We could not find any results for:
Make sure your spelling is correct or try broadening your search.
Register for streaming realtime charts, analysis tools, and prices.
| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Intl Oil &Gas | LSE:OGT | London | Ordinary Share | GG00B29Q2M88 | PART RED PREF SHS USD1 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.35 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMOGT
RNS Number : 8956F
International Oil and Gas Tech Ltd
30 April 2014
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, TO US PERSONS OR IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, THE REPUBLIC OF SOUTH AFRICA, THE REPUBLIC OF IRELAND, JAPAN OR ANY JURISDICTION IN WHICH THE SAME WOULD BE UNLAWFUL.
30 April 2014
International Oil and Gas Technology Limited
("IOGT" or the "Company")
Final Results
International Oil and Gas Technology Limited (LSE:OGT), an authorised closed-ended investment company incorporated in Guernsey, today announces its final results for the year ended 31 December 2013.
CHAIRMAN'S STATEMENT
Dear shareholders
The past twelve months have been increasingly difficult for both the Company and the portfolio companies.
The litigation against the Company initiated by a former co-investment manager has now been heard in the Commercial Division of the High Court of Justice in London and we await the judgment. One point of progress during the proceedings was that on the first day, the litigant further reduced its claim to US$5.0m. The detailed history of the claim is described in Note 1 of these accounts. The litigation, and particularly the scale of the original claim, has cast a severe shadow over the Company as both the cost and the uncertainty involved have had an immensely negative effect.
Funding the defence against the claim has reduced the capital that had been available to grow the portfolio companies. In addition, the uncertainty caused by the litigation has prevented the Company from raising any material amounts of new capital, whether by share issuance or through structured transactions with other equity providers.
Against this background, the Company's diminishing cash reserves forced it to curtail follow-on investments in the portfolio companies and to ask shareholders to subscribe for limited further capital in October 2013. The net capital raised of approximately US$1.8 million enabled the Company rigorously to defend the litigation and to avoid a fire sale of the assets in late 2013. In addition, the Company has been able to initiate an orderly realisation process.
Crest has reported modest but steadily profitable current trading. However, as a relatively capital-intensive business, lack of growth capital investment from the Company prevented Crest from adding to its small fleet of membrane nitrogen generation units despite a considerable excess demand for its services. This has removed momentum from the business.
SR2020's business was also adversely affected. The Company has had to provide regular working capital support, but without the provision of growth capital from the Company to enable a thorough reconfiguration and reconstruction of the seismic data-acquisition part of the business, SR2020 had to close its Houston-based acquisition department and to rely on third-party acquisition services to complement its California-based processing and interpretation services. In addition, IOGT was unable to support SR2020's much needed investment in an enhanced sales and marketing function.
Strata has achieved good, consistent trading during the fourth quarter of 2013 and the first months of 2014. However, the significant improvement in its second-half financial performance came too late fully to offset the poor first-half FY/13 performance, which had been caused by the slow recovery of Canadian drilling activity from the low point in 2012. We are now entering the 'thaw' period in Canada, when results annually tend to fall due to the disruption of drilling activity. It is hoped that a sharp fall in performance will not happen this year, particularly as Strata is now less dependent on Canadian drilling due to its increased percentage of income arising from the US and Kurdistan.
Despite the recent robust financial performance, the Investment Manager has recommended a reduction in Strata's valuation from US$36.9 million at 30 June 2013 to US$28.1 million to reflect both the trailing twelve-month performance and other key variables consistent with the Company's previous valuation calculation methodology.
The decision announced on 30 August 2013 to wind down the Company and exit from the investment portfolio in an orderly manner was taken after careful consideration of shareholders' wishes in the context of the Company's situation.
The above factors, and the adoption of a liquidation basis of accounting to reflect the Company's current circumstances, have reduced the Company's net asset value per Preferred Share over the twelve-month period from US$9.34 to US$4.10.
The Board, working closely with the Investment Manager, will continue to strive to maximise shareholder value as we execute the wind-down strategy.
Christopher Hill
Chairman
International Oil and Gas Technology Limited
29 April2014
BOARD OF DIRECTORS
Hot Features
Premium
Christopher Hill (non-executive chairman)
Christopher Hill is an Associate of the Chartered Institute
of Bankers and was managing director of Guernsey International
Fund Managers Ltd ("GIFM"), part of the Barings Financial
Services Group, from 1996 until the group was sold to Northern
Trust in 2005. During this period, Christopher was also
a director of GIFM's subsidiaries in Dublin and Jersey.
In his 16 years with GIFM, the company administered funds
with a wide range of investment strategies. In total, Christopher
has over 40 years' experience in the field of offshore
banking and fund administration.
He is currently non-executive chairman of UK Commercial
Property Trust Limited (a company listed in London) and
a number of other investment funds and financial institutions.
Christopher, a resident of Guernsey, is a former chairman
of the Guernsey Investment Funds Association.
Christopher was appointed as director on 27 June 2008.
John Imle (non-executive director)
John Imle has over 45 years of operating, management, executive
and board experience in the global energy industry, with
particular emphasis on oil, gas and geothermal exploration,
development and midstream projects throughout the world.
Most of John's professional career was spent at Unocal
Corporation, a California-based major oil and gas company
known globally for innovation and excellence in exploration
and production ("E&P"), pipeline and geothermal operations.
He became responsible for all international E&P activity
and then rose to the posts of executive vice-president
for global energy resources, corporate president, and finally
became vice-chairman of the board, on which he served as
a director for over ten years.
Since retiring from Unocal in 2000, John has engaged in
a number of board, executive (CEO) and consulting roles
for small public and private companies, involving turnarounds,
capital formation, asset divestment and public offering
initiatives. Since 2000, he has lived in Sydney, Houston,
London, California and New York.
A graduate of Texas A&M University, John earned degrees
in petroleum and mechanical engineering and acquired continuing
education at Kellogg School of Management. He is a Registered
Petroleum Engineer in California and currently lives in
New York City.
John was appointed as director on 8 December 2010.
Jeremy Thompson (non-executive director)
Jeremy Thompson is a Guernsey resident with sector experience
in finance, telecoms, aerospace and defence, and oil and
gas. Since 2009, Jeremy has been a consultant to a number
of businesses and holds non-executive directorships of
investment vehicles, including those relating to the BT
pension scheme. Between 2005 and 2009, he was a director
of multiple businesses in the Novator private equity group.
Prior to that, he was chief executive of four autonomous
businesses at Cable & Wireless, and earlier held managing
director roles within the Dowty Group. Additionally, Jeremy
has worldwide experience in the oilfield services sector
gained at what is now National Oilwell Varco.
Jeremy chairs the States of Guernsey Renewable Energy Team
and is a commissioner at the Alderney Gambling Control
Commission. He is a graduate of Brunel and Cranfield Universities.
Jeremy was appointed as director on 21 October 2010.
INVESTMENT MANAGER'S REPORT
INTRODUCTION
Our report on the performance of the Company's portfolio for the year ended 31 December 2013 should be read in the context of the reduction of the Company's cash reserves, which has necessitated the cessation of meaningful growth-capital investments in the investee companies. Consequently, we have focused on the recovery of Strata's sales pipeline and the stabilisation of both SR2020 and Crest. We have reluctantly accepted that an exit from each would need to be accomplished without having the opportunity first to complete the growth plans that we had envisaged for these high-potential companies.
The oil and gas technology market
The Company's three portfolio investee companies operate in North America and the Middle East. During the course of 2013, the weak gas prices in North America resulted in the continued shift towards oil production and a reduced emphasis on gas-field development activity. The US drilling activity remained strong throughout the year, primarily because US operators were able to make a rapid transition from gas development to oil development, particularly in the shale plays. In Canada, this transition took longer and the low levels of drilling operations that commenced mid-2012 continued into the first half of 2013. The Canadian market has recovered substantially to 2011 levels in the second half of 2013 and into 2014.
The Middle East has proved relatively immune to North American commodity price influences. The two primary areas of activity for the company, namely Kurdistan and Saudi Arabia, have exhibited continued high levels of drilling activity. Saudi Arabia in particular has been an area of drilling growth, with Saudi Aramco adding a significant number of drilling rigs during the course of the year.
Current investments
Strata
Strata's poor performance during the second half of 2012 continued through the first half of 2013. A robust performance in the second half of 2013 failed fully to offset the first half, leaving full-year financial results below expected levels. Revenues were slightly higher than the prior year at C$23.7 million (2012: C$22.6 million) but EBITDA was lower at C$1.4 million (2012: C$3.1 million). The EBITDA was affected by restructuring in the US and high levels of research and development expenditure on the offshore technology.
On a positive note, the second half of 2013 saw a much-improved level of revenues, which was driven by a recovery in the Canadian market and by the impact of more thorough expansion into the US, as Linton had long advocated. Following Strata's appointment of a new country manager in the US, US sales accounted for up to 30 per cent of the company's total revenue base towards the end of the year, with demand far outstripping availability of equipment and personnel. In Canada, Strata's customer base broadened, and Strata was able to secure several major multi-rig, multi-well contracts that will extend into 2014. With steady levels of revenue in Kurdistan, Strata posted consistently strong monthly revenues and earnings in the last quarter of FY/13 and in the first quarter of FY/14.
An important point to note is the continued growth of Strata's managed-pressure drilling (MPD) service in North America. MPD now accounts for the majority of the company's revenues. Unlike Strata's traditional underbalanced drilling (UBD) service, MPD is normally utilised during the majority of the drilling of a well and is rapidly gaining acceptance for most drilling operations in the US and Canada. Strata's MPD service has been well received, with the company's emphasis on careful pre-well planning and onsite supervision particularly valuable to operators. We expect MPD to provide continued strong growth opportunities, particularly in the US where Strata's market share is relatively low and resource constrained.
Strata's UBD services were fully employed in Kurdistan throughout the year, with demand exceeding supply and Strata's high level of service proficiency being well regarded by its customers. The Middle East is another area of potential high growth for the company, the current constraint being equipment availability.
Strata's promising offshore technology development was slowed towards the second half of 2013 due to cash constraints. We still believe this to be an important future high-value market for the company. It is anticipated that the development will be ramped up in 2014 as cash availability and potential external funding allow.
The weak first-half financial performance has driven a further reduction in the company's fair market value. We anticipate that this should recover during 2014 due to improved trailing twelve-month financial parameters and we continue to believe that Strata's core MPD and UBD offerings have considerable potential for further growth. The Investment Manager, with the Board, is reviewing IOGT's investment options in light of the current position.
For these reasons, we have reduced Strata's valuation to US$28.1.million.
Crest
Crest managed to double revenues in FY/13 to US$2.0 million compared to FY/12. All its sales were in the strategically important Saudi Arabian market working on Saud Aramco projects. Crest continued to impress with its high level of service excellence. However, lack of growth capital from IOGT to meet the capital investment plan that was envisaged before litigation was commenced against IOGT has resulted in a loss of momentum for the business. In particular, this has meant that Crest has had to decline several tenders and contracts, not only in Saudi Arabia but also in Abu Dhabi, Oman, Iraq and elsewhere across the Middle East.
Therefore, without the possibility of further growth capital from IOGT, the Investment Manager and Crest are actively seeking external funding or an outright sale to enable the company to achieve its potential and prevent further damage to the market position of Crest. Although Crest has performed particularly well in capital-constrained circumstances, we have reduced its valuation to US$2.0 million to reflect the Company's inability to provide significant growth capital in the short term, which is the Company's best estimate of Crest's value in an accelerated sales process.
SR2020
SR2020 had a disappointing year, with sales decreasing to US$2.0 million (FY/12: US$3.4 million).
The primary reason for the poor financial results was the lack of follow-on investment funding to upgrade the company's acquisition services. In addition, the plan to reinforce SR2020's sales and marketing function was compromised by a lack of capital. As a consequence, SR2020 was compelled to close its Houston-based acquisition department and rely on third-party acquisition companies. This in turn caused a hiatus in sales, since most operators demand a package of both acquisition and processing services. Whereas SR2020's processing expertise continues to be regarded as market leading, the inability to provide a proprietary package of services has undoubtedly hurt the company's competitiveness and the sales pipeline only started to improve towards the end of FY/13.
By contrast, SR2020 introduced its micro-seismic service offering incorporating a unique borehole imaging technique. The new service has garnered considerable customer interest and resulted in new high-value contracts, albeit too late to impact the FY/13 results.
As with any developing high-technology business, SR2020 requires follow-on capital investment to realise its potential. As a result, the Investment Manager and SR2020 have been actively seeking external funding or an outright sale to an organisation that has the capital resources to leverage the company's technical capabilities.
In light of the lack of available growth capital to achieve a step-change in the company's operations, the valuation of SR2020 has been reduced to US$1.0 million, which is the Company's best estimate of SR2020's value in an accelerated sales process.
Conclusion
The portfolio suffered as a result of the lack of availability of growth capital from IOGT and, in Strata's case, the delayed recovery of sales levels prevailing towards the end of 2012. Strata has recently demonstrated a strong recovery in sales and EBITDA and remains a valuable constituent of IOGT. Crest and SR2020 both require growth capital resources beyond IOGT's capacity and it is anticipated that IOGT will exit these companies during the course of 2014.
