TIDMCASP
RNS Number : 2642F
Caspian Sunrise plc
07 July 2023
Caspian Sunrise PLC
("Caspian Sunrise" or the "Company")
Annual Report and Financial Statements for the Year Ended 31
December 2022
Caspian Sunrise, 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 2022. The Company confirms
that the suspension of the Company's shares will be lifted at
7:30am on 07 July 2023.
Highlights for the year:
Operational:
-- Aggregate production for 2022 was 792,284 barrels (2021:
533,857) an increase of approximately 48%
-- Reserves at 31 December 2022 P1 14.3 mmbls & P2 25.5
mmbls (2020: P1 15.1 mmbls & P2 26.3 mmbls)
Financial:
-- Revenue: up 72% at $42.9 million (2021: $25 million)
-- Profit after tax for the year $9.9 million (2021: Loss after tax for the year $5.5 million)
-- Cash at bank: $3.7 million (2021: $0.4 million)
-- Total assets: $117.1 million (2021: $114.2 million)
-- Exploration assets $43.8 million (2021: $46.1 million)
-- Plant, property & equipment $60.7 million (2021: $57.1 million)
The Company intends to hold a General Meeting in the near future
to approve the Annual Report. The Report and Accounts will shortly
be posted to shareholders and is available from the Company's
website at https://www.caspiansunrise.com/investors/reports
Caspian Sunrise PLC
Clive Carver +7 727 375 0202
Executive Chairman
WH Ireland, Nominated Advisor
& Broker
James Joyce +44 (0) 207 220 1666
James Bavister
Andrew de Andrade
The information contained within this announcement is deemed to
constitute inside information as stipulated under the retained EU
law version of the Market Abuse Regulation (EU) No. 596/2014 (the
"UK MAR") which is part of UK law by virtue of the European Union
(Withdrawal) Act 2018. The information is disclosed in accordance
with the Company's obligations under Article 17 of the UK MAR. Upon
the publication of this announcement, this inside information is
now considered to be in the public domain.
CHAIRMAN'S STATEMENT
Introduction
Despite the on-going impact of the war in Ukraine, which has
made export sales uneconomic and operating far more difficult, the
Group continues to prosper.
In the year under review we
-- reported record sales at $42.9 million, record gross profit
of $32.3 million and record profit before tax of $12.3 million
-- produced 792,284 barrels of oil, an increase of 48% on 2021
-- took an option to acquire Block 8, a Contract Area with
similar promise to the BNG Contract Area
-- converted $6.2 million debt to equity
-- cancelled the share premium and deferred shares enabling the payment of dividends
-- made the first of a series of dividend declarations
To date in 2023
-- we announced Deep Well 802 flowed at the rate of 700- 900
bopd whilst we were still working to complete the well
-- we signed the first drilling contract for the Caspian Explorer
-- we announced the conditional sale of 50% of the Caspian
Explorer for $22.5 million, an estimated profit of $20 million
-- production is currently approximately 2,000 bopd
Ukraine war
The two principal consequences of the Ukraine war have been to
make international sales uneconomic and make operating far more
difficult.
Urals oil discount
Despite the UK and the EU specifically exempting oil produced in
Kazakhstan and transported through the Russian pipeline network
from sanctions the large discounts for oil using the Russian
pipeline network and emerging as Urals Oil at the start of the war
continue with no signs of lessening.
We have explored various alternatives to transport our oil but
have yet to find a solution that would allow us to sell at or close
to international prices. We are therefore selling all our oil on
the domestic market and at domestic prices.
Selling to the domestic market and to domestic mini refineries
does have advantages, such as speed of payment and the absence of
significant deductions for tax, oil treatment and transportation.
Nevertheless, we estimate the loss of revenue to be running at an
annualised rate of approximately $18 million based on recent
production volumes.
For much of the period under review and subsequently our
inability to sell on the international markets also led to missed
profits. However, the recent fall in international oil prices means
we are currently achieving broadly the same net outcome by selling
to local mini refineries where the deductions to the headline price
are much lower.
Operations
Before the Ukraine war the majority of international supplies
and consumables were sourced via Russia. Now they typically come
from China, a vast country whose border with Kazakhstan is some
3,000 kilometers from the BNG Contract Area and where originating
destination is usually far further. The extra distance involved and
the complexities of this new supply route with long delays at the
border has typically resulted in much greater lead times for key
supplies and consumables resulting in some significant operational
delays. It has also required a much greater investment in working
capital as the supplies and consumables have to be paid for many
months earlier than previously.
Drilling at certain key wells was paused waiting for key parts
and supplies with crews shifting from project to project. The
overall impact is that, while progress has been made across a
number of wells, it has not been possible to complete the work at
any to increase production to the levels expected. Further, had we
not decided several years ago to purchase our own rigs these
operational delays would have been much greater still.
BNG
Our approach to BNG
At BNG we have two proven and commercially viable shallow
structures, MJF and South Yelemes, and two deep structures,
Airshagyl and Yelemes Deep, with huge potential but to date with no
production.
We continue to believe that the geological conditions at the
super giant fields of Kashagan and Tengiz extend to the BNG
Contract Area and then through to Block 8.
If this is the case the potential volume of oil in these deep
structures could be vast and the implications on the Company's
fortunes of one or more commercially successful deep wells could be
transformational. We remain committed to bringing as many as
possible of these deep wells into production.
Progress in the period under review and subsequently
Our focus at BNG for much of the year under review was on the
deep structures. This was in part because of the dramatic upside
when a deep well flows at commercial levels but also to comply with
our original deep well work programme obligations.
Since the period end we have focused more on developing the
production capacity at the MJF structure by working to bring back
into production previously successful wells, although more recently
have returned to our deep well priorities, most notably Deep Well
802.
Deep structures
Deep Well A8
Having extended the well from approximately 4,500 meters to
approximately 5,400 meters in 2021 we attempted to produce from
three of the potential oil-bearing intervals identified. However,
after some initial success, we concluded that Deep Well A8 would
not produce at commercial quantities and accordingly the well has
been abandoned.
Deep Well 802
In June 2022 we spudded Deep Well 802 on the Yelemes Deep
structure. This was the sixth and final deep well required under
the original BNG work programme.
The well had a planned Total Depth of 5,200 meters targeting oil
in the easier to drill Sandstone rather than Carboniferous rock,
with an initial target at 4,300 meters. The well was drilled close
to the site of a Soviet era blowout and our advisers provided us
with the highest estimate of success for any of our BNG deep wells
drilled to date.
Oil was encountered sooner than expected at a depth of
approximately 3,900 meters and before the well had been completed,
leading to a decision to drill a new side-track from a depth of
2,416 meters to approximately 4,100 meters, targeting the oil at
the higher level previously encountered.
With approximately 100 meters still to be drilled the well
flowed over a period of 3 days at rates fluctuating between 700 and
900 bopd.
Work at Deep Well 802 was suspended waiting on additional
equipment. Accordingly, the crew at Deep Well 802 was moved to work
on Shallow Well 142. The crew has now returned to Deep Well 802 and
we expect to complete our work at Deep Well 802 in Q3 2023.
Other deep wells
Little was attempted in the period under review or subsequently
at the other deep wells already drilled, A5, A6, A7 and 801.
However, as rigs and crews become available, we intend to continue
work to bring each of them into production starting with Deep Well
A5.
Shallow structures
MJF
Almost all the oil produced in the period under review and
subsequently came from the MJF structure. However, for most of the
year and to date in the current financial year key wells were out
of production either being worked over with the use of horizontal
drilling techniques or looking to eliminate water.
South Yelemes
The structure has four operational wells drilled in the Soviet
era, Wells 54, 805, 806 & 807 from which approximately 22,500
barrels were produced representing approximately just 3% of total
production. The focus at South Yelemes has been preparation for a
horizontal well targeting the shallow dolomite intervals.
Further details of the BNG wells are set out in the section
entitled Our Oil & Gas Assets.
Horizontal drilling
Horizontal drilling continues to be used in all recent shallow
well workovers and we are preparing to introduce it to the deep
wells at BNG. As crews and rigs become available we plan to
continue to increase production from these shallow structures with
workovers and new drilling.
Shallow structure production
Average production in 2022 was 2,171 bopd compared to 1,462 bopd
in 2021. Recently production from the shallow structures has been
approximately 2,000 bopd. However, once Wells 141 and 142 are
brought back into production this is expected to rise
significantly.
Own equipment
Our decision to own the drilling rigs and much of the other
equipment previously rented has proved to be correct. It has
significantly improved operational efficiency and reduced operating
costs. More importantly, it has allowed us to continue to operate,
which would not have been possible to the same extent had we relied
on rigs and other equipment being supplied from China. We are in
negotiations to acquire a more powerful G70 rig, which is expected
to make drilling deeper wells faster and easier.
Block 8
In September 2022 we announced the intention to acquire Block 8,
a producing Contract Area located approximately 160 km from BNG,
for a maximum consideration of $60 million, payable in cash from
the future production from Block 8 at the rate of $5 per barrel of
oil produced.
Background
The Block 8 Contract Area is 2,823 sq km with three identified
structures and production from two existing wells. The Block 8
Contract Area is owned by a member of the Oraziman family, which
holds approximately 48.4% of the shares in Caspian Sunrise, and as
such it would constitute a related party transaction.
Caspian Sunrise has an option to acquire the UAE registered
holding company of EPC Munai LLP, which is the Kazakh registered
holder of the licence for the Block 8 Contract Area, conditional
upon inter alia satisfactory due diligence, including a review by
an independent expert; the renewal of the existing licence;
Independent Director and Nominated Adviser approval; and the
consents of the regulatory authorities in Kazakhstan the UAE and
the UK.
The Company and the Oraziman family have entered into a loan
agreement under which the Company has agreed to advance cash and
equipment of up to $5 million to Altynbek Boltazhan the owner of
EPC Munai LLP, and a member of the Oraziman family, to complete the
work programme commitments under the existing licence. In the
period under review approximately $1.5 million of the loan was
drawn. The loan is interest bearing at the rate of 7% and, in the
event the acquisition of Block 8 does not complete, would be
repayable by the Oraziman family initially from future dividend
payments.
The Block 8 licence was previously owned by LG International the
Korean conglomerate, who in 2006 started to acquire 3D seismic data
over approximately 456 sq km. In recent years two deep wells have
been drilled to depths of 4,203 meters and 3,449 maters
respectively, from which oil has flowed at rates of up to 800
bopd.
Current production from Block 8 is approximately 110 bopd, with
oil transported to the same treatment and pumping station used by
BNG. The acquisition of Block 8 would bring a second flagship asset
into the Caspian Sunrise Group together with BNG with both having
the ability to transform the value of the Group in the event of
successful deep drilling. CTS LLP, the Group's drilling company is
currently working under contract on two wells at Block 8.
Acquisition process
In the event the Independent Directors exercise the option, it
is expected that the acquisition would take up to a further six
months to complete, with much of that time spent on securing the
required regulatory approvals.
As the acquisition terms do not involve the issue of additional
shares and the consideration is expected to be payable solely from
production from Block 8, exercise of the option is not expected to
result in material dilution for existing shareholders.
Related Party transaction
The Loan Agreement was considered a Related Party Transaction
pursuant to the AIM Rules for Companies.
The Independent Directors considered, having consulted with WH
Ireland, that the terms of the proposed Loan Agreement were fair
and reasonable in so far as shareholders of Caspian Sunrise and the
Company are concerned.
Should the option to acquire Block 8 be exercised by the
Independent Directors a further formal assessment by WH Ireland,
the Company's Nominated Adviser, would be required at that
time.
3A Best
There was little progress at 3A Best in the period under review
or subsequently. The farm-out announced in June 2021 was
conditional on the renewal of the 3A Best licence. We continue to
work with the Kazakh authorities to renew the licence, following
which we will assess its place within the Group. In the meantime,
our investment in 3A Best has been fully provided for.
Loan conversion
In March 2022 independent Caspian Sunrise shareholders voted to
convert approximately $6.2 million of debt due to the Oraziman
family into 139,729,446 new Ordinary shares at a price of 3.2p per
share, increasing the Oraziman family's aggregate shareholding from
45.0% to 48.4%.
Cancelation of share premium
In April 2022 shareholders voted to cancel the share premium
account and the deferred shares in Caspian Sunrise Plc paving the
way for the future declaration of dividends. In June 2022 the UK
High Court confirmed the cancellations, which took effect in the
period under review.
Dividends
We commenced monthly dividends in November 2022 making four
separate payments of $1.25 million (GBP1 million). In March 2023 we
announced we would look to move to quarterly dividend declarations
with the next quarter to be announced with these Financial
Statements.
With no signs of an end to the adverse impact of the Ukraine war
we need to base our dividend policy on what the Group can
reasonably afford to pay without materially detracting from our
principal purpose of increasing shareholder value by the continued
development of our oil & gas assets.
Therefore, until either we increase production with MJF shallow
wells 141 & 142 resuming production or Deep Well 802 commencing
production, or until the proceeds from the conditional sale of 50%
of the Caspian Explorer are received, the board has reluctantly
decided to suspend dividends payments for the remainder of the
year.
Kazakhstan
In recent times Kazakhstan has been out of favour with
international investors. It is nevertheless home to vast oil &
gas and mineral reserves.
The lack of international competition for assets has provided
opportunities outside our narrow focus of exploring and producing
onshore oil & gas. A prime example being the Caspian Explorer,
which 100% was acquired for less than $3.7 million and for which we
have agreed to sell 50% for $22.5 million, representing a $20
million gross profit while we still own the remaining 50%.
Board changes
After 13 years as the senior independent non-executive director
Edmund Limerick will on 07 July 2023 step down from the board.
Edmund's knowledge and advice has been invaluable in the
development of the Group and he will be missed. The Company will in
due course appoint additional non-executive directors, following
which the composition of the various committees of the board will
be reviewed.
Outlook
Despite the impact of sanctions, the Group continues to prosper.
Our focus remains maximising short-term production and getting as
many of the BNG deep wells drilled to date into commercial
production.
Clive Carver
Chairman
6 July 2023
FINANCIAL REVIEW OF THE 12 MONTHSED 31 DECEMBER 2022
Revenue
Revenue in 2022 increased by approximately 72 per cent to $42.9
million (2021: $25.0 million).
Oil prices
International prices rose from approximately $79 per barrel at
the start of 2022 to a maximum of approximately $123 per barrel in
March 2022 and then fell steadily from June 2022 over the rest of
the year to approximately $75 per barrel by the year end. Over the
same period domestic prices rose from approximately $25 per barrel
to approximately $32 per barrel.
In a new development, sales to domestic mini refineries became
possible with prices of approximately $38 per barrel for most of
the period under review and subsequently.
Production volumes
Production volume in 2022 at 792,284 barrels was some 48 %
higher than in 2021 (533,857 barrels).
International vs Domestic sales
The continuing large discount for Kazakh oil sold from the
Russian pipeline network despite there being no EU sanctions
together with the Kazakh authorities assessing export taxes at the
full Brent related price rather than the actual price achieved made
international sales uneconomic for the majority of the period under
review and subsequently.
In the period before sanctions 237,144 barrels were sold on the
international market at an average price of approximately $85 per
barrel. After the start of international sanctions, most sales were
either at domestic prices or to domestic mini refineries.
CTS
CTS LLP is the Group's wholly owned drilling company, which in
2020, 2021 and 2022 undertook work at Block 8, the Contract Area,
which is owned by the Oraziman family and therefore a related party
and over which the Group has an option to acquire.
The work undertaken at Block 8 in these periods was
approximately $5 million and at 31 December 2022 has either been
paid or is covered by advances. In 2022 approximately $3.7 million
is included in 2022 income as more fully described in notes 4 &
25.
Gross profit
Gross profit increased by approximately 66 per cent to
approximately $32.3 million (2021: $19.4 million), from a
combination of the increase in production volumes and the impact of
the sales possible at international prices before the impact of
sanctions.
Selling expenses
Selling expenses increased by approximately 29% to $9.8 million
(2021: $7.6 million) and are mainly export and customs duties,
which are typically based on achieved oil prices.
Other administrative expenses
General and Administrative expenses were $9.8 million (2021:
$3.3 million). The main reason for the increase was additional
staff costs in Kazakhstan of around $4. 9 million.
Operating profit
The operating profit was $12.8 million (2021: loss of $4.0
million).
Profit / (Loss) for the year before tax
Profit before tax was $12.3 million (2021: loss of $4.8
million).
Tax charge
The tax charge was $2.4 million (2021: $0.7 million). The tax is
payable in Kazakhstan where historic losses have been fully
utilised.
Profit / (Loss) for the year after tax and before dividends
The profit for the year after tax but before dividends was $9.9
million (2021: loss of $5.5 million).
Dividends
Dividends of approximately $2.4 million were declared in the
year (2021: nil).
Oil and gas assets
Unproven oil & gas assets
The carrying value of unproven oil and gas assets fell by
approximately $2.3 million to approximately $43.8 million (2021:
$46.1 million) largely as the result of the transfer of the shallow
Yelemes South structure to proven oil & gas assets, which was
shown previously within property, plant and equipment.
Plant, property and equipment
The value of plant property and equipment increased by
approximately $3.7 million to approximately $60.7 million (2021:
$57.1 million), again principally as the result of the
reclassification of the South Yelemes structure.
Other receivables
Other receivables due within 12 months increased from
approximately $5.0 million to approximately $5.2 million, in part
as the result of the approximately $1.5 million drawn down from the
$5 million loan in respect of the proposed acquisition of Block
8.
Cash position
At the year-end we had cash balances of approximately $3.7
million (2021: $0.4 million).
Liabilities
Trade and other payables under 12 months
Trade and other payables increased to approximately $15.9
million (2021: $13.2 million). Short term borrowings provided by
the Oraziman family fell to $0.4 million following the debt
conversion approved by independent shareholders in March 2022
(2021: $6.4 million).
The provisions for payments in less than 12 months were
approximately $6.0 million (2021: $5.5 million).
BNG historic costs
We have continued to pay down the historic costs assessed
against BNG. At 31 December 2022, of the original $32 million
levied in 2019 approximately $19 million remains to be paid over
the next seven years, of which approximately $3.2 million is to be
paid within 12 months.
Cashflows
During the period under review approximately $45.9 million was
received from customers and approximately $27.5 million paid out to
suppliers, creditors and staff with a further $11.5 million spent
on unproven oil and gas assets and $0.5 million spent on property
plant and equipment. A further $2.3 million was paid to related
parties including $1.5 million relating to the Block 8 loan, and
approximately $1.1 million was paid in dividends, resulting in cash
balances at the year-end increasing from $0.4 million to $3.7
million.
Going Concern
With net current liabilities of approximately $16.0 million as
at 31 December 2022, the assessment of going concern needs careful
consideration. The Board has assessed cash flow forecasts prepared
for a period of at least 12 months from the approval of the
financial statements and assessed the risks and uncertainties
associated with the operations and funding position, including the
potential acquisition of Block 8. These cash flows are dependent on
a number of key factors including:
-- The Group's cashflow is sensitive to oil price and volume
sold. Given the large discounts encountered since the start of the
war in Ukraine we have assumed all sales will be either domestic
sales or sales to the domestic mini refineries. If sales to the new
local mini refineries did not continue as expected and in the
continuing absence of any international sales additional funding
would be required.
-- The Group continues to forward sell its domestic production
and receives advances from oil traders with $2.2 million advanced
at the reporting date the continued availability of such
arrangements is important to working capital. Whilst the Board
anticipate such facilities remaining available given its trader
relationships, should they be withdrawn or reduced more quickly
than forecast cash flows allow then additional funding would be
required.
-- The Group has $5.9 million of liabilities due on demand under
social development programmes and $3 .2 million of BNG licence
payments due within the forecast period to the Kazakh government.
Whilst the Board has forecasted the payment of BNG licence
payments, there are no payments planned for social development
programmes within the forecast period as the Board expects
additional payment deferrals to be approved. Should the deferrals
not occur additional funding would be required.
These circumstances continue to indicate the existence of a
material uncertainty which may cast significant doubt about the
Group and the Company's ability to continue as a going concern and
it therefore may be unable to realise its assets and discharge its
liabilities in the normal course of business. The financial
statements do not include the adjustments that would result if the
Group and the Company was unable to continue as a going
concern.
While none of the following can be relied upon until cash is
received there are a number of expected events, which could provide
significant additional working capital in the short term:
-- The Group is due to receive $22.5 million relating to the
conditional sale of a 50% interest in the holding company for the
Caspian Explorer;
-- A Kazakh bank's credit committee has approved a $5 million loan, which has yet to be drawn;
-- A Kazakh oil trader has offered an additional $3 million
advance, which is yet to be accepted.
Should it be necessary, the Board has the following actions to
mitigate any short-term funding issues
-- To seek additional funding from advance oil sales
-- To slow down the pace at which BNG is further developed
-- To defer the exercise of the option to acquire Block 8, as
this would defer development expenditure
-- To sell all or part of one or more of the Group's assets
-- To defer further dividend payments
-- To seek additional equity capital
-- Cease or reduce the amount of discretionary dividend payments
(payment of which is subject to the cash inflows outlined
above).
Notwithstanding the material uncertainty described above, after
making enquiries and assessing the progress against the forecast,
projections and the status of the mitigating actions referred to
above, the Directors have a reasonable expectation that the Group
and the Company will continue in operation and meet its commitments
as they fall due over the going concern period. Accordingly, the
Directors continue to adopt the going concern basis in preparing
the financial statements.
Clive Carver
Chairman
6 July 2023
OUR OIL & GAS ASSETS
BNG CONTRACT AREA
Introduction
The Group's principal asset is its 99% interest in the BNG
Contract Area. We first took a stake in the BNG Contract Area in
2008, as part of the acquisition of 58.41% of a portfolio of assets
owned by Eragon Petroleum Limited.
In 2017, we increased our stake to 99% upon the completion of
the merger with Baverstock GmbH. Since 2008, more than $100 million
has been spent at BNG.
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. We
became operators at BNG in 2011, since when we have identified and
developed both shallow and deep structures.
Shallow structures
There are two confirmed and producing shallow structures at
BNG.
MJF structure
The first wells were drilled on the MJF structure in 2016, since
when it has produced in aggregate approximately 2.8 million
barrels. We have embarked on a programme of redrilling the older
wells using horizontal drilling techniques to increase production.
At the date of this report work at three of the older wells has
been completed.
The productive Jurassic aged reservoir consists of stacked pay
intervals with most ranging in thickness from two meters to 17
meters. The current mapped lateral extent of the MJF field is now
approximately 13 km2. The producing wells range in depth from 2,192
meters to 2,450 meters.
In December 2018, we applied to move the MJF structure, which
was part of the overall BNG licence, from an appraisal licence to a
full production licence, under which the majority of the oil
produced from the MJF wells may be sold by reference to world
rather than domestic Kazakh prices. The full production licence
became effective in July 2019, with the first revenues based on
international prices received in August 2019.
Following the award of the MJF export licence the Kazakh
regulatory authorities assessed historic costs of $32 million
against the MJF structure, repayable quarterly over a 10-year
period, of which approximately $20 million remained payable at 31
December 2022.
Recently we have been working to bring wells 141 and 142 back
into production.
In 2022 we produced 792,284 barrels of oil at an average of
2,171 bopd (2021: 533,857 barrels at an average of 1,462 bopd). At
the date of this report production is approximately 2,000 bopd.
South Yelemes structure
The first wells were drilled on the South Yelemes structure
during the Soviet era, with test production commencing in 1994.
Well 54 was intermittently active between periods of being shut
in to allow pressure to be restored. There are three other wells at
South Yelemes (805, 806 & 807). Since 2010 the South Yelemes
shallow structure has produced approximately 375,000 barrels,
including approximately 25,000 barrels in 2022.
Following an upgrade in the South Yelemes licence we are now
allowed to sell most of the oil produced from the South Yelemes
structure by reference to international rather than domestic
prices. However, as set out elsewhere in these financial
statements, we currently choose not to do so.
We believe the structure may have untapped quantities of oil at
higher levels than previously explored, which we intend to explore
with horizontal drilling targeting a Dolomite reservoir when crews
become available.
