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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Cabot Energy Plc | LSE:CAB | London | Ordinary Share | GB00BGR7LD51 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1.50 | 1.25 | 1.75 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMNOP
RNS Number : 1896D
Northern Petroleum PLC
25 April 2017
Northern Petroleum Plc
("Northern Petroleum" or "the Group")
Preliminary Results for the Year Ended 31 December 2016
Operational update
Northern Petroleum (AIM: NOP) announces its Preliminary Results for the year ended 31 December 2016 and provides an operational update with respect to the winter work programme.
Preliminary Results Highlights
-- Transformational year:
- Canadian asset acquisition including production, reserves and facilities - farm out and partial divestment of asset portfolio to new strategic partner - equity financing providing investment for production growth
-- Strengthening financial metrics:
- revenue for 2016 of $3.6 million (2015: $0.3 million) - administrative expenses reduced to $2.3 million (2015: $4.0 million) - pre-tax losses reduced to $2.5 million (2015: $10.7 million)
-- Material growth in Proven and Probable ("2P") reserves to 1.9 million barrels of oil equivalent ("mmboe") as at 30 September 2016, before divestment of 25 per cent. of Canadian assets (2015: 0.3 mmboe)
-- Cash on the balance sheet as at 31 March 2017 was $7.2 million (unaudited)
- excluding $0.7 million, which is held on deposit by the Alberta Energy Regulator ("AER") and is forecast to be returned during Q3 2017; and
- excluding $0.5 million which is due on the completion of the previously announced farm out of the Group's Italian southern Adriatic permits, currently awaiting regulatory approval.
Operational update - winter work programme
-- A total of 23 wells successfully worked over
- three wells, which had been shut in for maintenance, added to the original 20 well programme
-- Gross final cost of programme expected to be below forecast of US$2.5 million (Group's share is 75 per cent.)
-- Following the Canadian production acquisition announced in March 2017, four of the wells acquired were substituted into the programme
-- Targeted production increase of more than 300 barrels of oil equivalent per day ("boepd") achieved, in line with expectations, (on a gross basis of which Northern Petroleum's share is 75 per cent.)
-- Single well batteries requiring trucking to the Group's facilities now temporarily shut in due to the annual spring thaw ("Break Up") during which winter roads become impassable to heavy trucks
-- Gross production of 500 to 700 boepd expected before the end of Q2 2017, following Break Up and the granting of regulatory approvals
- current production of 300 to 400 boepd - shut-in production of 200 to 300 boepd
Summer Programme
-- Following the success of the winter work programme, a larger summer programme than previously considered planned for Q3 2017
- programme to include side track wells and recompletions of selected single well batteries to achieve lower water disposal costs
- targeting production gains of a further 300 boepd
-- Substantial subsurface project now underway to map the wider Keg River play across the Virgo area, along with the potential of the other hydrocarbon producing horizons present throughout the acreage
Corporate
-- Paul Lafferty, Group Chief Operating Officer, has moved to Calgary for a two year posting to oversee growth in production and operations
Keith Bush, Chief Executive Officer of Northern Petroleum, commented:
"2016 was a pivotal year for the company. Despite the continued tough industry environment, we have completed a significant funding with a new strategic shareholder who understands the potential of the business and we have acquired assets with excellent production synergies and future growth potential, to provide positive cashflow for investment in other assets, while keeping costs low. We are now positioned to increase the value of the company in the short term through additional production and in the mid to long term through development of the wider Canadian assets and through exploration and appraisal of the Italian assets.
"The positive results of 2016 have been enhanced early in 2017 with the execution of the winter work programme and I have been extremely pleased with how the team have completed it. Performing operations on 23 wells without issue and in a limited time prior to break up is impressive and attaining the production results we have with the reduced cost is a great achievement. The opportunity now is to further increase our production base with an enhanced summer 2017 programme and I'm looking forward to the preparation and execution of this over the next few months."
For further information please contact:
Northern Petroleum Plc Tel: +44 (0)20 7469 2900
Keith Bush, Chief Executive Officer
Nick Morgan, Finance Director
Stockdale Securities Limited (Nomad and Joint Broker) Tel: +44 (0)20 7601 6100
Antonio Bossi
David Coaten
FirstEnergy Capital LLP (Joint Broker) Tel: +44 (0)20 7448 0200
Jonathan Wright
FTI Consulting Tel: +44 (0)20 3727 1000
Edward Westropp
In Accordance with AIM Rules - Guidance for Mining and Oil & Gas Companies, the information contained in this announcement has been reviewed and signed off by the CEO of Northern Petroleum, Mr Keith Bush, who has 25 years' experience as a petroleum engineer. He has read and approved the technical disclosure in this regulatory announcement. The technical disclosure in this announcement complies with the SPE standard.
Note to Editors:
Northern Petroleum is an oil and gas company focused on production led growth. The Group is undertaking a redevelopment and production project in north west Alberta and has a broader portfolio of exploration and appraisal opportunities in countries of relatively low political risk, primarily Italy. Comprehensive information on Northern Petroleum and its oil and gas operations, including press releases, annual reports and interim reports are available from Northern Petroleum's website:
www.northernpetroleum.com
Chairman's and Chief Executive Officer's Statement
2016 proved to be a pivotal year for the Group despite the continuing poor industry climate. The year started with a production acquisition in Canada requiring very low capital outlay and ended with a new strategic investor, a joint venture partner across the portfolio and a strengthened balance sheet that will enable growth from the existing asset base.
Early in 2016 the oil price dipped to a low of $27 for West Texas Intermediate before recovering later in the year and finishing 2016 at over $53. The low prices early in the year caused an extreme reaction within the industry with companies being forced into insolvency and further job losses both on the operator side and in the service sector. This downturn, which started in 2014, has become the most prolonged in industry history and has caused fundamental changes throughout the sector. As a result, opportunities have become available to those companies that have survived and have the balance sheet and strategic relationships to grow both through acquisition and development of existing acreage.
For the last two years the Group has been concentrating on establishing a platform that will enable growth when the business environment improves. Our strategy of production led growth has provided the framework to focus on acquiring low cost production with room for both production and reserves growth in the short and medium term.
In line with this strategy and after careful consideration of different opportunities, the Group completed the acquisition of a producing asset with strong synergies to the existing acreage in northern Alberta (the "Rainbow Assets") in January 2016. The acquisition enhanced our strategy of profitable production, effective cost management and growth in reserves. We remain committed to this strategy which we firmly believe provides the right foundation for continued growth.
The acquired assets are in the Rainbow area of northern Alberta, approximately 15 miles from the Group's existing assets in the Virgo area. At the time of acquisition, the Rainbow Assets were producing approximately 150 boepd. During the asset evaluation stage the Group's technical team identified a number of well recovery opportunities, that when implemented through a successful well intervention campaign, increased production to more than 400 boepd by the end of March 2016.
Following the investment programme in 2016, production for the year averaged 290 boepd. At this production level a large proportion of operating costs relate to the fixed costs of the facilities. The planned increase in production in 2017 will not lead to an increase in fixed costs and therefore operating cost per barrel will reduce, allowing the Group to invest the additional net income in Canada as well as support continuing efforts in Italy.
