsibility also extends to the on-going
integrity of the financial statements contained therein.
Clive Carver
Chairman
2 June 2016
Remuneration Committee Report
Remuneration Committee
The Remuneration Committee comprises Edmund Limerick, Kuat
Oraziman and Clive Carver, and is chaired by Edmund Limerick.
Remuneration policy
The Company's policy is to provide remuneration packages that
will attract, retain and motivate its executive Directors and
senior management. This consists of a basic salary, ancillary
benefits and other performance-related remuneration appropriate to
their individual responsibilities and having regard to the
remuneration levels of comparable posts. The Remuneration Committee
determines the contract term, basic salary, and other remuneration
for the members of the Board and the senior management team.
Service contracts
Details of the current Directors' service contracts are as
follows:
Date of Date of
service last renewal
agreement/appointment of appointment
letter
------------------ ----------------------- ----------------
Executive
1 June 11 February
Clive Carver 2012 2013
1 April 1 June
Kuat Oraziman 2007 2012
Kairat Satylganov 11 February 11 February
2013 2013
Non-Executive
Edmund Limerick 1 February 1 February
2010 2010
Basic salary and benefits
The basic salaries of the Directors who served during the
financial year are established by reference to their
responsibilities and individual performance. The amounts received
by the Directors are set out below in US$.
2015 2015 2015 2014
Salary/fees Share Total Total
Directors options
------------------- ------------- --------- -------- --------
Clive Carver 240,000 136,441 376,441 274,110
Edmund Limerick 45,250 34,110 79,360 57,990
Hyunsik Jang 25,875 - 25,875 49,216
Kuat Oraziman 116,814 136,441 253,255 149,662
Kairat Satylganov 121,505 136,441 257,946 153,287
------------------- ------------- --------- -------- --------
Total 549,444 443,433 992,877 684,265
Bonus schemes
The Company has a bonus scheme for the executive Directors and
senior management team. No bonuses are payable in respect of the
year to 31 December 2015 (2014: nil).
Share options
The current interests as at approval of accounts of the current
Directors and as at 31 December 2015 in share options agreements
are as follows:
Exercise Expiry
Directors Granted Price date
14 December
Clive Carver 2,400,000 4p 2021
14 December
Kuat Oraziman 4,200,000 4p 2021
14 December
Edmund Limerick 1,200,000 4p 2021
Exercise Expiry
Directors Granted Price date
14 August
Clive Carver 538,264 12p 2019
14 August
Kuat Oraziman 269,132 12p 2019
15 February
Edmund Limerick 200,000 12p 2020
Exercise Expiry
Directors Granted Price date
12 January
Clive Carver 750,000 13p 2021
12 January
Kuat Oraziman 3,090,000 13p 2021
12 January
Edmund Limerick 750,000 13p 2021
Exercise Expiry
Directors Granted Price date
21 August
Clive Carver 3,000,000 20p 2024
21 August
Kuat Oraziman 3,000,000 20p 2024
21 August
Kairat Satylganov 3,000,000 20p 2024
21 August
Edmund Limerick 750,000 20p 2024
Exercise Expiry
Directors Granted Price date
22 May
Clive Carver 1,345,660 38p 2017
22 May
Kuat Oraziman 672,830 38p 2017
Exercise Expiry
Directors Granted Price date
29 February
Clive Carver 1,215,385 65p 2018
22 April
Clive Carver 387,692 65p 2018
29 February
Kuat Oraziman 607,692 65p 2018
22 April
Kuat Oraziman 193,846 65p 2018
On behalf of the Directors of Roxi Petroleum Plc
Edmund Limerick
Chairman of Remuneration Committee
2 June 2016
Report on Corporate Governance
In common with the Board's commitment to apply best practice
corporate governance procedures and with reference to the UK
Corporate Governance Code ("the Code") on corporate governance the
Board has prepared the following report. We do not comply with the
UK Corporate Governance Code. However, we have reported on our
Corporate Governance arrangements by drawing upon best practice
available, including those aspects of the UK Corporate Governance
Code we consider to be relevant to the company and best
practice.
We are aware that regulators are challenging instances where it
appears that the code has been followed but an enhanced audit
report has not been given.
The Company has one Non-Executive Director and three Executive
Directors as follows:
Executive
Clive Carver Chairman
Chief Executive
Kuat Oraziman Officer
Chief Financial
Kairat Satylganov Officer
Non-Executive
Edmund Limerick Director
------------------ ----------------
The Board retains full and effective control over the Company.
The Company holds a Board meeting at least once per quarter, at
which financial and other reports are considered and, where
appropriate, voted on. Apart from regular meetings, additional
meetings are arranged when necessary to review strategy, planning,
operational, financial performance, risk and capital expenditure
and human resource and environmental management. The Board is also
responsible for monitoring the activities of the Management.
Board of meetings
The Board met 18 times and 15 times during 2015 and 2014
respectively, with the following attendance:
2015 2014
-------------- ----- -----
C Carver 18 15
E Limerick 18 15
K Oraziman 6 10
H S Jang 3 5
K Satylganov 4 5
-------------- ----- -----
The Board has established the following committees:
Audit Committee
The audit committee, which comprises Edmund Limerick and Clive
Carver, with Edmund Limerick acting as Chairman, determines and
examines any matters relating to the financial affairs of the Group
including the terms of engagement of the Group's auditors and, in
consultation with the auditors, the scope of the audit.
The audit committee receives and reviews reports from the
management and the external auditors of the Group relating to the
annual and interim amounts and the accounting and internal control
systems of the Group. In addition it considers the financial
performance, position and prospects of the Company and ensures they
are properly monitored and reported on.
Remuneration Committee
The remuneration committee, which comprises Edmund Limerick,
Kuat Oraziman and Clive Carver, with Edmund Limerick acting as
Chairman, reviews the performance of the senior management, sets
and reviews their remuneration and the terms of their service
contracts and considers the Group's bonus and option schemes.
Rule 21
The Directors comply with Rule 21 of the AIM Rules relating to
Directors' dealing and take all reasonable steps to ensure
compliance by the Group's applicable employees. The Company has
adopted and operates a share dealing code for Directors and
employees in accordance with the AIM Rules.
Internal controls
The Board acknowledges responsibility for maintaining
appropriate internal control systems and procedures to safeguard
the shareholders' investments and the assets, employees and the
business of the Group.
The Board has established and operates a policy of continuous
review and development of appropriate financial controls together
with operating procedures consistent with the accounting policies
of the Group.
The Board does not consider it appropriate for the current size
of the Group to establish an internal audit function.
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF
ROXI PETROLEUM PLC
We have audited the financial statements of Roxi Petroleum Plc
for the year ended 31 December 2015 which comprise the consolidated
statement of profit or loss, the consolidated statement of
comprehensive income, the consolidated statement of changes in
equity, the parent company statement of changes in equity, the
consolidated and parent company statement of financial position,
the consolidated and parent company statement of cash flows and the
related notes. The financial reporting framework that has been
applied in their preparation is applicable law and International
Financial Reporting Standards (IFRSs) as adopted by the European
Union and, as regards the parent company financial statements, as
applied in accordance with the provisions of the Companies Act
2006.
This report is made solely to the Company's members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken so that we might state to the
Company's members those matters we are required to state to them in
an auditor's report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to
anyone other than the Company and the Company's members as a body,
for our audit work, for this report, or for the opinions we have
formed.
Respective responsibilities of Directors and auditors
As explained more fully in the statement of Directors'
responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the audit of the financial statements
A description of the scope of an audit of financial statements
is provided on the Financial Reporting Council's website at
www.frc.org.uk/auditscopeukprivate.
Opinion on financial statements
In our opinion:
-- the financial statements give a true and fair view of the
state of the Group's and of the parent company's affairs as at 31
December 2015 and of the Group's profit for the year then
ended;
-- the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
-- the parent company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the Companies
Act 2006; and
-- the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006.
Opinion on other matters prescribed by the Companies Act
2006
In our opinion the information given in the Strategic report and
Directors' report for the financial year for which the financial
statements are prepared is consistent with the financial
statements.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
-- adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
-- the parent company financial statements are not in agreement
with the accounting records and returns; or
-- certain disclosures of Directors' remuneration specified by law are not made; or
-- we have not received all the information and explanations we require for our audit.
Christopher Smith
Senior Statutory Auditor
for and on behalf of Grant Thornton UK LLP
Statutory Auditor, Chartered Accountants
London
2 June 2016
Consolidated Statement of Profit or Loss
Notes Year to Year to
31 December 31 December
2015 2014
----------------------------------------- -------
$'000 $'000
----------------------------------------- ------- ------------------ ------------------
Revenue 1,051 1,623
Cost of sales (1,049) (1,043)
----------------------------------------- ------- ------------------ ------------------
Gross profit 2 580
Impairment reversal of unproven
oil and gas assets 11 - 25,000
Share-based payments (555) (139)
Revaluation of royalty liability 2,183 (1,542)
Other administrative costs (2,787) (3,372)
Total administrative profit/(loss) (1,159) 19,947
----------------------------------------- ------- ------------------ ------------------
Operating profit/(loss) 4 (1,157) 20,527
Finance cost 7 (946) (958)
Finance income 8 234 525
Profit/(loss) before taxation (1,869) 20,094
Tax charge 9 (5,280) (8,811)
----------------------------------------- ------- ------------------ ------------------
Profit/(loss) after taxation
from continuing operations (7,149) 11,283
----------------------------------------- ------- ------------------ ------------------
Profit/(loss) for the year from
discontinued operations 14,18 17,744 (5,626)
------------------ ------------------
Profit for the year 10,595 5,657
----------------------------------------- ------- ------------------ ------------------
Profit attributable to owners
of the parent 7,829 1,750
Profit attributable to non-controlling
interest 2,766 3,907
-------
Profit for the year 10,595 5,657
----------------------------------------- ------- ------------------ ------------------
Earnings per share 10
----------------------------------------- ------- ------------------ ------------------
Basic earnings/(loss) per ordinary
share (US cents)
----------------------------------------- ------- ------------------ ------------------
From continuing operations (0.29) 0.61
----------------------------------------- ------- ------------------ ------------------
From discontinued operations 1.14 (0.4)
----------------------------------------- ------- ------------------ ------------------
Total 0.85 0.21
----------------------------------------- ------- ------------------ ------------------
Diluted earnings/(loss) per
ordinary share (US cents)
----------------------------------------- ------- ------------------ ------------------
From continuing operations (0.29) 0.6
----------------------------------------- ------- ------------------ ------------------
From discontinued operations 1.13 (0.39)
----------------------------------------- ------- ------------------ ------------------
Total 0.84 0.21
----------------------------------------- ------- ------------------ ------------------
Consolidated Statement of Comprehensive income
Year ended Year ended
31 December 31 December
2015 2014
---------------------------------------
$000 $000
--------------------------------------- ------------- -------------
Income after taxation 10,595 5,657
--------------------------------------- ------------- -------------
Other comprehensive income:
Exchange differences on translating
foreign operations from continuing
operations* (70,861) (18,119)
Exchange differences on translating
foreign operations from discontinued
operations* 289 (2,699)
Total comprehensive loss for the
year (59,977) (15,161)
--------------------------------------- ------------- -------------
Total comprehensive loss attributable
to:
Owners of parent (32,064) (10,790)
