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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Magnolia Pet | LSE:MAGP | London | Ordinary Share | GB00B63QSF76 | ORD SHS 0.1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.30 | 0.20 | 0.40 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
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TIDMMAGP
Magnolia Petroleum Plc / Index: AIM / Epic: MAGP / Sector: Oil & Gas
19 June 2017
Magnolia Petroleum Plc ('Magnolia' or 'the Company')
Final Results and Notice of AGM
Magnolia Petroleum Plc, the AIM quoted US focused oil and gas exploration and
production company, announces its final results for the year ended 31 December
2016.
Overview
* Interests in 153 producing wells in proven US onshore formations (2015:
213) following:
+ Commencement of production of 15 new wells
+ Divestment of producing wells with little or no economic value
* Elected to participate in eight new wells compared to 38 in 2015 as low oil
prices reduced drilling activity across the US onshore sector
* Strong pick-up in activity seen post period end with Magnolia electing to
participate in 28 new wells due to recovery in sentiment and Company's
focus on prolific low cost plays such as the SCOOP and the STACK in
Oklahoma
* Long pipeline of new proposals including six low risk, high impact wells to
the Bakken and Three Forks Sanish formations in North Dakota - on the same
spacing unit as the Company's best performing well, the Lazy DE 24-7H
* Updated reserves report issued post period end included significant
increase in Proven Developed Producing ('PDP') reserves due to new wells
commencing production:
+ 112% increase in total net PDP oil and condensate reserves to 282.686
Mbbl as at 1 January 2017 (1 July 2016: 133.31 Mbbl)
+ 303% increase in total net PDP gas reserves to 2,343.116 MMCF (1 July
2016: 580.67 MMcf)
+ 25% increase in the value ('NPV9') of total net PDP reserves as at
April 2017 to US$4,300,000 (1 July 2016: US$3,445,180)
* Board and management team strengthened following appointment of highly
experienced petroleum engineer Leonard Wallace as a Non-executive
director and post period end of geologist Lanny Woods as a technical
consultant
Financial Review
* 2016 revenues of US$1,273,612 (2015: US$1,991,021) - reflects a more than
11% year on year reduction in WTI and drop in drilling activity
* EBITDA of (US$332,600) (2015: (US$8,125,883)
+ Adjusted EBITDA after removal of foreign exchange movements and
impairments (US$242,310) (2015: (US$292,180))
* Tangible assets (comprising producing properties) of US$4,518,177 (2015:
US$7,294,470) - provides strong asset backing compared to current market
capitalisation
* 33% reduction in full year operating costs builds on last year's 31% drop
in the cost base
* GBP775,000 raised via the issue of new ordinary shares to fund new drilling
activity
Magnolia CEO, Rita Whittington said, "Magnolia has emerged from the two year
downturn in oil and gas markets with a lower cost base; a strengthened balance
sheet, following the partial repayment of our reserves based lending facility;
and strong asset backing in the form of our proven developed reserves.
Furthermore, we have taken advantage of depressed markets to increase our
leasehold position in low cost plays, such as the SCOOP and the STACK in
Oklahoma where excellent production and recovery rates are being consistently
reported for new wells, including those in which Magnolia has an interest.
"Our objective has been to ensure Magnolia is able to replicate at today's sub
US$50 oil prices, the double-digit growth rates in net production and reserves
we achieved year on year when oil was trading at US$90 plus per barrel. Now
that we have achieved this, we are rolling out our tried and tested strategy of
acquiring leases in producing US onshore formations and proving up the reserves
by drilling alongside established operators, such as Continental Resources.
Already since the turn of the year we have announced our participation in 28
new wells and with many more proposals in the pipeline, we are excited for the
year ahead and beyond."
Chief Executive's Statement
Magnolia Petroleum is an oil and gas producer and explorer with a portfolio of
interests in over 150 producing wells in proven US onshore formations,
including the Bakken in North Dakota and the Woodford and Mississippi Lime in
Oklahoma. Magnolia's financial and operational performance during the year
under review was therefore always going to reflect a second successive year of
falling oil prices. Thanks to the swift action we have taken, however, we have
not only minimised the impact of low oil prices on the bottom line but, as
demonstrated post year end by the 28 new wells we have announced in the
prolific SCOOP and STACK plays in Oklahoma, we are well placed to capitalise on
the recovery in sentiment and activity we are seeing.
West Texas Intermediate ("WTI") averaged US$43.33 per barrel during 2016, more
than 11% lower than 2015's average price of US$48.67 per barrel which in turn
was approximately 50% below the US$95 per barrel level that had prevailed in
previous years. Lower oil prices not only reduce the payments we receive for
our oil and gas, but also curtail production growth as operators look to
shut-in unprofitable wells while at the same time focus new drilling on those
areas with low breakeven costs. In terms of our financials and our operations,
full year revenues came in at US$1,273,612 (2015: US$1,991,021), while reduced
drilling activity across the sector led to only 15 new wells in which Magnolia
has an interest in commencing production during the year. This compares to the
37 new wells that came on stream during 2015 and 48 new wells in 2014.
Full year numbers are by their nature backward looking. Thanks to the rally in
the oil price that was triggered in Q4 2016 by the agreement between members
and non-members of OPEC to cut production, and Magnolia's emergence from the
extremely sharp downturn as a low cost, asset backed US onshore oil and gas
business. Subject to prices, market conditions and sentiment, I remain
confident for the future that we can deliver on our objective to replicate the
management team's previous successes in generating value for shareholders, by
acquiring leases in active and producing US onshore plays and proving up the
reserves by participating in drilling new wells.
This platform is one that has, at its core, the active management of all types
of risk associated with the oil and gas industry. Broadly speaking exploration
risk is managed by focusing on proven formations; execution risk is managed by
participating in drilling alongside established operators such as Continental
Resources and Chesapeake Energy; individual well risk is managed by building a
diversified portfolio of leases and wells and limiting the amount of interest
Magnolia holds in any one well; meanwhile oil price risk is managed by focusing
on areas that require relatively low oil prices to breakeven and ensuring our
cost base, capital commitments and financing costs remain low, manageable and
flexible.
Since Magnolia was admitted to trading on AIM in 2011, we have significantly
increased the size of our portfolio of producing wells to 150 plus today, which
serves to demonstrate the success we have had in managing exploration,
execution and individual well risk. While little could be done to stem the
decline in revenues, we were able to move quickly to minimise the impact this
had on our bottom line. A 33% year on year drop in operating expenses, which
built on last year's 31% reduction, a significant repayment of our reserves
based lending facility, and prioritising new drilling and leasing activity on
plays that are commercial at sub US$50 oil prices have combined to generate a
year on year improvement at the EBITDA level.
Our actions during the year have not all been defensive. Low oil prices also
present opportunities, specifically to acquire leases in our core areas of
focus, most notably the prolific SCOOP and STACK in Oklahoma. These two highly
active plays are well suited to thrive in today's oil price environment: wells
are economic at oil prices around US$40 bbl; record production rates have been
reported as the horizontal laterals are extended and the amount of pay in each
well has increased; drilling and completion costs have been significantly
reduced; and initial decline rates during the first 12-18 months of production
are lower than those in other US plays. Over the last two years we have been
taking advantage of depressed market conditions to increase our exposure to
these two areas. The flurry of new wells that we have announced post period
end is testament to the success we have had in this regard.
A number of these new SCOOP and STACK wells commenced production in time for
them to have a material impact on the level of our net proven developed
reserves. Post period end we announced the results of an updated reserves
report which included a 112% increase in total net PDP oil and condensate
reserves to 282.686 Mbbl as at 1 January 2017 (1 July 2016: 133.31 Mbbl of oil
and condensate); a 303% increase in total net PDP gas reserves to 2,343.116
MMCF (1 July 2016: 580.67 MMcf gas); and a 25% increase in the value (NPV9) of
total net PDP reserves as at April 2017 to US$4,300,000 (1 July 2016:
US$3,445,180). Our PDP reserves alone provide Magnolia with strong asset
backing compared to the Company's current market valuation. Importantly, our
PDPs understate the true asset backing behind Magnolia as they do not include
proved shut-in, proved undeveloped, probable and possible reserve classes as
well as Magnolia's interests in undeveloped acreage.
Since this report was published, we have announced our participation in a
series of new SCOOP and STACK wells, several of which are increased density
wells being drilled on the same spacing unit as existing producers. In
addition, we continue to receive proposals to drill new wells across our
acreage. Most notably, post period end Marathon Oil has proposed six new wells
on some of Magnolia's most productive leases in North Dakota. With interests of
up to 2%, we view these as low risk, high impact opportunities as they are
being drilled on the same spacing unit as existing wells which have been
prolific producers, returning to date almost 2.5 times their original
investment. We are not alone in recognising the value of these leases as third
parties have expressed their interest in acquiring all or part of our stake.
We are currently evaluating our options for these wells but they serve to
highlight the quality of Magnolia's leases in the eyes of the industry.
During the year and post period end, a number of changes have been made to the
composition of the Board and management team. In May 2016, we added oil and
gas engineering experience to the Board following the appointment of Leonard
Wallace as a Non-Executive Director of the Company. Leonard is an experienced
management professional specialising in drilling engineering, well
construction, production management and rig operation with numerous years'
experience within the oil and gas exploration and production industry. Post
period end, further changes to the Board were made as I took up the position of
CEO of the Company, while Derec Norman was appointed as Chief Financial
Officer.
In addition, in April 2017 we were pleased to announce the appointment of Lanny
Woods as a technical consultant. Lanny has numerous years of experience as an
exploration and production geologist, particularly exploring and developing
onshore US fields in Oklahoma, Texas and Wyoming. Previously Lanny and I
worked together as part of the management team at Primary Natural Resources I
and II, two oil and gas property acquisition and development companies, which
achieved a 3:1 return on equity upon divestment. Following the appointment of
Leonard and Lanny, we believe Magnolia's Board and management team has never
been stronger in terms of having the right mix of industry expertise covering
all key areas of the business, including lease acquisition, geology,
engineering, and finance.
Outlook
Over the course of 2016, Magnolia elected to participate in just eight wells.
By contrast, so far in 2017 we have announced our participation in 28 wells.
Even though this figure represents a major increase on the previous full year
number, it understates the huge turnaround in sentiment we have witnessed, as
it does not include those wells we declined to participate in, let alone the
growing number of drilling proposals we continue to receive.
In line with our strategy, all 28 wells announced in 2017 are in highly active
plays where the economics of drilling and producing remain attractive at sub
US$50 oil prices. In our view, this highlights the success we have had in
taking advantage of the downturn to accelerate the repositioning of our
leasehold position in favour of the SCOOP and the STACK. With a strategic
foothold in these prolific, low cost plays established and a proven team in
place, we will look to add to our position in this US onshore sweet spot as and
when it makes commercial sense to do so. We have worked hard to ensure
Magnolia's strategy of acquiring and developing leases is relevant in today's
world of sub US$50 oil prices, and under my stewardship we will continue to do
so. I look forward to providing updates on our progress in the year ahead.
Finally, I would like to thank the Board, management team and all our advisers
for their hard work over the last twelve months and also to our shareholders
for their continued support.
Rita Whittington
Chief Executive Officer
16 June 2017
Operations Report
Sycamore Resources ('Sycamore') has completed an evaluation of Magnolia's
reserves and associated value. As at 1 January 2017, the Company's ownership in
wells within North Dakota and Oklahoma had a total net Proven Developed
Reserves ('PDP') of 282,686 barrels of oil and condensate and 2.3 Billion cubic
feet of gas. Sycamore has given these reserves a non-discounted value of
US$15,652,000 and an NPV9 of US$4,300,000 as at April 2017.
Oklahoma Production
Sycamore's evaluation of Magnolia's total PDP reserves in Oklahoma shows
174,971 barrels of oil and condensate and 2.2 BCF of gas, with an assigned
non-discounted value of US$9,063,000.
Magnolia holds interest in wells within two very active oil and gas plays
within the state of Oklahoma: The "SCOOP PLAY" South Central Oklahoma Oil
Province and the horizontal Woodford Shale development in the western portion
of the Arkoma Basin - Pittsburg, Hughes and Coal Counties. Though not a big oil
producing area, the Arkoma play produces large quantities of gas. Magnolia has
observed an increase in the value of its interests in wells due in part to
better product pricing and lower projected well decline rates. Initial
production for many of the wells was achieved by flowing up the tubing to the
surface. Over time, pressures decrease (along with production rates) until the
well cannot sustain production. At this point, the wells are then put on
artificial lift (pumping units or submersible pumps). A number of wells in
which Magnolia has an interest are just now going on artificial lift which will
help sustain production rates. Drilling and completion costs have also seen a
decline in the past 12 months which has helped to foster a resurgence in
drilling activity.