Deep structures
We have identified two deep structures at the BNG Contract Area.
The first is the Airshagyl structure, which extends to 58 km2. The
second is the Yelemes Deep structure, which extends over an area of
36 km2.
Airshagyl structure
Four deep wells have been drilled on the Airshagyl
structure.
A5
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. For 15 days the well produced at the rate of
approximately 3,000 bopd before production fell to approximately
1,000 bopd, leading to the well being shut in for remedial
treatment.
Limited rig availability resulted in little work on this well in
2021 or subsequently. We remain believers in the well and intend to
drill a new side-track from a depth of 4,500 meters when a rig
becomes available.
A6
Deep Well A6 was spudded in 2015 and drilled to a depth of 4,528
meters. Initially problems in perforating the well prevented it
being put on test. Latterly the issue has been blockages from
unrecovered drilling fluid. During the year under review there was
no significant progress with the well. Further development work
will depend on rig availability and a decision on which acid
formulation to use.
A7
Deep Well A7 was spudded in December 2021, with a planned Total
Depth of 5,300 meters but primarily targeting an interval at a
depth of 4,000 meters. In March 2022 drilling at A7 was paused at a
depth of 2,150 meters to allow the rig to be used to drill a
horizontal well on the shallow South Yelemes structure. Drilling is
planned to continue when a rig becomes available.
A8
Deep Well A8 was spudded in 2018 with a planned Total Depth of
5,300 meters, initially targeting the same pre-salt carbonates that
were successfully identified in Deep Well A5 at depths of 4,342
meters but with a prime target being the deeper carbonate of the
Devonian to Mississippian ages towards the planned Total Depth of
5,300 meters.
During 2021 we decided to resume drilling towards the original
objective in the Devonian. Drilling reached a final depth of 5,400
meters in early December. Neither of the two intervals of interest
perforated resulted in commercial quantities of oil with pressures
below the levels expected. Accordingly, the well has been
abandoned.
Yelemes Deep structure
Deep Well 801 was drilled in 2014 / 2015 to a depth of 5,050
meters. During the year under review there was no progress with the
well. As with Deep Well A6 on the Airshagyl structure further
development work will depend on rig availability.
Deep Well 802 was spudded in June 2022, with a planned Total
Depth of 5,300 meters. This is the final deep well required under
the BNG work programme. Work at Deep Well 802 was put on hold
pending the arrival of specialist equipment. In the meantime, the
rig and crew were switched to bring Well 142 back into production.
Once finished at Well 142 the rig and crew will return to work on
Well 802.
One further deep well, Deep Well 803, is required to be drilled
this year under our new work programme obligations. Our intention
is to spud this well in Q3 2023 and complete the drilling by the
end of the year.
Deep well drilling issues
Sub-surface conditions at the two discovered deep structures at
BNG present significant technical challenges in drilling and
completing the wells. These are the extreme high temperature and
pressure that exist below the salt layer. At the Airshagyl
structure the salt layer is typically found at depths between 3,700
and 4,000 meters whereas at the Yelemes Deep structure the salt
layer is typically found at depths between 3,000 and 3,500
meters.
The extreme pressure below the salt layer requires the use of
high-density drilling fluid to maintain control of the well during
drilling. The high-density drilling fluid's principal role is to
help prevent dangerous blow-outs. The attributes of the
high-density barite weighted drilling fluid, which allow the wells
to be controlled during the drilling phase, act against us when we
attempt to clear the well for production.
To the extent that drilling fluids, which include solid
particles added to increase density, are not fully recovered they
can form a barrier between the wellbore and the reservoir impeding
the flow of hydrocarbons into the well.
3A BEST
In January 2019, we acquired 100% of the 3A Best Group JSC, a
Kazakh corporation owning an existing Contract Area of some 1,347
sq. km located near the Caspian port city of Aktau.
The Contract Area, which has been designated by the Kazakh
authorities as a strategic national asset, surrounds and goes below
the established shallow field at Dunga, which we believe to be
producing at the rate of approximately 15,000 bopd.
In June 2021, we announced a farm out of 15% of the 3A Best
Contract Area in return for our new partners assuming
responsibility for the current 3A Best work programme commitments.
However, the farm out was conditional on the deferral of
obligations under the licence and the extension of the license
which are yet to be granted. We also granted our new partners an
option to acquire the remaining 85%, exercisable after completion
of the current work programme commitments, at a price to be
determined by an independent expert.
We continue to work with the Kazakh authorities to renew the 3A
Best licence. Until we are successful on this the farm-out will not
proceed. Our investment in 3A Best has been fully provided for.
LICENCES & WORK PROGRAMMES AND RESERVES
LICENCES & WORK PROGRAMMES
BNG
BNG LLP Ltd holds three contracts for subsoil use. The first is
the appraisal contract, covering the full extent of the BNG
Contract Area (except the MJF and South Yelemes structures),
originally issued in 2007 and successively extended until 2024.
The second is the export contract covering just the MJF
structure, which runs to 2043 and the third is the export contract
covering the South Yelemes structure, which runs to 2046. Under the
MJF and South Yelemes licences the majority of oil produced may be
sold by reference to international rather than domestic prices.
Well 802 was the final deep well required under the original BNG
work programme commitments.
The current work programme requires a further deep well, Well
803 to be drilled before the end of the year. The well is expected
to be spudded in Q3 2023.
Additionally, a further 10 shallow wells are to be drilled on
the MJF structure, including a number of horizontal wells, by the
end of 2026, with one being Well 155 to be drilled this year.
3A Best
The licence renewal at 3A Best was delayed as the result of
outstanding social payments due from the assets previous owners. We
continue to work with the Kazakh authorities to renew the 3A Best
licence.
RESERVES
BNG
In 2011 Gaffney Cline & Associates ("GCA") undertook a
technical audit of the BNG licence area and subsequently Petroleum
Geology Services ("PGS") undertook 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.
In September 2016 GCA assessed the reserves attributable to the
BNG shallow structures (MJF & South Yelemes). Between then and
the end of 2022, approximately 3.8 mmbls of oil were produced,
which under financial reporting rules are deducted from the
assessment of reserves as at 31 December 2022.
BNG As at 31 December As at 31 December
2022 2021
mmbls mmbls
------------------ ------------------
Shallow P1 14.3 15.1
------------------ ------------------
Shallow P2 25.5 26.3
------------------ ------------------
Despite the last external review of the Group's reserves being
in 2016, the Board considers their assessment as set out in the
above table to be valid.
CASPIAN EXPLORER
Introduction
The Caspian Explorer is a drilling vessel designed specifically
for use in the shallow northern Caspian Sea where traditional deep
water rigs cannot be used.
The principal ways of exploring in such shallow waters are
either from a land base or using a specialist shallow drilling
vessel such as the Caspian Explorer, which we believe to be the
only one of its class operational in the Caspian Sea.
Land based options typically involve either the creation of
man-made islands from which to drill as if onshore or less commonly
drilling out from an onshore location. Both are expensive compared
to the use of a specialist drilling platform such as the Caspian
Explorer.
The Caspian Explorer was conceived of by a consortium of leading
Korean companies including KNOC, Samsung and Daewoo Shipbuilding.
The vessel was assembled in the Ersay shipyard in Kazakhstan
between 2010 and 2011 for a construction cost believed to be
approximately $170 million. The total costs after fit-out are
believed to have been approximately $200 million. We understand a
replacement would today cost in excess of $300 million and take
several years to become operational.
The Caspian Explorer became operational in 2012 at a time of
relatively low oil prices and reduced exploration activity in the
northern Caspian Sea.
Operational characteristics
The Caspian Explorer:
-- operates principally between May and November as the Northern
Caspian Sea is subject to winter ice
-- operates in depths between 2.5 meters and 7.5 meters
-- can drill to depths of 6,000 meters
-- typically has a crew to operate the drilling vessel of 20
-- has accommodation for approximately 100
-- costs approximately $100,000 per month while moored in port
-- is generally able to pass on other costs incurred while
operational to the clients hiring the vessel
Safety contract
In June 2021 we announced the first charter for the Caspian
Explorer since it has been a part of the Group. The charter was
with the North Caspian Operating Company ("NCOC"), which is the
principal operator in the region, comprising the Republic of
Kazakhstan working through KazMunaiGas (KMG), and international oil
companies including Shell, ExxonMobil, ENI, Total and CNPC, the
consortium operating the Kashagan field. The charter has been
completed and payment received.
Daily rates for safety related work are much lower than for
drilling contracts but the income from the charter covered the
Caspian Explorer's costs for the year.
Drilling contract
In March 2023 we announced that the first drilling contract for
the Caspian Explorer under the Group's ownership had been
signed.
An offshore well is scheduled to be drilled in the summer of
2024 to a planned depth of 2,500 meters. It will be drilled for the
Isatay Operating Company LLP ("IOC"), a Kazakh registered explorer,
in which Italy's ENI is a leading participant. The work is expected
to take approximately two months.
Daily rates have been agreed for both drilling days and days
when no drilling occurs. On the basis of these rates and the
Group's assessment of the likely total number of days required to
complete the assignment the Group expects net income after costs of
approximately $15 million.
The contract also provides for a second well in the event the
first is deemed successful. That second well would most likely be
drilled in 2025 on terms similar to the first assignment and is
again expected to produce net income after costs of $15
million.
Other charters
Discussions continue with a number of parties interested in
chartering the Caspian Explorer, either on normal commercial terms
or where the involvement of the Caspian Explorer allows Caspian
Sunrise to take an interest in the project.
Conditional sale
In June 2023 we announced the conditional sale of 50% of
Prosperity Petroleum, the UAE registered holding company for the
Caspian Explorer for $22.5 million.
Summary
The Caspian Explorer has been written down in previous financial
statements so that its carrying value at 31 December 2022 is $ 1 .
7 million. We believe the drilling contract announced in March 2023
will be the first of a number as exploration of the shallow
northern Caspian Sea increases.
QUALIFIED PERSON & GLOSSARY
Qualified Person
Mr. Assylbek Umbetov, a member Association of Petroleum
Engineers, has reviewed and approved the technical disclosures in
these financial statements.
Glossary
SPE - the Society of Petroleum Engineers
Bopd - barrels of oil per day mmbls - million barrels.
Proven reserves
Proven reserves (P1) 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 categorised 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.
THE KAZAKH OIL AND GAS LICENCING AND TAXATION ENVIRONMENT
Introduction
Oil & gas is a heavily regulated industry throughout the
world, with strict rules on licencing and taxation. Set out below
is a summary of the position in Kazakhstan.
Licensing
Exploration licences
The initial licence to develop a field is typically an
exploration licence where the focus is on completing agreed work
programmes. Exploration licences are typically two years in
duration and it is usual for there to be several consecutive
two-year exploration licence extensions agreed during the
exploration phase.
Appraisal licences
In the event the project appears commercial, the exploration
licence is usually upgraded to an appraisal licence.
Under an appraisal licence, oil produced incidentally while
exploring and assessing may be sold but only at domestic prices.
Taxation under an appraisal licence is limited with only modest
deductions. Changes to the legislation in the last few years has
reduced the length of appraisal licences from six to five years,
with a concession of reduced social obligation payments.
Full production licences
To sell oil by reference to world prices requires either the
Contract Area as a whole or a particular structure has to be
upgraded to a full production licence. Under a full production
licence there is only limited scope to develop areas not already
drilled. Additionally, a significant minority portion of production
typically remains at domestic prices although the majority is sold
by reference to world prices.
Taxes
There are five different taxes that apply to Kazakh oil &
gas producers. Each has its own basis of calculation with some
being related to profits, others by reference to world oil prices
and yet others by reference to the volume of oil sold. The overall
impact is that as world prices increase so typically does the
percentage taken by the Kazakh state.
Despite in practice oil sold on the international market being
subject to a hefty Ural Oil discount of approximately $30 - $35 per
barrel or more taxes on any international sales are still levied
according to the international Brent price.
STRATEGIC REPORT
Introduction
This strategic report comprises: the Group's objectives; the
strategy; the business model; and a review of the Group's business
using key performance indicators. The Chairman's statement, which
also forms the main part of the strategic review, contains a review
of the development and performance of the Group's business during
the financial year, and the position of the Group's business at the
end of that year. Additionally, a summary of the principal risks
and uncertainties facing the business is set out immediately after
the Directors' report.
Objectives
The Group's objective is to create shareholder value from the
development of oil and gas projects and associated activities. We
are now also considering mineral opportunities in Kazakhstan.
The Group has a number of secondary objectives, including
promoting the highest level of health and 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
initially in Central Asia, and in particular Kazakhstan where the
board has the greatest experience. Additionally, the Group will
consider other opportunities, including now mineral opportunities,
where the board believes it can add significant value and
contribute towards the success of the Group as a whole.
The Group's principal asset is its 99 per cent interest in BNG.
Additionally, the Group owns a 100 per cent interest in the 3A Best
Contract Area, which is subject to licence renewal. The Group also
owns a 100% interest in the Caspian Explorer, a shallow water
drilling vessel designed for the northern parts of the Caspian Sea.
In June 2023 it was announced that the Group had conditionally
agreed to sell 50% of the Caspian Explorer's holding company for a
cash consideration of $22.5 million.
In September 2022 the Group took an option to acquire the Block
8 Contract Area for a maximum consideration of $60 million.
Business model
The business model is straightforward. To take assets at any
stage of the development cycle and to improve them to the point
they contribute to the Group's profitability or that they may be
sold on at a profit to provide funding for additional
development.
Our main asset BNG has been developed over the past 15 years
with more than $100 million spent and is set to be a very
substantial asset for many years to come.
While we seek to grow our asset portfolio with appropriately
timed acquisitions we are also prepared and able to sell assets
when their value to others exceeds the value we can see. This was
the case in 2015, when, in poor market conditions, we sold our then
second asset Galaz for a headline price of $100 million, which
represented a profit of $15 million on our interest in the asset,
and which provided $33 million to re-invest into BNG. It was also
the case when we recently announced the conditional sale of 50% of
the Caspian Explorer for $22.5 million.
Further growth by acquisition
When appropriate the Group will consider acquiring additional
assets or related businesses where the Board believes they would
increase shareholder value, including by providing funding or
infrastructure to develop the Group's other assets.
The Directors believe the Group is exceptionally well placed
through its strong local Kazakh presence to identify and buy
undervalued oil & gas assets and other assets on an
opportunistic basis.
Climate Change
The Group's purpose is to supply energy in an environmentally
conscious manner to the benefit of all stakeholders. As an
exploration and production company, we recognise our environmental
responsibilities to all our stakeholders and in particular to the
local communities in which we operate.
However, other than a general move away from fossil fuels, the
Board is not aware of any indications that the impact of climate
change is likely to have a material impact on the Group's business
over the short and medium terms. We believe the current need for
oil will continue for at least the next decade.
Key performance indicators
The Non-Financial Key Performance Indicators are:
-- Operational (wells drilled and not abandoned at end of year) 2022: 20 (2021: 18)
-- Aggregate production for 2022 was barrels 792,284 (2021:
533,857) an increase of approximately 48%
-- Reserves at 31 December 2022 P1 14.3 mmbls & P2 25.5
mmbls (2021: P1 15.1 mmbls & P2 26.3 mmbls)
The Financial Key Performance Indicators are:
-- Revenue: up 72% at $42.9 million (2021: $25.0 million)
-- Operating profit 12.8 million (2021: loss of $4.0 million)
-- Profit after tax for the year $9.9 million (2021: loss $5.5 million)
-- Dividends $2.4 million (2021: nil)
-- Cash at bank: $3.7 million (2021: $0.4 million)
-- Total assets: $117 million (2021: $114 million)
-- Exploration assets $43.8 million (2021: $46.1 million)
-- Plant, property & equipment $60.7 million (2021: $57.1 million)
Current production
-- Approximately 2,000 bopd (2021: 1,462 bopd)
Assets & Reserves
Details of the Group's assets and reserves are set out in the
Chairman's statement.
Financial
At current domestic and domestic mini refinery prices and with
current levels of production the income from current production is
sufficient to cover day-to-day Group operations and G&A
costs.
In addition, the Group expects to receive the $22.5 million
proceeds due from the sale of 50% of the Caspian Explorer and its
50% share of net income of approximately $15 million in respect of
the drilling contract scheduled for 2024 which was signed in March
2023.
In the event the option to acquire Block 8 is exercised, the
income from the oil being produced there now and in the future is
expected to cover the repayment of the $5 million loan and Block 8
drilling costs.
In the event any of the deep wells drilled start to produce oil
in commercial quantities the associated revenues should transform
the Group's cash flows.
Drilling wells at a rate faster than could be funded from oil
sales, would require additional funding, as would any acquisitions
to be funded by cash. Potential sources of such funding would
include: further advances from local oil traders for the sale of
oil yet to be produced; industry funding in the form of
partnerships with larger industry players; further support from
existing shareholders; and equity funding from financial
institutions. Additionally, funding may be available from selected
asset sales.
Dividends
For some years it has been the policy of the Board to work
towards a position where meaningful dividends can be paid. This
required not only consistently profitable trading but also a
corporate reorganisation to create distributable reserves. New
corporate subsidiaries have been incorporated in the UAE, with a
view to improving and simplifying the Group structure thus easing
the future payment of dividends. The final step was the approval of
shareholders and the UK Court of a Capital Reduction. Shareholders
approved the Capital Reduction in April 2022, which was approved by
the UK High Court in June 2022.
The Company's first dividend was declared in November 2022 and
was followed by 3 further monthly dividends. In March 2023 the
Company announced that future dividends would be declared on a
quarterly rather than monthly basis.
However, as set out above in the Chairman's Statement, with no
signs of an end to the adverse impact of the Ukraine war we need to
base our dividend policy on what the Group can reasonably afford to
pay without materially detracting from our principal purpose of
increasing shareholder value by the continued development of our
oil & gas assets.
Therefore, until either we increase production with MJF shallow
wells 141 & 142 resuming production or Deep Well 802 commencing
production, or until the proceeds from the conditional sale of 50%
of the Caspian Explorer are received, the board has reluctantly
decided to suspend dividend payments for the remainder of the
year.
S. 172 Statement
The Board is mindful of the duties of directors under S.172 of
the Companies Act 2006.
Directors act in a way they consider, in good faith, to be most
likely to promote the success of the Company for the benefit of its
members. In doing so, they each have regard to a range of matters
when making decisions for the long term success of the Company.
Our culture is that of treating everyone fairly and with respect
and this extends to all our principal stakeholders. Through
engaging formally and informally with our key stakeholders, we have
been able to develop an understanding of their needs, assess their
perspectives and monitor their impact on our strategic
ambition.
As part of the Board's decision-making process, the Board and
its Committees consider the potential impact of decisions on
relevant stakeholders whilst also having regard to a number of
broader factors, including the impact of the Company's operations
on the community and environment, responsible business practices
and the likely consequences of decisions on the long term.
Our objective is to act in a way that meets the long term needs
of all our main stakeholder groups. However, in so doing we pay
particular regard to the longer term needs of shareholders.
We engage with investors on our financial performance, strategy
and business model. Our Annual General Meeting provides an
opportunity for investors to meet and engage with members of the
Board.
The Board continues to encourage senior management to engage
with staff, suppliers, customers and the community in order to
assist the Board in discharging its obligations.
Further details of how the Directors have had regard to the
issues, factors and stakeholders considered relevant in complying
with S 172 (1) (a)-(f), the methods used to engage with
stakeholders and the effect on the Group's decisions during the
year can be found throughout this report and in particular at page
4 (in relation to decision-making), page 20 (where the Group's
strategy, objectives and business model are addressed), page 23 (in
relation to employees) the ESG report on page 29 (in relation to
social and environmental matters).
We seek to attract and retain staff by acting as a responsible
employer. The health and safety of our employees is important to
the Company and an area we have to regularly report on to the
Kazakh regulatory authorities.
We continue to provide support to communities and governments
through the provision of employment, the payment of taxes and
supporting social and economic development in the surrounding
areas, both through social investment and local procurement. We
have contributed to a range of social programmes for well over a
decade.
We have established long-term partnerships that complement our
in-house expertise and have built a network of specialised partners
within the industry and beyond.
Clive Carver
Chairman
6 July 2023
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 2022.
The Strategic report forms part of the business review for this
year.
Principal activity
The principal activity of the Group is oil and gas exploration
and production. The Group also owns and operates the Caspian
Explorer, a drilling vessel specifically designed for operation in
the shallow northern Caspian Sea. The Group also has its own
drilling company, which on occasion works on projects not owned by
the Group.
Results and dividends
The consolidated statement of profit or loss is set out on page
49 and shows a $9.9 million profit for the year after tax (2021:
loss US$5.5 million).
The Company declared its first monthly dividend of GBP1 million
in November 2022 and has subsequently declared a further 3 monthly
dividends. In March 2023 the Company announced it was moving to
quarterly dividends but in these financial statements has announced
a suspension of dividend payments for the remainder of the
financial year, or until production from wells 141, 142 or 802
allow payments or upon the receipt of the $22.5 million
consideration expected from the sale of the Caspian Explorer.
Review of the year
The review of the year and the Directors' strategy are set out
in the Chairman's Statement and the Strategic Report.
Events after the reporting period
Other than the operational and financial matters set out in
these financial statements there have been no material events
between 31 December 2022, and the date of this report, which are
required to be brought to the attention of shareholders. Please
refer to note 27 of these financial statements for further
details.
Board changes
After 13 years as the senior independent non-executive director
Edmund Limerick will on 7 July 2023 step down from the board.
Edmund's knowledge and advice has been invaluable in the
development of the Group and he will be missed. The Company will in
due course appoint additional non-executive directors, following
which the composition of the various committees of the board will
be reviewed.
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 and staff are kept informed of major developments through
email updates. They also have access to the Group's website.
The Group 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 the environment.
Charitable and Political donations
During the year the Group made no charitable or political
donations.
Directors and Directors' interests
The Directors of the Group and the Company who held office
during the period under review and up to the date of the Annual
Report are as follows:
Directors' interests
Director Number of Ordinary Shares
As at 31 December As at 31 December
2022 2021
----------------- -------------------------- ------------------
Clive Carver 2,245,000 2,245,000
-------------------------- ------------------
Kuat Oraziman* nil nil
-------------------------- ------------------
Edmund Limerick 7,911,583 7,911,583
-------------------------- ------------------
Aibek Oraziman* 946,887,599 592,857,583
-------------------------- ------------------
Seokwoo Shin nil nil
-------------------------- ------------------
* taken together on 31 December 2022 the Oraziman Family,
comprising Kuat Oraziman, Aibek Oraziman, Aidana Urazimanova,
Altynbek Boltazhan and Boltazhan Kerimbayev held 1,089,544,792
shares representing approximately 48% of the issued share
capital.
Biographical details of the Directors are set out on the
Company's website www.caspiansunrise.com .
Details of the Directors' individual remuneration, service
contracts and interests in share options are shown in the
Remuneration Committee Report.
Other shareholders over 3% at the date of this report
Shareholder Shares held %
Dae Han New Pharm
Co Limited 224,830,964 9.99
------------- -----
Al Marri Family 221,625,001 9.85
------------- -----
Abai Kalmyrzayev 79,058,642 3.51
------------- -----
Financial instruments
Details of the use of financial instruments by the Group and its
subsidiary undertakings are contained in note 24 of the financial
statements.
Statement of disclosure of information to auditor
The Directors have taken all the steps that they ought to have
taken to make themselves aware of any information needed by the
Group's auditor 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 auditor is unaware.
Auditor BDO 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 and Company financial statements
in accordance with UK adopted international accounting
standards.
Under Company 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 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 UK
adopted international accounting standards subject to any material
departures disclosed and explained in the financial statements;
and
-- 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 Group's and the
Company's transactions and disclose with reasonable accuracy at any
time the financial position of the Group and 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
Group and the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Website publication
The maintenance and integrity of the Group's website is the
responsibility of the Directors.
The Directors are responsible for ensuring the annual report and
the financial statements are made available on a website.
www.caspiansunrise.com/investors/reports
Financial statements are published on the Group'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 Directors' responsibility also extends to the ongoing
integrity of the financial statements contained therein.