Following the acquisition of the Rainbow Assets, the technical work and capital investment in the assets allowed the Group's reserve auditors to recognise additional potential with certified 2P reserves increasing by more than 30 per cent. At the end of September 2016, 2P reserves were 1.9 mmboe, before the 25 per cent. working interest sale to High Power Petroleum LLC ("H2P"). These existing reserves provide the inventory that will sustain profitable production growth in the years ahead.
In Italy, the political environment was very active in 2016 with two national referenda; the second, in December 2016, leading to defeat for the Government and the resignation of the Prime Minister. As a result, progress for the Italian oil and gas industry has been slow, but the Group has advanced, with Shell Italia, the operator of our interest in Cascina Alberto onshore northern Italy, planning a 2D seismic acquisition programme which is now expected to occur in 2018.
Additionally, the appeals made against the approval of the Group's environment impact assessments offshore in the southern Adriatic, were heard and rejected, leaving the path clear to acquire 3D seismic in the F.R39 and F.R40 permits. This allowed the Ministry of Economic Development to progress the award of the application areas, also in the southern Adriatic, which are expected to be awarded this year. Despite the political upheaval in Italy we remain focused on creating value from our Italian portfolio and we expect to be able to report firm activity before the end of 2017.
In conjunction with the work on the Group assets, ensuring that operational and administrative costs were managed and maintained at a low level was a key goal for the year. Administrative expenses were again reduced in 2016 with a total of $2.3 million for the whole Group, versus $4.0 million in 2015. This has been achieved while maintaining the ability to effectively manage the existing assets and pursue further opportunities for growth. Operating expenses have been constantly under review throughout the year and a number of initiatives have been started that should lead to a reduction in costs in 2017.
Throughout the year we recognised that both the Canadian and Italian assets would need more investment to be able to reach their potential. As a result, discussions were held with a number of potential investors with a view to bringing in a strategic investor along with existing shareholders. The discussions focused on the production potential and cashflow generation of the Canadian assets and proved attractive to investors with a strong industry background.
In November 2016, having pursued a number of different potential financing initiatives, the Group agreed a broad based strategic investment by H2P both at the asset and corporate level.
A 25 per cent. interest in the Canadian assets was sold to H2P for a $2.0 million cash consideration and the provision of $0.25 million worth of stimulation services, by Blue Spark Energy Inc, a sister company of H2P. A 10 per cent. and a 25 per cent. interest in the southern Adriatic permits and the Australian permit respectively were also sold for $0.5 million, with completion subject to regulatory approval.
In conjunction with these asset investments, H2P subscribed for ordinary shares raising gross proceeds of $4.1 million. Existing and new institutional shareholders also subscribed for ordinary shares contributing proceeds of $2.2 million. An oversubscribed open offer to existing shareholders, on the same terms as the direct subscription, raised a further $0.9 million which resulted in a total equity funds raised of $7.2 million, of which $1.8 million was received post year end.
The introduction of H2P as a strategic investor at both the asset level and as a major shareholder marks a step change for the Group. The continued support from other key shareholders, Cavendish Asset Management and City Financial, alongside our retail shareholders gives the Group a solid financial foundation from which to grow our production in Canada and develop our Italian portfolio.
At the end of 2016, the Board was enhanced with the appointment of Campbell Airlie as a Non-executive Director. Campbell provides a wealth of industry experience to the Board, particularly from an engineering perspective and bolsters the technical rigour given to the executive management and staff.
The work performed in 2016 has positioned the Group to be able to grow from the existing asset base. The capital from new and existing shareholders along with the funds from the disposal of certain assets has provided the Group with a strong balance sheet and will allow the potential of the assets to be realised. Despite the difficult economic environment, Northern Petroleum is well placed to increase production and reserves which coupled with effective cost management should deliver real growth in the short and medium term.
Jon Murphy
Non-executive Chairman
Keith Bush
Chief Executive Officer
Review of Operations
Canada
2016 Activity
In January 2016 the Group acquired the Rainbow Assets which at the time were producing approximately 150 boepd. The acquisition included wells, pipeline infrastructure and two production facilities with a direct tie-in to the national pipeline network. The Rainbow Assets, combined with the existing Virgo development project gave the Group a total combined land position of 58,000 acres with 2P reserves of 1.4 mmboe on completion.
During the year, two work programmes focused on the Rainbow Assets were successfully undertaken returning 10 wells to production that had been previously shut in due to mechanical issues. These work programmes increased total production from approximately 150 boepd at the beginning of the year to in excess of 400 boepd at the completion of the programmes. This increase in production resulted in a total average production for the year from the Virgo and Rainbow areas of 290 boepd.
Towards the end of the year, an independent reserves report was produced by McDaniel and Associates Consultants Ltd. taking into consideration the results of the two work programmes and the Group's operating expenditure for the six months after the acquisition of the Rainbow Assets. As of 30 September 2016, total Proven and Probable reserves were 1.9 mmboe, an increase of over 600 per cent. from the beginning of the year.
Total production for the year amounted to 106,000 boe with operating expenditure reduced during the year due to a combination of having acquired two production facilities as part of the Rainbow Asset acquisition significantly reducing third party processing fees, and an industry wide reduction in service company costs reflecting the lower oil price environment.
Health, safety and environmental performance was satisfactory for the Canadian assets during 2016 with no Lost Time Incidents or injuries to personnel. There were two minor reportable oil spills where clean up from both spills was completed successfully in compliance with regulatory requirements.
2017 Activity
As a result of the capital raised by the Group at the end of 2016, activities in early 2017 have been focused on a winter work programme aimed at working over 20 wells to increase production by 300 boepd. These wells had originally been shut in due to mechanical or near well bore issues in the Rainbow area.
By the end of the first quarter, the programme had been completed with the production targets achieved. Planning has now commenced for an extended summer work programme, which aims to increase production by a further 300 boepd.
Italy
Offshore
Approvals of six environmental impact assessments in the southern Adriatic were received in 2015. The approvals included the 3D seismic programme across the Giove oil discovery and Cygnus exploration prospect and the five exploration applications adjacent to the Group's permits. Appeals lodged by the Puglia region against these awards were rejected by the Italian courts during 2016 allowing the Group to continue to plan the seismic programme and work with the Ministry of Economic Development to turn the applications into permits.
Subsurface work conducted during 2016 identified that the Medusa deep exploration prospect is analogous to the Giove discovery. As a result, subject to the approval of the Ministry of Economic Development, the Group is proposing to combine the work programmes for permits F.R39 and F.R40. This will allow one well to move both permits into the second licencing period. The Group has drafted an appraisal well Environmental Impact Assessment ("EIA") for Giove to be submitted during 2017 to drill a well 12 to 18 months after submission, subject to financing and approvals being received. All offshore permits are currently held in suspension pending approvals for the next stage of the work programmes.