SCOOP
The primary zone of interest in this play is the Woodford Shale. The play
covers an extensive area of over 3,300 square miles and includes portions of
Stephens, Grady, Garvin, and Carter Counties, Oklahoma. The oil rich Woodford
Shale is up to 400 feet thick and is located at drill depths from 8,000 to
16,000 feet. This is a liquids rich play, yielding high volumes of oil and
condensate. Initial production rates can range between over 1,000 BOPD and
7,000 MCFD with ultimate reserves exceeding 500 MBO and 7 BCFG per well.
Magnolia holds interests in a number of wells within this play area, including:
* Continental Resources operated Chalfant 1-7H, Woodford Shale Completion,
well has recovered 5.37 BCFG and 85 MBO and is still producing over 2.8
Million cubic feet of gas and 30 barrels of oil per day.
* Continental Resources operated Condit 1-5H, Woodford Shale Completion, well
has recovered 4.11 BCFG and 105 MBO and is still producing over 2.2 Million
cubic feet of gas and 25 barrels of oil per day.
* Continental Resources operated Forrest 2-8H, Woodford Shale Completion,
well has recovered 3.20 BCFG and 54 MBO and is still producing over 1.89
Million cubic feet of gas and 22 barrels of oil per day.
Arkoma Basin Woodford Shale
Like the SCOOP Play, the primary zone of interest is the Woodford Shale. The
shale in this area is 120 to over 220 feet thick and found at drill depths
between 7,500 and 11,000 feet (Shallower than the SCOOP area). The wells were
originally drilled with a horizontal lateral section from 2,500 to 5,000 feet.
Currently these lateral sections may comprise lengths greater than 10,000 feet.
Initial production rates with the shorter laterals exceeded 4,000 MCFGPD with
ultimate recoveries over 5 BCFG. Listed below are examples of wells Magnolia
holds an interest in this play:
* Trinity operated Regina 1-2524H, Woodford Shale Completion, has recovered
1.3 BCF and is currently producing 1.72 Million cubic feet of gas per day
* Trinity operated Clara 1-1324H, Woodford Shale Completion, has recovered
0.8 BCF and is currently producing 0.928 Million cubic feet of gas per day
STACK
The Stack (Sooner Trend Anadarko (basin) Canadian, Kingfisher counties) is
another highly active play that Magnolia is looking for opportunities to invest
in. The play has now extended into other adjacent counties, such as Dewey and
Custer counties.
The primary zones of this play are the Woodford Shale, Hunton Lime and
Mississippi - Mermac formations. All three zones are drilled horizontally -
initial wells had lateral sections of 5,000 feet, now they are extending to
nearly 10,000 feet.
Wells within the Mississippi portion have initial production rates exceeding
2,100 BOPD and 3,500 MCFGPD, while projected ultimate recoveries are estimated
at 400 MBO and 3 BCF per well.
The wells in the Woodford portion of the play have initial production rates
exceeding 500 BOPD and 1,500 MCFGPD with ultimate recoveries of 275 MBO and 1
BCFG per well.
Unlike the Northern Oklahoma Mississippi Play - the Mississippi-Mermac produces
significantly less formation water which translates into much lower operating
costs and reduced capital costs for disposal wells. This play is one of the
most active in Oklahoma.
Mississippi Lime Formation, Oklahoma
The Mississippi Lime is an historic oil and gas system that has been producing
at depths ranging from 4,500 to 7,000 feet from several thousand vertical wells
for over 50 years. During 2016, the following six wells in which Magnolia
holds interests in commenced production from the Mississippi Lime:
* Gray 7-27-12 1H (1.86%): 439.83boepd
* Gray 7-27-12 2H (1.86%): 903 boepd
* Wilber (1.22%): 960.83 boepd
* Maxine (0.40%): 1030 boepd
* Billy Rae 1 (0.54%): 365.5 boepd
* Double R 9 (0.44%): 216.33 boepd
In total Magnolia now holds interests in 35 wells which are producing from the
Mississippi Lime.
Woodford Formation, Oklahoma
The Woodford lies below and is the source rock to the Mississippi Lime
formation in Oklahoma. As a result, much of Magnolia's leases in Oklahoma are
prospective for both the Woodford and the Mississippi Lime. Like the Bakken,
the Woodford formation in Oklahoma is an established reservoir that has been
reopened following the introduction of horizontal drilling and stimulation
technology.
During 2016, the following seven wells in which Magnolia holds interests in
commenced production from the Woodford:
* Billy Rae 2 (0.54%): 73.33 boepd
* Moore (0.22%): 902.83 boepd
* Baxendale 3H-1X (0.03%): 1217.83 boepd
* Baxendale 2H-1X (0.03%): 1327.83 boepd
* Baxendale 4H-1X (0.03%): 1448.50 boepd
* Baxendale 5H-1X (0.03%): 2493.66 boepd
* Baxendale 6H-1X (0.03%): 2099.66 boepd
In total Magnolia now holds interests in 56 wells which are producing from the
Woodford.
Other Formations in Oklahoma
Magnolia holds interests in wells which are producing from other formations in
Oklahoma, including the Hunton, Cleveland, Wilcox, Wayside, Simpson Dolomite,
Springer and Viola reservoirs. During 2016, the following well in which
Magnolia holds an interest in commenced production from the Springer formation:
* Michele Abel H12XH (0.13%): 2,256 boepd
The Bakken / Three Forks Sanish Formations, North Dakota
Magnolia holds interests in 42 wells which are producing from the Bakken and
Three Forks Sanish ('TFS') formations in North Dakota. The Bakken is a
reservoir which is estimated to hold 3.65 billion barrels of undiscovered,
technically recoverable oil (2013 US Geological Survey). The TFS is a separate
reservoir lying directly below the Bakken, with an estimated 3.73 billion
barrels of recoverable oil (2013 US Geological Survey).
Production and overall economics have suffered through a very low price period
but we have seen good improvements in pricing in the last 6 months. Also with
the anticipated completion of the Keystone XL pipeline in the summer of 2017,
producers should realize a significant reduction in transportation costs, up to
US$3.00 per barrel lower. The low price period has had a positive effect on the
drillers - the average time to drill a well was 20 days but can be as low as 12
days. Better pricing, lower transportation costs and lower drilling costs
should result in much greater activity and better economics than has been
observed over the past couple of years.
Sycamore Resources (Sycamore) estimated Magnolia's Bakken and Three Forks
Proven Developed Reserves ('PDP') at 157,913 barrels of oil and condensate and
135.49 MMcf of natural gas to which Sycamore assigned an undiscounted value of
US$6,589,000.
Wells in this play that Magnolia holds an interest include:
* Marathon Oil operated Lazy DE -24-7H (Bakken completion) - well has
recovered over 290,000 barrels of oil and 193 million cubic feet of gas and
is still producing over 135 BOPD and 120 MCFD
* Marathon Oil operated Curtis Kerr 24-8H (Bakken completion)- well has
recovered over 200,000 BO and 129 million cubic feet of gas and is still
producing over 90 BOPD and 75 MCFD
* Marathon Oil operated Nicky Kerr 14-8H (Bakken completion) - well has
recovered over 239,000 BO and 140 million cubic feet of gas and is still
producing over 95 BOPD and 65 MCFD
Summary
During the period, 15 new wells in which Magnolia has an interest commenced
production, while the Company elected to participate in another eight. This
represents a sharp contraction in activity compared to previous years and
highlights the severity of the downturn experienced by the wider US onshore
industry.
Post period end, the combination of a recovery in the oil price, Magnolia's
exposure to low cost plays in Oklahoma such as the SCOOP and the STACK, and a
sharp drop in drilling costs across the sector has led to a significant rebound
in the number of wells in which the Company is participating. Already these
are having a positive impact on the level of Magnolia's PDP reserves, as
demonstrated by the updated operations report.
Lanny Woods
Technical Adviser to the Company
16 June 2017
Financial Review
During the 12 months to 31 December 2016, net production generated revenues of
US$1,273,612, compared to US$1,991,021 the previous year. The continued drop
in the price of oil is largely responsible for the drop in revenues, both
directly by lowering sales prices achieved and indirectly through operators
shutting in wells to curtail production.
To minimise the impact of the weaker revenue performance on Magnolia's bottom
line, further reductions in the Company's direct operating expenses were made
during the year. These totalled US$1,901,652 in 2016 (2015: US$2,784,769).
US$1,070,124 (2015: US$1,547,313) of this total is a non-cash item covering
depreciation costs. A further US$553,510 (2015: US$990,854) was due to lease
operating expenses, while production tax and marketing fees came in at
US$278,018 (2015: US$246,602).
Property, plant and equipment (comprising producing properties) as at end
December 2016 stood at US$4,518,177 (2015: US$7,294,470) while intangible
assets (comprising new leases and wells that are drilling but not yet
completed) stood at US$1,684,559 (2015: US$1,830,773). Non-cash impairments
have been provided for in the results for the year ended 31 December 2016
totalling US$2,207,293 (2015: US$8,511,709). In addition, over the course of
the year the Company divested 67 non-commercial wells with little or no
economic value.
During the year, GBP775,000 was raised via the issue of new ordinary shares to
fund the drilling of new wells operated by a number of leading operators
including Chesapeake Energy, Continental Resources and BP America. A total of
694,642,856 new ordinary shares in the Company were issued over the period.
A request for a longer-term extension to our reserved based lending facility
('the Facility') is currently being processed by the Company's bank. The Bank
continues to view the Facility as part of a long-term relationship with
Magnolia. In line with this, the Bank has agreed to extend the Facility from 8
June 2017 to 8 August 2017 while it processes the appropriate paperwork, loan
documents as well as the relevant financial and reserve report information that
has been provided by Magnolia's management. As a reminder, the current ratio
covenant was already waived until further written notice by the Bank.
As of 2 June 2017, a general meeting has been requisitioned by Steven Snead,
Snead Family LLC, Snead Family 2012 LLC and R. Sterling Snead (the "Activist
Shareholder"). Among the proposals as set forth by the Activist Shareholder is
a demand for the removal of Rita Whittington as a director. It is further
believed, by the Board, that the intent is also to remove Ms Whittington as CEO
immediately after the new proposed directors are appointed. This will trigger
the Group needing to immediately compensate Ms Whittington according to her
employment agreement.
In addition, shareholder approval of such proposal could trigger a Change of
Control and an Event of Default under our Loan Agreement with Bank SNB. The
remedies available to Bank SNB under our Loan Agreement, are to "terminate its
commitment to lend hereunder" and "declare all principal and interest on the
Note...due and payable". At this time, we have no assurance that if the
shareholders approve the proposals, the Bank will not enforce any of its
remedies under the Loan Agreement.
Derec Norman
Chief Financial Officer
16 June 2017
STRATEGIC REPORT
The Directors of the Company and its subsidiary undertaking (which together
comprise "the Group") present their Strategic Report on the Group for the year
ended 31 December 2016.
Principal Activities
The principal activity of the Group is onshore oil and gas exploration and
production in the United States of America. Magnolia Petroleum Plc acts as a
holding company and provides direction and other services to its subsidiary.
The Company's subsidiary is Magnolia Petroleum Inc. ("Magnolia"), an
independent oil and gas exploration and production company based near Tulsa,
Oklahoma, USA. Magnolia's core area of business is in the Bakken/Three Forks
Sanish area in North Dakota and Montana, the emerging Mississippi Formation in
Oklahoma and the Woodford/Hunton oil and gas formations in Oklahoma, United
States.
The review of business and future developments are included in the Chief
Executive Officer's Statement and the Operation Report.
Organisation Review
The Board is responsible for providing strategic direction for the Group. This
incorporates setting out objectives, management policies and performance
criteria. The Board assesses its performance against these on a monthly basis.
Composition of the Board at 31 December 2016 was two Executive Directors and
three Non-Executive Directors; however, Thomas Wagenhofer, Non-Executive
Chairman resigned effective 23 February 2017 at which point Ron Harwood was
appointed interim Non-Executive Chairman and Steven Snead, CEO and Executive
Director resigned effective 1 April 2017. The Board believes that the present
composition provides an appropriate mix to conduct the Group's affairs.
Strategic Approach
The Board's strategic intent is to maximise shareholder value through the
continuing investment into new wells and leases in proven US onshore formations
and participating alongside established operators in multiple wells, while
further reducing costs, where applicable.