Responsibility statement
The Directors confirm that to the best of their knowledge
-- the financial statements, prepared in accordance with the
relevant financial reporting framework, give a true and fair view
of the assets, financial position and profit or loss of the Company
and the undertakings included in the consolidation taken as a
whole
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties
-- the Annual Report and the financial statements taken as a
whole, are fair balanced and understandable and provide the
information necessary for shareholders to assess the Company's
position, performance, business model and strategy.
Clive Carver
Chairman
6 July 2023
PRINCIPAL AND OTHER RISKS AND UNCERTAINTIES FACING THE
BUSINESS
Introduction
Risk assessment and evaluation is an essential part of the
Group's planning and an important aspect of the Group's internal
control system.
Oil & gas exploration and production is a dangerous activity
and as such is necessarily subject to an extremely rigorous health
and safety regime. The Board aims to identify and evaluate the
risks the Group faces or is likely to face in future both from its
immediate activities and from the wider environment. This helps to
inform and shape the Group's strategy and to quantify its tolerance
to risk.
Operational success generally helps to mitigate financial risks.
Increases in production as new wells come on stream generates cash
and improves the Group's financial position, which can then lead to
further operational success.
As the Group develops, its approach to risk management and
mitigation will be refined. In due course we plan to include a
formal risk register including all the principal operational and
non-operational risks to the business. Such a risk register would
be reviewed and assessed at least once a year.
The Group is 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 Group's business activities and
are listed in the Board assessment in the order of greatest
potential impact.
Risk Description Mitigation
Operating Oil & gas exploration The Group seeks to adopt best in
risk and production is class industry operating standards
a dangerous activity. and complies with rigorous health
The Group is exposed & safety regulations.
to risks such as
well blowouts, fire, The Group also seeks to work with
pollution, bad weather contractors who can demonstrate similar
and equipment failure. high standards of safety.
-------------------------- -----------------------------------------------
Exploration Despite the success The Group seeks to reduce this risk
risk of the BNG shallow by acquiring and evaluating 3D seismic
structures, there information before committing to
can be no assurance drill exploration and appraisal wells.
the Group's exploration
activities in the The Group also seeks to engage suitably
BNG deep structures skilled personnel either as employees
or anywhere else or contractors to undertake detailed
will be successful. assessments of the areas under exploration.
-------------------------- -----------------------------------------------
Political Political division Widespread disorder in Kazakhstan
Risk which leads to civil had been absent since the Group's
disorder is likely formation until the beginning of
to have an adverse 2022, when the Group together with
impact on the Group's other operators was forced to suspend
operations. operations due to civil unrest.
The importance of the oil & gas industry
to the Kazakh economy makes a prolonged
suspension of operations unlikely,
as was the case in 2022.
-------------------------- -----------------------------------------------
Russian The sanctions imposed Like most oil produced in Kazakhstan
sanctions on Russia may affect for the international market the
both the Group's Company's oil is transported to international
ability to transport buyers via the Russian oil pipeline
its oil and the network.
price at which the
oil may be sold. The decision by the Kazakh authorities
to re designate oil produced in Kazakhstan
It may also affect as Kazakhstan Export Blend Crude
the Group's ability Oil ("KEBCO") seems to have had little
to source equipment impact and we still suffer large
and other consumables discounts for what many still refer
required to produce to as "Urals Oil."
oil.
This is despite confirmation from
the UK and the European Union that
oil produced in Kazakhstan and transported
via the Russian pipeline network
is not subject to sanctions.
With the Urals Oil discounts and
export taxes still levied based on
the full international price selling
on the international market is not
commercially viable.
We therefore currently sell all our
oil either on the traditional domestic
market or the relatively new domestic
mini refinery market where taxes
and other deductions are much lower.
Equipment and consumables previously
sourced from Russia are now found
elsewhere, typically China, adding
time and expense.
-------------------------- -----------------------------------------------
Permitting Every stage of the Regulatory delays are inevitable
risks Group's operations and common place.
requires the approval
of the industry Our experienced Kazakh workforce
regulators. has both a thorough knowledge of
the complex rules and a detailed
While the Group practical understanding of the workings
enjoys good working of each of the regulatory bodies
relationships with with whom we need to deal. Accordingly,
the Kazakh regulatory we believe we are well placed to
authorities there minimise the financial impact of
can be no assurances regulatory delays.
that the laws and
regulations and
their reinterpretation
will not change
in future periods
and that, as a result,
the Group's activities
would be affected.
-------------------------- -----------------------------------------------
Pricing We operate in an We have no influence on the price
risk industry where the at which we can sell our oil.
international price
is set by world Greater storage and or financial
markets and the hedging would provide some protection
domestic price is against adverse price movements but
set by the Kazakh would be expensive and short lived.
regulatory authorities.
It would only be with international
oil prices below $50 per barrel for
a prolonged period that we would
need to consider cost cutting to
match income and expenditures.
-------------------------- -----------------------------------------------
Environmental There would be serious The Group seeks to maintain compliance
risk consequences in with all applicable regulatory standards
the event of a polluting and practices.
event.
Further information is set out in
the Environmental, Social and Governance
Report.
-------------------------- -----------------------------------------------
Climate That climate change The board does not believe in the
change might impact the short to medium term climate change
prospects for the will have a material impact on the
Group Group's revenues or operations. In
particular the board believes the
demand for oil will continue for
at least the next decade and that
climate change is unlikely to materially
impact the Group's ability to produce
that oil.
-------------------------- -----------------------------------------------
Exchange Movements in exchange The Group's income is denominated
rate risk rates may result in US$ and Kazakh Tenge its expenditure
in actual losses is denominated principally in US$,
or in the results Kazakh Tenge and UK GBP.
reported in the
Group financial In the year under review the Tenge
statements. broadly maintained its exchange rate
against the US$. Since the year end
the Kazakh Tenge has fallen by approximately
7.2% against the US $.
Any decline in the Kazakh Tenge against
the US$ affects the US$ reported
income for domestic sales which transacted
in Tenge. However, in such circumstances
the Group generally benefits as international
income is unaffected but approximately
50% of the Group's costs are incurred
in Tenge reducing the US$ reported
operating costs.
Given the relative strengths of the
US$ and the Kazakh Tenge, the Group
has decided not to seek to hedge
this foreign currency exposure.
-------------------------- -----------------------------------------------
Loss of In previous periods The Group is now producing significant
major shareholder the Group has relied volumes of oil and is financially
support on the financial a self-supporting enterprise.
support of the Oraziman
family, which holds However, in the event further support
48% of the Company's was required it would clearly be
shares. in the interests of the Oraziman
family as the major shareholding
group to provide it.
-------------------------- -----------------------------------------------
Supplier Continued operations We have been operating the BNG Contract
risk depend on regular Area for more than a decade during
deliveries to site which we have encountered numerous
of consumables, supply issues, all of which have
such as water, food, been overcome.
heating oil and
replacement parts Managing supplies has become one
for our drilling of the most important aspects of
equipment. Delays the business.
in such deliveries
to site could impact With the majority of supplies now
production volumes. coming from China, whose border is
approximately 3,000 kilometers from
Recently the war the BNG Contract Area lead times
in Ukraine has resulted are now much greater. In addition,
in supplies no longer the working capital investment is
being sourced from also much greater as supplies need
Russia. Replacement to be paid for much earlier than
supplies from China before.
are taking much
longer to arrive.
-------------------------- -----------------------------------------------
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) REPORT
This report covers our ESG approach and performance for the year
ended 31 December 2022.
ENVIRONMENTAL
Introduction
Oil and gas exploration and production is a long-term activity
requiring effective environmental stewardship. We have operated in
Kazakhstan now for more than 16 years and have only been able to do
so by complying with applicable environmental standards.
We recognise that society is transitioning towards a low-carbon
future, and we support this goal. However, we believe that oil will
continue to play an important role in the global economy for many
years to come, and new sources of oil supply will be required for a
sustainable energy transition.
Climate change
Assessing the risks
We look to the Kazakh regulatory authorities to set the
standards to which we work.
Compliance with the standards
We seek to comply with all relevant Kazakh environmental
requirements, including environmental laws & regulations and
industry guidelines.
Specific initiatives
-- We seek to recycle gas produced as a by-product at BNG to
power the Contract Area's day-to-day operations.
-- We seek wherever possible to avoid flaring, which in any event is a regulated activity.
-- Our workers at the BNG Contract Area are drawn from the local
community, lessening the transportation carbon footprint.
-- We make extensive use of existing oil pipelines to move our oil.
Health and safety
Our daily operations prioritise health and safety and protecting
the environment and we seek to comply with all applicable health
and safety related regulations.
SOCIAL
Since the Group's formation in 2006, the social obligations
payments made principally to the authorities in the regions in
which the group operates have funded a range of projects for the
benefit of the local communities concerned.
GOVERNANCE
Introduction
Overall responsibility over the Group's corporate governance,
risk management, market disclosure and related obligations rests
with the Board.
The Governance & Risk Committee comprises Clive Carver,
Edmund Limerick and Aibek Oraziman with Clive Carver acting as
chairman. The committee typically meets at least once a year to
review the Group's governance procedures compared to accepted
industry best practice.
At the appropriate time the Board plans to include a formal risk
register including all the principal operational and
non-operational risks to the business to be considered by the
Governance & Risk Committee.
Following the AGM, we intend to re-constitute the various Board
committees.
Share dealing policy
The Group has adopted and operates a share dealing code for
Directors and employees in accordance with the AIM Rules.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG) REPORT
GOVERNANCE
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 also intends to periodically
review the Group's financial controls and operating procedures.
Internal audit
The Board does not consider it appropriate for the current size
of the Group to establish an internal audit function. However, this
will be kept under review.
Bribery and corruption
The UK Bribery Act 2010 came into force on 1 July 2011.
The Company is committed to acting ethically, fairly and with
integrity in all its endeavours and compliance with legislation is
monitored. The principal terms of the UK Bribery Act have been
translated into Russian and circulated to our Kazakh based staff.
Consideration of the UK Bribery Act is a standing item at board
meetings.
The Company's culture
Our culture might best be described as one where we strive for
commercial success while treating others fairly and with respect.
The Board firmly believes that sustained success will best be
achieved by following this simple philosophy. Accordingly, in
dealing with each of the Groups principal stakeholders, we
encourage our staff to operate in an honest and respectful manner.
We also believe in getting proper value for money spent and believe
this goes hand in hand with being a low-cost operator.
Kazakhstan plays an important part in the Group's culture. It is
where we operate; where almost all staff are based; it is the
nationality of most staff and of the majority of shareholders.
The Group is committed to promoting a culture based on ethical
values and behaviours across the business. Policies are in place
covering key matters such as equality, protection of sensitive
information, conflicts of interest, whistleblowing and health and
safety as well as environmental concerns.
QCA Code
Caspian Sunrise, in line with most AIM companies, elected to
apply the rules of the Quoted Companies Alliance (QCA) Corporate
Governance Code ("QCA Code"), which is based around 10 broad
principles.
Principle 1 Objective
Caspian Sunrise's objective is to create shareholder
Establish a value from the development of oil and gas projects
strategy and and associated activities.
business model
which promotes The Group has a number of secondary objectives,
long term value including promoting the highest level of health
for shareholders and 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, in particular
Kazakhstan where the board has the greatest
experience. Additionally, the Group will seek
to exploit associated opportunities where the
board believes it can add significant value
and contribute towards the success of the Group
as a whole.
Our business model
Our business model is to invest in and develop
promising oil & gas and other projects.
Growth in long term value will be measured
by a sustainable appreciation in the Company's
share price.
Principal assets
The Group's principal asset is its 99% interest
in the BNG Contract Area, which is in the west
of Kazakhstan, 40 kilometres southeast of Tengiz
on the edge of the Mangistau Oblast.
The Group also has a 100% interest in the 3A
Best Contract Area and a 100% interest in the
Caspian Explorer drilling vessel, although
recently the Group has conditionally agreed
to sell 50% of its interest in the Caspian
Explorer for $22.5 million.
The Group has an option to acquire the Block
8 Contract Area for a maximum consideration
of $60 million to be paid from production from
Block 8 at the rate of $5 per barrel.
Further acquisitions are expected.
Principle 2 Shareholder communications
Seek to understand The Company communicates with its shareholders
and meet shareholder via RNS announcements, its website, formal
needs and expectations company meetings and periodic investor presentations.
The need to avoid selectively releasing price
sensitive information often limits our ability
to provide the answers many investors seek.
The Company's management meets prospective
institutional investors from to time to time
to assess the availability of large-scale institutional
funding to advance the company's plans.
Our shareholders
A large proportion of the Company's shares
are held by a relatively small group, namely:
The Oraziman family (48%); other Kazakh shareholders
(5%); Korean shareholders (10%); shareholders
in the UAE (10)%; with the remaining (27)%
being principally UK based investors.
There is a contact form available for investors
to use on the website: https://www.caspiansunrise.com/contact/contact-form/
-------------------------------------------------------------------------------
Principle 3 Our stakeholders
Take into account In addition to our shareholders the Company
wider stakeholder regards its employees and their families, local
and social responsibilities and national government, suppliers and customers
and their implications to be the core of the wider stakeholder group.
for long term
success Employees
Almost all staff employed by the Group are
based in Kazakhstan. The Group draws most of
its field workers from the Mangistau region
where alternative employment opportunities
are limited. At our head office in Almaty we
employ further staff, some of whom hold highly
skilled positions.
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 communication
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 email updates and staff meetings.
Local communities
The Group has provided significant financial
support to the Mangistau region for over a
decade by way of social payments sometimes
delivered in the form of medical or educational
facilities for the local population.
Part of our work programme obligations are
paid in the form of contributions to local
social programmes. We are pleased to have assisted
in the development of these projects and look
forward to contributing to others in the coming
years.
Kazakh Government agencies and regulators
The Kazakh authorities are responsible for
granting licences to explore for and produce
oil. Licences are awarded subject to agreed
work programmes being adhered to over the period
of each licence renewal. This includes compliance
with rules designed to preserve the environment.
Caspian Sunrise has an extremely high proportion
of Kazakh nationals in our workforce and among
our core shareholder group. The Board believes
that this helps create a positive relationship
with the Kazakh authorities and has assisted
in the Group's day-to-day dealings with the
regulators.
External stakeholders
Many additional jobs have been funded in the
Company's suppliers, partners and professional
advisers.
Feedback
The Company considers feedback from its stakeholders
in its decisions and actions.
-------------------------------------------------------------------------------
Principle 4 Risk assessment
Embed effective Oil & gas exploration and production is a dangerous
risk management, activity and as such is necessarily subject
considering both to an extreme health and safety regime. Risk
opportunities assessment and evaluation is an essential part
and threats, of the Company's planning and an important
throughout the aspect of the Company's internal control system.
organisation
It is planned to introduce a formal risk register,
including all the principal operational and
non-operational risks to the business. Such
a risk register would be reviewed and assessed
at least once a year by the Audit Committee.
A summary of the principal risks facing the
Group are set out in the Principal Risks section
on page 26 of these Financial Statements.
-------------------------------------------------------------------------------
Principle 5 Board composition
Maintain the The board comprises three executive directors
board as a well-functioning, and two non-executive directors.
balanced team
led by the chair Executive directors
At the executive level Kuat Oraziman, Chief
Executive Officer, and Seokwoo Shin Chief Operating
Officer run the Company's operations in Kazakhstan
with Clive Carver, Executive Chairman, taking
the lead on non-operational matters including
financial matters and all aspects related to
the listing of the Company's shares on AIM,
Corporate Governance compliance and Investor
Relations.
Kuat Oraziman is a trained geologist and member
of the Academy of Sciences. He has more than
28 years oil and gas experience in Kazakhstan.
Seokwoo Shin worked for the Korean National
Oil Corporation from 1987 until 2018 with spells
in Korea, the United Kingdom, Russia and most
recently Kazakhstan, where he was responsible
for KNOC's Kazakh oil fields. He joined Caspian
Sunrise in 2018.
Clive Carver is a fellow of the Institute of
Chartered Accountants in England and Wales
(FCA) and a fellow of the Association of Corporate
Treasurers (FCT). While working in the UK broking
industry Clive gained more than 15 years' experience
as a Qualified Executive under the AIM Rules
having led the Corporate Finance departments
of several of the larger and more active Nominated
Adviser firms.
Non-executive directors
Edmund Limerick, Senior Independent Non-executive
director is a Russian speaking former lawyer
and investment banker who ran an institutional
investment fund focused on Central Asia.
Aibek Oraziman, is the Company's largest shareholder
with 46.7% of the Company's shares. He has
more than 13 years oil and gas experience in
Kazakhstan, including 3 years in the field
at Aktobe working for a local oil company.
The board believes it possesses the skills
required to build a successful and durable
oil and gas business focused on Kazakhstan.
The board meets a minimum of four times each
year supported by periodic telephone meetings.
At such meetings the board receives a report
from Kuat Oraziman on all matters operational
and from Clive Carver on non-operational matters.
The board also has a list of standing items,
including compliance with the UK Bribery Act,
litigation and existence of open and closed
periods for director dealings, which are considered
at each meeting.
The number of board meetings attended each
year by the directors is set out in the Directors'
report which forms part of the Annual Report
and Financial Statements.
Departures from the Code
Executive Chairman
The principal reason advanced by proponents
of the Code that the Chairman be non-executive
is to split the roles of Chairman and Chief
Executive Officer as combining them puts too
much control in one pair of hands. This is
not the case with our Company where the Chief
Executive Officer's family is the largest shareholder,
with some 48%.
Clive Carver was appointed Non-Executive Chairman
of the Company in 2006 in the lead-up to the
IPO the following year. In 2012 he was appointed
Executive Chairman at the same time as Kuat
Oraziman moved from Non-Executive Director
to Chief Executive Officer.
In the past decade, Clive Carver has served
as non-executive chairman of eight AIM listed
companies. In addition, his 15 years as a Qualified
Executive and head of active corporate finance
departments make him a very suitable candidate
to be Chairman, notwithstanding his executive
status.
Non-Executive Directors' participation in
Option Schemes
In common with many AIM listed companies we
actively encourage non-executive directors
to participate in the Company's option schemes.
Proponents of the Code believe this affects
the independence of the non-executive directors
concerned.
We believe that independence is a matter of
independence of mind, judgement and integrity.
We consider our non-executives' ability to
act independently to be unaffected by the level
of participation in the Company's option scheme.
Size of the board - requiring the involvement
of Executive Directors in the various board
committees
With only two non-executive directors it is
inevitable that the board committees will comprise
executive and non-executive directors. The
Company accepts this is not a long-term solution
and at the appropriate time will look to appoint
an additional non-executive director.
-------------------------------------------------------------------------------
Principle 6 Experience
Ensure that The experience of the directors and the operational
between them board is set out in the response to Principle
the directors 5 above and in the Annual Report and Financial
have the necessary Statements.
up-to-date experience,
skills and capabilities Operational skills are maintained through an
active day to day interaction with leading
international consultancies and contractors
engaged to assist in the development of the
Company's assets.
Non-operational skills are maintained principally
via the Company's interaction with its professional
advisers plus the experience gained from sitting
on the boards of other commercial enterprises.
As the Company develops and moves from predominantly
an oil exploration company to a balanced production
and exploration company, the board will periodically
re-assess the adequacy of the skills on both
the main board and the operational board. Where
gaps are found, new appointments will be made.
-------------------------------------------------------------------------------
Principle 7 Performance
Evaluate board The Company currently does not evaluate board
performance based performance on a formal basis. However, it
on clear and will in the near term seek to formalise the
relevant objectives, assessment of both executive and non-executive
seeking continuous board members.
improvement
The Company is aware of its need to facilitate
succession planning and the board evaluation
process will form part of this going forward.
-------------------------------------------------------------------------------
Principle 8 Culture
Promote a corporate Our culture can best be described as one where
culture that we strive for commercial success while treating
is based on ethical others fairly and with respect. The board firmly
values and behaviours believes that sustained success will best be
achieved by following this simple philosophy.
Accordingly, in dealing with each of the Company's
principal stakeholders, we encourage our staff
to operate in an honest and respectful manner.
Operating with integrity is clearly good business
and forms an important part of the annual assessment
of staff and in setting their pay for future
periods.
-------------------------------------------------------------------------------
Principle 9 Governance
Maintain governance The Company believes that its governance structures
structures and and processes are consistent with its current
processes that size and complexity. The Board is aware that
are fit for purpose it must continue to review its practices as
and support good the Company evolves and grows.
decision-making
by the board The executive members of the Board have overall
responsibility for managing the day-to-day
operations of the Company and the Board as
a whole is responsible for implementing the
Company's strategy.
The Audit Committee typically meets before
each set of results (interim and final) are
published and the Remuneration Committee typically
meets at least once a year, when the Financial
Statements for the Full year results are approved.
All Committee members attend these meetings.
Our Report and Accounts contain reports from
the Chairman of the Remuneration. and the Audit
Committee.
The appropriateness of the Company's governance
structures will be reviewed annually in light
of further developments of accepted best practice
and the development of the Company.
-------------------------------------------------------------------------------
Principle 10 Communications
Communicate The Company reports formally to its shareholders
how the company and the market twice each year with the release
is governed and of its interim and full year results.
is performing
by maintaining The Annual Report and Financial Statements
a dialogue with set out how the corporate governance of the
shareholders Company has been applied in the period under
and other relevant review including the work undertaken by the
stakeholders Audit Committee and the Remuneration Committee.
The Annual Report and Financial Statements
contain full details of the principal events
of the relevant period together with an assessment
of current trading and prospects. They are
sent to shareholders and made available on
the Company's website to anyone who wishes
to review them.
The Board already discloses the result of general
meetings by way of RNS announcements, disclosing
the voting numbers.
The Company's website also contains all the
information prescribed for an AIM Company under
Rule 26.
Further details of the Company's dialogue with
its shareholders are set out under Principle
2 above.
Employee stakeholders are regularly updated
with the development of the Company and its
performance.
We are in almost constant communication with
our Governmental and regulatory stakeholders
via their involvement in our day-to-day operational
activities.
-------------------------------------------------------------------------------
Board composition, skills and capabilities
From 1 January 2022 the Board comprised three executive
directors and two non-executive directors:
Clive Carver, Executive Chairman
Clive is a fellow of the Institute of Chartered Accountants in
England and Wales (FCA) and a fellow of the Association of
Corporate Treasurers (FCT). He is an experienced public company
director having been chairman of a number of AIM companies in
recent years.
Kuat Oraziman, Chief Executive Officer
Kuat Oraziman runs the Company's operations in Kazakhstan. Kuat
Oraziman is a trained geologist and member of the Academy of
Sciences. He has more than 28 years oil and gas experience in
Kazakhstan.
Seokwoo Shin, Chief Operating Officer
Seokwoo Shin was educated at Sungkyunkwan University in Korea.
He worked for the Korean National Oil Corporation from 1987 until
2019 with spells in Korea, the United Kingdom, Russia and most
recently Kazakhstan, where he was responsible for KNOC's Kazakh oil
fields. He joined Caspian Sunrise in 2018 and on 4 March 2021 was
appointed the board as Chief Operating Officer.
Edmund Limerick, Senior Non-Executive Director
Edmund is a Russian speaking former lawyer and investment banker
who ran an institutional investment fund focused on Central Asia.
Edmund was called to the Bar in 1987 and served as an officer in
the Foreign & Commonwealth Office until 1992 with postings in
Paris, Dakar and Amman. He was an international corporate lawyer at
Clifford Chance, Freshfields and Milbank Tweed (where he headed the
Moscow Office) before joining Deutsche Bank as a director in
Moscow, London and Dubai. In 2006, he joined Altima Partners where
he managed the Altima Central Asia Fund, focusing on Kazakhstan.
Edmund has served as a director of Caspian Sunrise plc since 2010
and chairs the Audit and Remuneration Committees.
Aibek Oraziman, Non-executive director
Aibek Oraziman was educated in Kazakhstan and in the United
Kingdom. He has more than 13 years oil and gas experience in
Kazakhstan, including 3 years in the field at Aktobe working for a
local oil company. He was appointed to the Caspian Sunrise board on
21 August 2020.
The Board believes it possesses the skills required to build a
successful and durable oil and gas business focused on
Kazakhstan.