Non-controlling interest (27,913) (4,371)
--------------------------------------- ------------- -------------
*Items which may be reclassified to the statement of profit or
loss
Consolidated Statement of Changes in Equity
Share Share Deferred Cumulative Other Retained Total Non-controlling Total
capital premium shares translation reserves earnings attributable interests equity
$'000 $'000 reserve $'000 $'000 to the $'000 $'000
$'000 $'000 owner of
Parent
$'000
Total equity
as at 1
January 2015 14,761 136,674 64,702 (19,001) (583) (132,700) 63,853 31,537 95,390
--------------- ------- ------- -------- ----------- -------- --------- ------------ --------------- --------
Income after
taxation - - - - - 7,829 7,829 2,766 10,595
Exchange
differences
on
translating
foreign
operations - - - (39,893) - - (39,893) (30,679) (70,572)
--------------- ------- ------- -------- ----------- -------- --------- ------------ --------------- --------
Total
comprehensive
income for
the year - - - (39,893) - 7,829 (32,064) (27,913) (59,977)
--------------- ------- ------- -------- ----------- -------- --------- ------------ --------------- --------
Arising on
share issues 405 2,595 - - - - 3,000 - 3,000
Transactions
with owners 405 2,595 - - - - 3,000 - 3,000
--------------- ------- ------- -------- ----------- -------- --------- ------------ --------------- --------
Arising on
employee
share options - - - - - 555 555 - 555
Conversion of
debts
to equity 726 7,083 - - - - 7,809 - 7,809
Disposal of
subsidiary - - - 2,361 - - 2,361 - 2,361
Stock options
exercised 87 312 - - - - 399 - 399
Total equity
as at 31
December 2015 15,979 146,664 64,702 (56,533) (583) (124,316) 45,913 3,624 49,537
--------------- ------- ------- -------- ----------- -------- --------- ------------ --------------- --------
Share Share Deferred Shares Cumulative Other Retained Total Non-controlling Total
capital premium shares to be translation reserves earnings attributable interests equity
$'000 $'000 issued reserve $'000 $'000 to the $'000 $'000
$'000 $'000 owner of
$'000 the Parent
$'000
------- ------- -------- ------- ----------- -------- --------- ------------ --------------- --------
Total equity
as at 1
January 2014 13,475 128,578 64,702 5,000 (6,461) (583) (134,589) 70,122 35,908 106,030
--------------- ------- ------- -------- ------- ----------- -------- --------- ------------ --------------- --------
Income after
taxation - - - - - - 1,750 1,750 3,907 5,657
Exchange
differences
on
translating
foreign
operations - - - - (12,540) - - (12,540) (8,278) (20,818)
--------------- ------- ------- -------- ------- ----------- -------- --------- ------------ --------------- --------
Total
comprehensive
income for
the year - - - - (12,540) - 1,750 (10,790) (4,371) (15,161)
--------------- ------- ------- -------- ------- ----------- -------- --------- ------------ --------------- --------
Arising on
share issues 500 3,200 - - - - 3,700 - 3,700
Cancellation
of shares
to be issued 674 4,326 - (5,000) - - - - - -
--------------- ------- ------- -------- ------- ----------- -------- --------- ------------ --------------- --------
Transactions
with owners 1,174 7,526 - (5,000) - - - 3,700 - 3,700
--------------- ------- ------- -------- ------- ----------- -------- --------- ------------ --------------- --------
Arising on
employee
share options - - - - - - 139 139 - 139
Conversion of
debts
to equity 67 433 - - - - - 500 - 500
Stock options
exercised 45 137 - - - - - 182 - 182
--------------- ------- ------- -------- ------- ----------- -------- --------- ------------ --------------- --------
Total equity
as at 31
December 2014 14,761 136,674 64,702 - (19,001) (583) (132,700) 63,853 31,537 95,390
--------------- ------- ------- -------- ------- ----------- -------- --------- ------------ --------------- --------
Reserve Description and purpose
Share capital The nominal value of shares issued
Share premium Amount subscribed for share capital in excess of
nominal value
Shares to be issued Amount received in respect of shares which
are yet to be issued
Cumulative translation reserve Gains/losses arising on
retranslating the net assets of overseas operations into US
Dollars
Other reserves Fair value of warrants issued and capital
contribution arising on discounted loans
Retained earnings Cumulative losses recognised in the
consolidated statement of profit or loss
Non-controlling interest The interest of non-controlling parties
in the net assets of the subsidiaries
Parent Company Statement of Changes in Equity
Share Share Deferred Other Retained Total attributable
capital premium shares reserves earnings to the owner
$'000 $'000 $'000 $'000 $'000 of the Parent
$'000
Total equity as at 1 January
2015 14,761 136,674 64,702 16,715 (119,085) 113,767
----------------------------------- -------- -------- -------- --------- --------- ------------------
Total comprehensive income for
the year - - - - 2,562 2,562
Arising on share issues 405 2,595 - - 3,000
Transactions with owners 405 2,595 - - - 3,000
----------------------------------- -------- -------- -------- --------- --------- ------------------
Conversion of debts to equity 726 7,083 - - - 7,809
Arising on employee share options - - - - 555 555
Stock options exercised 87 312 - - - 399
Total equity as at 31 December
2015 15,979 146,664 64,702 16,715 (115,968) 128,092
----------------------------------- -------- -------- -------- --------- --------- ------------------
Share Share Shares Deferred Other Retained Total attributable
capital premium to be shares reserves earnings to the owner
$'000 $'000 issued $'000 $'000 $'000 of the Parent
$'000 $'000
Total equity as at 1 January 2014 13,475 128,578 5,000 64,702 16,715 (118,988) 109,482
------------------------------------- -------- -------- ------- -------- --------- --------- ------------------
Total comprehensive loss for the
year - - - - - (236) (236)
Arising on share issues 500 3,200 - - - - 3,700
Cancellation of shares to be issued 674 4,326 (5,000) - - - -
------------------------------------- -------- -------- ------- -------- --------- --------- ------------------
Transactions with owners 1,274 (7,526) (5,000) - - - 3,700
------------------------------------- -------- -------- ------- -------- --------- --------- ------------------
Conversion of debts to equity 67 433 - - - - 500
Arising on employee share options - - - - - 139 139
Employee share options exercised 45 137 - - - - 182
------------------------------------- -------- -------- ------- -------- --------- --------- ------------------
Total equity as at 31 December
2014 14,761 136,674 - 64,702 16,715 (119,085) 113,767
------------------------------------- -------- -------- ------- -------- --------- --------- ------------------
Reserve Description and purpose
Share capital The nominal value of shares issued
Share premium Amount subscribed for share capital in excess of
nominal value
Deferred shares The nominal value of deferred shares issued
Other reserves Fair value of warrants issued and capital
contribution arising on discounted loans
Retained earnings Cumulative losses recognised in the profit or loss
Consolidated and Parent Company Statements of Financial
Position
Company number 5966431 Notes Group Group Company Company
2015 2014 2015 2014
$'000 $'000 $'000 $'000
----------------------------------- ----- --------- --------- --------- ---------
Assets
Non-current assets
Unproven oil and gas assets 11 57,323 116,094 - -
Property, plant and equipment 12 195 355 - -
Investments in subsidiaries 13 - - 60,522 60,522
Inventories 15 12 1,247 - -
Other receivables 16 14,640 10,294 117,884 121,254
Restricted use cash 271 322 - -
----------------------------------- ----- --------- --------- --------- ---------
Total non-current assets 72,441 128,312 178,406 181,776
----------------------------------- ----- --------- --------- --------- ---------
Current assets
Other receivables 16 2,096 11,654 2 122
Cash and cash equivalents 17 10,462 605 25 18
----------------------------------- ----- --------- --------- --------- ---------
Total current assets 12,558 12,259 27 140
----------------------------------- ----- --------- --------- --------- ---------
Investments in equity accounted
joint venture classified as
held for sale 14 - 7,872 - -
----------------------------------- ----- --------- --------- --------- ---------
Total assets 84,999 148,443 178,433 181,916
----------------------------------- ----- --------- --------- --------- ---------
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital 19 15,979 14,761 15,979 14,761
Share premium 146,664 136,674 146,664 136,674
Deferred shares 19 64,702 64,702 64,702 64,702
Other reserves (583) (583) 16,715 16,715
Retained earnings (124,315) (132,700) (115,968) (119,085)
Cumulative translation reserve (56,534) (19,001) - -
----------------------------------- ----- --------- --------- --------- ---------
Equity attributable to the
owners of the Parent 45,913 63,853 128,092 113,767
----------------------------------- ----- --------- --------- --------- ---------
Non-controlling interests 3,624 31,537 - -
----------------------------------- ----- --------- --------- --------- ---------
Total equity 49,537 95,390 128,092 113,767
----------------------------------- ----- --------- --------- --------- ---------
Current liabilities
Trade and other payables 20 5,732 12,433 1,204 6,121
Short - term borrowings 21 308 804 - -
Current provisions 22 2,957 3,554 - -
----------------------------------- ----- --------- --------- --------- ---------
Total current liabilities 8,997 16,791 1,204 6,121
----------------------------------- ----- --------- --------- --------- ---------
Non-current liabilities
Borrowings 23 9,903 10,503 9,903 9,075
Deferred tax liabilities 24 7,485 11,164 - -
Non-current provisions 22 780 813 - -
Derivative financial liability 26 - 6,790 - 6,790
Other payables 20 8,297 6,992 39,234 46,163
----------------------------------- ----- --------- --------- --------- ---------
Total non-current liabilities 26,465 36,262 49,137 62,028
----------------------------------- ----- --------- --------- --------- ---------
Total liabilities 35,462 53,053 50,341 68,149
----------------------------------- ----- --------- --------- --------- ---------
Total equity and liabilities 84,999 148,443 178,433 181,916
----------------------------------- ----- --------- --------- --------- ---------
By Order of the Board
Clive Carver, Chairman, 2 June 2016
Company number: 5966431
Consolidated and Parent Company Statements of
Cash Flows
Group Group Company Company
2015 2014 2015 2014
Notes $'000 $'000 $'000 $'000
-------- ------- -------- -------
Cash flows from operating activities
Cash received from/(repaid to)
customers (3,125) 6,548 - -
Payments made to suppliers for
goods and services (4,788) (4,588) (1,382) (817)
----------------------------------------- ----- -------- ------- -------- -------
Net cash flow from operating activities (7,913) 1,960 (1,382) (817)
----------------------------------------- ----- -------- ------- -------- -------
Cash flows from investing activities
Purchase of property, plant and
equipment 12 (30) (190) -
Additions to unproven
oil and gas assets 11 (16,915) (9,233) - -
Transfers from restricted use cash 52 13 - -
Loans repaid by joint ventures 11,280 - 6,900 130
Disposal of joint venture (net
of cash disposed) 18 21,908 1,000 - -
Loans given to subsidiaries - - (10,810) (5,270)
Return of exclusivity payment received
in advance 18 - - (1,000) -
Exclusivity payment received in
advance 18 - - - 1,000
-------- ------- -------- -------
Net cash flow from investing activities 16,295 (8,410) (4,910) (4,140)
----------------------------------------- ----- -------- ------- -------- -------
Cash flows from financing activities
Net proceeds from issue of ordinary
share capital 3,399 3,882 3,399 3,882
Loans repaid (1,924) - - -
Loans provided by subsidiaries - - 2,900 -
Net cash from financing activities 1,475 3,882 6,299 3,882
----------------------------------------- ----- -------- ------- -------- -------
Net increase/(decrease) in cash
and cash equivalents 9,857 (2,568) 7 (1,075)
Cash and cash equivalents at beginning
of year 605 3,173 18 1,093
----------------------------------------- ----- -------- ------- -------- -------
Cash and cash equivalents at end
of year 17 10,462 605 25 18
----------------------------------------- ----- -------- ------- -------- -------
Notes to the Financial Statements
General information
Roxi Petroleum Plc ("the Company") is a public limited company
incorporated and domiciled in England and Wales. The address of its
registered office is 5 New Street Square, London, EC4A 3TW. These
consolidated financial statements were authorised for issue by the
Board of Directors on 2 June 2016.
The principal activities of the Group are exploration and
production of crude oil.
1 Principal accounting policies
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below.
1.1 Basis of preparation
The Group's and Parent's financial statements have been prepared
in accordance with International Financial Reporting Standards as
adopted by the European Union ("IFRSs"), and with those parts of
the Companies Act 2006 applicable to companies reporting under
IFRSs.
The financial statements have been prepared on a going concern
basis based upon projected future cash flows and planned work
programmes.
The financial information has been prepared on a going concern
basis based upon projected future cash flows and planned work
programmes.