Magnolia provides shareholders with exposure to the high growth associated with
the junior oil and gas sector, while minimising exploration risk. This is
achieved with a low overhead base.
Key Performance Indicators
The Board monitors the overall performance of the Group by reference to Key
Performance Indicators ("KPIs"). KPIs for the year, together with comparative
data, are presented below:
2016 2015
Revenue $1,273,612 $1,991,021
Gross profit margin (excluding depreciation) 34.71% 37.85%
Participation in well drilling programmes are monitored on an individual
project basis in terms of revenue and cost per barrel of oil or mcf (one
thousand cubic feet) of gas, together with the anticipated payback period on
each project.
STRATEGIC REPORT
Risks and Uncertainties
The Group's activities expose it to a variety of risks and uncertainties.
Market risk
The Group operates in an international market for hydrocarbons and is exposed
to risk arising from variations in the demand for and price of the
hydrocarbons. Oil and gas prices historically have fluctuated widely and are
affected by numerous factors over which the Group does not have any control,
including world production levels, international economic trends, currency
exchange fluctuations, inflation, speculative activity, consumption patterns
and global or regional political events.
Non-operator risk
On non-operated interests, the Group, in most instances, will depend on
operators to initiate and supervise the drilling and operation of such wells.
As such the Group cannot always accurately predict the timing of the cash flows
associated with the drilling of these wells. If the Group is unable or
unwilling to comply with its payment obligations, it would seek to negotiate a
farm-out with some sort of back-in upon pay-out or sell down a portion of its
leasehold interests and participate with a smaller interest. This could reduce
the Group's future revenues and earnings.
Oil and gas exploration and production risks
The Group is primarily a non-operator working interest owner and is reliant on
the operator for managing all aspects of its exploration and production
activities in its non-operated interests. There are significant risks and
hazards inherent in the exploration and production of oil and gas, including
environmental hazards, industrial incidents, labour disputes, fire, drought,
flooding and other acts of God. The occurrence of any of these hazards can
delay or interrupt production and increase production costs. There is no
guarantee that oil and/or gas will be discovered in any of the Group's existing
or future licences/permitted acreage or that commercial quantities of oil and/
or gas can be recovered.
The Group currently holds less than a 100 per cent working interest in the
majority of its completed wells and in wells which are being drilled. It is
also likely to hold less than 100 per cent in wells which may be drilled in the
future. The Group could be held liable for the joint activity obligations of
the other working interest owners, such as non-payment of costs and liabilities
arising from the actions of those other working interest owners. In the event
that other working interest owners do not pay their share of such costs, the
Group would be likely to have to pay those costs but would pick up an
additional proportionate interest in the well.
Environmental risk
The Group's operations are subject to environmental regulation in all the
jurisdictions in which it operates. The Group is unable to predict the effect
of additional environmental laws and regulations which may be adopted in the
future, including whether any such laws or regulations would adversely affect
the Group's operations. There can be no assurance that such new environmental
legislation once implemented will not oblige the Group to incur significant
expenses and undertake significant investments.
Risks and Uncertainties (continued)
Licences and title
The leases in which the Group has or is seeking to have an interest will be
subject to termination after the primary term of such leases unless there is
current production of oil and/or gas in commercial quantities. If a lease is
not extended after the primary term, the Group may lose the opportunity to
develop and discover any hydrocarbon resources on that lease area. In taking an
assignment of an oil and/or gas lease, the Group would, in accordance with
industry practice, rely on the warranty provisions.
This report was approved by the Board on 16 June 2017 and signed on its
behalf:
Ronald Harwood
Non-Executive Director, Interim Chairman
REPORT OF THE DIRECTORS
The Directors present their Annual Report and the audited Financial Statements
for the year ended 31 December 2016.
Directors and Directors' interests
The Directors who held office during the year to the date of approval of these
Financial Statements, together with their beneficial interests in the ordinary
shares of the Company, are shown below.
31 December 2016 1 January 2016
(or later date of
appointment)
Ordinary Options Ordinary Options and
Shares and Shares warrants
warrants
Ronald Sanford Harwood (1) 34,623,175 13,354,915 33,123,175 3,354,915
Rita Fern Whittington 13,725,669 28,905,661 12,225,669 16,905,661
Leonard Wallace - - - -
Thomas Wagenhofer (2) 4,142,855 - 3,285,713 -
Steven Otis Snead (3) 204,226,748 36,417,161 202,726,748 24,417,161
(1) Ronald Sanford Harwood's shares are held by the Ronald S. Harwood
Trust.
(2) Thomas Wagenhofer - resigned with effect 23 February 2017.
(3) Includes 93,209,040 ordinary shares owned by the Snead Family LLC,
50,000,000 held by Snead Family 2012 LLC and 11,400,000 ordinary shares owned
by R. Sterling Snead. Steven Snead resigned with effective 1 April 2017.
Ronald Sanford Harwood, Non-Executive Chairman
Mr Harwood graduated from Wharton School of Finance and Commerce, University of
Pennsylvania, with a Bachelor of Science degree in Economics. During the
course of his extensive business career, he has had active involvement in
originating and developing projects in a wide range of sectors, including oil
and gas exploration and production, but also in financial and business
development services, telecommunications, computer software, power generation
and specialty chemicals.
Mr Harwood has had active involvement in originating and developing projects in
oil and gas exploration and production. He founded Bellwood Petroleum
Corporation in 1985, and successor Bellwood Petroleum LLC in 2007 and Colony
Petroleum, LLC in 1990. Colony, an oil and gas investment fund, secured US and
international investors to participate in oil and gas exploration and
production ventures originated and operated by American and Canadian
independent oil and gas companies. Mr. Harwood was also one of the original
founders, investor and director of Magnolia Petroleum since 2008.
Rita Fern Whittington, Chief Executive Officer
Mrs Whittington is a petroleum landman with more than 30 years' experience in
acquisition, operations and management of oil and gas properties.
She began her career in 1977 working for an Oklahoma based oil exploration
company where she became a prospect manager. In 1985, she joined Kaiser-Francis
Oil Company in Oklahoma as a land supervisor. Between 1987 and 1989, she acted
as a title analyst for Terra Resources Inc. specialising in Gulf Coast, Texas
and Louisiana properties. In 1989, she joined Enerlex Inc. as vice president
where she spent nine years negotiating and purchasing thousands of mineral
acres. From 1998 to 2001, she was land administrator for Brighton Energy LLC,
focusing on building the company's portfolio through acquisitions and
disposals. In 2001, she joined Primary Natural Resources, Inc as a primary
member of the asset management team, developing and expanding the company until
it sold its assets in 2003. It commenced business again in 2004 and sold its
assets in 2008. Mrs Whittington was also one of the original founders,
investor and director of Magnolia since 2008.
Leonard Wallace, Non-Executive Director
Mr. Wallace is a highly experienced oil and gas engineer, specialising in
drilling engineering, well construction and rig operations, and production
operations within the exploration and production industry. Mr. Wallace is also
currently the owner of Tartan Petroleum Ltd.
Mr. Wallace was a hand on drilling and production engineer and project
manager. His early career was with Exxon in the US with focus of drilling and
production engineering. International assignments included technical manager
for Exxon's first offshore production in the North Sea. BHP / Hamilton Bothers
followed his time with Exxon where he managed their offshore North Sea
production. In addition, Mr. Wallace was Vice President for international
operations for Kerr McGee. After early retirement, he spent 15 years as a
consultant for Chevron on projects in Brazil, Singapore building deep water
drilling vessels. His last assignment with Chevron was part of a new country
drilling team in Kurdistan. He currently serves as an advisor with Alpha
Petroleum in Houston, assigned to Pemex's shallow offshore drilling and
production in Mexico.
Directors' Remuneration
The Remuneration Committee of the Board of Directors is responsible for
determining and reviewing compensation arrangements for all Directors and
Senior Executives. The Remuneration Committee assesses the appropriateness of
the nature and amount of emoluments of such officers on a periodic basis by
reference to relevant employment market conditions with the overall objective
of ensuring maximum stakeholder benefit from the retention of a high quality
Board and senior executive team.
The following remuneration table comprises Directors' fees and benefits in kind
that were payable to Directors who held office during the year ended 31
December 2016:
Short term Long term Other for Total for Total for
employee employee the year the year the year
benefits benefits ended 31 ended 31 ended 31
for the for the December December December
year ended year ended 2016 2016 2015
31 31 December US$ US$ US$
December 2016
2016 US$
US$
Thomas Wagenhofer (resigned 23 16,198 - - 16,198 10,695
Feb 2017)
Steven Otis Snead (resigned 1 17,545 - - 17,545 33,732
Apr 2017)
Leonard Wallace 3,165 - - 3,165 -
Rita Fern Whittington 197,545 600 30,270 228,415 245,438
Ronald Sanford Harwood 17,545 - - 17,545 33,732
Directors' and Officers' Indemnity Insurance
The Company has made qualifying third-party indemnity provisions for the
benefit of its Directors and Officers. These were made during the previous
period and remain in force at the date of this report.
Dividends
The Directors do not recommend the payment of a dividend (2015: GBPNil).
Going Concern
The Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence though 30 June 2018, as
projected. However, this expectation is subject to material adverse unforeseen
events that may occur, including but not limited to oil and gas prices,
non-operations control of wells and continuation of forebearance by the Bank.
Further details on their assumptions and their conclusion thereon are included
in the statement of going concern included in Note 2.3 to the Financial
Statements. The auditors have drawn attention to going concern in our audit
report by way of an emphasis of matter.
Events after the Reporting Period
The events after the reporting period are set out in Note 26 to the Financial
Statements.
Provision of Information to Auditor
So far as each of the Directors is aware at the time this report is approved:
· there is no relevant audit information of which the Company's auditor
is unaware; and
· the Directors have taken all steps that they ought to have taken to
make themselves aware of any relevant audit information and to establish that
the auditor is aware of that information.
Independent Auditor
The auditor, PKF Littlejohn LLP will be proposed for reappointment in
accordance with section 485 of the Companies Act 2006. PKF Littlejohn LLP has
signified its willingness to continue in office as auditor.
This report was approved by the board on 16 June 2017 and signed on its
behalf:
Ronald Harwood
Non-Executive Director, Interim Chairman
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report and the Financial
Statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial
year. Under that law the Directors have elected to prepare the Group and
Parent Company Financial Statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
Under company law the Directors must not approve the Financial Statements
unless they are satisfied that they give a true and fair view of the state of
affairs of the Company and Group as at the end of the financial year and of the
profit or loss of the Group for that period. In preparing these Financial
Statements, the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and accounting estimates that are reasonable and prudent;
* state whether the applicable IFRS's as adopted by the European Union have
been followed; subject to any material departures disclosed and explained
in the Financial Statements; and
* prepare the Financial Statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and the
Group and enable them to ensure that the Financial Statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of
the Company and Group and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The maintenance and integrity of the website is the responsibility of the
Directors. The work carried out by the auditors does not involve consideration
of these matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the information contained in the
Financial Statements since they were initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination
of the Financial Statements and other information included in annual reports
may differ from legislation in other jurisdictions.
The Company is compliant with AIM Rule 26 regarding the Company's website.
This report was approved by the board on 16 June 2017 and signed on its
behalf:
Ronald Harwood
Non-Executive Director, Interim Chairman
CORPORATE GOVERNANCE REPORT
The Board of Directors
As at 31 December 2016, the Board of Directors comprised five members: two
Executive Directors and three Non-Executive Directors including the Chairman
Thomas Wagenhofer, who was appointed to the Board on 29 June 2015, as
Non-Executive Chairman. In addition, Leonard Wallace has been appointed to the
Board, effective 16 May 2016. The Executive Directors have a wealth of
experience in the oil and gas industry. Similarly the Non-Executive Directors
together have extensive mineral, oil and gas exploration experience and
financial experience.
Board Meetings
The Board ordinarily meets on a monthly basis and as and when further required,
providing effective leadership and overall management of the Group's affairs by
reference to those matters reserved for its decision. This includes the
approval of the budget and business plan, major capital expenditure,
acquisitions and disposals, risk management policies and the approval of the
financial statements. Formal agendas, papers and reports are sent to the
Directors, in a timely manner, prior to the Board meetings.