Board and committee meetings
Attendances of Directors at board and committee meetings
convened in the year, and which they were eligible to attend in
person or by telephone, are set out below:
Director Board meetings Remuneration Committees Audit Committee
attended attended attended
Clive Carver 7 of 7 2 of 2 2 of 2
--------------- ------------------------ ----------------
Kuat Oraziman 7 of 7 N/A N/A
--------------- ------------------------ ----------------
Edmund Limerick 7 of 7 2 of 2 2 of 2
--------------- ------------------------ ----------------
Seokwoo Shin 7 of 7 N/A N/A
--------------- ------------------------ ----------------
Aibek Oraziman 7 of 7 2 of 2 2 of 2
--------------- ------------------------ ----------------
The Board has established the following committees:
Audit Committee
The Audit Committee which comprises Edmund Limerick, Aibek
Oraziman 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 auditor, the scope
of the audit.
The Audit Committee receives and reviews reports from the
management and the external auditor 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 Group and the Company
and ensures they are properly monitored and reported on.
Remuneration Committee
The Remuneration Committee, which comprises Edmund Limerick
Aibek 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.
Board committee membership in 2022
Director Audit Remuneration Corporate Governance
Committee Committee Committee
Served Served Served Served Served Served
from to from to from to
---------- ------------ ---------- ------------ ---------- ------------
Clive Carver 1 January 31 December 1 January 31 December 1 January 31 December
---------- ------------ ---------- ------------ ---------- ------------
Kuat Oraziman N/A N/A N/A N/A N/A N/A
---------- ------------ ---------- ------------ ---------- ------------
Edmund Limerick 1 January 31 December 1 January 31 December 1 January 31 December
---------- ------------ ---------- ------------ ---------- ------------
Seokwoo N/A N/A N/A N/A N/A N/A
Shin
---------- ------------ ---------- ------------ ---------- ------------
Aibek Oraziman 1 January 31 December 1 January 31 December 1 January 31 December
---------- ------------ ---------- ------------ ---------- ------------
Clive Carver
6 July 2023
REMUNERATION COMMITTEE REPORT
Remuneration Committee
The Remuneration Committee comprises Edmund Limerick, Aibek
Oraziman and Clive Carver and is chaired by Edmund Limerick.
Remuneration policy
The Group's and 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. However, the
Covid-19 impact on the Group's finance required the Directors to
accept very significant reductions in the amounts received which
continued throughout 2021, 2022 and to date in 2023.
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:
Executive Date of service agreement Date of last renewal
/ appointment letter of appointment
Clive Carver 20 March 2019 30 June 2022
-------------------------- ---------------------
Kuat Oraziman 6 December 2019 22 July 2021
-------------------------- ---------------------
Edmund Limerick 25 January 2019 26 June 2020
-------------------------- ---------------------
Aibek Oraziman 21 August 2020 N/A
-------------------------- ---------------------
Seokwoo Shin 4 March 2021 N/A
-------------------------- ---------------------
Notwithstanding their service agreements or letters of
appointment the directors who served throughout the period under
review have agreed until further notice to restrict their
remuneration to approximately 25% of previous amounts without any
accrual for the 75% sacrificed.
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.
Directors Role 2022 2022 2022 2021
Salary / Share options Total Total
fees US$ US$ US$
US$
Clive Carver Chairman 152,698 - 152,698 120,000
--------------- ---------- --------------- -------- --------
Kuat Oraziman CEO 156,753 - 156,753 142,055
--------------- ---------- --------------- -------- --------
Seokwoo
Shin COO 54,000 - 54,000 54,025
--------------- ---------- --------------- -------- --------
Edmund Limerick Non-executive 16,319 - 16,319 15,600
--------------- ---------- --------------- -------- --------
Aibek Oraziman Non-executive - - - -
--------------- ---------- --------------- -------- --------
Total 379,770 - 379,770 331,680
---------- --------------- -------- --------
Share option amounts refer to the IFRS 2 accounting charge.
There were no company pension contributions in respect of any
director.
Bonus schemes
All Executive Directors are eligible for consideration of
participation in the Company bonus scheme. However, as in previous
years no bonuses are payable in respect of the year ended 31
December 2022 (2021: nil).
Long term incentives
Share options
The current interests as at approval of accounts of the current
Directors in share options agreements are as follows:
Directors Granted Exercise Expiry Date
price
14 December
Clive Carver 2,400,000 4p 2023
---------- --------- ---------------
Clive Carver 3,000,000 20p 21 August 2024
---------- --------- ---------------
Kuat Oraziman 3,000,000 20p 21 August 2024
---------- --------- ---------------
Edmund Limerick 750,000 20p 21 August 2024
---------- --------- ---------------
Edmund Limerick 1,000,000 20p 5 June 2029
---------- --------- ---------------
Edmund Limerick 1,000,000 5.5p 9 January 2032
---------- --------- ---------------
Seokwoo Shin 2,500,000 5.5p 9 January 2032
---------- --------- ---------------
There were no options exercised in 2022.
Cash based incentives
In May 2019, we introduced cash based long term incentive
arrangements for the senior management team since 2012, Kuat
Oraziman and Clive Carver.
Under these arrangements, provided the share price growth
exceeds pre-set targets starting at 17.23p, then for every $500
million increase in the Group's market capitalisation above $300
million, as adjusted to take account of dividends paid, both Kuat
Oraziman and Clive Carver, would receive payments of $3 million
each.
The principal hurdles under these arrangements are set out in
the table below.
Market cap threshold Share price Pay-out rate Pay-out amount
target (each) (each)
$' billion Pence per share % $' million
---------------- ------------- ---------------
0.8 17.23 0.6 3.0
---------------- ------------- ---------------
1.3 20.67 0.6 3.0
---------------- ------------- ---------------
1.8 24.81 0.6 3.0
---------------- ------------- ---------------
2.3 29.77 0.6 3.0
---------------- ------------- ---------------
2.8 35.72 0.6 3.0
---------------- ------------- ---------------
The scheme continues beyond the numbers in the table such that
with the threshold for market capitalisation increasing at the rate
of $0.5 billion and the corresponding share price threshold
increasing from the earlier threshold by a constant factor of
1.2.
Each threshold must be sustained for at least 30 consecutive
days for the awards to be triggered. There may be only one pay-out
for each market capitalisation threshold crossed no matter how many
times it is crossed.
Whilst the Incentive Scheme is in place neither of the
recipients will be granted any further options.
On behalf of the Directors of Caspian Sunrise plc
Edmund Limerick
Chairman of Remuneration Committee
6 July 2023
AUDIT COMMITTEE REPORT
The Audit Committee
The Audit Committee, which comprises Edmund Limerick, Clive
Carver and Aibek Oraziman, 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 auditor, the scope
of the audit.
Role and responsibilities
The Audit Committee is responsible for monitoring the integrity
of the Company's financial statements, reviewing significant
financial reporting issues, reviewing the effectiveness of the
Group's internal control and risk management systems.
In addition, it considers the financial performance, position
and prospects of the Group and the Company and ensures they are
properly monitored and reported on. It oversees the relationship
with the Auditor (including advising on their appointment, agreeing
the scope of the audit and reviewing the audit findings).
Meetings
The committee met on two occasions during the year under
review.
Internal audit
The Board and the Audit Committee do not consider it appropriate
for the current size of the Group to establish an internal audit
function. However, this will be kept under review.
Attendance at Audit Committee meetings
Please see the table in the preceding Corporate Governance
Report for attendance by the members of the Audit Committee.
On behalf of the Directors of Caspian Sunrise plc
Edmund Limerick
Chairman of Audit Committee
6 July 2023
Independent auditor's report to the members of Caspian Sunrise
plc
Qualified opinion on the Group financial statements and
unmodified opinion on the Parent Company financial statements
In our opinion, except for the possible effects on the Group
financial statements of the matter described in the Basis for
qualified opinion on the Group financial statements and unmodified
opinion on the Parent Company financial statements section of our
report:
-- 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 2022 and of the Group's profit for the year then
ended;
-- the Group financial statements have been properly prepared in
accordance with UK adopted international accounting standards;
-- the Parent Company financial statements have been properly
prepared in accordance with UK adopted international accounting
standards 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.
We have audited the financial statements of Caspian Sunrise plc
(the 'Parent Company') and its subsidiaries (the 'Group') for the
year ended 31 December 2022 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 Statement of Financial Position, the Parent Company
Statement of Financial Position, the Consolidated and Parent
Company Statements of Cash Flows and the notes to the financial
statements, including a summary of significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international
accounting standards and, as regards the Parent Company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
Basis for qualified opinion on the Group financial statements
and unmodified opinion on the Parent Company financial
statements
In 2022 and 2021 the Group's subsidiary, CTS LLP, provided
drilling services to both an external related party, EPC Munai LLP,
and within the Group to BNG Ltd.
For drilling services provided to external entities, costs
should be recognised in cost of sales, which impacts the amount of
revenue recognised under the input method as detailed in note 1.19.
Drilling costs provided to other entities in the Group may be
capitalised, subject to compliance with relevant accounting
standards as detailed in note 1.8.
In 2021, no amounts were recognised in the income statement in
respect of drilling costs provided by the Group's subsidiary CTS
LLP to its customer, the external related party, EPC Munai LLP. As
a result of this an amount of $2.2m was reversed from property,
plant and equipment to cost of sales and an amount of $4.8m was
reversed from property, plant and equipment to unproven oil and gas
assets in the current year.
In 2022, CTS LLP has applied the input method of revenue
recognition in accounting for revenue on its drilling contracts to
EPC Munai LLP.
As a result, in 2022, included in the Group revenue and cost of
sales is $3.7m (2021: nil) of drilling revenue to EPC Munai LLP and
$4.1m (2021: nil) of related cost of sales. As at 31 December 2022
the Group has reported advances received from EPC Munai LLP of
$0.7m (2021: $2.1m) and drilling costs capitalised of $11m (2021:
$7.1m) as part of the Group's proven and unproven oil and gas
assets. These amounts are reported within balances included in
notes 4, 12, 13, 16 and 19.
As disclosed in note 2.2.3 to the financial statements, the
Directors have been unable to obtain reliable information for CTS
LLP in respect of the timing of the costs being incurred, their
allocation between different contracts with EPC Munai LLP, or
whether the costs should have been allocated to cost of sales
(which impacts external revenue recognised), or capitalised in the
Group's Property Plant and Equipment or Unproven oil and gas
assets. In addition, the Directors have been unable to provide
updated budgets for estimated costs to complete. This information
is necessary to determine revenue, costs of sales, advances
received/ receivables, provisions for losses on contracts,
property, plant and equipment, unproven oil and gas assets, related
tax balances and related party disclosures and as a result these
balances may be materially higher or lower than the current
recorded values.
Consequently, we were unable to obtain sufficient appropriate
audit evidence over the valuation of the Group's external drilling
revenues or the completeness and validity of its cost of sales
allocation, nor were we able to determine whether any adjustments
to the advances received/receivables, provisions for losses on
contracts, unproven oil and gas assets, property, plant and
equipment, related tax balances or related party disclosures at the
current and prior year ends were necessary as a result.
Were any adjustment to the related accounts and disclosures as
set out in the financial statements to be required as a result of
the above, the Directors' report and the Strategic report would
also need to be amended.
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our qualified opinion on the Group financial statements
and our unmodified opinion on the Parent Company financial
statements.
Independence
We remain independent of the Group and the Parent Company in
accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC's
Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with
these requirements.
Material uncertainty in relation to going concern
We draw attention to note 1.1 in the financial statements
concerning the Group and the Parent Company's ability to continue
as a going concern. Note 1.1 highlights that the Group and Parent
Company's ability to meet its liabilities and commitments as they
fall due, without additional funding being obtained, is sensitive
to the oil volumes sold and prices realised, deferral of financial
obligations and the continued availability of oil trader advances.
As stated in note 1.1, these events or conditions, along with other
matters as set out in Note 1.1, indicate that a material
uncertainty exists that may cast signi cant doubt on the Group and
the Parent Company's ability to continue as a going concern. Our
opinion is not modi ed in respect of this matter.
In auditing the financial statements, we have concluded that the
Directors' use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. We consider
going concern to be a Key Audit Matter based on our assessment of
the risk and the effect on our audit.
Our evaluation of the Directors' assessment of the Group and the
Parent Company's ability to continue to adopt the going concern
basis of accounting, and our response to this key audit matter
included:
-- We obtained the Directors' base case cash flow forecast, and
a reasonable plausible downside cash flow forecast and critically
assessed the key inputs. In doing so, we compared oil prices to
market data, production levels to recent performance trends and
operating costs to historical data.
-- We discussed the impact of sanctions against Russia on the
Group's operations with the Directors and the Audit Committee
including their assessment of risks and uncertainties associated
with areas such as production disruption, commodity price
volatility and the impact on the availability of funding. This
included considering the Group's ability to sell oil to the
domestic mini refineries, and the continuing absence of any
international sales.
-- We formed our own assessment of risks and uncertainties based
on our understanding of the business and oil sector.
-- We evaluated the completeness of forecast licence related
expenditure against the licence work programs and payments due
under the 3A Best licence. We held discussions with the Directors
and the Audit Committee regarding the status of such
applications.
-- We compared the forecast cash payments in respect of the BNG
production licence award against the $32m assessment received from
the Government payable in instalments over 10 years. We ensured
that the relevant instalments are included in the forecast.
-- We considered the appropriateness of management's judgment
that the exploration licence would be capable of being extended
beyond 2024 including assessment of the legislative process, the
forecast economic value of the assets beyond the expiry date and
risks and uncertainties within the operating environments.
-- We considered the appropriateness of the Board's judgement
regarding the availability of sufficient oil trader funding through
the forecast period. In doing so, we considered factors such as the
production profile, oil price trends and the history of
transactions with the oil traders.
-- We assessed the validity of any mitigating actions identified by the Directors.
-- We reviewed the adequacy and completeness of the disclosure
included within the financial statements in respect of going
concern against the requirement of the accounting standards and the
results of our audit testing.
Our responsibilities and the responsibilities of the Directors
with respect to going concern are described in the relevant
sections of this report.
Overview
Coverage 89% (FY21: 83%) of Group profit/(loss) before
tax, 100% (FY21:100%) of Group revenue and 97%
(FY20: 96%) of Group total assets.
2022 2021
Carrying value of unproven
oil and gas assets
Carrying value of proven -
Key audit matters oil and gas assets
BNG production licence payment -
obligations
Going concern
CTS drilling services * -
*Refer to the Basis for qualified opinion on
the Group financial statements and unmodified
opinion on the Parent Company financial statements
section of our report
Carrying value of proven oil and gas assets is
no longer considered to be a key audit matter
given the Cash generating unit has significant
headroom.
The BNG production licence payment obligations
is no longer considered to be a key audit matter
because the Group stopped contesting the amount
levied by the authorities and the amount of the
obligation became enforceable by law and has
been classified as payables.
-----------------------------------------------------
Group financial statements as a whole
Materiality US$1.7m (2021: US$1.9m) based on 1.5% (2021:
1.7%) of total assets
-----------------------------------------------------
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
Group and its environment, including the Group's system of internal
control, and assessing the risks of material misstatement in the
financial statements. We also addressed the risk of management
override of internal controls, including assessing whether there
was evidence of bias by the Directors that may have represented a
risk of material misstatement.
The Group's operations principally comprise oil and gas
exploration and production in Kazakhstan. We assessed there to be
four significant components comprising BNG, 3A Best, Caspian
Explorer and the Parent Company. These components, which were
subject to full scope audit procedures, represent the principal
business units.
Non-BDO member firms performed a full scope audit of BNG, 3A
Best and Caspian Explorer in Kazakhstan, under our direction and
supervision as Group auditors. The audit of the Parent Company and
the Group consolidation were performed in the United Kingdom by the
Group audit team.
The remaining components of the Group were considered
non-significant and these components were principally subject to
analytical review procedures by the Group audit team. Specific
audit procedures were performed on the non-significant component,
CTS LLP, by the Group audit team, including testing revenue from
drilling services. The Group audit team performed additional
procedures in respect of certain significant risk areas that
represented Key Audit Matters.
Our involvement with component auditors
For the work performed by component auditors, we determined the
level of involvement needed in order to be able to conclude whether
sufficient appropriate audit evidence has been obtained as a basis
for our opinion on the Group financial statements as a whole. Our
involvement with component auditors included the following:
-- Detailed Group reporting instructions were sent to the
component auditors, which included the significant areas to be
covered by the audit.
-- We reviewed the component auditor's work papers in
Kazakhstan, reviewed Group reporting submissions received and held
regular calls with the component audit teams during the planning
and completion phases of their audit to discuss significant
findings from their audit.
-- We held calls and meetings with members of Group and
component management to discuss accounting and audit matters
arising.
-- The Group audit team was actively involved in the direction
of the audits performed by the component auditors, along with the
consideration of findings and determination of conclusions drawn.
We performed additional procedures in respect of the significant
risk areas where considered necessary.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) that we identified, including those which had the greatest
effect on: the overall audit strategy, the allocation of resources
in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the
financial statements as a whole, and in forming our opinion
thereon, we do not provide a separate opinion on these matters. In
addition to going concern, described in the Material uncertainty
related to going concern section above and the matter disclosed in
the Basis for qualified opinion on the Group financial statements
and unmodified opinion on the Parent Company financial statements
section above, we determined the matter described below to be the
key audit matter to be communicated in our report.
Key audit matter How the scope of our
audit addressed the key
audit matter
Carrying value At each reporting period We inspected the licences
of unproven oil end, management are to confirm the validity
and gas assets required to assess of title and assessed
the exploration and the compliance with the
As at 31 December evaluation assets for licence conditions through
2022, the Group's indicators of impairment review of correspondence
unproven oil and and, where such indicators with the authorities and
gas assets related exist, perform an impairment inquiries of management.
to the BNG exploration test.
licence were carried We considered the appropriateness
at US$43.9m as In performing the impairment of management's judgment
shown in notes indicator review for that the exploration licence
12. the unproven oil and would be capable of being
gas assets in the exploration extended beyond 2024 including
phase, management are assessment of the legislative
required to make a process, the forecast
number of judgements economic value of the
as detailed in notes assets beyond the expiry
1.8 and 2.1, including date and risks and uncertainties
the likelihood of the within the operating environments.
exploration licence
being renewed or converted We inspected budgets and
to a production licence work programs submitted
following its expiry to the Kazakh authorities
in 2024. to confirm that further
drilling and exploration
Given the judgment is planned for the licence.
required by management, We considered the results
we considered this of exploration activity
area to be a key focus in the period for indications
for our audit and hence that the licences would
a key audit matter. be abandoned or that the
recoverable value would
be below cost.
Key observations:
We found management's
judgements that support
the carrying value of
the unproven oil and gas
assets to be appropriate.
------------------------------- ------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability
that any misstatements exceed materiality, we use a lower
materiality level, performance materiality, to determine the extent
of testing needed. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality
for the financial statements as a whole and performance materiality
as follows:
Group financial statements Parent company financial
statements
2022 2021 2022 2021
US$ US$ US$ US$
--------------- -------------- ----------------- ----------------
Materiality 1,700,000 1,900,000 1,200,000 1,300,000
--------------- -------------- ----------------- ----------------
Basis for determining 1.5% of total 1.7% of 70% of Group 70% of Group
materiality assets total assets materiality materiality
--------------- -------------- ----------------- ----------------
Rationale for the We have determined The Company is a holding
benchmark applied an asset-based measure company therefore materiality
is appropriate as was set at 70% of Group
the Group continues materiality given the
to focus on developing assessment of aggregation
its oil and gas projects risk.
that requires significant
capital expenditure.
------------------------------- -----------------------------------
Performance materiality 1,100,000 1,200,000 800,000 800,000
--------------- -------------- ----------------- ----------------
Basis for determining 65% of Group Materiality 65% of Parent Company
performance materiality considering the nature Materiality considering
of activities and the nature of activities
historic audit adjustments. and historic audit adjustments.
------------------------------- -----------------------------------
Component materiality
We set materiality for each significant component of the Group
based on a percentage of between 24% and 65% (2021: between 26% and
68%) of Group materiality dependent on the size and our assessment
of the risk of material misstatement of that component. Component
materiality ranged from US$400,000 to US$1,100,000 (2021: from
US$500,000 to US$1,300,000). In the audit of each component, we
further applied performance materiality levels of 65% (2021: 65%)
of the component materiality to our testing to ensure that the risk
of errors exceeding component materiality was appropriately
mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them
all individual audit differences in excess of US$34,000 (2021:
US$38,000). We also agreed to report differences below this
threshold that, in our view, warranted reporting on qualitative
grounds.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the Annual
Report and Financial Statements other than the financial statements
and our auditor's report thereon. Our opinion on the financial
statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express
any form of assurance conclusion thereon. Our responsibility is to
read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are
required to determine whether this gives rise to a material
misstatement in the financial statements themselves. If, based on
the work we have performed, we conclude that there is a material
misstatement of this other information, we are required to report
that fact.
As described in the basis for qualified opinion section of our
report, we were unable to satisfy ourselves concerning the
valuation of the Group's external drilling revenues or the
completeness and validity of its cost of sales allocation in 2022
and 2021 and we were unable to determine whether any adjustments to
the advances received/receivables, provisions for losses on
contracts, unproven oil and gas assets, property, plant and
equipment, related tax balances and related party disclosures at
the current and prior year ends were necessary as a result of this.
We have concluded that where the other information refers to these
balances it may be materially misstated for the same reason.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work
performed during the course of the audit, we are required by the
Companies Act 2006 and ISAs (UK) to report on certain opinions and
matters as described below.
Strategic report Except for the possible effects on the Group
and Directors' financial statements of the matter described
report in the Basis for qualified opinion on the Group
financial statements and unmodified opinion on
the Parent Company financial statements section
of our report, in our opinion, based on the work
undertaken in the course of the audit:
* the information given in the Strategic report and the
Directors' report for the financial year for which
the financial statements are prepared is consistent
with the financial statements; and
* the Strategic report and the Directors' report have
been prepared in accordance with applicable legal
requirements.
Except for the possible effects on the Group
financial statements of the matter described
in the Basis for qualified opinion on the Group
financial statements and unmodified opinion on
the Parent Company financial statements section
of our report, in the light of the knowledge
and understanding of the Group and Parent Company
and its environment obtained in the course of
the audit, we have not identified material misstatements
in the strategic report or the Directors' report.
Matters on which Arising solely from the limitation on our work
we are required on the Group financial statements relating to
to report by external drilling services in CTS LLP described
exception above:
* We have not obtained all the information and
explanations that we considered necessary for the
purpose of our audit; and
* We were unable to determine whether adequate
accounting records have been kept by the Parent
Company.
We have nothing to report in respect of the following
matters in relation to which the Companies Act
2006 requires us to report to you if, in our
opinion:
* 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.
------------------------------------------------------------------------------
Responsibilities of Directors
As explained more fully in the Directors' responsibilities
statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's and the Parent Company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
Extent to which the audit was capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below:
Non-compliance with laws and regulations
Based on:
-- Our understanding of the Group and the industry in which it operates;
-- Discussion with management, the Audit Committee and those
responsible for legal and compliance procedures of how the Group is
complying with those legal and regulatory frameworks;
-- Obtaining and understanding of the Group's policies and
procedures regarding compliance with laws and regulations; and
-- Our understanding of the legal and regulatory frameworks that
are applicable to the Group and the Parent company,
we considered the significant laws and regulations to be the
financial reporting framework (UK adopted international accounting
standards, the Companies Act 2006, the AIM rules and the QCA
Corporate Governance Code), the oil and gas laws and regulations of
Kazakhstan, local taxation legislation and environmental
regulations, and the terms and requirements included in the Group's
production and exploration licences.
The Group is also subject to laws and regulations where the
consequence of non-compliance could have a material effect on the
amount or disclosures in the financial statements, for example
through the imposition of fines or litigations. We identified such
laws and regulations to be the health and safety legislation,
licensing and environmental regulations.