David Sefton Michael Goffin Roland Wessel
Linton Capital LLP
29 April 2014
INVESTMENT MANAGER
LINTON CAPITAL LLP
Linton Capital LLP, which was founded in 2005, is the sole investment manager for the Company.
Linton is an English limited liability partnership authorised and regulated by the Financial Conduct Authority. David Sefton, Michael Goffin and Roland Wessel, who are ultimate owners of Linton, are highly experienced professionals in private equity and the oil and gas sector.
At least two of the partners of Linton sit on the board of each portfolio company.
Website: www.linton-capital.com
PRINCIPALS
David Sefton (partner)
David, the founder of Linton, has been involved in private
equity investment in the oil and gas industry since 2004.
He has extensive experience of making and managing investments
and achieving exits. David has been a specialist in the
oil and gas industry across Europe, Russia, the Middle East
and North America. He has worked with many of the world's
leading international and national oil companies.
In 2002, David joined LukOil Financial Services, which provided
M&A and transactional services to the OAO LukOil group,
as its chief legal officer. He began his career at Cleary,
Gottlieb, Steen & Hamilton, where he was a senior associate
based in the London and New York offices.
David completed undergraduate and postgraduate studies at
the University of Oxford and qualified as a barrister with
a practice in company, insolvency and construction work.
Michael Goffin, cga (partner)
Michael has over 18 years of experience in investment management,
accounting and corporate finance. He has worked with David
Sefton since 2004.
Prior to joining Linton in 2010, he was a partner with a
Canada-based private equity firm for 13 years and held financial
positions in the services industry and manufacturing sector.
Michael has extensive experience across all aspects of fund
management and oversight of portfolio investments. He has
served on the boards of numerous funds as well as private
and publicly listed companies.
Michael graduated from the University of Toronto in 1994
with a degree in economics and environmental management.
He holds a certified general accountant professional designation.
Roland Wessel (partner)
Roland has over 31 years of experience in the oil and gas
industry. He was initially involved in the drilling services
sector and undertook managerial roles in most of the active
oil and gas regions of the world, including West Africa,
the Middle East, the North Sea, and North and South America.
Leaving his position as Eastern Hemisphere Manager at Teleco
Oilfield Services, Roland founded a new company, Integrated
Drilling Services (IDS) in 1992 with backing from 3i Group
plc. While establishing IDS, he co-developed a rotary steerable
system for Camco that (as the Power Drive system) is currently
one of Schlumberger's most successful products. Roland sold
IDS in 1998 before founding Star Energy, which is a leading
onshore UK producer and developer of oil and gas and an
operator of gas-storage facilities. After listing on the
London Stock Exchange in 2004, Star Energy was bought by
Petronas, the Malaysian state oil company in 2008.
Roland held a number of non-executive positions in the oil
and gas sector, including at Dominion Petroleum, an AIM-listed,
independent oil and gas exploration company operating in
Africa. He is a geology graduate from University College
London.
OTHERS
James Cane fca (chief financial officer)
James Cane, who joined Linton Capital in 2011, has been
a chief executive and finance director in both listed and
private equity-backed businesses. He was a non-executive
director of the Lambeth Building Society until its sale
to the Nationwide in 2006. James, a fellow of the Institute
of Chartered Accountants and an associate of the Securities
Institute, has operated a consultancy business for over
thirty years.
James was the chief financial officer of 8 Miles LLP, a
private equity firm managing a fund to invest in buyouts
across Africa. He has advised a number of national and international
private-equity firms on strategy, fundraising, marketing
and business development.
James has been a trustee of the UK's longest-established
drama school, LAMDA (the London Academy of Music and Dramatic
Art) since 2008 and chairs its finance committee. He is
an affiliate governor of the Conservatoire for Dance and
Drama and sits on its finance committee. James is a member
of the finance committee of The Queen's Club, the UK's premier
racquet sports club.
Nick Butler (advisor)
Nick Butler graduated in economics from Cambridge University
before joining BP, the British oil firm, in 1977, ultimately
becoming group vice-president for strategy and policy development.
Nick is a Visiting Professor and Chair of the King's Policy
Institute at King's College, London. He is also energy policy
adviser at the Cavendish Laboratory in Cambridge and a senior
adviser to Coller Capital and Corporate Value Associates.
From 2007 to 2009, he was chairman of the Cambridge Centre
for Energy Studies. He was a special adviser to Gordon Brown,
then British Prime Minister, from 2009 to 2010.
He is a non-executive director of Cambridge Econometrics
and of Compact GTL and a trustee of Asia House.
Debra Feldman (practice manager)
Debra manages Linton's administration and finance functions.
She joined from the American law firm Cleary Gottlieb Steen
& Hamilton, where she spent ten years after previously working
at County NatWest and the Port of London Authority.
PORTFOLIO COMPANIES
STRATA ENERGY SERVICES
Strata is a specialised drilling-services company headquartered in Alberta, Canada. Its principal business is the provision of underbalanced drilling (UBD) and managed-pressure drilling (MPD) services to oil and gas companies.
Operations
Strata is one of the largest fully integrated MPD/UBD companies in the world. The company currently has operations in Canada, the US and Kurdistan. Its patented rotating-head equipment is recognised as a world leader and Halliburton uses Strata's technology to provide MPD and UBD services to its customers. Strata provides drilling services for major oil and gas companies in North America as well as for several operators in Kurdistan.
The low level of Canadian drilling activity in 2012 continued into the first half of 2013. Although the company enjoyed record levels of utilisation and revenue towards the end of FY/13, this came too late to enable the company to register a significant financial improvement compared to the difficult FY/12 year.
Strata's revenue base recovered during the course of FY/13. There was sustainable growth in the Canadian market in concert with an improvement in drilling activity as Canadian operators compensated for low natural gas prices by diverting more activity towards oil field development. In addition, Strata has successfully revitalised its US operation with a change of management and a significant increase in activity. Demand in the US exceeds Strata's equipment availability despite the redeployment of assets previously located in Canada.
In Kurdistan, Strata consolidated its business base with long-term full UBD contracts for several customers. This has been achieved because the company has established a reputation for service excellence despite competitive pressures.
Kurdistan is the main area of UBD activity for the company. In North America, Strata has seen the majority of its contracted work moving towards MPD as operators continue to increase the utilisation of this service to improve well control and drilling performance.
Market
Managed-pressure drilling (MPD) services have become a major growth sector in the drilling services market. Operators seeking to improve drilling efficiency are increasingly adopting MPD as a standard drilling practice. This is in contrast to UBD services, which are restricted to specific geological conditions. Strata has experienced rapid growth of its MPD services as customers have become aware of Strata's excellent proprietary equipment coupled to a high level of service that Strata's competitors consistently fail to achieve.
Technical summary
Strata's primary drilling services involve UBD and MPD:
-- Underbalanced drilling
UBD is used to drill wells where the rock formation, for a specific interval of the well, is unable to prevent the ingress of drilling fluid into the formation. This is caused by the formation pressure being low or by the formation being fractured or unconsolidated. UBD is often used while drilling the rock formation that contains hydrocarbons, known as the 'pay zone'.
Unlike conventional drilling, where the drilling fluid pressure exceeds the formation pressure, which can cause drilling fluid invasion into the formation, UBD utilises drilling fluid that has been "lightened" by the injection of nitrogen at the surface. The effect that UBD has on the wellbore is to reduce or eliminate formation damage due to fluid invasion.
In addition, UBD is of major importance when drilling mature fields with depleted reservoir pressures. In these cases, conventional drilling would result in significant loss of expensive drilling fluids, pay-zone damage and hole-stability problems. This combination has historically been a barrier to the use of conventional drilling in areas such as the Athabasca Sands in Canada, which have huge oil deposits.
UBD generally involves the introduction of nitrogen to lower the drilling-fluid pressure gradient and the use of a rotating flow diverter (RFD) to ensure a closed-loop, pressure-controlled circuit of the drilling fluid. UBD has additional benefits to the operator, including much higher drilling rates due to the lower bottom-hole pressure on the formation. Through careful packaging and integration of the various elements of UBD, such as compressors, nitrogen-generation units, separators and associated manifolds, Strata has established a reputation for professionalism and efficiency. Strata emphasises the importance of careful pre-well planning and onsite operational management to ensure successful UBD execution.
-- Managed-pressure drilling
MPD is the practice whereby the drilling-fluid pressure gradient is maintained at close to balance with the formation pressure. This balance is facilitated by an automatic drilling choke that enables the back-pressure, and the subsequent pressure on the formation, to be maintained at pre-set levels. The RFD ensures total well control at all times.
The benefit of MPD is the achievement of significantly enhanced well control and safety, as well as increased drilling rates and lowered fluid losses. Demand for MPD continues to increase, with many operators realising the benefits of adopting MPD for their drilling operations.
-- Offshore equipment
The demand for MPD equipment in the offshore environment is increasing. This can be attributed both to the increased awareness of the ability of MPD to address safety issues in offshore drilling and the technical characteristics of some offshore fields that are being brought into production. In particular, deep-water drilling operations increasingly involve a narrow margin between formation pressure and fracture pressure, which in turn requires precise control of the circulating density of the drilling fluid. This is to ensure the well is drilled without total loss of circulation or, conversely, ingress of formation fluid into the wellbore, a so-called 'kick'.
Strata has developed and tested a rotating head for use on fixed platforms and jack-up rigs. Strata is also developing a sub-sea RFD and is working with a major offshore operator to ensure that its equipment meets their specifications.
Strata has registered intellectual property (IP) protection in the principal equipment used for its drilling activities, such as its RFDs. Strata has a policy of only outsourcing production of discrete parts of this equipment and of carrying out its own assembly, which means that no one subcontractor can acquire the expertise to reproduce the equipment.
Financial performance
Strata's total revenues for FY/13 were C$23.7 million (FY/12: C$22.6m) with EBITDA of C$1.4 million (FY/12: C$3.1m). At its financial year end (30 November 2013), Strata had approximately C$26 million of long-term debt supported by C$41 million of equipment assets at net book value.
The first half of FY/13 was a continuation of the low levels of Canadian activity experienced in FY/12. In the second half of FY/13, the company realised the benefits of increased activity in the US due to a change of management and re-deployment of assets together with much higher levels of activity in Canada. Towards the end of FY/13, equipment utilisation was approaching maximum levels in all three regions primarily due to high demand for MPD services.
It should be noted that MPD services are usually utilised for the total duration of a well; conversely, UBD services are usually employed for discrete sections of a well. Thus MPD services, while achieving lower daily operating rates, result in higher utilisation and increased total revenues.
An additional challenge during FY/13 was a relatively high level of R&D expenditure required for the development of the offshore technology. Pressures on cash flow caused a slow-down of development work on the sub-sea RFD technology, which the company hopes to re-commence during FY/14.
Ownership structure
The Company is the single largest shareholder in Strata, holding 43 per cent of the issued share capital, after allowing for dilution that assumes full exercise of the employee share-option plan. The Company is the only non-employee holder of shares in Strata, with the remaining equity owned by members of the senior management team, one former executive and Strata's employee share-option scheme.
Conclusion
Strata's poor financial performance in FY/12 continued into the first half of FY/13. However, restructuring of the US management and improved activity levels in Canada resulted in a much stronger second-half financial performance, with monthly revenues at record levels towards the end of FY/13.
The rapid growth of the company's MPD service is particularly significant since this is a major growth sector with high levels of equipment utilisation and a much broader market compared to the company's traditional UBD services.
In addition, the company made major steps towards developing an offshore technology capability with the successful testing of an RFD system suitable for fixed platforms and jack-up rigs and progress in the design and fabrication of its sub-sea RFD.
The Investment Manager believes that Strata is an attractive acquisition candidate for trade buyers seeking to enter into the growing MPD market sector, where the lack of non-proprietary high-end RFD equipment provides an effective barrier to entry. With Strata's ability to compete effectively with its major competitors, Schlumberger, Halliburton and Weatherford, it is one of the few remaining independent participants in its sector.
CREST ENERGY SERVICES
Crest provides nitrogen-purging services to the national oil companies and other operators in the Middle East. Crest is headquartered in Dubai and has an operations base in al-Khobar, Saudi Arabia, from which it provides services to Saudi Aramco.
Operations
Crest established a modest but reliable revenue stream during the course of 2013 with high utilisation of its available equipment and revenue more than double that of FY/12 at US$2.0 million.
Operations were exclusively in Saudi Arabia with the company providing its differentiated membrane generation nitrogen-purging services on both Saudi Aramco's major pipeline projects and power station infrastructures.
Crest continued to build on its reputation for service excellence that complements the technical advantage that its membrane nitrogen-generation units enjoy over the cryogenic nitrogen suppliers.
Throughout the year, Crest enjoyed high levels of utilisation despite its relatively small fleet of equipment. Demand has exceeded supply by a considerable margin and the company has been forced to refuse multiple contracts due to lack of equipment, which in turn has been driven by IOGT's inability to provide additional capital funding.
The company's smaller (580 scf/m) membrane unit was continuously on contract on power station infrastructure purging operations. The company also deployed up to two larger (2000 scf/d) membrane units on major pipeline purging operations with excellent results.