Number held and Number
entitled to attend attended
Thomas Wagenhofer 17 16
Leonard Wallace 10 7
Ronald Harwood 17 17
Steven Snead 17 17
Rita Whittington 17 17
Corporate Governance Practices
The Board recognises the importance of sound corporate governance commensurate
with the size of the Group and the interests of Shareholders. As the Group
grows, the Directors will develop policies and procedures which reflect the
requirements of the UK Corporate Governance Code (the Code), as published by
the Financial Reporting Council so far as is practicable, taking into account
the size and nature of the Company. The Directors do note that they are not
required to adopt the Code and nor do they do so.
Remuneration and Audit Committees
The remuneration committee comprises Leonard Wallace (Chairman) and Ronald
Harwood, and is responsible for reviewing the performance of the Executive
Directors and for setting the framework and broad policy for the scale and
structure of their remuneration taking into account all factors which it shall
deem necessary. The remuneration committee also determines the allocation of
share options and is responsible for setting up any performance criteria in
relation to the exercise of options granted under any share options schemes
adopted by the Group.
The audit committee comprises Ronald Harwood (Chairman) and Leonard Wallace,
and has primary responsibility for monitoring the quality of internal controls,
ensuring that the financial performance of the Group is properly measured and
reported on and for reviewing reports from the Group and Company's auditor
relating to the Group's accounting and internal controls.
Internal Controls
The Board recognises the importance of both financial and non-financial
controls and has reviewed the Group's control environment and any related
shortfalls during the year. Since the Group was established, the Directors are
satisfied that, given the current size and activities of the Group, adequate
internal controls have been implemented. Whilst they are aware that no system
can provide absolute assurance against material misstatement or loss, in light
of the current activity and proposed future developments of the Group,
continuing reviews of internal controls will be undertaken to ensure that they
are adequate and effective.
CORPORATE GOVERNANCE REPORT
Relations with Shareholders
The Board is committed to providing effective communication with the
shareholders of the Company. Significant developments are disseminated through
stock exchange announcements and regular updates on the Company website. The
Board views the Annual General Meeting as a forum for communication between the
Group and its shareholders and encourages their participation in its agenda.
REPORT OF THE INDEPENT AUDITOR
Independent Auditor's Report to the members of Magnolia Petroleum Plc
We have audited the Financial Statements of Magnolia Petroleum plc for the year
ended 31 December 2016 which comprise the Consolidated Statement of
Comprehensive Income, the Consolidated and Parent Company Statements of
Financial Position, the Consolidated and Parent Company Statements of Cash
Flow, the Consolidated and Parent Company Statements of Changes in Equity, and
the related notes. The financial reporting framework that has been applied in
their preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and, as regards the Parent
Company Financial Statements, as applied in accordance with the provisions of
the Companies Act 2006.
This report is made solely to the Company's members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone, other than the Company and the Company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Respective responsibilities of Directors and 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.
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 Group's and Parent Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness of
significant accounting estimates made by 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.
Opinion on Financial Statements
In our opinion:
· the Financial Statements give a true and fair view of the state of
the Group's and of the Parent Company's affairs as at 31 December 2016 and of
the Group's loss for the year then ended;
· have been properly prepared in accordance with IFRSs as adopted by
the European Union; and
· have been prepared in accordance with the requirements of the
Companies Act 2006.
Emphasis of matter - going concern
In forming our opinion on the Financial Statements, which is not modified, we
have considered the adequacy of the disclosure made in note 2.3 to the
Financial Statements concerning the Group and Company's ability to continue as
a going concern. The Group incurred a net loss of $1,551,275 during the year
ended 31 December 2016 and, at that date, the Group had net current liabilities
of $438,248. The company's ability to continue as a going concern is dependent
on continuing support from its lenders and its ability to raise funds on the
open market. These conditions, along with the other matters explained in note
2.3 to the Financial Statements, indicate the existence of a material
uncertainty which may cast significant doubt on the Group and Company's ability
to continue as a going concern. The Financial Statements do not include the
adjustments that would result if the Group and Company were unable to continue
as a going concern.
Opinion on other matter prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
· the information given in the Chief Executive Officer's Statement,
Operations Report, Financial Report, Strategic Report and the Director's Report
for the financial year for which the financial statements are prepared is
consistent with the financial statements; and
· the Chief Executive Officer's Statement, Operations Report, Financial
Report, Strategic Report and the Director's Report have been prepared in
accordance with applicable legal requirements.
Matters on which we are required to report by exception
In light of the knowledge and understanding of the company and its environment
obtained in the course of the audit, we have not identified material
misstatements in the Chief Executive Officer's Statement, Operations Report,
Financial Report, Strategic Report and the Director's Report.
We have nothing to report in respect of the following matters where the
Companies Act 2006 requires us to report to you if, in our opinion:
· adequate accounting records have not been kept by the Parent
Company, or returns adequate for our audit have not been received from branches
not visited by us; or
· the Parent Company Financial Statements are not in agreement with
the accounting records and returns; or
· certain disclosures of Directors' remuneration specified by law are
not made; or
· we have not received all the information and explanations we require
for our audit.
Joseph Archer (Senior statutory auditor)
1 Westferry
Circus
For and on behalf of PKF Littlejohn
LLP
Canary Wharf
Statutory
Auditor
London E14 4HD
16 June 2017
MAGNOLIA PETROLEUM PLC CONSOLIDATED STATEMENT OF
COMPREHENSIVE INCOME
Year ended 31 December 2016
Note Year ended Year ended
31 December 31 December
2016 2015
$ $
Continuing Operations
Revenue 1,273,612 1,991,021
Operating expenses 6 (831,528) (1,237,456)
Depreciation 13 (1,070,124) (1,547,313)
________ ________
Gross (Loss) (628,040) (793,748)
Impairment of property, plant and equipment 13 (2,207,293) (3,538,523)
Impairment of intangible assets 14 - (4,973,181)
Differences due to foreign exchange 2,117,003 678,001
Administrative expenses 6 (702,354) (1,045,884)
Other income 9 17,960 -
________ ________
Operating (Loss) (1,402,724) (9,673,335)
Finance income 11 - 139
Finance costs 11 (148,551) (120,080)
________ ________
(Loss) before Tax (1,551,275) (9,793,276)
Income tax 10 - -
________ ________
(Loss) for the year attributable to owners of the parent
(1,551,275) (9,793,276)
________ ________
Other Comprehensive Income:
Items that may be reclassified subsequently to profit or loss
Currency translation differences (2,208,770) (697,415)
_______ _______
Other Comprehensive Income for the Year, Net of Tax (2,208,770) (697,415)
________ ________
Total Comprehensive Income for the Year attributable to the owners of the (3,760,045) (10,490,691)
parent
________ ________
Loss per share attributable to the owners of the parent during the year
Basic and diluted (cents per share) 12 (0.09) (0.98)
________ ________
The Notes on pages 28 to 52 form part of these Financial Statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2016
Note As at As at
31 December 31 December
2016 2015
ASSETS $ $
Non-Current Assets
Property, plant and equipment 13 4,518,177 7,294,470
Intangible assets 14 1,684,559 1,830,773
_________ _________
Total Non-Current Assets 6,202,736 9,125,243
_________ _________
Current Assets
Trade and other receivables 16 610,941 441,764
Cash and cash equivalents 17 241,347 645,759
________ ________
Total Current Assets 852,288 1,087,523
________ ________
TOTAL ASSETS 7,055,024 10,212,766
_________ _________
EQUITY AND LIABILITIES
Equity attributable to Owners of Parent
Share capital 18 2,619,986 1,704,820
Share premium 15,254,643 15,200,219
Merger reserve 1,975,950 1,975,950
Share option and warrants reserve 65,163 209,042
Reverse acquisition reserve (2,250,672) (2,250,672)
Translation reserve (3,171,657) (962,887)
Retained losses (11,367,372) (9,959,977)
_________ _________
Total Equity 3,126,041 5,916,495
_________ _________
Non-Current Liabilities
Borrowings 19 - 3,154,784
________ ________
Total Non-Current Liabilities - 3,154,784
________ ________
Current Liabilities
Trade and other payables 20 1,290,536 1,141,487
Borrowings 19 2,638,447 -
________ ________
Total Current Liabilities 3,928,983 1,141,487
________ ________
TOTAL EQUITY AND LIABILITIES 7,055,024 10,212,766
_________ _________
These Financial Statements were approved by the Board of Directors on June
2017 and were signed on its behalf by:
Ronald Harwood
Director
The Notes on pages 28 to 52 form part of these Financial Statements.
COMPANY STATEMENT OF FINANCIAL POSITION
Registered number
05566066
As at 31 December 2016
Note As at As at
31 December 31 December
2016 2015
$ $
ASSETS
Non-Current Assets
Investments in subsidiaries 15 2,885,085 3,453,879
________ ________
Total Non-Current Assets 2,885,085 3,453,879
________ ________
Current Assets
Trade and other receivables 16 1,468,697 12,663,513
Cash and cash equivalents 17 10,197 44,210
_________ _________
Total Current Assets 1,478,894 12,707,723
_________ _________
TOTAL ASSETS 4,363,979 16,161,602
_________ _________
EQUITY AND LIABILITIES
Equity attributable to Shareholders
Share capital 18 2,619,986 1,704,820
Share premium 18 15,254,643 15,200,219
Merger reserve 1,975,950 1,975,950
Share option and warrants reserve 65,163 209,042
Translation reserve (4,129,356) (1,407,825)
Retained losses (11,525,560) (1,570,070)
_________ _________
Total Equity 4,260,826 16,112,136
_________ _________
Current Liabilities
Trade and other payables 20 103,153 49,466
______ ______
Total Current Liabilities 103,153 49,466
______ ______
TOTAL EQUITY AND LIABILITIES 4,363,979 16,161,602
_________ _________
The Company has elected to take the exemption under Section 408 of the
Companies Act 2006 from presenting the Parent Company Statement of
Comprehensive Income.
The loss for the Parent Company for the year was $10,099,369 (2015: $203,635).
These Financial Statements were approved by the Board of Directors on June
2017 and were signed on its behalf by:
Ronald Harwood
Director
The Notes on pages 28 to 52 form part of these Financial Statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2016
Attributable to the owners of the parent
Group ($) Share Share Merger Share Reverse Translation Retained Total
capital Premium reserve option acquisition reserve losses equity
and reserve
warrants
reserve
Balance at 1,481,396 13,954,026 1,975,950 209,042 (2,250,672) (265,472) (166,701) 14,937,569
1 January 2015
Loss for the - - - - - - (9,793,276) (9,793,276)
year
Other
Comprehensive
Income
Currency - - - - - (697,415) - (697,415)
translation
differences
Total - - - - - (697,415) (9,793,276) (10,490,691)
Comprehensive
Income for the
Year
Transactions
with
Owners
Share issue 223,424 1,340,543 - - - - - 1,563,967
Share issue - (94,350) - - - - - (94,350)
costs
Transaction 223,424 1,246,193 - - - - - 1,469,617
with owners,
recognised
directly in
equity
Balance at 1,704,820 15,200,219 1,975,950 209,042 (2,250,672) (962,887) (9,959,977) 5,916,495
31 December
2015
Balance at 1,704,820 15,200,219 1,975,950 209,042 (2,250,672) (962,887) (9,959,977) 5,916,495
1 January 2016
Loss for the - - - - - - (1,551,274) (1,551,274)
year
Other
Comprehensive
Income
Currency - - - - - (2, 208,770) - (2,208,770)
translation
differences
Total - - - - - (2,208,770) (1,551,274) (3,760,044)
Comprehensive
Income for the
Year
Share options - - - (143,879) - - 143,879 -
cancelled
Transactions
with Owners
Share issue 915,166 136,740 - - - - - 1,051,906
Share issue - (82,316) - - - - - (82,316)
costs
Transaction 915,166 54,424 - - - - - 969,590
with owners,
recognised
directly in
equity
Balance at 2,619,986 15,254,643 1,975,950 65,163 (2,250,672) (3,171,657) (11,367,372) 3,126,041
31 December
2016
The Notes on pages 28 to 52 form part of these Financial Statements.
COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2016
Attributable to the shareholders
Company ($) Share Share Merger Share Translation Retained Total
capital premium reserve Option reserve losses equity
and
warrants
reserve
Balance at 1,481,396 13,954,026 1,975,950 209,042 (536,827) (1,366,435) 15,717,152
1 January 2015
Loss for the year - - - - - (203,635) (203,635)
Other Comprehensive
Income
Currency translation - - - - (870,998) - (870,998)
differences
Total Comprehensive - - - - (870,998) (203,635) (1,074,633)
Income for the Year
Transactions
with
Owners
Share issue 223,424 1,340,543 - - - - 1,563,967
Share issue costs - (94,350) - - - - (94,350)
Total contributions 223,424 1,246,193 - - - - 1,469,617
by and distributions
to owners of the
parent, recognised
directly in equity
Balance at 1,704,820 15,200,219 1,975,950 209,042 (1,407,825) (1,570,070) 16,112,136
31 December 2015
Balance at 1,704,820 15,200,219 1,975,950 209,042 (1,407,825) (1,570,070) 16,112,136
1 January 2016
Loss for the year - - - - - (10,099,369) (10,099,369)
Other Comprehensive
Income
Currency translation - - - - (2,721,531) - (2,721,531)
differences
Total Comprehensive - - - - (2,721,531) (10,099,369) (12,820,900)
Income for the Year
Share options - - - (143,879) - 143,879 -
cancelled
Transactions
with
Owners
Share issue 915,166 136,740 - - - - 1,051,906
Share issue costs - (82,316) - - - - (82,316)
Total contributions 915,166 54,424 - - - - 969,590
by and distributions
to owners of the
parent, recognised
directly in equity
Balance at 2,619,986 15,254,643 1,975,950 65,163 (4,129,356) (11,525,560) 4,260,826
31 December 2016
The Notes on pages 28 to 52 form part of these Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended 31 December 2016
Year ended Year ended
31 December 31 December
Note 2016 2015
$ $
Cash Flows from Operating Activities
(Loss) before tax (1,551,275) (9,793,276)
Impairment of property, plant and equipment 13 2,207,293 3,538,523
Impairment of intangible assets 14 - 4,973,181
Depreciation 13 1,073,456 1,553,240
Foreign exchange (2,148,150) (676,825)
Finance income 11 - (139)
Finance costs 11 148,551 120,080
________ ________
(270,125) (285,216)
Changes to working capital
(Increase)/Decrease in trade and other receivables (169,177) 555,902
Increase/(Decrease) in trade and other payables 149,049 (392,329)
________ ________
Cash (used in) operations (290,253) (121,643)
Interest paid 11 (148,551) (120,080)
________ ________
Net Cash (used in) Operating Activities (438,804) (241,723)
________ ________
Cash Flows from Investing Activities
Purchases of intangible assets 14 (1,114) (376,062)
Purchases of property, plant and equipment 13 (413,162) (1,056,849)
Interest received 11 - 139
________ ________
Net Cash used in Investing Activities (414,276) (1,432,772)
________ ________
Cash Flows from Financing Activities
Proceeds from issue of ordinary shares 18 1,051,906 1,563,967
Issue costs 18 (82,316) (94,350)
Proceeds from borrowings (516,337) 418,510
________ ________
Net Cash generated from Financing Activities 453,253 1,888,127
________ ________
Net (Decrease)/Increase in Cash and Cash Equivalents (399,827) 213,632
________ ________
Movement in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the year 17 645,759 433,748
Exchange loss on cash and cash equivalents (4,585) (1,621)
Net (Decrease)/Increase in cash and cash equivalents (399,827) 213,632
_______ ________
Cash and Cash Equivalents at the End of the Year 17 241,347 645,759
_______ ________
The Notes on pages 28 to 52 form part of these Financial Statements.
COMPANY STATEMENT OF CASH FLOWS
Year ended 31 December 2016
Year Year
ended ended
31 December 31 December
Note 2016 2015
$ $
Cash Flows from Operating Activities
Loss before tax (10,099,369) (203,635)
Foreign exchange (31,147) 2,139
_______ _______
(10,130,516) (201,496)
Changes to working capital
Decrease in trade and other receivables 5,006 13,425
Increase in trade and other payables 50,387 17,745
_______ _______
Net Cash used in Operating Activities (10,075,123) (170,326)
_______ _______
Cash Flows from Financing Activities
Proceeds from issue of ordinary shares 18 1,051,906 1,563,967
Issue costs 18 (82,316) (94,350)
(Increase) in funding subsidiary undertaking 9,076,105 (1,257,121)
_______ ________
Net Cash generated from Financing Activities 10,045,695 212,496
_______ ________
Net (Decrease)/Increase in Cash and Cash Equivalents (29,428) 42,170
_______ ________
Movement in Cash and Cash Equivalents
Cash and cash equivalents at the beginning of the year 17 44,210 3,661
Exchange loss on cash and cash equivalents (4,585) (1,621)
Net (Decrease)/Increase in cash and cash equivalents (29,428) 42,170
_______ _______
Cash and Cash Equivalents at the End of the Year 17 10,197 44,210
_______ _______
The Notes on pages 28 to 52 form part of these Financial Statements.
NOTES TO THE FINANCIAL STATEMENTS
Year ended 31 December 2016
1 GENERAL INFORMATION
The Consolidated Financial Statements of Magnolia Petroleum plc ("the Company")
consists of the following companies: Magnolia Petroleum plc and Magnolia
Petroleum Inc. (together "the Group").
The Company is a public limited company which is listed on the AIM market of
the London Stock Exchange and incorporated and domiciled in England and Wales.
Its registered office address is Suite 321, 19-21 Crawford Street, London, W1H
1PJ.
The information contained in this announcement has been extracted from the
Company's Report and Accounts for the financial year to 31 December 2016 and,
as such, references to notes and page numbers may have changed. Shareholders
should read the full report and accounts which can be found on the Company's
website.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies applied in the preparation of these
Consolidated Financial Statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
2.1 Basis of preparation of Financial Statements
The Consolidated Financial Statements of Magnolia Petroleum plc have been
prepared in accordance with International Financial Reporting Standards (IFRS)
and IFRIC interpretations (IFRS IC) as adopted by the European Union and
the Companies Act 2006 applicable to companies reporting under IFRS.
The Financial Statements have been prepared under the historical cost
convention.
The preparation of Financial Statements in conformity with IFRS requires the
use of certain critical accounting estimates. It also requires management to
exercise its judgement in the process of applying the Group's accounting
policies. The areas involving a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the consolidated
Financial Statements, are disclosed in Note 4.
2.2 Basis of consolidation
The Consolidated Financial Statements consolidate the Financial Statements of
Magnolia Petroleum plc and the audited Financial Statements of its subsidiary
undertaking made up to 31 December 2016.
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the investee and has the ability to affect
those returns through its power over the investee. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases.
The Company acquired Magnolia Petroleum Inc. on 23 October 2009 through a share
exchange. As the shareholders of Magnolia Petroleum Inc. had control of the
legal parent, Magnolia Petroleum plc, the transaction was accounted for as a
reverse acquisition in accordance with IFRS 3 "Business Combinations". The
following accounting treatment has been applied in respect of the reverse
acquisition:
· the assets and liabilities of the legal subsidiary Magnolia Petroleum
Inc. are recognised and measured in the Consolidated Financial Statements at
their pre-combination carrying amounts, without restatement to fair value; and
· the equity structure appearing in the Consolidated Financial
Statements reflects the equity structure of the legal parent, Magnolia
Petroleum plc, including the equity instruments issued to effect the business
combination.
The cost of acquisition was measured as the fair value of the assets acquired,
equity instruments issued and liabilities incurred or assumed at the date of
exchange, plus certain costs directly attributable to the acquisition.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
2.2 Basis of consolidation (continued)
In accounting for the acquisition of Magnolia Petroleum Inc., the Company has
taken advantage of Section 612 of the Companies Act 2006 and accounted for the
transaction using merger relief.
Investments in subsidiaries are accounted for at cost less impairment. Where
necessary, adjustments are made to the financial statements of subsidiaries to
bring the accounting policies used into line with those used by other members
of the Group. All inter-company transactions and balances between Group
entities are eliminated on consolidation.
2.3 Going concern
The Group's business activities, together with the factors likely to affect its
future development and performance are set out in the Chief Executive Officer's
Statement. In addition, notes 3 and 23 to the Financial Statements disclose the
Group's and Company's objectives, policies and processes for managing financial
risks and capital.
At the year end the Group was in discussion with Bank SNB, the lenders of the
Group's $6 million revolving credit facility, with regards to agreeing certain
waivers of, and amendments to, the Group's facility due to non-compliance at
that date of financial and other covenants. Discussions also included an
extension to the facility's maturity date that was originally due to end on 7
March 2017 but was extended to 8 June 2017 by Bank SNB. At 31 December 2016
the Group's borrowings under the facility amounted to $2,638,447.
A request for a longer-term extension to our Facility is currently being processed by the Group's Bank. The Bank continues to view the Facility as part of a long-term relationship with Magnolia. In line with this, the Bank has agreed to extend the Facility from 8 June 2017 to 8 August 2017 while it processes the appropriate paperwork, loan documents as well as the relevant financial and reserve report information that has been provided by the Group's management. The borrowing base limit liability of $1,604,565 is due for repayment in full on 8 August 2017 and the decision to extend is at Bank SNB's discretion. The Group was non-compliant on all covenants, as a reminder, the Bank has waived the current ratio covenant until further written notice. Funding future growth will however be via the Group's own generated cash-flow, wherever possible. The Group's cash flow forecasts and projections prepared up to 30 June 2018 show that the Group has sufficient funds and facilities to fund its current ongoing operating costs and the scheduled principal repayments plus interest of the borrowings in excess of the borrowing base of $1,604,565. Additional funds will be required if Bank SNB require repayment of the borrowing base liability on 8 August 2017. The Directors have a reasonable expectation that the Company and Group has adequate resources to continue in operational existence through 30 June 2018 as projected; however subject to material adverse unforeseen events that may occur, including but not limited to oil and gas prices, non-operational control of wells and continuation of forbearance by the Bank. For this reason, the Directors continue to adopt the going concern basis of accounting in preparing the Financial Statements. As of 2 June 2017, a general meeting has been requisitioned by Steven Snead, Snead Family LLC, Snead Family 2012 LLC and R. Sterling Snead (the "Activist Shareholder"). Among the proposals as set forth by the Activist Shareholder is a demand for the removal of Rita Whittington as a director. Under the employment agreement with Ms. Whittington, approximately $350,000 USD will become immediately due and payable by the Group. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 2.4 Changes in accounting policy and disclosure a) New standards, amendments and interpretations adopted by the Group No new standards, amendments or interpretations, effective for the first time for the financial year beginning on or after 1 January 2016 have had a material impact on the Group or Company. b) New and amended standards and interpretations issued but not yet effective or endorsed and not early adopted A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2016, and have not been applied in preparing these consolidated financial statement. None of these are expected to have a significant effect on the consolidated financial statements of the Group. 2.5 Revenue recognition Revenue represents the amounts receivable from operators for the Group's share of oil and / or gas revenues less any royalties payable to the lessor or assignor of the mineral rights. Revenue is recognised in the period to which the declarations from the operators relate. Other income is recognised in the accounting period for the sale of assets. 2.6 Foreign Currency Translation (a) Functional and presentation currency Items included in each of the Financial Statements of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the 'functional currency'). The functional currency of the UK parent entity is sterling and the functional currency of the subsidiary is US Dollars. The Financial Statements are presented in US Dollars, rounded to the nearest Dollar, which is the Group's and Company's presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where such items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. 2.6 Foreign Currency Translation (continued) (c) Group companies The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: · assets and liabilities for each Statement of Financial Position presented are translated at the closing rate at the date of that Statement of Financial Position; · income and expenses for each statement of comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and · all resulting exchange differences are recognised in other comprehensive income. On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of monetary items receivable from foreign subsidiaries for which settlement is neither planned nor likely to occur in the foreseeable future are taken to other comprehensive income. When a foreign operation is sold, such exchange differences are recognised in the Statement of Comprehensive Income as part of the gain or loss on sale. 2.7 Property, plant and equipment Following evaluation of successful exploration wells, if commercial reserves are established and the technical feasibility of extraction demonstrated, and once a project is sanctioned for commercial development, then the related capitalised exploration costs are transferred into a single field cost centre within 'producing properties' within property, plant and equipment after testing for impairment. Where results of exploration drilling indicate the presence of hydrocarbons which are ultimately not considered commercially viable, all related costs are written off to the Statement of Comprehensive Income. The net book values of 'producing properties' are depreciated on a unit of production basis at a rate calculated by reference to proven and probable reserves and incorporating the estimated future cost of developing and extracting those reserves. All costs incurred after the technical feasibility and commercial viability of producing hydrocarbons has been demonstrated are capitalised within 'drilling costs and equipment' on a well by well basis. Subsequent expenditure is capitalised only where it either enhances the economic benefits of the development/producing asset or replaces part of the existing development/ producing asset. Any costs remaining associated with the part replaced are expensed. Net proceeds from any disposal of an exploration asset are initially credited against the previously capitalised costs. Any surplus proceeds are credited to the Statement of Comprehensive Income. All property, plant and equipment other than oil and gas assets are stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the Statement of Comprehensive 2.7 Property, plant and equipment (continued) Depreciation is charged so as to allocate the cost of assets, over their estimated useful lives, on a straight line basis as follows: Drilling costs and equipment - 10 years Motor vehicles and office equipment - 4 years Oil and gas producing properties held in property, plant and equipment are mainly depreciated on a unit of production basis at a rate calculated by reference to proven and probable reserves and incorporating the estimated future cost of developing and extracting those reserves. The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each financial year-end. Gains and losses on disposal are determined by comparing proceeds with carrying amount. These are included in the Income Statement. Decommissioning Where a material liability for the removal of production facilities and site restoration at the end of the production life of a field exists, a provision for decommissioning is recognised. The amount recognised is the present value of estimated future expenditure determined in accordance with local conditions and requirements. The cost of the relevant property, plant and equipment asset is increased with an amount equivalent to the provision and depreciated on a unit of production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated non-current asset. 2.8 Intangible assets a. Goodwill Under the reverse acquisition, goodwill represents the excess of the cost of the combination over the acquirer's interest in the net fair values of the legal parent. The fair value of the equity instruments of the legal subsidiary issued to effect the combination was not available and therefore the fair value of all the issued equity instruments of the legal parent prior to the business combination was used as the basis for determining the cost of the combination. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any impairment. Goodwill which is recognised as an asset