Onshore
Shell Italia E&P S.p.A ("Shell Italia"), the operator of the Cascina Alberto permit in northern Italy, has made good progress on the exploration work programme with the reprocessing of existing 2D seismic data. After careful consideration, they have decided that additional 2D seismic needs to be acquired to provide further imaging of the exploration prospect and establish the most favorable exploration well location. Shell Italia has now commenced initial public and stakeholder consultation and information meetings before submitting the EIA for the acquisition programme. The EIA is expected to be submitted to the authorities during 2017 once due consideration has been given to the results of the consultations. The Group has a 20 per cent. interest in the permit, which is carried for 2D seismic operations up to $4 million and for the drilling of a single exploration well up to $50 million.
Australia
There has been limited activity on the licence in the Otway Basin in South Australia during 2016. The primary play is for unconventional resources in several shale formations, with a secondary play in a conventional sandstone reservoir. The licence continues to be suspended to allow further technical work and evaluation. H2P has farmed into the licence, subject to regulatory approval, with an option to increase its working interest from 25 to 50 per cent. through funding a $1 million seismic work programme.
French Guiana
There was little activity on the French Guiana exploration permit during 2016. The original permit expired in June 2016 and two of the Joint Venture Partners withdrew from any extension request. The Group does not expect any further progress or expense on the permit in 2017.
Keith Bush
Chief Executive Officer
Financial Review
Overview
The focus of the financial function of the business throughout 2016 was on cashflow management. This involved balancing the day-to-day cash requirements of the Group, two work programmes and the return of an abandonment deposit from the AER.
From an accounting perspective, the material movements in the accounts in 2016 relate to the acquisition of the Rainbow Assets, which completed in January 2016, and the subsequent sale of 25 per cent. of all the Canadian assets to H2P in December 2016. Alongside these two transactions, a new independent reserves report was commissioned following an investment programme in Canada, which led to adjustments on the carrying value of some specific assets in property, plant and equipment.
A deferred tax asset of $5.0 million has now been recognised relating to the Canadian operations, following the Rainbow Asset acquisition and investment programme. This has led the Directors to believe that it is now probable that the Group's Canadian subsidiary will be profitable and in a tax paying position in the future and that the losses and other temporary differences will be utilised. This has contributed to a post-tax profit of $3.0 million compared to a loss in 2015 of $10.2 million.
Revenue and costs
Revenues increased substantially in 2016 to $3.6 million (2015: $0.3 million) reflecting the significant increase in production levels over the prior year. Production costs of $3.5 million included Canadian and UK staff costs written to operations, as well as unplanned equipment and pipeline maintenance allocated to operational expense. The Group maintained its focus on costs throughout the organisation to ensure the business was correctly sized for the level of activity being undertaken. A reduction in staff in the UK was undertaken early in the year and a change in the use of some of the Group's consultants contributed to a reduction in administrative costs of 43 per cent. from $4.0 million in 2015 to $2.3 million in 2016. Overall pre-tax losses have been reduced from $10.7 million in 2015 to $2.5 million in the current year.
Cashflow and cash reserves
To complete the acquisition of the Rainbow Assets in January 2016, the Group had to increase its abandonment deposit held by the AER by approximately $1.2 million to a total of $1.4 million. Detailed cashflow forecasting and management was required to allow a capital investment programme to be completed during the first half of the year, without the deposit funds available for investment, in order to increase production, which was required for the return of the full deposit by October 2016.
Capital investment throughout the year was focused on two distinct work programmes, which occurred in the first and third quarters of the year. The majority of the $1.4 million invested was spent on well workovers and pipeline reinstatements.
At the end of the year the Group made another repayment to the Italian government of its outstanding debt of approximately $0.4 million. The $0.7 million remaining will be paid back over three years.
Following the partial completion of the strategic investment by H2P and equity subscription, the Group finished the year with a cash balance of $6.6 million, with a further $0.5 million still to be received following the completion of the Italian divestment to H2P, which is expected to complete in Q2 2017.
Rainbow acquisition
The consideration for the Rainbow Asset acquisition of approximately $0.4 million represented the asset value less the abandonment liability assumed by the Group. Using an external reserve audit report from 1 January 2015 prepared for the vendor, an internal valuation was approved by the Board at the time of the acquisition which calculated a net present value of the assets acquired after the deduction of tax. This value, less the consideration paid and a working capital adjustment, was $2.0 million. Since this value was positive, it has been booked to the profit or loss account as a bargain consideration, which arose as the vendor considered the assets to be non-core to their business.
Impairment review of the Group's assets
Following the completion of the Rainbow Asset acquisition and the investment in production development during the year, the Group commissioned a new external reserves report. A total impairment of $1.7 million was made to property, plant and equipment to align historic cost asset values, relating to the Virgo area in Canada, to the reserves shown in the report prepared by the external reserves engineer.
Partial sale of Group's assets
As part of a strategic equity investment in the Group announced in November, H2P acquired a 25 per cent. interest in the Group's assets in Canada, with the completion of a further acquisition of interests in the southern Adriatic in Italy and the onshore permit in Australia still subject to regulatory approval.
The divestment of the Canadian interest closed in December 2016. The book value of the Canadian assets at completion had been adjusted for the bargain consideration and impairment, as explained above, and from operations and capital investment throughout the year. The net effect of these changes was to book a loss on disposal of approximately $0.2 million.
Post year end
In January 2017 the open offer made to shareholders in December 2016 completed, raising additional equity capital of $1.8 million. A long term VAT receivable from the Italian government was factored to a third party in Italy and the Group received approximately $0.7 million in cash in March 2017. This had previously been provided for as a bad debt, but following the receipt of the cash, the amount has been booked as a current asset in the 2016 year end balance sheet and in other income on the profit or loss account.
This gave total unaudited cash on the balance sheet as at 31 March 2017 of approximately $7.2 million, which excludes $0.7 million held in deposit by the AER.
Accounting policies
These financial statements have been prepared by the Board using accounting policies consistent with those used in 2015. There have been no new or revised International Financial Reporting Standards adopted during the year which have had a material impact on the numbers reported. Details of the accounting policies used are included within the accounting policy notes.