The receipts from the proceeds of the sale of Galaz are in the
opinion of the Directors sufficient to cover operating costs
associated with the day to day operation of the Company.
Additional funding would in the opinion of the Directors be
available if required from the sale of oil produced during testing,
further draw downs under the $40 million equity facility and if
required by rescheduling various loans.
The Directors are confident, on the above basis, that the Group
will have sufficient resources for its operational needs over the
relevant period, being until June 2017. Accordingly, the Directors
continue to adopt the going concern basis.
The Company has taken advantage of section 408 of the Companies
Act 2006 and has not included its own profit or loss in these
financial statements. The Group income for the year included an
income on ordinary activities after tax of US$2,562,000 in respect
of the Company.
The preparation of financial statements in conformity with IFRSs
requires the Management to make judgements, estimates and
assumptions that affect the application of policies and reported
amounts in the financial statements. The areas involving a higher
degree of judgement or complexity, or areas where assumptions or
estimates are significant to the financial statements are disclosed
in note 2.
1.2 New and revised standards and interpretations applied
New and revised standards and amendments which are effective for
annual periods beginning on or after 1 January 2015, did not impact
the Group's financial position, performance and/or disclosures.
New and revised IFRS - issued, but not yet effective
The standards and interpretations that are issued, but not yet
effective, up to the date of issuance of the Group's financial
statements and that could impact the Group are disclosed below. The
Group intends to adopt these standards, if applicable, when they
become effective.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the final version of IFRS 9
Financial Instruments that replaces IAS 39 Financial Instruments:
Recognition and Measurement and all previous versions of IFRS 9.
IFRS 9 brings together all three aspects of the accounting for
financial instruments project: classification and measurement,
impairment and hedge accounting. IFRS 9 is effective for annual
periods beginning on or after 1 January 2018, with early
application permitted. Except for hedge accounting, retrospective
application is required but providing comparative information is
not compulsory. For hedge accounting, the requirements are
generally applied prospectively, with some limited exceptions. The
Company plans to adopt the new standard on the required effective
date. The adoption of IFRS 9 is not expected to have effect on the
classification and measurement of the Group's financial
instruments.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a five-step model
to account for revenue arising from contracts with customers. Under
IFRS 15, revenue is recognised at an amount that reflects the
consideration to which an entity expects to be entitled in exchange
for transferring goods or services to a customer. The new revenue
standard will supersede all current revenue recognition
requirements under IFRS. Either a full retrospective application or
a modified retrospective application is required for annual periods
beginning on or after 1 January 2018, when the IASB finalises their
amendments to defer the effective date of IFRS 15 by one year.
Early adoption is permitted. The Group plans to adopt the new
standard on the required effective date and is currently assessing
the impact.
Amendments to IFRS 11 Joint Arrangements: Accounting for
Acquisitions of Interests
The amendments to IFRS 11 require that a joint operator
accounting for the acquisition of an interest in a joint operation,
in which the activity of the joint operation constitutes a
business, must apply the relevant IFRS 3 principles for business
combinations accounting. The amendments also clarify that a
previously held interest in a joint operation is not remeasured on
the acquisition of an additional interest in the same joint
operation while joint control is retained. In addition, a scope
exclusion has been added to IFRS 11 to specify that the amendments
do not apply when the parties sharing joint control, including the
reporting entity, are under common control of the same ultimate
controlling party. The amendments apply to both the acquisition of
the initial interest in a joint operation and the acquisition of
any additional interests in the same joint operation and are
prospectively effective for annual periods beginning on or after 1
January 2016, with early adoption permitted. These amendments are
not expected to have any impact on the Group.
Amendments to IAS 16 and IAS 38: Clarification of Acceptable
Methods of Depreciation and Amortisation
The amendments clarify the principle in IAS 16 and IAS 38 that
revenue reflects a pattern of economic benefits that are generated
from operating a business (of which the asset is part) rather than
the economic benefits that are consumed through use of the asset.
As a result, a revenue-based method cannot be used to depreciate
property, plant and equipment and may only be used in very limited
circumstances to amortise intangible assets. The amendments are
effective prospectively for annual periods beginning on or after 1
January 2016, with early adoption permitted. These amendments are
not expected to have any impact to the Group given that the Group
has not used a revenue-based method to depreciate its non-current
assets.
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
The amendments address the conflict between IFRS 10 and IAS 28
in dealing with the loss of control of a subsidiary that is sold or
contributed to an associate or joint venture. The amendments
clarify that the gain or loss resulting from the sale or
contribution of assets that constitute a business, as defined in
IFRS 3, between an investor and its associate or joint venture, is
recognised in full. Any gain or loss resulting from the sale or
contribution of assets that do not constitute a business, however,
is recognised only to the extent of unrelated investors' interests
in the associate or joint venture. These amendments must be applied
prospectively and are effective for annual periods beginning on or
after 1 January 2016, with early adoption permitted. These
amendments are not expected to have any impact on the Group.
Annual improvements 2012-2014 cycle
These improvements are effective for annual periods beginning on
or after 1 January 2016. They include:
IFRS 5 Non-current Assets Held for Sale and Discontinued
Operations
Assets (or disposal groups) are generally disposed of either
through sale or distribution to owners. The amendment clarifies
that changing from one of these disposal methods to the other would
not be considered a new plan of disposal, rather it is a
continuation of the original plan. There is, therefore, no
interruption of the application of the requirements in IFRS 5. This
amendment must be applied prospectively.
IFRS 7 Financial Instruments: Disclosures
(i) Servicing contracts
The amendment clarifies that a servicing contract that includes
a fee can constitute continuing involvement in a financial asset.
An entity must assess the nature of the fee and the arrangement
against the guidance for continuing involvement in IFRS 7 in order
to assess whether the disclosures are required. The assessment of
which servicing contracts constitute continuing involvement must be
done retrospectively. However, the required disclosures would not
need to be provided for any period beginning before the annual
period in which the entity first applies the amendments.
(ii) Applicability of the amendments to IFRS 7 to condensed interim financial statements
The amendment clarifies that the offsetting disclosure
requirements do not apply to condensed interim financial
statements, unless such disclosures provide a significant update to
the information reported in the most recent annual report. This
amendment must be applied retrospectively.
IAS 19 Employee Benefits
The amendment clarifies that market depth of high quality
corporate bonds is assessed based on the currency in which the
obligation is denominated, rather than the country where the
obligation is located. When there is no deep market for high
quality corporate bonds in that currency, government bond rates
must be used. This amendment must be applied prospectively.
IAS 34 Interim Financial Reporting
The amendment clarifies that the required interim disclosures
must either be in the interim financial statements or incorporated
by cross-reference between the interim financial statements and
wherever they are included within the interim financial report
(e.g., in the management commentary or risk report). The other
information within the interim financial report must be available
to users on the same terms as the interim financial statements and
at the same time. This amendment must be applied retrospectively.
These amendments are not expected to have any impact on the
Group.
Amendments to IAS 1 Disclosure Initiative
The amendments to IAS 1 Presentation of Financial Statements
clarify, rather than significantly change, existing IAS 1
requirements. The amendments clarify:
-- The materiality requirements in IAS 1.
-- That specific line items in the statement(s) of profit or
loss and OCI and the statement of financial position may be
disaggregated.
-- That entities have flexibility as to the order in which they
present the notes to financial statements.
-- That the share of OCI of associates and joint ventures
accounted for using the equity method must be presented in
aggregate as a single line item, and classified between those items
that will or will not be subsequently reclassified to profit or
loss.
Furthermore, the amendments clarify the requirements that apply
when additional subtotals are presented in the statement of
financial position and the statement(s) of profit or loss and OCI.
These amendments are effective for annual periods beginning on or
after 1 January 2016, with early adoption permitted. These
amendments are not expected to have any impact on the Group.
Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities:
Applying the Consolidation Exception
The amendments address issues that have arisen in applying the
investment entities exception under IFRS 10. The amendments to IFRS
10 clarify that the exemption from presenting consolidated
financial statements applies to a parent entity that is a
subsidiary of an investment entity, when the investment entity
measures all of its subsidiaries at fair value.
Furthermore, the amendments to IFRS 10 clarify that only a
subsidiary of an investment entity that is not an investment entity
itself and that provides support services to the investment entity
is consolidated. All other subsidiaries of an investment entity are
measured at fair value. The amendments to IAS 28 allow the
investor, when applying the equity method, to retain the fair value
measurement applied by the investment entity associate or joint
venture to its interests in subsidiaries.
These amendments must be applied retrospectively and are
effective for annual periods beginning on or after 1 January 2016,
with early adoption permitted. These amendments are not expected to
have any impact on the Group.
1.3 Basis of consolidation
Subsidiary undertakings are entities that are directly or
indirectly controlled by the Group. Control is achieved when the
Group is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those
returns through its power over the investee. Generally, there is a
presumption that a majority of voting rights result in control. To
support this presumption and when the Group has less than a
majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether
it has power over an investee. The consolidated financial
statements present the results of the Company and its subsidiaries
("the Group") as if they formed a single entity. Intercompany
transactions and balances between group companies are therefore
eliminated in full.
The purchase method of accounting is used to account for the
acquisition of subsidiary undertakings by the Group. The cost of an
acquisition is measured at the fair value of the assets given,
equity instruments issued and liabilities incurred or assumed at
the date of exchange. Identifiable assets acquired and liabilities
and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date,
irrespective of the extent of any non-controlling interest. The
excess of the cost of acquisition over the fair value of the
Group's share of the identifiable net assets acquired is recorded
as goodwill.
Where the Group holds interests in jointly ventures, it accounts
for its interests using the equity method.
1.4 Operating Loss
Operating loss is stated after crediting all operating income
and charging all operating expenses, but before crediting or
charging the financial income or expenses.
1.5 Foreign currency translation
1.5.1 Functional and presentational currencies
Items included in the financial statements of each of the
Group's entities are measured using the currency of the primary
economic environment in which the entity operates ("the functional
currency"). The consolidated financial statements are presented in
US Dollars ("USD"), which is the Group's presentational currency.
Beibars Munai LLP, Munaily Kazakhstan LLP, BNG Ltd LLP and Roxi
Petroleum Kazakhstan LLP, subsidiary undertakings of the Group,
undertake their activities in Kazakhstan and the Kazakh Tenge is
the functional currency of these entities. The functional currency
for the Company, Beibars BV, Ravninnoe BV, Galaz Energy BV, BNG
Energy BV and Eragon Petroleum FZE is USD as USD reflects the
underlying transactions, conducts and events relevant to these
companies.
1.5.2 Transactions and balances in foreign currencies
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency ("foreign currencies") are recorded at the
rates of exchange prevailing at the dates of the transactions. At
each reporting date, monetary items denominated in foreign
currencies are retranslated at the rates prevailing at the
reporting date. Non-monetary items carried at fair value that are
denominated in foreign currencies are retranslated at the rates
prevailing at the date when the fair value was determined.
Non-monetary items, including the parent's share capital, that are
measured in terms of historical cost in a foreign currency are not
retranslated. Exchange differences are recognised in profit or loss
in the period in which they arise.
1.5.3 Consolidation
For the purpose of consolidation all assets and liabilities of
Group entities with a functional currency that is not USD are
translated at the rate prevailing at the reporting date. The profit
or loss is translated at the exchange rates approximating to those
ruling when the transaction took place. Exchange difference arising
on retranslating the opening net assets from the opening rate and
results of operations from the average rate are recognised directly
in other comprehensive income (the "cumulative translation
reserve"). On disposal of a foreign operator related cumulative
foreign exchange gains and losses are reclassified to profit and
loss and are recognized as part of the gain or loss on
disposal.
1.6 Current tax
Current tax is based on taxable profit for the year. Taxable
profit differs from profit as reported in the profit or loss
because it excludes items of income or expense that are taxable or
deductible in other years and it further excludes items that are
never taxable or deductible. The Group's liability for current tax
is calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
1.7 Deferred tax
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition
of assets or liabilities that affect neither accounting nor taxable
profit other than in a business combination, and differences
relating to investments in subsidiaries to the extent that they
will probably not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount of
assets and liabilities, using tax rates enacted or substantively
enacted at the reporting date.