is reviewed for impairment at least annually. Any impairment is recognised immediately and is not subsequently reversed. b. Drilling costs and mineral leases The Group applies the successful efforts method of accounting for oil and gas assets, having regard to the requirements of IFRS 6 'Exploration for and Evaluation of Mineral Resources'. Costs incurred prior to obtaining the legal rights to explore an area are expensed immediately to the Statement of Comprehensive Income. Expenditure incurred on the acquisition of a licence interest is initially capitalised within intangible assets on a licence by licence basis. Costs are held, unamortised, within mineral leases until such time as the exploration phase of the licence area is complete or commercial reserves have been discovered. The cost of the licence is subsequently transferred into "Producing Properties" within property, plant and equipment and depreciated over its estimated useful economic life. 2.8 Intangible assets (continued) b. Drilling costs and mineral leases (continued) Exploration expenditure incurred in the process of determining exploration targets is capitalised initially within intangible assets as drilling costs. Drilling costs are initially capitalised on a well by well basis until the success or otherwise has been established. Drilling costs are written off on completion of a well unless the results indicate that hydrocarbon reserves exist and there is a reasonable prospect that these reserves are commercially viable. Drilling costs are subsequently transferred into 'Drilling costs and equipment' within property, plant and equipment and depreciated over their estimated useful economic life. All such costs are subject to regular technical, commercial and management review on at least an annual basis to confirm the continued intent to develop or otherwise extract value from the discovery. Where this is no longer the case, the costs are immediately expensed to the Statement of Comprehensive Income. Impairment of Non-Financial Assets Assets not ready for use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. 2.9 Financial assets Classification Financial assets are recognised when the Group becomes a party to the contractual provisions of the instrument. At initial recognition, the Group classifies its financial assets as loans and receivables which comprise 'trade and other receivables' and 'cash and cash equivalents'. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. Recognition and measurement Loans and receivables are initially recognised at the amount expected to be received, less where material, a discount to reduce the loans and receivables to fair value. Subsequently, loans and receivables are measured at amortised cost using the effective interest method less a provision for impairment. Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of the ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. 2.9 Financial assets (continued) Derecognition also takes place for certain assets when the Group writes-off balances pertaining to the assets deemed to be uncollectible. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. Impairment of financial assets At each Statement of Financial Position date, the Group assesses whether there is objective evidence that financial assets are impaired. Financial assets are impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and the loss event has an impact on the future cash flows of the asset that can be estimated reliably. The Group considers the evidence of impairment at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All significant assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are then collectively assessed for impairment by grouping together financial assets (carried at amortised cost) with similar risk characteristics. When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through the Income Statement. 2.10 Trade and other receivables Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. 2.11 Cash and cash equivalents Cash and cash equivalents comprise cash at bank and in hand and demand deposits with banks. 2.12 Trade and other payables Trade and other payables are initially measured at fair value and are subsequently measured at amortised cost using the effective interest method. 2.13 Borrowings Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the Income Statement over the period of the borrowings, using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the end of the reporting period. 2.14 Borrowing costs Borrowing costs are recognised in the Income Statement in the period in which they are incurred. 2.15 Share capital and other reserves Ordinary shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax. Incremental costs directly attributable to the issue of equity instruments as consideration for the acquisition of a business are included in the cost of acquisition. Other reserves include merger reserve, share option and warrants reserve, reverse acquisition reserve and translation reserve. The share option and warrants reserve represent the movement in fair value of options and warrants in the year. The reverse acquisition reserve represents the reserve on the reverse acquisition of Magnolia Plc by Mangnolia Inc. The translation reserve represents effects of currency translation in the year. 2.16 Share based payment The Group operates equity-settled, share-based compensation plans under which the entity receives services from employees and suppliers as consideration for equity instruments (options and warrants) of the Company. The fair value of the services received in exchange for the grant of options and warrants is recognised as an expense and as a component of equity, if material. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options and warrants granted using the Black-Scholes pricing model. When the options are exercised, the Company issues new shares. The proceeds received, net of any directly attributable transaction costs, are credited to share capital (nominal value) and share premium. 2.17 Taxation The tax expense or credit comprises current and deferred tax. It is calculated using tax rates that have been enacted or substantively enacted by the Statement of Financial Position date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax basis used in the computation of taxable profit. In principle, deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill (or negative goodwill) or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction, which affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future. Deferred tax is calculated at the tax rates
that are expected to apply to the period when the asset is realised or the
liability is settled. Deferred tax is charged or credited in the Statement of
Comprehensive Income, except when it relates to items credited or charged
directly to equity, in which case the deferred tax is also dealt with in
equity. Deferred tax assets and liabilities are offset when they relate to
income taxes levied by the same taxation authority and the Group intends to
settle its current tax assets and liabilities on a net basis.
2.18 Leasing
Leases in which a significant portion of the risks and rewards of ownership are
retained by the lessor are classified as operating leases. Payments made under
operating leases (net of any incentives received from the lessor) are charged
to the Income Statement on a straight-line basis over the period of the lease.
Segment Information
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker, who is responsible
for allocating resources and assessing performance of the operating segments
and making strategic decisions.
2.19 Pension Obligations
The Group makes contributions to defined contribution pension plans. The Group
has no legal or constructive obligations to pay further contributions if the
plans do not hold sufficient assets to pay all employees the benefits relating
to employee service in the current or prior periods. The contributions are
recognised as employee benefit expense when they are paid.
2.20 Exceptional items
Exceptional items are disclosed separately in the Financial Statements where it
is necessary to do so to provide further understanding of the financial
performance of the Group. They are material items of income or expense that
have been shown separately due to the significance of their nature or amount.
3 FINANCIAL RISK MANAGEMENT
The Group's activities expose it to a variety of financial risks: market risk
(including currency risk and cash flow and interest rate risk), credit risk and
liquidity risk.
Market risk
The Group operates in an international market for hydrocarbons and is exposed
to risk arising from variations in the demand for and price of the
hydrocarbons. Oil and gas prices historically have fluctuated widely and are
affected by numerous factors over which the Group has no control, including
world production levels, international economic trends, exchange rate
fluctuations, speculative activity and global or regional political events.
a) Currency risk
The majority of the Group's sales and purchase transactions are denominated in
US dollars. The Company's expenditure is predominantly denominated in Sterling.
The currencies are stable and any exchange risk is managed by maintaining bank
accounts denominated in those currencies.
b) Cash flow and interest rate risk
The Group's interest rate risk arises from long-term borrowings. Borrowings
issued at variable rates expose the Group to cash flow interest rate risk,
which is partially offset by cash held at variable rates. During 2016, the
Group's borrowings at variable rates were denominated in US dollars.
At 31 December 2016, if variable interest rates on borrowings are 10 basis
points higher/lower with all other variables held constant, the annual interest
expense will be $134,561 higher / $129,284 lower.
Credit risk
Credit risk represents the risk of loss the Group would incur if operators and
counterparties fail to fulfil their credit obligations. The maximum exposure to
credit risk is represented by the carrying amount of each financial asset.
3 FINANCIAL RISK MANAGEMENT (continued)
Where the Group is not an operator of wells, the Group's trade receivables and
accrued income result from contractual amounts due from third party operators.
The risk is concentrated between a relatively small group of operators given
the small number of parties involved in oil and gas exploration and production
activities. The Group seeks to mitigate this risk where possible by assessing
the credit quality of the operators and by establishing ongoing and long-term
relationships.
Liquidity risk
Cash flow forecasting is performed in the operating entities of the Group, and
aggregated by Group Finance. Group Finance monitors rolling forecasts of the
Group's liquidity requirements to ensure it has sufficient cash to meet
operational needs, while seeking to maintain sufficient headroom on its undrawn
committed borrowing facilities (Note 19) at all times, so that the Group does
not breach borrowing limits or covenants (where applicable) on any of its
borrowing facilities. Such forecasting takes into consideration the Group's
debt financing plans, covenant compliance, compliance with internal Statement
of Financial Position ratio targets, and, if applicable, external regulatory or
legal requirements (for example, currency restrictions).
The table below analyses the Group's non-derivative financial liabilities and
net-settled derivative financial liabilities into relevant maturity groupings,
based on the remaining period at the Statement of Financial Position to the
contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows.
Group Less than Between
At 31 December 2016 1 year 1 and 2 years
Borrowings - 2,638,447
Trade and other payables 1,132,983 -
At 31 December 2015
Borrowings - 3,154,784
Trade and other payables 1,092,137 -
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS
Use of estimates and judgements
The preparation of Financial Statements in conformity with IFRSs requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period
of the revision and future periods if the revision affects both current and
future periods. In particular, information about significant areas of
estimation uncertainty and critical judgements in applying accounting policies
that have the most significant effect on the amount recognised in the financial
statements are described below.
4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (continued)
Estimated impairment of producing properties and capitalised drilling costs &
equipment
At 31 December 2016, mineral leases and capitalised drilling costs & equipment
on producing properties have a total carrying value of $4,518,177 (2015:
$7,288,003) (Note 13). Management tests annually whether the assets have
future economic value in accordance with the accounting policies. These assets
are also subject to an annual impairment review by an independent consultant.
The recoverable amount of each property has been determined based on a value in
use calculation which requires the use of certain estimates and assumptions
such as long term commodity prices (i.e. oil and gas prices), discount rates,
operating costs, future capital requirements and mineral resource estimates.
These estimates and assumptions are subject to risk and uncertainty and
therefore a possibility that changes in circumstances will impact the
recoverable amount.
In assessing the carrying amounts of its producing properties and related
drilling and equipment costs, the Directors have used an updated reserves
report ("The Report") and have concluded that an impairment charge of
$2,207,293 should be recognised to write down the value of the assets.
Recoverability of non-producing mineral leases and capitalised drilling costs &
equipment
Mineral leases and drilling costs on non-producing properties have a carrying
value at 31 December 2016 of $1,400,340 (2015: $1,490,520). Management tests
annually whether non-producing mineral leases have future economic value in
accordance with the accounting policy stated in Note 2.8. This assessment takes
into consideration the likely commerciality of the asset, the future revenues
and costs pertaining and the discount rates to be applied for the purposes of
deriving a recoverable value. In the event that a lease does not represent an
economic drilling target and results indicate that there is no additional
upside, the mineral lease and drilling costs will be impaired. The Directors
have reviewed the estimated value of the licences and have concluded that an
impairment charge of $0 should be recognised.
Decommissioning
Where the Group has decommissioning obligations in respect of its assets, the
full extent to which the provision is required depends on the legal
requirements at the time of decommissioning, the costs and timing of any
decommissioning works and the discount rate applied to such costs.
Estimated impairment of goodwill
Goodwill has a carrying value at 31 December 2016 of $284,219 (2015: $340,253).
The Group tests annually whether goodwill has suffered any impairment in
accordance with the accounting policy stated in Note 2.8. Management have
concluded that there is no impairment charge necessary to the carrying value of
goodwill.