Technical summary
The use of nitrogen in most aspects of oil and gas field activities is essential. Crest has the equipment and technical capability to generate nitrogen on site, thus cutting cost and increasing the efficiency of maintenance and work-over activities.
-- Nitrogen purging
Pipelines are regularly inspected for flaws using automated and instrumented pipeline 'pigs', which are able to detect areas that need repair due to corrosion or erosion. Should any 'hot-work' repair activity be required (such as welding or grinding), it is essential for the pipeline section to be isolated and purged with nitrogen. Nitrogen is an inert gas and a pipeline filled with nitrogen can be welded in safety. In addition, when new pipelines are commissioned by chemical cleaning after initial welding, sections of the pipeline are then purged with nitrogen.
In oilfield infrastructure maintenance, nitrogen is usually supplied in one of two forms. Nitrogen can be transported to location in liquid form (so-called 'cryogenic nitrogen'). In regions such as the US or Europe, this is an efficient method of supply since cryogenic nitrogen has many industrial uses and is relatively cost-effective. Alternatively, in remote and hot locations, it is usually less cost-effective to transport cryogenic nitrogen as some boils off in transit and it can be difficult to cross rough terrain using bulky trailers. In such regions, it is far more cost-effective to generate nitrogen in-situ using membrane nitrogen-generation units. Saudi Arabia is a country where in-situ generation is a far more attractive solution.
Crest provides nitrogen-purging services in Saudi Arabia using membrane nitrogen-generation units. Crest also provides the associated compression equipment and personnel. Crest's nitrogen-generation equipment not only enjoys a competitive advantage over cryogenic supplies but Saudi Arabia does not have enough of this type of equipment.
Currently, Crest's primary contracts involve the purging of major pipelines in Saudi Arabia. This is a high-profile activity where service excellence is particularly important because of the high daily cash cost of operations. Saudi Arabia has a huge pipeline network and Crest's activity is expected to continue over the medium term.
In addition to major pipeline purging, Crest has provided nitrogen-purging services to gas-fired power stations when maintenance is in progress. The volumes of nitrogen required are much lower than for major pipeline-purging jobs but the membrane nitrogen-generation units still enjoy a competitive advantage over cryogenic-nitrogen suppliers.
-- Well-intervention nitrogen market
Saudi Aramco has over 180 active drilling rigs having embarked on a major expansion in 2012. This increase in drilling activity will be accompanied by commensurate increases in well-intervention work, which usually requires some form of nitrogen services during completions or work-overs, when nitrogen is used to purge pipework or the wellbore. The remote location of many drilling sites makes a membrane nitrogen-generation system the ideal choice. Well-site operations are intrinsically high-cost operations due to the large number of expensive services present at the well site. Efficient nitrogen purging services demand a premium; a long wait for a resupply of conventional cryogenic nitrogen to arrive by truck at a distant well location is both a common occurrence and expensive, which makes on-site nitrogen-generation using Crest's membrane equipment, particularly valued by operators. Crest is currently planning to manufacture customised membrane nitrogen units specifically targeted at this large and lucrative market sector in Saudi Arabia and elsewhere in MENA.
Financial performance
Revenue for the year was US$2.0 million (FY/12: US$1.0m), which was earned exclusively in Saudi Arabia, a high-value market that many large service companies have failed to penetrate. Crest's ultimate customer on the major pipeline purging projects was Saudi Aramco, the national oil company, which is considered one of the world's most valued customers. Gross margins for its services are high. Crest has the potential rapidly to scale up its business but has been capital constrained. Recently, Crest has declined tenders and contracts from Saudi Arabia and across the Middle East due to shortage of equipment. The inability of IOGT to provide growth capital and enable Crest to meet the requirements of current and potential customers has a material effect on the value of Crest.
Ownership structure
IOGT owns 75 per cent of Crest, with the employees owning 25 per cent. The Company believes that employee share ownership is essential in creating alignment of interest for staff, whose skills and dedication are crucial to the success of the company.
Conclusion
Despite still being a relatively small business, Crest has great potential for growth, both in Saudi Arabia and in other oilfield markets in the Middle East. The Investment Manager considers Crest to be an excellent growth vehicle in one of the most valuable oilfield markets in the world, Saudi Arabia.
SR2020
SR2020 is a California-based company that provides borehole seismic services that comprise three-dimensional vertical seismic profiling (3D-VSP), seismic survey services and micro-seismic monitoring services, using differentiated and proprietary technology.
Borehole seismic services differ from conventional seismic services in that the geophone arrays are installed in a wellbore rather than on the surface. This down-hole approach results in dramatically superior seismic surveys and micro-seismic monitoring and is a major growth sector.
SR2020's operations
This has been a difficult year for the company due to a reduction in revenues caused in no small part by the need to close its Houston-based acquisition and marketing departments. SR2020's acquisition equipment had been scheduled for replacement with state-of-the-art fibre-optic geophone arrays to replace the ageing analogue geophone arrays. This programme was seriously affected by the late availability of the new fibre-optic array due to development problems at the manufacturer. With insufficient capital availability from IOGT, SR2020 did not have the resources to update its proprietary tubing-conveyed acquisition systems with alternative, non-proprietary acquisition systems. The decision was taken in Q2 to close all Houston operations and to combine SR2020's processing capabilities with third-party acquisition services.
The company's revenue base began to recover late in 2013 but the revenues for FY/13 fell to US$2.0 million compared to FY/12 revenues of US$3.4 million.
Technical summary
Seismic surveying is an essential tool for all major oil and gas companies in order to image the sub-surface.
Seismic surveys enable operators to understand sub-surface structure, often to great depths, thereby allowing them to build a sub-surface geological model of a prospect or field. This survey in turn identifies potential drilling targets and provides a basis for reservoir modelling. Seismic surveying is a primary exploration tool but many operators also undertake new 3D-seismic surveys to supplement earlier-technology, two-dimensional ("2D") surveys on currently producing fields. This is particularly true for older oil and gas fields where existing seismic surveys may have been carried out many years ago with much lower definition than is achievable today.
How seismic data are processed is equally as important as the quality of the data that are acquired. Not all seismic surveying companies have the ability to process survey data and so they leave the processing to specialist companies. Indeed, processing is so critical that many of the major oil and gas companies retain this function in-house. Notably, two of the super-major oil companies trust SR2020 to process data in critical offshore sub-salt scenarios, an application where SR2020 is a world leader.
The data from conventional onshore 3D seismic surveys are acquired by deploying a long array of surface receivers, called geophones, on the surface. The geophones are individually connected or multiplexed to a recording device. A seismic source (vibroseis truck or dynamite charge) injects sound waves into the earth. The return sound waves, which have travelled through the sub-surface to be reflected by geological markers, are acquired by the geophones. Conventional 3D surveys have several disadvantages, including interference from surface noise and the need for expensive, and time-consuming, land-access permitting. In addition, depth uncertainties occur because assumptions have to be made about interval transit times.
-- 3D-VSP services
SR2020's 3D-VSP service uses a patented system to deploy an array of geophones into a wellbore using small-bore tubing for the deployment. Each geophone is housed in a 'pod'. This is positioned precisely with respect to depth and the geophone is forced against the side of the casing by a bladder to ensure good acoustic coupling to the formation. The number of geophones deployed can be adjusted, depending on the depth of the well and the desired definition. A conventional surface seismic source is used. 3D-VSP provides a high-definition survey approximately 5,000 feet in diameter.
3D VSP has a number of advantages over conventional 3D surveys:
-- Significantly higher definition and clarity, due to the direct nature of the measurement and elimination of survey noise problems
-- Total accuracy of depth control of geophones and, therefore, the geological markers -- Elimination of the need for land-access permitting for a surface-based survey. -- SR2020's progressive 3D-VSP services
SR2020's progressive 3D VSP (ProVSP) service enables multiple 3D VSP surveys to be linked together to provide a seamless, high-definition 3D survey over a much larger area (assuming that sufficient wellbores exist to provide access). This technique provides advantages to operators seeking to redevelop mature fields where multiple wellbores are available but the large upfront cost (often several million dollars) of a conventional 3D survey and land-access problems are impediments. The resultant progressive 3D VSP surveys are of much higher quality than a conventional 3D-seismic survey and can be produced at significantly lower cost.
Progressive 3D VSP surveying also has applications in the analysis of shale gas and oil wells, as reservoir characteristics such as fracture patterns can be identified to improve the accuracy of well targeting.
-- SR2020's micro-seismic services
Shale gas and oil plays rely heavily on fracking to stimulate gas or oil production, since shale has no natural permeability to allow the gas or oil to flow into the wellbore. Fracking creates fissures that form the flow path of the hydrocarbons into the wellbore. A typical shale gas or oil well is drilled horizontally in the shale reservoir and the well is subsequently completed using fracking in stages along the well path.
Micro-seismic monitoring involves the deployment of geophone arrays close to the wellbore in order to detect the hydraulic fractures as they are generated during fracking operations. In addition to the detection, the arrays are able to monitor the location and orientation of fractures as they grow and to facilitate the optimisation of the fracking operation.
Conventional micro-seismic services deploy the geophones arrays on the surface, which has the disadvantage of interference from surface noise and distance from the seismic source (caused by the generation of fractures) compromising data quality.
SR2020's seismic services use borehole arrays. These produce superior results due to proximity to the fractures and a quiescent monitoring environment.
SR2020 has developed unique proprietary processing software that, in addition to providing effective fracture generation monitoring, can also use the seismic events associated with the fracking to construct detailed images of the borehole. This is a major differentiator and much sought after by operators as it can provide valuable information concerning the formation characteristics.
The degree of fracking efficiency can make the difference between a prolific producer, a dry well or even, in some cases, a well that produces only water when the fractures have migrated into water-bearing zones. Since fracking involves the pumping of large volumes of water and chemicals into the formation, it is of great concern to environmentalists.
Micro-seismic monitoring is a valuable tool for operators in unconventional shale plays. When correctly processed and interpreted, micro-seismic imaging can help operators optimise fracking operations and reduce costs by obviating unnecessary fracking stages and can provide accurate control of fractures to ensure that aquifers are not compromised.
-- Processing services
SR2020 is recognised as a leader in specialty processing of seismic data. The company has repeat processing customers among the world's largest and most technically advanced international energy companies.
SR2020 undertakes seismic data processing for both its own acquired data and those of third parties, usually oil companies. With modern computer arrays and a team of experienced geoscientists, SR2020 can usually process a complete survey in four to six weeks, whereas the industry standard is several months.
Using state-of-the-art processing techniques and algorithms, SR2020 can provide a variety of interpretative services such as CO2 sequestration analysis, re-processing of older 2D and 3D surveys to improve resolution and definition, and bespoke processing for unusual scenarios such as sub-salt seismic surveying.
In addition, SR2020 has registered patents on the proprietary acquisition and processing methodology used in its VSP, 3D VSP and micro-seismic activities.
Financial performance
For the year to 31 December 2013, SR2020 sales decreased from US$3.4 million in FY/12 to US$2.0 million. This decrease in revenues was attributable to the closure of the Houston-based acquisition and marketing departments and a re-structuring of the company to utilise third-party acquisition services in combination with SR2020's processing services. The change in strategy was caused by a lack of available capital from IOGT, which prevented the planned replacement of the company's proprietary acquisition equipment and the necessary expansion of marketing resources.
Despite the above, the company recovered its sales base towards the end of 2013 and has a strong sales pipeline in 2014.
Ownership structure
The Company owns 100 per cent of the voting shares, prior to giving effect to the ESOP described below. No third-party investor has any direct or indirect interest in the equity or debt of SR2020. The Company has implemented an ESOP, as previously agreed with the management team, that, if fully vested and allocated, would result in the employees of SR2020 owning up to 30 per cent of the equity of the company on a fully diluted basis. The Company believes that the ESOP is essential in creating alignment of interest with the employees, whose skills and dedication are critical to the success of the company.
Conclusion
The Investment Manager has been frustrated by IOGT's inability to provide vital growth capital to SR2020 to enable the company to build on its strong FY/12 performance. Nonetheless, the Investment Manager remains of the view that SR2020 remains at the forefront of borehole seismic processing technology and has developed valuable intellectual property that could form the basis of a significant growth vehicle should capital availability improve.
DIRECTORS' REPORT
The directors present their annual report on the affairs of the Company, together with the financial statements and auditor's report, for the year ended 31 December 2013.
The Company is a closed-ended investment company incorporated and registered in Guernsey, Channel Islands on 20 November 2007.
PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment company. The Company was admitted to the Official List and to trading on the London Stock Exchange and commenced business on 7 January 2008.
The Company's investment objective is to generate long-term capital growth by investing expansion capital in companies that provide services and technology to the upstream oil and gas industry.
BUSINESS REVIEW
A review of the Company's business during the year and an indication of likely future developments are contained in the Chairman's statement and Investment Manager's report. In the interim accounts, it was announced that the Company was to complete orderly exits from the remaining portfolio investments over a two-year period. The Investment Manager and the directors are working with the Company's stakeholders to enable the Company to execute this revised strategy.
SHARE CAPITAL
The authorised share capital of the Company as at 31 December 2013 was 50,000,000 participating redeemable preferred shares ("Preferred Shares" or "Shares") of par value US$1.0 per share (2012: 50,000,000). The issued share capital of the Company at 31 December 2013 was 7,999,595 Shares (2012: 7,292,367 Shares). On 16 October 2013, 707,228 Shares were allotted for a net consideration of US$1,813,961.