Nick Morgan
Finance Director
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the year ended 31 December 2016
Hot Features
Premium
Year ended Year ended
31 December 31 December
2016 2015
Notes $'000 $'000
--------------------------------------------------------------------- ------ ------------ -------------
Revenue 3,638 332
--------------------------------------------------------------------- ------ ------------ -------------
Production costs (3,540) (786)
Depletion and amortisation - property, plant and equipment (686) (98)
--------------------------------------------------------------------- ------ ------------ -------------
Cost of sales (4,226) (884)
--------------------------------------------------------------------- ------ ------------ -------------
Gross loss (588) (552)
Pre-licence costs (112) (15)
Administrative expenses (2,261) (3,967)
Loss on disposal of subsidiaries and other assets 2 (231) (40)
Other operating income 3 2,685 786
Impairment losses 5 & 6 (1,670) (6,268)
Loss from operations (2,177) (10,056)
Finance costs (355) (666)
Finance income 14 1
--------------------------------------------------------------------- ------ ------------ -------------
Loss before tax (2,518) (10,721)
Tax credit 4 5,544 558
--------------------------------------------------------------------- ------ ------------ -------------
Profit / (loss) for the year 3,026 (10,163)
--------------------------------------------------------------------- ------ ------------ -------------
Other comprehensive income / (loss):
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (52) (3,900)
--------------------------------------------------------------------- ------ ------------ -------------
Other comprehensive loss for the year, net of income tax (52) (3,900)
--------------------------------------------------------------------- ------ ------------ -------------
Total comprehensive income / (loss) for the year 2,974 (14,063)
--------------------------------------------------------------------- ------ ------------ -------------
Profit / (loss) attributable to
Equity shareholders of the Company 3,125 (10,140)
Non-controlling interests (99) (23)
--------------------------------------------------------------------- ------ ------------ -------------
3,026 (10,163)
--------------------------------------------------------------------- ------ ------------ -------------
Total comprehensive income / (loss) attributable to
Equity shareholders of the Company 3,073 (14,040)
Non-controlling interests (99) (23)
--------------------------------------------------------------------- ------ ------------ -------------
2,974 (14,063)
--------------------------------------------------------------------- ------ ------------ -------------
Earnings per share
Basic earnings / (loss) per share on profit / (loss) for the year 2.0 cents (10.3) cents
===================================================================== ====== ============ =============
Diluted earnings / (loss) per share on profit / (loss) for the year 2.0 cents (10.3) cents
--------------------------------------------------------------------- ------ ------------ -------------
Consolidated Statement of Financial Position
at 31 December 2016
2016 2015
Notes $'000 $'000
---------------------------------------------------- ------ -------- --------
Assets
Non-current assets
Intangible assets 5 24,553 25,749
Property, plant and equipment 6 10,814 4,045
Deferred tax assets 4,968 -
---------------------------------------------------- ------ -------- --------
40,335 29,794
Current assets
Inventories 109 13
Trade and other receivables 1,453 658
Cash and cash equivalents 6,584 2,417
---------------------------------------------------- ------ -------- --------
8,146 3,088
Total assets 48,481 32,882
---------------------------------------------------- ------ -------- --------
Liabilities
Current liabilities
Trade and other payables 2,678 974
---------------------------------------------------- ------ -------- --------
2,678 974
Non-current liabilities
Trade and other payables 239 553
Provisions 7,221 1,297
Deferred tax liabilities 2,137 2,066
---------------------------------------------------- ------ -------- --------
9,597 3,916
Total liabilities 12,275 4,890
---------------------------------------------------- ------ -------- --------
Net assets 36,206 27,992
---------------------------------------------------- ------ -------- --------
Capital and reserves
Share capital 10,575 9,034
Share premium 22,390 18,833
Merger reserve 14,190 14,190
Share incentive plan reserve 377 349
Foreign currency translation reserve (8,978) (8,926)
Retained earnings and other distributable reserves (2,306) (5,493)
---------------------------------------------------- ------ -------- --------
Equity attributable to owners of the parent 36,248 27,987
---------------------------------------------------- ------ -------- --------
Non-controlling interests (42) 5
---------------------------------------------------- ------ -------- --------
Total equity 36,206 27,992
---------------------------------------------------- ------ -------- --------
Consolidated Cash Flow Statement
for the year ended 31 December 2016
Year ended Year ended
31 December 31 December
2016 2015
Notes $'000 $'000
------------------------------------------ ----- ----------- -----------
Cash flows from operating activities
Loss before tax for the year (2,518) (10,721)
Depletion and amortisation 6 686 99
Depreciation - non-oil and gas 5 &
property, plant and equipment 6 142 723
Impairment losses on intangible
assets 5 55 3,667
Impairment losses on property,
plant and equipment 6 1,615 2,601
Loss on disposal of subsidiaries,
investments and property, plant
and equipment 2 231 40
Partial recovery of doubtful debts 3 (674) -
Credit arising from bargain purchase
of property, plant and equipment 3 (2,011) -
Finance income (14) (1)
Finance charges 354 154
Foreign exchange loss 1 512
Share-based payments 90 23
------------------------------------------ ----- ----------- -----------
Net cash outflow before movements
in working capital (2,043) (2,903)
Increase in inventories (95) (16)
Decrease in trade and other receivables 85 748
Increase / (decrease) in trade
and other payables 1,724 (4,267)
------------------------------------------ ----- ----------- -----------
Net cash inflow / (outflow) from
changes in working capital 1,714 (3,535)
Cash outflow from operating activities
Cash outflow from operations (329) (6,438)
Interest received 14 1
Interest paid (43) (10)
Taxes (paid) / refunded (14) 81
------------------------------------------ ----- ----------- -----------
Net cash outflow from operating
activities (372) (6,366)
------------------------------------------ ----- ----------- -----------
Cash flows from investing activities
Purchase of property, plant and
equipment (1,394) (4,005)
Expenditure on exploration and
evaluation assets (402) (1,139)
Business acquisitions 7 (382) -
Sale of subsidiaries, net of cash
disposed of 2 (37) -
Sale of property, plant and equipment 2 1,896 11
------------------------------------------ ----- ----------- -----------
Net cash outflow from investing
activities (319) (5,133)
------------------------------------------ ----- ----------- -----------
Cash flows from financing activities
Proceeds from issue of ordinary
shares 5,391 2,427
Costs and fees associated with
the issue of ordinary shares (293) (97)
Repayment of government loan (380) (382)
Capital contributions from non
controlling interests 52 35
------------------------------------------ ----- ----------- -----------
Net cash inflow from financing
activities 4,770 1,983
------------------------------------------ ----- ----------- -----------
Net increase in cash and cash equivalents 4,079 (9,516)
Cash and cash equivalents at start
of year 2,417 12,143
Effect of exchange rate movements 88 (210)
------------------------------------------ ----- ----------- -----------
Cash and cash equivalents at end
of year 6,584 2,417
------------------------------------------ ----- ----------- -----------
Consolidated Statement of Changes in Equity
for the year ended 31 December 2016
Retained
Share Foreign earnings
Share incentive currency and other Non
-
Share premium Merger plan translation distributable controlling Total
capital account reserve reserve reserve reserves Total interests equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
----------------- -------- -------- -------- ---------- ------------ -------------- ------- ------------ -------
At 1 January
2016 9,034 18,833 14,190 349 (8,926) (5,493) 27,987 5 27,992
----------------- -------- -------- -------- ---------- ------------ -------------- ------- ------------ -------
Total
comprehensive
income
/ (loss)
for the
year - - - - (52) 3,125 3,073 (99) 2,974
----------------- -------- -------- -------- ---------- ------------ -------------- ------- ------------ -------
Contributions by and distributions
to owners of the Company
Issue
of shares
during
the year 1,541 3,850 - - - - 5,391 - 5,391
Costs
and fees
associated
with share
issue - (293) - - - - (293) - (293)
Equity
share
warrants
lapsed
or cancelled - - - (62) - 62 - - -
Share-based
payments - - - 90 - - 90 - 90
----------------- -------- -------- -------- ---------- ------------ -------------- ------- ------------ -------
Total