Deferred tax liabilities are generally recognised for all
taxable temporary differences. A deferred tax asset is recorded
only to the extent that it is probable that taxable profit will be
available against which the deductible temporary differences can be
utilised.
1.8 Unproven oil and gas assets
The Group applies the full cost method of accounting for
exploration and unproven oil and gas asset costs, having regard to
the requirements of IFRS 6 'Exploration for and Evaluation of
Mineral Resources'. Under the full cost method of accounting, costs
of exploring for and evaluating oil and gas properties are
accumulated and capitalised by reference to appropriate cost pools.
Such cost pools are based on license areas. The Group currently has
four operating assets.
Exploration and evaluation costs include costs of license
acquisition, technical services and studies, seismic acquisition,
exploration drilling and testing, but do not include costs incurred
prior to having obtained the legal rights to explore an area, which
are expensed directly to the profit or loss as they are
incurred.
Assets acquired for use in exploration and evaluation activities
are classified as property, plant and equipment. However, to the
extent that such asset is consumed in developing an intangible
exploration and evaluation asset, the amount reflecting that
consumption is recorded as part of the cost of the intangible
asset.
The amounts included within unproven oil and gas assets include
the fair value that was paid for the acquisition of partnerships
holding subsoil use in Kazakhstan. These licenses have been
capitalised to the Group's full cost pool in respect of each
license area.
Exploration and unproven oil and gas assets related to each
exploration license/prospect are not amortised but are carried
forward until the technical feasibility and commercial usability of
extracting a mineral resource are demonstrated.
Commercial reserves are defined as proved oil and gas
reserves.
Proven oil and gas properties
Once a project reaches the stage of commercial production and
production permits are received, the carrying values of the
relevant exploration and evaluation asset are assessed for
impairment and transferred as proven oil and gas properties and
included within property plant and equipment.
Proven oil and gas properties are accounted for in accordance
with provisions of the cost model under IAS 16 "Property Plant and
Equipment" and are depleted on unit of production basis based on
commercial reserves of the pool to which they relate.
Impairment
Exploration and unproven intangible assets are reviewed for
impairments if events or changes in circumstances indicate that the
carrying amount may not be recoverable as at the reporting date.
Intangible exploration and evaluation assets that relate to
exploration and evaluation activities that are not yet determined
to have resulted in the discovery of the commercial reserve remain
capitalised as intangible exploration and evaluation assets subject
to meeting a pool-wide impairment test as set out below.
Such indicators include the point at which a determination is
made as to whether or not commercial reserves exist. Where the
exploration and evaluation assets concerned fall within the scope
of an established full cost pool, the exploration and evaluation
assets are tested for impairment together with all development and
production assets associated with that cost pool, as a single cash
generating unit. The aggregate carrying value is compared against
the expected recoverable amount of the pool, generally by reference
to the present value of the future net cash flows expected to be
derived from production of the commercial reserves. Where the
exploration and evaluation assets to be tested fall outside the
scope of any established cost pool, there will generally be no
commercial reserves and the exploration and evaluation assets
concerned will be written off in full. Any impairment loss is
recognised in the profit or loss as impairment and separately
disclosed.
An impairment loss is reversed if the asset's or cash-generating
unit's recoverable amount exceeds its carrying amount.
Workovers/Overhauls and maintenance
From time to time a workover or overhaul or maintenance of
existing proven oil and gas properties is required, which normally
fall into one of two distinct categories. The type of workover
dictates the accounting policy and recognition of the related
costs:
Capitalisable costs - cost will be capitalised where the
performance of an asset is improved, where an asset being
overhauled is being changed from its initial use, the assets'
useful life is being extended, or the asset is being modified to
assist the production of new reserves.
Non-capitalisable costs - expense type workover costs are costs
incurred as maintenance type expenditure, which would be considered
day-to-day servicing of the asset. These types of expenditures are
recognised within cost of sales in the statement of comprehensive
income as incurred. Expense workovers generally include work that
is maintenance in nature and generally will not increase production
capability through accessing new reserves, production from a new
zone or significantly extend the life or change the nature of the
well from its original production profile.
1.9 Abandonment
Provision is made for the present value of the future cost of
the decommissioning of oil wells and related facilities. This
provision is recognised when the asset is installed. The estimated
costs, based on engineering cost levels prevailing at the reporting
date, are computed on the basis of the latest assumptions as to the
scope and method of decommissioning. The corresponding amount is
capitalised as a part of property, plant and equipment and is
amortised on a unit-of-production basis as part of the
depreciation, depletion and amortisation charge. Any adjustment
arising from the reassessment of estimated cost of decommissioning
is capitalised, while the charge arising from the unwinding of the
discount applied to the decommissioning provision is treated as a
component of the interest charge.
1.10 Restricted use cash
Restricted use cash is the amount set aside by the Group for the
purpose of creating an abandonment fund to cover the future cost of
the decommissioning of oil and gas wells and related facilities and
in accordance with local legal rulings.
Under the Subsoil Use Contracts the Group must place 1% of the
value of exploration costs in an escrow deposit account. At the end
of the contract this cash will be used to return the field to the
condition that it was in before exploration started.
1.11 Property, plant and equipment
All property, plant and equipment assets are stated at cost or
fair value on acquisition less accumulated 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. Expected
useful economic life and residual values are reviewed annually.
The annual rates of depreciation for class of property, plant
and equipment are as follows:
- motor vehicles over 7 years
- other over 2-4 years
The Group assesses at each reporting date whether there is any
indication that any of its property, plant and equipment has been
impaired. If such an indication exists, the asset's recoverable
amount is estimated and compared to its carrying value.
1.12 Investments (Company)
Non-current asset investments in subsidiary undertakings are
shown at cost less allowance for impairment.
1.13 Financial instruments
The Group classifies financial instruments, or their component
parts on initial recognition, as a financial asset, a financial
liability or an equity instrument in accordance with the substance
of the contractual agreement.
Financial assets and financial liabilities are recognised when
the Group becomes a party to the contractual provisions of the
financial instrument and are measured initially at fair value
adjusted for transaction costs, except for those carried at fair
value through profit or loss which are measured initially at fair
value. Subsequent measurement of financial assets and financial
liabilities is described below.
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.
The Group's financial assets consist of cash and other
receivables. Cash and cash equivalents are defined as short term
cash deposits which comprise cash on deposit with an original
maturity of less than 3 months. Other receivables are initially
measured at fair value and subsequently at amortised cost.
The Group's financial liabilities are non-interest bearing trade
and other payables, other interest bearing borrowings, profit oil
royalty, and warrants. Non-interest bearing trade and other
payables and other interest bearing borrowings are stated initially
at fair value and subsequently at amortised cost. Profit oil
royalty and warrants are recognised and measured at fair values
through profit or loss.
There are long-term loans between Group entities and from
related parties which bear interest at a rate lower than that which
the Directors consider the Group would bear if the facility had
been granted by a third party. Such borrowings are recognised
initially at fair value, net of transaction costs incurred, and are
subsequently stated at amortised cost. Any difference between the
proceeds (net of transaction costs) and the redemption value is
recognised in the profit or loss over the period of the borrowings
using the effective interest method. Fair value is calculated by
discounting the non-current borrowings and receivables using a
market rate of interest.
Where a loan is renegotiated on substantially different terms,
this is treated as an extinguishment of the original financial
liability and the recognition of a new financial liability. The
terms are considered to be 'substantially different' if the
discounted present value of the cash flows under the new terms,
including any fees paid net of any fees received and discounted
using the original effective interest rate, is at least 10 per cent
different from the discounted present value of the remaining cash
flows of the original financial liability. In addition to this
quantitative test, a qualitative test also needs to be applied.
Share capital issued to extinguish financial liabilities is fair
valued with any difference to the carrying value of the financial
liability taken to the profit or loss.
1.14 Inventories
Inventories are initially recognised at cost, and subsequently
at the lower of cost and net realisable value. Cost comprises all
costs of purchase and other costs incurred in bringing the
inventories to their present location and condition.
1.15 Other provisions
A provision is recognised when the Group has a present legal or
constructive obligation as a result of a past event, and it is
probable that an outflow of economic benefits will be required to
settle the obligation. If the effect is material, provisions are
determined by discounting the expected future cash flows at a
pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the
liability.
1.16 Share capital
Ordinary and deferred shares are classified as equity.
Incremental costs directly attributable to the issue of new shares
or options are shown in equity as a deduction from the
proceeds.
1.17 Share-based payments
The Group has used shares and share options as consideration for
services received from employees.
Equity-settled share-based payments to employees and others
providing similar services are measured at fair value at the date
of grant. The fair value determined at the grant date of such an
equity-settled share-based instrument is expensed on a
straight-line basis over the vesting period, based on the Group's
estimate of the shares that will eventually vest.
Equity-settled share-based payment transactions with other
parties are measured at the fair value of the goods or services
received, except where the fair value cannot be estimated reliably,
in which case they are measured at the fair value of the equity
instruments granted, measured at the date the entity obtains the
goods or the counterparty renders the service. The fair value
determined at the grant date of such an equity-settled share-based
instrument is expensed since the shares vest immediately. Where the
services are related to the issue of shares, the fair values of
these services are offset against share premium where
permitted.
Fair value is measured using the Black-Scholes model. The
expected life used in the model has been adjusted based on the
Management's best estimate, for the effects of non-transferability,
exercise restrictions and behavioural considerations.
1.18 Warrants
The warrants are separated from the host contract as their risks
and characteristics are not closely related to those of the host
contracts. Due to the exercise price of the warrants being in a
different currency to the functional currency of the Company, at
each reporting date the warrants are valued at fair value with
changes in fair values recognised through profit or loss as they
arise. The fair values of the warrants are calculated using the
Black-Scholes model.
1.19 Revenue
Revenue is measured at the fair value of the consideration
received or receivable and represents amounts receivable for oil
and gas products provided in the normal course of business, net of
discounts, VAT and other sales related taxes to third party
customers. Revenues are recognised when the risks and rewards of
ownership together with effective control are transferred to the
customer and the amount of the revenue and associated costs
incurred in respect of the relevant transaction can be reliably
measured. Revenue is not recognised unless it is probable that the
economic benefits associated with the sales transaction will flow
to the Group.
1.20 Cost of sales
During test production cost of sales cannot be reliably
estimated and therefore a cost of sales equal to revenue is
recognised and credited to the unproven oil and gas assets.
1.21 Segmental reporting
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 and assessing performance of the operating
segments and making strategic decisions, has been identified as the
Board of Directors. The Group has one operating segment being oil
exploration and production in Kazakhstan.
1.22 Interest receivable and payable
Interest income and expense are reported on an accrual basis
using the effective interest rate method.
1.23 Accounts not presented in sterling
For reference the year end exchange rate from sterling to US$
was 1.53 and the average rate during the year was 1.48.
1.24 Joint venture agreements
The Group's investments in joint arrangements are characterised
as a joint venture in which the Group has rights to a share of the
arrangement's net assets rather than direct rights to underlying
assets and obligations for underlying liabilities. Investments in
joint ventures are accounted for using the equity method. The
carrying amount of the investment in joint ventures is increased or
decreased to recognise the Group's share of the profit or loss and
other comprehensive income of the joint venture, adjusted where
necessary to ensure consistency with the accounting policies of the
Group. Unrealised gains and losses on transactions between the
Group and its joint ventures are eliminated to the extent of the
Group's interest in those entities. Where unrealised losses are
eliminated, the underlying asset is also tested for impairment.