Our procedures in respect of the above included:
-- Review of minutes of meeting of those charged with governance
for any instances of non-compliance with laws and regulations;
-- Directing the auditors of the significant components to
ensure an assessment was performed on the extent of the component's
compliance with the relevant local and regulatory framework and a
review of correspondence with regulatory and tax authorities was
performed for any instances of non-compliance with laws and
regulations;
-- Reviewing the licences to assess the extent to which the
Group was in compliance with the conditions of the licence and
considering management's assessment of the impact of instances of
non-compliance where applicable;
-- Review of financial statement disclosures and agreeing to
supporting documentation to assess compliance with relevant laws
and regulations noted above; and
-- Review of legal expenditure accounts to understand the nature of expenditure incurred.
Fraud
We assessed the susceptibility of the financial statements to
material misstatement, including fraud. Our risk assessment
procedures included:
-- Enquiry with management and the Audit Committee regarding any
known or suspected instances of fraud;
-- Obtaining an understanding of the Group's policies and procedures relating to:
o Detecting and responding to the risks of fraud; and
o Internal controls established to mitigate risks related to
fraud.
-- Review of minutes of meeting of those charged with governance
for any known or suspected instances of fraud;
-- Discussion amongst the engagement team as to how and where
fraud might occur in the financial statements;
-- Performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud; and
-- Considering remuneration incentive schemes and performance
targets and the related financial statement areas impacted by
these.
Based on our risk assessment, we considered the areas most
susceptible to fraud to be completeness of related party
disclosures, management override of controls and revenue
recognition.
Our procedures in respect of the above included:
-- Testing a sample of journal entries made throughout the year,
which met a defined risk criteria to detect possible irregularities
and fraud, by agreeing to supporting documentation;
-- Performing a detailed review of the Group's year end
adjusting entries and investigating any that appear unusual as to
nature or amount and agreeing to supporting documentation;
-- For significant and unusual transactions, particularly those
occurring at or near year-end, obtaining evidence for the rationale
of these transactions and the sources of financial resources
supporting the transactions;
-- Involvement of forensic specialists to test the completeness
of the related party disclosures by testing the Group and
director's relationship with a sample of targeted suppliers and
customers;
-- Testing a sample of revenue transactions to supporting
documentation, including testing a sample of revenue transactions
in the period proceeding and preceding year end to check that
revenue was recognised in the correct period. In addition, we
obtained a sample of significant sales agreements, evaluated key
terms and assessed the appropriateness of revenue recognition
policies against the relevant accounting standards; and
-- Assessing significant judgements and estimates made by
management for bias and challenging management on the
appropriateness of these judgements and estimates (refer to key
audit matters above).
We also communicated relevant identified laws and regulations
and potential fraud risks to all engagement team members including
component engagement teams who were all deemed to have appropriate
competence and capabilities and remained alert to any indications
of fraud or non-compliance with laws and regulations throughout the
audit. For component engagement teams, we also reviewed the results
of their work performed in this regard.
Our audit procedures were designed to respond to risks of
material misstatement in the financial statements, recognising that
the risk of not detecting a material misstatement due to fraud is
higher than the risk of not detecting one resulting from error, as
fraud may involve deliberate concealment by, for example, forgery,
misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further
removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less
likely we are to become aware of it. In addition, the extent to
which the audit was capable of detecting irregularities, including
fraud was limited by the matter described in the Basis for
qualified opinion on the Group financial statements and unmodified
opinion on the Parent Company financial statements section of our
report.
A further description of our responsibilities is available on
the Financial Reporting Council's website at:
www.frc.org.uk/auditorsresponsibilities . This description forms
part of our auditor's report.
Use of our report
This report is made solely to the Parent 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 Parent 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 Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed.
Peter Acloque (Senior Statutory Auditor)
For and on behalf of BDO LLP, Statutory Auditor
London,
United Kingdom
6 July 2023
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated Statement of Profit or Loss
Notes Year to Year to
31 December 31 December
20 22 20 2 1
-------------------------------------------- -----
US$'000 US$'000
-------------------------------------------- ----- ------------------ ------------------
Revenue 4 42,949 24,996
Cost of sales (10,637) (5,624)
-------------------------------------------- ----- ------------------ ------------------
Gross profit 32,312 19,372
Selling expense (9,751) (7,578)
Impairment of unproven oil and gas assets 12 - (12,464)
Other administrative costs ( 9,767 ) ( 3 , 332 )
-------------------------------------------- ----- ------------------ ------------------
Operating income / (loss) 5 12,794 (4, 002 )
Finance cost 8 (585) (859)
Finance income 9 59 24
Profit / (loss) before taxation 12,268 (4, 837 )
Tax charge 10 (2,371) (709)
-------------------------------------------- ----- ------------------ ------------------
Profit / (loss) after taxation from
continuing operations 9,897 (5, 546 )
-------------------------------------------- ----- ------------------ ------------------
Income / (loss) for the year 9,897 (5, 546 )
------------------ ------------------
Income / (loss) attributable to owners
of the parent 9,763 (5, 554 )
Income attributable to non-controlling
interest 134 8
-----
Income / (loss) for the year 9,897 (5,546)
-------------------------------------------- ----- ------------------ ------------------
Basic and diluted profit/(loss) per
ordinary share (US cents) 11 0.44 (0.26 )
-------------------------------------------- ----- ------------------ ------------------
Consolidated Statement of Comprehensive Income
Year ended Year ended
31 December 31 December
20 22 202 1
------------------------------------------------
US$000 US$000
------------------------------------------------ ------------- -------------
( 5 , 546
Profit / (loss) after taxation 9,897 )
------------------------------------------------ ------------- -------------
Other comprehensive income/(loss):
Exchange differences on translating foreign (4,418 (6, 863
operations ) )
Total comprehensive profit /(loss) for the (12, 409
year 5,479 )
------------------------------------------------ ------------- -------------
Total comprehensive profit/(loss) attributable
to:
(12, 417
Owners of parent 5,345 )
Non-controlling interest 134 8
------------------------------------------------ ------------- -------------
Consolidated Statement of Changes in Equity
Share Share Deferred Cumulative Other Merger Retained Total Non-controlling Total
capital premium shares translation reserves reserve profit attributable interests equity
US$'000 US$'000 reserve US$'000 US$'000 / to the owner US$'000 US$'000
US$'000 US$'000 (deficit) of the
US$'000 Parent
US$'000
Total equity
as at 1
January
2022 31,118 164,817 64,702 (62,103) (2,362) 11,511 (156,239) 51,444 (5,801) 45,643
--------------- ------- --------- -------- ----------- -------- ------- --------- ------------ --------------- -------
Income after
taxation - - - - - 9,763 9,763 134 9,897
Exchange
differences
on
translating
foreign
operations
and recycling
of exchange
differences
on
disposal of
subsidiaries - - - (4,418) - - - (4,418) - (4,418)
--------------- ------- --------- -------- ----------- -------- ------- --------- ------------ --------------- -------
Total
comprehensive
income/(loss)
for the year - - - (4,418) - - 9,763 5,345 134 5,479
--------------- ------- --------- -------- ----------- -------- ------- --------- ------------ --------------- -------
Shares issue
(note 18) 1,942 4,273 - - - - - 6,215 - 6,215
Cancellation
of share
premium
and deferred
shares * - (169,090) (64,702) - - - 233,792 - - -
Dividends
declared ** - - - - - - (2,444) (2,444) - (2,444)
Total equity
as at 31
December 8 4 ,
2022 33,060 - - (66,521) (2,362) 11,511 872 60,560 (5,667) 54,893
--------------- ------- --------- -------- ----------- -------- ------- --------- ------------ --------------- -------
Share Share Deferred Cumulative Other Merger Retained Total Non-controlling Total
capital premium shares translation reserves reserve profit attributable interests equity
US$'000 US$'000 reserve US$'000 US$'000 / to the owner US$'000 US$'000
US$'000 US$'000 (deficit) of the
US$'000 Parent
US$'000
Total equity
as at 1
January
2021 30,804 164,313 64,702 (55,240) (2,362) 11,454 (150,685) 62,986 (5,809) 57,177
--------------- ------- ------- -------- ----------- -------- ------- --------- ------------ --------------- --------
Loss after
taxation - - - - - - (5,554) (5,554) 8 (5,546)
Exchange
differences
on
translating
foreign
operations
and recycling
of exchange
differences
on
disposal of
subsidiaries - - - (6,863) - - - (6,863) - (6,863)
--------------- ------- ------- -------- ----------- -------- ------- --------- ------------ --------------- --------
Total
comprehensive
income/(loss)
for the year - - - (6,863) - - (5,554) (12,417) 8 (12,409)
--------------- ------- ------- -------- ----------- -------- ------- --------- ------------ --------------- --------
Shares issue
(note 18) 264 486 - - - - - 750 - 750
Shares issued
to employees
and
consultants
(note 18) 50 18 - - - 57 - 125 - 125
Total equity
as at 31
December
2021 31,118 164,817 64,702 (62,103) (2,362) 11,511 (156,239) 51,444 (5,801) 45,643
--------------- ------- ------- -------- ----------- -------- ------- --------- ------------ --------------- --------
*in 2022 the Company p reformed a capital reduction (note
3).
**During 2022 the Company declared its first dividends in
November and December 2022 in aggregate US$2,444,000 (note 18).
Equity Description and purpose
Share capital The nominal value of shares issued
Share premium Amount subscribed for share capital in excess of
the nominal value
Deferred shares The nominal value of the deferred shares issued
Cumulative translation reserve Gains/losses arising on
retranslating the net assets of overseas operations into US
Dollars, less amounts recycled on disposal of subsidiaries and
joint ventures
Other reserves Fair value of warrants issued and capital
contribution arising on discounted loans
Merger reserves The excess of the fair value of the issues share
capital over the nominal value of these shares issued for
acquisition of at least 90 percent equity holding in
subsidiaries
Retained profit/(deficit) Cumulative losses recognised in the
consolidated statement of profit or loss, adjustments on the
acquisition of non-controlling interests and transfers in respect
of share based payments
Non-controlling interest The interest of non-controlling parties
in the net assets of the subsidiaries
Parent Company Statement of Changes in Equity
Share Share Deferred Merger Retained Total attributable
capital premium shares reserve profit / to the owner
US$'000 US$'000 US$'000 US$'000 (deficit) of the Parent
US$'000 US$'000
Total equity as at
1 January 202
2 31,118 164,817 64,702 11,511 (171,203) 100,945
-------------------- -------- --------- -------- --------- ---------- ---------------------------
Total comprehensive
loss for the
year - - - - (1,133) (1,133)
Shares issued in
connection with
the completed debt
conversion (note
18) 1,942 4,273 - - - 6,215
Cancellation share
of premium and
deferred shares * - (169,090) (64,702) - 233,792 -
Dividends declared
** - - - - (2,444) (2,444)
Total equity as at
31 December 2022 33,060 - - 11,511 59,012 103,583
-------------------- -------- --------- -------- --------------------- ------------------ -------
Share Share Deferred Merger Retained Total attributable
capital premium shares reserve profit / to the owner
US$'000 US$'000 US$'000 US$'000 (deficit) of the Parent
US$'000 US$'000
Total equity as at 1
January 2021 30,804 164,313 64,702 11,454 (169,398) 101,875
--------------------- -------- -------- -------- --------- ---------- ---------------------------
Total comprehensive
loss for the
year - - - - (1,805) (1,805)
Shares issue (note
18) 264 486 - - - 750
Shares issued to
employees and
consultants
(note 18) 50 18 - 57 - 125
Arising on employee
share options - - - - - -
Total equity as at
31 December 2021 31,118 164,817 64,702 11,511 (171,203) 100,945
--------------------- -------- -------- -------- --------------------- ------------------ -------
*in 2022 the Company performed a capital reduction (note 3)
**During 2022 the Company declared its first dividends in
November and December 2022 in aggregate US$2,444,000 (note 18).
Equity Description and purpose
Share capital The nominal value of shares issued
Share premium Amount subscribed for share capital in excess of
nominal value
Deferred shares The nominal value of deferred shares issued
Other reserves Capital contribution arising on discounted
loans
Merger reserves The excess of the fair value of the issues share
capital over the nominal value of these shares issued for
acquisition of at least 90 percent equity holding in
subsidiaries
Retained profit/(deficit) Cumulative losses recognised in the profit or loss
Consolidated S tatement of Financial Position
Company number 5966431 Notes Group Group
20 2 2 2021
US$'000 US$'000
----------------------------------- ----- --------- ---------
Assets
Non-current assets
Unproven oil and gas assets 12 43,813 46,137
Property, plant and equipment 13 60,746 57,134
Other receivables 16 2,533 4,263
Restricted use cash 694 634
----------------------------------- ----- --------- ---------
Total non-current assets 107,786 108,168
----------------------------------- ----- --------- ---------
Current assets
Inventories 1 5 492 664
Other receivables 16 5,191 4,950
Cash and cash equivalents 17 3,682 429
----------------------------------- ----- --------- ---------
Total current assets 9,365 6,043
----------------------------------- ----- --------- ---------
Total assets 117,151 114,211
----------------------------------- ----- --------- ---------
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital 18 33,060 31,118
Share premium - 164,817
Deferred shares 18 - 64,702
Other reserves (2,362) (2,362)
Merger reserve 11,511 11,511
Retained profit / (deficit) 8 4 , 872 (156,239)
Cumulative translation reserve (66,521) (62,103)
----------------------------------- ----- --------- ---------
Equity attributable to the owners
of the Parent 60,560 51,444
----------------------------------- ----- --------- ---------
Non-controlling interests 26 (5,667) (5,801)
----------------------------------- ----- --------- ---------
Total equity 54,893 45,643
----------------------------------- ----- --------- ---------
Current liabilities
Trade and other payables 19 15,871 13,240
Short - term borrowings 20 352 6,425
BNG historic costs payable 19 3,178 3,178
Current provisions 21 5,977 5,482
----------------------------------- ----- --------- ---------
Total current liabilities 25,378 28,325
----------------------------------- ----- --------- ---------
Non-current liabilities
Deferred tax liabilities 22 6,335 6,463
BNG historic costs payable 19 16,297 19,290
Non-current provisions 21 469 487
Other payables 19 13,779 14,003
----------------------------------- ----- --------- ---------
Total non-current liabilities 36,880 40,243
----------------------------------- ----- --------- ---------
Total liabilities 62,258 68,568
----------------------------------- ----- --------- ---------
Total equity and liabilities 117,151 114,211
----------------------------------- ----- --------- ---------
Approved by the Board and authorized for issue:
Clive Nathan Carver,
Chairman,
6 July 2023
Company number: 5966431
Parent Company Statement of Financial Position
Company number 05966431 Notes Company Company
2022 2021
US$'000 US$'000
----------------------------------- ----- -------- ---------
Assets
Non-current assets
Investments in subsidiaries 14 15,487 15,487
Other receivables 16 88,883 88,559
Total non-current assets 104,370 104,046
----------------------------------- ----- -------- ---------
Current assets
Other receivables 16 14 10
Cash and cash equivalents 17 2,405 4
----------------------------------- ----- -------- ---------
Total current assets 2,419 14
----------------------------------- ----- -------- ---------
Total assets 106,789 104,060
----------------------------------- ----- -------- ---------
Equity and liabilities
Capital and reserves attributable
to equity holders of the parent
Share capital 18 33,060 31,118
Share premium - 164,817
Deferred shares 18 - 64,702
Merger reserve 11,511 11,511
Retained profit / (deficit) 59,012 (171,203)
Equity attributable to the owners
of the Parent 103,583 100,945
----------------------------------- ----- -------- ---------
Total equity 103,583 100,945
----------------------------------- ----- -------- ---------
Current liabilities
Short-term borrowings 20 - 2,382
Trade and other payables 19 3,206 733
Total current liabilities 3,206 3,115
----------------------------------- ----- -------- ---------
Non-current liabilities - -
Total non-current liabilities - -
----------------------------------- ----- -------- ---------
Total liabilities 3,206 3,115
----------------------------------- ----- -------- ---------
Total equity and liabilities 106,789 104,060
----------------------------------- ----- -------- ---------
The Company incurred loss for the year ended 31 December 2022 in
the amount of US$ 1,133,000 (2021: loss of US$ 1,805,000).
Approved by the Board and authorized for issue:
Clive Nathan Carver,
Chairman,
6 July 2023
Company number: 05966431
Consolidated and Parent Company Statements of Cash Flows
Group Group Company Company
2022 2021 2022 2021
US$'000
Notes US$'000 US$'000 US$'000
-------- -------- -------- --------
Cash flows from/used in operating
activities
4 5 ,
Cash received from customers 86 2 24,308 - -
Payments made to suppliers for (2 6 ,
goods and services 54 6) (15,509) (1,280) (834)
Payments made to employees (964) (1,051) (186) (163)
-------------------------------------- ------ -------- -------- -------- --------
Net cash flow from/used in operating
activities 18,352 7 ,748 (1,466) (997)
-------------------------------------- ------ -------- -------- -------- --------
Cash flows from/used in investing
activities
Purchase of property, plant
and equipment 13 (502) (7,136) - -
Additions to unproven oil and ( 7 19
gas assets 12 (11,470) ) - -
Loan provided to the related
party as part of the potential
acquisition 16, 25 (1,523) - - -
Other payment to the related
party 20, 25 (800) - - -
Transfers to restricted use
cash (59) (393) - -
Advances repaid by subsidiaries - - 4,944 840
Net cash flow from/used in investing (8,248
activities (14,354) ) 4,944 840
-------------------------------------- ------ -------- -------- -------- --------
Cash flows from/used in financing
activities
Dividends paid (1,097) - (1,097) -
Loans received from the related
parties 20, 25 352 600 20 158
Net cash flow from/used in financing
activities (745) 600 (1,077) 158
-------------------------------------- ------ -------- -------- -------- --------
Net increase in cash and cash
equivalents 3,253 100 2,401 1
Cash and cash equivalents at
the beginning of the year 429 329 4 3
-------------------------------------- ------ -------- -------- -------- --------
Cash and cash equivalents at
the end of the year 17 3,682 429 2,405 4
-------------------------------------- ------ -------- -------- -------- --------
Notes to the Financial Statements
General information
Caspian Sunrise 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 6 July 2023.
The principal activities of the Group are the exploration for
and the 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 UK-adopted international accounting standards in
conformity with the requirements of the Companies Act 2006 and as
applied in accordance with the provisions of the Companies Act
2006.
Going concern
With net current liabilities of approximately $16.0 million as
at 31 December 2022, the assessment of going concern needs careful
consideration. The Board has assessed cash flow forecasts prepared
for a period of at least 12 months from the approval of the
financial statements and assessed the risks and uncertainties
associated with the operations and funding position, including the
potential acquisition of Block 8. These cash flows are dependent on
a number of key factors including:
-- The Group's cashflow is sensitive to oil price and volume
sold. Given the large discounts encountered since the start of the
war in Ukraine we have assumed all sales will be either domestic
sales or sales to the domestic mini refineries. If sales to the new
local mini refineries did not continue as expected and in the
continuing absence of any international sales additional funding
would be required.
-- The Group continues to forward sell its domestic production
and receives advances from oil traders with $2.2 million advanced
at the reporting date the continued availability of such
arrangements is important to working capital. Whilst the Board
anticipate such facilities remaining available given its trader
relationships, should they be withdrawn or reduced more quickly
than forecast cash flows allow then additional funding would be
required.
-- The Group has $5.9 million of liabilities due on demand under
social development program and $3.2 million of BNG licence payments
due within the forecast period to the Kazakh government. Whilst the
Board has forecasted the payment of BNG licence payments, there are
no payments planned for social development programmes within the
forecast period as the Board expects additional payment deferrals
to be approved. Should the deferrals not occur additional funding
would be required.
These circumstances continue to indicate the existence of a
material uncertainty which may cast significant doubt about the
Group and the Company's ability to continue as a going concern and
it therefore may be unable to realise its assets and discharge its
liabilities in the normal course of business. The financial
statements do not include the adjustments that would result if the
Group and the Company was unable to continue as a going
concern.
While none of the following can be relied upon until cash is
received there are a number of expected events, which could provide
significant additional working capital in the short term
-- The Group is due to receive $22.5 million relating to the
conditional sale of a 50% interest in the holding company for the
Caspian Explorer;
-- A Kazakh bank's credit committee has approved a $5 million loan, which has yet to be drawn;
-- A Kazakh oil trader has offered an additional $3 million
advance, which is yet to be received.
Should it be necessary, the Board has the following actions to
mitigate any short-term funding issues
-- To seek additional funding from advance oil sales
-- To slow down the pace at which BNG is further developed
-- To defer the exercise of the option to acquire Block 8, as
this would defer development expenditure
-- To sell all or part of one or more of the Group's assets
-- To defer further dividend payments
-- To seek additional equity capital
-- Cease or reduce the amount of discretionary dividend payments
(payment of which is subject to the cash inflows outlined
above).
Notwithstanding the material uncertainty described above, after
making enquiries and assessing the progress against the forecast,
projections and the status of the mitigating actions referred to
above, the Directors have a reasonable expectation that the Group
and the Company will continue in operation and meet its commitments
as they fall due over the going concern period. Accordingly, the
Directors continue to adopt the going concern basis in preparing
the financial statements.
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 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 to be
updated
The Group applied for the first time, certain standards and
amendments, which are effective for annual periods beginning on or
after 1 January 2022. The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is
not yet effective. The nature and effect of the changes that result
from the adoption of these new standards are described below. Other
than the changes described below, the accounting policies adopted
are consistent with those of the previous financial year.
Several other amendments and interpretations apply for the first
time in 2022, but do not have an impact on the consolidated
financial statements of the Group.
New standards, interpretations and amendments adopted from 1
January 2022
-- Onerous Contracts - Cost of Fulfilling a Contract (Amendments
to IAS 37);
-- Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16);
-- Annual Improvements to IFRS Standards 2018-2020 (Amendments
to IFRS 1, IFRS 9, IFRS 16 and IAS 41); and
-- References to Conceptual Framework (Amendments to IFRS
3).
These amendments to various IFRS standards are mandatorily
effective for reporting periods beginning on or after 1 January
2022. See the applicable notes for further details on how the
amendments affected the Group.
Onerous Contracts - Cost of Fulfilling a Contract (Amendments to
IAS 37) IAS 37 defines an onerous contract as a contract in which
the unavoidable costs (costs that the Group has committed to
pursuant to the contract) of meeting the obligations under the
contract exceed the economic benefits expected to be received under
it.
The amendments to IAS 37.68A clarify, that the costs relating
directly to the contract consist of both:
-- The incremental costs of fulfilling that contract- e.g.
direct labour and material; and
-- An allocation of other costs that relate directly to
fulfilling contracts: e.g. allocation of depreciation charge on
property, plant and equipment used in fulfilling the contract.
The Group, prior to the application of the amendments, did not
have any onerous contracts. Therefore these amendments had no
impact on the year-end consolidated financial statements of the
Group.
Annual Improvements to IFRS Standards 2018-2020 (Amendments to
IFRS 1, IFRS 9, IFRS 16 & IAS 41)
-- IFRS 1: Subsidiary as a First-time Adopter (FTA)
-- IFRS 9: Fees in the '10 per cent' Test for Derecognition of
Financial liabilities
-- IAS 41: Taxation in Fair Value Measurements
References to Conceptual Framework (Amendments to IFRS 3)
In May 2020, the IASB issued amendments to IFRS 3, which update
a reference to the Conceptual Framework for Financial Reporting
without changing the accounting requirements for business
combinations.
These amendments to various IFRS standards are mandatorily
effective for reporting periods beginning on or after 1 January
2022. The amendments provide relief in respect of loans whose
contractual terms are affected by interest benchmark reform. There
is no impact on the current reporting period .
These standards are not expected to have a material impact on
the entity in the current or future reporting periods and on
foreseeable future transactions.
New standards, interpretations and amendments not yet
effective
There are a number of standards, amendments to standards, and
interpretations, which have been issued by the IASB that are
effective in future accounting periods that the Group has decided
not to adopt early.