DIRECTORS AND DIRECTORS' INTERESTS
The directors who served during the year were as follows:
Name Role Date of appointment Date of resignation
================ ============================== ==================== ====================
Christopher Independent and non-executive 27 June 2008 N/A
Hill chairman
================ ============================== ==================== ====================
Arthur Copple Independent and non-executive 2 November 28 November
director 2010 2013
================ ============================== ==================== ====================
John Imle Independent and non-executive 8 December N/A
director 2010
================ ============================== ==================== ====================
Jeremy Thompson Independent and non-executive 21 October N/A
director 2010
================ ============================== ==================== ====================
As all the directors are non-executive, the Board has decided, for the time being, not to appoint a Senior Independent Director.
At 31 December 2013, the directors who served during the year held the following Shares and share options:
Name Number of Preferred Number of
Shares share options
================== ==================== ===============
Christopher Hill 10,167 -
================== ==================== ===============
Arthur Copple* 48,000* -
================== ==================== ===============
John Imle 16,667 1,952
================== ==================== ===============
Jeremy Thompson 12,141 -
================== ==================== ===============
*At date of resignation
On 11 June 2013, persons related to Arthur Copple sold 14,333 Shares.
None of the directors who served during the year held any Shares in the Company other than disclosed above. The Company's policy in respect of share options is set out in note 15.
SUBSTANTIAL SHAREHOLDINGS
The Company is aware that the following shareholders had an interest in three per cent or more of the Preferred Shares of the Company on 14 April 2014:
Number of Preferred % of company's
Investor (1) Shares issued share
capital
================================= ==================== ===============
Henderson Global Investors 2,192,579 27.41
================================= ==================== ===============
Baillie Gifford 1,309,666 16.37
================================= ==================== ===============
Seneca Investment Managers 802,666 10.03
================================= ==================== ===============
DNB Bank ASA 483,091 6.04
================================= ==================== ===============
APG Asset Management 351,500 4.39
================================= ==================== ===============
Charles Stanley, stockbrokers 337,298 4.22
================================= ==================== ===============
Armstrong Investments 330,000 4.13
================================= ==================== ===============
Close Brothers Asset Management 274,190 3.43
================================= ==================== ===============
(1) All holdings are indirect.
DIVIDEND
No dividends were paid during the year (2012: US$729,237).
DIRECTORS' AUTHORITY TO PURCHASE SHARES IN THE COMPANY
The directors have authority to approve the purchase by the Company of its Preferred Shares. The Company did not purchase any of its Preferred Shares during the year.
The directors will seek to renew this authority to buy back Preferred Shares at each AGM. A resolution to this effect will be proposed at the forthcoming AGM. If approved, this authority will, unless renewed beforehand, expire on the earlier of the conclusion of the AGM to be held in 2015 and the expiry of 18 months from the passing of the resolution.
The timing of any buybacks of Preferred Shares will be decided by the directors, in their absolute discretion. The intention behind share buybacks is to increase the net asset value per share by purchasing shares whose market price stands at a discount to NAV.
Any repurchase of Preferred Shares will be made subject to applicable Guernsey laws and within guidelines established from time to time by the Board. Share repurchases will only be made through the market for cash at prices lower than the last reported net asset value per Share. The Company may make a contract to purchase Preferred Shares under the authority so conferred prior to the expiry of that authority. Such a contract will or may be executed wholly or partly after the expiration of that authority and the Company may make a purchase of Preferred Shares pursuant to any relevant contract. Such purchases of Preferred Shares will also only be made in accordance with the rules of the UK Listing Authority, which provides that the price to be paid must not be more than five per cent above the average of the middle-market quotations for the Preferred Shares for the five business days before the purchase is made.
The Company may retain any Preferred Shares bought back as treasury shares for future re-issue, re-sale or transfer, or may cancel any such Shares. During a year when the Company holds Preferred Shares as treasury shares, the rights and obligations in respect of those Preferred Shares may not be exercised or enforced by or against the Company.
CORPORATE GOVERNANCE
The Company is a member of the Association of Investment Companies (the "AIC"). The Board has considered the principles and recommendations of the AIC's Code of Corporate Governance revised in February 2013 (the "AIC Code") by reference to the AIC Corporate Governance Guide for Investment Companies (the "AIC Guide").
As the Company is not a premium UK-listed company, it is not required to comply with the UK Corporate Governance Code or the AIC Code. The Board has decided only to comply with those parts of the AIC Code that, in its opinion, are appropriate given its current circumstances. In previous annual reports, the Company had voluntarily adopted the AIC Code and UK Corporate Governance Code as best practice. However, as the directors have now decided to commence an orderly wind-down of the Company, the directors do not consider it appropriate that additional costs should continue to be incurred in complying with the full requirements of and disclosures required by the AIC Code and the UK Corporate Governance Code.
INTERNAL CONTROL AND FINANCIAL REPORTING
The Investment Manager produces a number of reports for the Board to review at each meeting, including cash-flow projections, an analysis of business operations, a review of each investee company and reports on potential new investments.
The Board carefully reviews the Company cash flows, which look forward at least 18 months and include sensitivity analyses. At each Board meeting, the cash flows and reports are compared to those submitted at previous meetings. Where forecasts or assumptions have not proven to be accurate, they are reviewed in detail to reduce the chance of similar inaccuracies in future.
Particular scrutiny is given to the flows of debt interest and/or dividends from, and any need for investment or financial support into, investee companies. Where it is proposed to provide financial support for an investee company, the Board makes thorough enquiry, including analysis and consideration of the financial statements and cash flow forecasts of that company. Where appropriate, the Board makes direct enquiry of an investee company.
The Company's bank accounts are under the control of the Administrator and regular reconciliations between bank statements and the company's accounting records are carried out. The Administrator only makes payments that have been authorised by the Investment Manager, acting under the Board's supervision. The Administrator works closely with the Investment Manager to confirm that the assumptions made in the Company's financial reporting are reasonable.
All primary documentation, for example debenture instruments, promissory notes, share certificates and inter-creditor agreements, are held by the Custodian and monitored by the Administrator, which reports directly to the Board. The Administrator maintains a register of these documents, which is examined by the Board at each meeting to ensure that all records are complete. The Administrator also cross-references this register to the disbursements to investee companies that have been recorded in the Company's bank statements and to the list of investments produced by the Investment Manager. This check is designed to ensure that the list of assets and accounts held by the Company is at all times as complete and accurate as possible.
The making of all investments is subject to the approval of the Board. The Board considers investment recommendations by the Investment Manager from several perspectives, including the Company's investment mandate and the cash-flow projections of the Company.
A description of the committees established by the Board, their functions and membership can be found in the Directors' Report.
A Statement of Corporate Governance Principles and Practices of the Company is available for inspection at its registered office as well as on the website (www.international-ogt.com).
BOARD EFFECTIVENESS AND COMPOSITION
The Board comprises three directors (including the Chairman), all of whom are independent and non-executive.
The members of the Board are entirely independent of the Investment Manager and, where appropriate, some discussions (whether in a formal board meeting or by other communication such as email) take place without the Investment Manager being present. This is to ensure that all Board members feel able to express opinions freely. The members of the Board understand that their obligations and responsibilities are to the Company and its shareholders, and strive always to act in their interests.
The Chairman believes that the skills and experience of the members of the Board enable it properly to consider issues raised and fulfil its responsibilities. The Chairman ensures that the directors continually update their skills, as well as their knowledge and familiarity with the Company, in order to fulfil their roles both on the Board and on board committees. The Company provides necessary resources for developing and updating the directors' knowledge and capabilities.
The Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. Strategic issues and operational matters of a material nature are reviewed and, if necessary, decided by the Board. The Board also has to approve all investments proposed to be made by the Investment Manager.
The directors retire by rotation at every AGM and may offer themselves for re-election. Those directors who have served for longer than eight years must retire and stand for re-election annually. In addition, any directors appointed by the Board since the previous AGM must retire and stand for election.
All directors retired at the AGM held in 2013. Christopher Hill, Arthur Copple, John Imle and Jeremy Thompson were re-elected. Arthur Copple resigned as a director on 28 November 2013.
The Board conducts an annual review of its own performance, including its composition and the performance of its various committees. The Board considers, when appropriate, engaging independent consultants to assist with this process.
The Board is responsible for the internal controls of the Company and for reviewing their effectiveness. It is also responsible for ensuring that financial information published or used within the business is reliable, and for monitoring compliance with regulations governing the operation of the Company. The Investment Manager prepares cash-flow forecasts and management accounts, which allow the Board to assess the Company's activities and to review its performance. The Board recognises that these control systems can only be designed to manage rather than eliminate the risk of failure to achieve business objectives and to provide reasonable, but not absolute, assurance against material misstatement or loss.
The Board meets at least four times a year. Between meetings, there is regular contact between the Board and the Investment Manager. Where necessary, in the furtherance of their duties, the directors may seek independent professional advice at the expense of the Company.
The table below sets out the number of Board and committee meetings held during the year and the number attended by each director. All meetings are held in Guernsey. Currently, all directors serve on all committees.
MANAGEMENT
BOARD OF AUDIT NOMINATIONS ENGAGEMENT
DIRECTORS COMMITTEE COMMITTEE COMMITTEE
================= ================ ================ ================ ================
HELD ATTENDED HELD ATTENDED HELD ATTENDED HELD ATTENDED
================= ===== ========= ===== ========= ===== ========= ===== =========
Christopher
Hill 18 14 4 4 1 1 1 1
================= ===== ========= ===== ========= ===== ========= ===== =========
Arthur Copple
(*) (**) 17 9 4 4 1 1 1 1
================= ===== ========= ===== ========= ===== ========= ===== =========
John Imle (*) 18 17 4 4 1 1 1 1
================= ===== ========= ===== ========= ===== ========= ===== =========
Jeremy Thompson 18 18 4 4 1 1 1 1
================= ===== ========= ===== ========= ===== ========= ===== =========
(*) Messrs Copple and Imle are not resident in Guernsey and on occasions participated in meetings via the telephone.
(**) Mr Copple resigned on 28 November 2013.
MANAGEMENT AND ADMINISTRATION
The directors are responsible for the determination of the Company's investment objective and policy and have overall responsibility for the activities of the Company.
However, the Company delegates day-to-day investment management of the Company to the Investment Manager under the terms of the Investment Management Agreement. All activities by the Investment Manager are subject to the control of and review by the Board.
In addition, the Board delegates day-to-day administration to the Administrator and day-to-day custodial duties to the Custodian. All activities of the Administrator and Custodian are subject to the control and review of the Board. The auditor of the Company is Deloitte LLP.
In view of these external appointments and as the Company has no executive employees, an internal audit function is not considered appropriate. However, the Board reviews regular compliance and operational reports from its outsourced providers. The Board considers that the level of control is sufficient for the Company's needs.
Committee structure
The Board has established three committees covering audit, nominations and management engagement. The terms of reference of these committees are available on request and can be viewed on the Company's website. The Board has not established a remuneration committee as the Company has no executive employees. All remuneration matters are dealt with at Board level.
Audit committee
This committee, which is chaired by Jeremy Thompson, examines the effectiveness of the Company's internal control systems and reviews the annual and interim Reports. It agrees the engagement of the auditor and sets their remuneration for audit. To ensure that the auditor remains independent and objective, the committee pre-approves any non-audit services that it provides.
The audit committee has reviewed the performance of Deloitte LLP during the year and recommends their re-appointment.
Nominations committee
This committee is chaired by Christopher Hill and considers the composition, including gender, the succession plans and the relevant skills of the Board and its members.
Board appointments are subject to a rigorous selection process carried out by the nominations committee. With any new director appointment to the Board, consideration will be given as to whether an induction is appropriate.
The directors' terms and conditions of appointment are available for inspection at the Company's registered office.
Management engagement committee
This committee is chaired by Christopher Hill. Its responsibilities include the review of the remuneration, performance and suitability of the Investment Manager and other service providers.
FINANCIAL STATEMENTS
The Company's annual audited financial statements are prepared for the 12 months to 31 December. Interim unaudited financial statements are prepared for the half-year to 30 June. Both documents are sent to shareholders and posted on the Company's website.
During the year, the Company also publishes interim management statements that include estimates of NAV as well as trading and other updates when appropriate.
The financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles ("Canadian GAAP").
The Board has adopted Canadian Accounting Standards for the Company. It may decide to adopt International Financial Reporting Standards ("IFRS") with effect from 2014.
RISK MANAGEMENT
In the normal course of business, the Company is exposed to a variety of financial risks that have the potential to have a material effect on the Company's financial performance.
The Company's overall risk-management programme seeks to minimise the potentially adverse effect of risk on the Company's financial performance in a manner consistent with the Company's investment objective. The principal categories of risk identified by the Board are credit, liquidity, interest-rate, other price and currency risks. The Company's financial risk management and mitigation policies are set out in note 16 to the financial statements.
SUPPLIER PAYMENT POLICY
The Company agrees commercial terms with each of its suppliers and abides by those terms. It is the policy of the Company that all invoices for completed work should be paid promptly.