Estimated useful lives of property, plant and equipment
Useful lives are based on industry standards and historical experience which
are subjected to yearly evaluation. For producing properties, the Group's
considerations include the lease period of the agreement, estimated levels of
proven and probable reserves and the estimated future cost of developing and
extracting those reserves. Management review property, plant and equipment at
each Statement of Financial Position date to determine whether there are any
indications of impairment. If any such indication exists, an estimate of the
recoverable amount is performed, and an impairment loss is recognised to the
extent that the carrying amount exceeds the recoverable amount. The Directors
have reviewed the estimated value of each property and do not consider any
further impairment to be necessary.
5 SEGMENTAL INFORMATION
The Executive Directors are the Group's chief operating decision-makers.
The Group operates in two geographical areas, the United Kingdom and the United
States of America. Activities in the UK are mainly administrative in nature
whilst the activities in the USA relate to exploration and production from oil
and gas wells. The reports reviewed by the Board of Directors that are used to
make strategic decisions are based on these geographical segments.
Year ended 31 December 2016
USA UK Intra-segment Total
balances
$ $ $ $
Revenue from external 1,273,612 - - 1,273,612
customers
Gross loss (628,040) - - (628,040)
Operating profit/(loss) 8,696,646 (10,099,370) - (1,402,724)
________ _______ ___ ________
Impairment - property, plant 2,207,293 - - 2,207,293
and
equipment
Impairment - intangible - - - -
assets
Depreciation 1,073,456 - - 1,073,456
Capital expenditure 414,276 - - 414,276
Total assets 6,701,392 4,363,979 (4,010,347) 7,055,024
Total liabilities 5,235,312 103,153 (1,409,482) 3,928,983
_________ _________ _________ _________
Year ended 31 December 2015
USA UK Intra-segment Total
balances
$ $ $ $
Revenue from external 1,991,021 - - 1,991,021
customers
Gross profit (793,748) - - (793,748)
Operating profit/(loss) (9,469,700) (203,635) - (9,673,335)
________ _______ ___ ________
Impairment - property, plant 3,538,523 - - 3,538,523
and
equipment
Impairment - intangible 4,973,181 - - 4,973,181
assets
Depreciation 1,553,240 - - 1,553,240
Capital expenditure 1,432,911 - - 1,432,911
Total assets 9,819,175 16,161,602 (16,108,264) 9,872,513
Total liabilities 16,901,190 49,466 (12,654,385) 4,296,271
_________ _________ _________ _________
5 SEGMENTAL INFORMATION (continued)
A reconciliation of the operating loss to loss before taxation is provided as
follows:
Year ended Year ended
31 December 31 December
2016 2015
$ $
Operating (Loss) for reportable segments (1,402,724) (9,673,335)
Finance income - 139
Finance costs (148,551) (120,080)
________ _______
(Loss) before tax (1,551,275) (9,793,276)
________ _______
The amounts provided to the Board of Directors with respect to total assets are
measured in a manner consistent with that of the Financial Statements. These
assets are allocated based on the operations of the segment and physical
location of the asset. Goodwill recognised by the Group is managed centrally
and is not considered to be a segmental asset.
Reportable segments' assets are reconciled to total assets as follows:
Year ended Year ended
31 December 31 December
2016 2015
$ $
Segmental assets for reportable segments 6,770,805 9,872,513
Unallocated: goodwill 284,219 340,253
_________ _________
Total assets per Statement of Financial Position 7,055,024 10,212,766
_________ _________
Information about major customers/operating partners
In the year ended 31 December 2016 revenues of $330,306 and $154,266 are
derived from two operators. These revenues were all generated in the USA.
In the year ended 31 December 2015 revenues of $586,842 and $401,168 are
derived from two operators. These revenues were all generated in the USA.
6 EXPENSES BY NATURE
Group 2016 2015
$ $
Operator costs 553,510 990,854
Production taxes 278,018 246,602
_______ _______
Total operating expenses 831,528 1,237,456
_______ _______
Directors' remuneration and fees 282,868 151,914
Consulting fees 18,863 39,130
Legal, professional and compliance 128,599 229,724
costs
Depreciation 3,332 5,927
Office staff costs 103,742 267,514
Other costs 164,950 351,675
________ ________
Total administrative expenses 702,354 1,045,884
________ ________
7 AUDITOR REMUNERATION
Services provided by the Company's auditor and its associates
During the year, the Group (including its overseas subsidiaries) obtained the
following services from the Company's auditor:
2016 2015
$ $
Fees payable to the Company's auditor for the audit of
the Parent Company
and consolidated Financial Statements 28,000 27,500
Fees payable to the Company's auditor for other services:
- in relation to tax compliance 2,177 2,177
_______ _______
8 STAFF COSTS
The Group and Company incurred the following staff costs (including Directors):
Group
2016 2015
$ $
Wages and salaries 378,872 481,226
Social security costs 14,645 16,957
Pension costs 600 7,200
Other benefits 58,891 69,995
_______ _______
453,008 575,378
_______ _______
Directors' Emoluments
The Directors' emoluments in respect of qualifying services are detailed in the
Directors' Report.
The average monthly number of staff, including the Directors, during the
financial year was as follows:
Group
2016 2015
No. No.
Administrative and 6 7
managerial
___ ___
Company
2016 2015
No. No.
Administrative and 5 5
managerial
___ ___
9 OTHER INCOME
Group
2016 2015
$ $
Sale of Assets 17,960 -
________ ________
10 INCOME TAX
Tax charge for the period
The tax charge for the year is $Nil (2015: $Nil).
Factors affecting the tax charge for the period
The tax charge for each year is explained below:
2016 2015
$ $
(Loss)/profit for the year before taxation (11,540,274) (9,793,276)
(Loss)/profit for the period before tax (2,596,236) (3,877,092)
multiplied by the weighted average tax rate of
22.50% (2015: 39.59%)
Expenses not deductible for tax purposes - 2,743,822 3,984,640
impairment of non-current assets
Tax losses for which no deferred tax asset 24,830 80,618
recognised - UK
Tax losses for which no deferred tax asset (318,928) 342,819
recognised - US
Revenue deduction for capitalised costs - US (418,875) (1,341,233)
_______ _______
Income tax charge - -
_______ _______
The Group has UK tax losses of approximately $1,308,000 (2015: $1,284,000) and
US tax losses of approximately $14,012,000 (2015: losses of approximately
$14,331,000) available to carry forward against future taxable profits. A
potential deferred tax asset of approximately $261,000 (2015: $260,000) on the
UK losses and $5,604,000 (2015: $3,659,000) on the US losses has not been
recognised because of uncertainty over the timing of future taxable profits
against which the losses may be offset.
11 FINANCE INCOME AND FINANCE COSTS 2016 2015
$ $
Interest income - 139
___ ___
Interest expense and fees - bank borrowings (148,551) (120,080)
_______ ______
12 EARNINGS PER SHARE
The calculation of earnings per share of loss of 0.09 cents per share (2015
loss per share: 0.98 cents) is calculated by dividing the loss attributable to
ordinary shareholders of $1,551,275 (2015 loss: $9,793,276) by the weighted
average number of ordinary shares of 1,751,458,563 (2015: 995,081,516) in issue
during the period.
In accordance with IAS 33, there is no difference between the basic and diluted
earnings per share.
Details of share options and warrants that could potentially dilute earnings
per share in future periods are set out in Note 18. None of the share options
and warrants were dilutive as at 31 December 2016.
13 PROPERTY, PLANT AND EQUIPMENT
Group
Cost Producing Drilling Motor Total
properties costs and vehicles $
(Mineral equipment and office
Leases) equipment
$
$ $
At 1 January 2015 1,344,755 12,231,907 21,671 13,598,333
Additions 3,890 1,049,901 3,058 1,056,849
Impairment - - - -
Transferred from intangible assets 704 34,307 - 35,011
Disposals - - - -
________ ________ ______ ________
At 31 December 2015 1,349,349 13,316,115 24,729 14,690,193
________ ________ ______ ________
Additions 7 413,155 - 413,162
Transferred from intangible assets 18,992 72,302 - 91,294
________ _________ ______ _________
At 31 December 2016 1,368,348 13,801,572 24,729 15,194,649
________ _________ ______ _________
Accumulated Depreciation and
Impairment
At 1 January 2015 450,201 1,841,424 12,335 2,303,960
Charge for the period 251,645 1,295,668 5,927 1,553,240
Impairment 385,161 3,153,362 - 3,538,523
_______ _______ _____ ________
At 31 December 2015 1,087,007 6,290,454 18,262 7,395,723
_______ _______ _____ ________
Charge for the period 114,337 955,787 3,332 1,073,456
Impairment - 2,207,293 - 2,207,293
_______ ________ ______ _________
At 31 December 2016 1,201,344 9,453,534 21,594 10,676,472
_______ ________ _____ ________
Net Book Amount
At 31 December 2015 262,342 7,025,661 6,467 7,294,470
________ _________ ______ _________
At 31 December 2016 167,004 4,348,038 3,135 4,518,177
________ _________ ______ _________
Transfers from intangible assets represent licence areas where production has
commenced together with drilling costs associated with these licences.
Producing properties and drilling costs depreciation expense of $1,070,124
(2015: $1,547,313) has been charged in cost of sales.
Motor vehicles and office equipment depreciation expense of $3,332 (2015:
$5,927) has been charged in administrative expenses.
14 INTANGIBLE ASSETS
Group Goodwill Drilling Mineral Total
$ costs leases $
$ $
Cost
At 1 January 2015 359,222 50,037 6,072,613 6,481,872
Additions - 291,332 84,730 376,062
Transferred to property, plant and - (34,307) (704) (35,011)
equipment
Disposals - - - -
Exchange movements (18,969) - - (18,969)
Impairment - (225,230) (4,747,951) (4,973,181)
At 31 December 2015 340,253 81,832 1,408,688 1,830,773
Additions - 1,214 (100) 1,114
Transferred to property, plant and - (72,302) (18,992) (91,294)
equipment
Exchange movements (56,034) - - (56,034)
Impairment - - - -
As at 31 December 2016 284,219 10,744 1,389,596 1,684,559
Amortisation
At 1 January 2015, 31 December - - - -
2015
and 31 December 2016
Net Book Amount
At 31 December 2015 340,253 81,832 1,408,688 1,830,773
At 31 December 2016 284,219 10,744 1,389,596 1,684,559
Drilling costs and mineral leases represent acquired intangible assets with an
indefinite useful life and are tested annually for impairment. Expenditure
incurred on the acquisition of mineral leases is capitalised within intangible
assets until such time as the exploration phase is complete or commercial
reserves have been discovered. Exploration expenditure including drilling costs
are capitalised on a well by well basis if the results indicate the existence
of a commercially viable level of reserves.
Impairment review - Property, plant and equipment and Intangible assets
The Directors have undertaken a review to assess whether circumstances exist
which could indicate the existence of impairment as follows:
· The Group no longer has title to the mineral lease.
· A decision has been taken by the Board to discontinue exploration due
to the absence of a commercial level of reserves.
· Sufficient data exists to indicate that the costs incurred will not
be fully recovered from future development and participation.
· The Group has disposed of the licence in 2016 therefore the asset has
been written down to net realisable value.
Following their assessment the Directors recognised an impairment charge
totalling US$2,207,293 for the year ended 31 December 2016 (2015: $8,511,704).
This is associated with a markdown in the value of its interests in producing
properties identified as non- economic at today's low oil prices. The
impairment in 2015 was comprised of write-downs associated with the cost of
mineral leases which had expired and a markdown in the value of its interests
in producing properties identified as non-economic at the day's low oil prices.
The Directors believe that no impairment is necessary on the carrying value of
goodwill. Goodwill arose on the reverse acquisition of Magnolia Petroleum Plc.
The goodwill represents the value of the parent company being an AIM listed
entity to Magnolia Petroleum Inc.
15 INVESTMENTS
Investments in subsidiaries
2016 2015
$ $
Company
Shares in group undertakings
At 1 January 3,453,879 3,646,431
Exchange movements (568,794) (192,552)
________ ________
At 31 December 2,885,085 3,453,879
________ ________
Investments in group undertakings are recorded at cost, which is the fair
value of the consideration paid.
Principal subsidiaries
Name Country of Nature of Registered Proportion of equity
incorporation business capital shares held by Company
and residence
Magnolia P.O. Box 140660, Oil and gas Ordinary 100%
Petroleum Inc. Broken Arrow, OK exploration shares US$1
74014
This subsidiary undertaking is included in the consolidation. The proportion of
the voting rights in the subsidiary undertaking held directly by the Parent
Company does not differ from the proportion of ordinary shares held.