The following amendments are effective for the period beginning
1 January 2023:
-- Disclosure of Accounting Policies (Amendments to IAS 1 and
IFRS Practice Statement 2);
-- Definition of Accounting Estimates (Amendments to IAS 8);
and
-- Deferred Tax Related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The following amendments are effective for the period beginning
1 January 2024:
-- IFRS 16 Leases (Amendment - Liability in a Sale and
Leaseback)
-- IAS 1 Presentation of Financial Statements (Amendment -
Classification of Liabilities as Current or Non-current)
-- IAS 1 Presentation of Financial Statements (Amendment -
Non-current Liabilities with Covenants)
The Group is currently assessing the impact of these new
accounting standards and amendments. The Group does not believe
that the amendments to IAS 1 will have a significant impact on the
classification of its liabilities, as the conversion feature in its
convertible debt instruments is classified as an equity instrument
and therefore, does not affect the classification of its
convertible debt as a non-current liability.
The Group does not expect any other standards issued by the
IASB, but not yet effective, to have a material impact on the
group.
[The following is a list of other new and amended standards
which, at the time of writing, had been issued by the IASB but
which are effective in future periods. The amount of quantitative
and qualitative detail to be given about each of the standards will
depend on each entity's own circumstances.
-- IFRS 17 Insurance Contracts (effective 1 January 2023) - In
June 2020, the IASB issued amendments to IFRS 17, including a
deferral of its effective date to 1 January 2023.]
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.
1.4 Operating Income/(loss)
Operating income /(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 ("US$"), which is the Group's presentational currency.
Beibars Munai LLP, Munaily Kazakhstan LLP, BNG Ltd LLP and Roxi
Petroleum Kazakhstan LLP, 3A_Best Group JSC, and Caspian Technical
Services LLP subsidiary undertakings of the Group during the
period, 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 US$ are
translated at the rate prevailing at the reporting date. The profit
or loss is translated at the exchange rate 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.
In case of the uncertainty of the tax treatment, the Group
assess, whether it is probable or not, that the tax treatment will
be accepted, and to determine the value, the Group use the most
likely amount or the expected value in determining taxable profit
(tax loss), tax bases, unused tax losses, unused tax credits and
tax rates.
Withholding tax payable in Kazakhstan
According to requirements of the Tax Code of Kazakhstan,
withholding taxes payable for non-residents should be withheld from
the total amount of interest income of non-residents and paid to
the government when interest is paid (in cash) to non-residents.
The companies should pay taxes from non-residents' interest income
derived from sources in the Republic of Kazakhstan on behalf of
these non-residents.
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
two cost pools.
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.
Plant and equipment 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 unproven oil and gas asset, the amount reflecting
that consumption is recorded as part of the cost of the unproven
oil and gas 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 feasibility
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 to proven oil and gas properties and
included within property plant and equipment. The costs transferred
comprise direct costs associated with the relevant wells and
infrastructure, together with an allocation of the wider
unallocated exploration costs in the cost pool such as original
acquisition costs for the field.
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.
As part of the Kazakh licencing regime, upon award of a
production contract in respect of the BNG licence area, an
obligation to make a payment to the licencing authority is
triggered, settled over a 10 year period in equal quarterly
instalments. Such payments are considered to form a cost of the
licence and are capitalised to proven oil and gas assets and
subsequently depreciated on a units of production basis in
accordance with the Group's depreciation policy. In circumstances
where the amount assessed by the authorities is contested, the
Group records a provision discounted using a Kazakh government bond
yield with a term approximating the payment profile and the
discount is unwound over the payment term and charged to finance
costs. Payments made are charged against the provision.
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.
In accordance with IFRS 6 the Group firstly considers the
following facts and circumstances in their assessment of whether
the
Group's exploration and evaluation assets may be impaired,
whether:
-- the period for which the Group has the right to explore in a
specific area has expired during the period or will expire in the
near future, and is not expected to be renewed;
-- substantive expenditure on further exploration for and
evaluation of mineral resources in a specific area is neither
budgeted nor planned;
-- exploration for and evaluation of hydrocarbons in a specific
area have not led to the discovery of commercially viable
quantities of hydrocarbons and the Group has decided to discontinue
such activities in the specific area; and
-- sufficient data exists to indicate that although a
development in a specific area is likely to proceed, the carrying
amount of the exploration and evaluation assets is unlikely to be
recovered in full from successful development or by sale.
If any such facts or circumstances are noted, the Group perform
an impairment test in accordance with the provisions of IAS 36. The
aggregate carrying value is compared against the expected
recoverable amount of the cash generating unit, being the relevant
cost pool. The recoverable amount is the higher of value in use and
the fair value less costs to sell.
An impairment loss is reversed if the asset's or cash-generating
unit's recoverable amount exceeds its carrying amount.
Impairment of development and production assets and other
property, plant and equipment
At each reporting date, the Group reviews the carrying amounts
of its PP&E to determine whether there is any indication that
those assets have suffered an impairment loss. If any such
indication exists, the recoverable amount of the asset is estimated
in order to determine the extent of the impairment loss (if any).
Where the asset does not generate cash flows that are independent
from other assets, the Group estimates the recoverable amount of
the cash-generating unit to which the asset belongs. The
recoverable amount is the higher of fair value less costs to sell
and value in use. Fair value less costs to sell is determined by
discounting the post-tax cash flows expected to be generated by the
cash-generating unit, net of associated selling costs, and takes
into account assumptions market participants would use in
estimating fair value including future capital expenditure and
development cost for extraction of the field reserves. In assessing
value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks
specific to the asset for which the estimates of future cash flows
have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised as an expense
immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognised as income immediately.
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
falls 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 the oil and gas asset and, when in
production 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, unless
agreed otherwise with the Ministry of Energy. 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 Unit of production method based on
commercial proved and probable reserves at producing BNG assets and
straight-line basis at other entities, 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 4-5 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)
Investments in subsidiary undertakings are shown at cost less
allowance for impairment. Long-term advances to subsidiaries are
discounted at an estimated market rate of interest with the
difference between a fair value and a face value of the advance
being recorded within investments.
Loan amortised cost is assessed for expected credit loss under
IFRS 9.
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.
Financial assets
Financial assets are classified as either financial assets at
amortised cost, at fair value through other comprehensive income
("FVTOCI") or at fair value through profit or loss ("FVPL")
depending upon the business model for managing the financial assets
and the nature of the contractual cash flow characteristics of the
financial asset.
A loss allowance for expected credit losses is determined for
all financial assets, other than those at FVPL, at the end of each
reporting period. The Group applies a simplified approach to
measure the credit loss allowance for any trade receivables using
the lifetime expected credit loss provision.
The lifetime expected credit loss is evaluated for each trade
receivable taking into account payment history, payments made
subsequent to year end and prior to reporting, past default
experience and the impact of any other relevant and current
observable data. The Group applies a general approach on all other
receivables classified as financial assets. The general approach
recognises lifetime expected credit losses when there has been a
significant increase in credit risk since initial recognition.
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or when it
transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another party. The Group
derecognises financial liabilities when the Group's obligations are
discharged, cancelled or have expired.
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. Non-interest
bearing trade and other payables and other interest bearing
borrowings are stated initially at fair value and subsequently at
amortised cost.
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 with a
gain or loss recorded in the income statement. In accordance with
IFRS 9, following a modification or renegotiation of a financial
asset or financial liability that does not result in
de-recognition, an entity is required to recognise any modification
gain or loss immediately in profit or loss. Any gain or loss is
determined by recalculating the gross carrying amount of the
financial liability by discounting the new contractual cash flows
using the original effective interest rate. The difference between
the original contractual cash flows of the liability and the
modified cash flows discounted at the original effective interest
rate is recorded in the income statement.
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
Warrants are separated from the host contract as their risks and
characteristics are not closely related to those of the host
contracts. Where the exercise price of the warrants is 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. Where the warrant exercise price is in the
same currency as the functional currency of the issuer and involve
the issuance of a fixed number of shares the warrants are recorded
in equity.
1.19 Revenue
Oil sold
Revenue from contracts with customers is recognised when or as
the Group satisfies a performance obligation by transferring a
promised good or service to a customer. A good or service is
transferred when the customer obtains control of that good or
service. The transfer of control of oil sold by the Group usually
coincides with title passing to the customer. The Group satisfies
its performance obligations at a point in time.
Under the terms of domestic oil sales arrangements, the
performance obligation is satisfied when the local refinery
provides the seller and the customer with the act of acceptance of
crude oil of quantity and quality according to the agreement
between the parties.
Under the terms of export sales arrangements, the performance
obligation is satisfied when the Ocean Bill of Lading is issued by
the transport company following loading of the crude oil of
specified quantity and quality on the tanker.
Revenue is measured at the fair value of the consideration
received, excluding value added tax ("VAT") and other sales taxes
or duty. Royalties are not included in revenue, they are paid on
production and recorded within cost of sales.
Payments in advance by oil traders are recorded initially as
deferred revenue, reflecting the nature of the transaction.
Subsequently, the deferred revenue is reduced and revenue is
recorded, as sales are made under the Group's revenue recognition
policy with the performance obligation satisfied.
Drilling services
The Group has applied the input method of revenue recognition in
accounting for revenue on unit rate/lump sum contracts, under which
revenue is recognised over time according to the stage of
completion reached in the contract by measuring the proportion of
costs incurred for work performed relative to the total estimated
costs.
External drilling services contain distinct goods and services,
but these are not considered distinct in the context of the
contract and are therefore combined into a single performance
obligation. At contract inception management generally considers
all applicable factors to determine whether the contract contains a
single performance obligation or multiple performance
obligations.
A change to an existing contract for a project of the Group is a
modification, which could change the scope of the contract, the
price of the contract, or both. The Group uses two methods to
account for a contract modification: (1) as a separate contract
when the modification promises distinct goods or services and the
price reflects the stand alone selling price; or (2) as a
cumulative catch-up adjustment when the modification does not add
distinct goods or services and is part of the same performance
obligation.
Contract costs are recognised in the income statement when
incurred. When it is probable that the total contract costs will
exceed total contract revenue, the expected loss is recognised
immediately. As per IAS 37 an onerous contract is a contract in
which the unavoidable costs of meeting the obligations under the
contract exceed the economic benefits expected to be received under
it. In line with the principles of IAS 37 the loss will be
recognised if there is a present obligation, payment is probable
and the amount can be estimated reliably.
The amount recognised will be the best estimate of the
expenditure required to settle the present obligation at the
reporting date.
In previous accounting periods revenue for such contracts was
recognised in full on acceptance being received.
See note 2.2.3 for additional information.
1.20 Cost of sales
For structures or contract areas with full production licences
oil sales are recognised as revenue and the associated costs as
costs of sales. At other structures or contract areas with
exploration licences any test production is considered incidental
to the main purpose of the licence with the cost of sales equal to
the revenue is recognised and credited to 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 four operating segments being oil
exploration and production; onshore drilling services in Kazakhstan
provided by CTS LLP, offshore drilling services provided using the
Caspian Explorer, and the expenses corporate allocated, and
therefore there are four reporting segments. The Group has several
cost pools divided based on the different contractual territory of
its assets.
1.22 Interest receivable and payable
Interest income and expense are reported on an accrual basis
using the effective interest rate method.
1.23 Forward Sales
Advance payments are taken for oil to be sold on the domestic
market with the liability reduced over time as oil is delivered
based on the then prevailing domestic oil price.
1.24 Exchange rates
For reference the year end exchange rate from sterling to US$
was 1.21 and the average rate during the year was 1.24. The
year-end exchange rate from KZT to US$ was 462.65 and the average
rate during the year was 460.48.
1.25 Merger reserve
Merger reserve represents the excess of the fair value of the
issued share capital over the nominal value of these shares issued
for acquisition of investments in subsidiaries where the Company
has secured at least 90 percent equity holding in accordance with
section 612 of the Companies Act 2006. The Company allocates merger
reserve to the retained earnings/deficit account on disposal of the
investment the reserve relates to or if this investment is written
down for impairment.
2 Critical accounting estimates and judgements
In the process of applying the Group's accounting policies,
which are described in note 1, management has made the following
key estimates and judgements that have the most significant effect
on the amounts recognised in the financial statements.
2.1 Estimates
2.1.1 Recoverability of proven oil and gas assets (note 13)
The proven oil and gas assets, representing the MJF and South
Yelemes shallow structures, have been assessed for indicators of
impairment at 31 December 2022 including assessment of the
discounted cash flows indicated by the Group's field plan.
This analysis required an estimation in determining forecast
prices as at 31 December 2022 based on conditions existing at that
time, future production and reserves, operating costs and
development costs for the field and the discount rate.
The forecasts demonstrated significant headroom with prices
based on forward prices of $32 per barrel adjusted for net back
adjustments, reserves calculated using the most recent Competent
Person's report and discount rates run at 10% and 15%. Having
undertaken this assessment the Group concluded that no indicators
of impairment existed.
2.1.2 Revenue recognition and long-term contract accrued income
The determination of anticipated costs for completing a contract
is based on estimates that can be affected by a variety of factors
such as potential variances in scheduling and cost of materials
along with the availability and cost of qualified labour and
subcontractors, productivity, and possible claims from
subcontractors.
The determination of anticipated revenues includes the
contractually agreed revenue and may also involve estimates of
future revenues from claims and unapproved variations, if such
additional revenues can be reliably estimated and it is considered
probable that they will be recovered.
A variation results from a change to the scope of the work to be
performed compared to the original contract signed. An example of
such contract variation could be a change in the specifications or
design of the project, whereby costs related to such variation
might be incurred prior to the client's formal contract amendment
signature. A claim represents an amount expected to be collected
from the client or a third party as reimbursement for costs
incurred that are not part of the original contract.
A modification is only then accounted for as a separate contract
if the goods and services are distinct in that the customer can
benefit from the good or service on its own. In both cases,
management's judgments are required in determining the probability
that additional revenue will be recovered from these variations and
in determining the measurement of the amount to be recovered.
As risks and uncertainties are different for each project, the
sources of variations between anticipated costs and actual costs
incurred will also vary for each project. The long-term nature of
certain arrangements usually results in significant estimates
related to scheduling and prices.
The determination of estimates is based on internal policies as
well as historical experience.
2.1.3 Recoverability of VAT (note 16)
The Group holds VAT receivables of $1.7 million (2021: $3.8
million) as detailed in note 16 which are anticipated to be
primarily recovered through offset of future VAT payable in
accordance with Kazakh legislation. Management have assessed the
recoverability of the asset based on forecast levels of VAT
payables which demonstrate that the balance will be recovered
within 1 year (2021: 2 years). This required estimates regarding
future production, oil prices and expenditure.
2.1.4 Decommissioning (note 21)
Provision has been made in the accounts for future
decommissioning costs to plug and abandon wells as set out in note
21. The costs of provisions have been added to the value of the
unproven oil and gas asset and will be depreciated on a 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.
2.1.5 Estimation of credit losses of receivables from subsidiaries (note 16)
In the parent company there are substantial receivables from the
subsidiaries. Management has used judgement to determine to the
expected credit losses against these receivable's which involves
estimates of the ability of the subsidiaries to repay these loans.
Management has estimated an expected credit loss was required of
US$20.7m at the year-end (2021: US$20.7m).
2.2 Judgements
2.2.1 Carrying value of exploration and evaluation costs (note 12)
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 based on the impairment indicators
detailed in accounting policy note 1.8.
As at 31 December 2022, the Group assessed the exploration and
evaluation assets disclosed in note 12 and determined that no
indicators of impairment existed at a cost pool level in respect of
the BNG cost pool. The Group also considered whether the factors
that gave rise to the original impairment loss no longer existed
and reversal of the impairment is appropriate. We applied our
judgement when considered the exploration contract at BNG that is
expiring in 2024. We believe that BNG be granted the extension of
the contract after confirming it committed all the
requirements.
In forming this assessment, the Board considered the oil
reserves and resources associated with the licence area, the
results of exploration activity to date, the successful transition
to production of the MJF licence shallow area in the previous year
and South Yelemes in the current financial year and the net present
value of these shallow structures, the status of licences and
future plans for the licence areas.
In forming its assessment, the Board considered the Group's
commitments under the licence detailed in note 21 and the impact of
outstanding obligations. Having undertaken this assessment the
Group concluded that no indicators of impairment existed and that
no reversal in respect of previous impairment provisions
attributable to the unproven oil and gas assets of US$9,479,000 was
yet appropriate given the absence of a significant breakthrough on
the deep structures at 31 December 2022.
The Board is working with the Kazakh authorities to renew the
licence at 3A Best, following which the Board will assess 3A Best's
position in the Group. The Group cannot currently make any progress
with the asset, which in 2021 was fully impaired.
The Beibars cost pool remains impaired based on the continuance
of the force majeure. The Group has decided to formally relinquish
any interest in Beibars.
2.2.2 Transfer of costs to proven oil and gas assets (notes 12 & 13)
Judgement has been applied in assessing South Yelemes shallow
assets meets the criteria for reclassification to proven oil and
gas assets under the Group's accounting policy in note 1.8.
In concluding that it was appropriate to transfer the asset to
proven oil and gas assets management took account of the award of a
production licence enabling exports and sales at international
prices together with the production volumes. In December 2021 BNG
has received the required production license for its South Yelemes
structure and got the export permission starting June 2022. Before
that date, BNG could sell the oil from South Yelemes only on the
internal market. Accordingly, BNG moved the related oil & gas
assets to the production stage in June 2022 and started charging
DD&A expense.
The Board considers the remaining BNG contract area to remain in
an exploration phase given the level of wells and production
relative to plans for the field, the exploration status of the
licence and the requirement to sell its test oil in the domestic
market which represents a substantial discount to the international
market such that production is primarily a by-product of continued
exploration and appraisal.
2.2.3 Recognition of revenue and costs of the drilling and repair services
CTS LLP, is a wholly owned subsidiary of the Group and
undertakes drilling and other operational work both for the Group
and third parties.
In 2021 and earlier periods work for third parties was not
recognised as it should have been as revenue with the associated
expenditure as costs of sales but was treated in the same way as
work for the Group, with the costs debited to work in progress
within property, plant and equipment.
While the accounting policies described in note 1.19 have been
applied in the 2022 financial statements, including applying the
input method of revenue recognition in accounting for revenue on
drilling contracts, these accounting errors have not been corrected
in the 2021 financial statements as there is insufficient data to
accurately assess the timing of when the costs were incurred and
the allocation between Group assets and services provided to
external entities. In addition, due to the absence of detailed
budgets being updated regularly since contract inception date, the
directors have not been able to reliably assess the stage of
completion and further costs required to complete each contract.
The absence of this information represents a significant limitation
on both the estimation of revenue recognised and if expected loss
provisions should be recognised.
Additionally, in 2021, some work on the Group's deep wells was
also capitalised to property, plant and equipment, where it should
have been capilised to unproven oil and gas assets. No
retrospective adjustment has been made in the 2021 financial
statements, and the amount has been adjusted in 2022 in notes 12
and 13.
The absence of reliable information over all of these areas
represents a significant limitation on the valuation of the Group's
external drilling revenues, the completeness and validity of its
cost of sales allocation, and if any adjustments to the advances
received/receivables, provisions for losses on contracts, unproven
oil and gas assets, property, plant and equipment and any related
taxation impacts at the current and prior year ends were necessary.
As a result, the related accounts' values for these items could be
materially higher or lower than currently recorded values.
2.2.4 Payable for BNG licence historic costs (notes, 19, 21)
As part of the Kazakh licencing regime, upon award of a
production contract in respect of the BNG licence area, an
obligation to make a payment to the licencing authority was
triggered, to be settled over a 10 year period in equal quarterly
instalments.
Judgment was required in assessing the appropriate accounting
policy for the transaction including assessment of the terms of the
arrangement. Such payments are considered to form a cost of the
licence and are capitalised to proven oil and gas assets.
In previous reporting periods, the related obligations were
disclosed as part of the provisions as the Group was contesting the
amount levied by the authorities. However, as a final court
judgment was made in June 2021 and the amount of the obligation
became enforceable by law as at 31 December 2021 the amounts due
should have been reclassified from provisions to payables as a
financial liability.
In 2022 the Group corrected this error and reclassified the
related obligations and has restated the comparative figures with
the inclusion of the amount due as financial liability.
Judgement was also required in selecting an appropriate discount
rate for the financial liability, with the applied rate of 2.7%
being based on US dollar Eurobonds yields in Kazakhstan with a
comparable term.
2.2.5 Uncertain tax positions (note 22)
As detailed in note 22, judgment has been applied in assessing
the extent to which tax treatments adopted by the Group
historically will be accepted or rejected by the relevant tax
authority and the resulting measurement of uncertain tax positions
in circumstances where it is probable that the treatment will be
challenged.
2.2.6 Indemnity receivables in relation to the 3A Best acquisition
Under the terms of the SPA for 3A Best, the three vendors
provided indemnities that obligations related to the period prior
to acquisition would be reimbursed. Judgement has been applied in
assessing the recoverability of the indemnity receivables, which
included assessment of the terms of the SPA, confirmations received
from the vendors and assessments of the ability to meet such
payments. The Board while still seeking full recovery has made a
provision for two thirds of the amounts due on the expected credit
losses as at 31 December 2022 (note 16).
2.2.7 Recoverability of investments (note 14)
The recoverability of investments is dependent upon the future
production of the subsidiaries from existing producing assets and
unproven exploration assets, and future prices achieved, which will
determine if any provision is required against investments. The
directors have assessed the impairment indicators, and made
judgements in reflection to recoverability and make impairments as
appropriate. The management has estimated that no additional
provision was required in 2022 (no additional provision was
recognised in 2021).
3 Capital reduction made in 2022
In order to start paying dividends, the Company had to achieve
positive balance of the retained earnings account. Accordingly, on
22 April 2022, the Company's shareholders granted their approval
for the a capital reduction. On 22 June 2022, the UK High Court
confirmed the capital reduction. Consequently, the Company
cancelled its share premium and deferred shares accounts, resulting
in positive retained earnings from that date as follows.
Share premium account reduced by US$169,089,000.
Deferred shares account reduced by US$64,702,000.
Retained earnings account increased in total by
US$233,791,000.
4 Segment reporting & revenue
Operating segments
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker, who is responsible for
allocating resources and assessing the performance of the operating
segments and making strategic decisions, has been identified as the
Board of Directors.
The Group operated in three operating segments during 2022 and
2021: Exploration for and production of crude oil; onshore drilling
services (CTS LLP) and offshore drilling services (Caspian
Explorer). All three segments operate and generate revenues in
Kazakhstan.
In 2021 onshore drilling services (CTS LLP) was included within
Exploration for and production of crude oil.
BNG Ltd. LLP (BNG) currently accounts for 100% of the
exploration and production revenues. Total revenue from crude oil
sales generated by BNG in 2022 was US$ 39,245,000 (2021: US$
23,725,000), net operating income for the year from the exploration
and production of crude oil was US$15,526,000 (2021: loss of
US$1,983,000).
100% of the Group's oil revenue was derived from three major
customers (being two local market traders (46%) and an export
trader (54%). The revenue split of oil sales in 2022 between the
domestic traders and the export trader (Euro-Asian Oil SA) was US
$17,974,000 and US $21,271,000, respectively.
KC Caspian Explorer LLP (KCCE), representing the offshore
drilling services operating segment, historically providing
drilling and related services in the shallow northern Caspian Sea.
In 2021 the KCCE provided NCOC, Kashagan oil field operator, with
safety related services. In 2022 KCCE had no revenue.
In 2022 Caspian Technical Services LLP (CTS LLP), provided
onshore drilling and repair services to BNG and to assets not owned
by the Group.
Revenue
The Group's revenues are principally derived from the sale of
oil in Kazakhstan. In September 2019 following the award of a full
production licence, oil produced from the MJF structure at BNG
started being sold on the export market.
Under the terms of sales on the local market, the performance
obligation is the supply of oil and the performance obligation is
satisfied at a point in time, being the delivery of oil to the
refinery. Control passes to the customer at this point with title
and risk transferred.
Under the terms of sales on the local market, to local mini
refineries the performance obligation is the supply of oil and the
performance obligation is satisfied at a point in time, being the
collection of oil at the wellhead. Control passes to the customer
at this point with title and risk transferred.