RELATIONS WITH SHAREHOLDERS
The Board recognises the importance of communication with its shareholders.
Besides the documents described under 'financial statements' above that are circulated to shareholders, all shareholders have the opportunity to attend and vote at the AGM. The notice of the AGM, which is despatched at least 14 working days in advance of the AGM, sets out the business of the meeting. The Board of Directors, together with representatives of the Investment Manager, are available to answer Shareholders' questions at the AGM. Proxy voting figures are announced to Shareholders at the AGM.
The Company's website and the section of this Report entitled 'Information for Shareholders' provide information useful to Shareholders.
The Board receives regular reports on the views of Shareholders from the Investment Manager and the Corporate Broker. If appropriate, the Chairman and other directors are available to meet Shareholders.
The Board monitors the price at which the Shares trade and the discount to net asset value.
GOING CONCERN
The Board intends to complete orderly exits from the remaining portfolio investments over the next 12 to 18 months and return net proceeds to shareholders. Accordingly, the Board has adopted the liquidation basis in the preparation of these financial statements and is of the opinion that sufficient cash resources are currently available to continue in operation until orderly wind-down. Given the current cash resources available to the Company and the level of running costs, the ability to complete an orderly wind-down strategy is dependent on the receipt of capital from exits of investments or from other sources and/or a successful conclusion to the litigation.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Companies (Guernsey) Law, 2008 requires the directors to prepare financial statements for each financial year. Under that law, the directors are required to prepare financial statements in accordance with generally accepted accounting policies. Under the Companies (Guernsey) Law, 2008 the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the directors are required to:
-- properly select and apply accounting policies
-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information
-- provide additional disclosures when compliance with the specific requirements in Canadian GAAP are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance, and
-- make an assessment of the Company's ability to continue as a going concern.
The directors are responsible for keeping proper accounting records that are sufficient to show and explain the company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation governing the preparation and dissemination of financial statements may be different in jurisdictions other than Guernsey and the United Kingdom.
INDEPENDENT AUDITOR
A resolution to re-appoint Deloitte LLP as the Company's auditor will be put to the forthcoming AGM and is recommended by the Board.
DECLARATION OF DIRECTORS' RESPONSIBILITIES
Each of the persons who is a director at the date of approval of the financial statements confirms that:
1. so far as the director is aware, there is no relevant audit information of which the Company's auditor is unaware, and
2. the director has taken all steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of Section 249 of The Companies (Guernsey) Law, 2008.
We confirm to the best of our knowledge that:
-- these financial statements have been prepared in conformity with Canadian GAAP and give a true and fair view of the assets, liabilities, financial position and income of the Company as requested by DTR 4.1.12, and
-- these financial statements include information detailed in the Chairman's Statement, the Directors' Report, the Investment Manager's Report and the notes to the financial statements that includes a fair view of the development and performance of the business and position of the Company, together with a description of the principal risks and uncertainties that the Company faces, as required by:
(a) DTR 4.1.8 of the Disclosure and Transparency Rules, being a fair review of the Company's business and a description of the principal risks and uncertainties facing the Company, and
(b) DTR 4.1.11 of the Disclosure and Transparency Rules, being an indication of important events that have occurred since the end of the financial year and the likely future development of the Company.
Signed on behalf of the Board by:
Christopher Hill
29 April 2014
DIRECTORS' REMUNERATION REPORT
The Board presents the directors' remuneration report for the year ended 31 December 2013.
The Board fulfils the functions of a remuneration committee, which reviews annually the remuneration of the non-executive directors and agrees the level their fees. In doing so, it consults with advisers as to appropriate market rates.
No element of the non-executive directors' fees is performance-related. During the year, the Company has not awarded any share options or long-term performance incentives to any of the directors.
Prior to joining the Board, John Imle was granted share options as described in the Directors' Report in his capacity as a member of the advisory board, a committee that was subsequently disbanded. The share options referred to above form part of the share options set out in note 15 to the financial statements.
None of the directors has a service contract with the Company. The terms of their appointments are detailed in letters sent to them when they joined the Board. These letters are available for inspection at the registered office of the Company.
Remuneration
2013 2012
DIRECTOR US$ US$
------- -------
Christopher Hill 50,000 50,000
Arthur Copple (resigned 28 November 2013) 45,516 50,000
John Imle 50,000 50,000
Jeremy Thompson 50,000 50,000
None of the directors receives any non-cash benefits or pension entitlements.
COMPENSATION FOR LOSS OF OFFICE
No past director has been compensated for loss of office.
Signed on behalf of the Board by:
Christopher Hill
Director
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF INTERNATIONAL OIL AND GAS TECHNOLOGY LIMITED
We were engaged to audit the financial statements of International Oil and Gas Technology Limited (the "Company") for the year ended 31 December 2013 which comprise Balance Sheet, Statement of Operations, Statement of Changes in Shareholders' Equity, Statement of Investment Portfolio and the related notes 1 to 18. The financial reporting framework that has been applied in their preparation is applicable law and Canadian Generally Accepted Accounting Principles.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors. Because of the matters described in the Basis for Disclaimer of Opinion paragraphs, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.
Basis for disclaimer of opinion on financial statements
In seeking to form an opinion on the financial statements we considered the implications of the significant uncertainties disclosed in the financial statements concerning the following matters:
Going concern and availability of funding to complete an orderly wind-down
In connection with the commencement of the exit strategy during the third quarter of 2013, the Company has adopted the liquidation basis of accounting in these financial statements. Under the liquidation basis of accounting, an accrual has been made for the costs to be incurred during liquidation to arrive at the net realisable value of the Company's assets and liabilities. The Directors are seeking an orderly wind-down of the Company but this is predicated on the Company having sufficient resources to meet its liabilities during this exit period. Given the current cash resources available to the Company and the level of on-going running costs, the completion of an orderly wind-down is dependent on the receipt of capital from exits of investments or from other sources and/or a successful conclusion to the litigation.
Valuation of Investments
The value attributed to Strata Energy Services, Crest and SR2020 cannot be accurately determined due to the lack of trading in these investments.
The valuation of Strata Energy Services assumes that it will continue to trade and is predicated on the improved future performance of the investee company. The values attributed to SR2020 and Crest assume that these entities will be sold in the near future and are the Directors' best estimates of the sale value that could be achieved based on the current performance and circumstances of each entity.
The valuations do not include any adjustments that may be necessary should the investee companies be unable to continue future operations or if the Company was forced to sell the investments for reasons of liquidity. There are significant uncertainties over these assumptions and, as such, these investments could be realised for substantially different amounts.
Ongoing litigation
QOGT Inc., a former co-investment manager, issued proceedings in the High Court, Queen's Bench (Commercial Court) on 17 January 2012 claiming damages of US$15.7 million for wrongful termination of the original investment management agreement. This claim was reduced to US$6.0m in October 2013 and to US$5.0m at the commencement of the court proceedings in March 2014. The court hearing has recently completed but the ultimate outcome of the matter cannot presently be determined. Based on information currently available and on the advice of its legal representatives, the Board believe this claim is entirely without merit and no provision has therefore been made in the financial statements for any damages or costs which may be payable if the defence of this litigation were not successful. Should such costs become payable the Company may need to instigate a forced sale of its investments.
There is potential for the uncertainties to interact with one another such that we have been unable to obtain sufficient appropriate audit evidence regarding the possible effect of the uncertainties taken together.
Disclaimer of opinion on financial statements
Because of the significance of the possible impact of the uncertainties, described in the Basis for Disclaimer of Opinion on financial statements paragraph, to the financial statements, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on the financial statements.
Matters on which we are required to report by exception
Arising from the limitation of our work referred to above, we have not obtained all the information and explanations that we considered necessary for the purpose of our audit.
We have nothing to report in respect of the following matters where the Companies (Guernsey) Law, 2008 requires us to report to you if, in our opinion:
-- proper accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
-- the financial statements are not in agreement with the accounting records and returns.
Nicola Sarah Paul fca
For and on behalf of Deloitte LLP
Chartered Accountants and Recognised Auditor
Guernsey, Channel Islands
29 April 2014
An audit does not provide assurance on the maintenance and integrity of the Company's website, including controls used to achieve this, and in particular on whether any changes may have occurred to the financial statements since first published. These matters are the responsibility of the directors but no control procedures can provide absolute assurance in this area. Legislation in Guernsey governing the preparation and dissemination of financial statements differs from legislation in other jurisdictions.
BALANCE SHEET
At 31 December 2013
Note 2013 2012
US$ US$
ASSETS
Cash and cash equivalents 2,081,379 5,055,889
Accounts receivable and prepaid
expenses 10 427,590 713,811
Loans 11 130,570 586,600
Investments 2,12 31,127,950 62,955,458
------------- ------------
33,767,489 69,311,758
------------- ------------
LIABILITIES
Accounts payable and accrued
liabilities 13 981,130 391,283
Performance fee accrual 13 - 841,550
Accrued liquidation costs 13 24,842 -
------------- ------------
1,005,972 1,232,833
------------- ------------
Net assets 32,761,517 68,078,925
SHAREHOLDERS' EQUITY
Common (founder) shares of US$1
par.
Authorised 2 shares: issued
2 shares 14 2 2
Participating redeemable Preferred
Shares.
Authorised 50,000,000 shares;
issued 7,999,595 (2012: 7,292,367)
shares 14 7,999,595 7,292,367
Contributed surplus 2 63,678,704 62,571,971
Retained (deficit) (38,916,784) (1,785,415)
------------- ------------
Total equity 32,761,517 68,078,925
------------- ------------
The accompanying notes are integral to these financial statements.
Net asset value per preferred share 4.10 9.34
Approved by the Board of Directors and signed on its behalf by:
Christopher Hill Chairman 29 April 2014
STATEMENT OF OPERATIONS
For the year ended 31 December 2013
Note 2013 2012
US$ US$
Investment Income
Portfolio interest income 2 80,000 79,561
Non-portfolio interest income 33,444 1,719
(Loss) on foreign exchange (5,854) (10,910)
------------- ------------
107,590 70,370
------------- ------------
Expenses
Administrative expenses 6 3,336,195 3,090,103
Loan provision 11 420,206 -
3,756,401 3,090,103
------------- ------------
Net investment (expense) (3,648,811) (3,019,733)
------------- ------------
(Losses) gains on investments
Unrealised change in value of
investments 12 (34,389,508) (4,284,182)
Realised gains on sale of investments 10 65,400 -
Contingent investment management
fee 3, 13 841,550 941,664
------------- ------------
(33,482,558) (3,342,518)
------------- ------------
Net (loss) (37,131,369) (6,362,251)
------------- ------------
Average number of Preferred
Shares 7,439,625 7,292,758
Basic (loss) per share 9 (4.99) (0.87)
Average number of diluted Preferred
Shares 7,439,625 7,292,758
Diluted (loss) per share 9 (4.99) (0.87)
Dividends paid per preferred
share 8 - 0.10
------------- ------------
The accompanying notes are integral to these financial statements.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the year ended 31 December 2013
Treasury Contributed Retained
Share capital shares surplus earnings Total
Notes US$ US$ US$ US$ US$
At 1 January
2013 7,292,369 - 62,571,971 (1,785,415) 68,078,925
Issue of shares 14 707,228 - 1,414,456 - 2,121,684
Share issuance
costs 14 - - (307,723) - (307,723)
Net loss - - - (37,131,369) (37,131,369)
At 31 December
2013 7,999,597 - 63,678,704 (38,916,784) 32,761,517
----------------- ------ -------------- --------- ------------ ------------- -------------
At 1 January
2012 8,156,350 (5,749,345) 67,565,301 5,306,073 75,278,379
Purchase of
own shares 14 - (107,966) - (107,966)
Cancellation
of treasury
shares (863,981) 5,857,311 (4,993,330) - -
Net loss - - - (6,362,251) (6,362,251)
Dividend paid 8 - - - (729,237) (729,237)
At 31 December
2012 7,292,369 - 62,571,971 (1,785,415) 68,078,925
---------------- --- ----------- ------------ ------------- ------------ ------------
The accompanying notes are integral to these financial statements.
STATEMENT OF CASH FLOWS
For the year ended 31 December 2013
2013 2012
Note US$ US$
Net (outflow) of cash related
to the following activities:
Operating
Net investment (expenses) (3,648,811) (3,019,733)
Net change in contingent performance
fee 3,13 841,550 941,664
Loan provision 11 420,206 -
Net change in non-cash working
capital 10, 13 (474,936) (1,031,405)
------------ ------------
(2,861,991) (3,109,474)
------------ ------------
Investing
Purchase of investments (2,562,000) (3,768,257)
Loan advanced 11 (115,000) (586,600)
Loan repaid 150,824 -
Disposals of investments 10 599,696 505,712
------------ ------------
(1,926,480) (3,849,145)
------------ ------------
Financing
Purchase of own shares 14 - (107,966)
Issue of shares 1,813,961 -
Dividends paid 8 - (729,237)
------------ ------------
1,813,961 (837,203)
------------ ------------
Net (decrease) in cash during
the year (2,974,510) (7,795,822)
Cash balance at the beginning
of the year 5,055,889 12,851,711
------------ ------------
Cash balance at the end of the
year 2,081,379 5,055,889
------------ ------------
The accompanying notes are integral to these financial statements.