contributions
by and
distributions
to owners
of the
Company 1,541 3,557 - 28 - 62 5,188 - 5,188
----------------- -------- -------- -------- ---------- ------------ -------------- ------- ------------ -------
Changes in ownership interests
in subsidiaries
Capital
contributions
from
non-controlling
interests - - - - - - - 52 52
----------------- -------- -------- -------- ---------- ------------ -------------- ------- ------------ -------
Total
changes
in ownership
interests
in subsidiaries - - - - - - - 52 52
----------------- -------- -------- -------- ---------- ------------ -------------- ------- ------------ -------
At 31
December
2016 10,575 22,390 14,190 377 (8,978) (2,306) 36,248 (42) 36,206
----------------- -------- -------- -------- ---------- ------------ -------------- ------- ------------ -------
Consolidated Statement of Changes in Equity
for the year ended 31 December 2015
Retained
Share Foreign earnings
Share incentive currency and other Non -
Share premium Merger plan translation distributable controlling Total
capital account reserve reserve reserve reserves Total interests equity
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
----------------- -------- -------- -------- ---------- ------------ -------------- --------- ------------ ---------
At 1 January
2015 8,225 17,312 14,190 484 (5,026) 4,489 39,674 (7) 39,667
----------------- -------- -------- -------- ---------- ------------ -------------- --------- ------------ ---------
Total
comprehensive
loss for the
year - - - - (3,900) (10,140) (14,040) (23) (14,063)
----------------- -------- -------- -------- ---------- ------------ -------------- --------- ------------ ---------
Contributions by and distributions to owners of the
Company
Issue of shares
during the year 809 1,618 - - - - 2,427 - 2,427
Costs and fees
associated with
share issue - (97) - - - - (97) - (97)
Equity share
warrants lapsed
or cancelled - - - (158) - 158 - - -
Share-based
payments - - - 23 - - 23 - 23
----------------- -------- -------- -------- ---------- ------------ -------------- --------- ------------ ---------
Total
contributions
by and
distributions
to owners of
the Company 809 1,521 - (135) - 158 2,353 - 2,353
----------------- -------- -------- -------- ---------- ------------ -------------- --------- ------------ ---------
Changes in ownership interests in subsidiaries
Capital
contributions
from
non-controlling
interests - - - - - - - 35 35
----------------- -------- -------- -------- ---------- ------------ -------------- --------- ------------ ---------
Total changes in
ownership
interests in
subsidiaries - - - - - - - 35 35
----------------- -------- -------- -------- ---------- ------------ -------------- --------- ------------ ---------
At 31 December
2015 9,034 18,833 14,190 349 (8,926) (5,493) 27,987 5 27,992
----------------- -------- -------- -------- ---------- ------------ -------------- --------- ------------ ---------
Notes to the Financial Information
for the year ended 31 December 2016
1. Basis of preparation
The financial information which comprises the Consolidated Statement of Profit or Loss and Other Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity and related notes is derived from the full Group consolidated financial statements for the year ended 31 December 2016, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial information has been prepared applying the accounting policies and presentation that were applied in the preparation of the Group's consolidated financial statements for the year ended 31 December 2016 and are not the Group's statutory accounts. The accounting policies are detailed in the Group's consolidated financial statements for the year ended 31 December 2016 which will be presented on the Group's website (www.northernpetroleum.com).
The financial information set out above does not constitute the Group's statutory accounts for the years ended 31 December 2016 or 2015. Statutory accounts for 2015 have been delivered to the registrar of companies, and those for 2016 will be delivered in due course. The auditor has reported on those accounts; their report for the year ended 31 December 2016 was (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.
The functional currency of the Parent Company is considered to be the US Dollar and the Group financial statements are presented in US Dollars.
Going concern basis of preparation
The Group's business activities, together with the factors likely to affect its future development and performance are set out in the Chairman's and Chief Executive's Statement and the Review of Operations. The financial position of the Group, its net cash position and liabilities are described in the Financial Review. Taking into consideration the Group's year end cash position of $6.6 million and forecast future revenue from existing oil and gas fields, the Group has adequate financial resources and the Directors believe that the Group is well placed to meet the costs of the Group's current financial commitments. The Board's review of the accounts, budgets and financial plan lead the Directors to believe that the Group has sufficient resources to continue in operation at least until the end of 2018 and they are managing the Group's assets to realise further capital to allow the development and growth of the business beyond that point. The 2016 financial statements are therefore prepared on a going concern basis.
2. Loss on Disposal of Subsidiaries, Investments and Other Assets
Year ended Year ended
31 December 31 December
2016 2015
Group $'000 $'000
------------------------------------------------------------------------------------- ------------ ------------
Disposal of oil and gas plant, property and equipment and intangible assets
Net book value of assets and liabilities disposed of (2,243) -
Disposal costs (87) -
Adjustment for economic effective date (18) -
Value of service to be provided as part of the consideration 188 -
Sale proceeds 2,000 -
------------------------------------------------------------------------------------- ------------ ------------
Loss on disposal of oil and gas plant, property and equipment and intangible assets (160) -
------------------------------------------------------------------------------------- ------------ ------------
Disposal of subsidiaries
Disposal costs (37) -
------------------------------------------------------------------------------------- ------------ ------------
Loss on disposal of subsidiaries (37) -
------------------------------------------------------------------------------------- ------------ ------------
Disposal of Investments and other assets
Sale proceeds 1 11
Net book value of assets disposed of (35) (51)
------------------------------------------------------------------------------------- ------------ ------------
Loss on disposal of other assets (34) (40)
------------------------------------------------------------------------------------- ------------ ------------
Loss on disposal of subsidiaries, investments and other assets (231) (40)
------------------------------------------------------------------------------------- ------------ ------------
Following the approval by shareholders at a General Meeting on 16 December 2016, the Group disposed of 25% of its interests in all its Canadian leases and other Canadian oil and gas assets to H2P for a cash consideration of $2 million plus $188,000 of consideration in kind, (75% net working interest of $250,000), in the form of well stimulation services provided by H2P's group affiliated company, Blue Spark Energy Inc. H2P and the Group agreed an economic effective date of 1 January 2017 for the asset transfer with the Group bearing $18,000 net expenditure in relation to H2P's 25% interest between the completion date of 16 December and the end of the year. No tax liability arises as a result of this disposal.
The Group has agreed further disposals of 10% of its southern Adriatic permits and applications in Italy for a consideration of $500,000 and 25% of its Australian licence for a consideration of $1 to H2P, subject to governmental and regulatory approval. As at the date of signing of the 2016 financial statements, the regulatory approvals processes in Italy and Australia have not been completed and these disposals have not yet been concluded or reflected in the financial statements. H2P has the option to earn additional equity in the southern Adriatic and Australian permit by fully funding a well in Italy, and seismic acquisition in Australia. H2P has an additional option to increase its interest in the Group's Canadian leases by a further 25% to 50% if it pays the Group $4 million before 31 December 2017.
The loss on disposal of subsidiaries relates to costs incurred in transferring the Group's Argentine subsidiary to its local director. The Argentine subsidiary was established in 2012, was not fully capitalised per local requirements and never traded.
The loss on disposal of other assets relates to the disposal of computer software and hardware following the Group's decision to migrate to a cheaper, cloud based solution. The loss on disposal in the prior year relates to the sale of excess office equipment in the UK following the relocation of the Group's head office (see note 6b, property, plant and equipment - non-oil & gas assets).