Under the terms of export sales control over the oil delivered
is with the Group until the customer confirms it has been shipped
onto the tanker. When advances are received from oil traders for
delivery of future production at specified prices, deferred revenue
is recorded and the liability reduced as oil is delivered. Where
advances are made for future production and the financing component
of such transactions is material, a finance charge is recorded
based on the market rate of interest.
During 2021 KCCE provided training and safety related services
for North Caspian Operating Company (NCOC), the operator of
Kashagan offshore oil field. The total related revenue was
approximately US$1.27 million with direct costs of US $656,000. In
2022 KCCE earned no revenue.
In 2022 CTS LLP provided onshore drilling and repair services
for Group and for EPC Munai LLP, a related party, for in total US$
3,704,000. As set out more fully in note 25, CTS LLP also worked
for EPC Munai in 2020 and in 2021 but did not separately record the
income and expenditure on those contracts as revenue and cost of
sales as should have been the case.
Below is the summary of the results of the segments during 2022
and 2021:
Oil & Gas Drilling Drilling services Corporate Total $000
assets $000 services by by Caspian allocated $000
CTS $000 Explorer $000
------------------ --------------- ------------------- ----------------- ------------------
2022 2021 2022 2021 2022 2021 2022 2021 2022 2021
39 ,2 24
External revenues 45 23,725 3,704 - - 1,271 - - 42,949 ,996
Cost of sales (6,554) (4,968) (4,083) - - (656) - - (10,637) (5,624)
-------- -------- ------- ------ ---------- ------- -------- ------- -------- --------
32,69
Gross profit 1 18,757 (379) - - 615 - - 32,312 19,372
-------- -------- ------- ------ ---------- ------- -------- -------- --------
Other administrative ( 2 3
costs (7,416) (698) 0 ) (532) (633) (867) (1, 488) (1,235) (9,767) (3 ,332)
Selling expense (9,751) (7,578) - - - - - - (9,751) (7,578)
Impairment
of unproven
oil and gas
assets - (12,464) - - - - - - - (12,464)
Segment operating 15,5 (60 (1,4 (4
profit/(loss) 26 (1,983) 9 ) (532) (633) (252) 8 8) (1,235) 12,794 002)
Finance income 5 1 11 - - 8 13 - - 59 24
Finance costs (549) (575) - - - - (36) (284) (585) (859)
Income / Loss
before income (6 33 (1, (4
tax 15,028 (2,547) (609) (532) ) (239) 524 ) (1,519) 12,268 ,837)
7,77
Total assets 103,794 95,807 5 15,682 2, 254 2,621 3, 328 101 117,151 114,211
2,3
Total liabilities 51,755 56,358 14 4,198 6 9 100 8, 120 7,912 62,258 68,568
-------- -------- ------- ------ ---------- ------- -------- ------- -------- --------
5 Operating income / (loss)
Group operating income / (loss) for the year has been arrived
after charging:
--------------------------------------------------------------------
Group Group
20 22 2021
US$'000 US$'000
------------------------------------------------ -------- --------
Impairment of unproven oil and gas assets
(note 12) - (12,464)
Staff costs (note 7) (6,477) (1,051)
Depreciation of property, plant and equipment
(note 13) (2,498) (3,557)
Auditor remuneration (note 6) ( 239 ) (212)
6 Group Auditor's remuneration
Fees payable by the Group to the Company's auditor BDO and its
member firms in respect of the year:
Group Group
20 22 2021
US$'000 US$'000
--------------------------------------------- -------- --------
Fees for the audit of the annual financial
statements 180 153
Other services - tax related 11 11
--------------------------------------------- -------- --------
191 164
--------------------------------------------- -------- --------
Fees payable by the Group to Grant Thornton and its associates
in respect of the year:
Group Group
20 22 2021
US$'000 US$'000
---------------------------------------------- -------- --------
Auditing of accounts of subsidiaries of the
Company 48 48
48 48
---------------------------------------------- -------- --------
7 Employees and Directors
Staff costs during the Group Company Group Company
year 20 22 20 22 2021 2021
US$'000 US$'000 US$'000 US$'000
------------------------------- ---------- ---------- ---------- ----------
Wages and salaries 5,842* 262 1,051 315
Social security costs 524 - 72 -
Pension costs 111 - 102 -
6,477 262 1,225 315
------------------------------- ---------- ---------- ---------- ----------
Payroll expenses of US$ 1,230,000 were capitalized into unproven
oil and gas assets in 2022 (2021: nil ) and expensed as cost of
sales in the amount
of US$ 409 ,000 (2021: US$ $254,000).
* During 2022 the Group declared payment of US $ 4,878,000 of
bonus to the employees of the Group who were the key personnel
in achieving
high production and selling results at the major asset, BNG, during
2020-2022.
Average monthly number of people Group Company Group Company
employed 20 22 20 22 2021 2021
(including executive Directors)
---------------------------------- ------ ------- ----- -------
Technical 18 - 14 -
Field operations 233 - 170 -
Finance 8 1 7 1
Administrative and support 25 3 24 3
---------------------------------- ------ ------- ----- -------
284 4 215 4
---------------------------------- ------ ------- ----- -------
Directors' remuneration Group Group
20 22 2021
US$'000 US$'000
-------------------------- -------- --------
Director's emoluments 380 332
Share-based payments - -
-------------------------- -------- --------
380 332
-------------------------- -------- --------
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$157,000 (2021:
US$142,000).
8 Finance cost
Group Group
20 22 2021
US$'000 US$'000
--------------------------------------------- -------- --------
Loan interest payable 11 237
Unwinding of discount on BNG licence payment
payable 550 616
Unwinding of discount on provisions (note
21) 24 6
--------------------------------------------- -------- --------
585 859
--------------------------------------------- -------- --------
9 Finance income
Group Group
20 22 2021
US$'000 US$'000
------------------------------------------ -------- --------
Interest income at BNG LLP and KC Caspian 59 24
10 Taxation
Analysis of charge for the year Group Group
20 2 2 202 1
US$'000 US$'000
--------------------------------- -------- --------
Current tax charge 2,371 709
Deferred tax charge - -
2,371 709
--------------------------------- -------- --------
Group Group
202 2 202 1
US$'000 US$'000
------------------------------------------------------ -------- --------
Profit / (Loss) before tax 12,268 (4,837)
------------------------------------------------------ -------- --------
Tax on the above at the standard rate of corporate
income tax in the UK 19% (2021: 19%) 2,331 (919)
Effects of:
Differences in tax rates (948) -
Non-deductible expenses 103 (1,310)
Withholding tax on interest expense 711 709
Utilization of tax losses not previously recognized - (1,730)
Unrecognised tax losses carried forward 174 3,959
2,371 709
------------------------------------------------------ -------- --------
11 Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the
income/(loss) attributable to ordinary shareholders by the weighted
average number of ordinary shares outstanding during the year
including shares to be issued.
There is no difference between the basic and diluted income /
(loss) per share in the current and prior year. Dilutive potential
ordinary shares include share options granted to employees and
directors where the exercise price (adjusted according to IAS33) is
less than the average market price of the Company's ordinary shares
during the period.
The calculation of earnings/(loss) per share is based on:
2022 2021
------------------------------------------------------ ------------- -------------
Basic weighted average number of ordinary shares
in issue during the year 2,221,391,258 2,097,978,787
Earnings / (loss) for the year attributable
to owners of the parent from continuing operations
(US$'000) 9,763 (5,554)
The loss for the year attributable to owners
of the parent from discontinued operations
(US$'000) - -
------------------------------------------------------ ------------- -------------
There were 6,000,000 potentially dilutive instruments in the
year (2021: 2,500,000).
12 Unproven oil and gas assets
COST Group
US$'000
-------------------------------------------------------- ---------
Cost at 1 January 2021 70,892
Additions 719
Foreign exchange difference (3,579)
-------------------------------------------------------- ---------
Cost at 31 December 2021 68,032
-------------------------------------------------------- ---------
Additions 11,470
Transfer from Property, plant and equipment (note 13) 4,810
Transfer to Property, plant and equipment (note 13)
* (14,025)
Foreign exchange difference (6,077)
-------------------------------------------------------- ---------
Cost at 31 December 2022 64,210
-------------------------------------------------------- ---------
ACCUMULATED IMPAIRMENT Group
US$'000
--------------------------------------------- --------
Accumulated impairment at 1 January 2021 9,479
--------------------------------------------- --------
Impairment related to 3A-Best (100%) 12,464
Foreign exchange difference (48)
Accumulated impairment at 31 December 2021 21,895
Foreign exchange difference (1,498)
Accumulated impairment at 31 December 2022 20,397
Net book value at 1 January 2021 61,413
Net book value at 31 December 2021 46,137
Net book value at 31 December 20 22 43,813
--------------------------------------------- --------
Unproven oil and gas assets represent license acquisition costs
and subsequent exploration expenditure in respect of the licenses
held by Kazakh group entities. The carrying values of those assets
at 31 December 2022 were 100% represented by BNG Ltd LLP (2021: by
BNG Ltd. LLP). 100% cost of the unproven oil and gas assets related
to 3A Best-Group JSC of US$ 12,464,000 was impaired at the Group
level in 2021 after the notification by the Ministry of Energy of
Kazakhstan about the expiration of the subsoil use contract (see
note 21 for details).
The Directors have carried out an impairment review of these
assets on a cost pool level as detailed in note 2.1. As at 31
December 2022, the balance of accumulated impairment was US$
20,397,000.
* In 2021 BNG applied for the production license on its South
Yelemes shallow structure. The Ministry of Energy of Kazakhstan
extended the term in accordance with the additional agreement No. 1
dated June 24, 2023, until 23 June 2044. The related capitalised
assets which were in total US$14,025,000 were moved to Proved Oil
and Gas assets.
13 Property, plant and equipment
Following the commencement of commercial production in July 2019
the Group reclassified part of BNG assets from unproven oil and gas
assets to proven oil and gas assets.
Prove Motor Other Total
n
-----------------------------
oil and Vehicles
gas assets
Group US $'000 US $'000 US $'000 US $'000
----------------------------- -------------------- --------------------- ------------------- -----------------
Cost at 1 January 2021 43,722 56 11,177 54,955
Additions 1,757 2,198 4,938 8,893
Disposals - - (11) (11)
Acquisitions - - 53 53
Foreign exchange difference (550) (128) (212) (890)
----------------------------- -------------------- --------------------- ------------------- -----------------
Cost at 31 December 2021 44,929 2,126 15,945 63,000
----------------------------- -------------------- --------------------- ------------------- -----------------
Additions 323 176 3 502
Disposals (110) - - (110)
Transfer to Unproven oil
and gas assets* - - (4,810) (4,810)
Additions (note 12) 14,025 - - 14,025
Foreign exchange difference (425) (111) (2,668) (3,204)
----------------------------- -------------------- --------------------- ------------------- -----------------
Cost at 31 December 2022 58,742 2,191 8,470 69,403
----------------------------- -------------------- --------------------- ------------------- -----------------
Depreciation at 1 January
2021 1,390 47 673 2,110
Charge for the year 1,339 482 1,736 3,557
Disposals - - (7) (7)
Foreign exchange difference 42 40 124 206
----------------------------- -------------------- --------------------- ------------------- -----------------
Depreciation at 31 December
2021 2,771 569 2,526 5,866
----------------------------- -------------------- --------------------- ------------------- -----------------
Charge for the year 2,079 61 358 2,498
Disposals (19) - - (19)
Foreign exchange difference 189 11 112 312
----------------------------- -------------------- --------------------- ------------------- -----------------
Depreciation at 31 December
2022 5,020 641 2,996 8,657
----------------------------- -------------------- --------------------- ------------------- -----------------
Net book value at:
----------------------------- -------------------- --------------------- ------------------- -----------------
01 January 2021 42,332 9 10,504 52,845
----------------------------- -------------------- --------------------- ------------------- -----------------
31 December 2021 42,158 1,557 13,419 57,134
----------------------------- -------------------- --------------------- ------------------- -----------------
31 December 2022 53,722 1,550 5,474 60,746
----------------------------- -------------------- --------------------- ------------------- -----------------
* Amount of Other PP&E that was transferred to Unproven Oil
and gas assets being by nature part of work in progress accumulated
by CTS LLP but not yet accepted by BNG as part of drilling and
repair services for the blocks under exploration program.
14 Investments (Company)
Investments Company
US$'000
------------------------ ----------------------------
Cost
At 1 January 2021 225,441
Change in investments -
At 31 December 2021 225,441
------------------------- ----------------------------
Change in investments -
------------------------ ----------------------------
At 31 December 2022 225,441
------------------------- ----------------------------
Impairment
At 1 January 2021 209,954
Impairment -
------------------------ ----------------------------
At 31 December 2021 209,954
------------------------- ----------------------------
Impairment -
------------------------ ----------------------------
At 31 December 2022 209,954
------------------------- ----------------------------
Net book value at:
------------------------ ----------------------------
31 December 2021 15,487
31 December 2022 15,487
------------------------- ----------------------------
The directors review the investments for the recoverability on a
regular basis, together with the associated cash flows of each
company, and assess their impairment. Based on this assessment if
the Company considers that the carrying value of the investments
may not be fully recoverable as the subsidiaries may not generate
sufficient future profits and accordingly, then these amounts may
be impaired. The Company recorded no impairment in relation to the
investments in 2022 (impairment charge for 2021: nil).
14 Investments (Company, continued)
Direct investments
Name of undertaking Country Effective Effective Registered Nature
of incorporation holding holding and address of business
and proportion
proportion of voting
of voting rights held
rights held at 31 December
at 31 December 2021
2022
------------------------ ------------------ --------------- --------------- -------------------- ------------
5 New Street
Square
Eragon Petroleum London Holding
Limited United Kingdom 100% 100% EC4A 3TW Company
------------------ --------------- --------------- -------------------- ------------
CN-135789,
Eragon Petroleum Jebel Ali, Management
FZE Dubai 100% 100% Dubai, UAE Company
------------------ --------------- --------------- -------------------- ------------
CN-135789,
Prosperity Petroleum Jebel Ali, Management
LTD Dubai 100% 100% Dubai, UAE Company
------------------ --------------- --------------- -------------------- ------------
Ravninnoe BV Netherlands -* 100% Utrechtseweg Holding
79 Company
1213 TM Hilversum
The Netherlands
------------------ --------------- --------------- -------------------- ------------
Roxi Petroleum 152/140 Karasay
Kazakhstan Batyr Str., Management
LLP Kazakhstan 100% 100% Almaty, Kazakhstan Company
------------------ --------------- --------------- -------------------- ------------
Indirect investments held by Eragon Petroleum FZE
Name of undertaking Country Effective Effective Registered Nature
of incorporation holding holding and address of business
and proportion
proportion of voting
of voting rights held
rights held at 31 December
at 31 December 2021
2022
---------------------- ------------------ --------------- --------------- -------------------- --------------
Utrechtseweg
79
1213 TM Hilversum Holding
Galaz Energy BV Netherlands -* 100% The Netherlands Company
------------------ --------------- --------------- -------------------- --------------
Utrechtseweg
79
1213 TM Hilversum Holding
BNG Energy BV Netherlands 100% 100% The Netherlands Company
------------------ --------------- --------------- -------------------- --------------
152/140 Karasay
Batyr Str., Oil Production
BNG Ltd LLP Kazakhstan 99% 99% Almaty, Kazakhstan Company
------------------ --------------- --------------- -------------------- --------------
152/140 Karasay
3A-Best Group Batyr Str., Exploration
JSC Kazakhstan 100% 100% Almaty, Kazakhstan Company
------------------ --------------- --------------- -------------------- --------------
152/140 Karasay Drilling
Batyr Str., & Service
CTS LLP Kazakhstan 100% 100% Almaty, Kazakhstan Company
------------------ --------------- --------------- -------------------- --------------
152/140 Karasay Drilling
Batyr Str., & Service
Sur Nedr LLP** Kazakhstan 100% 100% Almaty, Kazakhstan Company
------------------ --------------- --------------- -------------------- --------------
152/140 Karasay Drilling
Batyr Str., & Service
SK-NS Aktau LLP** Kazakhstan 100% 100% Almaty, Kazakhstan Company
------------------ --------------- --------------- -------------------- --------------
14 Investments (Company, continued)
* During 2022 Ravninnoe BV and Galaz Energy BV both previously
dormant were liquidated.
**During 2021 CTS LLP has acquired 100% interest in Sur Nedr and
SK-NS Aktau LLP, the two companies have drilling licenses and other
minor assets on their balances. The consideration paid for 100%
interest in these companies was insignificant and the Group's
management consider the acquisition to be an asset
acquisitions.
Indirect investments held by Prosperity Petroleum LTD
Name of undertaking Country Effective Effective Registered Nature
of incorporation holding and holding and address of business
proportion proportion
of voting of voting
rights held rights held
at 31 December at 31 December
2022 2021
-------------------- ------------------ --------------- --------------- ------------------- ------------
152/140 Karasay Drilling
Batyr Str., Vessel
KC Caspian LLP*** Kazakhstan 100% 100% Almaty, Kazakhstan owner
***During 2020 the Company acquired a 100% interest in
Prosperity Petroleum Ltd and KC Caspian LLP, the companies owing an
offshore drilling vessel. The management of the Group considered
the acquisition as the asset acquisitions.
Indirect investments held by Beibars BV
Name of undertaking Country Effective Effective Registered Nature
of incorporation holding and holding and address of business
proportion proportion
of voting of voting
rights held rights held
at 31 December at 31 December
2022 2021
-------------------- ------------------ --------------- --------------- ------------------- ------------
152/140 Karasay
Batyr Str., Exploration
Beibars Munai LLP Kazakhstan 50% 50% Almaty, Kazakhstan 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.
15 Inventories
Group Group
2022 202 1
US$'000 US$'000
------------------------- ------- -------
Materials and supplies 492 664
------------------------- ------- -------
492 664
------------------------- ------- -------
16 Other receivables
Group Group Company Company
2022 2021 2022 2021
US$ '000 US$ '000 US$ '000 US$'000
-------------------------------- -------- -------- -------- -------
Amounts falling due after
one year:
Prepayments made 9 448 - -
VAT receivable - 3,815 62 51
Long-term loan to the related
party 1,523 - 1,523 -
Other receivable from related
parties 1,001 - - -
Intercompany receivables - - 87,298 88,508
2, 53 3 4,263 88,883 88,559
-------------------------------- -------- -------- -------- -------
Amounts falling due within
one year:
Prepayments made 1,256 1,285 14 10
VAT receivable 1,723 - - -
Other receivables 2,212 3,665 - -
-------------------------------- -------- -------- -------- -------
5,191 4,950 14 10
-------------------------------- -------- -------- -------- -------
The VAT receivables relate to purchases made by operating
companies in Kazakhstan and will be recovered through VAT payable
resulting from sales to the local market.
On 25 September 2022, the Independent Directors approved an
interest-bearing loan with rate of 7% to a maximum value of $5
million to Altynbek Bolatzhan, a member of the Oraziman family, in
connection with the proposed related party acquisition of Block 8.
At 31 December 2022, $1,356,000 of that loan had been drawn down.
The loan is to be repaid whether or not Block 8 is acquired.
Further details of the loan is set out in Note 25. Another US$
167,000 of the receivable by the Company as at 31 December 2022 is
the amount due from Mr. Kuat Oraziman after restructuring the loans
with the related parties made in 2022 (note 20, 25).
US$1,275,000 out of US$2,212,000 (2021: US$3,656,000) shown as
of Other receivables represent the amounts reimbursable by the
vendors of 3A Best under the indemnities provided on acquisition of
the exploration asset. At 31 December 2022, the amount is shown net
of provision for expected credit losses: During 2020 the amount has
been impaired on US$2,551,000 or 2/3 of the originally recognised
amount due to the uncertainty of recovering 100%of the amounts due
in future periods.
The current intercompany receivables are interest free. In 2021,
the Company recognised US$ 797,000 of expected loss on provisions
in relation to its receivables from subsidiaries.
Inter-company receivables has been assessed for expected credit
losses considering factors such as the status of underlying
licenses, reserves, financial models and future risks and
uncertainties. The provision substantially refers to balances
considered credit impaired. Inter-company receivables from the
subsidiaries in the table above are shown net of provisions of
US$20.7 million (2021: US$20.7 million).The movement in the
expected credit loss provision related to the inter-company
receivables was as follows:
Group Group Company Company
20 22 20 21 2022 2021
Denomination US$'000 US$'000 US$'000 US$'000
------------------ ------- ------- ------- -------
As at 1 January - - 20,709 19,912
Charge 1,659* - - 797
As at 31 December 1,659 - 20,709 20,709
------------------ ------- ------- ------- -------
*During 2022 BNG Ltd. LLP accrued the allowance on the advance
payment made to Sinopec in 2019. Sinopec, the Chinese drilling
contractor, was engaged to drill Deep Well A8. However, BNG did not
accept the drilling works and did not pay any amount beyond the
prepaid amount. At the date of this report, the parties have yet to
come to a final agreement. Accordingly, the Group's management has
decided to reserve 100% of the receivable from Sinopec.
17 Cash and cash equivalents
Group Group Company Company
20 22 20 21 2022 2021
US$'000 US$'000 US$'000 US$'000
--------------------------------- --------- --------- -------- --------
Cash at bank and in hand 3,682 429 2,405 4
--------------------------------- --------- --------- -------- --------
Funds are held in US Dollars, Sterling and Kazakh Tenge currency
accounts to enable the Group to trade and settle its debts in
the currency in which they occur and in order to mitigate the
Group's exposure to short-term foreign exchange fluctuations.
All cash is held in floating rate accounts.
Group Group Company Company
20 22 20 21 20 22 20 21
Denomination US$'000 US$'000 US$'000 US$'000
--------------- ------- ------- ------- -------
US Dollar 3,245 45 2,404 4
GB Sterling 1 - 1 -
Kazakh Tenge 436 384 - -
3,682 429 2,405 4
--------------- ------- ------- ------- -------
18 Called up share capital
Group and Company
Number Number
of ordinary of deferred
shares US$'000 shares US$'000
------------------ --------------------- ----------------------- --------------- ---------------------------------
Balance at 1
January 2021 2,088,219,494 30,804 373,317,105 64,702
Shares issued to
repay
intermediary
services 3,017,956 42 - -
Shares issued to
repay new
rig acquisition 18,972,164 264 - -
Bonus paid to
employees 562,500 8 - -
------------------ --------------------- ----------------------- --------------- ---------------------------------
Balance at 31
December
2021 2,110,772,114 31,118 373,317,105 64,702
------------------ --------------------- ----------------------- --------------- ---------------------------------
Debt to equity
conversion
(note 20) 139,729,445 1,942 (373,317,105) (64,702)
Balance at 31
December
2022 2,250,501,559 33,060 - -
------------------ --------------------- ----------------------- --------------- ---------------------------------
Caspian Sunrise Plc had authorised share capital of
GBP100,000,000 divided into 6,640,146,055 ordinary shares of 1p
each and 373,317,105 deferred shares of 9p each at 31 December
2021. During 2022 the Company cancelled the deferred shares account
(note 3).
During 2021 the Company made the following issue of its ordinary
shares:
(1) 3,017,956 ordinary shares being payment of the intermediary
services relating to the purchase of 100% of Prosperity Petroleum
Ltd
(2) 18,972,164 new ordinary shares as the consideration for the
purchase of a US$ 750,000 workover rig.
(3) 562,500 new ordinary shares issued to staff members (below
board level) as the reward for successful drilling works.
On 9 March 2022 the Company completed the debt conversion first
announced in 2021. Accordingly, 139,729,446 Debt Conversion shares
were issued to convert US$ 6,215,000 loans payable to Oraziman
family and related entities (note 20).
On 4 November 2022 the Company announced its first interim
dividend to shareholders of in total GBP1,000,000 (equivalent of
US$ 1,222,000), which was paid in December 2022. Additionally, in
December 2022 the Company declared a second dividends which was
paid in January 2023. Total declared in 2022 dividends were US$
2,444,000. Further dividends were declared in January and February
2023 and paid in February and March 2023 respectively. In the
Company's accounts at 31 December 2022 the dividends payable were
US $1,347,000 (note 19), of which around 10% were unpaid November
dividends held due to dispute over share ownership. In 2023 the
outstanding at 31 December 2022 dividends were paid.