STATEMENT OF INVESTMENT PORTFOLIO
At 31 December 2013
2013 2012
----------------- ---------------------- --------------- ------------------------ ------------------------
Par value Estimated Estimated
(US$)/ fair fair
Number Cost value Cost value
Security held of securities US$ US$ US$ US$
----------------- ---------------------- --------------- ----------- ----------- ----------- -----------
CURRENT INVESTMENTS
Crest Energy Convertible
Services Ltd secured debentures 6,996,499 7,399,683 7,399,683
Promissory
notes 3,089,858 3,151,858 2,000,000 2,689,858 4,000,000
=========== ===========
SR2020 Inc Common shares 7,000,000 1 1
Convertible
and non-convertible
secured debentures 5,161,821 5,161,821 5,161,821
Promissory
notes 8,993,368 9,017,224 6,917,224
1474559 Alberta Secured promissory
Ltd (1) note 2,751,074 2,751,074 1,000,000 2,751,074 17,837,436
================= =========== -----------
Strata Energy
Services Inc Common shares 840,890 22,879,668 26,127,950 22,879,668 39,118,022
Promissory
note 2,000,000 2,000,000 2,000,000 2,000,000 2,000,000
=========== -----------
Total 52,361,329 31,127,950 49,799,329 62,955,458
=========== =========== =========== ===========
(1() Following a reorganisation of SR2020 during the prior year, 1474559 Alberta Ltd is in the process of being wound up and the Company's interest in it has no value. However, this should not have any impact on the valuation of the SR2020 investment.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 December 2013
1. BUSINESS REGISTRATION AND OPERATIONS
General
International Oil and Gas Technology Limited (the "Company") is a closed-ended investment company incorporated and registered in Guernsey on 20 November 2007. The Company's participating redeemable preference shares are listed on the London Stock Exchange as a standard listing. The Company changed its name from Quorum Oil and Gas Technology Fund Limited on 10 June 2011.
The nature of the Company's operations and its principal activities are set out in the Directors' Report. The address of the Company's registered office is set out in the section of this Report entitled 'Management and Administration'.
The currency used in the financial statements is the United States dollar, which is the currency of the primary economic environment in which the Company operates.
Authorisation
The Company is designated as authorised pursuant to the Authorised Closed-Ended Investment Scheme Rules 2008.
Liquidation basis
In the Interim Results, which were published on 30 August 2013, it was announced that the Board had concluded that it was time to complete orderly exits from all three remaining portfolio investments and return the net proceeds to shareholders. The capital raise in October 2013 was implemented to avoid Company liquidity concerns, take the litigation to trial and provide time for orderly exits. In connection with the commencement of this exit strategy during the third quarter of 2013, the Company has adopted the liquidation basis of accounting in these financial statements. The liquidation basis was considered appropriate as, among other things, liquidation of the Company is probable. Under the liquidation basis of accounting, an accrual has been made for the costs to be incurred during liquidation to arrive at the net realisable value of the Company's assets and liabilities. Given the current cash resources available to the Company and the level of running costs, the ability to complete an orderly wind-down strategy is dependent on the receipt of capital from exits of investments or from other sources and/or a successful conclusion to the litigation.
Litigation
The claim against the Company initiated by a former co-investment manager on 17 January 2012 seeking damages for wrongful termination of the original investment management agreement has now been heard in the Commercial Division of the High Court of Justice in London. The Company awaits the judgment.
The claim, when commenced at the beginning of 2012 following receipt of a letter before action in September 2011, sought damages of approximately US$15.8 million. Shortly after this, the litigant increased the claim to nearly US$18 million. In October 2013, the Company announced in a statement that the litigant had reduced its claim by approximately US$9.2 million. On the opening day of the trial, the litigant further reduced the claim to US$5.0 million. This confirmed our long-held view, repeated consistently in reports and announcements since 12 September 2011, that, in addition to the claim having no merit, we considered that the amount of damages claimed was 'speculative and far-fetched'.
This litigation has had a significant effect on the Company, and thus its portfolio companies, over the past two and a half years. Funding the defence of the claim has reduced the capital that had been available to grow the portfolio companies as previously planned. Furthermore, the existence of the litigation has prevented the Company from raising significant new capital, whether by share issuance or through structured transactions with other equity providers.
Notwithstanding the rules of the High Court of England and Wales on the recoverability of costs of litigation, parties generally incur around 25 per cent costs that are not recoverable even on a successful outcome. Legal costs incurred to date have been expensed. No provision or asset has been recognised for any future costs or recoveries.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
These financial statements have been prepared by the Company in accordance with Canadian generally accepted accounting principles ("GAAP"). The Company is an investment company and accounted for in accordance with the Canadian Institute of Chartered Accountants ("CICA") Accounting Guideline 18 - Investment Companies ("AcG-18") and by using the liquidation basis of accounting which was adopted on 30 August 2013. In accordance with AcG-18, the Company accounted for its investments at fair value. The conversion from going concern to liquidation basis of accounting required management to make significant estimates and judgments to record the Company's financial position at its estimated realisable value and liabilities at settlement amounts. These estimates are subject to change based on the timing of the potential realisation of assets and changes to the valuation of assets.
Canadian GAAP for publicly accountable enterprises is being replaced with International Financial Reporting Standards ("IFRS"). For companies applying AcG-18, the Canadian Accounting Standards Board ("ASB") announced a two year deferral for implementation of IFRS. As the Company is an investment company applying AcG-18, the Company had deferred the adoption of IFRS until 1 January 2014. The Company does not anticipate the transition to IFRS to have a significant impact on the Company's financial statements.
Use of estimates
The preparation of financial statements in accordance with Canadian GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses during the reporting period. Significant estimates and judgments in these financial statements are required principally in determining the reported value of investments and estimating the costs anticipated to wind down the Company. Actual results could differ significantly from these estimates.
Valuation of investments
Investments measured and reported at fair value are classified and disclosed in one of the following categories:
Level I Unadjusted quoted prices in an active market for identical assets or liabilities provides the most reliable evidence of fair value and is used to measure fair value whenever available.
Level II Inputs other than unadjusted quoted prices in active markets, which are either directly or indirectly observable as of the reporting date, and fair value is determined using models or other valuation methodologies.
Level III Inputs that are unobservable for the investment and include situations where there is little, if any, market activity for the investment. The inputs into the determination of fair value require significant management judgment or estimation.
All the investments of the Company are classified as Level III.
Generally, a combination of two methods, including a market multiple approach that considers one or more financial measures, such as revenues, EBITDA, adjusted EBITDA, EBIT, net income, net asset value, discounted cash flow or liquidation analysis, are used to determine the estimated value of an investment.
Consideration may also be given to such factors as:
-- The company's historical and projected financial data
-- Valuations given to comparable companies
-- The size and scope of the company's operations
-- Expectations relating to the market's receptivity
to an offering of the Company's securities
-- Any control associated with interests in the company
that are held by the Company
-- Information with respect to transactions or offers
for the Company's securities (including the transaction
pursuant to which the investment was made and the
period of time that has elapsed from the date of the
investment to the valuation date)
-- Applicable restrictions on transfer
-- Industry information and assumptions
-- General economic and market conditions
-- Other factors deemed relevant.
Having regard to the expected future life of the Company, the fair value estimation process includes an assessment of the disposal prospects of the investments during the wind-down process. Due to the inherent uncertainty of the valuation process, the fair values may be significantly different to the actual amounts received on disposal. Further information regarding the Company's investments can be found in note 12.
The CICA Accounting Standards Board decided to defer the mandatory IFRS changeover date of 1 January 2011 for a three-year period for investment companies. For this reason, the Company has elected to defer the first-time adoption of IFRS until the accounting period commencing 1 January 2014.
Other financial assets and liabilities
Other financial assets and financial liabilities are recorded at cost. Since these assets and liabilities are short term in nature, their carrying values approximate estimated settlement amounts.
Accrued liquidation costs
The Company is required to make significant estimates and exercise judgment in determining liquidation costs. Liquidation costs, including professional and other realisation costs that are incremental and directly related to the execution of the exit strategy, have been estimated and accrued in these financial statements. The Company has not accrued the ongoing operating costs that are anticipated to be incurred through the liquidation period such as administration, management, registrar, custodian and other general costs.
Performance fees
Incentive fees are accrued where the valuation of a portfolio asset is such that, upon a realisation at that value, a fee would become payable under the terms of the new Investment Management Agreement (see note 3 for further detail). A proportion of the fee due may be held in escrow pending future realisations.
Investment transactions and income
Investment transactions are accounted for as of the trade date. Interest income is recorded on an accrued basis. Realised and unrealised gains and losses from investment transactions are calculated on an average cost basis. Interest income received in advance is recorded as deferred interest income on the balance sheet as a liability. Where interest received is capitalised, it is added to the relevant investment's cost of investment and is not shown as interest receivable in debtors.
Translation of foreign currencies
Investments and other financial assets and liabilities denominated in foreign currencies are translated into United States dollars at the exchange rates prevailing on each valuation day. Purchases and sales of investments, income and expenses are translated into United States dollars at the exchange rate prevailing on the respective dates of such transactions. Realised and unrealised foreign exchange differences are recognised in profit or loss.
Issuance costs
Issuance costs incurred to form the Company were deducted directly from contributed surplus.
Share-based payments
In the period between January 2008 and October 2009, the Company granted share options to the current Investment Manager. The Investment Manager agreed to surrender these share options when the new Investment Management Agreement (the "IMA") was signed. Members of the now defunct advisory board were granted share options during the same period. CICA Handbook Section 3870 - 'Stock-based Compensation and other Stock-based Payments' requires recognition of an expense of share option awards using the fair-value method of accounting. Under this method, the fair value of an award at the grant date is recognised as an expense. The effect of actual forfeitures of previously granted share options is recognised as they occur.
Provisions and contingent liabilities
The Company recognises the need to make provisions for liabilities that can be measured but where the timing of payment is uncertain, and to treat as contingent those liabilities whose existence will be confirmed only by the occurrence of one or more uncertain future events that are not within the Company's control.
3. MATERIAL AGREEMENTS
The IMA between the Company and the Investment Manager took effect from 1 June 2011 and was executed on 30 August 2011. The IMA provides for:
(a) a monthly investment management fee of US$110,000 payable to Linton Capital LLP, subject to regular review by the Board and Investment Manager
(b) a revised incentive arrangement in respect of each portfolio asset held by the Company on 1 June 2011 under which the Investment Manager will receive, upon realisation of the asset:
(i) 7.5 per cent of the increase in value of each portfolio asset between the amount of its valuation at 30 September 2010 and the lower of the realisation proceeds of the portfolio asset and the equivalent of the amount of its valuation as at 31 December 2009, and then
(ii) in the event that the realisation proceeds exceed the amount of its valuation as at 31 December 2009, 20 per cent of the increase in value of each portfolio asset between the realisation proceeds of the portfolio asset and the equivalent of the amount of its valuation on 31 December 2009 as used in (b)(i) above.
(c) an incentive arrangement in respect of any portfolio assets purchased after 1 June 2011. Under this arrangement, the Investment Manager will receive 20 per cent of the value of all portfolio realisations once the Company has received an amount equal to the aggregate amount invested at cost in the respective portfolio asset plus an additional amount calculated by reference to a hurdle rate of eight per cent per annum.
(d) a performance fee in an amount equal to US$143,531 in respect of the sale of WellPoint Services Inc ("Wellpoint"), received in 2011.
Any payments due to the Investment Manager under the above paragraphs (b) i, (b) ii and (c) are subject to an escrow arrangement. These arrangements can restrict the Company's immediate cash payments to the Investment Manager. The restriction applies to (i) 50 per cent of the calculated amount in respect of any realisation of either Strata or any future portfolio assets, and (ii) 80 per cent of the calculated amount in respect of all other portfolio realisations unless the realisation value of the portfolio exceeds the cost as at 31 October 2010.
As the Company moves towards an orderly realisation of the portfolio, notice has been given under the IMA, which will expire on 30 April 2015. To the extent that interim investment management arrangements may need to be introduced following expiry of the existing IMA, they will be put in place at that time.
4. RELATED-PARTY TRANSACTIONS
The Investment Manager and the directors are regarded as related parties. The Investment Manager has undertaken that no co-investments will be made in any other funds that may at any time be managed by the Investment Manager or any entity controlled by the partners of the Investment Manager.
The fees and expenses payable to the Investment Manager are explained in note 3 and are detailed in the statement of operations. Details of directors' remuneration are set out in the Directors' Remuneration Report.
Strata Energy Services ("Strata"), in which the Company owns 43 per cent of the equity, is deemed to be a related party.
5. SEGMENTAL INFORMATION
The directors are of the opinion that the Company is engaged in a single segment of business, being an investment company investing capital in companies that provide services and technology to the upstream oil and gas industry, and therefore no segmental reporting is required.