1.25 Discontinued operations
A discontinued operation is a component of the Group that either
has been disposed of, or is classified as held for sale. Profit or
loss from discontinued operations comprises the post-tax profit or
loss of discontinued operations and the post-tax gain or loss
resulting from the measurement and disposal of assets classified as
held for sale
Non-current assets classified as held for sale are presented
separately and measured at the lower of their carrying amounts
immediately prior to their classification as held for sale and
their fair value less costs to sell. However, some held for sale
assets such as financial assets or deferred tax assets, continue to
be measured in accordance with the Group's relevant accounting
policy for those assets. Once classified as held for sale, the
assets are not subject to depreciation or amortisation. Any profit
or loss arising from the sale or remeasurement of discontinued
operations is presented as part of a single line item, profit or
loss from discontinued operations.
2 Critical accounting estimates and judgements
In the process of applying the Group's accounting policies,
which are described in note 1, the Management has made the
following judgements and key assumptions that have the most
significant effect on the amounts recognised in the financial
statements.
2.1 Recoverability of exploration and evaluation costs
Under the full cost method of accounting for exploration and
evaluation costs, such costs are capitalised as intangible assets
by reference to appropriate cost pools, and are assessed for
impairment on a concession basis when circumstances suggest that
the carrying amount may exceed its recoverable value and,
therefore, there is a potential risk of an impairment adjustment.
This assessment involves judgment as to: (i) the likely future
commerciality of the asset and when such commerciality should be
determined; (ii) future revenues and costs pertaining to any
concession based on proved plus probable, prospective and
contingent resources; and (iii) the discount rate to be applied to
such revenues and costs for the purpose of deriving a recoverable
value.
2.2 Income taxes
The Group has significant carried forward tax losses in several
jurisdictions. Significant judgement is required in determining
deferred tax assets based on an assessment of the probability that
taxable profits will be available against which carried forward
losses can be utilised.
Where the final tax outcome of these matters is different from
the amounts that were initially recorded, such differences will
impact the profit or loss in the period in which such a
determination is made.
2.3 Decommissioning
Provision has been made in the accounts for future
decommissioning costs to plug and abandon wells. The costs of
provisions have been added to the value of the unproven oil and gas
asset and will be depreciated on the unit of production basis. The
decommissioning liability is stated in the accounts at discounted
present value and accreted up to the final expected liability by
way of an annual finance charge.
The Group has potential decommissioning obligations in respect
of its interests in Kazakhstan. The extent to which a provision is
required in respect of these potential obligations depends, inter
alia, on the legal requirements at the time of decommissioning, the
cost and timing of any necessary decommissioning works, and the
discount rate to be applied to such costs. Actual costs incurred in
future periods may substantially differ from the amounts of
provisions. In addition, future changes in environmental laws and
regulations, estimates of deposit useful lives and discount rates
may affect the carrying value of this provision
2.4 Share-based compensation
In order to calculate the charge for share-based compensation as
required by IFRS 2, the Group makes estimates principally relating
to the assumptions used in its option-pricing model as set out in
note 25.
2.5 Profit oil royalty liability
The profit oil royalty liability is initially recognised at the
fair value based on the independent valuation and is accounted as a
derivative financial liability at fair value through profit or loss
on the basis that future amount of royalty payable will change
depending on the oil field production levels and the future oil
prices. The Group revalues its royalty position annually with
changes in fair values recognised in the profit or loss.
3 Segment reporting
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 and assessing the performance of the operating
segments and making strategic decisions, has been identified as the
Board of Directors.
The Group operates in one operating segment (exploration for and
production of oil in Kazakhstan). All revenues from test production
are generated domestically in Kazakhstan.
95% of Group's revenue was derived from major customer Exditrade
LLP.
4 Operating loss
Group operating profit for the year has been arrived
after charging:
-----------------------------------------------------------
2015 2014
$'000 $'000
----------------------------------------- ------- -------
Depreciation of property, plant
and equipment (note 12) (40) (53)
Auditors' remuneration (note 5) (220) (210)
Staff costs (note 6) (2,001) (2,291)
Share based payment remuneration
(note 6) (555) (139)
Impairment reversal of unproven
oil and gas assets (note 11) - 25,000
Gain/loss from investment in equity
accounted joint venture (note 14) (914) (5,626)
----------------------------------------- ------- -------
5 Group Auditor's remuneration
Fees payable by the Group to the Company's auditor and its
associates in respect of the year:
2015 2014
$'000 $'000
------------------------------------- ------ ------
Fees for the audit of the annual
financial statements 104 159
Auditing of accounts of associates
of the Company 9 12
Other services - corporation tax
compliance 107 39
------------------------------------- ------ ------
220 210
------------------------------------- ------ ------
6 Employees and Directors
Staff costs during the year Group Group
2015 2014
$'000 $'000
---------------------------------- ------ ------
Wages and salaries 1,699 1,922
Social security costs 176 207
Pension costs 126 162
Share-based payments 555 139
---------------------------------- ------ ------
2,556 2,430
---------------------------------- ------ ------
Average monthly number of people Group Group
employed 2015 2014
(including executive Directors)
---------------------------------- ------ ------
Technical 14 8
Field operations 34 31
Finance 9 9
Administrative and support 21 17
78 65
---------------------------------- ------ ------
Directors' remuneration Group Group
2015 2014
$'000 $'000
-------------------------- ------ ------
Director's emoluments 549 573
Share-based payments 443 111
-------------------------- ------ ------
992 684
-------------------------- ------ ------
The Directors are the key management personnel of the Company
and the Group. Details of Directors' emoluments and interests in
shares are shown in the Remuneration Committee Report. The highest
paid director had emoluments totalling US$240,000 (2014:
US$240,000).
7 Finance cost
Group Group
2015 2014
$'000 $'000
------------------------------------ ------ ------
Loan interest payable 828 828
Unwinding of discount on provisions
(note 22) 118 130
------------------------------------ ------ ------
946 958
------------------------------------ ------ ------
8 Finance income
Group Group
2015 2014
$'000 $'000
------------------------------------- ------ ------
Discounting of loan receivable from
Baverstock (note 16) 215 200
Other 19 325
------------------------------------- ------ ------
234 525
------------------------------------- ------ ------
9 Taxation
Analysis of charge for the year Group Group
2015 2014
$'000 $'000
--------------------------------- ------ ------
Current tax charge 5,280 3,025
Deferred tax charge - 5,786
5,280 8,811
--------------------------------- ------ ------
Group Group
2015 2014
$'000 $'000
------------------------------------------- -------- -------
Income/(loss) on ordinary activities
before tax (1,869) 20,094
------------------------------------------- -------- -------
Tax on the above at the standard
rate of corporate income tax in
the UK 21.5% (2014: 21.5%) (402) 4,320
Effects of:
Non deductible expenses (22,230) (3,079)
Effect of income/(loss) from discontinued
operations 4,012 (1,210)
Effect of different tax rates overseas 499 305
Withholding tax on interest 1,126 2,463
Unrecognised tax losses carried
forward 22,275 6,012
5,280 8,811
------------------------------------------- -------- -------
10 Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the
income/(loss) attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the year
including shares to be issued.
In order to calculate diluted earnings/(loss) per share, the
weighted average number of ordinary shares in issue is adjusted to
assume conversion of all dilutive potential ordinary shares
according to IAS33. Dilutive potential ordinary shares include
share options granted to employees and directors where the exercise
price (adjusted according to IAS33) is less than the average market
price of the Company's ordinary shares during the period.
The calculation of income/(loss) per share is based on:
2015 2014
---------------------------------------------- ----------- -----------
The basic weighted average number
of ordinary shares in
issue during the year* 914,698,721 835,797,523
The diluted average number of ordinary
shares in issue during the period 924,586,221 850,997,523
The basic weighted average number
of ordinary shares in
issue as of financials issue date* 949,335,601 877,173,464
The diluted average number of ordinary
shares in issue as of financials
issue date 957,735,601 894,385,778
The income/(loss) for the year attributable
to owners of the parent from continuing
operations (US$'000) (2,640) 5,069
The income/(loss) for the year attributable
to owners of the parent from discontinued
operations (US$'000) 10,469 (3,319)
---------------------------------------------- ----------- -----------
* Including shares to be issued from the day the funds were
received for such shares.
11 Unproven oil and gas assets
COST Group
$'000
------------------------------ --------
Cost at 1 January 2014 177,940
------------------------------ --------
Additions 10,112
Sales from test production (882)
Foreign exchange difference (34,091)
------------------------------ --------
Cost at 31 December 2014 153,079
------------------------------ --------
Additions 11,734
Sales from test production (882)
Foreign exchange difference (91,803)
------------------------------ --------
Cost at 31 December 2015 72,128
------------------------------ --------
ACCUMULATED IMPAIRMENT Group
$'000
--------------------------------------------- --------
Accumulated impairment at 1 January 2014 76,676
--------------------------------------------- --------
Reverse of impairment (25,000)
Foreign exchange difference (14,691)
--------------------------------------------- --------
Accumulated impairment at 31 December 2014 36,985
--------------------------------------------- --------
Foreign exchange difference (22,180)
Accumulated impairment at 31 December 2015 14,805
--------------------------------------------- --------
Net book value at 1 January 2014 101,264
Net book value at 31 December 2014 116,094
Net book value at 31 December 2015 57,323
--------------------------------------------- --------
Unproven oil and gas assets represent license acquisition cost
and subsequent exploration expenditure in respect of two licenses
held by Kazakh group entities. The carrying values of those assets
at 31 December 2015 were as follows: Beibars Munai LLP US$ nil
(2014: US$ nil), BNG Ltd LLP US$57,323,000 (2014:
US$116,094,000).
The Directors have carried out an impairment review of these
assets on a field by field basis. In carrying out this review the
Directors have taken into account the potential net present values
of expected future cash flows and values implied by farm-in
agreements/sale and purchase agreements ("SPA") entered into in the
previous years. The Directors consider the values implied by the
third party transactions related to BNG Ltd LLP disposals to be the
best indicator of value currently available. Accordingly where the
value implied by these SPAs is below the net book value, a
provision has been made to reduce the carrying value of that asset
to the value implied by the relevant SPA.
As a result of military training activities the Group currently
cannot access the Beibars license area which resulted in a
force-majeure situation. Due to this ongoing force-majeure
situation and the uncertainties surrounding the Beibars asset the
Directors made a full provision against this asset in the prior
year.
During 2014 due to the positive test results from the recent BNG
wells the board considered the carrying value of its BNG oil and
gas assets and as a result decided to partially reverse some of the
previously recognized impairment. An amount of US$25 million ($20
million net of deferred tax) was reversed in the period.
The Group measures its unproven oil and gas assets using Level 2
of the fair value hierarchy. The Group uses per barrel in ground
data for its fair value calculation, there are no other key
assumptions on which management has based its determination of fair
value.
The methods and valuation techniques used for the purpose of
measuring fair value of unproven oil and gas assets are unchanged
compared to the previous reporting periods.
12 Property, plant and equipment
Following the commencement of commercial production in December
2012 the Group reclassified its Munaily assets from unproved oil
and gas assets to proved oil and gas assets.