3. Other Operating Income
Year ended Year ended
31 December 31 December
2016 2015
Group $'000 $'000
------------------------------------------------------------------- ------------ ------------
Bargain consideration on purchase of plant property and equipment 2,011 -
Partial recovery of debtor previously impaired 674 -
Back costs received - 850
Legal expenses and other farm out costs incurred - (64)
------------------------------------------------------------------- ------------ ------------
Total 2,685 786
------------------------------------------------------------------- ------------ ------------
On 21 January 2016 the Group's Canadian subsidiary Ouro Preto Resources Inc. acquired a number of Rainbow area leases in Alberta, Canada. In accordance with IFRS 3 "Business combinations", the assets acquired were valued at their "fair value" using an internal financial model based on information from the Group's due diligence and the reserves report by a firm of independent reservoir engineers. A discount rate of 10% was used in the fair value calculation. The Group calculated that the fair value of the assets acquired exceeded the cost of purchasing the assets by $2,730,000, the "bargain consideration". On acquisition the assets have been included at their fair value in plant, property and equipment and the value of the bargain consideration has been credited to the income statement as part of other operating income. A deferred tax liability of $719,000 in respect of temporary differences arises on the bargain consideration and has been netted from the total shown above. For further information on the Rainbow acquisition see note 7.
In March 2017 the Group received a payment of EUR608,000 ($674,000) in respect of a debtor arising from the drilling of the Savio 1x well in Italy. The Savio 1x debtor had been written off, transferred to intangible assets and then subsequently impaired in the 2014 accounts, as both the timing and recoverability of the debtor were uncertain. With the recovery of EUR608,000 in 2017, this amount has been recognised as a debtor at year end 2016 and a credit recorded in other income.
During the prior year, on 5 March 2015 the Group announced that it had signed a farm out agreement, which included agreed terms of a joint operating agreement, with Shell Italia in respect of its Cascina Alberto permit, which is located onshore, north west Italy. Under the terms of the farm out agreement Shell Italia received an 80% equity interest in the Cascina Alberto permit and operatorship of the permit. Shell Italia will carry Northern Petroleum for the costs of the exploration campaign, which will include a carry on the acquisition of any new seismic until the seismic costs reach $4 million and a carry on any exploration well until the well costs reach $50 million. Prior to its award in July 2014, costs related to the Cascina Alberto permit had been charged to the income statement as they were incurred. In accordance with the Group's accounting policy the proceeds of the farm out, less legal and other expenses, were initially offset against the Italian onshore cost pool. The excess net receipts were then credited to the Income Statement.
4. Tax Credit
a) Analysis of tax credit
Year ended Year
ended
31 December 31 December
2016 2015
Group $'000 $'000
----------------------------------------- ------------ ------------
Current tax:
UK tax - current year - -
Tax on overseas operations - current - -
year
Current tax - adjustment in respect (14) -
of prior years
----------------------------------------- ------------ ------------
(14) -
Deferred tax:
UK tax - -
Overseas tax - origination and reversal
of temporary differences 5,558 558
----------------------------------------- ------------ ------------
Total tax credit 5,544 558
----------------------------------------- ------------ ------------
During the year, the Group paid $14,000 in Italian regional tax "IRAP" in respect of the 2015 taxable profits of its Italian branch, with no taxable profits arising in the current year. IRAP is calculated annually and does not take into account past losses. During 2016, following the recognition of a $719,000 deferred tax liability on the Rainbow Asset acquisition in Canada, (see note 3), the Group recognised $719,000 of its unrecognised deferred tax asset, offsetting the liability. At 31 December 2016, due to the strong performance of the Rainbow Assets since acquisition and the raising of new finance to further develop these assets, the Group recognised its remaining Canadian deferred tax assets in respect of tax losses and other temporary differences of $4,968,000 (including $4,689,000 not previously recognised from earlier years) as in the judgement of the Directors it is now probable that the Group's Canadian subsidiary will be profitable and in a tax paying position in the future and that the losses and other temporary differences will be utilised. During the year, the Group recognised an increase of $129,000 in its Italian net deferred tax liability as a result of a change in tax rates. The Group has made taxable losses in its other countries of operation, but has not recognised deferred tax credits for these losses as they are not expected to be recovered in the foreseeable future.
b) Factors affecting tax credit
The tax credit for the year is higher than the standard rate of corporation tax in the UK of 20% (2015: 20.25%). The difference is explained below:
Year ended Year
ended
31 December 31 December
2016 2015
Group $'000 $'000
------------------------------------------------ ------------ ------------
Group loss before taxation (2,518) (10,721)
------------------------------------------------ ------------ ------------
Tax on Group loss before taxation at
an effective rate of 20 % (2015: 20.25%) 504 2,171
Effects of:
Expenses not deductible for corporate
income tax purposes (246) (33)
Capital allowances for the period in
excess of depreciation 116 (484)
Non-taxable income 185 -
Impact of tax losses carried forward
and other net movements in deferred
tax not recognised (456) (1,424)
Effects of different corporate tax rates
on UK and overseas earnings 47 328
Adjustment in respect of prior years (14) -
- current tax
Deferred tax asset recognised to offset 719 -
deferred tax liability arising on acquisition
Recognition of tax losses and other 4,689 -
temporary differences not previously
recognised
------------------------------------------------ ------------ ------------
Total tax credit for year 5,544 558
------------------------------------------------ ------------ ------------
5. Intangible Assets
a) Exploration and Evaluation Assets
Intangible assets consist of the Group's exploration projects which are pending determination of technical feasibility and commercial viability of extracting a mineral resource.
French
Italy Canada Guiana Other incl. Australia Total
Group $'000 $'000 $'000 $'000 $'000
-------------------------------------- ------- -------- -------- ---------------------- --------
Cost:
At 1 January 2016 23,990 3,881 36,289 1,116 65,276
Additions 91 267 44 - 402
Disposals - (1,042) - - (1,042)
Exchange movement (683) 122 (19) 4 (576)
--------------------------------------- ------- -------- -------- ---------------------- --------
At 31 December 2016 23,398 3,228 36,314 1,120 64,060
--------------------------------------- ------- -------- -------- ---------------------- --------
Exploration expenditure written off:
At 1 January 2016 2,122 - 36,289 1,116 39,527
Impairment losses 11 - 44 - 55
Exchange movement (60) - (19) 4 (75)
--------------------------------------- ------- -------- -------- ---------------------- --------
At 31 December 2016 2,073 - 36,314 1,120 39,507
--------------------------------------- ------- -------- -------- ---------------------- --------
Net book value:
At 31 December 2016 21,325 3,228 - - 24,553
--------------------------------------- ------- -------- -------- ---------------------- --------
The disposals in the year in Canada of $1,042,000 arise from the farm in agreement with H2P for a 25% working interest in all of the Group's Canadian leases. For further information see note 2.