6. ADMINISTRATIVE EXPENSES
Note below 2013 2012
US$ US$
Administration fees 181,327 168,650
Audit and taxation fees 99,773 80,100
Directors' fees and expenses 210,770 235,471
Insurance costs 14,750 15,500
Investment management fees 1,320,000 1,320,000
Investor communications costs 21,101 4,113
Legal and professional fees a 1,323,602 1,070,518
Liquidation costs b 24,842 -
Listing and licence fees 18,229 11,851
Marketing expenses - 64,253
Other expenses 11,423 8,659
Registrar and custodian fees 37,249 38,992
Stockbroker's fees 51,473 52,004
Travel and entertainment costs 21,656 19,992
3,336,195 3,090,103
========== ==========
a) Legal fees have been, and will continue to be, incurred in connection with the legal action brought against the Company by the former co-investment manager, details of which are included in note 1.
b) The Company is required to make estimates and exercise judgment in determining accrued liquidation costs. The Company has estimated professional fees and realisation costs to be directly incurred as a result of liquidation. The Company has not accrued the ongoing operating costs that are anticipated to be incurred through the liquidation period.
7. TAX
The Company has been granted exemption from income tax in Guernsey under the Income Tax (Exempt Bodies) (Bailiwick of Guernsey) Ordinance, 1989 for which it pays an annual fee of GBP600 (2012: GBP600). With this exemption, the Company will not be liable to income tax in Guernsey other than on Guernsey source income (excluding deposit interest on funds deposited with a Guernsey bank). No withholding tax is applicable to distributions by the Company to shareholders.
8. DIVIDENDS
No dividend was paid during the year.
In the prior year, the directors authorised a dividend of US$0.10 per participating redeemable preference share on 30 May 2012, totalling US$729,237, which was payable to shareholders registered on 27 April 2012.
Under Guernsey Law, companies can pay dividends in excess of accounting profit provided they satisfy the solvency test prescribed under the Companies (Guernsey) Law, 2008. The solvency test considers whether a company is able to pay its debts when they fall due and whether the value of a company's assets is greater than its liabilities.
9. BASIC AND DILUTED (LOSS) PER SHARE
(Loss) per share is computed by dividing net (loss) available to preferred shareholders by the weighted average number of Preferred Shares outstanding for the year. Diluted (loss) per share reflects the potential dilution that could occur if additional Preferred Shares were issued under warrants and share options that entitled their holders to obtain Preferred Shares in the future, to the extent such entitlement is not subject to unresolved contingencies. The number of additional shares for inclusion in diluted (loss) per share calculations is determined using the treasury-stock method. Under this method, warrants and share options whose exercise price is less than the average market price of the Preferred Shares are assumed to be exercised, with the proceeds used to repurchase Preferred Shares at the average market price for the period. The incremental number of Preferred Shares issued under warrants and share options and repurchased from proceeds is included in the calculation of diluted (loss) per share.
For the years ended 31 December 2013 and 31 December 2012, the Company excluded potential share equivalents comprised of share options and warrants from the calculation of diluted (loss) earnings per share as these would be considered anti-dilutive.
2013 2012
Basic earnings per share US$ US$
Net (loss) (37,131,369) (6,362,251)
Average number of Preferred Shares 7,439,625 7,292,758
Basic (loss) per share (4.99) (0.87)
------------------------------------- ------------- ------------
Diluted earnings per share
Net (loss) (37,131,369) (6,362,251)
Warrants - -
Share options - -
Average number of diluted Preferred
Shares 7,439,625 7,292,758
Diluted (loss) per share (4.99) (0.87)
------------------------------------- ------------- ------------
10. ACCOUNTS RECEIVABLE AND PREPAID EXPENSES
2013 2012
US$ US$
Accounts receivable and prepaid expenses 427,590 179,515
Due on disposal of investment (see note
below) - 534,296
------- -------
427,590 713,811
======= =======
During the year, further sale proceeds on the disposal of LxData Inc of US$599,696 were received from escrow. The surplus of US$65,400 has been recognised as a Realised gain on sale of investments in the Statement of Operations.
11. LOANS
2013 2012
US$ US$
Equipment finance loan to SR2020 15,570 586,600
Short-term loan to SR2020 115,000 -
------- -------
130,570 586,600
======= =======
In accordance with an agreement dated 1 December 2012, the equipment finance loan to SR2020 Inc attracts interest at 7 per cent and is repayable in 36 equal monthly instalments commencing on 1 February 2013. US$ 150,824 was repaid during the year. At a board meeting on 4 April 2014, the Directors concluded that the equipment loan to SR2020 may not be repaid and should be provided against at 31 December 2013. The balance outstanding of US$15,570 at 31 December 2013 represents an amount repaid in January 2014 and is net of a provision of US$420,206.
The short-term loan to SR2020 was interest free and repaid on 15 January 2014.
Loans are included at carrying value.
12. INVESTMENTS
Current investments
1) Crest Energy Services Limited ("Crest")
The convertible secured debenture in the principal amount of US$6,996,499 was due to mature on 17 December 2013 and bears an annual interest rate of 8.5 per cent. The debenture is convertible at the Company's option at any time into common shares of Crest at a conversion price of US$1.00 per share.
During the year, a number of promissory notes were issued totalling the principal amount of US$400,000, bringing the total promissory notes outstanding at 31 December 2013 to US$3,089,858. The promissory notes issued in years prior to 2012 bear an annual interest rate of 8.5 per cent and are notionally repayable on dates during 2013. The promissory notes issued during 2013 are interest free and repayable on demand.
The investment includes US$403,183 in respect of interest capitalised in 2011 and capitalised legal costs of US$62,000 in 2013.
The investment in Crest has been valued at US$2 million, which is the Company's best estimate of Crest's value in an accelerated sales process.
2) SR2020 Inc ("SR2020")
The convertible secured debenture in the principal amount of US$900,000 was due to mature on 29 May 2013 and bears an annual interest rate of 8.5 per cent. It is convertible at the Company's option. During the year, SR2020 issued promissory notes totalling US$2,100,000. Following a reorganisation of interests between SR2020, the Company and the related company 1479559 Alberta Limited, promissory notes outstanding to the Company at 31 December 2013 totalled US$8,993,368. They are due on demand. The Company directly owns 100 per cent of the common shares of SR2020 subject to a possible allocation of up to 30 per cent for an ESOP.
The SR2020 investment was valued at US$1 million, which is the Company's best estimate of SR2020's value in an accelerated sales process.
3) Strata
The Company investment in Strata was restructured on 3 August 2011:
-- The Company converted both its US$20 million convertible secured debentures in Strata and US$2.85 million of its US$4.85 million secured promissory note to the company into common stock of Strata. When fully diluted by Strata's employee share-option programme, the Company holds 43 per cent of the common shares of Strata.
-- The remaining part of the secure promissory note (US$2 million) was converted into a one-year promissory note carrying interest at four per cent per annum. The term has been extended beyond 31 December 2013. The Company expects the outstanding interest to be paid in whole or in part during 2014.
The Strata investment was valued using both a blend of comparable-company multiples approach and the discounted cash flow basis of valuation, using budgeted 2013 and 2014 figures. In previous years, the level of debt was not deducted from the enterprise value of the company because the value of its fixed assets exceeded their net book value and the difference was greater than the level of debt. For the year-end valuation at 31 December 2013, IOGT has valued its equity share by deducting net debt at 31 December 2013 from the computed enterprise value.
During the year ended 31 December 2013, the reconciliation of investments measured at fair value using unobservable inputs (Level III) is presented as follows:
31 December 31 December
2013 2012
Fair level disclosure by Level III Level III
fair value hierarchy level: US$ US$
Investments 31,127,950 62,955,458
Reconciliation of 31 December 31 December
Level III fair values: 2013 2012
Trading securities Trading securities
US$ US$
Opening balance 62,955,458 63,471,383
Total unrealised losses in
net income(1) (34,389,508) (4,284,182)
Additions(2) 2,562,000 3,768,257
31,127,950 62,955,458
==================== ====================
1: Total unrealised losses in net income are presented in the Statement of Operations under unrealised change in valuation of investments.
2: Additions include US$62,000 of capitalised legal fees.
A key valuation assumption is the EV/EBITDA multiple used. A change in the EV/EBITDA multiple of plus or minus 1.0 would result in an aggregate change in the unrealised gains in investments of approximately +/-US$0.6 million (2012: US$6 million), deriving from the change in the valuation of Strata.
13. LIABILITIES
2013 2012
US$ US$
Accounts payable and accrued
liabilities 981,130 391,283
Performance fee accrued (1) - 841,550
Accrued liquidation costs (2) 24,842 -
--------- ---------
1,005,972 1,232,833
========= =========
1: The performance fee is only payable as set out in note 3 to the financial statements. The provision for the performance fee as at 31 December 2012 has been written back at 31 December 2013.
2: The Company is required to make significant estimates and exercise judgment in determining accrued liquidation costs. The Company has estimated the professional fees and realisation costs to be directly incurred as a result of liquidation. The Company has not accrued operating cost that it expects will be incurred through the liquidation period.
14. SHAREHOLDERS' EQUITY
2013 2012
Nominal Nominal
value value
Authorised Number US$ Number US$
Common (founder) shares 2 2 2 2
Unclassified shares 50,000,000 50,000,000 50,000,000 50,000,000
---------- ---------- ---------- ----------
Issued
Common (founder) shares 2 2 2 2
Participating redeemable
preference shares 7,999,595 7,999,595 7,292,367 7,292,367
Treasury shares of
US$1.00 - - - -
---------- ---------- ---------- ----------
The unclassified shares may be allotted and issued as one or more classes of shares, including participating redeemable preference shares ("Preferred Shares" or "Shares"). To qualify as participating redeemable preference shares, the Preferred Shares are required under Guernsey Law to have a preference over another class of share capital. The Preferred Shares may be redeemed at the option of the Company, subject to the discretion of the directors.
The common or founder shares have been created so that the Preferred Shares may be issued. The common or founder shares are not redeemable and do not carry any right to vote or receive dividends and are only entitled to participate in the assets of the Company on a winding-up.
In the current year, the Company issued the following Shares:
Issued
Number of Preferred Unit cost Total proceeds
Date Shares US$ US$
================= ==================== ========== ===============
21 October 2013 707,228 3.00 2,121,684(1)
================= ==================== ========== ===============
(1) The cost of issue of these Shares was US$307,723.
In 2013, no Shares were repurchased by the Company (2012: 18,000 for a total cost of US$107,966). It was the Company's policy to hold repurchased Shares in treasury or to cancel them. All treasury shares were cancelled during 2012.
15. SHARE-BASED PAYMENTS
The Company has the ability to issue share options representing 20 per cent of the fully diluted capital of the Company under its share-option plan. The share options are exercisable in three equal tranches on the first three anniversaries of the grant date and have ten-year lives. At 31 December 2013, 1,552,927 share options (2012 - 1,552,927) were exercisable, with a weighted average exercise price of US$13.49 (2012 - US$12.49).
Weighted
Number of share average
Summary of share-option activity options exercise price
US$
----------------------------------- ----------------- -----------------
At 31 December 2011 1,552,927 11.66
Granted - -
Exercised - -
Cancelled - -
----------------------------------- ----------------- -----------------
At 31 December 2012 1,552,927 12.49
Granted - -
Exercised - -
Cancelled - -
----------------------------------- ----------------- -----------------
At 31 December 2013 1,552,927 13.49
----------------------------------- ----------------- -----------------
There is no expense in 2013 (2012: US$ nil) as no share options were issued during the year.
16. FINANCIAL RISK MANAGEMENT
In the normal course of business, the Company is exposed to a variety of financial risks: credit risk, liquidity risk and market risks, which include interest-rate risk, currency risk and other price risks.
The value of investments within the Company's portfolio can fluctuate on a daily basis as a result of changes in interest rates, economic conditions, the market and company news related to specific securities within the portfolio. The level of risk may depend on, inter alia, the Company's investment objective and the type of securities in which it invests.
The primary investment objective of the Company is to generate long-term capital growth by investing expansion capital in companies that provide services and technology to the upstream oil and gas industry. On a quarterly basis, the Company performs a formal review of its investments. This review includes, but is not limited to, an assessment of the global macro-economic environment, the outlook for credit and the amount of active risk being taken in the Company.
The Company's overall risk management programme seeks to minimise the potentially adverse effect of risk on the Company's financial performance in a manner consistent with the Company's investment objective.
Credit risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.
The Company is exposed to credit risk in respect of the investment portfolio, with a maximum exposure equal to the value of the loans advanced. Credit risk is mitigated by the Company's Investment Manager performing satisfactory due diligence on prospective investments. Under the terms of the convertible secured debenture, should the principal not be repaid by the maturity date or if there is a default in the debenture covenants, the debenture is secured by a charge over an investee company's assets or may be converted into ordinary shares of the borrower. However, the Company may not be able to recover some or all of the value of the debenture through realisation of the investee company's assets or shares.
Given the status of the Investee Companies and their respective financial positions, the recoverability of these investments is, in some cases, predicated on the performance of the companies. Provisions have been made where appropriate.
The Company's investments are focused solely on the oil and gas technology sector. The Company attempts to mitigate its exposure by investing in companies that sell their services internationally.
The Company is exposed to credit risk in respect of its cash and cash equivalents, arising from possible default of the relevant counterparty, with a maximum exposure equal to the carrying value of those assets. The credit risk on liquid funds is limited because the company only invests its cash and cash equivalents with its banker and custodian, the Royal Bank of Canada (Channel Islands) Limited, a counterparty with a high credit-rating which has been assigned by international credit-rating agencies. The Company regularly monitors the placement of its cash balances.