Proved Motor Other Total
--------------------------
oil and Vehicles
gas assets
Group $'000 $'000 $'000 $'000
---------------------------- --------------------- --------------------- ------------------- -----------------
Cost at 1 January
2014 322 192 289 803
Additions - 24 166 190
Disposals (225) (53) (2) (280)
Reclassification from
inventory - 12 86 98
Foreign exchange difference (50) (40) (15) (105)
---------------------------- --------------------- --------------------- ------------------- -----------------
Cost at 31 December
2014 47 135 524 706
---------------------------- --------------------- --------------------- ------------------- -----------------
Additions - - 30 30
Foreign exchange difference - (31) (252) (283)
---------------------------- --------------------- --------------------- ------------------- -----------------
Cost at 31 December
2015 47 104 302 453
---------------------------- --------------------- --------------------- ------------------- -----------------
Depreciation at 1 January
2014 254 100 234 588
Charge for the year 17 18 18 53
Disposals (209) (35) - (244)
Foreign exchange difference (15) (5) (26) (46)
---------------------------- --------------------- --------------------- ------------------- -----------------
Depreciation at 31
December 2014 47 78 226 351
---------------------------- --------------------- --------------------- ------------------- -----------------
Charge for the year - 12 28 40
Foreign exchange difference - (38) (95) (133)
---------------------------- --------------------- --------------------- ------------------- -----------------
Depreciation at 31
December 2015 47 52 159 258
---------------------------- --------------------- --------------------- ------------------- -----------------
Net book value at:
---------------------------- --------------------- --------------------- ------------------- -----------------
31 December 2014 - 57 298 355
---------------------------- --------------------- --------------------- ------------------- -----------------
31 December 2015 - 52 143 195
---------------------------- --------------------- --------------------- ------------------- -----------------
13 Investments (Company)
Investments Company
$'000
---------------------- -------
Cost
At 1 January 2014 124,775
Additions -
Disposals -
---------------------- -------
At 31 December 2014 124,775
----------------------- -------
Additions -
Disposals -
---------------------- -------
At 31 December 2015 124,775
----------------------- -------
Impairment
At 1 January 2014 64,253
Impairment -
At 31 December 2014 64,253
----------------------- -------
Impairment -
At 31 December 2015 64,253
----------------------- -------
Net book value at:
---------------------- -------
31 December 2014 60,522
31 December 2015 60,522
----------------------- -------
Direct investments
Name of undertaking Country Effective Effective Nature
of incorporation holding holding of business
and and
proportion proportion
of voting of voting
rights rights
held held
at 31 December at 31 December
2015 2014
---------------------------- ------------------ --------------- --------------- ------------
Eragon Petroleum United Holding
Limited Kingdom 59% 59% Company
Eragon Petroleum Management
FZE Dubai 100% - Company
Holding
Beibars BV Netherlands 100% 100% Company
Holding
Ravninnoe BV Netherlands 100% 100% Company
Roxi Petroleum Kazakhstan Management
LLP Kazakhstan 100% 100% Company
Indirect investments held by Eragon Petroleum Limited
Name of undertaking Country Effective Effective Nature
of incorporation holding holding of business
and and
proportion proportion
of voting of voting
rights rights
held held
at 31 December at 31 December
2015 2014
---------------------- ------------------ --------------- --------------- ------------
Holding
Galaz Energy BV Netherlands 100% 100% Company
Holding
BNG Energy BV Netherlands 100% 100% Company
Galaz and Company Exploration
LLP* Kazakhstan 0% 58% Company
Exploration
BNG Ltd LLP Kazakhstan 99% 99% Company
Munaily Kazakhstan Exploration
LLP Kazakhstan 99% 99% Company
*Interest at Galaz and Company LLP has been sold during 2015
(note 14).
Indirect investments held by Beibars BV
Effective Effective
holding holding
and and
proportion proportion
of voting of voting
rights rights
held held
Country at 31 December at 31 December Nature
Name of undertaking of incorporation 2015 2014 of business
-------------------- ------------------ --------------- --------------- ------------
Exploration
Beibars Munai LLP Kazakhstan 50% 50% Company
Beibars Munai LLP is a subsidiary as the Group is considered to
have control over the financial and operating policies of this
entity. Its results have been consolidated within the Group.
14. Discontinued operation in equity accounted joint venture
The Company changed its accounting policy on joint ventures from
1 January 2014 following the introduction of IFRS 11 Joint
arrangements which applies to the current year. The joint venture
agreements and structures for Galaz and Company LLP provide the
Company with interests in the net assets of Joint venture, rather
than interests in its underlying assets and obligations.
Accordingly, under IFRS 11, the group's share of joint venture have
been accounted for using the equity method rather than
proportionately consolidated, from the beginning of the earliest
period presented.
On 10 February 2015 Galaz Energy BV entered into a SPA with
Netherlands Sinian Investment BV ("SI BV") for the sale of its
residual 58% interest in Galaz and Company LLP, resulting in a
profit on disposal of $18.7million as disclosed in Note 18. The
transaction was finalized on 20 May, 2015.
Set out below is the summarised financial information for Galaz
and Company LLP which was accounted for using the equity method up
to 20 May, 2015 (amounts stated at 58% that represent Group's
interest in Galaz and Company LLP).
Year ended Year ended
31 December 31 December
2015 2014
---------------------------------- ------------- -------------
Non-current assets - 46,192
---------------------------------- ------------- -------------
Current assets - 175
---------------------------------- ------------- -------------
Total assets - 46,367
---------------------------------- ------------- -------------
Non-current liabilities - (28,514)
---------------------------------- ------------- -------------
Current liabilities - (9,981)
---------------------------------- ------------- -------------
Total liabilities - (38,495)
---------------------------------- ------------- -------------
Equity attributable to owners of
the parent - 4,644
---------------------------------- ------------- -------------
Non-controlling interests - 3,228
---------------------------------- ------------- -------------
Expenses (914) (5,626)
---------------------------------- ------------- -------------
Loss after tax (914) (5,626)
---------------------------------- ------------- -------------
Reconciliation of the summarized financial information presented
to the carrying amount of the group's interest in the Galaz and
Company LLP joint venture:
Year ended Year ended
31 December 31 December
2015 2014
---------------------------------- ------------- -------------
Opening net assets 7,872 16,197
---------------------------------- ------------- -------------
Loss for the period (914) (5,626)
---------------------------------- ------------- -------------
Other comprehensive loss 289 (2,699)
---------------------------------- ------------- -------------
Closing net assets (7,247) 7,872
---------------------------------- ------------- -------------
Carrying value - 7,872
---------------------------------- ------------- -------------
Total comprehensive loss for the
year attributable to owners of
the parent - (4,912)
---------------------------------- ------------- -------------
Total comprehensive loss for the
year attributable to NCI (369) (3,413)
---------------------------------- ------------- -------------
Total comprehensive loss for the
year (256) (8,325)
---------------------------------- ------------- -------------
15 Inventories
Group Group
2015 2014
$'000 $'000
------------------------- ----- -----
Materials and supplies 12 1,247
------------------------- ----- -----
12 1,247
------------------------- ----- -----
Materials and supplies are principally comprised of concrete
slabs, goods and some tubing to be used in the exploration and
development of the Group's oil and gas properties in Kazakhstan.
All amounts are held at the lower of cost and net realisable
value.
During the year ended December 31, 2015 the Group wrote off
US$27 thousand (2014: US$46 thousand) of materials to its
Consolidated Statement of Profit and Loss.
16 Other receivables
Group Group Company Company
2015 2014 2015 2014
$ '000 $ '000 $ '000 $'000
------------------------------ ------ ------ ------- -------
Amounts falling due
after one year:
Advances paid 5,479 3,066 - -
VAT receivable 3,040 4,524 50 31
Loan provided to Baverstock 2,919 2,704 - -
Receivable from Baverstock
due to royalty settlement 3,202 - 3,202 -
Intercompany receivables - - 114,632 121,223
14,640 10,294 117,884 121,254
------------------------------ ------ ------ ------- -------
Amounts falling due
within one year:
Amounts due from joint
venture - 11,239 - -
Advances paid 87 222 2 22
Receivable under SPA 1,827 - - -
Other receivables 182 193 - 100
------------------------------ ------ ------ ------- -------
2,096 11,654 2 122
------------------------------ ------ ------ ------- -------
VAT receivable relates to purchases made by operating companies
in Kazakhstan and will be recovered after the commencement of oil
production and its export from Kazakhstan.
Loan provided to Baverstock relates to the US$10,000,000
facility provided by Galaz Energy BV to Baverstock exclusively for
the repayment of Kuat Oraziman's loan received in July 2007 (note
28.1 (a)). The total amount outstanding at the reporting date was
US$5,406,000 (2014: 5,406,000) which represent US$5,000,000 of
principal and accrued interest. The loan is interest free and is
repayable from future dividends receivable by Baverstock. The
carrying value of the receivable has been adjusted to reflect the
present value of the estimated cash flows discounted at 8%.
On July 24, 2015 the Company entered into an agreement with
Canamens Limited and Sector Spesit IV to cancel future royalty
payments due to them from production from Company's BNG asset in
return for the issue of 46,661,654 fully paid Company's ordinary
shares. That resulted to the revaluation and the cancellation of
the derivative financial liability in the amount of US$2.2 million
and US$4.6 million respectively, and recognition of the receivable
from Baverstock in the amount of $3.2 million related to the
Baverstock portion of the Company's royalty obligation.
Intercompany receivables are shown net of provisions of US$26.6
million (2014: US$25.1 million), and bear interest rates between
LIBOR + 2% and LIBOR + 7%.
At 31 December of 2014 amounts due from the joint venture relate
to Galaz and Company LLP and bear interest rate LIBOR+2%.
17 Cash and cash equivalents
Group Group Company Company
2015 2014 2015 2014
$'000 $'000 $'000 $'000
------------------------- ------- ------ ------- -------
Cash at bank and in
hand 10,462 605 25 18
------------------------- ------- ------ ------- -------
Funds are held in US Dollars, Sterling, Euros,
Kazakh Tenge and other foreign currency accounts
to enable the Group to trade and settle its debts
in the currency in which they occur and in order
to mitigate the Group's exposure to short-term
foreign exchange fluctuations. All cash is held
in floating rate accounts.
Group Group Company Company
2015 2014 2015 2014
Denomination $'000 $'000 $'000 $'000
------------------------- ------- ------ ------- -------
US Dollar 10,415 588 22 18
Sterling 3 - 3 -
Kazakh Tenge 44 17 - -
10,462 605 25 18
------------------------- ------- ------ ------- -------
18 Galaz disposal
On 10 February, 2015 Galaz Energy BV entered into a SPA with
Netherlands Sinian Investment BV (part of consortium led by
Xinjiang Zhundong Petroleum Technology Co., a Company listed on the
Shenzhen Stock Exchange in China) for the sale of its 58% of the
equity in Galaz and Company LLP for US$29.2 million.
This transaction completed on 20 May, 2015. Consequently as a
result of the transaction Roxi lost its share in Galaz and Company
LLP.
Up to the date of disposal, Galaz and Company LLP was treated as
an investment in equity accounted joint venture.
The gain on disposal of Galaz and Company LLP was determined as
follows:
At date
of
disposal
$'000
Total consideration under SPA 29,232
Adjustment for net working capital
position at the date of disposal (966)
Total consideration after adjustment
for net working capital position 28,266
----------------------------------------------- ------------------------------------------
Net assets disposed (7,247)
Less release of cumulative
translation reserve1 (2,361)
Gain on disposal recognised in the income
statement 18,658
--------------------------------------------------- ------------------------------------------
Net cash inflow2 22,908
---------------------------------------------- ----------------------------------------------
1- the US$2.4 million release of cumulative translation reserves
arose from the disposal of the Company's 34.22% net interest in
Galaz and Company LLP to SI BV. This represents the previously
capitalised translation losses attributed to the interest sold, now
written off during 2015.
2- of the net US$28,266,000 purchase consideration US$3,531,000
was withheld by SI BV in order to pay withholding tax on the
capital gain that arose in Galaz Energy BV. Purchase consideration
in the amount of US$22,908,000 was received during 2014 and 2015.
The residual part of purchase consideration net of capital gain tax
in the amount of US$1,827,000 is expected to be received by end of
2016. This amount is presented in other receivables line of
Consolidated Statement of Financial Position.
19 Called up share capital
Group and Company
Number Number
of ordinary of deferred
shares $'000 shares $'000
-------------------------- ------------ ------ ------------ ------
Balance at 1 January
2014 778,880,013 13,475 373,317,105 64,702
Share issue in exchange
of cash provided by
a shareholder 72,898,543 1,174 - -
Share options exercised 2,700,000 45 - -
Borrowings converted
to equity (note 21) 3,955,438 67 - -
Balance at 31 December
2014 858,433,994 14,761 373,317,105 64,702
Share issue in exchange
of cash provided by
a shareholder 25,137,429 405 - -
Share options exercised 5,712,500 87 - -
Liability converted
to equity (note 16) 46,661,654 726 - -
-------------------------- ------------ ------ ------------ ------
Balance at 31 December
2015 935,945,577 15,979 - -
-------------------------- ------------ ------ ------------ ------
US$3,000,000 was provided during 2015 by Mr. Kairat Satylganov
according to the US$40million funding agreement (2014: $3,700,000).