The Group tests intangible assets for impairment when there is an indication that assets might be impaired. An additional impairment loss of $11,000 has been recognised against the costs capitalised in respect of the Sicily Channel licences CR146 and CR149. These licences are currently in suspension awaiting EIA approval to drill a well. The carrying value of the permits in the southern Adriatic has not been impaired based on the potential value of the permits following any successful exploration and appraisal, and the continued level of interest in the permits by industry participants. An impairment loss of $44,000 has been recognised against the French Guiana cost pool. The French Guiana permit expired in June 2016 and the Group is considering ways to monetise the value of the data owned by its 55.9% subsidiary, Northpet Investments Limited. In the meantime the Directors have decided to continue to fully impair the French Guiana cost pool. In line with the Group's accounting policy for intangible exploration and evaluation assets, the Directors have assessed the carrying value of the Canadian exploration and evaluation assets and have concluded that that there are no facts or circumstances to suggest that the carrying value of the assets exceeds its future recoverable amount.
At the year end the contractual commitments for capital expenditure in respect of intangible assets was $nil (2015: $14,000), of which the Group's share was $nil (2015: $8,000). The comparative tables for 2015 are detailed below:
Group Italy Canada French Guiana Other incl. Australia Total
$'000 $'000 $'000 $'000 $'000
-------------------------------------- -------- ------- -------------- ---------------------- --------
Cost:
At 1 January 2015 26,434 3,741 36,335 1,213 67,723
Additions 268 881 (46) 36 1,139
Exchange movement (2,712) (741) - (133) (3,586)
--------------------------------------- -------- ------- -------------- ---------------------- --------
At 31 December 2015 23,990 3,881 36,289 1,116 65,276
--------------------------------------- -------- ------- -------------- ---------------------- --------
Exploration expenditure written off:
At 1 January 2015 - - 36,335 158 36,493
Impairment losses 2,122 - (46) 970 3,046
Exchange movement - - - (12) (12)
--------------------------------------- -------- ------- -------------- ---------------------- --------
At 31 December 2015 2,122 - 36,289 1,116 39,527
--------------------------------------- -------- ------- -------------- ---------------------- --------
Net book value:
At 31 December 2015 21,868 3,881 - - 25,749
--------------------------------------- -------- ------- -------------- ---------------------- --------
An impairment loss of $2,122,000 has been recognised against the costs capitalised in respect of the Sicily Channel licences CR146 and CR149. An impairment loss of $970,000 has been recognised against the Australia cost pool. The Group has always recognised that it would be necessary to bring in a partner to progress the PEL629 licence in the Otway basin, South Australia. The Government of South Australia has agreed to place the licence into suspension, to allow time for a farm out to be completed once the short term economics improve. Given the uncertainty of the timing and likelihood of a farm out being completed the Directors have decided to impair the Australia cost pool in full.
b) Computer software
Computer software
Group $'000
--------------------- ------------------
Cost:
At 1 January 2016 4,136
Disposal (3,695)
--------------------- ------------------
At 31 December 2016 441
--------------------- ------------------
Amortisation:
At 1 January 2016 4,136
Charge for the year -
Disposal (3,695)
--------------------- ------------------
At 31 December 2016 441
--------------------- ------------------
Net book value:
At 31 December 2016 -
--------------------- ------------------
At 31 December 2015 -
--------------------- ------------------
Disposals in the year relate to accounting and procurement IT systems implemented in early 2012. Following the implementation of a Canadian software package, the carrying value of the Group's former IT system has been written off.
6. Property, Plant and Equipment
a) Oil and Gas Assets
Canada Canada
Developed Undeveloped Total
Group $'000 $'000 $'000
----------------------------- ---------- ------------ --------
Cost:
At 1 January 2016 19,925 71 19,996
Additions 1,379 5 1,384
Changes in estimates (324) - (324)
Acquisitions 10,955 - 10,955
Disposals (8,355) (19) (8,374)
Exchange movement 1,293 - 1,293
-------------------------------- ---------- ------------ --------
At 31 December 2016 24,873 57 24,930
-------------------------------- ---------- ------------ --------
Depletion and amortisation:
At 1 January 2016 16,085 71 16,156
Charge for the year 686 - 686
Impairment losses 1,610 5 1,615
Disposals (4,733) (19) (4,752)
Exchange movement 449 - 449
-------------------------------- ---------- ------------ --------
At 31 December 2016 14,097 57 14,154
-------------------------------- ---------- ------------ --------
Net book value:
At 31 December 2016 10,776 - 10,776
-------------------------------- ---------- ------------ --------
Canadian developed acquisitions of $10,955,000 in the year relate to the fair value of Rainbow Assets acquired in January 2016, including the associated abandonment liabilities, see note 7 for further details. Developed additions in the year of $1,379,000 relate to the Rainbow Assets as the Group invested in increasing production.
Changes in estimates in the year of $324,000 relates to the abandonment liabilities for the Virgo area wells. Previously the Group had relied on internal estimates to calculate the potential decommissioning and abandonment liabilities for these wells. Following the Rainbow Asset acquisition, the Group revised the abandonment estimates used to match the calculations made by the AER in measuring operators' liabilities for abandonment in the province, resulting in a lower liability and a corresponding decrease in the value of oil and gas assets.
The net disposals in the year in Canada of $3,622,000 arise from the farm out agreement with H2P for 25% of the Group's working interests in all of the Group's Canadian leases. For further information see note 2.
2016 Impairment
The Group tests assets for impairment when there is an indication that assets might be impaired. Following the receipt of a new reserves report from independent Calgary reservoir engineers, which used lower short to medium term oil price assumptions, the 15-23 well in the Virgo area was impaired by an additional $1,408,000. The Virgo 15-23 well produced increasing volumes of water in the first half of the year and was shut in pending further evaluation. The Directors believe that the value of the well's production can be enhanced by recompleting the well, however, this work is not included in the near term work programmes and the well was impaired to its estimated recoverable amount of $444,000. The Virgo 11-30 well has also been impaired on the basis of the new reserves report. The well also produced high volumes of water with the oil and the Directors believe it too would benefit from being recompleted. The 11-30 well is not included in the near term work programmes and has been fully impaired to its recoverable amount of $nil; a charge of $566,000. The Virgo 13-33 well was impaired by $174,000 to its recoverable value of $404,000 following receipt of the new independent reserves report. All impairments were calculated using a value-in-use technique with post tax cash flows calculated based on proven and probable reserves using a post-tax discount rate of 10%. The oil price per barrel used was a weighted average over the overall life of the field of $73 per barrel (WTI) based on prices ranging from $53 in Q4 2016 to $101 beyond 2030. Following the reduction in abandonment estimates, $533,000 of impairment charges recognised in earlier years on wells which had book values of $nil prior to the reductions in abandonment estimates, were reversed.
The following table reflects the additional impairment (or reversal) that would have arisen if there had been a one percent change in the post-tax discount rate or a $1 change in the forecast oil price realised by the Group's Canadian subsidiary over the 15-23 and 13-33 wells:
One percent One percent
increase decrease
in after in after
tax discount tax discount $1 increase $1 decrease
rate rate in oil price in oil price
$'000 $'000 $'000 $'000
--------------- -------------- -------------- -------------- --------------
Impairment
/ (reversal) 29 (29) (48) 48
--------------- -------------- -------------- -------------- --------------
The other wells which have been impaired, currently have no reserves assigned to them and their impairment is not sensitive to changes in discount rate or oil price.