16 TRADE AND OTHER RECEIVABLES
Group Company
2016 2015 2016 2015
$ $ $ $
Trade receivables 442,884 254,461 - -
Other receivables 30,394 30,394 - -
Amounts due from group undertakings 51,794 - 1,461,276 12,654,385
Prepayments 85,869 156,908 7,421 9,128
_______ ________ _________ _________
610,941 441,763 1,468,697 12,663,513
_______ ________ _________ _________
Trade receivables comprise customer receivables. Trade receivables are neither
past due nor impaired and relate to existing customers with no defaults in the
past. The Group retains all risks associated with these receivables until fully
recovered.
The fair value of all receivables is the same as their carrying values stated
above.
As at 31 December 2016, trade receivables of $442,884 (2015: $254,461) were
fully performing.
16 TRADE AND OTHER RECEIVABLES (continued)
Group
The carrying amounts of the Group's trade and other receivables are denominated
in the following currencies:
2016 2015
$ $
UK Pounds 7,421 9,129
US Dollar 603,520 432,635
_______ ________
610,941 441,764
_______ ________
The maximum exposure to credit risk at the reporting date is the carrying value
of each class of receivable mentioned above. The Group does not hold any
collateral as security.
Company
The carrying amounts of the Company's trade and other receivables are
denominated in UK pound sterling.
17 CASH AND CASH EQUIVALENTS
Group Company
2016 2015 2016 2015
$ $ $ $
Cash at bank 241,347 645,759 10,197 44,210
_______ _______ ______ ______
At 31 December 2016, the Group held cash of $10,197 (2015: $44,210) in a bank
with a Fitch credit rating of A (Stable) and $231,150 (2015: $601,549) in a
bank where no Fitch credit rating is available.
18 SHARE CAPITAL AND PREMIUM
Ordinary shares Share premium
Group Number of shares Nominal value Nominal value Nominal value Nominal value Total
GBP $ GBP $ $
At 1 January 2015 910,672,851 910,673 1,481,396 8,703,462 13,954,026 15,435,422
__________ _______ ________ ________ _________ _________
Placing shares 146,142,856 146,143 223,424 876,857 1,340,543 1,563,967
Issue costs - - - (60,000) (94,350) (94,350)
At 31 December 2015 1,056,815,707 1,056,816 1,704,820 9,520,319 15,200,219 16,905,039
___________ _______ ________ ________ _________ _________
Placing shares 694,642,856 694,642 915,166 95,357 136,740 1,051,906
Issue costs - - - (66,750) (82,316) (82,316)
___________ _______ ________ ________ _________ _________
At 31 December 2016 1,751,458,563 1,751,458 2,619,986 9,548,926 15,254,643 17,874,629
___________ _______ ________ ________ _________ _________
Each ordinary share has a nominal value of 0.1 pence per share.
Share options and warrants
Share options and warrants outstanding and exercisable at the end of the year
have the following expiry dates and exercise prices:
No. Options/warrants
Expiry date Exercise price in 2016 2015
pence per share
24 January 2017 2.85 1,754,386 1,754,386
1 November 2018 0.15 225,000,000 -
25 November 2018 1.30 23,397,268 52,820,768
28 January 2020 2.925 5,084,745 20,338,982
31 December 2020 0.4 84,677,737 -
_________ _________
339,914,136 74,914,136
_________ _________
The options and warrants are exercisable starting immediately from the date of
grant other than those expiring on 24 January 2017, which were exercisable from
24 January 2014. The Company and Group have no legal or constructive
obligation to settle or repurchase the warrants or options in cash.
18 SHARE CAPITAL AND PREMIUM (continued)
Share options and warrants (continued)
A reconciliation of options granted and lapsed during the year ended 31
December 2016 is shown below.
Year ended Year ended
31 December 2016 31 December 2015
No. of Weighted No. of Weighted
options average options and average
and exercise warrants exercise
warrants price price
(in pence) (in pence)
Outstanding at beginning of year 74,914,136 1.78 74,914,136 1.78
_________ ____ _________ ____
Outstanding at end of year 339,914,136 0.35 74,914,136 1.78
_________ ____ _________ ____
Exercisable at end of year 339,914,136 0.35 74,914,136 1.78
_________ ____ _________ ____
The warrants and options outstanding at 31 December 2016 had a weighted average
remaining contractual life of 2.4 years (2015: 3.2 years).
No options or warrants were exercised during the year. There were 44,677,737
options cancelled, 84,677,737 options granted and 225,000,000 warrants granted
during the year.
19 BORROWINGS
Group Company
2016 2015 2016 2015
$ $ $ $
Non-current
Bank borrowings (including arrangement fee)
- 3,154,784 - -
________ _______ ____ ____
Current
Bank borrowings (including arrangement fee)
2,638,447 - - -
________ _______ ____ ____
As at 31 December 2016 the Group had a $6 million revolving credit facility
with, subject to certain conditions being met, a maturity date of 8 August 2017
(originally 7 March 2017). The borrowing base is reassessed on a six monthly
basis and adjusted in line with the level of the Group's proven developed
producing reserves. Interest is charged on credit drawn down at the Wall
Street Journal Prime rate (currently 3.75%) +1.25%. The credit facility is
secured against all of the producing leases and operating equipment owned by
the Group, together with sales contracts and farm-out agreements. Note 2.3
provides details of amendments to the terms of the revolving credit facility
subsequent to the year end.
The fair value of borrowings equals their carrying amount. All borrowings are
denominated in US dollars. The Group has the following undrawn borrowing
facilities:
19 BORROWINGS (continued)
Group Company
2016 2015 2016 2015
$ $ $ $
Expiring beyond one - - - -
year
____ ____ ____ ____
20 TRADE AND OTHER PAYABLES
Group Company
Current 2016 2015 2016 2015
$ $ $ $
Trade and other payables 1,213,873 1,092,137 26,490 116
Accrued expenses 76,663 49,350 76,663 49,350
________ ________ ______ ______
1,290,536 1,141,487 103,153 49,466
________ ________ ______ ______
21 FINANCIAL INSTRUMENTS BY CATEGORY
Group Company
2016 2015 2016 2015
$ $ $ $
Assets as per Statement of
Financial Position
Loans and receivables:
Trade and other receivables 525,071 284,855 1,468,697 12,654,385
(excluding prepayments)
Cash and cash equivalents 241,347 645,759 10,197 44,210
_______ _______ ________ ________
766,418 930,614 1,478,894 12,698,595
_______ _______ ________ ________
Liabilities per Statement of Financial Position
Financial liabilities at amortised cost:
Borrowings 2,638,447 3,154,784 - -
Trade and other payables 1,290,536 1,141,487 103,153 49,466
(excluding non-financial ________ ________ ______ ______
liabilities)
3,928,983 4,296,271 103,153 49,466
________ ________ ______ ______
22 TREASURY POLICY
The Company and Group operate informal treasury policies which include ongoing
assessments of interest rate management and borrowing policy. The Board
approves all decisions on treasury policy.
The Group has financed its activities by raising funds through the placing of
shares and through bank borrowings set out in Note 19 above. There are no
material differences between the book value and fair value of the financial
assets.
23 CAPITAL MANAGEMENT POLICIES
The Group and Company's capital management objectives are:
· to ensure compliance with borrowing covenants;
· to ensure the Group's and Company's ability to continue as a going
concern; and
· to provide an adequate return to shareholders.
In order to maintain or adjust the capital structure, the Group may issue new
shares or sell assets to reduce debts.
The current $6 million revolving credit facility maturity date (see Note 19)
has subsequent to the year end been extended from 7 March 2017 to 8 August
2017. The Group will continue making principal reduction payments, along with
interest payments in accordance with financial and non-financial loan
covenants.
24 CAPITAL COMMITMENTS
The Group and Company set the amount of capital in proportion to its overall
financing structure and manage their capital structure and make adjustments to
it in the light of changes in economic conditions and the risk characteristics
of the underlying assets.
As at 31 December 2016 or 2015 the Group had no capital commitments for
drilling and equipment costs contracted but not provided for.
25 RELATED PARTY TRANSACTIONS
Transactions with Group undertakings
During the year ended 31 December 2016 the Company charged management fees of
$61,501 (2015: $43,504) to Magnolia Petroleum Inc, the Company's wholly owned
subsidiary for the provision of administrative and management services. $61,501
(2015: $43,504) in relation to these fees was outstanding at the year end date
and is included within Trade and other receivables. As at 31 December 2016, the
amount due to the Company from Magnolia Petroleum Inc was $11,398,483 (2015:
$12,654,385).
All Group transactions were eliminated on consolidation.
Transactions with Enerlex Inc
Steven Snead and his wife have a 100% interest in the issued share capital of
Enerlex Inc. ("Enerlex"). The rental agreement between Enerlex and Magnolia
Petroleum Inc was revised on 30 September 2014 whereby Enerlex agreed to
provide Magnolia Petroleum Inc on a month to month basis with office premises
and services for $3,500 per month. A charge of $31,000 (2015: $42,000) was
recognised during the year under the former and revised agreement.
Subsequently, a reduced rate of $2,500 per month was agreed on effective
February 2016 until 31 March 2017 on which day this lease was terminated.
Magnolia moved its offices on 31 March 2017.
Enerlex gave an undertaking to Magnolia Petroleum Inc dated 15 November 2011
whereby Enerlex undertakes that if any of the mineral leases granted to
Magnolia Petroleum Inc on any of the mineral interests in the Woodford/Hunton
play in Oklahoma expires at the end of the primary period because of
non-drilling, Enerlex will at Magnolia Petroleum Inc's request grant a further
three year lease on the same terms as the expired lease.
25 ULTIMATE CONTROLLING PARTY
As at the Statement of Financial Position date, the Directors do not consider
there is an ultimate controlling party.
26 EVENTS AFTER THE REPORTING PERIOD
On 23 February 2017 Thomas Wagenhofer resigned from the Board as non-executive
Chairman
On 1 April 2017 Steven Snead resigned from the Board and as Chief Executive
Officer.
On 26 April 2017 the Company issued 37,500,000 new ordinary shares, at a price
of 0.12 pence per share, to the Directors of the Company: Steven Snead; Rita
Whittington; Ronald Harwood; and Leonard Wallace in settlement of their fees
for the period from 1 April 2016 to 31 March 2017.
On the same date, the Company also issued 25,000,000 new ordinary shares, at a
price of 0.12 pence per share, to the Directors of the Company: Steven Snead;
Rita Whittington; and Ronald Harwood as bonuses for 2016.
On the same date, Directors of the Company Rita Whittington; and Leonard
Wallace subscribed for 21,918,403 new ordinary shares in the Company, for GBP
33,593.75.
On 30 May 2017 the Company received a requisition notice from Steven Snead,
Snead Family 2012 LLC, Snead Family LLC and R Sterling Snead. The notice has
been deemed valid.
27 POSTING OF ACCOUNTS
The Company will today post to all shareholders a copy of the Report and
Accounts for the year ended 31 December 2016, together with a Notice of Annual
General Meeting. These documents will shortly be available to download from
the Company's website, www.magnoliapetroleum.com.
MAGNOLIA PETROLEUM PLC
NOTICE OF ANNUAL GENERAL MEETING
Notice is given that the Annual General Meeting of Magnolia Petroleum plc ("the
Company") will be held at 15.30 p.m. (London) on 12 July 2017 at The Broadgate
Tower, 20 Primrose Street, London EC2A 2EW, UK to consider and, if thought fit,
pass the following resolutions, of which resolutions 1 to 3 will be proposed as
ordinary resolutions:
1. To receive the directors' report and audited financial statements of the
Company for the year ended 31 December 2016.
2. To re-elect Leonard Wallace as a director of the Company.
3. To re-appoint PKF Littlejohn LLP as auditors of the Company and to
authorise the directors to set their fees.
By Order of the Board
Registered Office:
S Salter
Suite 321
Secretary
19-21 Crawford Street
London W1H 1PJ
United Kingdom
Dated 16 June 2017
** ENDS**
For further information on Magnolia Petroleum Plc visit
www.magnoliapetroleum.com or contact the following:
Rita Whittington Magnolia Petroleum Plc +01918449 8750
Jo Turner / James Caithie Cairn Financial Advisers +44 20 7213 0880
LLP
Colin Rowbury Cornhill Capital Limited +44 20 7710 9610
Lottie Brocklehurst St Brides Partners Ltd +44 20 7236 1177
Frank Buhagiar St Brides Partners +44 207 236 1177
Ltd
END
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