As at 31 December 2015 the Company issued total 244,670,973
ordinary shares in favour of Mr. Satylganov in exchange of
US$29,200,000 funding.
20 Trade and other payables - current
Group Group Company Company
2015 2014 2015 2014
$'000 $'000 $'000 $'000
---------------------------------- ----- ------ ------- -------
Trade payables 372 951 212 218
Taxation and social security 2,225 2,237 34 24
Accruals 212 347 180 173
Other payables 1,995 1,968 15 10
Purchase consideration received
in advance (note 18) - 1,000 - 1,000
Intercompany payables - - - 4,134
Advances received 165 5,368 - -
CIT payable 763 562 763 562
---------------------------------- ----- ------ ------- -------
5,732 12,433 1,204 6,121
---------------------------------- ----- ------ ------- -------
Trade and other payables - non-current
Group Group Company Company
2015 2014 2015 2014
$'000 $'000 $'000 $'000
------------------------ ----- ----- ------- -------
Intercompany payables - - 39,234 46,163
Taxation and social
security 8,297 6,992 - -
------------------------ ----- ----- ------- -------
8,297 6,992 39,234 46,163
------------------------ ----- ----- ------- -------
21 Short-term borrowings
Group Group Company Company
2015 2014 2015 2014
$'000 $'000 $'000 $'000
------------------- ----- ----- ------- -------
Other borrowings 308 804 - -
------------------- ----- ----- ------- -------
308 804 - -
------------------- ----- ----- ------- -------
Short-term loans provided by Kazakhstan based individuals and
are repayable on demand. US$308,000 (2014: US$804,000) was provided
by local individuals during 2007-2012 in the form of financial aid
to Kazakhstan based entities for their work programs execution. The
Company agreed with the individuals the loans are repayable in
future once the Group companies reach free cash flows from oil
sales. Of the total amount borrowed by the Group at 31 December
2015 US$140,000 (2014: US$490,000) was payable to Kuat Oraziman
(note 28.1 (c)).
22 Provisions
Group only Employee Liabilities Abandonment 2014
holiday under fund Total
provision Social $'000
Development
Program
------------------------ ----------- ------------- ------------ --------
Balance at 1 January
2014 130 4,343 317 4,790
Increase in provision 45 582 (47) 580
Paid in year - (376) - (376)
Unwinding of discount - 118 12 130
Foreign exchange
difference (21) (685) (51) (757)
------------------------ ----------- ------------- ------------ --------
Balance at 31 December
2014 154 3,982 231 4,367
------------------------ ----------- ------------- ------------ --------
Non-current provisions - 709 104 813
Current provisions 154 3,273 127 3,554
------------------------ ----------- ------------- ------------ --------
Balance at 31 December
2014 154 3,982 231 4,367
------------------------ ----------- ------------- ------------ --------
Group only Employee Liabilities Abandonment 2015
holiday under fund Total
provision Social $'000
Development
Program
------------------------ ----------- ------------- ------------ --------
Balance at 1 January
2014 154 3,982 231 4,367
Increase/(decrease)
in provision (21) 1,121 9 1,109
Paid in year - (693) - (693)
Unwinding of discount - 112 6 118
Foreign exchange
difference (71) (987) (106) (1,164)
------------------------ ----------- ------------- ------------ --------
Balance at 31 December
2015 62 3,535 140 3,737
------------------------ ----------- ------------- ------------ --------
Non-current provisions - 640 140 780
Current provisions 62 2,895 - 2,957
------------------------ ----------- ------------- ------------ --------
Balance at 31 December
2015 62 3,535 140 3,737
------------------------ ----------- ------------- ------------ --------
Liabilities and commitments in relation to Subsoil Use Contracts
are disclosed below:
a) Beibars Munai LLP
During 2007 Beibars Munai LLP, a subsidiary undertaking, and the
Ministry of Energy and Mineral Resources of the Republic of
Kazakhstan signed a Contract for oil exploration within the block
XXXVII-10 in Mangistauskaya oblast (Contract #2287). The contract
term expired in January 2012 and the Group has applied to the
Ministry of Oil and Gas for the extension of the Beibars
exploration license, given the force majeure situation. The
situation did not change as of December 31, 2015.
In accordance with the terms of the contract Beibars Munai LLP
committed to the following:
-- Investing not less that 5% of annual capital expenditures on
exploration during the exploration period in professional training
of Kazakhstani personnel engaged in work under the contract;
-- Investing US$1,000,000* to the development of Astana City
during the second year of the contact term;
-- Investing US$1,000,000* in equal tranches over the
exploration period in the social development in the region; and
-- Transferring, on an annual basis, 1% of exploration
expenditures to a liquidation fund through a special deposit
account in a bank located within the Republic of Kazakhstan.
Beibars Munai LLP did not fulfil its obligations under the
social program in 2015 and 2014 due to force-majeure circumstances
(see note 11).
* Unpaid amounts in respect of the above social obligations are
included within liabilities of social programs above.
b) Munaily Kazakhstan LLP
MunailyKazakhstan LLP, a subsidiary, signed a contract # 1646
dated 31 January 2005 with the Ministry of Energy and Mineral
Resources of RK (now the Ministry of Oil and Gas (MOG) for the
exploration and extraction of hydrocarbons on Munaily deposit
located in the Atyrau region.
The contract is valid for 25 years. On 13 July 2011 Munaily
Kazakhstan LLP and a competent authority signed Addendum No. 5 to
the Subsoil Use Contract (SSUC), which stipulates the oil
production period to be 15 years to 2025 and approves the minimum
work program for the production period.
In accordance with the terms of the contract and addendums
Munaily Kazakhstan LLP remains committed to the following:
-- Social development of Atyrau region - US$600,000* over the period of the contract;
-- To allocate US$400,000* to the Astana city development program;
-- Professional education of engaged Kazakhstan personnel - not
less than 1% of total investments;
-- Transferring, on an annual basis, 1% of production
expenditures to a liquidation fund through a special deposit
account in a bank located within the Republic of Kazakhstan;
and
-- To fund the minimum work program during the 15 year production period of US$29,271,756;
-- Once the production stage begins, to pay the remaining part
of historical costs of US$1,579,770 within 10 years in equal
quarterly instalments.
*Unpaid amounts in respect of the above social obligations are
included within liabilities for social programs above.
c) BNG Ltd LLP
BNG Ltd LLP a subsidiary, signed a contract #2392 dated 7 June,
2007 with the Ministry of Energy and Mineral Resources of RK for
exploration at Airshagyl deposit, located in Mangistau region.
Under addendum No.1 dated 17 April 2008, the Contract Area was
increased. The contract was valid for 4 years and expired on 7
June, 2011. Addendum No. 6 to the Subsoil Use Contract for
extension of exploration period up to June 2013 was obtained on 13
July 2011. On 16 July 2013 BNG Ltd LLP signed Addendum No. 7
extending the exploration period for two consecutive years until
June 2015. On 22 June 2015 BNG Ltd LLP signed Addendum No. 9
extending the exploration period for three consecutive years until
June 2018. On 24 December 2015 BNG Ltd LLP signed Addendum No.10
according to which the geological territory was extended by 140.6
sq kilometres.
In accordance with the terms of the contract and addendums, BNG
Ltd LLP remains committed to the following:
-- For the three-year extension period up to 2018 US$700,000 per
annum should be invested in the social development of the
region;
-- To fund minimum work program during the extended exploration period of US$16,540,000
-- Investing not less than 1% of total investments in
professional training of Kazakhstani personnel engaged in work
under the contract; and
-- Transferring, on an annual basis, 1% of exploration
expenditures to a liquidation fund through a special deposit
account in a bank located within the Republic of Kazakhstan.
BNG Ltd LLP is in full compliance with licence terms and expects
to fulfil 100% its minimum work program until June 2018.
23 Borrowings
Group Group Company Company
2015 2014 2015 2014
$'000 $'000 $'000 $'000
----------------------- ----- ------ ------- -------
Loan from Vertom (a) 9,903 9,075 9,903 9,075
Interest free loan
from Kuat Oraziman
(b) - 1,428 - -
----------------------- ----- ------ ------- -------
9,903 10,503 9,903 9,075
----------------------- ----- ------ ------- -------
(a) On 29 September 2011 the Company entered into the loan
facility with Vertom International NV ("Vertom") whereby Vertom
agreed to lend up to US$5 million to the Company with an associated
interest of 12% per annum. The Company has offered Vertom security
over its investments in its operating assets in respect to this
loan facility. On 30 April 2012 the Group extended the term of the
loan facility arrangement with Vertom for further two years to 30
April 2014 and at the same time increased the facility amount to
US$7 million. On 28 June 2013 the term of the loan facility was
extended until 30 April 2016. On 26 June 2015 the term of the loan
facility was extended until 30 April 2018. The loan extension
represents a substantial modification of the terms of the existing
financial liability and has been accounted for as an extinguishment
of the original financial liability and recognition of a new
financial liability.
(b) At 31 December 2014 the principal amount of US$1,428,000
represents an interest free loan from Mr Kuat Oraziman that is
repayable on 27 June 2017(note 28.1 (c)). The loan was repaid to
Kuat Oraziman during 2015.
24 Deferred tax
Deferred tax liabilities comprise:
Group Group
2015 2014
----------------------------------
$'000 $'000
---------------------------------- ----- ------
Deferred tax on exploration
and evaluation assets acquired 7,485 11,164
----------------------------------- ----- ------
7,485 11,164
---------------------------------- ----- ------
The Group recognises deferred taxation on fair value uplifts to
its oil and gas projects arising on acquisition. These liabilities
reverse as the fair value uplifts are depleted or impaired.
The movement on deferred tax liabilities was as follows:
Group Group
2015 2014
$'000 $'000
------------------------------------- ------- -------
At beginning of the year 11,164 7,415
Deferred tax related to impairment
reversal (note 9) - 5,000
Foreign exchange (3,679) (1,251)
7,485 11,164
------------------------------------- ------- -------
As at 31 December 2015 the Group has accumulated deductible tax
expenditure related to its Kazakhstan assets of approximately
US$106 million (2014: US$150 million) available to carry forward
and offset against future profits. This represents an unrecognised
deferred tax asset of approximately US$21 million (2014: US$30
million).
25 Share option scheme
During the year the Company had in issue equity-settled
share-based instruments to its Directors and certain employees.
Equity-settled share-based instruments have been measured at fair
value at the date of grant and are expensed on a straight-line
basis over the vesting period, based on an estimate of the shares
that will eventually vest. Options generally vest in four equal
tranches over the two years following the grant.
The options were issued to Directors and employees as
follows:
Number Number Options Total options Weighted
of options of options exercised outstanding average exercise
granted expired price in
pence (p)
per share
As at 31 December
2014 85,708,226 (30,686,964) (2,700,000) 52,321,262 18
-------------------- ----------- ------------ ----------- ------------- -----------------
Directors - - - - -
Employees and
others - (2,420,670) (5,712,500) (8,133,170) -
-------------------- ----------- ------------ ----------- ------------- -----------------
As at 31 December
2015 85,708,226 (33,107,634) (8,412,500) 44,188,092 19
-------------------- ----------- ------------ ----------- ------------- -----------------
Options issued during 2014 will be vested in three years.
31,988,092 outstanding options as at 31 December 2015 are
exercisable.
The range of exercise prices of share options outstanding at the
year end is 4p - 65p (2014: 4p - 65p). The weighted average
remaining contractual life of share options outstanding at the end
of the year is 5.5 years (2014: 6 years).
26 Derivative financial liability
The derivative financial liabilities at the Group's and the
Company's Statements of Financial Position as at 31 December 2014
are represented by the carrying value of royalty payable to
Canamens from future oil revenues of US$6,790,000.