At the year end the contractual commitments for capital expenditure in respect of property, plant and equipment was $ nil (2015: $ nil), of which the Group's share was $ nil (2015: $ nil).
The comparative tables for 2015 are detailed below:
Canada Canada
Developed Undeveloped Total
Group $'000 $'000 $'000
----------------------------- ---------- ------------ --------
Cost:
At 1 January 2015 19,452 145 19,597
Additions 4,153 21 4,174
Transfers 87 (87) -
Exchange movement (3,768) (8) (3,776)
-------------------------------- ---------- ------------ --------
At 31 December 2015 19,924 71 19,995
-------------------------------- ---------- ------------ --------
Depletion and amortisation:
At 1 January 2015 16,060 - 16,060
Charge for the year 99 - 99
Impairment losses 2,530 71 2,601
Exchange movement (2,605) - (2,605)
-------------------------------- ---------- ------------ --------
At 31 December 2015 16,084 71 16,155
-------------------------------- ---------- ------------ --------
Net book value:
At 31 December 2015 3,840 - 3,840
-------------------------------- ---------- ------------ --------
2015 Impairment
The Group tests assets for impairment when there is an indication that assets might be impaired. The 11-30 well encountered the reservoir on prognosis, but problems experienced when cementing the liner over the reservoir section lead to difficulties in interpreting the well test. The well delivered nearly 100 boepd during the test with 85% water production, but it was not possible to determine where the water was coming from due to the cementing issue. As a result, the well was suspended pending a subsurface review to understand the water production mechanism and determine the optimum way to produce the well with minimal water production. Due to the uncertainty surrounding the economic value of the well the Directors decided to impair its carrying value by $2,530,000 to match the value of a well for which an independent reserves valuation was available, and which in the Directors' opinion, was of similar value.
b) Non-oil and Gas Assets
Computer and office equipment
Group $'000
--------------------- ------------------------------
Cost:
At 1 January 2016 893
Additions 10
Disposals (695)
------------------------ ------------------------------
At 31 December 2016 208
------------------------ ------------------------------
Depreciation:
At 1 January 2016 688
Charge for the year 142
Disposals (660)
------------------------ ------------------------------
At 31 December 2016 170
------------------------ ------------------------------
Net book value:
At 31 December 2016 38
------------------------ ------------------------------
At 31 December 2015 205
------------------------ ------------------------------
Disposals in the year relate to computer hardware and software following the Group's migration to a lower cost, cloud based IT platform.
7. Canadian acquisition
On 21 January 2016, the AER transferred a number of interests (largely 100% interests: interests between 100% and 0.83%), in Rainbow Asset leases in Alberta to the Group's Canadian subsidiary, Ouro Preto Resources Inc. ("OP") following the deposit by OP with the AER of approximately $1.2 million in respect of decommissioning liabilities. The payment of an abandonment deposit to the AER was a final step in the regulatory approval process for the acquisition of the leases following the pre-payment of the cash consideration to the vendor, announced on 15 December 2015. On the transfer of the working interests the transaction closed. The acquisition of the working interests in the Rainbow leases enabled the Group to substantially increase its asset base in Alberta. The Rainbow Assets include a total of 117 operated and 41 non-operated wells, of which approximately one third were either currently in production or were believed by the Directors to have the potential of being initially brought back into production. The remaining wells are either suspended or already abandoned and are being reviewed for future production potential. In addition to the wells, the assets acquired include two processing facilities and nine smaller facilities.
The assets acquired are an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return. In accordance with IFRS 3 "Business combinations", the assets acquired were valued at their "fair value" using an internal financial model based on information from the Group's due diligence and a reserves report by a firm of independent reservoir engineers dated 1 January 2015, adjusted for production in the intervening period. A post tax discount rate of 10% was used in the fair value calculation. This represents a Level 3 valuation in the IFRS 13 fair value hierarchy as it is based on certain judgements and estimates made by the Directors which are not based on observable market data. The Group calculated that the fair value of the assets and liabilities acquired exceeded the cost of purchasing the assets by $2,730,000, the "bargain consideration". It is likely that the bargain consideration arose because the vendor, who is a large group, had decided to sell a non-core business for strategic reasons and after trying to dispose of the business for a number of years, was minded to accept an offer lower than the fair value of the business in order to divest itself of the risks and responsibilities of ownership. On acquisition the assets have been included at their fair value in plant, property and equipment and the value of the bargain consideration has been credited to the income statement as part of other operating income. A deferred tax liability of $719,000 was recognised and offset against the bargain consideration. The liabilities include the provisions for future abandonment of the wells and facilities.
Consideration:
21 January
2016
$'000
------ --------------------
Cash 382
------ --------------------
The Canadian Dollar consideration was settled for $536,000 which equates to US $382,000 at the prevailing exchange rate of $1.4 Canadian Dollars to $1 US Dollar. The consideration paid included $250,000 Canadian for oil and gas assets, $210,000 Canadian costs in respect of abandoning an oil well considered to be part of the transaction, but which could not be transferred to the Group, and a $76,000 Canadian adjustment for differing economic and legal cut off dates for the transaction.
Identifiable assets acquired and liabilities assumed:
21 January
2016
Recognised
values on acquisition
$'000
--------------------------------------------------- -----------------------
Property, plant and equipment - oil & gas assets 10,955
Trade and other receivables - prepayments 57
Provisions (7,900)
Deferred tax liability (719)
Bargain purchase credited to the income statement (2,011)
382
--------------------------------------------------- -----------------------
No significant acquisition related costs have been incurred.
The revenue generated and expenses incurred by this operation since the date of acquisition (21 January 2016) were $3,324,000 and $4,055,000 respectively. Of the $4,055,000 expenses, $2,908,000 relates to production costs, $340,000 relates to administration and management time recharged by Northern Petroleum Plc, $584,000 relates to depletion and amortisation of plant property and equipment and $223,000 relates to finance costs for the unwinding of discount on decommissioning provisions. Cash outflow from the operation post acquisition was $1,262,000 and comprised net revenue and investments in oil and gas assets. If the acquisition had occurred on 1 January 2016, management estimates that consolidated revenue for 2016 would have been $64,000 higher and the consolidated costs for the year would have been $121,000 higher.
Following the approval by shareholders at a General Meeting on 16 December 2016, the Group disposed of 25% of its interests in all its Canadian leases and other Canadian oil and gas assets, including the leases and assets acquired on 21 January 2016, to High Power Petroleum LLC at a loss of $160,000 (see note 2).
8. Post Balance Sheet Events
Between the balance sheet date of 31 December 2016 and the date that the 2016 financial statements have been signed, the following developments have been announced which have a material impact on, or the understanding of, the 2016 financial statements:
On 10 January 2017, the Group announced the results of the open offer to shareholders made in 2016 and a further placing of shares. 42,100,000 ordinary shares of 1 pence each were issued at a price of 3.5 pence per share.
On 7 March 2017, the Group announced the acquisition (75%), alongside H2P (25%), of six oil wells in the Rainbow area of Alberta, Canada. The wells acquired are nearby to the Group's existing in Rainbow. In consideration for the wells the Group has assumed the associated abandonment liability of $1.1 million.
This information is provided by RNS
The company news service from the London Stock Exchange
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