19 Trade and other payables
Group Group Company Company
Current payables 20 22 20 21 20 22 20 21
US$'000 US$'000 US$'000 US$'000
------------------------------- ------- ------- ------- -------
Trade payables 1,817 2,684 21 64
Taxation and social security 3,376 2,977 20 20
Accruals 4,031 152 106 106
Other payables 2,385 3,502 18 485
Intercompany payables - - 1,693 58
Dividends payable 1,347 - 1,348 -
Advances received (deferred
revenue) 2,915 3,925 - -
15,871 13,240 3,206 733
------------------------------- ------- ------- ------- -------
At 31 December 2022 and 31 December 2021, the Group had received
significant prepayments from the customers both oil sales and on
CTS LLP contracts. The amount of the advances received from oil
traders at 31 December 2022 was US$ 2,192,000 (2021: US$
1,822,000). The amount received by CTS LLP at 31 December 2022 was
US$ 704,000 (2021: US$ 2,103,000).
Group Group Company Company
Long-term withholding CIT
payable 20 22 20 21 20 22 2021
US$'000 US$'000 US$'000 US$'000
-------------------------- ------- ------- ------- -------
Taxation 13,779 14,003 - -
-------------------------- ------- ------- ------- -------
13,779 14,003 - -
-------------------------- ------- ------- ------- -------
Group Group Company Company
BNG historic costs payable* 20 22 20 21 20 22 2021
US$'000 US$'000 US$'000 US$'000
---------------------------- ------- ------- ------- -------
Current 3,178 3,178 - -
Non-current 16,297 19,290 - -
---------------------------- ------- ------- ------- -------
19,475 22,468 - -
---------------------------- ------- ------- ------- -------
*The subsoil use contract held by BNG Ltd for the MJF field
stipulates that it must make a payment to the Kazakhstan Government
upon award of a production contract after commercial feasibility.
The Kazakhstan Government has assessed the amount payable as a
total of US$32.5m. The sum is payable on a quarterly basis from 1
July 2019 in equal instalments with the final payment due to be
paid on 1 April 2029. The future payments have been discounted to
their net present value. This discounted value has been capitalised
as Property, plant and equipment and will be amortised over the
productive period. Any changes in estimated payments and discount
rate are dealt with prospectively and result in a corresponding
adjustment to property plant and equipment.
In previous reporting periods, the related obligations were
disclosed as part of the provisions as the Group was contesting the
amount levied by the authorities. However, an error was identified
in the classification of these obligations as at 31 December 2021
as a final court judgment was made against the Group in June 2021
and the amount of the obligation became enforceable by law and
should have been reclassified from provisions to payables as a
financial liability. In 2022 the Group corrected this error and
reclassified the related obligations and the comparative figure to
payables and added a relevant financial liability line and maturity
dates within liquidity risk in note 24.
Taxation payable relate to withholding tax accrued on the
interest expense at the BNG subsidiary level.
20 Short-term borrowings
Group Group Company Company
20 22 20 21 20 22 20 21
US$'000 US$'000 US$'000 US$'000
----------------------- ------- ------- ------- -------
Akku Investments LLP - 4,433 - 2,224
Mr. Oraziman - 1,424 - -
Other borrowings 352 568 - 158
----------------------- ------- ------- ------- -------
352 6,425 - 2,382
----------------------- ------- ------- ------- -------
At the start of 2021 the entities of the Group had the following
loans payable to Kuat Oraziman / companies owned by the Oraziman
family: (1) US$ 1,125,000 interest bearing loan to Eragon Petroleum
FZE from Kuat Oraziman, interest rate: 7%;
(2) US$ 777,000 interest bearing loan to Caspian Sunrise plc
from Kuat Oraziman, interest rate: 7%;
(3) US$ 1,733,000 loan to other Group subsidiaries from Kuat Oraziman, interest free;
(4) US$ 672,000 interest bearing loan provided by Fosco BV, a
company owned by the Oraziman family to BNG LLP, interest rate:
7%;
(5) US$ 1,293,000 interest bearing loan to Caspian Sunrise PLC
from Vertom International NV and Kernhem International BV,
companies owned by the Oraziman family, interest rate: 7%.
During 2021 the major part of these loans were assigned to Akku
Investment LLP, another company the company controlled by the
Oraziman family. Kuat.Oraziman then provided additional US$ 229,000
loan to BNG and CTS LLPs during 2021 (nominated in KZT, interest
free). The Oraziman family also provided a US$ 596,000 to other
Group entities in 2021.
On 9 March 2022 following the approval by independent Caspian
Sunrise shareholders US$6,215,166 of the above debt was converted
to equity with the issue of 139,729,445 shares at a price of 3.2p
per share, comprising:
(1) 100,021,431 shares issued to offset the loans payable by the Group to Akku Investments LLP
(2) 39,708,014 shares issued to repay loans and salary debts to Kuat Oraziman (US$1,766,212).
During 2022 the Group entity, Prosperity Petroleum Limited paid
Kuat Oraziman US$800,000. Total US$633,080 of the payable to Kuat
Oraziman and controlled by him entities were offset versus this
amount during 2022. As the result of the operation, at 31 December
2022 Kuat Oraziman owed to Caspian Sunrise plc US$ 167,000 . In
addition, after the restructurings done, repayments and additional
loans provision (net addition of US$142,000) at 31 December 2022
the Group owed Vertom International, a company controlled by Kuat
Oraziman, US$352,000 of loans received in 2022. The loans were
nominated in tenge with no interest.
21 Provisions and contingencies
Group only Liabilities Abandonment 20 21
under Social fund Total
Development Program (restated*)
----------------------------- --------------------- ------------ -------------
US $'000 US $'000 US $'000
----------------------------- --------------------- ------------ -------------
Balance at 1 January
20 21 5,973 557 6,530
Increase in provision - 10 3 10 3
Change in estimate - (3 4 ) (34)
Paid in the year (618) - (618)
Unwinding of discount - 6 6
Foreign exchange difference (1 4 ) (4) ( 18 )
----------------------------- --------------------- ------------ -------------
Balance at 31 December
20 21 5,3 41 6 28 5,969
----------------------------- --------------------- ------------ -------------
Non-current provisions - 487 487
Current provisions 5,3 41 141 5,482
----------------------------- --------------------- ------------ -------------
Balance at 31 December
20 21 5, 341 628 5,969
----------------------------- --------------------- ------------ -------------
Group only Liabilities Abandonment 20 22
under Social fund Total
Development Program
----------------------------- --------------------- ------------ ---------
US $'000 US $'000 US $'000
----------------------------- --------------------- ------------ ---------
Balance at 1 January
20 22 5,341 628 5,969
Increase in provision 733 79 812
Change in estimate - (89) (89)
Paid in the year (49) - (49)
Unwinding of discount - 24 24
Foreign exchange difference (1 72 ) (49) ( 221 )
----------------------------- --------------------- ------------ ---------
Balance at 31 December
20 22 5,853 593 6,446
----------------------------- --------------------- ------------ ---------
Non-current provisions - 469 469
Current provisions 5,853 124 5,977
----------------------------- --------------------- ------------ ---------
Balance at 31 December
20 22 5,85 3 593 6,446
----------------------------- --------------------- ------------ ---------
* Provisions note was restated for 2021 in the 2022 financial
accounts as Historic costs payable at BNG were mistakenly disclosed
as provisions rather than as a financial liability in 2021 (details
in the note 19).
Amounts in relation to Subsoil Use Contracts are included in the
table above and relate to the licence areas disclosed below:
a) BNG Ltd LLP
BNG Ltd LLP a subsidiary, signed a contract #2392 dated 7 June
2007 with the Ministry of Energy and Mineral Resources of the
Republic of Kazakhstan for exploration at Airshagyl deposit,
located in Mangistau region. According to the latest Amendments BNG
is required to pay around US$ 231,650 annually in respect of social
programs in the Mangistau region for the period from 7 June 2018 to
7 June 2024. Also, it is required to pay 1% of investments under
the contract on production during the period based on the results
of the previous year. For the exploration period extended to June
2024, the amount of the commitments under the work program
according to the contract on exploration is US$ 28 million dollars.
BNG is also required to invest in the training of Kazakh personnel
of an amount of not less than 1% of annual amount of investments.
Another requirement of the Company is to accumulate funds for the
site restoration by transferring annually 1% of annual exploration
costs to a special deposit in accordance with the Contract on
exploration. As at 31 December 2022 BNG was in compliance with all
the requirements listed above.
On 11 July 2019, BNG Ltd LLP signed a production contract with
the Ministry of Energy of the Republic of Kazakhstan at the
North-West Yelemes structure. The Contract is valid for 25 years
till 2043. On 23 December 2021, BNG signed the production contract
at South Yelemes structure for an initial period of 6 months. The
terms were extended in accordance with the additional agreement No.
1 dated 24 June 2023, and valid until June 23, 2044. No additional
social obligations were added for the 2019 and 2022 contract
extensions and upgrades.
b) 3A-Best Group JSC
As at 31 December 2020 3A-Best had the following debts related
to its sub soil use (SSU) contract: US$2,500,000 of social
development payment and approximately $US 1,million of debts
related to the previous years' work programme obligations.
According to the Addendum #8 to the Contract signed by the Company
on 20 January 2020 3A-Best has agreed the following schedule of
payments related to the social development and the work program
related to previous SSUC extension(s):
-- To make payments of US$580,000 quarterly for the 6 quarters ending in June 2021;
-- To drill 2 shallow wells with the total depth of 5,750 meters
during the period January-June 2020;
-- To make investments of approximately US$2,350,000 during the period January-June 2020.
The company did not meet all the above in full but made some
payments while seeking a solution to the situation. In 2021 the
Group received a notification from the Ministry of Energy of
Kazakhstan that as the Subsoil Use contract was not extended in
July 2020 the contract was deemed to have expired on that date.
The Board is working with the Kazakh authorities to renew the
licence at 3A Best, following which the Board will assess 3A Best's
position in the Group. While the Board remains confident that the
licence will be renewed on favourable terms, the Group cannot
currently make any progress with the asset. Accordingly, the Board
has decided to impair the asset in full, resulting in a $12.5
million impairment charge in 2021.
22 Deferred tax
Deferred tax liabilities comprise:
Group Group
20 22 2021
---------------------------------------------
US$'000 US$'000
--------------------------------------------- ------- -------
Deferred tax on exploration and evaluation
assets acquired 6,335 6,463
6,335 6,463
--------------------------------------------- ------- -------
The Group recognises deferred taxation on fair value uplifts to
its oil and gas projects arising on acquisition. These liabilities
reverse as the fair value uplifts are depleted or impaired.
The movement on deferred tax liabilities was as follows:
Group Group
20 22 2021
US$'000 US$'000
--------------------------- ------- -------
At beginning of the year 6,463 6,629
Foreign exchange (128) (166)
6,335 6,463
--------------------------- ------- -------
As at 31 December 2022 the Group has accumulated deductible tax
expenditure related to BNG of approximately US$62 million (31
December 2021 US$65 million) available to carry forward and offset
against future profits. This represents an unrecognised deferred
tax asset of approximately US$12 million (31 December 2021: US$13
million). Given the uncertainties regarding such deductions and the
developing nature of the relevant tax system no deferred tax asset
is recorded.
23 Share option scheme and LTIP 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 three equal
tranches over the three years following the grant.
On 10 January 2022 Shin Seokwoo, Chief Operating Officer was
granted 2,500,000 options exercisable at 5.5p and Edmund Limerick,
non-executive director was granted 1,000,000 options exercisable at
5.5p per share. Both option grants being exercisable until 9
January 2032.
Number Number of Options Total options Weighted
of options options expired exercised outstanding average
granted exercise
price in
pence (p)
per share
As at 31 December ( 64 , 80 1 1 ,3
20 2 1 91,458,226 8,226) (15,300,000) 5 0,000 1 1
----------------------- ----------- ---------------- ------------ ----------------- ----------
Directors 3,500,000 - - 3,500,000 -
Employees and others - - - - -
----------------------- ----------- ---------------- ------------ ----------------- ----------
As at 31 December ( 64 , 80 1 4 ,8 5
2022 94,958,226 8,226) (15,300,000) 0,000 11
----------------------- ----------- ---------------- ------------ ----------------- ----------
1 4 ,8 5 0,000 outstanding options as at 31 December 2022 are
exercisable.
The range of exercise prices of share options outstanding at the
yearend is 4p - 20p (20 21 : 4p - 20p). The weighted average
remaining contractual life of share options outstanding at the end
of 2022 is around 3.5 years (20 21 : 2 years).
Long Term Incentive Plan (LTIP) scheme:
On 5 June 2019 the Company made awards under a long term
incentive plan. Clive Carver, Chairman, and Kuat Oraziman, Chief
Executive Officer, are entitled to receive cash payments to be
triggered by the Company's attainment of both pre-set market
capitalisation and share price targets as follows:
Market cap threshold Share price target Pay-out rate Pay-out amount
(each) (each)
$ billion Pence per share % $' million
0.8 17.23 0.6 3.0
1.3 20.67 0.6 3.0
1.8 24.81 0.6 3.0
2.3 29.77 0.6 3.0
2.8 35.72 0.6 3.0
The scheme continues beyond the numbers in the table such that
with the threshold for market capitalisation increasing at the rate
of $0.5 billion and the corresponding share price threshold
increasing from the earlier threshold by a constant factor of 1.2.
Each threshold must be sustained for at least 30 consecutive days
for the awards to be triggered. Payments shall be made only when
the Company has free cash either in the form of distributable
reserves or as a result of a non-interest bearing subordinated
shareholder loan or an equity placing at a price not below the
relevant share price threshold.
There may be only one pay-out for each market capitalisation
threshold crossed no matter how many times it is crossed.
The Group has determined that at inception and 31 December 2021
and 2022, the fair value of the cash settled share based payment
award is immaterial based on analysis of the thresholds, historical
volatility rates and the applicable share price and market
capitalisation in the period.
24 Financial instrument risk exposure and management
In common with all other businesses, the Group and Company are
exposed to risks that arise from its use of financial instruments.
This note describes the Group and Company's objectives, policies
and processes for managing those risks and the methods used to
measure them. Further quantitative information in respect of these
risks is presented throughout these financial statements.
The significant accounting policies regarding financial
instruments are disclosed in note 1.
There have been no substantive changes in the Group or Company's
exposure to financial instrument risks, its objectives, policies
and processes for managing those risks or the methods used to
measure them from previous years unless otherwise stated in this
note.
Principal financial instruments
The principal financial instruments used by the Group and
Company, from which financial instrument risk arises, are as
follows:
Group Group Company Company
Financial assets 20 22 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
-------------------------------------------------- --------- --------- --------- ---------
Intercompany receivables - - 87,298 88,508
Other receivables 2,212 2, 247 - -
Other receivables from related parties 1,001 1,409 - -
Receivables from the related parties 1,523 - 1,523 -
Restricted use cash (related to decommissioning) 694 634 - -
Cash and cash equivalents 3,682 429 2,405 4
-------------------------------------------------- --------- --------- --------- ---------
9,11 2 4,719 91,226 88,512
-------------------------------------------------- --------- --------- --------- ---------
Financial liabilities Group Group Company Company
2022 2021 2022 2021
US$'000 US$'000 US$'000 US$'000
-------------------------------------------------- --------- --------- --------- ---------
Trade and other payables 8,253 6,338 146 655
BNG historic costs payable 19,475 22,468 - -
Intercompany payables 1,693 58
Borrowings - current 352 6,425 - 2,382
28,080 35,231 1,839 3,095
-------------------------------------------------- --------- --------- --------- ---------
Changes in liabilities arising from financial activities
Below is the movement of financial liabilities of the Group for
the years ended 31 December 2022 and 2021:
Foreign
1 January Disposal exchange
202 Loans Interest of loans difference, 31 December
2 received accrued Repayment net 202 2
--------------- ---------- ---------- --------- ----------- ---------- ------------- ------------
Financial
liabilities
Borrowings 6,425 352 11 (6,215) (633) 412 352
Foreign
Disposal exchange
1 January Loans Interest of loans difference, 31 December
2021 received accrued Repayment net 202 1
--------------- ---------- ---------- --------- ----------- ---------- ------------- ------------
Financial
liabilities
Borrowings 5,600 600 237 - (12) - 6,425
Below is the movement of financial liabilities of the Company
for the years ended 31 December 2022 and 2021:
Foreign
Disposal exchange
1 January Loans Interest of loans difference, 31 December
2022 received accrued Repayment net 2022
--------------- ---------- ---------- --------- ----------- ---------- ------------- ------------
Financial
liabilities
Borrowings 2,382 20 11 (2,413) - - -
Foreign
Conversion exchange
1 January Loans Interest to equity difference, 31 December
2021 received accrued Repayment net 2021
------------- ----------- ---------- --------- ------------ ---------- ------------- --------------
Financial
liabilities
Borrowings 2,069 158 155 - - - 2,382
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
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group and Company's risk management objectives and policies.
Whilst retaining ultimate responsibility for these objectives and
policies, 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
The maximum exposure to credit risk is represented by the
carrying amount of each financial asset in the balance sheet, which
at the year-end amounted to US$ 9.0 million (2021: US$ 4.7
million).
Credit risk with respect to Group receivables and advances is
mitigated by active and continuous monitoring of the credit quality
of its counterparties through internal reviews and assessment.
The Company is exposed to credit risk on its receivables from
its subsidiaries. The subsidiaries are exploration and development
companies with no current commercial exploitation sales and
therefore, whilst the receivables are due on demand, they are not
expected to be paid until there is a successful outcome on a
development project resulting in commercial exploitation sales
being generated by a subsidiary. In application of IFRS 9 the
Company has calculated the expected credit loss from these
receivables (Note 16).
The carrying amount of financial assets recorded in the Group
and Company financial statements, which is net of any impairment
losses, represents the Group's and Company's maximum exposure to
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, other reserves, retained deficit and
borrowings. In managing its capital, the Group's primary objective
is to provide a return for its equity shareholders through capital
growth. 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 2022 was 1% (2021:
14%).
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
2022 and 2021 see the table below. The amounts are contractual
payments and may not tie to the carrying value:
On Demand Less than 3 months 3-12 months 1- 5 years Over 5 years Total
---------------------- ---------- ------------------- ------------ ----------- ------------- -------
Group 2022 US$'000 352 9.066 2,439 17,891 - 29,748
Group 2021 US$'000 6 , 425 3 ,497 6,093 24,397 - 40,412
Company 2022 US$'000 1,693 - - - - 1,693
Company 2021 US$'000 2,382 655 58 - - 3,095
---------------------- ---------- ------------------- ------------ ----------- ------------- -------
Interest rate risk
The majority of the Group's borrowings are at fixed rate. As a
result the Group is not exposed to 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$ 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 are 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$/Kazakh Tenge rate and chooses the most beneficial times for
transferring monies to its subsidiaries, whilst ensuring that they
have sufficient funds to continue its operations. The currency risk
relating to Tenge is significant.
In the event that Kazakhstani Tenge devalues against the US$ by
30% the Group would incur foreign exchange losses in the amount of
US$38 million (2021: US$43 million) that would be reflected in
other comprehensive income. The impact of such a devaluation on the
translation of monetary assets and liabilities (predominantly
intercompany loans) held in Kazakhstan and denominated in non-Tenge
currencies would be exchange losses recorded in the statement of
changes in equity of US$38 million (2021: US$43 million).
25 Related party transactions
The Company has no ultimate controlling party.
25.1 Loan agreements
The Company had loans outstanding as at 31 December 2022 and
2021 with members of the Oraziman family and legal entities
controlled by the Oraziman family, details of which have been
summarised in note 20. The terms of the loans are in accordance
with a framework agreement entered into by the Company and the
Oraziman family under which interest is charged at the rate of 7%
per annum.
25.2 Block 8 Loan and Option agreements
Loan agreements
In September 2022, the Company agreed to provide a loan to Mr.
Altynbek Bolatzhan, a member of the Oraziman family, of up to $5
million, guaranteed by other Oraziman family members, and to be
used in finalising the Block 8 exploration work programme and to
obtain a production license at Block 8. In the event the
acquisition of Block 8 does not complete the loan would be
repayable by the Oraziman family. At 31 December 2022, of the $5
million total the Company had advanced $1,356,000 to Mr. Bolatzhan,
with the interest rate of 7%.
During 2022 the Group entity, Prosperity Petroleum Limited paid
Kuat Oraziman US$800,000. Total US$633,080 of the payable to Kuat
Oraziman and controlled by him entities were offset versus this
amount during 2022. As the result of the operation, at 31 December
2022 Kuat Oraziman owed to Caspian Sunrise plc US$ 167,000 . In
addition, after the restructurings done, at 31 December 2022 the
Group still owed Vertom International, a company controlled by Kuat
Oraziman, US$352,000 of the loans received in 2021-2022. The loans
are nominated in tenge with no interest.
Option agreement
In September 2022, the Company entered into an option agreement
with Mr. Altynbek Bolatzhan, an Oraziman family member, for the
Company to acquire EPC Munai LLP (Block 8).
The maximum consideration for the asset is $60 million, payable
in cash from future production from Block 8, at the rate of $5 per
barrel of oil produced.
25.3 Key management remuneration
Key management comprises the Directors and details of their
remuneration are set out in note 7.
25.4 Sales of services
As set out more fully in note 4 CTS LLP, the Group's onshore
drilling subsidiary undertook repair and drilling work at Block 8
(EPC LLP), which is owned by members of the Oraziman family and for
which the Group has an option to acquire.
As at 31 December 2021 CTS LLP received US$ 2,103,000 of the
advances for drilling and repair works at Block 8. In 2022 CTS has
accrued US$ 3,704,000 of revenue from services to Block 8. The
related cost of sales was US$ 4,083,000 (note 4). The balance of
the advances received at 31 December 2022 was US $704,000.
In 2020 CTS LLP conducted limited repair work at Wells P1 and P2
for a price of $757,653. In 2021 CTS LLP conducted limited repair
work on Well P1 for a price of $646,373. During 2021-2022 CTS LLP
drilled a side-track at Well P1 for a price of $972,658.
During 2022 CTS LLP has entered into additional contracts with
EPC Munai to drill a further 2 deep wells on Block 8's Skolkara
structure (note 2.2.3).
Well P3
The first is Well -3, with a contract value is $6,484,000.
At 31 December 2022 only the preparatory works had been
completed, which we estimate to be approximately 10% of the total
work. During 2023 work at the well has been put on hold to allow
other projects to proceed. At 31 December 2022 $470,000 had been
paid to CTS LLP for the drilling works.
Well AKD
The second is Well AKD where the contract value is
$4,323,000.
At 31 December 2022 the well had reached a depth of 2,187
meters, representing approximately 20% of the total work. At 31
December 2022 $1,652,000 had been paid to CTS LLP for the drilling
works.
For additional information on related party transactions with
the Oraziman family and entities controlled by them see notes 16,
20.
26 Non-controlling interest
Group Group
2022 2021
----------------------------------------
US$'000 US$'000
---------------------------------------- ------- -------
Balance at the beginning of the year (5,801) (5,809)
Share of profit / (loss) for the year 134 8
(5,667) (5,801)
---------------------------------------- ------- -------
As at 31 December 2022 non-controlling interest represents
minority share in BNG Ltd LLP and Beibars Munai LLP (as at 31
December 2021: BNG Ltd LLP and Beibars Munai LLP).
27 Events after the reporting period
Conditional sale of 50% of the Caspain Explorer
On 12 June 2023 the Company announced the conditional sale of
50% of the shares in Prosperity Petroleum FZE, the UAE registered
holding company of KCCE Investments, the Kazakh registered company
that owns the Caspian Explorer for a cash consideration of $22.5
million. By the time of this report publishing the Company did not
receive any amount from the potential buyer.
Bank loan to BNG
On 30 June 2023 BNG Ltd. LLP, the subsidiary, received an
official letter from Fortebank (Kazakhstan) with approval of a
revolving credit line on 36 months, 7%, of up to US$ 5,000,000. The
aim of the loan is to finance the current operations of the
entity.
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END
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