During 2009 the Company entered into a sale and purchase
agreement to dispose of 35% of its interest in BNG Ltd LLP to
Canamens BNG BV ("Canamens"). The deal subsequently was terminated
and on 10 May 2011, the Group received back its 35% interest in BNG
Ltd LLP from Canamens. In return for the reassignment of the loans
Roxi Petroleum Plc agreed to pay Canamens a royalty equivalent to
1.5% of the future gross revenues generated from the BNG operating
asset. The fair value of the royalty payable at 31 December 2014
comprised US$6.7 million.
On July 24, 2015 the Company entered into an agreement with
Canamens Limited and Sector Spesit IV to cancel future royalty
payments due That resulted to the revaluation and the cancellation
of the derivative financial liability in the amount of US$2.2
million and US$4.6 million respectively, and recognition of the
receivable from Baverstock in the amount of $3.2 million related to
the Baverstock portion of the Company's royalty obligation (note
16).
The Company has 7.5 million warrants valid until 21 May 2017
that are recognized in Consolidated and Parent Company Statements
of Changes in Equity.
Total number of warrants that remained outstanding at the
yearend was 7,500,000 (2014: 7,500,000). They were accounted in
other reserves in the Parent and Consolidated Statement of Changes
in Equity.
27 Financial instrument risk exposure and management
In common with all other businesses, the Group and Company are
exposed to risks that arise from its use of financial instruments.
This note describes the Group and Company's objectives, policies
and processes for managing those risks and the methods used to
measure them. Further quantitative information in respect of these
risks is presented throughout these financial statements.
The significant accounting policies regarding financial
instruments are disclosed in note 1.
There have been no substantive changes in the Group or Company's
exposure to financial instrument risks, its objectives, policies
and processes for managing those risks or the methods used to
measure them from previous years unless otherwise stated in this
note.
Principal financial instruments
The principle financial instruments used by the Group and
Company, from which financial instrument risk arises, are as
follows:
Financial assets Group Group Company Company
2015 2014 2015 2014
$'000 $'000 $'000 $'000
--------------------------------- ------- ------- -------- --------
Intercompany receivables - - 114,632 114,342
Amounts due from joint venture - 11,239 - 6,881
Other receivables- current 2,009 193 - 100
Other receivables - non-current 6,392 3,026 3,202 -
Cash and cash equivalents 10,462 605 25 18
--------------------------------- ------- ------- -------- --------
18,863 15,063 117,859 121,341
--------------------------------- ------- ------- -------- --------
Financial liabilities Group Group Company Company
2015 2014 2015 2014
$'000 $'000 $'000 $'000
--------------------------------- ------- ------- -------- --------
Trade and other payables 2,579 3,266 407 4,535
Other payables - non-current - 6,790 39,234 52,953
Borrowings - current 308 804 - -
Borrowings - non-current 9,903 10,503 9,903 9,075
--------------------------------- ------- ------- -------- --------
12,790 21,363 49,544 66,563
--------------------------------- ------- ------- -------- --------
As at 31 December 2015 the carrying value of financial
liabilities measured at fair value through profit and loss for the
Group and Company was US$ nil (2014: Group and Company
US$6,790,000).
Fair value of financial assets and liabilities
At 31 December 2015 and 2014, the fair value and the book value
of the Group and Company's liabilities were as follows:
Group and Company
Fair value measurements at 31 December 2015
-------------------------- -------------------------------------------------
Level 1 Level 2 Level 3
$000 $000 $000
-------------------------- --------------- --------------- ---------------
Financial Liability - - -
Future profit oil royalty - - -
-------------------------- --------------- --------------- ---------------
Group and Company
Fair value measurements
at 31 December 2014
-----------------------------------------------
Level Level Level
1 2 3
$000 $000 $000
--------------------------- --------------------------- --------- -------
Financial Liability - - 6,790
Future profit oil royalty - - 6,790
The derivative financial asset is measured on initial
recognition and subsequently at fair value by reference to the
probability of various outcomes and categorised as level 3
measurement:
-- Level 1 fair value measurements are those derived from quoted
prices (unadjusted) in active markets for identical assets or
liabilities.
-- Level 2 fair value measurements are those derived from 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).
-- Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
The fair values of the financial liabilities are included at the
amount at which the instrument could be exchanged in a current
transaction between willing parties, other than in a forced or
liquidation sale.
The fair value of the future profit oil royalty payable to
Canamens as at 31 December 2014 was calculated using discounted
cash flows expected from future production at BNG field during 20
years starting 2015. The discount rate used in calculations of 8%
was approximately equal to the cost of debt for BNG LLP Ltd.
During 2015 and 2014 the movement in Group and Company's
financial liabilities was as follows:
Financial Liability 2015 2014
$'000 $'000
------------------------------------- -------- -------
Balance at the beginning of the
year 6,790 5,248
Change in value taken to the Profit
or Loss (2,183) 1,542
Settled during the year (4,607) -
Balance at 31 December - 6,790
------------------------------------- -------- -------
Principal financial instruments
The principal financial instruments used by the Group and
Company, from which financial instrument risk arises, are as
follows:
-- other receivables
-- cash at bank
-- trade and other payables
-- borrowings
-- derivative financial liability
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group and Company's risk management objectives and policies
and, whilst retaining ultimate responsibility for them, it has
delegated the authority for designing and operating processes that
ensure the effective implementation of the objectives and policies
to the Group and Company's finance function. The Board receives
regular reports from the finance function through which it reviews
the effectiveness of the processes put in place and the
appropriateness of the objectives and policies it sets.
The overall objective of the Board is to set policies that seek
to reduce risk as far as possible without unduly affecting the
Group and Company's competitiveness and flexibility. Further
details regarding these policies are set out below:
Credit risk
Credit risk arises principally from the Group's other
receivables. It is the risk that the counterparty fails to
discharge its obligation in respect of the instrument. The maximum
exposure to credit risk equals the carrying value of these items in
the financial statements.
When commercial exploitation commences sales will only be made
to customers with appropriate credit rating. Sales during test
production are made on prepayment base thereby eliminating credit
risk.
Credit risk with cash and cash equivalents is reduced by placing
funds with banks with high credit ratings.
Capital
The Company and Group define capital as share capital, share
premium, deferred shares, shares to be issued, capital contribution
reserve, other reserves, retained earnings and borrowings. In
managing its capital, the Group's primary objective is to provide a
return for its equity shareholders through capital growth. Going
forward the Group will seek to maintain a gearing ratio that
balances risks and returns at an acceptable level and also to
maintain a sufficient funding base to enable the Group to meet its
working capital and strategic investment needs. In making decisions
to adjust its capital structure to achieve these aims, either
through new share issues or the issue of debt, the Group considers
not only its short-term position but also its long-term operational
and strategic objectives.
The Group's gearing ratio as at 31 December 2015 was 21%
(2014:12%).
There has been no other significant changes to the Group's
Management objectives, policies and processes in the year.
Liquidity risk
Liquidity risk arises from the Group and Company's Management of
working capital and the amount of funding committed to its
exploration programme. It is the risk that the Group or Company
will encounter difficulty in meeting its financial obligations as
they fall due.
The Group and Company's policy is to ensure that it will always
have sufficient cash to allow it to meet its liabilities when they
become due. To achieve this aim, it seeks to raise funding through
equity finance, debt finance and farm-outs sufficient to meet the
next phase of exploration and where relevant development
expenditure.
The Board receives cash flow projections on a periodic basis as
well as information regarding cash balances. The Board will not
commit to material expenditure in respect of its ongoing
exploration programmes prior to being satisfied that sufficient
funding is available to the Group to finance the planned
programmes.
For maturity dates of financial liabilities as at 31 December
2015 and 2014 see table below:
On Demand Less than 3 months 3-12 months 1- 5 years Over 5 years Total
-------------------- ---------- ------------------- ------------ ----------- ------------- -------
Group 2015 $'000 308 2,579 - 14,103 - 16,990
Group 2014 $'000 804 3,266 - 11,570 12,232 27,872
Company 2015 $'000 - 392 - 14,103 58,066 72,561
Company 2014 $'000 - 400 - 10,142 67,419 77,961
-------------------- ---------- ------------------- ------------ ----------- ------------- -------
Interest rate risk
The majority of the Group's borrowings are at fixed rate. As a
result the Group is not exposed to the significant interest rate
risk.
Currency risk
The Group and Company's policy is, where possible, to allow
group entities to settle liabilities denominated in their
functional currency (primarily US Dollar and Kazakh Tenge) in that
currency. Where the Group or Company entities have liabilities
denominated in a currency other than their functional currency (and
have insufficient reserves of that currency to settle them) cash
already denominated in that currency will, where possible, be
transferred from elsewhere within the Group.
In order to monitor the continuing effectiveness of this policy,
the Board receives a periodic forecast, analysed by the major
currencies held by the Group and Company.
The Group and Company is primarily exposed to currency risk on
purchases made from suppliers in Kazakhstan, as it is not possible
for the Group or Company to transact in Kazakh Tenge outside of
Kazakhstan. The finance team carefully monitors movements in the US
Dollar/Kazakh Tenge rate and chooses the most beneficial times for
transferring monies to its subsidiaries, whilst ensuring that they
have sufficient funds to continue its operations. The currency risk
relating to Tenge is insignificant.
In case Kazakhstani Tenge will devalue against US Dollar by 60%
the Group will have foreign exchange loss in the amount of US$45
million that will be reflected in the Statement of Comprehensive
Income/Loss.
28 Related party transactions
The Company has no ultimate controlling party.
28.1 Loan agreements
a) Loan to Baverstock
In August 2010 Galaz Energy BV has provided Baverstock GmbH
(holds 41% interest in Eragon) with a loan facility of up to
US$10,000,000 at LIBOR +7%. The amounts borrowed under this loan
agreement should be used exclusively for repayment of Kuat
Oraziman's US$10,000,000 loan received in July 2007. The facility
is to be repaid by paying back future dividends receivable by
Baverstock from Eragon. In December 2010 the first tranche of
US$5,000,000 under the facility agreement was transferred to Kuat
Oraziman directly by Galaz Energy BV to be repaid by
Baverstock.
b) Receivable from Baverstock due to royalty
On July 24, 2015 the Company entered into an agreement with
Canamens Limited and Sector Spesit IV to cancel future royalty
payments due to them from production from Company's BNG asset in
return for the issue of 46,661,654 fully paid Company's ordinary
shares. That resulted to cancellation of the derivative financial
liability in the amount of US$6.8 million and recognition of the
receivable from Baverstock in the amount of $3.2 million related to
the Baverstock portion of the Company's royalty obligation (note
16).
c) Other loans from Kuat Oraziman
The Company had other loans outstanding as at 31 December, 2015
and 2014 with Kuat Oraziman, details of which have been summarised
in notes 21 and 23.
d) Vertom
During the year ended 31 December, 2011 the Company entered into
two loan facilities with Vertom International NV, details of which
have been summarised in note 23. The loan payable at 31 December
2015 was US$9,903,000 (2014: US$9,075,000). No cash was called
during 2015 under the loan agreement. A director of the Company
Kuat Oraziman is a director of and holds [100%] of the issued share
capital of both Vertom International N.V. ("Vertom") and Vertom
International BV.
28.2 Key management remuneration
Key management comprises the Directors and details of their
remuneration are set out in note 6.
28.3 Purchases
During 2015 the Group purchased drilling services from the
related party STK Geo LLP, the company registered in Kazakhstan,
which is owned by the member of Kuat Oraziman's family, in the
amount of US$4.8 million (2014: US$4.9 million). These expenses
were capitalized to unproven oil and gas assets. As at year end the
Group has advances paid in the amount of US$4.9 million (2014:
US$2.4 million) and trade receivables in the amount of US$67,900
(2014: US$120,500) in relation to these drilling services.
29 Events after the reporting period
29.1 Options exercised
From January till May 2016 the Company's former employee
exercised 1,487,500 share options at an exercise price of 4p.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UUAURNAANRUR
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