Liquidity risk
Liquidity risk is defined as the risk that the Company may not be able to settle or meet its obligations on time or at a reasonable price.
The Company's exposure to liquidity risk is concentrated in the investments of promissory notes and equity of private companies. The Company invests in securities that are not traded in active markets and cannot be readily disposed. To compensate for this, the Company retains sufficient cash and cash-equivalent positions to maintain liquidity in order to meet operating expenses. The Company seeks to maintain a sufficient level of cash or other liquid assets to minimise liquidity risk, which is further mitigated because the Preferred Shares of the Company are redeemable only at the Company's discretion.
During the year, the Company issued shares to raise further capital, as outlined in note 14. The net capital raised of around US$1.8 million enabled the Company rigorously to defend against the litigation and to avoid a fire sale of the assets in late 2013. In addition, the Company has been able to initiate an orderly realisation process.
Market risks
Interest-rate risk
Interest-rate risk arises from the possibility that changes in interest rates will affect future cash flows or fair values of financial instruments. Interest-rate risk arises when the Company invests in interest-bearing financial instruments. The Company is exposed to the risk that the value of such financial instruments will fluctuate due to changes in the prevailing levels of market interest rates. The Company seeks to mitigate this risk by monitoring the placement of cash balances in order to maximise the interest rates obtained.
Sensitivity to movements in interest rates is limited by the fact that the Company's investments bear interest at a fixed rate, althoughthe fair value of the debt is sensitive to changes in interest rates.
To gauge the duration of the debt instruments, their maturities on a cost basis are as follows:
DEBT INSTRUMENTS Cost
2013 2012
BY MATURITY DATE US$ US$
---------------------- ----------- -----------
Less than 1 year 29,481,660 34,386,096
1 - 3 years - -
3 - 5 years - -
Greater than 5 years - -
Total 29,481,660 34,386,096
---------------------- ----------- -----------
Other price risks
Other price risk include the risk that the market value or future cash flows of financial instruments will fluctuate because of changes in market prices other than those arising from interest-rate risk. They represent the potential loss that the Company might suffer through holding interests in unquoted private companies whose value may fluctuate and that may be difficult to value or realise.
All investments carry a risk of loss of capital. The Investment Manager moderates this risk through a careful selection of securities and other financial instruments within the limits of the Company's investment objective and strategy, as well as by establishing a clear exit strategy for all potential investments. The Investment Manager monitors the Company's overall market positions on a quarterly basis. Financial instruments held by the Company are susceptible to market-price risk arising from uncertainties about future prices of the instruments. If the value of the Company's investment portfolio were to decline by 10 per cent, it would represent a loss of US$2.8 million (2012 - US$6.3 million). This would cause the net asset value of the Company to fall by 9.4 per cent (2012 - 9.3 per cent).
Currency risk
Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates.
Currency risk arises from financial instruments (including cash and cash equivalents) that are denominated in a currency other than United States dollars, which is the functional currency of the Company. There are no significant assets or liabilities in currencies other than the United States dollar. As such, currency risk is not considered a material risk to the Company.
17. CAPITAL MANAGEMENT
The Company considers Shareholders' Equity to be its capital. The Company does not have any externally imposed capital requirements. The capital is used by the Company to invest in ordinary shares, secured convertible debentures, convertible loans and promissory notes in companies located worldwide. The Company does have specific restrictions on how it can deploy its shareholders' capital: it will not invest more than 35 per cent of its total assets in any one company (this restriction is calculated at the time of the relevant investments on a cost basis) and it will invest in assets diversified by a range of factors.
The investment objective of the Company is to seek long-term capital growth by investing capital in private companies that provide services and technology to the upstream oil and gas industry.
18. SUBSEQUENT EVENTS
Save as referred to in notes 1 and 3 above, there have been no events since the balance sheet date that are required to be noted in these financial statements.
MANAGEMENT AND ADMINISTRATION
REGISTERED OFFICE OF THE COMPANY INVESTMENT MANAGER
Regency Court Linton Capital LLP
Glategny Esplanade 10 Richmond Mews
St. Peter Port London
Guernsey W1D 3DD
GY1 1WW Tel: +44 20 3384 8090
ADMINISTRATOR AND COMPANY SECRETARY CORPORATE BROKER AND FINANCIAL ADVISER
International Administration Group Numis Securities Ltd
(Guernsey) Ltd The London Stock Exchange Building
Regency Court 10 Paternoster Square
Glategny Esplanade London EC4M 7LT
St Peter Port Tel: +44 20 7260 1000
Guernsey AUDITOR
GY1 1WW Deloitte LLP
Tel: +44 1481 743 434 Regency Court
LEGAL ADVISERS TO THE COMPANY Glategny Esplanade
as to English law St Peter Port
Norton Rose Fulbright LLP Guernsey
3 More London Riverside GY1 3HW
London REGISTRAR AND CREST SERVICE PROVIDER
SE1 2AQ Computershare Investor Services
as to Canadian law (Guernsey) Ltd
BCF s.e.n.c.r.l. / LLP 3(rd) floor, NatWest House
Complexe Jules-Dallaire Le Truchot
2828, boulevard Laurier, bureau St Peter Port
1200 Guernsey
Québec (Québec) G1V 0B9 GY1 1WD
Canada CUSTODIAN AND BANKER
Royal Bank of Canada (Channel Islands)
Ltd
PO Box 48
Canada Court
St Peter Port
Guernsey
GY1 3BQ
INFORMATION FOR SHAREHOLDERS
FINANCIAL CALENDAR
DATES TIMETABLE 31 December 2013 Company's year-end April 2014 Annual Report published 6 June 2014 Annual General Meeting 30 June Interim period-end August (*) Half-yearly results published 31 December 2014 Company's year-end April 2015 (*) Annual Report published (*) expected
DEFINITIONS AND GLOSSARIES
DEFINITIONS
-----------------------------------------------------------------------------------
AGM Annual General Meeting of the Company
====================== ===========================================================
AIC Association of Investment Companies
====================== ===========================================================
AIC GUIDE AIC Corporate Governance Guide for Investment
Companies
====================== ===========================================================
AUDITOR Deloitte LLP
====================== ===========================================================
BOARD The board of directors of the Company or,
as the context may require, the directors
of the Company from time to time
====================== ===========================================================
BUSINESS DAY A day on which banks and stock exchanges
in Guernsey and London are normally open
for business
====================== ===========================================================
CANADIAN GAAP GAAP in accordance with CICA Accounting Guideline
18 - Investment Companies
====================== ===========================================================
CICA Canadian Institute of Chartered Accountants
====================== ===========================================================
CODE The UK Corporate Governance Code
====================== ===========================================================
COMPANY or IOGT International Oil and Gas Technology Limited
====================== ===========================================================
CREST Crest Energy Services Limited
====================== ===========================================================
DIRECTORS The directors of the Company from time to
time
====================== ===========================================================
E&P Exploration and production
====================== ===========================================================
EGM Extraordinary General Meeting of the Company
====================== ===========================================================
FINANCIAL STATEMENTS The Directors' Report and accounts contained
in this document
====================== ===========================================================
FCA The UK Financial Conduct Authority
====================== ===========================================================
GAAP Generally accepted accounting principles
====================== ===========================================================
GFSC The Guernsey Financial Services Commission
====================== ===========================================================
GFSC REGULATIONS The Authorised Closed-Ended Investment Scheme
Rules 2008
====================== ===========================================================
GUERNSEY The Bailiwick of Guernsey
====================== ===========================================================
INVESTEE or PORTFOLIO A company in which the Company has made an
COMPANY investment. Current Investee/Portfolio Companies
are Strata, Crest and SR2020.
====================== ===========================================================
IMA The Investment Management Agreement between
the Company and the Investment Manager dated
30 August 2011
====================== ===========================================================
INVESTMENT MANAGER Linton Capital LLP, also referred to in this
Report as 'Linton'
====================== ===========================================================
LAW The Companies (Guernsey) Law, 2008, as amended,
and every other Order in Council, Act, Ordinance,
Statutory Instrument or regulation for the
time being in force concerning companies
registered in Guernsey and affecting the
Company (in each case as amended, substituted
or replaced)
====================== ===========================================================
LONDON STOCK EXCHANGE The London Stock Exchange plc
====================== ===========================================================
MANAGEMENT FEE The management fee payable by the Company
to the Investment Manager
====================== ===========================================================
NET ASSET VALUE The total assets of the Company less its
or NAV total liabilities (including accrued but
unpaid fees) valued in accordance with the
Company's accounting policies adopted by
the Company from time to time and expressed
in US dollars
====================== ===========================================================
NAV per share The NAV divided by the number of Preferred
Shares, excluding treasury shares, in issue
at the date of calculation
====================== ===========================================================
OFFICIAL LIST The official list maintained by the UK Listing
Authority
====================== ===========================================================
PORTFOLIO The portfolio of the Company's investments
from time to time
====================== ===========================================================
REGISTER The register of members in the Company
====================== ===========================================================
SHAREHOLDER A holder of Shares
====================== ===========================================================
SHARES or PREFERRED The participating redeemable preference shares
SHARES of US$1 each in the share capital of the
Company
====================== ===========================================================
SR2020 SR2020 Inc
====================== ===========================================================
GBP or STERLING The lawful currency of the United Kingdom
====================== ===========================================================
STRATA Strata Energy Services Inc
====================== ===========================================================
UK or UNITED KINGDOM United Kingdom of Great Britain and Northern
Ireland
====================== ===========================================================
US$ or US DOLLARS The lawful currency of the United States
====================== ===========================================================
US or UNITED STATES The United States of America, its territories
and possessions, any State of the United
States of America and the District of Columbia
---------------------- -----------------------------------------------------------
GLOSSARY OF ACCOUNTING TERMS
-----------------------------------------------------------------------------------
EBIT Earnings before interest and taxation
====================== ===========================================================
EBITDA Earnings before interest, taxation, depreciation
and amortisation, exploration and production
costs
====================== ===========================================================
STANDARDISED EBITDA A non-GAAP measure in accordance with the
definition noted in the CICA draft publication
"Improved Communication with Non-GAAP Financial
Measures" issued by the Canadian Performance
Reporting Board of CICA
====================== ===========================================================
ADJUSTED EBITDA Standardised EBITDA excluding foreign exchange
gains
====================== ===========================================================
EBITDA can vary significantly, depending
on exchange rate fluctuations, write downs
of deferred development costs, goodwill impairment,
financing costs, share-based compensation,
fees and expenses on settlement of debt and
losses on extinguishment of debt and after
deducting the annual amount invested in respect
of deferred development costs
---------------------- -----------------------------------------------------------
EV Enterprise value is a measure of a company's
value, often used as an alternative to straightforward
market capitalisation. EV is calculated as
the market capitalisation plus debt, minority
interest and Preferred Shares, less total
cash and cash equivalents
---------------------- -----------------------------------------------------------
GLOSSARY OF TECHNICAL TERMS
-----------------------------------------------------------------------------------
BBL Barrel of oil or condensate
====================== ===========================================================
CRYOGENIC NITROGEN Very high purity nitrogen produced in a cryogenic-nitrogen
plant
====================== ===========================================================
DOWNSTREAM The downstream oil sector refers to the refining
of crude oil, and the selling and distribution
of natural gas and products derived from
crude oil
====================== ===========================================================
FRACTURING / FRACKING Hydraulic fracturing, often called fracking
or hydrofracking, is the process of initiating
and subsequently propagating a fracture in
a rock layer, employing the pressure of a
fluid as the source of energy. The fracturing,
known as a frack (or frac) job, is carried
out from a wellbore drilled into reservoir
rock formations, in order to increase the
extraction rates and ultimate recovery of
oil and natural gas and coal seam gas
====================== ===========================================================
IP Intellectual property
====================== ===========================================================
Mcf Million cubic feet (of gas)
====================== ===========================================================
MPD Managed-pressure drilling
====================== ===========================================================
PAY ZONE The reservoir rock in which oil and gas are
found in exploitable quantities
====================== ===========================================================
SHALE GAS AND SHALE Natural gas produced from shale, which is
OIL fine-grained, clastic sedimentary rock composed
of mud that is a mix of flakes of clay minerals
and tiny fragments (silt-sized particles)
of other minerals, especially quartz and
calcite
====================== ===========================================================
UBD Under-balanced drilling
====================== ===========================================================
UPSTREAM The upstream oil sector refers to the searching
for and the recovery and production of crude
oil and natural gas. The upstream oil sector
is also known as the exploration and production
(E&P) sector
====================== ===========================================================
VIBROSEIS A seismic vibrator, commonly known by its
trademark name Vibroseis, propagates energy
signals into the Earth over an extended period,
as opposed to the near-instantaneous energy
provided by impulsive sources.
====================== ===========================================================
- END -
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR IMMLTMBMJMII
1 Year Intl Oil &Gas Chart |
1 Month Intl Oil &Gas Chart |
Support: +44 (0) 203 8794 460 | support@advfn.com
By accessing the services available at ADVFN you are agreeing to be bound by ADVFN's Terms & Conditions
